UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
NEVADA 87-0403828
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(State or other jurisdiction I.R.S. employer
of incorporation or organization Identification No.
8100 Southpark Way, Suite A-9, Littleton, Colorado 80120
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(Address of principal executive offices) (Zip Code)
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the 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. [ ]
The aggregate market value of the 3,617,577 common shares held by non-affiliates of the registrant was $1,103,361 computed by reference to the average closing bid and ask price of such stock as listed on the non NASDAQ over the counter market on February 11, 2005.
This computation is based on the number of issued and outstanding shares held by persons other that officers, Directors and shareholders of 5% or more of the registrant's common shares.
As of February 11, 2005, 23,070,377 shares of common stock are issued and outstanding.
Documents incorporated by reference: See exhibits.
Transitional Small Business Disclosure Form (check one): Yes [ ] No [X]
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this annual report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this annual report in its entirety, including the risks described in "Risk Factors." Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this annual report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
When used in this annual report, the terms the "Company," "we," "us," "ours," and similar terms refers to Zynex Medical Holdings, Inc., a Nevada corporation, and its wholly-owned subsidiary, Zynex Medical, Inc.
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT -
FISCAL YEAR 2004 ZYNEX MEDICAL HOLDINGS, INC.
PAGE
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PART I
Item 1. Description of Business ......................................... 4
Item 2. Description of Property ......................................... 11
Item 3. Legal Proceedings ............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ............. 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ........ 11
Item 6. Management's Discussion and Analysis or Plan of Operations ...... 12
Item 7. Financial Statements ............................................ F-1
Item 8. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure ...................................... 20
Item 8A. Controls and Procedures ......................................... 20
Item 8B. Other Information ............................................... 20
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ............. 21
Item 10. Executive Compensation .......................................... 22
Item 11. Security Ownership of Certain Beneficial Owners and
Management And Related Stockholder Matters .................... 23
Item 12. Certain Relationships and Related Transactions .................. 24
Item 13. Exhibits ........................................................ 24
Item 14. Principal Accountant Fees and Services .......................... 25
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ITEM 1. DESCRIPTION OF BUSINESS
History
Zynex Medical Holdings, Inc., formerly Fox River Holdings, Inc., formerly Arizona Ventures, Inc., formerly China Global Development, Inc., formerly iBonzai.com, Inc., (the "Company" or "Zynex"), was initially organized on December 26, 1991 as a Delaware corporation under the name of Life Medical Technologies, Inc. The Company engaged in the business of bringing new medical product technology to the health care market place. In 1995, the Company cut back its operations and eliminated most staffing. From 1996 to 1999, the Company maintained a skeleton crew to ship existing orders. By mid 1997, all employees were laid off. By 1999, all remaining assets were distributed to its wholly owned subsidiary (see below) and sold off to two of its former employees. Subsequently, all subsidiaries were either sold off or allowed to lapse into nonexistence. At December 31, 1999, only the parent corporation, Life Medical Technologies, Inc. remained.
In May 2000, the Company acquired all the of equity of Virtual Market Solutions.com, Inc. (VMS), a privately-held Nevada corporation doing business as iBonZai.com ("iBonzai"). As a result of the acquisition, iBonZai became a wholly-owned subsidiary of the Company. Due to the change in the Internet industry following the U.S. stock market downturn in the spring of 2000, VMS experienced substantial obstacles in developing its business as a provider of broadband backbone, billing services and technical support to Internet service providers. As the Internet industry and economic conditions continued to deteriorate during the first half of 2001, management suspended operations and laid off all its employees. Following the events of September 11, 2001, the Company rescinded the acquisition of VMS in an effort to complete a restructuring of the Company's capital and shed itself of debt. As part of the rescission, VMS retained all assets of the Company and the associated debt. As such, the issuance of 9,250,000 shares of the Company's common stock was rescinded, and the Company's additional paid-in capital and accumulated deficit were adjusted for this event.
On January 10, 2002, the Company was merged into Ibonzai.com, Inc. a Nevada corporation, for the purposes of changing corporate domicile. On January 15, 2002, the Company changed its name to China Global Development, Inc., effected a 1 for 25 reverse stock split and authorized a change in capitalization to 100,000,000 shares of common stock having a par value of $.001 per share and 10,000,000 shares of preferred stock having a par value of $.001 per share.
On February 7, 2002, the Company acquired all of the issued and outstanding shares of Rainbow Light Global Corporation, a British Virgin Islands Corporation ("Rainbow") and changed its fiscal year end from December 31st to September 30th. Due to renewed deteriorations in the U.S. financial equity markets, the Company was unable to raise any capital to fund its new acquisition. Consequently, effective September 27, 2002 the Company rescinded the acquisition of Rainbow and canceled all shares issued for that acquisition.
On November 14, 2002, a majority of the shareholders consented to change the Company's name to Arizona Ventures, Inc. and effected a 1 to 10 reverse split of the common stock of the company. There was no change to the capitalization of the Company.
Effective April 23, 2003, the Company executed an agreement to acquire all the equity of Fox River Graphics, Inc., ("FRG") a privately-held Illinois corporation. Additionally, in anticipation of the acquisition, the Company was able to convert approximately $575,000 in debt for the issuance of approximately 4.6 million shares of common stock. On August 7, 2003, the name of the Company was changed to Fox River Holdings, Inc. and obtained the new trading symbol of FXRH on the OTC Bulletin Board. For the period ending June 30, 2003, the Company reported that no acquisitions or mergers had been completed and later abandoned all efforts to close on the FRG acquisition.
Due to the abandonment of the FRG acquisition, or any other acquisition or merger, management agreed with the former creditors to rescind their debt conversion. This resulted in the cancellation of approximately 3.2 million shares of common stock and a renewal of debt approximating $358,000 debt on the Company's books.
On December 2, 2003, management obtained shareholder approval to effect a reverse split of 1 to 40, effective immediately, of its common stock and to change the name of the corporation to Zynex Medical Holdings, Inc.
On February 11, 2004, Zynex Medical Holdings, Inc. acquired 100% of the common stock of Zynex Medical, Inc., a privately-held Colorado corporation ("Zynex Medical"), pursuant to an acquisition agreement by issuing 19,500,000 shares of common stock to the sole shareholder of Zynex Medical, Thomas Sandgaard. Immediately after the transaction, the former shareholder of Zynex Medical owned approximately 88.5 percent of the Company's common stock. For accounting purposes, Zynex Medical is treated as the acquiring corporation, and financial statements for years prior to 2004 are those of Zynex Medical.
Zynex is the parent company of Zynex Medical. Zynex Medical designs, manufactures and markets a line of FDA approved medical devices for the electrotherapy and stroke rehabilitation markets. The Company's headquarters are located in Littleton, Colorado.
Zynex Medical was incorporated under the laws of the state of Colorado on March 3, 1998, under the name of "Stroke Recovery Systems, Inc." ("SRSI"). On October 1, 2003, SRSI acquired, through a merger, the assets and the liabilities of Dan Med, Inc. ("DMI") and subsequently changed its name to "Zynex Medical, Inc."
DMI was incorporated on October 31, 1996 in Colorado by Mr. Sandgaard. Initially, DMI's primary activities were importing European-made electrotherapy devices until 1999 when DMI also began developing and assembling its own line of electrotherapy products. Its own products constituted over 80% of DMI sales at the time of its acquisition by Zynex Medical.
Zynex Medical (formerly SRSI) was established with its main activity being to provide electrotherapy devices for homecare to US patients suffering the effects of a stroke. In early 2002, SRSI introduced the entire DMI product line of standard electrotherapy products by adding a small sales force. In 2002, electrotherapy products generated over 75% of SRSI's revenues.
Zynex Medical has developed a strong product line to compete in the electrotherapy market as well as our unique product, the NeuroMove(TM), for the stroke rehabilitation market segment. We believe the Neuromove(TM) is unique because of the ability of its built-in microprocessor to recognize low-level attempts by muscles to contract and then "reward" such detection with electrical stimulation. Although, there are other stroke rehabilitation techniques and products, we do believe there is not any similar product in the stroke rehabilitation market. All our products have been cleared by the Food and Drug Administration for sale in the United States. In the United States, our products require a physician's prescription or authorization before they can be dispensed.
The Company's business model is developed around the physician's prescription being considered an "order" -- to provide the product to the patient. Then, the patient's private insurance or Medicare is billed for payment. Our electrotherapy products, the IF8000, TruWave and E-Wave, are promoted to physicians through our direct sales force. Our NeuroMove(TM) stroke rehabilitation product is marketed directly to the end-users and physicians who specialize in rehabilitation. Our growth in terms of revenue requires additional sales representatives, which is part of our business plan for 2005. In regard to international sales, we intend to continue using independent distributors who buy and resell our products.
OUR PRODUCTS
We currently have four products. We also have the resale products indicated below.
Product Name Description
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Our Products
IF8000 Combination Interferential and Muscle
Stimulation Device
E-Wave Dual Channel NeuroMuscular Electrical
Stimulation Device
TruWave Dual Channel TENS Device
NM900 NeuroMove. EMG triggered Electrical
Stimulation Device
Resold Products
---------------
Elpha3000 Dual Channel NeuroMuscular Electrical
Stimulation
Device
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Conti4000 Electrical Stimulation Device for
Incontinence Treatment
Arista2000 Dual Channel TENS Device
Elpha1000 Dual Channel TENS Device
DCHT Cervical Traction Device
LHT Lumbar Traction Device
Electrodes Supplies, re-usable for delivery of
electrical current to the body
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DESCRIPTION OF THERAPY DEVICES AND TECHNIQUES
Electrotherapy is gaining acceptance in the United States as its established use continues to grow worldwide. Electrotherapy is a form of electrical stimulation. Electrical stimulation is not known to have any side effects, which is a significant advantage over most medications used for relief of pain or other therapies. Applications for this treatment technique are many and include: pain relief, increasing blood flow, reducing edema, preventing venous thrombosis, increasing a patient's range-of-motion, preventing muscle disuse atrophy, reducing urinary incontinence and stroke and spinal cord injury rehabilitation.
Technically, electrotherapy pain relief is accomplished by the introduction of an electrical current applied through surface electrodes, which "distorts" a pain signal on its way to the central nervous system and the brain. Applying higher levels of electricity causes muscle contractions and, depending on the placement of electrodes, may assist in the treatments mentioned above.
All our units are designed to be used in a home setting, thus being very cost effective compared to traditional therapy, easy to use and producing outcomes such as improved mobility, less pain, and the possibility of returning to work significantly earlier than with traditional therapies.
PATIENT NEEDS AND CLINICAL OUTCOMES
Pain.
Electrical stimulation has been shown to reduce most types of local pain, such as tennis elbow, neck or lower back pain, arthritis, and others. The devices used to accomplish this are commonly described as TENS devices (Transcutaneous Electrical Nerve Stimulation). Electrical stimulation is often chosen as an alternative to or in combination with regular pain medication. Both patients who suffer from acute pain, i.e., shortly after an injury, and chronic pain can benefit from treatment by TENS and similar type devices. Numerous clinical studies have been published over several decades showing the effectiveness of TENS for pain relief. TENS is sometimes more effective than medication. Zynex Medical has developed two products in the TENS category, the TruWave, a digital TENS device, and the IF8000, an interferential stimulator which offers a deeper stimulation. The TruWave is a "traditional" TENS type unit that delivers pain alleviating electrotherapy, whereas the IF8000 is a more sophisticated unit with deeper pain alleviating and neuromuscular training settings. Both of these products have been cleared by the FDA and are available to the market.
Muscle related problems.
Electrical muscle stimulation is technically achieved in the same fashion as TENS and by increasing the electrical intensity to cause muscle contractions. A built-in timer in our E-Wave and IF8000 products assures that the muscles do
not fatigue too easily. Many pain relief and therapeutic treatments usually performed with regular physical therapy can be replaced by NeuroMuscular Electrical Stimulation (NMES) devices for use in a patient's home. Common applications are preventing disuse atrophy, increasing strength, increasing range-of-motion, and increasing local blood circulation. NMES is commonly considered a complement to physical therapy to improve overall patient outcomes. We have developed a specific digital device, the E-Wave, for this application. The IF8000 also has the capability to be programmed for NMES applications. Both the IF8000 and the E-Wave are cleared by the FDA.
Post-op recovery.
Electrical stimulation is found to be effective in preventing deep venous thrombosis immediately after surgery, as well as for pain relief, to improve local blood circulation and for reducing edema. The most common application is immediately following orthopedic surgery. We believe the IF8000 is the most effective of our products for these applications.
Stroke rehabilitation.
A stroke usually impacts a stroke survivor's mobility, speech, and memory. A stroke most often only impacts one side of the body, opposite the part of the brain where the stroke occurred. According to information from a national association, 70% of all stroke survivors have significant mobility impairments after the acute stage and, in most cases, have to live with the disability for the rest of their lives.
The need to regain movement in their extremities exists for nearly all of the 4 million stroke survivors in the United States who suffer from mobility impairments in upper and/or lower extremities.
Our NeuroMove(TM) NM900 serves the need for, first and foremost, a hope that further patient improvements over their current physical ability plateaus are possible. After using the device, the patient increases mobility and can engage in more activities, becoming more productive for himself, as well as reducing the accident risk due to mobility impairments. Device payers (private insurance, Medicare and Medicaid) may, in our opinion, experience less total cost for caring for stroke victims, due to fewer accidents and a reduction in expensive rehabilitation when compared to traditional post-stroke treatment regimes. Physicians can, with the NeuroMove(TM), offer a new treatment option, specifically for stroke patients, that has the ability to improve their clinical outcomes. The NeuroMove(TM) has been specifically approved by the FDA for stroke rehabilitation. We have recently launched this new product into the market.
There are approximately 4 million stroke survivors in the United States who have an impeded ability to move their limbs. This number is expected to grow more than 8% annually for the near future as the population ages. The annual cost to society of caring for stroke victims is approximately $45 billion, including direct costs, lost productivity, etc. The inability to move one's arm and/or hand and/or leg has a substantial psychological impact on a stroke victim. In addition, stroke victims commonly suffer additional injuries due to their inability to protect themselves if they are falling or stumbling.
OUR MARKET
The annual domestic market for standard electrotherapy products is currently estimated at $400 million and is experiencing a moderate growth rate, and we believe the market for stroke rehabilitation technology has only started to develop. There are over 4 million stroke survivors in the United States alone with a need for stroke recovery therapy equipment.
Zynex is focused on developing the stroke rehabilitation market segment with our NeuroMove's(TM) technology. This market segment is believed to offer us the greatest potential for profitable growth. We also plan to increase our penetration of the market for standard electrotherapy products by expanding our sales organization. Increased sales of our products will result in potentially high profit margins, in part because the higher volume allows for more efficient use of our outsourced manufacturing and because the products use a common technology platform but with different software configurations.
Key characteristics of our target markets are:
- A long time is generally required to collect payment from insurance carriers (averages 100 to 200 days).
- Significant payment "adjustments" are made by the insurance companies prior to payment.
- Management believes that a unique opportunity exists in the stroke and spinal cord injury rehabilitation markets, which show a type of demand of a large number of patients willing to privately pay for a product such as the NeuroMove(TM).
Our strategy is to use our core technology to grow in two different market segments: the market for standard electrotherapy and the market for stroke rehabilitation equipment. The geographical focus will continue to be predominantly in the United States market with international expansion continuing as qualified distributors are appointed.
Marketing of our products has been accomplished through the use of our commissioned sales representatives who call on doctors and therapists. The doctors and therapists then write a prescription for our products, which the patient sends to us for fulfillment of the product. This method of sales is expected to continue for our products. We also market the NeuroMove(TM) through promotions to end users such as advertisements in trade magazines and on the Internet.
ASSEMBLY AND PROCESSING
Our product assembly strategy in manufacturing consists of the following elements:
- At all times, comply with relevant regulatory requirements and regulations.
- Use contract manufacturers as much as possible, thereby avoiding large capital investments in assembly equipment and being able to respond to changes in volume as fast as possible. Domestically and internationally, there is a large pool of highly qualified contract manufacturers for the type of devices we assemble, which can result in a competitive bidding process.
- Test all units 100% in a real-life, in-house environment to help ensure the highest possible quality and the safety of patients as well as reduce the cost of warranty repairs.
Vendors located in the United States and Europe currently manufacture our products. We do not have contracts with these vendors for our electrotherapy products, rather we use purchase orders for our ongoing needs for the products. We currently have a contract with a vendor which manufactures our NeuroMove(TM) product. This contract provides for fixed quantities per month and may be terminated upon notice by either party. We believe that there are numerous suppliers that can manufacture our products and pricing, quality and service will continue to determine which manufacturers we use for our products.
Our employees develop the software for our products.
SALES
Our products may be rented on a monthly basis or purchased. A health insurance company or Medicare typically determines whether there is a rental or purchase by a patient, depending on the anticipated time period for the use of the product. If a rental of one of our products continues until an amount equal to the purchase price is paid, we will then transfer ownership of the product to the patient and cease rental charges for the product. When a rental unit is returned, it is refurbished and is available for additional rentals.
More than a majority of our revenue is derived from payments made by private health insurance companies on behalf of their insureds. We also receive revenues through Medicare payments, workers' compensation, attorneys patients, wholesale and international customers. Typically those transactions for our products are at least initially leases of our products with rental charges.
Replacement parts such as electrodes are sent to patients every month. These parts accounted for a material percentage of our revenues in 2004.
We have employees dedicated to working with patients, wholesale and international customers, doctors, private insurance companies and Medicaid/Medicare to coordinate the rental payments or purchase payments of all of our products.
PRODUCTS PURCHASED FOR RESALE
In addition to our own products, we distribute a number of products from other domestic and international manufacturers in order to complement our core product line, including electrical stimulation devices and patient supplies, such as electrodes. Customarily, there are not formal contracts between vendors in the durable medical equipment industry. Replacement products and components are easily found, either from our own products or other manufacturers.
INTELLECTUAL PROPERTY
We have applied for a patent on our NeuroMove(TM) technology. With regard to our other products, we believe that the products contain certain proprietary software that protects them from being copied. In the future, we may seek patents for advances to our existing products and for new products as they are developed.
We have received registered trademarks for NeuroMove in the United States and the European Union.
We utilize proprietary information agreements with some of our employees and trade secrets to protect our proprietary information as well as confidentiality agreements with third parties.
REGULATORY APPROVAL AND PROCESS
All our products are classified as Class II (Medium Risk) devices by the Food and Drug Administration (FDA) and clinical studies with our products are considered to be NSR (Non-Significant Risk Studies). Our business is governed by the FDA and all products typically require 510(k) market clearance before they can be put in commercial distribution. Section 510(k) of the Federal Food, Drug and Cosmetics Act, is available in certain instances for Class II (Medium Risk) products. It requires that before introducing most Class II devices into interstate commerce, the company introducing the product must first submit information to the FDA demonstrating that the device is substantially equivalent in terms of safety and effectiveness to a device legally marketed prior to March 1976. When the FDA determines that the device is substantially equivalent, the agency issues a "clearance" letter that authorizes marketing of the product. We are also regulated by the FDA's QSR division (Quality Systems Regulation), which is similar to the ISO9000 and the European EN46000 quality control regulations. All our products currently produced for us or resold by us are cleared for marketing in the United States under FDA's 510(k) regulations.
To enter the European market, our products as well as our quality assurance systems will have to be approved and certified by an authorized certifying body such as TUV, Underwriters Laboratories or British Standards Institute. In the future, we may plan to go through this process as a part of our overall enhancement of our quality systems.
Far East, Middle East, Eastern European, and Latin American markets have different regulatory requirements. We intend to comply with applicable requirements if and when we decide to enter those markets.
HEALTHCARE REGULATION
The delivery of health care services has become one of the most highly regulated of professional and business endeavors in the United States. Both the federal government and individual state governments are responsible for overseeing the activities of individuals and businesses engaged in the delivery of health care services. Federal law and regulations are based primarily upon the Medicare and Medicaid programs. Each of these programs is financed, at least in part, with federal funds. State jurisdiction is based upon the state's interest in regulating the quality of health care in the state, regardless of the source of payment. We believe we are materially complying with applicable laws concerning our products; however, we have not received or applied for a legal opinion from counsel or from any federal or state judicial or regulatory authority. Additionally, many aspects of our business have not been the subject of state or federal regulatory interpretation. The laws applicable to us are subject to evolving interpretations. If our operations are reviewed by a government authority, we may receive a determination that could be adverse to us. Furthermore, laws that are applicable to us may be amended in a manner that could adversely affect us.
Federal health care laws apply to us when we submit a claim to Medicare, Medicaid or any other federally funded health care program. The principle federal laws that we must abide by in these situations include:
- Those that prohibit the filing of false or improper claims for federal payment.
- Those that prohibit unlawful inducements for the referral of business reimbursable under federally funded health care programs.
The federal government may impose criminal, civil and administrative penalties on anyone who files a false claim for reimbursement from Medicare, Medicaid or other federally funded programs.
A federal law commonly known as the "anti-kickback law" prohibits the knowing or willful solicitation, receipt, offer or payment of any remuneration made in return for:
- The referral of patients covered under Medicare, Medicaid and other federally-funded health care programs; or
- The purchasing, leasing, ordering, or arranging for any goods, facility, items or service reimbursable under those programs.
EMPLOYEES
As of December 31, 2004, we employed 19 full time employees, none of whom are members of organized labor, of which 2 are executives, 7 are in administration, design, and assembly and 10 are in sales and marketing. We also employ a number of commissioned sales representatives who are independent contractors. We believe our relations with all of our employees are good. We are subject to the minimum wage and hour laws and provide routine employee benefits such as life and health insurance.
EXECUTIVE OFFICER OF THE REGISTRANT
The following table sets forth information as to the name, age and office held by the sole executive officer of the Company as of December 31, 2004:
Name Age Position
----------------- --- -----------------------------------------
Thomas Sandgaard 46 President, Chief Executive Officer
and Director Set forth below is a
biographical description of our executive
officer based on information supplied by
him.
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Thomas Sandgaard is President, Chief Executive Officer and sole Director of Zynex Medical Holdings, Inc. Mr. Sandgaard has a degree in electronics engineering from the Odense Teknikum and an MBA from the Copenhagen Business School and has worked in many different positions and industries such as semiconductors, telecommunications, data communications and medical equipment. Mr. Sandgaard moved to the United States from Denmark in 1996, where he founded DMI and Zynex Medical, Inc., in 1996 and 1998, respectively.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its headquarters, office, plant and warehouse in Littleton, Colorado. The facility is under a five-year lease expiring in February 2009. Current rent is $44,357 per year plus common area maintenance expenses and increases to $91,177 commencing March 1, 2005 and increases by $2,464 per year thereafter. The present configuration of the space will accommodate 40-50 employees. The Company believes that the leased property is sufficient to support customer requirements during 2005.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any pending or threatened legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is currently traded on the OTC Electronic Bulletin Board under the symbol "ZYNX".
The following table sets forth the range of high and low bid quotations for our common stock for each quarter of the last two fiscal years, as reported on the Bulletin Board. The quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions.
PERIOD HIGH LOW
----------------------------- ------ ------
Year ended December 31, 2003:
First Quarter $ 1.25 $ 0.10
Second Quarter $ 1.45 $ 0.20
Third Quarter $ 1.00 $ 0.15
Fourth Quarter (2) $ 2.50 $ 0.03
Year ended December 31, 2004:
First Quarter $ 3.05 $ 2.00
Second Quarter $ 4.10 $ 1.90
Third Quarter $ 2.44 $ 0.29
Fourth Quarter $ 0.73 $ 0.25
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(2) Reflects 40:1 reverse split on December 16, 2003
As of February 8, 2005, there were 23,070,377 shares of common stock outstanding and there were approximately 222 registered holders of our common stock.
The Company has never paid any cash dividends on our capital stock and does not anticipate paying any cash dividends on the common shares in the foreseeable future. The Company intends to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors (the "Board") and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's primary focus during the first half of 2004 was effecting the reverse acquisition, completed February 11, 2004, transitioning from being a privately held company to a publicly held company, and raising new capital through a private placement completed in June 2004. Beginning in July 2004, the Company began concentrating on the expansion and development of the domestic standard product sales organization. The Company's 2004 16% sales gain primarily resulted from an increase in sales representatives whose compensation was a combination of base salary and commission. The Company will endeavor to further increase sales in 2005 and concurrently reduce fixed expenses by compensating its sales representatives by commission only.
RESULTS OF OPERATIONS
Net sales and rental income realized in 2004 were $1,256,676, an increase of $172,764 or 15.9% over 2003. The increase was primarily due to growth in the number of products sold or rented, primarily NeuroMove(TM) and our IF8000 products.
Net sales and rental income by quarter were as follows:
2004 2003
----------- -----------
First quarter $ 262,941 $ 292,335
Second quarter 336,705 284,763
Third quarter 366,784 320,686
Fourth quarter 290,246 186,128
----------- -----------
Total sales and net rental income $ 1,256,676 $1,083,912
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Although net sales and rental income for the first six months of 2004 were relatively flat, increasing only 3.9% year over year, the expanded sales force contributed to fourth quarter and second half year over year increases of 55.9% and 29.6%, respectively. We expect rentals initiated in the second half of 2004 to increase our revenue stream during at least part of 2005.
Gross profit increased $121,201 over 2003, an increase of 13.5%. The increase was due to higher net sales and rental income. Gross profit as a percent of net sales and rental income was 81.1% in 2004 compared to 82.8% in 2003. The decline in gross profit as a percent of net sales and rental income was due to adjustments that resulted from the company's year end physical inventory.
Selling, general and administrative expenses increased from $762,819 in 2003 to $1,907,830 in 2004. Approximately 52%, or $597,978, resulted from increases in salaries, inside sales incentives, payroll taxes and medical insurance. These increases resulted from 2004 personnel additions, primarily in the sales and sales support area. Other significant increases in selling, general and administrative expenses were as follows:
Advertising and marketing $ 120,171 Warrant and option expense $ 73,434 Audit and reviews $ 49,800 Rent $ 58,548 |
During 2004, the Company increased its advertising of the NeuroMove(TM), both in print publications and on the Internet. Warrant and option expense relates to warrants and options granted for services received in connection with the Company's reverse acquisition, private placement and consulting services. The increase in the cost of audit and reviews is due to public company audit and review requirements. Zynex Medical was not audited prior to becoming part of a public company in February 2004. Rent expense increased with the leasing of a larger facility in March 2004 to accommodate a larger workforce and increased volume.
Depreciation increased $17,796, from $26,985 in 2003 to $44,781 in 2004. The increase results from higher levels of rental inventory, depreciation of copiers acquired under a capital lease, computer equipment and office furniture added for new hires, and company vehicles.
The loss on disposal of equipment results from the disposal of two company owned vehicles at a loss of $9,464 and the disposal of office equipment that required upgrading resulting in a loss of $25,783.
The income tax benefit reported for year ended December 31, 2004 represents refundable income taxes paid in prior years after carrying back net operating losses incurred in 2004 and adjustment of prior year estimates to actual. The company's federal tax loss carry forward as of December 31, 2004 is $1,145,653.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $1,060,987 for the year ended December 31, 2004 compared with cash provided by operations of $189,084 for the year ended December 31, 2003. Net cash used in operating activities resulted primarily from the Company's net loss and increases in inventory and rental equipment. The increase in rented equipment was largely caused by the increase in the number of NeuroMove units leased to patients. The increase in inventory was required to provide consigned inventory to an increasing number of field sales representatives.
Cash used in investing activities was $44,249 for the year ended December 31, 2004 compared to $10,004 for the year ended December 31, 2003. Cash used in investing activities results from the purchase of equipment, principally computer equipment and office furniture for new employees.
Cash provided from financing activities was $1,108,314 for the year ended December 31, 2004 compared with cash used in financing activities of $179,080 for the year ended December 31, 2003. Sales of common stock during the year ended December 31, 2004 provided net cash proceeds of $1,259,987.
The Company's principal funding need is for working capital to fund continuing operations and expansion of the business, including expanding the Company's sales force. The electrotherapy industry is capital intensive due to high levels of consigned inventory required, higher than average accounts receivables outstanding as a result of dealing with health insurers, and the delayed cost recovery inherent in rental transactions. In order to fully implement our business plan in 2005, we may need to raise additional debt or equity financing. In the event we enter into any financing, the terms thereto may be dilutive to or contain other terms that may adversely impact our existing shareholders.
Payments Due by Period
Less than After
Significant Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years
----------------------------------- ------------ ------------ ----------- ----------- ----------
Notes payable $176,574 $131,235 $ 42,684 $ 2,655 $ --
Capital lease obligations 91,200 22,014 56,607 12,579 --
Operating leases 414,032 94,606 302,998 16,428 --
-------- -------- -------- -------- --------
Total contractual cash obligations $681,806 $247,855 $402,289 $ 31,662 $ --
======== ======== ======== ======== ========
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CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.
We have identified the policies below as critical to our business operations and the understanding of our results of operations.
Revenue Recognition. Sales and rental income is recognized when a product has been medically prescribed and dispensed to a patient and, when applicable, a claim prepared by the Company has been filed with the patient's insurance provider. Product and rental revenues are recognized net of a reserve for collectibility.
Provision for Sales Returns, Allowances and Collectibility. The Company maintains a reserve for sales allowances, returns and collectibility. Sales returns and allowances result from reimbursements from insurance providers that are less than amounts claimed, as provided by agreement, where the amount claimed by the Company exceeds the insurance provider's usual, customary and reasonable reimbursement rate and when units are returned because of benefit denial. The provision is provided for by reducing gross revenue by a portion of the amount invoiced during the relevant period. The amount of the reduction is estimated based on historical experience.
Reserve for Obsolete/Excess Inventory. Inventories are stated at the lower of cost or market. We regularly review our inventories and, when required, will record a provision for excess and obsolete inventory based on factors that may impact the realizable value of our inventory including, but not limited to, technological changes, market demand, regulatory requirements and significant changes in our cost structure. If ultimate usage varies significantly from expected usage, or other factors arise that are significantly different than those anticipated by management, inventory write-downs or increases in reserves may be required.
RISKS RELATED TO OUR BUSINESS
WE MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL REQUIRED TO GROW OUR BUSINESS. WE MAY HAVE TO CURTAIL OUR BUSINESS IF WE CANNOT FIND ADEQUATE FUNDING.
Our ability to grow depends significantly on our ability to expand our operations through internal growth and by acquiring other companies or assets that require significant capital resources. We may need to seek additional capital from public or private equity or debt sources to fund our growth and operating plans and respond to other contingencies such as:
- shortfalls in anticipated revenues or increases in expenses;
- the development of new products; or
- the expansion of our operations, including the recruitment of additional sales personnel.
We cannot be certain that we will be able to raise additional capital in the future on terms acceptable to us or at all. If alternative sources of financing are insufficient or unavailable, we may be required to modify our growth and operating plans in accordance with the extent of available financing. Any additional equity financing may involve substantial dilution to our then existing shareholders.
MANY OF OUR POTENTIAL COMPETITORS COULD BE LARGER THAN US AND HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO AND THOSE ADVANTAGES COULD MAKE IT DIFFICULT FOR US TO COMPETE WITH THEM.
Substantial competition may be expected in the future in the area of stroke rehabilitation that may directly compete with our NeuroMove(TM) product. Competitors may have substantial financial, technical, marketing, and other resources. Competition could result in price reductions, fewer orders, reduced gross margins, and loss of market share. These companies may use standard or novel signal processing techniques to detect muscular movement and generate stimulation to such muscles. Other companies may develop rehabilitation products that perform better and/or are less expensive than our products. Competitors may develop products that are substantially equivalent to our FDA approved products, thereby using our products as predicate devices to more quickly obtain FDA approval for their own. If overall demand for our products should decrease it could have a materially adverse affect on our operating results.
FAILURE TO KEEP PACE WITH THE LATEST TECHNOLOGICAL CHANGES COULD RESULT IN DECREASED REVENUES.
The market for our services is characterized by rapid change and technological improvements. Failure to respond in a timely and cost-effective way to these technological developments could result in serious harm to our business and operating results. We have derived, and we expect to continue to derive, a substantial portion of our revenues from creating products in the medical device industry. As a result, our success will depend, in part, on our ability to develop and market product offerings that respond in a timely manner to the technological advances of our customers, evolving industry standards and changing client preferences.
WE ARE DEPENDENT ON REIMBURSEMENT FROM INSURANCE COMPANIES; CHANGES IN INSURANCE REIMBURSEMENT POLICIES COULD RESULT IN DECREASED OR DELAYED REVENUES
A large percentage of our revenues come from insurance company reimbursement. Upon delivery of our products to our customers, we directly bill the customers' private insurance company for reimbursement. If insurance companies do not pay their bills on a timely basis or if they change their policies to exclude coverage for our products, we could experience delayed revenue recognition or a decline in our revenue.
A MANUFACTURER'S INABILITY TO PRODUCE OUR GOODS ON TIME AND TO OUR SPECIFICATIONS COULD RESULT IN LOST REVENUE.
Third-party manufacturers assemble and manufacture to our specifications most of our products. The inability of a manufacturer to ship orders of our products in a timely manner or to meet our quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse affect on our revenues. Because of the timing and seriousness of our business, and the medical device industry in particular, the dates on which customers need and require shipments of products from us are critical. Further, because quality is a leading factor when customers, doctors, health insurance providers and distributors accept or reject goods, any decline in quality by our third-party manufacturers could be detrimental not only to a particular order, but also to our future relationship with that particular customer.
IF WE NEED TO REPLACE MANUFACTURERS, OUR EXPENSES COULD INCREASE RESULTING IN SMALLER PROFIT MARGINS.
We compete with other companies for the production capacity of our manufacturers and import quota capacity. Some of these competitors have greater financial and other resources than we have, and thus may have an advantage in the competition for production and import quota capacity. If we experience a significant increase in demand, or if we need to replace an existing manufacturer, we may have to expand our third-party manufacturing capacity. We cannot assure that this additional capacity will be available when required on terms that are acceptable to us or similar to existing terms which we have with our manufacturers, either from a production standpoint or a financial standpoint. We enter into a number of purchase order commitments specifying a time for delivery, method of payment, design and quality specifications and other standard industry provisions, but do not have long-term contracts with any manufacturer. None of the manufacturers we use produces our products exclusively.
Should we be forced to replace one or more of our manufacturers, we may experience increased costs or an adverse operational impact due to delays in distribution and delivery of our products to our customers, which could cause us to lose customers or lose revenue because of late shipments.
OUR BUSINESS IS EXPOSED TO DOMESTIC AND FOREIGN CURRENCY FLUCTUATIONS; NEGATIVE CHANGES IN EXCHANGE RATES COULD RESULT IN GREATER COSTS.
Most of Zynex's revenue, expenses, and capital spending will be transacted in US dollars. Zynex's exposure to market risk for changes in interest rates relate primarily to Zynex's cash and cash equivalent balances, marketable securities, investment in sales-type leases, and loan agreements. The majority of Zynex's investments may be in short-term instruments and therefore subject to fluctuations in US interest rates. Due to the nature of such short-term investments, we cannot assure you that this will not have a material adverse impact on our financial condition and results of operations.
IF WE ARE UNABLE TO RETAIN THE SERVICES OF MR. SANDGAARD OR IF WE ARE UNABLE TO SUCCESSFULLY RECRUIT QUALIFIED MANAGERIAL AND SALES PERSONNEL HAVING EXPERIENCE IN BUSINESS, WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS.
Our success depends to a significant extent upon the continued service of Mr. Thomas Sandgaard, our Chief Executive Officer, Chief Financial Officer and currently sole director. Loss of the services of Mr. Sandgaard could have a material adverse effect on our growth, revenues, and prospective business. We do not maintain key-man insurance on the life of Mr. Sandgaard. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and sales personnel having experience in business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.
HOSPITALS AND CLINICIANS MAY NOT BUY, PRESCRIBE OR USE OUR PRODUCTS IN SUFFICIENT NUMBERS, WHICH COULD RESULT IN DECREASED REVENUES.
Hospitals and clinicians may not accept the NeuroMove NM900, IF8000, TruWave, or E-Wave products as effective, reliable, and cost-effective. Factors that could prevent such institutional customer acceptance include:
- If customers conclude that the costs of these products exceed the cost savings associated with the use of these products;
- If customers are financially unable to purchase these products;
- If adverse patient events occur with the use of these products, generating adverse publicity;
- If we lack adequate resources to provide sufficient education and training to Zynex's customers; and
- If frequent product malfunctions occur, leading clinicians to believe that the products are unreliable.
If any of these or other factors results in the non-use or non-purchase of our products, we will have reduced revenues needed to fund operations.
AS A RESULT OF BEING IN THE MEDICAL DEVICE INDUSTRY, WE NEED TO MAINTAIN SUBSTANTIAL INSURANCE COVERAGE, WHICH COULD BECOME VERY EXPENSIVE OR HAVE LIMITED AVAILABILITY.
Our marketing and sale of products and services related to the medical device field creates an inherent risk of claims for liability. As a result, we carry product liability insurance with an aggregate limit of $1,000,000 and $1,000,000 per occurrence and will continue to maintain insurance in amounts we consider adequate to protect us from claims. We cannot, however, be assured to have resources sufficient to satisfy liability claims in excess of policy limits if required to do so. Also, there is no assurance that our insurance provider will not drop our insurance or that our insurance rates will not substantially rise in the future, resulting in increased costs to us or forcing us to either pay higher premiums or reduce our coverage amounts which would result in increased liability to claims.
OUR FUTURE DEPENDS UPON OBTAINING REGULATORY APPROVAL OF ANY NEW PRODUCTS AND/OR MANUFACTURING OPERATIONS WE DEVELOP; FAILURE TO OBTAIN REGULATORY APPROVAL COULD RESULT IN INCREASED COSTS AND LOST REVENUE.
Before marketing any new products, we will need to complete one or more clinical investigations of each product. There can be no assurance that the results of such clinical investigations will be favorable to us. We may not know the results of any study, favorable or unfavorable to us, until after the study has been completed. Such data must be submitted to the FDA as part of any regulatory filing seeking approval to market the product. Even if the results are favorable, the FDA may dispute the claims of safety, efficacy, or clinical utility and not allow the product to be marketed. The sale price of the product may not be enough to recoup the amount of our investment in conducting the investigative studies.
WE MAY INCUR SUBSTANTIAL EXPENSES AND CAN BE EXPECTED TO INCUR LOSSES.
The area of medical device research is subject to rapid and significant technological changes. Developments and advances in the medical industry by either competitors or neutral parties can affect our business in either a positive or negative manner. Developments and changes in technology that are favorable to us may significantly advance the potential of our research while developments and advances in research methods outside of the methods we are using may severely hinder, or halt completely our development.
We are a small company in terms of employees, technical and research resources and capital. We are expected to have significant research and development, sales and marketing, and general and administrative expenses for several years. These amounts may be expended before any commensurate incremental revenue from these efforts may be obtained. These factors could hinder our ability to meet changes in the medical industry as rapidly or effectively as competitors with substantially more resources.
WE MAY BE UNABLE TO PROTECT OUR TRADEMARKS, TRADE SECRETS AND OTHER INTELLECTUAL PROPERTY RIGHTS THAT ARE IMPORTANT TO OUR BUSINESS.
We regard our trademarks, particularly our NeuroMove trademark which is registered in the United States and the European Union, our trade secrets and other intellectual property as an integral component of our success. We rely on trademark law, patents, trade secret protection and confidentiality agreements with employees, customers, partners and others to protect our intellectual property. Effective trademark and trade secret protection may not be available in every country in which our products are available. We cannot be certain that we have taken adequate steps to protect our intellectual property, especially in
countries where the laws may not protect our rights as fully as in the United States. In addition, if our third-party confidentiality agreements are breached there may not be an adequate remedy available to us. If our trade secrets become publicly known, we may lose our competitive position.
SUBSTANTIAL COSTS COULD BE INCURRED DEFENDING AGAINST CLAIMS OF INFRINGEMENT.
Other companies, including competitors, may obtain patents or other proprietary rights that would limit, interfere with, or otherwise circumscribe Zynex's ability to make, use, or sell products. Should there be a successful claim of infringement against us and if we could not license the alleged infringed technology, business and operating results could be adversely affected. There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. The validity and breadth of claims covered in medical technology patents involve complex legal and factual questions for which important legal principles remain unresolved. Any litigation claims against us, independent of their validity, may result in substantial costs and the diversion of resources with no assurance of success. Intellectual property claims could cause us to:
- cease selling, incorporating, or using products that incorporate the challenged intellectual property,
- obtain a license from the holder of the infringed intellectual property right on reasonable terms, if at all, and
- re-design Zynex's products incorporating the infringed intellectual property.
COMMERCIALIZATION OF OUR PRODUCTS COULD FAIL IF IMPLEMENTATION OF OUR SALES AND MARKETING STRATEGY IS UNSUCCESSFUL.
A significant sales and marketing effort may be necessary to achieve the level of market awareness and sales needed to achieve profitability. We currently have only limited sales and marketing experience and staff, both in the US and abroad, which may limit our ability to successfully develop and implement our sales and marketing strategy. To increase sales of our products we may utilize some of the following strategies in the future:
- hire and train sales and clinical specialists;
- build a strong direct sales force;
- manage geographically dispersed operations;
- encourage customers to rent or purchase products;
- explore potential reseller and original equipment manufacturer (OEM) relationships and assure that reseller and OEMs provide appropriate educational and technical support; and
- promote frequent product use to increase sales of consumables.
The failure to successfully create and implement a sales and marketing strategy could result in increased costs and net losses.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY RELIANCE ON SOLE SUPPLIERS.
Certain essential product components may be supplied by separate sole, or a limited group of, suppliers. Some components may be purchased through purchase orders rather than through long term supply agreements and large volumes of inventory may not be maintained. There may be shortages and delays in obtaining certain product components. Disruption of the supply or inventory of components could result in a significant increase in the costs of these components or could result in an inability to meet the demand for our products. In addition, if a change in the manufacturer of a key component is required, qualification of a new supplier may result in delays and additional expenses in meeting customer demand for products.
WE MAY NOT BE ABLE TO OBTAIN CLEARANCE OF A 510 (K) NOTIFICATION OR APPROVAL OF A PRE-MARKET APPROVAL APPLICATION WITH RESPECT TO ANY PRODUCTS ON A TIMELY BASIS, IF AT ALL.
If timely clearance or approval of new products is not obtained, our business could be materially adversely affected. Clearance of a 510 (k) notification may also be required before marketing certain previously marketed products, which have been modified after they have been cleared. Company personnel currently believe that certain planned enhancements to our current products will not necessitate the filing of a new 510(k) notification. Should the FDA so require, the filing of a new 510(k) notification for the modification of the product may be required prior to marketing any modified devices.
THE FDA ALSO REQUIRES ADHERENCE TO GOOD MANUFACTURING PRACTICES (GMP) REGULATIONS, WHICH INCLUDE PRODUCTION DESIGN CONTROLS, TESTING, QUALITY CONTROL, STORAGE, AND DOCUMENTATION PROCEDURES.
To determine whether adequate compliance has been achieved, the FDA may inspect our facilities at any time. Such compliance can be difficult and costly to achieve. Our compliance status may change due to future changes in, or interpretations of, FDA regulations or other regulatory agencies. Such changes may result in the FDA withdrawing marketing clearance or requiring product recall. In addition, any changes or modifications to a device or its intended use may require us to reassess compliance with Good Manufacturing Practices guidelines, potentially interrupting the marketing and sale of products. Failure to comply with regulations could result in enforceable actions, including product seizures, product recalls, withdrawal of clearances or approvals, and civil and criminal penalties.
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, THE FAILURE TO COMPLY WITH WHICH COULD RESULT IN SIGNIFICANT PENALTIES.
Numerous state and federal government agencies extensively regulate the manufacturing, packaging, labeling, advertising, promotion, distribution and sale of our products. Our failure or inability to comply with applicable laws and governmental regulations may result in civil and criminal penalties, which we are unable to pay or may cause us to curtail or cease operations. We must
also expend resources from time to time to comply with newly adopted regulations, as well as changes in existing regulations. If we fail to comply with these regulations, we could be subject to disciplinary actions or administrative enforcement actions.
OUR PRINCIPAL OFFICER AND DIRECTOR OWNS A CONTROLLING INTEREST IN OUR VOTING STOCK AND INVESTORS WILL NOT HAVE ANY VOICE IN OUR MANAGEMENT.
Our officer and current sole director, Thomas Sandgaard, beneficially owns approximately 83% of our outstanding common stock. As a result, Mr. Sandgaard will have the ability to control substantially all matters submitted to our stockholders for approval, including:
- election of our board of directors;
- removal of any of our directors;
- amendment of our certificate of incorporation or bylaws; and
- adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.
As a result of his ownership and position, Mr. Sandgaard is able to influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, sales of significant amounts of shares held by Mr. Sandgaard, or the prospect of these sales, could adversely affect the market price of our common stock. Mr. Sandgaard's stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
RISKS RELATING TO OUR COMMON STOCK
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
Since our common stock is not listed or quoted on any exchange or on NASDAQ, and no other exemptions currently apply, trading in our common stock on the Over-The-Counter Bulletin Board is subject to the "penny stock" rules of the SEC. These rules require, among other things, that any broker engaging in a transaction in our securities provide its customers with a risk disclosure document, disclosure of market quotations, if any, disclosure of the compensation of the broker and its salespersons in the transaction, and monthly account statements showing the market values of our securities held in the customer's accounts. The brokers must provide bid and offer quotations and compensation information before making any purchase or sale of a penny stock and also provide this information in the customer's confirmation. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements, the notes thereto, and the report thereon of Gordon, Hughes & Banks, LLP dated February 8, 2005 are filed as part of this report starting on page F-1 below.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES.
The Company's Chief Executive Officer, Thomas Sandgaard, with the participation of the Company's management, carried out an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation and as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
There was no change in the Company's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 8B. OTHER INFORMATION.
The employment agreement of Thomas Sandgaard our Chief Executive Officer was amended on January 1, 2005. See Item 10 below.
The Company's Board adopted a Stock Option Plan for its officers, directors, independent contractors, consultants, employees and prospective employees on January 3, 2005. The following is a summary of the material terms of the Plan which is qualified in its entirety by a copy of the Plan, attached hereto as Exhibit 10.4. The common stock of the Company authorized to be granted under the Plan consists of 3,000,000 shares. Officers, directors, independent contractors, consultants, employees and prospective employees are eligible for option grants. Options are not transferable unless specified by the Plan administrator. Either incentive stock options or nonqualified stock options may be granted under the Plan. Incentive stock options require shareholder approval within 12 months of the board approval. To the extent stockholder approval is not obtained any grants of incentive stock options will be forfeited. Unless the Plan administrator provides otherwise, each option granted under the Plan expires within ten years from the date of grant. The purchase price under each option granted pursuant to the Plan is the fair market value of the common stock on the date of grant unless such option is granted in substitution of options granted by a new employee's previous employer or the optionee pays or foregoes compensation in the amount of any discount. Options may be suspended or terminated if the Plan administrator or any person designated by the Plan administrator reasonably believes that the optionee has committed an act of misconduct against the Company. The President and Chief Executive Officer of the Company administers the Plan and determines and designates from time to time (a) those employees to whom options are granted, (b) the size, form, terms (including vesting) and conditions of awards under the Plan, and (c) rules with respect to the administration of the Plan.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table provides information concerning each of the Company's directors and executive officers.
Director
Name Age Since Position or Office
--------------------- --- --------- -----------------------
Executive Officer
-----------------
Thomas Sandgaard 46 Chief Executive Officer
Director
--------
Thomas Sandgaard 46 2004 Chairman
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During the five years preceding the date of this report, the director and executive officer named above has not been convicted in any criminal proceeding nor is he subject to any pending criminal proceeding. Mr. Sandgaard became an employee in 1996 when he founded DMI. In 1998, he formed SRSI and in 2003 merged DMI with SRSI and changed the surviving company's name to Zynex Medical, Inc. Mr. Sandgaard has worked in several industries including semiconductors, telecommunications, data communications and medical equipment. Mr. Sandgaard has a degree in electronics engineering from the Odense Teknikum (in Denmark) and an MBA from the Copenhagen Business School.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission ("SEC") certain reports on prescribed forms regarding ownership of and transactions in the Company's securities. Such officers, directors and ten percent stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it and written representations from reporting persons, the Company has determined that all Section 16 reporting requirements applicable to its directors and other executive officers were complied with for fiscal year 2004. The Commission has established specific due dates for these reports and requires the Company to report in this Proxy Statement any failure by these persons to file or failure to file on a timely basis. To the knowledge of the Company, based solely on a review of the copies of such reports received or written representations from
the reporting persons, the Company believes that during the 2004 fiscal year the directors, executive officers and persons who own more than 10% of the Company's common stock complied with all Section 16(a) filing requirements, except that Mr. Sandgaard did not file a Form 3 reporting his beneficial ownership as a result of the reverse acquisition in 2004 and he did not file a Form 4 reporting acquisitions of Zynex common stock in December 2004 by a relative and for his own account.
Code of Ethics
The Company has not adopted a written code of ethics for its senior executive and financial officers. The Board endeavors to hold these officers to high ethical standards in their conduct of our business and may decide to implement a code of ethics when the Company has additional resources.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows, as to the Chief Executive Officer, the only highly compensated executive officer whose salary plus bonus exceeded $100,000, information concerning compensation paid for services to the Company in all capacities during the year ended December31, 2004, as well as the total compensation paid in each of the Company's previous two fiscal years.
Long term Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Year Salary Bonus Compensation Stock Awards Options Payouts Compensation
Principal Position ($) ($) ($)(1) ($) (#) ($) ($)
------------------ ---- ------- ----- ------------ ------------ -------- ------- ----------
Thomas Sandgaard 2004 173,000 0 37,159 0 0 0 0
Chief Executive 2003 51,525 0 8,707 0 0 0 0
Officer 2002 99,000 0 11,059 0 0 0 0
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(1) We also pay for 100% of Mr. Sandgaard's health and dental insurance. In addition, two company vehicles are provided at our expense. We also pay for two home telephone lines.
OPTIONS GRANTS IN FISCAL 2004
The Company did not grant stock options or stock appreciation rights to Thomas Sandgaard during 2004, nor does it have any such rights outstanding from prior years.
Employment Agreement
On February 1, 2004, Zynex Medical, Inc. entered into a three-year employment agreement with the Company's President, Chief Executive Officer and former sole shareholder. The agreement expires January 31, 2007 and, if written notice is not given, the agreement will automatically be extended for an additional two-year period. The initial annual base salary under the agreement was $174,000 and may be increased annually at the board of director's discretion. The agreement also provides for a 50% annual bonus if annual net revenue exceeds $2.25 million, medical and life insurance, and a vehicle. The agreement contains a non-compete provision for the term of the agreement and 24 months following termination of the agreement.
On January 1, 2005, the agreement was amended to provide an annual base salary of $144,000 and quarterly bonuses pursuant to the following schedule; provided that if the Company does not have net income for that quarter then only half of the bonus amount listed below shall be paid:
Quarterly Revenue Quarterly Bonus
-------------------------- -----------------
$0 to $600,000 $ 0
$600,001 - $800,000 $ 10,000
$800,001 - $1,000,000 $ 25,000
$1,000,001 and greater $ 50,000
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The bonus amounts reflected in the above table shall be reduced by one-half if the Company sustains a net loss during the quarter.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table contains certain information regarding beneficial ownership of the Company's common stock as of February 11, 2005 by (i) each person who is known by the Company to own beneficially more than 5% of the Company's common stock, (ii) each of the Company's directors, (iii) the Chief Executive Officer and (iv) all directors and executive officers as a group. The information provided regarding beneficial ownership of the principal stockholders is based on publicly available filings and, in the absence of such filings, on the shares held of record by such persons.
Number of Shares Percent
Beneficially of
Name Class of Stock Owned Class
--------------------------------- ---------------- --------------- ------
Executive Officers:
-------------------
Thomas Sandgaard
Common 19,452,800 84.3%
--------------------------------------------------------------------------------
Other 5% Beneficial Owners
--------------------------
Financial Consulting Firm (1)
Common 1,900,000 7.6%
--------------------------------------------------------------------------------
All Directors and
Named Executive Officers
As a Group Common 19,452,800 84.3%
------------------------
--------------------------------------------------------------------------------
________________
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(1) On September 27, 2004, the Company issued options valued at $11,707 to acquire 1,900,000 shares of common stock to this financial consulting firm in exchange for consulting services provided in connection with the Company's reverse acquisition, and past investor relations. The options, which expire September 26, 2009 permit the purchase of common stock in certain quantities at various prices ranging from $.40 per share to $4.00 per share, as set forth more clearly in the Note 2 of the Notes to Consolidated Financial Statements.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about shares of Common Stock available for issuance under the Company's equity incentive plan.
Number of Securities
Remaining available for
Number of Securities to future issuance under
be Issued Upon Exercise Equity Compensation
of Outstanding Options, Weighted Average Plans (excluding securities
Warrants and Rights Exercise Price reflected in column (a)
Plan Category (a) (b) (c)
---------------------------------- ----------------------- ----------------- ----------------------------
Plans Approved by Shareholders None
-------------------------------------------------------------------------------------------------------------------
Plans Not Approved by Shareholders 2,093,000 (1) $2.29 907,000
-------------------------------------------------------------------------------------------------------------------
Total 2,093,000 $2.29 907,000
-------------------------------------------------------------------------------------------------------------------
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(1) All of the listed securities are available for issuance under the Zynex Medical Holdings, Inc. 2005 Stock Option Plan, approved by the Board of Directors on January 3, 2005. The Board of Directors may decide to submit the Company's 2005 Stock Option Plan to the shareholders for approval during the 2005 calendar year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit Number Description
-------------- ---------------------------------------------------------------
3.1 Articles of Incorporation of Ibonzi.com, Inc, incorporated by
reference to Exhibit 3.1 of the Company's Current Report on
Form 8-K, filed January 31, 2002.
3.2 Articles of Merger of Ibonzi.com, Inc. with and into
Ibonzi,com, to effect a migratory merger, incorporated by
reference to Exhibit 2.1 of the Current Report on Form 8-K,
filed January 31, 2002.
3.3 Amendment to Articles of Incorporation of Ibonzi.com, Inc.,
changing the company's name to China Global Development, Inc.,
by reference to Exhibit 3.2 of the Company's Current
Report on Form 8-K, filed January 31, 2002.
3.4 Certificate of Correction to Amendment to Articles of
Incorporation, incorporated by reference to Exhibit 3.3 of the
Company's Current Report on Form 8-K, filed January 31, 2002.
3.5 Amendment to the Articles of Incorporation, changing the
Company's name to Arizona Ventures, Inc. and effecting a 1:10
reverse split of common stock, incorporated by reference to
Exhibit 3.5 of the Company's registration statement filed on
Form SB-2, filed July 6, 2004.
3.6 Amendment to the Articles of Incorporation, changing the
Company's name to Fox River Holdings, Inc., incorporated by
reference to Exhibit 3.6 of the Company's registration
statement filed on Form SB-2, filed July 6, 2004.
3.7 Amendment to the Articles of Incorporation, effecting a 1:40
reverse split of common stock, incorporated by reference to
Exhibit 3.7 of the Company's registration statement filed on
Form SB-2, filed July 6, 2004.
3.8 Amendment to the Articles of Incorporation, changing the
Company's name to Zynex Medical Holdings, Inc., incorporated by
reference to Exhibit 3.8 of the Company's registration
statement filed on Form SB-2, filed July 6, 2004.
3.9 Bylaws of the Company, incorporated by reference to Exhibit 3.4
of the Company's Current Report on Form 8-K, filed
January 31, 2002.
4.1 Subscription Agreement, dated as of June 4, 2004, by and among
the Company, Alpha Capital Aktiengesellschaft, Stonestreet
Limited Partnership, Whalehaven Funds Limited, Greenwich Growth
Fund Limited and Ellis International Limited, Inc.,
incorporated by reference to Exhibit 4.1 of the Company's
registration statement filed on Form SB-2, filed July 6, 2004.
4.2 Form of A Common Stock Purchase Warrant, incorporated by
reference to Exhibit 4.2 of the Company's registration
statement filed on Form SB-2, filed July 6, 2004.
24
|
4.3 Form of B Common Stock Purchase Warrant, incorporated by
reference to Exhibit 4.3 of the Company's registration
statement filed on Form SB-2, filed July 6, 2004.
4.4 Form of C Common Stock Purchase Warrant, incorporated by
reference to Exhibit 4.4 of the Company's registration
statement filed on Form SB-2, filed July 6, 2004.
4.5 Escrow Agreement, dated as of June 4, 2004, by and among Zynex
Medical Holdings, Inc., Alpha Capital Aktiengesellschaft,
Stonestreet Limited Partnership, Whalehaven Funds Limited,
Greenwich Growth Fund Limited, Ellis International Limited Inc.
and Grushko & Mittman, P.C., incorporated by reference to
Exhibit 4.5 of the Company's registration statement filed on
Form SB-2, filed July 6, 2004.
10.1 Acquisition Agreement, dated as of January 27, 2004, by and
among Zynex Medical Holdings, Inc., Zynex Medical, Inc. and
Thomas Sandgaard, incorporated by reference to Exhibit 10 of
Zynex Medical Holdings, Inc.'s Current Report on Form 8-K,
filed February 20, 2004.
10.2 Thomas Sandgaard Employment Agreement, incorporated by
reference to Exhibit 10.2 of the Company's registration
statement filed on Form SB-2, filed July 6, 2004.
10.3 Amendment to Thomas Sandgaard Employment Agreement dated
February 1, 2004
10.4 Multi-Tenant Lease, dated January 20, 2004, by and between
First Industrial, L.P., a Delaware limited partnership and
Zynex Medical, Inc. a Colorado corporation.
10.5 2005 Stock Option Plan.
21.1 List of Subsidiaries.
31.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted
Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Gordon, Hughes & Banks, LLP served as the Company's independent auditors for the fiscal year ended December 31, 2004. The Company paid the following fees to Gordon, Hughes & Banks LLP during fiscal 2004 and 2003:
2004 2003
-------- ---------
Audit Fees $ 44,000 $ 6,000
All other Fees:
Audit-related Fees (reviews of
Forms 10-QSB and SB-2) 11,800 0
Tax-related Fees 5,500 0
All other fees 0 0
|
The Company's director, in reliance on statements by management and the independent auditors, has determined that the provision of the non-audit services described above is compatible with maintaining the independence of Gordon, Hughes & Banks, LLP.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ZYNEX MEDICAL HOLDINGS, INC.
By: /s/ Thomas Sandgaard
-----------------------------------------------
Thomas Sandgaard
President, Chairman and Chief Executive Officer
Date: April 15, 2005
|
Zynex Medical Holdings, Inc. Consolidated Financial Statements December 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Zynex Medical Holdings, Inc.
Littleton, Colorado
We have audited the accompanying consolidated balance sheet of ZYNEX MEDICAL HOLDINGS, INC. (the "Company") as of December 31, 2004 and the related consolidated statements of operations, cash flows and stockholders' equity for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ZYNEX MEDICAL HOLDINGS, INC. as of December 31, 2004, and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Gordon, Hughes & Banks, LLP ------------------------------- Greenwood Village, Colorado February 8, 2005 |
Zynex Medical Holdings, Inc. Consolidated Balance Sheet December 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents $ 3,078
Receivables, less allowance for
uncollectible accounts of $284,074 190,090
Inventory 319,699
Prepaid expenses 21,446
Refundable income taxes 11,691
Other current assets 630
-----------
Total current assets 546,634
Property and equipment, less accumulated depreciation
of $100,066 228,495
Deposits 14,472
-----------
$ 789,601
===========
|
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 131,235
Capital lease 15,311
Accounts payable 180,158
Accrued payroll and payroll taxes 68,877
Other accrued liabilities 86,523
-----------
Total current liabilities 482,104
Notes payable, less current maturities 45,339
Capital lease, less current maturities 59,265
-----------
Total liabilities 586,708
-----------
Contingencies and Commitments --
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding --
Common stock, $0.001, par value, 100,000,000 shares
authorized, 23,070,377 shares issued and outstanding 23,070
Additional paid-in capital 1,335,233
Accumulated (deficit) (1,155,410)
-----------
Total stockholders' equity 202,893
-----------
$ 789,601
===========
|
See accompanying notes to financial statements.
Zynex Medical Holdings, Inc. Consolidated Statements of Operations
Years Ended December 31,
2004 2003
------------ ------------
Net sales and rental income $ 1,256,676 $ 1,083,912
Cost of sales and rentals 237,644 186,081
------------ ------------
Gross profit 1,019,032 897,831
Operating expenses:
Selling, general and administrative 1,907,830 762,819
Depreciation 44,781 26,985
Loss on disposal of equipment 35,247 --
------------ ------------
1,987,858 789,804
------------ ------------
Income (loss) from operations (968,826) 108,027
Other income (expense):
Interest income 1,361 3,153
Interest expense (38,742) (45,674)
Other income (expense) (2,509) --
------------ ------------
Net income (loss) before income taxes (1,008,716) 65,506
Provision (benefit) for income taxes (32,838) 24,809
------------ ------------
Net income (loss) $ (975,878) $ 40,697
============ ============
Basic and diluted net income (loss)
per common share $ (0.04) $ --
============ ============
Weighted average number of shares
outstanding 22,728,763 22,151,662
============ ============
|
See accompanying notes to financial statements.
Zynex Medical Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
2004 2003
----------- -----------
Cash flow from operating activities:
Net income (loss) $ (975,878) $ 40,697
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation 44,782 26,985
Issuance of warrants and options for consulting services 73,434 --
Loss on disposal of equipment 35,247 --
Issuance of stock for loan financing 2,730 --
Changes in operating assets and liabilities:
Accounts receivable (4,284) 130,433
Inventory and rented equipment (216,895) (291)
Refundable income taxes (11,691) --
Other current assets (20,776) (1,300)
Other assets (4,707) --
Accounts payable 18,498 (22,152)
Accrued liabilities (1,447) 14,712
----------- -----------
Net cash provided by (used in) operating activities (1,060,987) 189,084
----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment 1,500 --
Purchase of equipment (45,749) (10,004)
----------- -----------
Net cash used in investing activities (44,249) (10,004)
Cash flows from financing activities:
Payments on notes payable and capital lease (198,857) (96,618)
Proceeds from sale of common stock 1,259,987 --
Proceeds from loans payable 60,000 --
Repayment of loans from stockholder (12,816) (82,462)
----------- -----------
Net cash provided by (used in) financing activities 1,108,314 (179,080)
Increase in cash 3,078 --
Cash and cash equivalents at beginning of period -- --
----------- -----------
Cash and cash equivalents at end of period $ 3,078 $ --
=========== ===========
Supplemental cash flow information:
Interest paid $ 47,198 $ 31,336
Income taxes paid 13,153 2,871
Non-cash investing and financing activities -
Equipment financed with note payable 56,332 --
Equipment financed with capital lease 76,642 29,000
Fair value of broker warrants issued 132,198 --
|
See accompanying notes to financial statements.
Zynex Medical Holdings, Inc.
Consolidated Statements of Stockholders' Equity
Additional
Number of Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
December 31, 2002 10,549,877 $ 10,550 $ 3,031,989 $(3,445,346) $ (402,807)
Net income -- -- -- 40,697 40,697
----------- ----------- ----------- ----------- -----------
December 31, 2003 10,549,877 10,550 3,031,989 (3,404,649) (362,110)
Conversion of debt for stock
in January 2004 2,601,786 2,602 356,198 -- 358,800
Reorganization February 11, 2004:
Consolidated net deficit -- -- (3,388,187) 3,225,117 (163,070)
Shares issued to Zynex
Medical, Inc. shareholder 19,500,000 19,500 -- -- 19,500
Cancellation of certificates (10,500,001) (10,500) -- -- (10,500)
Private placement of common stock 230,000 230 229,770 -- 230,000
Sale of common stock and warrants:
Proceeds net of broker warrants 685,715 685 897,104 -- 897,789
Broker warrants -- -- 132,198 -- 132,198
Warrants and options issued
to consultants -- -- 73,434 -- 73,434
Common stock issued as
additional interest 3,000 3 2,727 -- 2,730
Net loss -- -- -- (975,878) (975,878)
----------- ----------- ----------- ----------- -----------
December 31, 2004 23,070,377 $ 23,070 $ 1,335,233 $(1,155,410) $ 202,893
=========== =========== =========== =========== ===========
|
See accompanying notes to financial statements.
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
ORGANIZATION OF BUSINESS
Zynex Medical, Inc. was incorporated under the laws of the state of Colorado on March 3, 1998, under the name of "Stroke Recovery Systems, Inc." (SRSI). On October 1, 2003, Zynex Medical, Inc. acquired, through merger, the assets and liabilities of Dan Med, Inc. (DMI), a Colorado corporation under common control. The companies were merged in order to simplify the operating and capital structure of both companies. SRSI concurrently changed its name to Zynex Medical, Inc.
DMI was incorporated in 1996 with its primary activity importing European-made electrotherapy devices until 1999 when DMI also began developing and assembling its own line of electrotherapy products. SRSI was incorporated in 1998 with its main activity selling electrotherapy devices to homecare patients suffering the effects of a stroke. In early 2002 SRSI began marketing the entire DMI product line of standard electrotherapy products by adding a small sales force. At present, Zynex Medical, Inc. generates substantially all its revenue in North America from sales and rentals of its products to patients, dealers and health care providers. The amount of net revenue derived from Medicare and Medicaid programs is less than 5 percent.
On February 11, 2004, Zynex Medical Holdings, Inc. (the "Company"), formerly Fox River Holdings, Inc., acquired 100% of the common stock of Zynex Medical, Inc. pursuant to an acquisition agreement by issuing 19,500,000 shares of common stock to the sole shareholder of Zynex Medical, Inc. Coincident with the transaction, Fox River Holdings, Inc. changed its name to Zynex Medical Holdings, Inc. Immediately after the transaction, the former shareholder of Zynex Medical, Inc. owned approximately 88.5 percent of the Company's common stock. The reorganization is recorded as a recapitalization effected by a reverse acquisition wherein Zynex Medical Holdings, Inc. is treated as the acquiree for accounting purposes, even though it is the legal acquirer. The transaction has been accounted for as a purchase, and accordingly, the results of operations prior to February 11, 2004 are solely those of the accounting acquirer, Zynex Medical, Inc. (which consists of the consolidated accounts of SRSI and DMI). Since Zynex Medical Holdings, Inc. was a non-operating entity with limited business activity and no assets, goodwill was not recorded.
NATURE OF BUSINESS
The Company designs, assembles and commercializes a line of FDA approved medical devices for the electrotherapy and stroke rehabilitation markets. The Company also purchases electrotherapy devices and supplies from other domestic and international suppliers for resale.
GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a substantial operating loss in 2004. This factor raises substantial doubt about the Company's ability to continue as a going concern.
The Company is seeking to expand operations and increase revenue, however, there can be no assurance that the Company will be able to expand and increase revenues.
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Zynex Medical, Inc. for all of the periods presented, and the accounts of Zynex Medical Holdings, Inc. subsequent to the February 11, 2004 reverse acquisition. All intercompany balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Sales and rental income is recognized when a product has been medically prescribed and dispensed to a patient and, when applicable, a claim prepared by the Company has been filed with the patient's insurance provider. Product and rental income is recognized net of the estimated uncollectible percentage of sales as described below.
RESERVE FOR SALES RETURNS, ALLOWANCES AND COLLECTIBILITY
The Company maintains a reserve for sales allowances, returns and collectibility. Sales returns and allowances result from reimbursements from insurance providers that are less than amounts claimed, as provided by agreement, where the amount claimed by the Company exceeds the insurance provider's usual, customary and reasonable reimbursement rate and when units are returned because of benefit denial. The provision is provided for by reducing gross revenue by a portion of the amount invoiced during the relevant period. The amount of the reduction is estimated based on historical experience.
USE OF ESTIMATES
Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from those estimates. The most significant management estimates used in the preparation of the accompanying financial statements are associated with collectibility of accounts receivable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are stated at cost. Cash equivalents consist of all highly liquid investments with maturities of three months or less when acquired.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK
The Company's financial instruments primarily consist of cash, receivables and payables for which current carrying amounts approximate fair value. Additionally, interest rates on outstanding borrowings are at rates that approximate market rates for borrowings with similar terms and average maturities.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade receivables.
The Company has recorded trade receivables from business operations. Management regularly evaluates the collectibility of accounts receivable and believes that net receivables recorded as of December 31, 2004 to be collectible.
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories are valued at the lower of cost (average) or market. Finished goods include products held at different locations by health care providers or other third parties for rental or sale to patients.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company removes the cost and the related accumulated depreciation from the accounts of assets sold or retired, and the resulting gains or losses are included in the results of operations. Depreciation is computed using the straight-line method. Cost and related estimated useful lives of property and equipment as of December 31, 2004 are as follows:
Cost Useful lives
----------- ------------
Office furniture and equipment $153,987 3-7 years
Rented inventory 113,985 5 years
Vehicles 59,832 5 years
Assembly equipment 757 7 years
-----------
328,561
Less accumulated depreciation (100,066)
-----------
Net book value $228,495
===========
|
SHIPPING COSTS
Shipping costs are included in cost of sales and rentals.
STOCK-BASED COMPENSATION
Transactions in equity instruments with non-employees for goods or services are accounted for using the fair value method. In March 2004, the Company issued a total of 110,000 warrants to purchase common stock for five years to two consultants for services rendered in connection with the reverse acquisition; 100,000 of the warrants are exercisable at $3.00 per share and 10,000 are exercisable at $.55 per share. As a result of these transactions, the Company recorded consulting expense of $61,727 in March 2004.
On August 13, 2004, the Company issued 3,000 shares of common stock valued at $2,730 to an individual who loaned the Company $60,000 from April 1, 2004 through June 11, 2004, the date of repayment. The loan carried interest at 2% per month plus 1,000 shares of common stock for each month, or part thereof, that the loan was unpaid.
On September 27, 2004, the Company issued options valued at $11,707 to acquire 1,900,000 shares of common stock to a financial consulting firm in exchange for consulting services provided in connection with the Company's reverse acquisition, private placement and ongoing investor relations. The fair value of $11,707 is included in selling, general and administrative expense for year ended December 31, 2004. The options, which expire September 26, 2009, permit the purchase of common stock in quantities and at prices set forth as follows:
Number of Shares Price Per Share
---------------- ---------------
100,000 $0.40
400,000 $1.75
200,000 $2.00
200,000 $2.25
200,000 $2.50
200,000 $2.75
200,000 $3.00
200,000 $3.50
200,000 $4.00
|
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," requires that companies either recognize compensation expense for
grants of stock options and other equity instruments to employees based on fair
value, or provide pro forma disclosure of net income (loss) and net income
(loss) per share in the notes to the financial statements. On March 16, 2004,
the Company issued a warrant to one employee to purchase 10,000 shares of common
stock at $3.00 per share. The warrant is valid through March 15, 2009. The
Company accounts for warrants issued to employees under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation cost has been recognized under SFAS 123 for the
employee's warrant. Had compensation cost for this award been determined based
on the grant date fair value, consistent with the method required under SFAS
123, the Company's net loss for the year ended December 31, 2004 would have
increased by $6,190.
ADVERTISING
The Company expenses advertising costs as they are incurred. Advertising expenses for the years ended December 31, 2004 and 2003 totaled $148,497 and $28,026, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred. There were no research and development expenses for years ended December 31, 2004 and 2003.
INCOME TAXES
Income taxes are computed using the liability method. The provision for income taxes includes taxes payable or refundable for the current period and the deferred income tax consequences of transactions that have been recognized in the Company's financial statements or income tax returns. The carrying value of deferred income taxes is determined based on an evaluation of whether the Company is more likely than not to realize the assets. Temporary differences result primarily from basis differences in property and equipment and net operating loss carryforwards. The valuation allowance is reviewed periodically to determine the amount of deferred tax asset considered realizable.
COMPREHENSIVE INCOME
There are no adjustments necessary to the net income (loss) as presented in the accompanying statement of operations to derive comprehensive income in accordance with Statement of Financial Standards ("SFAS") No. 130, "Reporting Comprehensive Income."
SEGMENT REPORTING
In June 1997, SFAS 131, "Disclosure about Segments of an Enterprise and Related Information," was issued. Operating segments, as defined in the pronouncement, are components of an enterprise about which separate financial information is available and that are evaluated regularly by management in deciding how to allocate resources and assess performance. To date, the Company has only had one operating segment.
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS PER SHARE
The Company computes net earnings (loss) per share in accordance with SFAS No. 128, "Earnings per Share", which establishes standards for computing and presenting net earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and the number of dilutive potential common share equivalents during the period. The effects of potential common stock equivalents have not been included in the computation of diluted net loss per share for the year ended December 31, 2004 as their effect is anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS 123R "Share-Based Payment," a revision to FASB No. 123. SFAS 123R replaces existing requirements under SFAS No. 123 and APB Opinion No. 25, and requires public companies to recognize the cost of employee services received in exchange for equity instruments, based on the grant-date fair value of those instruments, with limited exceptions. SFAS 123R also affects the pattern in which compensation cost is recognized, the accounting for employee share purchase plans, and the accounting for income tax effects of share-based payment transactions. For small-business filers, SFAS 123R will be effective for interim periods beginning after December 15, 2005. The Company is currently determining what impact the proposed statement would have on its results of operations and financial position.
The FASB has proposed FASB Staff Position No. FAS 109-a, "Application of FASB Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based Manufacturers by the American Jobs Creation Act of 2004." On October 22, 2004, the American Jobs Creation Act of 2004 (the "ACT") was signed into law by the President. This Act includes tax relief for domestic manufacturers by providing a tax deduction up to 9 percent (when fully phased-in) of the lesser of (a) "qualified production activities income," as defined in the Act, or (b) taxable income (after the deduction for the utilization of any net operating loss carry forwards). As a result of this Act, an issue has arisen as to whether this deduction should be accounted for as a special deduction or a tax rate reduction under Statement 109. The FASB staff believes that the domestic manufacturing deduction's characteristics are similar to special deductions because the domestic manufacturing deduction is based on the future performance of specific activities, including the level of wages. Accordingly, the FASB staff believes that the deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 and not as a tax rate reduction. This provision of the Act is not expected to have an impact on the Company's financial statements.
In November 2004, the FASB issued FASB Statement No. 151, which revised ARB No.43, relating to inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they meet the criterion specified in ARB 43. In addition, this Statement requires the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
In December 2004, the FASB issued FASB Statement No. 152, which amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and (b) costs incurred to sell real estate projects does not apply to real-estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
In December 2004, the FASB issued FASB Statement No. 153. This Statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
NOTE 3 - NOTES PAYABLE AND LEASES
Notes payable at December 31, 2004 consisted of the following:
Note payable to a bank, principal and interest
payments of $4,331 due on a monthly basis
through October 15, 2005, at which time
the entire balance is due; annual interest
rate of 7.5%, collateralized by accounts
receivable and the President's personal
residence. $ 98,114
Inventory financing obligations to financial
institutions, monthly principal and interest
payments totaling $2,709, annual interest
rates approximating 20%, collateralized by
inventory. 12,918
Motor vehicle contract payable in 60 monthly
installments of $1,351, annual interest at
15.1%, secured by automobile. 50,871
Settlement agreement payable in 36 monthly
beginning June 15, 2003, installments of $909
including interest at 8%. 14,671
---------
Total $176,574
Less current maturities (131,235)
---------
Long-term maturities $ 45,339
=========
Future maturities of the notes payable are as follows:
Year ending December 31,
------------------------
2005 $ 131,235
2006 15,454
2007 12,611
2008 14,619
2009 2,655
----------
|
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has commitments under various operating and capital leases that are payable in monthly installments. As of December 31, 2004, future minimum lease payments under non-cancelable operating and capital leases are as follows:
Capital Operating
Lease Leases
----------- ----------
2005 $ 22,014 $ 94,606
2006 18,869 104,464
2007 18,869 100,375
2008 18,869 98,159
2009 12,579 16,428
Thereafter -- --
---------- ----------
Total future minimum lease payments 91,200 $ 414,032
==========
Less amount representing interest 16,624
----------
Present value of net minimum lease
payments 74,576
Less current portion (15,311)
----------
Long-term capital lease obligation $ 59,265
==========
|
Rent expense under operating leases for 2004 and 2003 was $88,777 and $51,051, respectively.
NOTE 4 - INCOME TAXES
The provision (benefit) for income taxes consists of the following:
2004 2003
-------- --------
Federal income taxes
Current .................................. $(30,208) $ 20,209
Deferred ................................. -- --
State income taxes
Current .................................. (2,630) 4,600
Deferred ................................. -- --
-------- --------
Total ....................................... $(32,838) $ 24,809
======== ========
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A reconciliation of income tax computed at the U.S. statutory rate of 35% to the effective income tax rate is as follows:
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2004 2003
-------- --------
Statutory rate (35)% 35 %
State taxes (3)% 6 %
Surtax benefit -- (18)%
Permanent differences 3 % 9 %
Basis difference in property and equipment (5)% --
Net operating loss carryover and other (3)% 6 %
Change in valuation allowance 40 % --
-------- --------
Combined effective rate (3)% 38%
======== ========
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The components of deferred income taxes at December 31, 2004 are as follows:
Net operating loss carryovers $ 424,579
Basis difference in property and equipment 15,248
---------
Total deferred tax asset 439,827
Valuation allowance (439,827)
---------
Total net deferred tax $ --
=========
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SFAS 109 requires that all deferred tax balances be determined using the tax rates and limitations expected to be in effect when the taxes will actually be paid or recovered. Consequently, the income tax provision will increase or decrease in the period in which a change in tax rate or limitation is enacted. As of December 31, 2004, the Company had total deferred tax assets of $439,827. The Company recorded a valuation allowance in the full amount of $439,827 at December 31, 2004, against the amount by which deferred tax assets exceed deferred tax liabilities. The valuation reserve at December 31, 2004 has been provided due to the uncertainty of the amount of future taxable income. The Company provides a valuation allowance in the full amount of its deferred tax assets because under the criteria of SFAS No. 109, the Company does not have a basis to conclude that it is more likely than not that it will realize the deferred tax assets.
The Company has accumulated net operating loss carryforwards of $1,145,653 . To the extent not used, the net operating loss carryforwards expire in varying amounts beginning in 2023. As of December 31, 2004, all identified deferred tax assets are reduced by a valuation allowance. Therefore, any additional operating loss carryforwards not recognized would not result in a benefit in the provision for income taxes due to the uncertainty of future realization of those additional loss carryforwards.
NOTE 5 - COMMON STOCK
During the year ended December 31, 2004, the Company received $230,000 from the sale of 230,000 shares of common stock to certain shareholders in a private placement. The Company has used these proceeds for general working capital requirements.
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 4, 2004, the Company sold 685,715 shares of common stock to five investors at $1.75 per share. The proceeds realized from the sale were 897,789, net of offering expenses and the fair value of Broker Warrants issued. In connection with the sales, the Company granted Class A Warrants to purchase an additional 342,859 shares of common stock at $1.75 per share, Class B Warrants to purchase an additional 685,715 shares of common stock at $2.00 per share, Class C Warrants to purchase 22,858 shares of common stock at $.01 per share and Broker Warrants to purchase 45,715 shares of common stock at $.01 per share. The fair value of the Broker Warrants was $132,198 at June 4, 2004 using the Black-Scholes option pricing model.
The Class B, Class C and Broker's Warrants expire on June 4, 2009. The Class A Warrants expire on the 150th day after the actual effective date during which a registration statement has been available for use by the holder for resale under the Securities Act of 1933 of the common stock issuable upon exercise of the Class A Warrants. The Company's registration statement, filed July 16, 2004 on Form SB-2/A, became effective July 20, 2004.
Upon exercise of the warrants, the Company is required to pay Warrant Exercise Compensation equal to 10 percent of the cash proceeds payable to the Company. The Company is further required to issue one Broker's Warrant for each 10 shares of Class A, Class B and Class C Warrants exercised by the subscribers.
During 2004, the Company also issued common stock warrants and options to consultants and a debtor - see Note 2 - Stock-Based Compensation.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
BILLING PRACTICES
In connection with its sales of medical devices, the Company sells disposable supplies used with some of its devices. Prior to March 2004, certain billings to private insurance companies exceeded supplies actually shipped. It is possible that the affected private insurance companies or a governmental agency could assert claims for such overbillings. The Company discontinued this billing practice in March 2004 and has reserved the maximum estimated impact on the collectibility of accounts receivable, approximately $137,000 as of December 31, 2004 and 2003.
MAJOR SUPPLIERS
During 2004 and 2003, the Company purchased approximately 36% and 56%, respectively, of its entire inventory purchases from one European supplier.
CONCENTRATIONS
The Company maintains its cash deposits in one bank and one brokerage company cash management account. At December 31, 2004, the Company's cash balance at the bank was not in excess of the FDIC insurance limit.
EMPLOYMENT AGREEMENT
On February 1, 2004, Zynex Medical, Inc. entered into a three-year employment agreement with the Company's President, Chief Executive Officer and former sole shareholder. The agreement expires January 31, 2007 and, if written notice is not given, the agreement will automatically be extended for an additional two-year period. The initial annual base salary under the agreement was $174,000 and may be increased annually at the board of director's discretion. The agreement also provides for a 50% annual bonus if annual net revenue exceeds $2.25 million, medical and life insurance, and a vehicle. The agreement contains a non-compete provision for the term of the agreement that extends for 24 months following termination of the agreement.
ZYNEX MEDICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 1, 2005, the agreement was amended to provide an annual base salary of $144,000 and quarterly bonuses as follows:
Quarterly Revenue Quarterly Bonus -------------------------- -------------------- $0 to $600,000 $ 0 $600,001 - $800,000 $ 10,000 $800,001 - $1,000,000 $ 25,000 $1,000,001 and greater $ 50,000 |
The bonus amounts reflected in the above table shall be reduced by one-half if the Company sustains a net loss during the quarter.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company provides the President with two automobiles for personal use costing $2,287 per month.
NOTE 8 - SUBSEQUENT EVENT
On January 3, 2005, the Board of Directors adopted the Zynex Medical Holdings, Inc. 2005 Stock Option Plan. The Plan authorized the issuance of a total of 3,000,000 shares of common stock to both employees and non-employees. Concurrent with the adoption of the Plan, the Company granted 190,000 options to 16 employees at $0.30 per share (the quoted market value per share on January 3, 2005). The options vest at the rate of 25 percent per year and expire ten years from the date of grant.
Exhibit 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT DATED FEBRUARY 1, 2004
BETWEEN ZYNEX MEDICAL, INC. AND THOMAS SANDGAARD
Section (4) of the agreement is hereby amended as follows:
4. Compensation. Commencing January 1, 2005 and continuing through the duration of this agreement, the Employer shall pay to the Employee for the loyal and consistent services provided to it hereunder: a fee at the rate of $12,000 per month. The Employee's compensation shall be reviewed at least annually for appropriate increases at the end of each year as determined by the Board of directors of the Employer. Employee shall also receive at the end of each quarter during the term of this Agreement, bonus compensation based on exceeding net revenue goals as follows:
Quarterly
Revenue Bonus
--------------------- ------------
Less than $600,000 $ 0
--------------------- ------------
>$600,000 $10,000
--------------------- ------------
>$800,000 $25,000
--------------------- ------------
>$1,000,000 $50,000
--------------------- ------------
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The bonus amounts reflected in the above table shall be reduced by one-half if the Company sustains a net loss during the quarter.
Zynex Medical, Inc., "Employer"
/s/ ------------------------------ Secretary Board of Directors /s/ Thomas Sandgaard ------------------------------ Thomas Sandgaard, "Employee" |
Exhibit 10.4
MULTI-TENANT LEASE
This lease is made as of the 28th day of January 2004, by and between First Industrial, L.P., a Delaware limited partnership ("Landlord) and Zynex Medical, Inc., a Colorado corporation, ("Tenant").
1. Basic Provisions: In addition to other terms which are defined elsewhere in this Lease or any Exhibits, the terms defined in the following subsections of this Section 1 shall have the meaning set forth in such subsection whenever used in this Lease.
1.1 Building: 52,581 square foot multi-tenant building part of the Building Complex commonly known as Southwest Business Center.
1.2 Premises: Approximately 9,857 square feet of space located in the Building, including all improvements therein or to be provided by Landlord under the terms of this Lease, commonly known by the street address of 8100 Southpark Way, Unit A-9, Littleton, Colorado 80120, as outlined on Exhibit A attached hereto. In addition to Tenant's rights to use and occupy the Premises as hereinafter specified, Tenant shall have non-exclusive rights to the Common Areas (as defined in Section 2.4 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the Building or to any other buildings in the Building Complex.
1.3 Building Complex: The Premises and the Building, the Common Areas (as defined below), the land upon which they are located, along with all other buildings and improvements thereon depicted on Exhibit B attached hereto and made a part hereof.
1.4 Parking: Tenant's pro-rata share of unreserved vehicle parking spaces.
1.5 Term: Five (5) years ("Primary Lease Term") commencing March 1, 2004 ("Commencement Date") and ending February 28, 2009 ("Expiration Date").
1.6 Estimated Delivery Date: March 1, 2004. [This is a nonbinding estimate of the date on which Landlord currently estimates it will be able to deliver the Premises to Tenant for the purposes of Tenant commencing its tenant finish work.]
1.7 Base Rent:
Lease Year Rate/SF NNN Monthly Rent
--------------- ----------- ------------
3/1/04 -2/28/05 $4.50 $3,696.38
3/1/05 -2/28/06 $9.25 $7,598.10
3/1/06 -2/28/07 $9.50 $7,803.46
3/1/07 -2/29/08 $9.75 $8,008.81
3/1/08 -2/28/09 $10.00 $8,214.17
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Upon execution Tenant shall pay $6,423.48 as Base Rent and estimated Common Area Maintenance expenses for the period of March 1-31, 2004. For the Primary Lease Term Base Rent shall be payable on the first day of each month.
1.8 Rentable Area: Approximately 52,581 square feet which is all rentable space available for lease in the Building Complex. Unless otherwise provided herein, any square footage set forth in this Lease or that may have been used in calculating this Rent and/or Common Area Operating Expenses is an approximation which Landlord and Tenant agree is reasonable and the Base Rent and Tenant's Share based thereon are not subject to revision whether or not the actual square footage is more or less. Notwithstanding the foregoing, if there is: (i) alteration to the Premises or the Building or Building Complex after the Commencement Date; or (ii) any change in the designated Rentable Area of the Building Complex, then Landlord shall have the exclusive discretion to recalculate Tenant's Share by substituting the revised approximate Rentable Area of the Premises and/or the Building Complex in the calculation described above. Any change in the approximate Rentable Area of the Premises or recalculated by Landlord shall be effective, for purposes of calculating Tenant's Share as of the first day of the next calendar month after such change.
1.9 Tenant's Share of Common Area Operating Expenses: 18.75% (calculated by dividing 9.857 by 52.581).
1.10 Security Deposit: $10,940.00.
1.11 Permitted Use: General office for sales of stroke recovery systems.
1.12 Guarantor. The obligations of the Tenant under this Lease are to be guaranteed by Thomas Sandgaard.
2. Premises, Parking and Common Areas.
2.1 Grant. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises for the term, at the rent and upon all of the terms, covenants and conditions set forth in this Lease.
2.2 Landlord Delivery. Landlord shall deliver the Premises to Tenant clean and free of debris on the Commencement Date and warrants to Tenant that the existing plumbing, electrical systems, fire sprinkler system, lighting, air conditioning and heating systems and loading doors, if any, in the Premises, other than those constructed by Tenant, shall be in good operating condition on the Commencement Date. If Tenant does not give Landlord 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 Tenant at Tenant's sole cost and expense.
2.3 Acceptance of Premises. Tenant hereby acknowledges: (a) that it has been advised to satisfy itself with respect to the condition of the Premises including, but not limited to, the electrical and fire sprinkler systems, security, environmental aspects, and compliance with the Americans with Disabilities Act and applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, "Applicable Laws") and the present and future suitability of the Premises for Tenant's intended use; (b) that Tenant has made such investigation as it deems necessary with reference to such matters, is satisfied with reference thereto, and assumes all responsibility therefore as the same relate to Tenant's occupancy of the Premises and/or the terms of this Lease; and (c) that neither Landlord, nor any of Landlord's agents, has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. If Landlord has agreed to complete finish work in the Premises, such work shall be completed in accordance with Exhibit C attached hereto and made a part hereof (the "Work Agreement"), and such work may be referred to herein as "Landlord's Work. Except as set forth expressly in the Work Agreement, Landlord shall have no obligation for completion of remodeling of the Premises and Tenant shall accept the Premises in its "AS IS" condition.
COPY
2.4 Common Areas. The term "Common Areas" is defined as all areas and
facilities outside the Premises and within the exterior boundary line
of the Building Complex and interior utility raceways within the
Premises that are provided and designated by the Landlord from time to
time for the general non-exclusive use of Landlord, Tenant and other
tenants of the Building Complex and their respective employees,
suppliers, shippers, customers, contractors and invitees, including
parking areas, utility rooms, loading and unloading areas, trash
areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas. Landlord hereby grants to Tenant, for the benefit of
Tenant and its employees, suppliers, shippers, contractors, customers
and invitees, during the Term of this Lease the non-exclusive right to
use, in common with others entitled to such use, the Common Areas as
they exist from time to time, subject to any rights, powers, and
privileges reserved by Landlord under the terms hereof or under the
terms of any rules and regulations or restrictions governing the use
of the Building Complex. Under no circumstances shall the right
therein granted to use the Common Areas be deemed to include the right
to store any property, temporarily or permanently, in the Common
Areas. Any such storage shall be permitted only by the prior written
consent of Landlord or Landlord's designated agent, which consent may
be revoked at any time. In the event that any unauthorized storage
shall occur, then Landlord shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove
the property and charge the cost to Tenant, which cost shall be
immediately payable upon demand by Landlord. Landlord or such other
person(s) as Landlord may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to
time, to establish, modify, amend and enforce reasonable rules and
regulations with respect thereto. Landlord shall have the right, in
Landlord's sole discretion, from time to time: (i) to make changes to
the Common Areas, including, without limitation, changes in the
location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress,
direction of traffic, landscaped areas, walkways and utility raceways;
(ii) to close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains
available; (iii) to designate other land outside the boundaries of the
Building Complex to be a part of the Common Areas; (iv) to add
additional building and improvements to the Common Areas; (v) to use
the Common Areas while engaged in making additional improvements,
repairs or alterations to the Building Complex, or any portion
thereof; and (vi) to do and perform such other acts and make such
other changes in, to or with respect to the Common Areas and Building
Complex as Landlord may, in the exercise of sound business judgment
deem to be appropriate.
2.5 Parking. Tenant shall be entitled to use the number of unreserved parking spaces specified in Section 1.4 on those portions of the Common Areas designated from time to time by Landlord for parking. Tenant shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and loaded or unloaded as directed by Landlord in the Rules and Regulations issued by Landlord. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows use of the prohibited areas, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Primary Lease Term of this Lease are as specified in Section l.5.
3.2 Delivery Date. If a Delivery Date is specified in Section 1.6 and if Tenant totally or partially occupies the Premises after the Delivery Date but prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early occupancy. All other terms of this Lease, however (including but not limited to the obligations to pay Tenant's Share of Common Area Operating Expenses and to carry the insurance required in the Lease) shall be in effect during such period.
3.3 Delay In Possession. If for any reason Landlord cannot deliver possession of the Premises to Tenant by the Estimated Delivery Date, if one is specified in Section 1.6, or if no Delivery Date is specified, by the Commencement Date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Tenant hereunder, or extend the term hereof; but in such case, Tenant shall not, except as otherwise provided herein, be obligated to pay Base Rent or perform any other obligation of Tenant under the terms of this Lease until Landlord delivers possession of the Premises to Tenant. The delay of said date shall be in full satisfaction of any claims Tenant might otherwise have as a result of such delay. If in accordance with the foregoing provision, the Commencement Date would occur on other than the first day of a calendar month, the Commencement Date shall be delayed until the first day of the next calendar month and the Primary Lease Term shall be measured from such date; provided, however, during any period of delayed commencement, all terms and provisions set forth in this Lease including, but not limited to Tenant's obligation to pay Base Rent and all other charges under the Lease shall commence at such earlier date. In order to place in writing the exact Commencement Date and Expiration Date of the Lease, the parties agree to execute a supplemental agreement to become a part hereof setting forth such dates as determined under the provisions of this Section 3.3.
3.4 Lease Year. "Lease Year" as used in this Lease shall be defined as each twelve month period beginning with the Commencement Date or any anniversary thereof and ending on the immediately preceding day one year later.
4. Rent.
4.1 Base Rent. Tenant shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Landlord 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 the period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Landlord at its address stated herein or to such other persons or at such other addresses as Landlord may from time to time designate in writing to Tenant.
4.2 Common Area Operating Expenses. Tenant shall pay to Landlord during the term hereof, in addition to the Base Rent, Tenant's Share (as specified in Section 1.9) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as all costs incurred by Landlord relating to the ownership and operation of the Building Complex including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good order and condition of the Common Areas, including parking areas, utility rooms, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and exterior walls, including paint; exterior signs, awnings, any tenant directories, and fire detection, sprinkler systems, and all professional fees incurred in connection with the operation, management and maintenance of the Building Complex.
(ii) The cost of water, gas, electricity and telephone to service either the Building Complex and/or the Premises, to the extent not separately metered.
(iii) Snow, ice and debris removal service, and security services and the costs of any environmental inspections.
(iv) Cost of capital improvements, structural repairs and replacements in or to the Building Complex, which shall be amortized at a market rate of return over the useful life of such item as determined by Landlord's accountants.
(v) Real Property Taxes to be paid by Landlord for the Building and the Common Areas under Section 11 hereof.
(vi) The cost of the premiums for the insurance policies maintained by Landlord under Section 9 hereof.
(vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.
(viii) Any other services to be provided by Landlord that are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Building or to such other building in the Building Complex or to the operation, repair and maintenance thereof shall be allocated entirely to the Building or such other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Landlord to all buildings in the Building Complex.
(c) The inclusion of the improvements, facilities and services set forth in Section 4.2(a) shall not be deemed to impose an obligation upon Landlord to either have said improvements or facilities or to provide those services unless Landlord has agreed elsewhere in this Lease to provide the same or some of them.
(d) Tenant's Share of Common Area Operating Expenses shall be payable by
Tenant within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Tenant by Landlord. At Landlord's
option, however, an amount may be estimated by Landlord from time to
time of Tenant's Share of annual Common Area Operating Expenses and
the same shall be payable monthly, as Landlord shall designate, during
each calendar year on the same day as the Base Rent is due hereunder.
If during any particular calendar year, there is a change in the
information on which Landlord based the estimate upon which Tenant is
then making its estimated Operating Expense payments so that such
estimate furnished to Tenant is no longer accurate, Landlord shall be
permitted to revise such estimate from time to time by notifying
Tenant and there shall be such adjustments made in the monthly amount
of Tenant's Share on the first day of the month following the serving
of such statement to Tenant. Landlord shall deliver to Tenant after
the expiration of each calendar year a reasonably detailed statement
showing Tenant's Share of the actual Common Area Operating Expenses
incurred during the preceding year. If Tenant's payments under this
Section 4.2(d) during said preceding calendar year exceed Tenant's
Share as indicated on said statement, Tenant shall be credited the
amount of such overpayment against Tenant's Share of Common Area
Operating Expenses next becoming due. If Tenant's payments under this
Section 4.2(d) during said preceding year were less than Tenant's
Share as indicated on said statement, Tenant shall pay to Landlord the
amount of the deficiency within ten (10) days after delivery by
Landlord to Tenant of said statement. Landlord's failure to deliver
statement of Tenant's share within one hundred and twenty (120) days
shall not relieve Tenant of the obligation to pay sums otherwise due.
Tenant's obligation to pay Tenant's Share of Common Area Operating
Expenses shall survive the expiration or termination of the Lease.
5. Security Deposit. Tenant shall deposit with Landlord upon Tenant's execution hereof the Security Deposit set forth in Section 1.10 as security for Tenant's faithful performance of Tenant's obligations under this Lease. If Tenant fails to pay Base Rent or other rent or charges due hereunder, or otherwise is in default under this Lease, Landlord may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Landlord or to reimburse or compensate Landlord for any liability, cost, expense, loss or damage (including attorneys' fees) which Landlord may suffer or incur by reason thereof. If Landlord uses or applies all or any portion of said Security Deposit, Tenant shall within ten (10) days after written request therefore deposit monies with Landlord 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, Tenant shall, upon written request from Landlord, deposit additional monies with Landlord as an addition to the Security Deposit so that the total amount of the Security Deposit shall at all times bear the same proportion to the then current Base Rent as the initial Security Deposit bears to the initial Base Rent set forth in Section 1.7. Landlord shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Landlord shall, within sixty (60) days after the expiration of the term hereof and after Tenant has vacated the Premises, return to Tenant (or, at Landlord's option, to the last assignee, if any, of Tenant's interest herein), that portion of the Security Deposit, or applied by Landlord. 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 monies to be paid by Tenant under this Lease. At Landlord's election, Landlord may elect to have the Security Deposit held by Landlord's manager in a separate security deposit, trust, trustee or escrow account established and maintained by such manager with respect to certain security deposits of tenants within the Building Complex. Unless Tenant is so notified, (i) Landlord will hold the Security Deposit and be responsible for its return; and (ii) Tenant may request return of the Security Deposit by giving Landlord written notice in accordance with the provisions of the Lease, and Landlord's manager, if any, agrees that in the event of a dispute over the ownership of the Security Deposit, the manager will not wrongfully withhold Landlord's true name and current mailing address from Tenant. Landlord may deliver the funds deposited herein by Tenant to the purchaser of Landlord's interest in the Premises in the event such interest be sold, and thereupon, Landlord shall be discharged from further liability with respect to such deposit. If the claims of Landlord exceed said deposit, Tenant shall remain liable for the balance of such claims.
6. Use.
6.1 Permitted Use.
(a) Tenant shall use and occupy the Premises only for the Permitted Use set forth in Section 1.11 and for no other purpose. Tenant shall not use or permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises or neighboring premises or properties.
(b) Landlord hereby agrees to not unreasonably withhold or delay its consent to any written request by Tenant, Tenant's assignees or subtenants, and by prospective assignees and subtenants of Tenant, its assignees and subtenants, for a modification of said Permitted Use so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein does not conflict with uses by other Tenants, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to this Section 6. If Landlord elects to withhold such consent, Landlord shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Landlord's reasonable objections to the change in use.
7. Hazardous Substances.
7.1 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 potential liability of Landlord 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 or by-products thereof. Tenant shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Landlord and compliance in a timely manner (at Tenant's sole cost and expense) with all Applicable Requirements (as defined in Section 7.4). "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; and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Laws require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing. Tenant may, without Landlord's prior consent but upon notice to Landlord and in
compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Tenant in the normal course of the Permitted Use, 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 Landlord to any liability therefor. In addition, landlord may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Substance by Tenant upon Tenant's giving Landlord such additional assurances as Landlord, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefor including but not limited to the installation (and, at Landlord's option, 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 Section 5.
7.2 Duty to Inform Landlord. If Tenant knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises or the Building, other than as previously consented to by Landlord, Tenant shall immediately give Landlord written notice thereof, together with 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 concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Tenant shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system).
7.3 Indemnification. Tenant shall indemnify, protect, defend and hold Landlord, its managers, members, officers, directors, agents, employees, lenders and ground Landlord, if any, and the Premises, harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Tenant or by anyone under Tenant's control. Tenant's obligations under this Section 7.3 shall include, but not be limited to, the effects of any contamination or injury to any person, property or the environment created or suffered by Tenant, and the cost of investigation (including consultants' and attorneys' 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 Landlord and Tenant shall release Tenant from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Landlord in writing at the time of such agreement. The indemnification set forth above shall survive the expiration or termination of this Lease.
7.4 Tenant's Compliance with Requirements. Tenant shall at Tenant's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Requirements," which term is used in this Lease to mean 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 Landlord's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions; and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance), now in effect or which may hereafter come into effect. Tenant shall, within five (5) days after receipt of Landlord's written request, provide Landlord with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Tenant's compliance with any Applicable Requirements specified by Landlord, and shall immediately upon receipt, notify Landlord 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 Tenant or the Premises to comply with any Applicable Requirements.
7.5 Inspection. Landlord, Landlord's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lenders") 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 Tenant with this Lease and all Applicable Requirements, and Landlord shall be entitled to employ experts and/or consultants in connection therewith to advise Landlord with respect to Tenant's activities, including but not limited to Tenant's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default of this Lease by Tenant or a violation of Applicable Requirements or a contamination, caused or materially contributed to by Tenant, is found to exist or to 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 such case, Tenant shall upon request reimburse Landlord or Landlord's Lender, as the case may be, for the costs and expenses of such inspections.
8. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
8.1 By Tenant.
(a) Subject to the provisions of Sections 8.2, 10, and 15, Tenant
shall, at Tenant's sole cost and expense and at all times, keep
the Premises and every part thereof in good order, condition and
repair (whether or not such portion of the Premises requiring
repair, or the means of repairing the same, are reasonably or
readily accessible to Tenant, and whether or not the need for
such repairs occurs as a result of Tenant's use, any prior use,
the elements or the age of such portion of the Premises),
including, without limiting the generality of the foregoing, all
equipment or facilities specifically serving the Premises;
whether or not the equipment or facilities are located within the
Premises, such as plumbing, heating, air conditioning and
ventilating system, electrical lighting facilities, boilers,
fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces
of exterior walls, ceilings, floors, windows, doors serving the
Premises, including overhead doors, dock bumpers, dock pads, dock
levelers, etc., plate glass, and skylights, but excluding any
items which are the responsibility of Landlord pursuant to
Section 8.2 below. Tenant, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance
practices. Tenant'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. Tenant shall be responsible for
trash removal.
(b) Tenant shall, at Tenant's sole cost and expense, procure and maintain a contract, with copies to Landlord, customary form and substance for and with a contractor specializing and experienced in the inspection, maintenance and service of the heating, air conditioning and ventilation system for the Premises. However, Landlord reserves the right, upon notice to Tenant, to procure and maintain the preventative maintenance contract for the heating, air conditioning and ventilating systems, and if Landlord so elects, Tenant shall reimburse Landlord, upon demand, for the cost thereof.
(c) If Tenant fails to perform Tenant's obligations under this
Section 8.1, Landlord may enter upon the Premises after ten (10)
days' prior written notice to Tenant (except in the case of an
emergency, in which case no notice shall be required), perform
such obligations on Tenant's behalf, and put the Premises in good
order, condition and repair.
8.2 By Landlord. Subject to the provisions of Sections 2.2, 4.2, 6, 8.1, 10 and 15, and except for damage caused by any negligent or intentional act or omission of Tenant, its agents, employees, suppliers or invitees, in which event Tenant shall repair the damage, Landlord, subject to reimbursement pursuant to Section 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas) or other automatic fire extinguishing systems including fire alarm and/or smoke detention systems and equipment, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs, main sanitary sewer lines and utility systems serving the Common Areas and all parts thereof as well as providing the services for which there is a Common Area Operating Expense pursuant to Section 4.2. Landlord shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Landlord be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Tenant shall have no right to make repairs to the Building or Building Complex at Landlord's expense.
8.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions, Consent Required. The term "Utility Installations" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing, and fencing in, on, or about the Premises. The term "Trade Fixtures" shall mean Tenant's machinery and equipment which can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises after the Delivery Date, other than Utility Installations or Trade Fixtures. "Tenant-Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Tenant that are not yet owned by Landlord pursuant to Section 8.4(a). Tenant shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Landlord's prior written consent. Tenant may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without Landlord's consent but upon notice to Landlord, so long as they are not visible from the outside of the Premises, do not involve puncturing, relocating or removing the roof or any existing walls or changing or interfering with the fire sprinkler or fire detection systems and the cumulative cost thereof during the term of this Lease as extended does not exceed two thousand five hundred dollars ($2,500.00.)
(b) Consent, Any Alterations or Utility Installations that Tenant shall desire to make and which require the consent of the Landlord shall be presented to Landlord in written form with detailed plans. All consents given by Landlord, whether by virtue of Section 8.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Tenant 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 Landlord prior to commencement of the work thereon; and (iii) the compliance by Tenant with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Tenant during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and be in compliance with all Applicable Requirements. Tenant shall promptly upon completion thereof furnish Landlord with as-built plans and specifications therefor. Landlord may, (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs two thousand five hundred dollars ($2,500.00) or more upon Tenant providing Landlord 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.
(c) Lien Protection. Tenant shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Tenant shall give Landlord not less than ten (10) days' notice prior to the commencement of any work in, on, or about the Premises, and Landlord shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Tenant shall, in good faith, contest the validity of any such lien, claim or demand, then Tenant shall, at its sole expense, defend and protect itself, Landlord 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 Landlord or the Premises. If Landlord shall require, Tenant shall furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Landlord 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, Landlord may require Tenant to pay Landlord's attorneys' fees and costs in participating in such action if Landlord shall decide it is to its best interest to do so.
8.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Landlord's right to require their removal and to cause Tenant to become the owner thereof as hereinafter provided in this Section 8.4, all Alterations and Utility Installations made to the Premises by Tenant shall be the property of and owned by Tenant, but considered a part of the Premises. Landlord may, at any time and at its option, elect in writing to Tenant to be the owner of all or any specified part of the Tenant-Owned Alterations and Utility Installations. Unless otherwise instructed per Section 8.4(b) hereof, a11 Tenant-Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Landlord and remain upon the Premises and be surrendered with the Premises by Tenant.
(b) Removal. Unless otherwise agreed in writing, Landlord may require that any or all Tenant-Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Landlord. Landlord may require the removal at any time of all or any part of any Alterations or Utility Installations made without the required consent of Landlord.
(c) Surrender/Restoration. Tenant shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, 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 Tenant performing all of its obligations under this Lease. Except as otherwise agreed or specified herein, the Premises, as surrendered, shall include the Alterations and Utility Installations. The obligation of Tenant shall include the repair of any damage occasioned by the installation, maintenance or removal of Tenant's Trade Fixtures, furnishings, equipment, and Tenant-Owned Alterations and Utility Installations, as well as the removal of any storage tank installed by or for Tenant, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Tenant, all as may then be required by Applicable Requirements and/or good practice. Tenant's Trade Fixtures shall remain the property of Tenant and shall be removed by Tenant subject to its obligation to repair and restore the Premises per this Lease. Any Trade Fixtures, Alterations and/or Utility Installations not removed upon the expiration of this Lease shall be deemed abandoned and may be disposed of by Landlord, as Landlord may determine appropriate, without further notice to Tenant. Tenant shall pay Landlord all expenses incurred in connection with such items including, but not limited to, the costs of repairing any damage to the Premises caused by removal of such items. Tenant's obligation hereunder shall survive the expiration or other termination of the Lease.
9. Insurance; Indemnity
9.1 Payment of Premiums. The cost of the premiums for the insurance policies maintained by Landlord under this Section 9 shall be a Common Area Operating Expense pursuant to Section 4.2 hereof. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement Date or Expiration Date.
9.2 Liability Insurance.
(a) Carried by Tenant. Tenant shall obtain and keep in force during the term of this Lease a commercial general liability policy of insurance protecting Tenant, Landlord and any Lender(s) whose names have been provided to Tenant in writing (as 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 two million dollars ($2,000,000) per occurrence with an "Additional Insured-Managers or Landlords of Premises" endorsement and contain the "Amendment at the Pollution Exclusion" endorsement 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 Tenant's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Tenant shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. All insurance to be carried by Tenant shall be primary to and not contributory with any similar insurance carried by Landlord, whose insurance shall be considered excess insurance only. In addition, Tenant shall maintain workers' compensation insurance as is required by state law.
(b) Carried By Landlord. Subject to reimbursement of premiums as described in Section 9.1, Landlord shall also maintain liability insurance described in Section 9.2(a) above, in addition to and not in lieu of, the insurance required to be maintained by Tenant. Tenant shall not be named as an additional insured therein.
9.3 Property Insurance. Subject to reimbursement of premiums as described in Section 9.1, Landlord shall maintain property damage insurance on such portions of the Building Complex from time to time which Landlord has the obligation to maintain and repair under this Lease, above foundation walls, insuring against loss or damage by fire or other casualty covered by a so-called "special form" policy, in such amounts, and from companies and on such terms and conditions as Landlord deems appropriate from time to time. Tenant-Owned Alterations and Utility Installations, Trade Fixtures and Tenant's' personal property shall be insured by Tenant pursuant to Section 9.4. Landlord may also obtain and keep in force during the term of this Lease a policy or policies in the name of Landlord, with loss payable to Landlord and any Lender(s), insuring the loss of the full rental and other charges payable by all Tenants of the Building to Landlord for one year (including all Real Property Taxes, insurance costs, all Common Area Operating Expenses and any scheduled rental increases). Tenant shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Building Complex if said increase is caused by Tenant's acts, omissions, use or occupancy of the Premises.
9.4 Tenant's Property Insurance. Subject to the requirements of Section
9.5, Tenant at its cost shall either by separate policy or, at
Landlord's option, by endorsement to a policy already carried,
maintain insurance coverage on all of Tenant's personal property,
Trade Fixtures and Tenant-Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by
Landlord as the Insuring Party under Section 9.3. Such insurance shall
be full replacement cost coverage with a deductible not to exceed
$1,000 per occurrence. The proceeds from any such insurance shall be
used by Tenant for the replacement of personal property and the
restoration of Trade Fixtures and Tenant-Owned Alterations and Utility
Installations. Upon request from Landlord, Tenant shall provide
Landlord with written evidence that such insurance is in force.
Insurance required of Tenant 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, as set forth in the most current issue of
"Best's Insurance Guide." Tenant shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in
this Section 9. Tenant shall cause to be delivered to Landlord, within
seven (7) days after the earlier of the Delivery Date or the
Commencement Date evidence of the existence and amounts of, the
insurance required under Section 9.2(a) and 9.4. No such policy shall
be cancelable or subject to modification except after thirty (30)
days' prior written notice to Landlord. Tenant shall at least thirty
(30) days prior to the expiration of such policies, furnish Landlord
with evidence of renewals or "insurance binders" evidencing renewal
thereof, or Landlord may order such insurance and charge the cost
thereof to Tenant, which amount shall be payable by Tenant to Landlord
upon demand.
9.5 Waiver. Tenant and Landlord 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 or damage to their property or for any business interruption arising out of or incident to the perils to the extent such loss or damage or business interruption is coverable by a standard or special form policy regardless of whether such insurance is carried or not, or if so carried, payable to or protects Landlord or Tenant or both. 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. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance is not invalidated thereby.
9.6 Indemnity. Except for Landlord's willful misconduct, Tenant shall indemnify, protect, defend and hold harmless the Premises, Landlord and its agents, employees, Landlord's master or ground Landlord, members, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the occupancy of the Premises by Tenant, the conduct of Tenant's business, any act, omission or neglect of Tenant, its agents, contractors, employees or invitees, and out of any Default or Breach by Tenant in the performance in a timely manner of any obligation on Tenant'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 Landlord) litigated and/or reduced to judgment. In case any action or proceeding be brought against Landlord by reason of any of the foregoing matters, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord and Landlord shall cooperate with Tenant in such defense. Landlord need not have first paid any such claim in order to be so indemnified. The provisions of this Section shall survive the expiration or termination of this Lease.
9.7 Exemption of Landlord from Liability. Landlord shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Tenant, Tenant'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 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, 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. Landlord shall not be liable for any damages arising from any act or neglect of any other Tenant of Landlord nor from the failure by Landlord to enforce the provisions of any other lease in the Building Complex. Notwithstanding Landlord's negligence or breach of this Lease, Landlord shall under no circumstances be liable for injury to Tenant's business or for any loss of income or profit therefrom, or for any consequential damages of Tenant. Notwithstanding anything to the contrary contained herein, Landlord's liability under this Lease shall be limited to its interest in the Building Complex.
10. Damage or Destruction.
10.1 Total Damage. If the Premises or the Building shall be so damaged by
fire or other casualty as to render the Premises wholly untenantable
and if such damage shall be so great that a competent architect, in
good standing, selected by Landlord shall certify in writing to
Landlord and Tenant within ninety (90) days of said casualty that the
Premises, with the exercise of reasonable diligence, cannot be made
fit for occupancy within one hundred eighty (180) working days from
the happening thereof, then this Lease shall cease and terminate from
the date of the occurrence of such damage and Tenant shall thereupon
surrender to Landlord the Premises and all interest therein hereunder
and Landlord may reenter and take possession of the Premises and
remove Tenant therefrom. Tenant shall pay rent, duly apportioned, up
to the time of such termination of this Lease. If, however, the damage
shall be such that said architect shall certify within said ninety
(90) day period that the Premises can be made tenantable within said
one hundred eighty (180) day period, then, except as hereinafter
provided, Landlord shall repair the damage so done (to the extent of
the Building Standard tenant finish allowance then provided by
Landlord to tenants in the Building) with all reasonable speed.
10.2 Partial Damage. If the Premises shall be slightly damaged by fire or other casualty, but not so as to render the same wholly untenantable or to require a repair period in excess of one hundred eighty (180) days, then, Landlord, after receiving notice in writing of the occurrence of the casualty, except as hereafter provided, shall cause the same to be repaired to the extent of the base tenant finish per the then-current standard allowance provided by Landlord to tenants in the Building with reasonable promptness. If the estimated repair period as established in accordance with the provisions of subparagraph 10.1 above exceeds one hundred eighty (180) days, then the provisions of subparagraph 10.1 shall control notwithstanding the fact that the Premises are not wholly untenantable.
10.3 Building Damage. In case the Building throughout shall be so injured or damaged, whether by fire or otherwise (though said Premises may not be affected, or if affected, can be repaired within said one hundred eighty (180) days), that, within ninety (90) days after the happening of such injury, Landlord shall decide not to reconstruct or rebuild said Building, then, notwithstanding anything contained herein to the contrary, upon notice in writing to that effect given by Landlord to Tenant within said ninety (90) days, Tenant shall pay the rent, properly apportioned up to such date, this Lease shall terminate from the date of delivery of said written notice, and both parties hereto shall be freed and discharged of all further obligations hereunder.
10.4 Rent Abatement. Provided that the casualty is not the fault of Tenant, Tenant's agents, servants, or employees. Tenant's
rent shall abate during any such period of Landlord's repair and restoration, but only to the extent of any recovery by Landlord under its rental insurance related to the Premises in the same proportion that the part of the Premises rendered untenantable bears to the whole.
10.5 Tenant's Obligation. In the event the Lease is not terminated, Tenant shall, at its expense, replace or fully repair Tenant's personal property and Alterations and/or Utility Installations installed by Tenant in the Premises existing on the date of the occurrence of the casualty and Tenant shall fully cooperate with Landlord in removing Tenant's personal property and any debris from the Premises to facilitate making of repairs.
11. Real Property Taxes.
11.1 Payment of Taxes. Landlord shall pay the Real Property Taxes, as defined in Section 11.2, applicable to the Building Complex, and except as otherwise provided in Section 11.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Section 4.2.
11.2 Real Property Tax Definition. 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 Building Complex 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 Landlord in the Building Complex or any portion thereof, Landlord's right to rent or other income therefrom, and/or Landlord's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable Law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Building Complex 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, and any reasonable expenses incurred by Landlord in contesting such taxes or assessment of the Building Complex. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.
11.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Building Complex by other tenants or by Landlord for the exclusive enjoyment of such other tenants. Notwithstanding Section 11.1 hereof, Tenant shall, however, pay to Landlord at the time Common Area Operating Expenses are payable under Section 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Tenant or at Tenant's request.
11.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building 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 Landlord from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Landlord's reasonable determination thereof, in good faith, shall be conclusive.
11.5 Tenant's Taxes. Tenant shall pay prior to delinquency all taxes
assessed against and levied upon Tenant-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Tenant contained in the Premises or stored within the
Building Complex. When possible, Tenant shall cause its Tenant-Owned
Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed
separately from the real property of Landlord. If any of Tenant's said
property shall be assessed with Landlord's real property, Tenant shall
pay Landlord the taxes attributable to Tenant's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Tenant's property. In addition, Tenant shall pay all
taxes, including, without limitation, workers' compensation, general
license or franchise taxes and rent taxes, if any, which may be
required for the conduct of Tenant's business.
12. Utilities. Tenant shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises, together with any taxes thereon. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Tenant shall pay to Landlord a reasonable proportion to be determined by Landlord of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Section 4.2(d). In addition, Tenant shall reimburse Landlord for the reasonable costs incurred by Landlord in providing services which are shared by more than one tenant after ordinary business hours, including, without limitation, the costs for materials, additional wear and tear on equipment, utility charges and labor (including fringe benefits and overhead costs). Computation for Landlord's costs for providing such services will be made by Landlord's engineer, based on such engineer's survey of Tenant's excess usage.
13. Assignment and Subletting.
13.1 Landlord's Consent Required.
(a) Tenant shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber
(collectively, "assign") or sublet a11 or any part of Tenant's
interest in this Lease or in the Premises without Landlord's
prior written consent, which consent will not unreasonably be
withheld provided that (i) Tenant has complied with the
provisions of this subparagraph and Landlord has declined to
exercise its rights thereunder; (ii) the proposed subtenant or
assignee is engaged in a business in the Premises which will be
used in a manner which is in keeping with the then standards of
the Building Complex and does not conflict with any exclusive use
rights granted to any other tenant; (iii) the proposed subtenant
or assignee has reasonable financial worth in light of the
responsibilities involved and Tenant shall have provided Landlord
with reasonable evidence thereof; (iv) Tenant is not in default
hereunder at the time it makes its request for such consent; (v)
the proposed subtenant or assignee is not a governmental or
quasi-governmental agency; (vi) the proposed subtenant or
assignee is not a tenant under or is not currently negotiating a
lease with Landlord in any building owned by Landlord in the
Denver metropolitan area (including in the Building Complex); or
(vii) the rent under such sublease or assignment is not less than
the rent to be paid by Tenant for such space under the Lease and
is not less than eighty-five percent (85%) of the rental rate
then being offered by Landlord for similar space in the Building
Complex. Notwithstanding anything contained in Section 13 to the
contrary, in the event Tenant requests Landlord's consent to
sublet all or a portion of the Premises or to assign its interest
in this Lease, Landlord shall have the right to (x) consent to
such sublease or assignment in its reasonable discretion as
described in the preceding sentences; (y) refuse to grant such
consent in Landlord's reasonable discretion based upon the
criteria described above; or (z) refuse to grant such consent and
terminate this Lease as to the portion of the Premises with
respect to which such consent was requested; provided, however,
if Landlord refuses to grant such consent and elects to terminate
the Lease as to such portion of the Premises, Tenant shall have
the right within fifteen (15) days after Landlord's exercise of
its right to terminate to withdraw Tenant's request for such
consent and remain in possession of the Premises under the terms
and conditions hereof. In the event the Lease is terminated as
set forth herein, such termination shall be effective as of the
date set forth in a written notice from Landlord to Tenant, which
date shall in no event be more than thirty (30) days following
such notice. Tenant hereby agrees that in the event it desires to
sublease all or any portion of the Premises or assign this Lease
to any party, in whole or in part, Tenant shall notify Landlord
not less than sixty (60) days prior to the date Tenant desires to
sublease such portion of the Premises or assign this Lease
("Tenant's Notice"). Tenant's Notice shall set forth a
description of the Premises to be so sublet or assigned and the
terms and conditions on which Tenant desires to sublet the
Premises or assign this Lease. Landlord shall have forty-five
(45) days following receipt of Tenant's Notice to exercise
Landlord's rights pursuant to (x), (y) and (z) above. If Landlord
consents to such sublease or assignment, and if for any reason
Tenant is unable to sublet said portion of the Premises or assign
the applicable portion of its interest in this Lease on the terms
and conditions contained in Tenant's Notice within one hundred
and twenty (120) days following its original notice to Landlord,
Tenant agrees to re-offer the Premises to Landlord in accordance
with the provisions hereof prior to subleasing or assigning the
same to any third party.
(b) A change in the control of Tenant shall constitute an assignment requiring Landlord's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Tenant, shall constitute a change in control for this purpose.
(c) The involvement of Tenant 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 Tenant's assets occurs, which results or will result in a reduction of the Net Worth of Tenant, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Tenant as it was represented to Landlord at the time of full execution and delivery of this Lease, or at the time of the most recent assignment to which Landlord has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Tenant was or is greater, shall be considered an assignment of this Lease by Tenant to which Landlord may reasonably withhold its consent. "Net Worth of Tenant" for purposes of this Lease shall be the net worth of Tenant (excluding any Guarantors) established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Tenant's interest in this Lease without Landlord's specific prior written consent shall, at Landlord's option, be a Default curable after notice per Section 13.1, or a non-curable Default without the necessity of any notice and grace period. If Landlord elects to treat such unconsented assignment or subletting as a non-curable Default, Landlord shall have the right to either: (i)terminate this Lease, or (ii) upon thirty (30) days written notice ("Landlord's Notice"), increase the monthly Base Rent for the Premises to the greater of the then fair market rental value of the Premises, as reasonably determined by Landlord, or one hundred ten percent (110%) of the Base Rent then in effect. Pending determination of the new fair market rental value, if disputed by Tenant, Tenant shall pay the amount set forth in Landlord'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 Default and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Tenant shall be subject to similar adjustment to the then fair market value as reasonably determined by Landlord (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; (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 rental bears to the Base Rent in effect immediately prior to the adjustment specified in Landlord's Notice.
(e) Tenant's remedy for any breach of this Section 13.1 by Landlord shall be limited to compensatory damages and/or injunctive relief.
13.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Landlord's consent any assignment or subletting
shall not (i) be effective without the express written assumption
by such assignee or subtenant of the obligations of Tenant under
this Lease; (ii) release Tenant of any obligations hereunder; nor
(iii) alter the primary liability of Tenant for the payment of
Base Rent and other sums due Landlord hereunder or for the
performance of any other obligations to be performed by Tenant
under this Lease.
(b) Landlord may accept any rent or performance of Tenant's obligations from any person other than Tenant pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent for performance shall constitute a waiver or estoppel of Landlord's right to exercise its remedies for the Default or breach by Tenant of any of the terms, covenants or conditions of this Lease.
(c) The consent of Landlord to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Tenant or to any subsequent or successive assignment or subletting by the assignee or subtenant. However Landlord may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Tenant or anyone else liable under this Lease or the sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or the sublease.
(d) In the event of any Default of Tenant's obligations under this Lease, Landlord may proceed directly against Tenant, any Guarantors or anyone else responsible for the performance of the Tenant's obligations under this Lease, including any subtenant, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Landlord's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or subtenant, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of one thousand dollars ($1,000.00) or ten percent (10%) of the monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as reasonable consideration for Landlord's considering and processing the request for consent. Tenant agrees to provide Landlord with such other or additional information and/or documentation as may be reasonably requested by Landlord.
(f) Any assignee of, or subtenant under this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed for the benefit of Landlord, 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 Tenant 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 Landlord has specifically consented in writing.
(g) The occurrence of a transaction described in Section 13.2(c)
shall give Landlord the right (but not the obligation) to require
that the Security Deposit be increased by an amount equal to six
(6) times the then monthly Base Rent, and Landlord may make the
actual receipt by Landlord of the Security Deposit increase a
condition to Landlord's consent to such transaction.
(h) Landlord, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment schedule of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment schedule for property similar to the Premises as then constituted, as determined by Landlord.
(i) If Tenant collects any rental or other amounts from a subtenant or assignee in excess of the Base Rent and Tenant's Share of Common Area Operating Expenses, Tenant shall pay the Landlord, as and when Tenant receives the same, all such excess amounts received by Tenant less any improvements, brokers' fees, advertising expenses or other concessions to the extent all of the above are actually paid for by Tenant in the procurement of a subtenant or assignee.
13.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Tenant 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) Tenant hereby assigns and transfers to Landlord all of Tenant's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Tenant, and Landlord may collect such rent and income and apply same toward Tenant's obligations under the Lease; provided, however, that until a Default (as defined in Section 14.1) shall occur in the performance of Tenant's obligations under this Lease, Tenant may, except as otherwise may be provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of the foregoing provision except as otherwise provided in this Lease,
receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of the foregoing provision or any other assignment of such sublease to Landlord, nor by reason of the collection of the rents from a subtenant, be deemed liable to the subtenant for any failure of Tenant to perform and comply with any of Tenant's obligations to such sublease under such Sublease. Tenant hereby irrevocably authorizes and directs any such sublease, upon receipt of a written notice from Landlord stating that a Default exists in the performance of Tenant's obligations under this Lease to pay to Landlord the rents and other charges due and to become due under the sublease. Subtenant shall rely upon any such statement and request from Landlord and shall pay such rents and other charges to Landlord without any obligation or right to inquire as to whether such Default exists and notwithstanding any notice from or claim from Tenant to the contrary, Tenant shall have no right or claim against such subtenant, or, until the Default has been cured, against Landlord, for any such rents and other charges so paid by said subtenant to Landlord.
(b) In the event of a Default by Tenant in the performances of its obligations under this Lease, Landlord, at its option and without any obligation to do so, may require any subtenant to attorn to Landlord, in which event Landlord shall undertake the obligations of the sublandlord under such sublease from the time of the exercise of said option to the expiration of such subleases; provided, however, Landlord shall not be liable for any prepaid rents or security deposit paid by such subtenant to such sublandlord or for any other prior defaults or breaches of such sublandlord under such sublease.
(c) Any matter or thing requiring the consent of the sublandlord under a sublease shall also require the consent of Landlord herein.
(d) No subtenant under a sublease approved by Landlord shall further assign or sublet all or any part of the Premises without Landlord's prior written consent, which may be granted or denied in Landlord's sole discretion.
14. Default; Remedies.
14.1 Default. A "Default" or "Event of Default" by Tenant is defined as a failure by Tenant to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Tenant under this Lease. Each one of the following shall be an event of default:
(a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by Tenant to make any payment of Base Rent, Tenant's Share of Common Area Operating Expenses, or any other monetary payment required to be made by Tenant hereunder as and when due, the failure by Tenant to provide Landlord with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Tenant 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 Landlord to Tenant.
(c) Except as expressly otherwise provided in this Lease, the failure
by Tenant to provide Landlord with reasonable written evidence
(in duly executed original form, if applicable) of (i) compliance
with Applicable Requirements per Section 7.4; (ii) the
inspection, maintenance and service contracts required by Section
8.l(b); (iii) the rescission of an unauthorized assignment or
subletting per Section 13; (v) a Tenancy Statement per Sections
17 or 37; (vi) the subordination or non-subordination of this
Lease per Section 31; (vi) the guaranty of the performance of
Tenant's obligations under this Lease if required under Sections
1.12 and 37; (vii) the execution of any document requested under
Section 41 (easements); or (viii) any other documentation or
information which Landlord may reasonably require of Tenant 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 Landlord to Tenant.
(d) A Default by Tenant as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Section
39 hereof that are to be observed, complied with or performed by
Tenant, other than those described in Subparagraphs 14.l(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
Landlord to Tenant; provided, however, that if the nature of
Tenant'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 Tenant if Tenant 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 Tenant of any general arrangement or assignment for the benefit of creditors; (ii) Tenant's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant'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 14.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions.
(f) The discovery by Landlord that any financial statement of Tenant or of any Guarantor, given to Landlord by Tenant or any Guarantor, was materially false.
(g) If the performance of Tenant's obligations under this Lease is guaranteed: (i) the death of a Guarantor; (ii) the termination of a Guarantor's liability with respect to the 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 Tenant's failure within sixty (60) days following written notice by or on behalf of Landlord to Tenant of any such event, to provide Landlord with written alternative assurances of security, which, when coupled with the then existing resources of Tenant, equals or exceeds the combined financial resources of Tenant and the Guarantors that existed at the time of execution of this Lease.
14.2 Remedies
(a) If any one or more Event of Default shall happen, then Landlord shall have the right at Landlord's election, then or at any time thereafter either:
(l)(a) Without demand or notice, to reenter and take possession of the Premises or any part thereof and repossess the same as of Landlord's former estate and expel Tenant and those claiming possession through or under Tenant and remove the effects of both or either, without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of rent or preceding breach of covenants or conditions. Should Landlord elect to reenter; as provided in this subparagraph (1), or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord may, from time to time, without terminating this Lease, relet the Premises or any part thereof, either alone or in conjunction with other portions of the Building of which the Premises are a part, in Landlord's or Tenant's name but for the account of Tenant, 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 Lease) and on such conditions and upon such other terms (which may include concessions of free rent and alteration and repair of the Premises) as Landlord, in its absolute discretion, may determine and Landlord may collect and receive the rents therefor. Landlord shall in no way be responsible or liable for any failure to relet the Premises, or any part thereof, or for any failure to collect any rent due upon such reletting; provided, however, Landlord shall use reasonable efforts to relet the Premises. No such reentry or taking possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention be given to Tenant. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar
law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Landlord reserves the right following any such reentry and/or reletting to exercise its right to terminate this Lease by giving Tenant such written notice, in which event the Lease will terminate as specified in said notice.
(1)(b) If Landlord elects to take possession of the Premises as provided in this subparagraph (1) without terminating the Lease, Tenant shall pay to Landlord (i) the rent and other sums as herein provided, which would be payable hereunder if such repossession had not occurred, less (ii) the net proceeds, if any, of any reletting of the Premises after deducting all of Landlord's expenses incurred in connection with such reletting, including, but without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, expenses of employees, alteration, remodeling, and repair costs and expenses of preparation for such reletting. If, in connection with any reletting, the new lease term extends beyond the existing term or the premises covered thereby include other premises not part of the Premises, a fair apportionment of the rent received from such reletting and the expenses incurred in connection therewith, as provided aforesaid, will be made in determining the net proceeds received from such reletting. In addition, in determining the net proceeds from such reletting, any rent concessions will be apportioned over the term of the new lease. Tenant shall pay such amounts to Landlord monthly on the days on which the rent and all other amounts owing hereunder would have been payable if possession had not been retaken and Landlord shall be entitled to receive the same from Tenant on each such day; or
(2)(a) To give Tenant written notice of intention to terminate this Lease on the date of such given notice or on any later date specified therein and, on the date specified in such notice, Tenant's right to possession of the Premises shall cease and the Lease shall thereupon be terminated, except as to Tenant's liability hereunder as hereinafter provided, as if the expiration of the term fixed in such notice were the end of the term herein originally demised. In the event this Lease is terminated pursuant to the provisions of this subparagraph (2), Lessee shall remain liable to Landlord for damages in an amount equal to the rent and other sums which would have been owing by Tenant hereunder for the balance of the term had this Lease not been terminated less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to such termination, after deducting all Landlord's expenses in connection with such reletting, including, but without limitation, the expenses enumerated above. Landlord shall be entitled to collect such damages from Tenant monthly on the days on which the rent and other amounts would have been payable hereunder if this Lease had not been terminated and Landlord shall be entitled to receive the same from Tenant on each such day. Alternatively, at the option of Landlord, in the event this Lease is terminated, Landlord shall be entitled to recover forthwith against Tenant as damages for loss of the bargain and not as a penalty an amount equal to the worth at the time of termination of the excess, if any, of the amount of rent reserved in this Lease for the balance of the term hereof over the then Reasonable Rental Value of the Premises for the same period plus all amounts incurred by Landlord in order to obtain possession of the Premises and relet the same, including attorneys' fees, reletting expenses, alterations and repair costs, brokerage commissions and all other like amounts. 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 the term.
(b) Suit or suits for the recovery of the rents and other amounts and damages set forth hereinabove may be brought by Landlord, from time to time, at Landlord's election, and nothing herein shall be deemed to require Landlord to await the date whereon this Lease or the term hereof would have expired had there been no such default by Tenant or no such termination, as the case may be. Each right and remedy provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, including, but not limited to, suits for injunctive relief and specific performance. The exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. All such rights and remedies shall be considered cumulative and non-exclusive. All costs incurred by Landlord in connection with collecting any rent or other amount and damages owing by Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, shall also be recoverable by Landlord from Tenant. Further, if an action is brought pursuant to the terms and provisions of the Lease, the prevailing party in such action shall be entitled to recover from the other party any and all reasonable attorneys' fees incurred by such prevailing party in connection with such action.
(c) No failure by Landlord to insist upon the strict performance of any agreement, term, covenant or condition hereof or to exercise any right or remedy consequent upon a Default thereof and no acceptance of full or partial rent during the continuance of any such Default shall constitute a waiver of any such Default or of such agreement, term, covenant, or condition. No agreement, term, covenant, or condition hereof to be performed or complied with by Tenant and no Default thereof shall be waived, altered, or modified, except by written instrument executed by Landlord. No waiver of any Default shall affect or alter this Lease but each and every agreement, term, covenant, and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent Default thereof. Notwithstanding any termination of this Lease, the same shall continue in force and effect as to any provisions which require observance or performance by Landlord or Tenant subsequent to such termination.
(d) Nothing contained in this Section 14 shall limit or prejudice the right of Landlord to prove and obtain as liquidated damages in any bankruptcy, insolvency, receivership, reorganization, or dissolution proceeding an amount equal to the maximum allowed by any statute or rule of law governing such a proceeding and in effect at the time when such damages are to be proved, whether or not such amount be greater, equal to, or less than the amounts recoverable, either as damages or rent, referred to in any of the preceding provisions of this Section. Notwithstanding anything contained in this Section to the contrary, any such proceeding or action involving bankruptcy, insolvency, reorganization, arrangement, assignment for the benefit of creditors, or appointment of a receiver or trustee, as set forth above, shall be considered to be an Event of Default only when such proceeding, action, or remedy shall be taken or brought by or against the then holder of the leasehold estate under this Lease."
(e) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state wherein the Premises are located.
(f) The expiration or termination of this Lease and/or the termination of Tenant's right to possession shall not relieve Tenant from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Tenant's occupancy of the Premises.
14.3 Inducement Recapture in Event of Default. Any agreement by Landlord for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Landlord to or for Tenant of any cash or other bonus, inducement or consideration for Tenant's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Tenant's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Tenant during the term hereof as the same may be extended upon the occurrence of a Default (as defined in Section 14.1) of this Lease by Tenant, 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 Landlord under such an Inducement Provision shall be immediately due and payable by Tenant to Landlord, and recoverable by Landlord, as additional rent due under this Lease, notwithstanding any subsequent cure of said Default by Tenant. The acceptance by Landlord of rent or the cure of the Default which initiated the operation of this Section 14.3 shall not be deemed a waiver by Landlord of the provisions of this Section 14.3 unless specifically so stated in writing by Landlord at the time of such acceptance.
14.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord 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 Landlord by the terms of any ground lease, mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or other sum due from Tenant
shall not be received by Landlord or Landlord's designee within five
(5) days after such amount shall be due, then, without any requirement
for notice to Tenant. Tenant shall pay to Landlord a late charge equal
to five percent (5%) of such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the
costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's Default with respect to such overdue
amount, nor prevent Landlord 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 Section 4.1 or any
other provision of this Lease to the contrary, Base Rent shall, at
Landlord's option, become due and payable quarterly in advance.
14.5 Default by Landlord. Landlord shall not be deemed in default of this
Lease unless Landlord fails within a reasonable time to perform an
obligation required to be performed by Landlord. For purposes of this
Section 14.5, a reasonable time shall in no event be less than thirty
(30) days after receipt by Landlord, and by any Lender(s) whose name
and address shall have been furnished to Tenant in writing for such
purpose, of written notice specifying wherein such obligation of
Landlord has not been performed: provided, however, that if the nature
of Landlord's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Landlord
shall not be in breach of this Lease if performance is commenced
within such thirty (30)day period and thereafter diligently pursued to
completion.
15. 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 portion of the Common Areas designated for Tenant's parking is taken by condemnation, Tenant may, at Tenant's option, to be exercised in writing within ten (10) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Tenant 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 Premises. No reduction of Base Rent shall occur if the condemnation does not apply to any portion of the Premises. 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 Landlord, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Tenant shall be entitled to any compensation, separately awarded to Tenant for Tenant's relocation expenses and/or loss of Tenant's Trade Fixtures.
16. Brokers. Tenant and Landlord each represent and warrant to the other that
(i) it has had no dealings with any person, firm, broker or finder other
than David Fried of First Industrial Realty, Inc. (First Industrial) who
acted as Landlord's agent in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby; and (ii) no
broker or other person, firm or entity other than said named Broker(s) is
entitled to any commission or finder's fee in connection with said
transaction. Tenant and Landlord 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, and/or attorneys' fees
reasonably incurred with respect thereto.
17. Statements.
17.1 Estoppel. Each party shall within ten (10) days after written notice
from the other party execute, acknowledge, and deliver to the
requesting party a statement in writing certifying that this Lease 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 there have been no defaults
thereunder by Landlord or Tenant (or, if there have been defaults,
setting forth the nature thereof), the date to which the rent and
other charges have been paid in advance, if any, and such other
information as the requesting party may request. It is intended that
any such statement delivered pursuant to this Section may be relied
upon by any prospective purchaser of all or any portion of Landlord's
interest herein or any holder of any mortgage or deed of trust
encumbering the Building Complex. Tenant's failure to deliver such
statement within such time shall be conclusive upon Tenant that:
(i)the Lease is in full force and effect, without modification except
as may be represented by Landlord; (ii) there are no uncured defaults
in Landlords performance and (iii) not more than one month's rent has
been paid in advance. Further, upon request, Tenant will supply
Landlord a corporate or partnership resolution, as the case may be,
certifying that the party signing said statement of Tenant is properly
authorized to do so.
17.2 Financial Statement. If Landlord desires to finance, refinance, or sell the Premises or the Building, or any part thereof, Tenant and all Guarantors shall deliver to any potential lender or purchaser designated by Landlord such financial statements of Tenant and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Tenant's financial statements for the past three (3) years. All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
18. Landlord's Liability. The term "Landlord" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the event of a transfer of Landlord's title or interest in the Premises or in this Lease, Landlord shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Landlord at the time of such transfer or assignment. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Landlord shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Landlord. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Landlord shall be binding only upon the Landlord as hereinabove defined.
19. 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.
20. Interest on Past Due Obligations. Any monetary payment due Landlord
hereunder, other than late charges, not received by Landlord within ten
(10) days following the date on which it was due, shall bear interest from
the date due at the prime rate charged by the largest state chartered bank
in the state in which the Premises are located plus four percent(4%) per
annum, but not exceeding the maximum rate allowed by law, in addition to
the potential late charge provided for in Section 14.4.
21. 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.
22. Rent. All monetary obligations of Tenant to Landlord under the terms of this Lease are deemed to be rent.
23. No Prior or other Agreements. This Lease contains all agreements between the Parties with respect to any maker mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.
24. Notices.
24.1 Notice Requirements. 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 certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given if served in a manner specified in this Section 24. The addresses noted below 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 Tenant's taking possession of the Premises, the Premises shall constitute Tenant's address for the purpose of mailing or delivering notices to Tenant. A copy of all notices required or permitted to be given to Landlord hereunder shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate by written notice to Tenant.
If to Local Landlord: First Industrial Realty. Inc.
5350 South Roslyn Street, Suite 240
Greenwood Village, Colorado 80111
Attn: Jane Montgomery
If to Landlord: First Industrial. L.P.
311 South Wacker Drive. Suite 4000
Chicago, Illinois 60606
Attn: Chief Operating Officer
with a copy to: Barack Ferrazzano Kirschbaum
Perlman & Nagelberg
333 West Wacker Drive, Suite 2700
Chicago. Illinois 60606
Attn: Howard Nagelberg and
Suzanne Besette-Smith
If to Tenant: Zynex Medical, Inc.
8100 Southpark Way
Unit A-9
Littleton, CO 80120
Attn: Thomas Sandgaard
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24.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, 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 or facsimile confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery of mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day.
25. Waivers. No waiver by Landlord of the Default of any term, covenant or condition hereof by Tenant shall be deemed a waiver of any other form covenant or condition hereof or of any subsequent Default by Tenant of the same of any other term, covenant or condition hereof. Landlord's consent to or approval of any such act shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval or any subsequent or similar act by Tenant or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Landlord's knowledge of a Default at the time of accepting rent, the acceptance of rent by Landlord shall not be a waiver of any Default by Landlord of any provision hereof. Any payment given Landlord by Tenant may be accepted by Landlord on account of moneys or damages due Landlord, notwithstanding any qualifying statements or conditions made by Tenant in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Landlord at or before the time of deposit of such payment.
26. Recording. Tenant shall not record this Lease or a memorandum hereof. In the event that Tenant violates this provision, this Lease shall be null, void and of no further force and effect, at Landlord's option, except that Tenant shall be liable to Landlord as liquidated damages, in the amount of the remaining Rent to be paid hereunder.
27. Holdover. Tenant has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination, of this Lease. In the event that Tenant holds over in violation of this Section 27 with the consent of Landlord, then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to two hundred percent (200%) of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Landlord to any holding over by Tenant.
28. 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.
29. Covenants and Conditions. All provisions of this Lease to be observed or performed by Tenant are both covenants and conditions.
30. 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 of Colorado. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.
31. Subordination; Attornment; Non-Disturbance
31.1 Subordination. This Lease and any other 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 Landlord 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. Tenant agrees that the Lender's holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Landlord under this, Lease, but that in the event of Landlord's default with respect to any such obligation. Tenant will give any Lender whose name and address have been furnished Tenant in writing for such purpose notice of Landlord's default pursuant to Section 14.5. 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 Tenant, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dales of the documentation or recordation thereof.
31.2 Attornment. Subject to the non-disturbance provisions of Section 3 1.3, Tenant agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not (i) be liable for any act or omission of any prior Landlord or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Tenant might have against any prior Landlord; or (iii) be bound by prepayment of more than one month's rent.
31.3 Non-Disturbance. With respect to Security Devices entered into by Landlord after the execution of this Lease, Tenant's subordination of this Lease shall be subject to receiving assurance ("non-disturbance agreement") from the Lender that Tenant's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Tenant is not in Default hereof and attorns to the record owner of the Premises.
31.4 Self-Executing. The agreements contained in this Section 31 shall be effective without the execution of any further documents: provided, however, that upon written request from Landlord or a Lender in connection with a sale, financing or refinancing of the Premises, Tenant and Landlord 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.
32 Attorneys' Fees. If any Party brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appear thereon. shall be entitled to reasonable attorneys' 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 or decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party 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 of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. Landlord shall be entitled to attorneys' fees, costs and expenses incurred in 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.
33. Right of Entry. Landlord and Landlord'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 tenants, and making such alterations, repairs, improvements or additions to the Premises or to the Building. as Landlord may reasonably deem necessary. Landlord may at any time place on or about the Premises or Building any ordinary "For Sale" signs and Landlord may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Landlord shall be without abatement of rent or liability to Tenant.
34. Auctions. Tenant shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Landlord's prior written consent. Notwithstanding anything to the contrary in this Lease. Landlord shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent.
35. Signage. Tenant shall not place any sign upon the exterior of the Premises or the Building, except that Tenant may, with Landlord's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Tenant's own business so long as such signs are in a location designated by Landlord and comply with Applicable Requirements and the signage criteria established for the Building Complex by Landlord. The installation of any sign on the Premises by or for Tenant shall be subject to the provisions of Section R (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Landlord reserves all rights to the use of the roof of the Building, and the right to install advertising signs on the Building, including the roof, which do not unreasonably interfere with the conduct of Tenant's business; Landlord shall be entitled to all revenues from such advertising signs. Landlord's sign criteria is attached hereto as part of Exhibit D.
36. Termination; Merger. Unless specifically stated otherwise in writing by Landlord, the voluntary or other surrender of this Lease by Tenant, the mutual termination or cancellation hereof, or a termination hereof by Landlord for Default by Tenant, shall automatically terminate any sublease or lesser estate in the Premises: provided, however, Landlord shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Landlord'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 Landlord's election to have such event constitute the termination of such interest.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of the Lease per
Section 1.12, the form of the guaranty to be executed by each such
Guarantor shall be in the form provided by Landlord attached hereto as
Exhibit E and each such Guarantor shall have the same obligations as
Tenant under this Lease, including, but not limited to, the obligation
to provide the Tenancy Statement and information required in Section
17.
37.2 Additional Obligations of Guarantor. It shall constitute a Default of the Tenant under this Lease if any such Guarantor fails or refuses, upon reasonable request by Landlord 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 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 Landlord; (c) a Tenancy Statement; or (d) written confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Tenant of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Tenant's part to he observed and performed under this Lease and subject to the provisions of this Lease, Tenant shall not be disturbed in its possession of the Premises for the entire term hereof by Landlord or any other person lawfully claiming through or under Landlord.
39. Rules and Regulations. Tenant agrees that it will abide by, and keep and observe all reasonable rules and regulations ("Rules and Regulations) which Landlord 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 the Building and the Building Complex and their invitees.
40. Security. Tenant hereby acknowledges that the rent payable to Landlord hereunder does not include the cost of guard service or other security measures, and that Landlord shall have no obligation whatsoever to provide same. Tenant assumes all responsibility for the protection of the Premises, Tenant, its agents and invitees and their property from the acts of third parties. Notwithstanding the foregoing, Landlord may elect to provide a concierge or security guard for more efficient operation of the Building Complex, and the cost thereof shall be included as a Common Area Operating Expense. Landlord is not obligated to provide such services at any time or for any length of time. Tenant expressly acknowledges that Landlord has not represented to Tenant that the Building Complex is secure and Landlord shall not be responsible for the quality of any services which may be provided hereunder or for damage or injury to Tenant, its agents, employees, invitees or others or its betterments contained in the Building Complex or the Premises due to the failure, action or inaction of such persons.
41. Reservations. Landlord reserves the right, from time to time, to grant, without the consent or joinder of Tenant, such easements, rights of way, utility raceways, and dedications that Landlord deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Tenant. Tenant agrees to sign any documents reasonably requested by Landlord to effectuate any such easement rights, dedication, map or restrictions.
42. 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 Tenant is a corporation, trust or partnership. Tenant shall within thirty (30) days after request by Landlord. deliver to Landlord evidence satisfactory to Landlord of such authority.
43. 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.
44. Offer. Preparation of this Lease by either Landlord or Tenant or Landlord's agent or Tenant's agent and submission of same to
hereto.
45. 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 Tenant's obligations hereunder, Tenant 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.
46. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Landlord or Tenant, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Landlord or Tenant.
47. Relocation of Premises. Landlord shall have the right, at its sole option, to relocate Tenant and substitute for the Premises other space with the Building Complex. Landlord shall notify Tenant with sixty (60) days prior written notice of the date Tenant will need to be relocate into the new Premises. Substitute space shall contain at least as much square footage as the Tenant's original Premises, which space thereafter shall be governed by the terms and conditions of the Lease Agreement. Such substitute Premises shall have similar building features and shall be improved with decorations and improvements at least equal in quantity and quality with Tenant original Premises. Said costs for decoration and improvements shall be at the sole expense of the Landlord. Decorations and improvement in such substitution Premises shall include, but not be limited to, moving expenses, sign relocation, door lettering and telephone relocation expenses. Tenant, at Tenant's option, may terminate this Lease within fifteen (15) days of receipt of notice to relocate from Landlord. Lease termination shall be effective on the date Tenant would have been relocated to the new Premises.
48. Temperature. Tenant shall maintain the air temperature in its leased space warm enough to prevent the freezing of plumbing and sprinkler systems, if any.
49. Confidentiality. All information contained in this Lease Agreement is
hereby deemed confidential and shall not be divulged to anyone without the
express written consent of Landlord except as otherwise specified in
Section 17, and Section 26 of this Lease Agreement or as otherwise required
by law.
The parties hereto have executed this Lease to be effective on the date and year first above written.
LANDLORD: TENANT:
First Industrial. L.P., a Delaware Zynex Medical, Inc.
limited partnership by First Industrial a Colorado corporation
Realty Trust, a Maryland corporation its
General partner
By: /s/ Graham Riley By: /s/ Thomas Sandgaard
------------------------------------ --------------------------------
Graham Riley Thomas Sandgaard
Its: Regional Director Its: President
Address: 5350 South Roslyn Street Address: 8100 Southpark Way,
Suite 240 Unit A-9
Greenwood Village, Colorado Littleton, Colorado 80120
80111
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Phone: 303.220-5565 Phone: 800-845-1771 Fax: 307.220-5585 Fax: 800-495-6695
EXHIBITS
Exhibit A - Depiction of Premises
Exhibit B - The Building Complex
Exhibit C - Work Agreement
Exhibit D - Sign Criteria
Exhibit E - Guaranty
Exhibit F - Option to Extend
EXHIBIT A
[Detailed architect drawing of office space]
8100 Southpark Way, Suite A9
EXHIBIT B
Southwest Business Center
[Map of Location]
EXHIBIT C
WORK AGREEMENT
a. To that certain lease made as of the 28th day of January, 2004, between First Industrial, L.P., a Delaware limited partnership as Landlord, and Zynex Medical, Inc., a Colorado corporation as Tenant, covering approximately 9,857 square feet of space located at 8100 Southpark Way, Unit A-9, Littleton, Colorado 80120.
Concurrently herewith, you as Tenant, and the undersigned, as Landlord, have executed a Lease covering the above captioned Premises (the provisions of said Lease are herein incorporated by reference as if fully set forth herein). In consideration of the execution of said Lease. Tenant and Landlord mutually agree as follows:
1. Tenant Improvement Allowance. Landlord agrees to provide Tenant with an allowance of $O.5O/SF ($4,928.50) towards any work Tenant does within the Premises. Tenant shall provide Landlord with paid receipts and lien waivers for all leasehold improvements made to the Premises. Tenant shall use a licensed general contractor who shall be required to pull a building permit for any leasehold improvements that are not cosmetic in nature (i.e. carpet/paint). Landlord will, within thirty (30) days from the receipt of the above documentation. reimburse Tenant for the total of the paid receipts or $4,928.50, whichever is less. Tenant shall use the allowance within three (3) months of lease commencement or Tenant shall forfeit said allowance.
Except as listed above. Tenant shall take delivery of the Demised Premises in substantially "as is" condition. Any other costs necessary for Tenant to open for business shall be the sole responsibility of Tenant.
LANDLORD: TENANT:
First Industrial. L.P., a Delaware Zynex Medical, Inc.
limited partnership by First Industrial a Colorado corporation
Realty Trust, a Maryland corporation its
General partner
By: /s/ Graham Riley By: /s/ Thomas Sandgaard
------------------------------------ --------------------------------
Graham Riley Thomas Sandgaard
Its: Regional Director Its: President
Address: 5350 South Roslyn Street Address: 8100 Southpark Way,
Suite 240 Unit A-9
Greenwood Village, Colorado Littleton, Colorado 80120
80111
|
Phone: 303.220-5565 Phone: 800-845-1771 Fax: 307.220-5585 Fax: 800-495-6695
SCHEDULE 1 TO WORK AGREEMENT
Tenant and Tenant's Contractor and the contracts between Tenant and Tenant's Contractors, to be entered into in connection with the performance of Tenant's Work, shall conform to the following rules, regulations, and requirements, which shall be incorporated into such contracts. Tenant shall ensure that all of Tenant's Contractors act in conformity with the provisions set forth herein. In the event of any conflict between any other terms or provisions of Tenant's contracts and the terms and provisions set forth below, the terms and provisions set forth below shall control.
A. Tenant shall start construction of Tenant's Work in the Premises not later than ten (10) days from issuance of a building permit, and shall carry such construction to completion with all due diligence.
B. Tenant shall submit to Landlord, in writing, at least ten (10) days prior to the commencement of construction, the following information:
1. The names and addresses of the general, mechanical and electrical contractors, if any, Tenant intends to engage in the construction of Tenant's Work and copies of proposed contracts executed by Tenant. (The term "Contractor" as used hereinafter shall mean Tenant's general Contractor or, if Tenant does not use a general Contractor, then all Contractors with whom Tenant contracts directly for Tenant's Work. The term "Subcontractors" shall mean and refer to all entities contracting with the Contractor to complete Tenant's Work.)
2. A proposed schedule setting forth the commencement date of construction of Tenant's Work and the date of completion of construction of Tenant's Work, fixturing work, dates for proposed interruption of services (if any required) and the date of projected opening.
3. Copies of performance and/or labor and material bonds, as required by Landlord, from the Contractor and Subcontractors.
4. Final itemized statement of estimated construction costs, including architectural, engineering and contracting fees.
5. Evidence of insurance as called for herein. Tenant shall secure, pay for and maintain, or cause its Contractor(s) to secure, pay for and maintain, during the continuance of and for one (1) year after completion of construction and fixturing work within Tenant's Premises, all of the insurance policies required and in the amounts as set forth herein. Tenant shall not permit, and Tenant's contract shall prohibit its Contractor to commence any work until all required insurance has been obtained and certified copies of policies have been delivered to Landlord.
C. Insurance: The following insurance requirements shall be complied with:
1. Minimum Coverage -Prior to any Tenant's Work being commenced by Tenant's Contractor or Subcontractors, Tenant or Tenant's Contractor (as set forth below), shall obtain and maintain insurance with minimum coverage and limits to protect Landlord and Landlord's managing agent from the claims hereinafter set forth which may arise or result from performance of any Tenant's Work. whether such work be done by Tenant's Contractor or by any of Subcontractors or by anyone directly or indirectly employed by Tenant's Contractor or Subcontractors or by anyone for whose acts Tenant's Contractor or Subcontractors may be liable as set forth as follows (such limits may be provided by an appropriate "umbrella" policy):
a. Workmen's Compensation insurance at the statutory limits provided for by the State of Colorado:
b. Employer's liability insurance at a limit of not less than $100,000 for all damages arising from each accident;
c. Comprehensive general liability insurance covering: (i) Operations
Premises liability; (ii) Owner's and Contractor's protective liability;
(iii) Completed operations: (iv) Product liability; (v) Contractual
liability; (vi) Broad form property damage endorsement and property damage
caused by cogitations otherwise subject to exclusion for explosion,
collapse or underground damage; (vii) Fire legal liability, with the
following insurance limits: Bodily Injury: $1,000,000 each occurrence;
$1,000,000 aggregate completed operations products; Property Damage
$500,000 each occurrence; $500.000 aggregate operations; $500,000 aggregate
protective; $500,000 aggregate completed operations/products;
d. Comprehensive automobile liability insurance covering all owned, hired or non-owned vehicles including the loading and unloading thereof with limits of no less than: Automobile Bodily Injury: $500,000 each person; $1,000,000 each occurrence: Automobile Property Damage: $500,000 each person;
e. Physical damage insurance covering the completed value of the Tenant's Work which shall afford coverage against "all risks" for physical loss or damage.
2. Cancellation - All such insurance shall be carried with a company or companies reasonably satisfactory to Landlord and Landlord's managing agent and the insurance described in (3). (4) and (5) above, and shall name Landlord and Landlord's managing agent and their employees and agents as additional insured parties. In addition, each policy shall provide that it will not be canceled or altered except after ten (10) days advance written notice to Landlord, and the certificate of insurance shall so state.
3. Policy Termination -Tenant's Contractor and Subcontractors shall maintain all insurance required hereunder during the completion of Tenant's Work and for a period ending one (1) year after the date of completion of all Tenant's Work.
4. Either Tenant or Tenant's Contractor may provide the insurance required hereunder except that Tenant's Contractor shall at a minimum provide the insurance described in (1), (2) and (3) of subparagraph 3(a) above. Prior to commencement of work by Tenant's Contractor. ~t shall deliver two (2) copies of the aforementioned policies or certificates evidencing such insurance to Landlord. All policies shall be deemed primary over any other valid or collectible insurance carried by Landlord or Landlord's managing agent. Such policies must be approved by Landlord prior to commencement of said work. Without the express written consent of the Landlord, Tenant agrees that it shell not allow any Contractor. or subcontractor to commence work within the Shopping Center until such entity has obtained the Insurance required above.
5. Waiver of Subrogation - Tenant and Tenant's Contractor and Subcontractors shall waive all rights against each other and the subcontractors, sub-subcontractors, agents and employees, each of the other for damages caused by fire or other perils available under the normal "All Risk" I.S.0, insurance policy on the work itself and the Building.
D. As provided above, Tenant shall notify Landlord of the names of the proposed Tenant's Work general, mechanical and electrical contractors. All Contractors and Subcontractors engaged by Tenant shall be bondable, licensed contractors, capable of performing quality workmanship and working in harmony with Landlord's general contractor and other contractors on the job. All work shall be coordinated with the general project work. Landlord shall have the right to require Tenant's Contractors and Subcontractors to provide payment and performance bonds for any or all Tenant's Work. such bonds to be paid for out of Tenant's Work Allowance if such funds are available. Any bond shall be requested and provided prior to the commencement of Tenant's Work.
E. Tenant's Contractor and construction shall comply in all respects with applicable federal, state, county and/or local statutes, ordinances, regulations, laws and codes. All required building and other permits in connection with the construction and completion of Tenant's Work shall be obtained and paid for by Tenant out of Tenant's Work Allowance if such funds are available. If either party observes that any Tenant's Work is at variance in any respect with any applicable codes, ordinances, laws, rules and regulations, it shall promptly notify the. other party and Landlord in writing, and any necessary changes shall be made by Tenant. If Tenant's Contractor performs any Tenant's Work that it knows is contrary to such codes, laws, ordinances, rules and regulations, and fails to deliver such notice to the Tenant and Landlord, Tenant's Contractor shall assume full responsibility therefore and shall bear all costs attributable to repair, replacement or correction. Tenant and Tenant's Contractor and its subcontractors shall comply with Federal, State and local tax laws, social security acts. unemployment compensation acts and such other acts and laws as are applicable to the performance of Tenant's Work.
F. All contracts shall be in writing, and no work shall be done except pursuant to such contracts. Tenant's contract with Tenant's Contractor shall be subject to Landlord prior written consent, which consent shall not be unreasonably withheld or delayed. Any approved contracts shall not be amended or modified without approval by Landlord, which consents shall not be unreasonably withheld or delayed. The Tenant's contract shall conform with the provisions of the Lease, including all provisions herein, and shall obligate the Tenant's Contractor to complete Landlord's Tenant's Work in accordance with the schedule referred to in Paragraph 2(b) above.
G. Work which Landlord shall have the right to have performed on behalf of and for the benefit of Tenant shall be limited to work which Landlord deems necessary to be done on an emergency basis and which pertains to structural components, the general utility systems for the project, and the erection of temporary barricades and temporary signs, per standard project details and criteria, during construction or Tenant's Work which in Landlord's reasonable opinion is not being performed in compliance with this Schedule 1.
H. Tenant's Work shall be subject to the inspection and reasonable approval of Landlord. Landlord's architect and general Contractor. Such inspection shall be for Landlord's sole benefit and shall in no event be construed as any benefit to, nor may Tenant rely thereon. All of Tenant's Work shall be first quality.
I. Tenant shall apply and pay for all utility meters except where metered service is provided by Landlord or public service agency.
J. The Tenant's contract shall include a statement requiring the Contractor and all Subcontractors, laborers. and material men to execute a lien waiver for any interim and final payments. A copy of the executed waiver or notice of refusal is to be immediately forwarded to the Landlord.
K. Tenant and Tenant's Contractor shall indemnify and hold harmless
Landlord and representatives, agents and employees from and against all claims,
damages, losses, and expenses, including, but not limited to, reasonable
attorney's fees arising out of or resulting from the performance of Tenant's
Work or Tenant's Contractor's performance of the Tenant's contract which are:
(a) caused in whole or in part by any negligence or omission of Tenant's
Contractor, any subcontractor or anyone directly or indirectly employed by any
of them or anyone for whose acts any of them may be liable; and (b) attributable
to bodily injury, sickness, disease or death, or the destruction of tangible
personal property, including loss of use resulting from any of the foregoing
acts and all Tenant's Work contracts shall reflect this indemnity. In any and
all claims against the Landlord or its representatives or any of their agents or
employees or by an employee of Tenant's Contractor, any subcontractor, anyone
directly or indirectly employed by any of them. or anyone for whose acts any of
them may be liable. The indemnification obligation under the Paragraph 14 shall
not be limited in any way by any limitation on the amount or type of damages.
compensation or benefits payable by or for the Tenant's Contractor or any
Subcontractor under the Workers Compensation Act, disability benefit acts, or
other employee benefit acts.
L. In the event a Subcontractor or materialman files a mechanics' lien as a result of performing work pursuant to Tenant's contract then Tenant's Contractor shall indemnify the Tenant and Landlord from said lien and shall, when requested by the Tenant and/or Landlord, pay the amount requested to release the lien or furnish Tenant and Landlord (as Landlord or Tenant may specify) either a bond sufficient to discharge the lien or deposit in an escrow approved by Landlord and Tenant a sum equal to 150% of the amount of such lien. Subject to any restrictions thereon posed by any mortgagee' of Landlord. Tenant's Contractor shall have the right and opportunity, in cooperation with Landlord and Tenant, to contest the validity of any such mechanics' lien by such legal means as are available, including the right to prosecute any appeals which may be permitted by law so long as during the pendency of any contest or appeal, the Tenant's Contractor shall effectively stay or prevent any official or judicial sale of any of the real property or improvements comprising the building, upon execution or otherwise, and so long as the Tenant's Contractor pays any final judgment entered with respect to any such mechanics' lien and thereafter procures and records, within a reasonable time, record satisfaction thereof. In the event the Tenant and Landlord shall be a party to any such coiltest or appeal, or any other action resulting from or arising out of the performance of the work by Tenant's Contractor (or any of its subcontractors, agents, or employees), Tenant's Contractor shall be responsible for all legal fees and other costs and expenses incurred by Landlord and Tenant in any such action. Landlord and Tenant shall have the right to obtain separate counsel of their choice at Tenant's Contractor's expense. In the event that Tenant's Contractor fails to pay the lien or provide a bond or cash escrow, or otherwise fails to fully satisfy and obtain the release of any lien or claim in accordance with the provisions hereof. Tenant's Contractor shall be obligated to pay to Tenant or Landlord, as the case may be, all monies that the latter may pay in discharging any such lien including all costs and reasonable attorneys' fees incurred by Landlord or Tenant in settling, defending against, appealing or in any other manner dealing with any such lien.
M. All risk of loss to all property of the Tenant and Tenant's Contractor and its subcontractors. Including, but not limited to, tools and materials located on the Premises. shall be the sole and exclusive responsibility of the Tenant and Tenant's Contractor and its subcontractors, and the Landlord shall have no responsibility therefore.
N. If Tenant or Tenant's Contractor is adjudicated a bankrupt, or if Tenant or Tenant's Contractor makes a general assignment for the benefit of its creditors, or if a receiver is appointed on account of Tenant's Contractor's insolvency, or if Tenant's Contractor persistently or repeatedly refuses or falls, except in cases where delay is justified, to supply enough properly skilled workmen or proper materials or if Tenant's Contractor persistently disregards laws, ordinances, rules, regulations or orders of any public authority having jurisdiction, or otherwise is guilty of a substantial violation of a provision of Tenant's contact, then the Tenant (or Landlord in the event of Tenant's bankruptcy. default. or assignment to creditors) may, without prejudice to any right or remedy and after giving the Tenant's Contractor and its surety, if any, seven (7) business days' written notice, terminate Tenant's contract with the Contractor and in the event of Contractor's default take possession of all materials, equipment, tools, construction equipment and machinery thereon owned by Tenant's Contractor and shall thereafter finish all Tenant's Work being constructed and previously contracted for by Tenant's Contractor by whatever method it may deem expedient. In such case. Tenant's Contractor shall not be entitled to receive any further payments from Tenant until completion of all Tenant's Work; provided, however, that the Tenant's actions shall not release Tenant's Contactor from any obligations to Tenant arising from its performance or nonperformance under any contracts prior to the date of such termination. Following the completion of such uncompleted Tenant's Work, Tenant shall pay the Tenant's Contractor an amount equal to the aggregate of the amounts actually due under Tenant's contract at the time of the termination of the contract. less the cost to Tenant of completing all the Tenant's Work. Upon termination of Tenant's contract, Tenant's Contractor shall execute and deliver all documents and take all steps, including the legal assignment of Tenant's Contractor contractual rights as the Tenant may require for the purpose of fully vesting in Tenant the rights and benefits of the Tenant's Contractor under Tenant's contract, and arising out of it. Tenant shall also pay to the Tenant's Contractor fair rental for any equipment retained.
0. Tenant's Contractor shall warrant and agree, at its expense, and at no expense whatsoever to Landlord or Tenant to correct or cause to be corrected any defects in the Tenant's Work (including, but not limited to, latent defects or defects due to defective workmanship or materials whether supplied, installed or performed by Tenant's Contractor or any Subcontractor or supplier) which occur within one (1) year after Tenant's Contractor has substantially completed the Tenant's Work, including completion of all punchlist items, (as evidenced by the Tenant's acceptance of such Work) or for such longer period as may be set forth in the Tenant's contract. Tenant's Contractor shall require a similar warranty in all Subcontracts, and shall deliver to Landlord and Tenant, together with appropriate assignments, if required, all warranties of subcontractors and suppliers of materials, components and equipment furnished and installed in connection with such Tenant's Work. Tenant's Contractor further agrees that all guaranties and warranties relating to any Tenant's Work or any materials incorporated into the Tenant's Work shall be extended to and given to both the Landlord and the Tenant, as their respective interests in such Tenant's Work exist, as more particularly set forth in the Lease between the Landlord and Tenant.
P. Landlord shall have no obligation with respect to Tenant's Contractor except for the provision to Tenant's Contractor of those services which Landlord provides to other tenant finish contractors in the Building Complex without preference or privileges.
Q. Landlord and Landlord's contractor shall have the right, from time to time as may be required, to inspect or perform work within the Premises. Such inspections or work shall not conflict with Tenant's Contractor's work in the Premises unless it is necessary in an emergency situation Further, Landlord shall have the right to suspend Tenant's Contractor's work in the Premises if such work, in the reasonable opinion of Landlord or of Landlord's contractor, is presenting or may present a danger to life, safety, or property, or in an emergency situation.
R. Tenant shall give Landlord reasonable prior notice to all inspections, punchouts and other reviews during the course of construction so that Landlord may observe such events. Further. Landlord shall be likewise informed of all building Department inspections and requirements for issuance of the Certificate of Occupancy for the Premises. Landlord's observation of any such events shall, in no event be construed or interpreted as a review or approval by Landlord of any such work nor shall it prevent Landlord, if it thereafter discovers any deficiency in such Work, from requiring correction thereof as otherwise provided herein. Tenant's Contractor shall be solely responsible for obtaining such Certificate of Occupancy and shall submit to Landlord the original thereof prior to Tenant's occupancy of the Premises for the purpose of conducting business.
S. Provided the same is performed in a reasonable manner. Landlord's engineer or other agent shall have the option of reviewing all equipment and materials to be used in the construction of the Tenant's Work and all such work prior to Tenant move-in. Such review shall in no event constitute approval by Landlord.
T. Tenant's Contractor will not store materials or supplies in, about, or outside the Building Complex (other than within the Premises) without the prior approval of the Landlord and Landlord's contractor.
U. Tenant's Contractor will provide, at all times, direct supervision of any and all work being performed for the Tenant including the delivery and hoisting of materials, if necessary.
V. Tenant's Contractor will cooperate with Landlord to dispose of refuse resulting from Tenant's Work. This may include the use of Landlord's dumpster and a proration of charges associated with such use or at Landlord's option and Tenant's sole cost and expense the placement of Tenant Contractor's dumpster at a location specified by Landlord.
W. If my legal action or arbitration proceeding is commenced in order to enforce the provisions of Tenant's contract or to recover damages as a result of the alleged breach of the provisions thereof, the prevailing party in any such action or proceeding shall be entitled to recover all reasonable costs incurred in connection therewith, including reasonable attorneys' fees.
EXHIBIT D
SIGN CRITERIA
These criteria have been established for the purpose of assuring a quality business park and for the mutual benefit of all Tenants. Conformance will be strictly enforced, and any installed nonconforming or unapproved signs must be brought in conformance at the expense of the Tenant. ANY SIGN THAT DOES NOT CONFORM TO THESE REGULATIONS WILL BE REMOVED AND REPLACED WITH A CONFORMING SIGN AT TENANTS EXPENSE.
It will be the sole responsibility of the Tenant to conform to the terms of this Sign Criteria as follows:
A. General Requirements:
1. Within thirty (30) days after execution of this Lease. Tenant will provide, at its sole cost and expense, the Tenant's portion of the sign in conformance with the criteria below.
2. The sign base complete with the unit number has been provided on the building. The sign base is the property of the Landlord.
3. Tenant identification shall be restricted to the Tenant portion of the sign except for item "A" below.
4. The lettering/logo and installation of the Tenant portion of the sign on the sign base shall be paid for by Tenant and remain the property of Landlord. All letters and other scripting shall be consistent in color and style with the lettering on the base and in good taste, in the opinion of Landlord.
5. Tenant shall submit to Landlord for its approval all copy and/or logo prior to installation of the Tenant portion of the sign.
6. Upon Lease termination, Tenant shall remove its sign and return the premises to their original condition.
7. No electrical or audible signs will be allowed.
8. Except as provided herein, no banners, pennants, placards, freestanding signs, or signs affixed to automobiles or trailers are allowed on the building. in the landscaped areas, or on streets or, parking area. The restriction pertaining to automobiles or trailers does not apply to magnetic or painted identification signs placed on company or private vehicles for use in the normal course of business.
9. All signs will be reviewed for conformance with this criteria and overall aesthetics and design quality Approval or disapproval of sign submittals based on aesthetics shall remain the sole right of the Landlord.
10. Each Tenant shall submit or cause to be submitted to Landlord for approval before fabrication at least four (4) copies of detailed drawings indicating location, size, layout, design and color of the proposed signs, including all lettering and/or graphics.
11. All permits for signs and their installation shall be obtained by the Tenant or their representative at Tenant's cost and expense and will comply with all appropriate government requirements. Nothing in this criteria shall imply a waiver of requirements by the local authorities.
12. Tenant shall be responsible for the fulfillment of all requirements and specifications.
13. All signs shall be constructed and installed at Tenant's expense
B. Specific Requirements:
1. None
2.
3.
4.
LANDLORD: TENANT:
First Industrial. L.P., a Delaware Zynex Medical, Inc.
limited partnership by First Industrial a Colorado corporation
Realty Trust, a Maryland corporation its
General partner
By: /s/ Graham Riley By: /s/ Thomas Sandgaard
------------------------------------ --------------------------------
Graham Riley Thomas Sandgaard
Its: Regional Director Its: President
Address: 5350 South Roslyn Street Address: 8100 Southpark Way,
Suite 240 Unit A-9
Greenwood Village, Colorado Littleton, Colorado 80120
80111
|
Phone: 303.220-5565 Phone: 800-845-1771 Fax: 307.220-5585 Fax: 800-495-6695
EXHIBIT E
GUARANTY
THIS GUARANTY is given as of this 28th day of January, 2004, by Thomas Sandgaard (hereinafter referred to as "Guarantor"), whose home address is 10506 S. Kalahari Ct., Littleton, Colorado 80124.
W I T N E S S E T H:
WHEREAS, First Industrial, L.P., a Delaware limited partnership
("Landlord") is willing to execute that certain Lease Agreement (the "Lease")
dated the __ day of _________,2004, between Landlord and Zynex Medical, Inc., a
Colorado corporation ("Tenant") pertaining to approximately 9,857 square feet of
space in the Building located at 8100 Southpark Way, in the City of Littleton,
State of Colorado, known as Suite A-9 (the "Premises") on condition of receiving
the Guaranty from the Guarantor as herein contained;
NOW, THEREFORE, for and in consideration of leasing the Premises by the Landlord to Tenant in accordance with the terms and provisions of the Lease, which Lease is executed concurrently herewith, to induce Landlord to execute and deliver the Lease and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged by the Guarantor, Guarantor hereby agrees as follows.
1. Guarantor hereby represents and warrants to Landlord that:
a. Guarantor acknowledges that Guarantor is financially interested in Tenant.
b. Guarantor further warrants and represents that the financial information provided to Landlord by Tenant and Guarantor, upon which Landlord may have relied in entering into the Lease, is currently accurate.
c. This Guaranty has been duly executed and delivered by the authorized of guarantor and constitutes lawful, binding and legally enforceable obligations.
2. Guarantor hereby, jointly and severally, unconditionally and irrevocably guarantees the prompt and faithful performance of all of the terms and provisions of the Lease by Tenant and any assignee of Tenant, including, but not limited to, the payment of all installments of rent and other sums due to Landlord thereunder. Guarantor does hereby waive each and every notice to which Guarantor may be entitled under said Lease, or otherwise. and expressly consents to any extension of time, leniency, modification, waiver, forbearance, or any change which may be made in any term and condition of the Lease, and no such change, modification, extension, waiver, or forbearance shall release Guarantor from any liability or obligation hereby incurred or assumed. Guarantor further expressly waives any notice of default in or under any of the terms of the Lease, notice of acceptance of this Guaranty, and all setoffs and counterclaims; provided, however, Guarantor shall be given the same right to cure Tenant's default as that afforded Tenant under the Lease.
3. It is specifically understood and agreed that, in the event of a default by Tenant of the terms and provisions of the Lease and after the expiration of any applicable grace period, Landlord shall be entitled to commence any action or proceeding against the Guarantor or otherwise exercise any available remedy at law or in equity to enforce the provisions of this Guaranty without first commencing any action or otherwise proceeding against Tenant or otherwise exhausting any or all of its available remedies against Tenant, it being expressly agreed by the undersigned that its liability under this Guaranty shall be primary. Landlord may maintain successive actions for other defaults. Its rights hereunder shall not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions, until and unless all obligations hereby guaranteed have been paid and fully performed.
4. In the event that any action be commenced by Landlord to enforce the provisions of this Guaranty, Landlord shall be entitled, if it shall prevail in any such action or proceeding, to recover from Guarantor all reasonable costs incurred in connection therewith, including reasonable attorneys' fees.
5. No payment by Guarantor shall entitle Guarantor under any obligations owed by Tenant to Guarantor, by subrogation or otherwise. to any payment by Tenant under or out of the property of the Tenant, including specifically, but not limited to, the revenues derived from the Premises
6. This Guaranty shall inure to the benefit of Landlord, its heirs, personal representatives, successors, and assigns and shall be binding upon the heirs, personal representatives, successors, and assigns of the Guarantor.
7. The liability of the Guarantor hereunder shall in no way be affected by, and Guarantor expressly waives any defenses that may arise by reason of, (a) the release or discharge of the Tenant in any creditors', receivership, bankruptcy or other proceedings; (b) the impairment, limitation or modification of the liability of the Tenant or the estate of the Tenant in bankruptcy, or of any remedy for the enforcement of the Tenant's said liability under the Lease, resulting from the operation of any present or future provision of the National Bankruptcy Act or other statute or from the decision In any court; (c) the rejection or disaffirmance of the Lease in any such proceedings; (d) the modification, assignment or transfer of the Lease by the Tenant; (e) any disability or other defense of the Tenant; or (f) the cessation from any cause whatsoever of the liability of the Tenant.
8. Guarantor agrees that in the event Tenant shall become insolvent or shall he adjudicated a bankrupt, or shall file a petition for reorganization, arrangement or similar relief under any present or future provisions of the Federal Bankruptcy Code, or any similar law or statute of the United States or any State thereof, or if such a petition filed by creditors of Tenant shall be approved by a Court, or if Tenant shall seek a judicial readjustment of the rights of its creditors under any present or future Federal or State law or if a receiver of all or part of its property and assets is appointed by any State or Federal court:
a. If the Lease shall be terminated or rejected, or the obligations of
Tenant thereunder shall be modified. Landlord shall have the option either
(i) to require the undersigned, and the undersigned, hereby so agree, to
execute and deliver to Landlord a new lease as tenant for the balance of
the term then remaining as provided in the Lease and upon the same terms
and conditions as set forth therein, or (ii) to recover from the
undersigned that which Landlord would be entitled to recover from Tenant
under the Lease in the event of a termination of the License by Landlord
because of a default by Tenant, and such shall be recoverable from the
undersigned without regard to whether Landlord is entitled to recover the
same from Tenant in any such proceeding.
b. If any obligation under the Lease is performed by Tenant and all or any part of such performance is avoided or recovered from Landlord as a preference, fraudulent transfer or otherwise, in any bankruptcy, insolvency, liquidation, reorganization or other proceeding involving Tenant, the liability of Guarantor under this Guaranty shall remain in full force and effect.
c. As further security for the payment of amounts under this Guaranty. Guarantor will file all claims against Tenant upon any indebtedness of Tenant to the undersigned in any bankruptcy or other proceeding in which the filing of claims is required by law and will assign to Landlord all rights of the undersigned thereunder, to the extent of Guarantor's obligations under this Guaranty. If Guarantor does not file any such claim, Landlord, as attorney-in-fact for Guarantor is hereby authorized to do so in the name of Guarantor or, in Landlord's discretion, to assign the claim and to cause proof of claim to be filed in the name of Landlord's nominee. In all such cases, whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Landlord the full amount thereof, and, to the full extent necessary for that purpose, Guarantor hereby assigns to Landlord all of Guarantor's rights to any such payments or distributions to which Guarantor would otherwise be entitled.
This Guaranty shall be enforced with the laws of the State of Colorado and shall be deemed executed in the County of Arapahoe, State of Colorado. Guarantor hereby consents to and submits to the jurisdiction of the federal and state courts located in the State of Colorado and any action or suit under this Guaranty by Guarantor shall only be brought in the federal or state court with appropriate under the Guaranty, and hereby waives any defenses based on the venue, inconvenience of the forum, lack of personal jurisdiction, the sufficiency of service and processor the like in ay such action or suit brought in the State of Colorado.
/s/ Thomas Sandgaard ----------------------------------------------- Thomas Sandgaard |
or (Tax ID Number):
STATE OF Colorado
------------------------------------
COUNTY OF Arapahoe
-------------------------------------
|
The foregoing instrument was acknowledged before me this 28th day of January, 2004 by Thomas Sandgaard .
Witness my hand and official seal.
My commission expires: 10-24-2005 ) Rhonda S. Tuley
---------- ) ss Notary Public
) State of Colorado
/s/ Rhonda S. Tuley
-------------------
Notary Public
|
EXHIBIT E
OPTION TO EXTEND
(Market)
As additional consideration for the covenants of Tenant hereunder, Landlord hereby grants unto Tenant an option (the "Option") to extend the term of this Lease for one (1) additional term of five (5) years (the "Option Term"). The Option shall apply to all space then under the Lease at the time the Option Term would commence and shall be on the following terms and conditions:
A. Written notice of Tenant's interest in exercising the Option shall be given to Landlord not earlier than twelve (12) months and not later than six (6)months prior to the expiration of the Primary Lease Term ("Tenant's Notice"). Not later than thirty (30) days after receiving Tenant's Notice, Landlord shall give to Tenant notice of the terms, conditions and rental rate applicable during the Option Term, in accordance with subparagraph E below ("Landlord's Notice")
B. Tenant shall have ten (10) days following Tenant's receipt of Landlord's Notice within which to exercise the Option by delivering written notice of such exercise to Landlord under the terms, conditions and rental rate set forth in Landlord's Notice. If Tenant gives such Notice and provided the other conditions to the extension have been satisfied, the term of the Lease shall be automatically extended for the Option Term without requiring further action by the parties; provided, however, the parties shall execute an amendment to the Lease to confirm the terms of the extension.
C. Unless Landlord is timely notified by Tenant in accordance with subparagraphs A and B above, the Option shall terminate and the Lease shall expire in accordance with its terms, at the end of the Primary Lease Term.
D. Tenant's Option to extend shall continue only if as of the date of Tenant's Notice or as of the date of commencement of the Option Term. Tenant (i) shall not be in default under the Lease at the time of exercise of the option or at the time of the commencement of the Option Terms; (ii) Tenant shall not have sublet more than twenty-five percent (25%) of the Premises nor assigned its interest in the Lease nor vacated the Premises; or (iii) Tenant shall not have been sent more than two (2) letters notifying Tenant of noncompliance with the terms and conditions of the Lease during Tenant's tenancy.
E. The Option granted hereunder shall be upon the same terms and conditions of this Lease, except for the rental to be paid by Tenant, and except there shall be no further option to extend the Lease. The Base Rent applicable during each Option Term shall be comparable to that for comparable space in a comparable building complex as of the date of Landlord's Notice but in no event shall the rate be less than the Base Rent which Tenant is paying immediately prior to commencement of the Option Term.
F. After exercise of the Option to extend for one terms above described, there shall be no further rights on the part of Tenant to extend the term of the Lease.
LANDLORD: TENANT:
First Industrial. L.P., a Delaware Zynex Medical, Inc.
limited partnership by First Industrial a Colorado corporation
Realty Trust, a Maryland corporation its
General partner
By: /s/ Graham Riley By: /s/ Thomas Sandgaard
------------------------------------ --------------------------------
Graham Riley Thomas Sandgaard
Its: Regional Director Its: President
Address: 5350 South Roslyn Street Address: 8100 Southpark Way,
Suite 240 Unit A-9
Greenwood Village, Colorado Littleton, Colorado 80120
80111
|
Phone: 303.220-5565 Phone: 800-845-1771 Fax: 307.220-5585 Fax: 800-495-6695
Exhibit 10.5
ZYNEX MEDICAL HOLDINGS, INC.
2005 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Zynex Medical Holdings, Inc. 2005 Stock Option Plan (the "Plan") is to provide participants with an increased economic and proprietary interest in the Company and its subsidiaries in order to encourage those Participants to contribute to the success and progress of the Company and its subsidiaries.
2. DEFINITIONS
(a) "Administrator" means the Administrator of the Plan in accordance with
Section 11.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Common Stock" means the Company's common stock, par value $.001, subject to adjustment as provided in Section 8.
(d) "Company" means Zynex Medical Holdings, Inc., a Nevada corporation, and subsidiaries.
(e) "Options" shall mean the stock options granted pursuant to the plan.
(f) "Participants" shall mean those officers, directors, independent contractors, consultants, employees and prospective employees of the Company and its subsidiaries to whom Options have been granted from time to time by the Administrator and any authorized transferee of such officer's, directors, independent contractors, consultants and employees.
(g) "Plan" means the Zynex Medical Holdings, Inc. 2005 Stock Option Plan.
(h) "Retirement" shall have the meaning specified by the Administrator in the terms of an option grant or, in the absence of any such term, shall mean retirement from active employment with the Company (i) at or after age 55 with the approval of the Administrator or (ii) at or after age 65. The determination of the Administrator as to an individual's Retirement shall be conclusive on all parties.
(i) "Total and Permanent Disablement" shall have the meaning specified by the Administrator in the terms of an option grant or, in the absence of any such term, shall mean a physical condition arising from an injury or illness which renders an individual incapable of performing work. The determination of the Administrator as to an individual's Disablement shall be conclusive on all of the parties.
(j) "ISO" means an option to purchase common stock which at the time the Option is granted under the Plan qualifies as an incentive stock option within the meaning of Internal Revenue code Section 422.
(k) "NSO" means a nonstatutory stock option to purchase common stock which at the time the Option is granted under the Plan does not qualify as an ISO.
3. PARTICIPANTS
Options may only be granted to officers, directors, independent contractors, consultants, employees and prospective employees of the Company and its subsidiaries as selected by the Board of Directors.
4. EFFECTIVE DATE AND TERMINATION OF PLAN
The Plan was adopted by the Board of Directors of the Company on January 3, 2005 and shall become effective upon approval by the Company's shareholders. The Plan shall remain available for the grant of Options until December 31, 2014. Notwithstanding the foregoing, the Plan may be terminated at such earlier time as the Board of Directors may determine. Termination of the Plan will not affect the rights and obligations of the Participants and the Company arising under Options theretofore granted and then in affect.
5. SHARES SUBJECT TO THE PLAN AND TO OPTIONS
The stock subject to Options authorized to be granted under the Plan shall consist of three million (3,000,000) shares of the company's common stock, or the number and kind of shares of stock or other securities which shall be substituted or adjusted for such shares as provided in Section 8. The shares to be delivered upon exercise of Options granted under the Plan shall be made available, at the discretion of the Board of Directors, from the authorized unissued shares or treasury shares of common stock.
6. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time and from time to time prior to the termination of the Plan. No Participant shall have any rights as a stockholder with respect to any shares of stock subject to Options hereunder until said shares have been issued. Each Option shall be evidenced by a written stock option agreement and/or such other written arrangements as may be approved from time to time by the Administrator. Options granted pursuant to the Plan need not be identical but each Option must contain and be subject to the following terms and conditions:
(a) Price: The purchase price under each Option shall be established by the Administrator. In no event will the option price be less than the fair market value of the stock on the date of grant unless such Options are granted in substitution of options granted by a new employee's previous employer or the optionee pays or foregoes compensation in the amount of any discount. The price may be paid in cash or any alternative means acceptable to the Administrator, including an irrevocable commitment by a broker to pay over such amount from a sale of the shares issuable under an Option and the acceptance of a promissory note secured by the number of shares of Common Stock then issuable upon exercise of the Options.
(b) $100,000 ISO Limitation: The aggregate fair value (determined as of the date the Option is granted) of the common stock for which ISOs shall first become exercisable by an Optionee in any calendar year under all ISO plans of the Company shall not exceed $100,000. Options is excess of this limitation shall constitute NSOs.
(c) Duration and Exercise or Termination of Option: Unless the Administrator provides otherwise, each Option granted must expire within a period not more that ten (10) years from the date of grant.
(d) Suspension or Termination of Option: Except as otherwise provided by the Administrator, if at any time (including after a notice of exercise has been delivered) the Chief Executive Officer or any other person designated by the Administrator (each such person, an "Authorized Officer") reasonably believes that a participant has committed as act of misconduct as described in this Section, the Authorized Officer may suspend the Participant's rights to exercise any Option pending a determination of whether an act of misconduct has been committed.
Except as otherwise provided by the Administrator, if the Administrator or an Authorized Officer determines a Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment of any obligation owed to the Company, breach of fiduciary duty or deliberate violation of the Company rules resulting in loss, damage or injury to the Company, or if a Participant makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate any such agency relationship, neither the Participant nor his or her estate nor transferee shall be entitled to exercise any Option whatsoever. In making such determination, the Administrator or an Authorized Officer shall act fairly and shall give the Participant an opportunity to appeal and present evidence on his or her behalf at a hearing before the Administrator or the Board of Directors. For any Participant who
is an "executive officer" for purposes of Section 16 of the Securities and Exchange Act of 1934, the determination of the Authorized Officer shall be subject to the approval of the Administrator.
(e) Termination of Employment: Subject to Section 6 (b), unless the Administrator specifies otherwise, upon termination of the Participant's employment, his or her rights to exercise an Option then held shall be only as follows:
(1) Death. Upon the death of a participant while in the employ of the Company, all of the Participant's Options then held shall be exercisable by his or her estate, heir or beneficiary at any time during the twelve (12) months next succeeding the date of death. Any and all Options that are unexercised during the twelve (12) months next succeeding the date of death shall terminate as of the end of such twelve (12) month period.
(2) Total and Permanent Disability. Upon termination as a result of the Total and Permanent Disability of any Participant, all of the Participant's Options then held shall be exercisable for a period of twelve (12) months after termination. Any and all Options that are unexercised during the twelve (12) months succeeding the date of termination shall terminate as of the end of such twelve (12) month period.
(3) Retirement. Upon Retirement of a Participant, the Participant's
Options then held shall be exercisable for a period of twelve
(12) months after Retirement. The number of shares with respect
to which the Options shall be exercisable shall equal the total
number of shares which were exercisable under the Participant's
Option on the date of his or her retirement. Any and all Options
that are unexercised during the twelve (12) months succeeding the
date of termination shall terminate as of the end of such twelve
(12) month period.
(4) Other Reasons. Upon the date of termination of a Participant's
employment for any reason other that those stated in Sections 6
(d) (1), (d) (2), and (d) (3) or as described in Section 6 (c)
above, (A) any Option that is unexercisable as of such
termination date shall remain unexercisable and shall terminate
as of such date. And (B) any Option that is exercisable as of
such termination date shall expire the earlier of (i) thirty (30)
days following such date or (ii) the expiration date of the
option.
(f) Transferability of Option: Unless the Administrator specifies otherwise, each Option shall be nontransferable by the Participant other that by will or the laws of descent and distribution.
(g) Cancellation: The Administrator may, at any time prior to exercise and subject to consent of the Participant, cancel any option previously granted and may or may not substitute in their place Options at a different price and different type under different terms or in different amounts.
(h) Conditions and Restrictions Upon Securities Subject to Options:
The Administrator may provide that the shares of Common Stock issued upon exercise of an Option shall be subject to further conditions or agreements as the Administrator in his or her discretion may specify prior to the exercise of such Option, including without limitation, conditions on vesting and transferability, forfeiture or repurchase provisions and method of payment for the shares issued upon exercise (including the actual or constructive surrender of Common Stock already owned by the Participant).
(i) Other Terms and Conditions: Options may also contain such other provisions, which shall not be inconsistent with any of the foregoing terms, as the Administrator shall deem appropriate. No Option, however, nor anything contained in the Plan shall confer upon any Participant any right to continue in the Company's employ or service nor limit in any way the Company's right to terminate his or her employment at any time.
7. LOANS
The Company may make loans, at the request of the Participant and in the sole discretion of the Administrator, for the purpose of enabling the Participant to exercise Options granted under the Plan and to pay the tax liability resulting from an Option exercised under the Plan. The Administrator shall have full authority to determine the terms and conditions of such loans. Such loans may be secured by the shares received upon exercise of such Option.
8. ADJUSTMENT OF AND CHANGES IN THE STOCK
In the event that the number of shares of Common Stock of the Company shall be increased or decreased through recapitalization, reclassification, combination of shares, stock splits, reverse stock splits, spin-offs, or the payment of a stock dividend, (other than regular, quarterly cash dividends) or otherwise, then each share of Common Stock of the Company which has been authorized for issuance under the Plan, whether such share is then currently subject to or may become subject to an Option under the
Plan, may be proportionately adjusted to reflect such increase or decrease, unless the terms of the transaction provide otherwise. Outstanding Options may also be amended as to price and other terms if necessary to reflect the foregoing events.
In the event there shall be any other change in the number or kind of outstanding shares of Common Stock of the Company, or any stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, whether by reason of merger, consolidation or otherwise, the Administrator shall, in his sole discretion, determine the appropriate adjustment, if any, to be effected. In addition, in the event of such change described in this paragraph, the Administrator may accelerate the time or times at which any Option may be exercised within a time prescribed by the Administrator in his sole discretion.
No right to purchase fractional shares shall result from any adjustment in Options pursuant to this Section 8. In case of any adjustment, the shares subject to the Option shall be rounded down to the nearest whole share. Notice of any adjustment shall be given by the Company to each Participant which shall have been so adjusted and such adjustment (whether or not notice is given) shall be effective and binding for all purposes of the Plan.
9. REGISTRATION OF STOCK
In the event the Board of Directors or the Administrator determines in his sole discretion that the registration of the plan shares under any applicable law or governmental regulation is necessary as a condition to the issuance of such shares under the Option, the Option may not be exercised in whole or in part unless such consent or approval has been unconditionally obtained.
10. WITHHOLDING
To the extent required by applicable federal, state and local or foreign law, a Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of an exercise. The Company shall not be required to issue shares or to recognize the disposition of such shares until such obligations are satisfied. The Administrator may permit these obligations to be satisfied by having the Company withhold a potion of the shares of stock that otherwise would be issued to him or her upon exercise of the Option, or to the extent permitted, by tendering shares previously acquired, provided that such will not result in an accounting charge to the Company.
11. ADMINISTRATION AND AMENDMENT OF THE PLAN
The Plan shall be administered by the Administrator who shall be the Company's President and Chief Executive Officer. Subject to the express provisions of this Plan, the Administrator shall be authorized and empowered to do all things necessary or desirable in connection with the administration of the Plan, including, without limitation: (a) to prescribe, amend and rescind rules and regulations relating to the Plan and to define terms not otherwise defined herein; (b) to determine which persons are Participants (as defined in Section 3 hereof) and to which of such Participants, if any, an Option shall be granted hereunder and the timing of any such Option grants; (c) to determine the number of shares of Common Stock subject to an Option and the exercise or purchase price of such shares; (d) to establish and verify the extent of satisfaction of any conditions to exercisability applicable to an Option; (e) to waive conditions to and/or accelerate exercisability of an Option, either automatically upon the occurrence of specified events (including in connection with a change of control of the Company) or otherwise in his discretion; (f) to prescribe and amend the terms of Option grants made under the Plan (which need not be identical); (g) to determine whether, and the extent to which, adjustments are required pursuant to Section 8 hereof; and (h) to interpret and construe this Plan, any rules and regulations under the Plan and the terms and conditions of any Option granted hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company.
All decisions, determinations and interpretations by the Administrator regarding the Plan, any rules and regulations under the Plan and the terms and conditions of any Option granted hereunder, shall be final and binding on all Participants and optionholders. The Administrator shall consider such factors as he deems relevant, in his sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as the Administrator may select.
The Administrator may, from time to time, delegate some of the responsibilities with respect to the administration of the Plan to such persons as he may designate in his sole discretion but may not delegate authority to grant options to a person who is not a member of the Board of Directors.
The interpretation and construction of any provision of the Plan by the Board of Directors shall be final and conclusive. The Board of Directors may periodically adopt rules and regulations for carrying out the Plan, and amend the Plan as desired, without further action by the Company's stockholders except to the extent required by applicable law. Any amendment to the Plan will not affect the rights and obligations of the Participants and the Company arising under Options theretofore granted and then in effect. Notwithstanding the foregoing, and subject to adjustment pursuant to Section 8, the Plan may not be amended to increase the number of shares of Common Stock authorized for issuance, unless approved by the Company's stockholders.
12. TIME OF GRANTING OPTIONS
The effective date of such Option shall be the date on which the grant was made. Within a reasonable time thereafter, the Company will deliver the Option to the Participant.
12. GOVERNING LAW; SEVERABILITY
The Plan shall be governed by the laws of the State of Nevada. The invalidity or unenforceability of any provision of the Plan or any Option granted pursuant to the Plan shall not affect the validity and enforceability of the remaining provisions of the Plan and the Options granted hereunder, and such invalid or unenforceable provision shall be stricken to the extent necessary to preserve the validity and enforceability of the Plan and the options granted hereunder.
Dated this 3rd day of January 2005.
By: /s/ Thomas Sandgaard
----------------------
Thomas Sandgaard
President and Chief
Executive Officer
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Exhibit 21
SUBSIDIARIES OF REGISTRANT
Zynex Medical, Inc. Colorado
Exhibit 31
CERTIFICATION
I, Thomas Sandgaard, certify that:
1. I have reviewed this Form 10-KSB of Zynex Medical Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Dated: April 15, 2005
/s/ Thomas Sandgaard
-------------------------------------
Thomas Sandgaard
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
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Exhibit 32
CERTIFICATION OF 10-KSB REPORT
OF
ZYNEX MEDICAL HOLDINGS, INC.
FOR THE YEAR ENDED DECEMBER 31, 2004
1. The undersigned is the Principal Executive Officer and the Principal Financial Officer of Zynex Medical Holdings, Inc. ("Zynex"). This Certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies the 10-KSB Report of Zynex for the year ended December 31, 2004.
2. We certify that such 10-KSB Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such 10-KSB Report fairly presents, in all material respects, the financial condition and results of operations of Zynex.
This Certification is executed as of April 15, 2005.
/s/ Thomas Sandgaard ------------------------------------- Thomas Sandgaard President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |