OHIO 31-1210318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES X NO
State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date: 1,846,006 shares of Common Stock, without par value, were outstanding at April 30, 2004.
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets as of March 31, 2004 (unaudited)
and December 31, 2003 3 - 4
Statements of Operations For the Three Months
Ended March 31, 2004 and 2003 (unaudited) 5
Statements of Cash Flows For the Three Months
Ended March 31, 2004 and 2003 (unaudited) 6 - 7
Notes to Financial Statements (unaudited) 8 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12 - 20
Item 3. Controls and Procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. N/A
Item 2. Changes in Securities and Small Business Issuer
Purchases of Equity Securities. 22
Item 3. Defaults Upon Senior Securities. N/A
Item 4. Submission of Matters to a Vote of Security Holders. N/A
Item 5. Other Information. N/A
Item 6. Exhibits and Reports on Form 8-K. 22
Signatures. 22
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The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
NOTE 1. BUSINESS ORGANIZATION AND PURPOSE
Superconductive Components, Inc. (the "Company") is an Ohio
corporation that was incorporated in May 1987. The Company was
formed to develop, manufacture and sell materials using
superconductive principles. Operations have since been
expanded to include the manufacture and sale of
non-superconductive materials. The Company's domestic and
international customer base is primarily in the thin film
battery, high temperature superconductor, lens and optical
coatings, electronics, functional coatings industries and
research.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and with instructions to Form 10-QSB and Article
10 of Regulation S-X. Accordingly they do not include all of
the information and footnotes required by accounting
principles generally accepted in the United States of America
for complete financial statements. In the opinion of
management, all adjustments considered necessary for fair
presentation of the results of operations for the periods
presented have been included. The financial statements should
be read in conjunction with the audited financial statements
and the notes thereto for the fiscal year ended December 31,
2003. Interim results are not necessarily indicative of
results for the full year.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The Company has received a grant of $512,848 from the Ohio
Department of Development's Third Frontier Action Fund (TFAF)
for the purchase of equipment related to the grant's purpose.
Additionally, the Company received $27,500 as part of its
contract with the Department of Energy for the purchase of
equipment related to the contract's purpose. The Company has
elected to record the funds disbursed as a contra asset;
therefore, the assets are not reflected in the Company's
financial statements. As assets are purchased, the liability
initially created when the cash was received is reduced with
no revenue being recognized or fixed asset recorded on the
balance sheet. At March 31, 2004, the Company has disbursed
$240,621. Funds received and not disbursed totaling $281,688
are included in accrued contract expenses with $18,039 in
accounts payable at March 31, 2004. The grant and contract
both provide that as long as the Company performs in
compliance with the grant/contract, the Company retains the
rights to the equipment. Management states that the Company
will be in compliance with the requirements and, therefore,
will retain the equipment at the end of the contract/grant.
The Company's pro forma information for the three months ended
March 31, 2004 and 2003 in accordance with the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" is
provided below. For purposes of pro forma disclosures,
stock-based compensation is amortized to expense on a
straight-line basis over the vesting period. The following
table compares the 2004 and 2003 results as reported to the
results had the Company adopted the expense recognition
For the periods ended March 31, 2004 and 2003, there was no
stock-based employee compensation cost included in the
determination of net loss as reported.
Inventory is comprised of the following:
NOTE 4. COMMON STOCK AND STOCK OPTIONS
The following options were granted under the 1995 Stock Option
Plan during the three months ended March 31, 2004:
Basic income (loss) per share is calculated as income
available to common stockholders divided by the weighted
average of common shares outstanding. Diluted earnings per
share is calculated as diluted income (loss) available to
common stockholders divided by the diluted weighted average
number of common shares. Diluted weighted average number of
common shares has been calculated using the treasury stock
method for Common Stock equivalents, which includes Common
Stock issuable pursuant to stock options and Common Stock
warrants. At March 31, 2004 and 2003, all Common Stock options
and warrants are anti-dilutive due to the net loss. The
following is provided to reconcile the earnings per share
NOTE 6. CAPITAL REQUIREMENTS; RISK OF CURTAILMENT OF BUSINESS
OPERATIONS
The Company's accumulated deficit since inception was
$7,014,107 (unaudited) at March 31, 2004. The losses have been
financed primarily from: (i) several private offerings of debt
and equity securities; (ii) additional investments and loans
by major shareholders; and (iii) a private offering of common
stock and warrants to purchase common stock in October 2000.
The Company cannot assure you, however, that it will be able
to raise additional capital in the future to fund its
operations. The Company expects to continue to incur
significant operating and net losses in 2004, and it is
possible that we will never be able to sustain or develop the
revenue levels necessary to attain profitability.
As of March 31, 2004, cash on-hand was $561,297 with $299,727
restricted for equipment purchases in accordance with the TFAF
grant. Cash available for operations at March 31, 2004 was
$261,570. Management believes, based on currently available
financing and forecasted sales and expenses, that funding will
be adequate to sustain operations through December 2004.
During the first quarter of 2004 the Company began to raise
additional funds through further offerings of debt and equity.
The Company received additional debt financing of $150,000. In
March 2004 the Company received $512,848 from the State of
Ohio's Third Frontier Action Fund to begin purchasing capital
equipment required to commercialize the Company's Lithium Thin
Film Battery sputtering target manufacturing process. At March
31, 2004, $281,688 of these funds have not been expended and
are included on the balance sheet as accrued contract
expenses. Also, in March 2004 the Company was approved by the
Ohio Department of Development's Industrial Technology
Enterprise Advisory Council Committee as an eligible entity
for the Technology Investment Tax Credit program. The program
is intended to benefit small Ohio-based research and
development and technology-oriented companies. This approval
permits individuals and businesses to receive state tax
incentives for up to twenty-five percent of their qualified
investments in the Company through September 2004. The Company
received $51,000 in the first quarter of 2004 and $620,000 in
the second quarter through May 13, 2004 in qualified
investments and plans to raise additional equity capital in
the second quarter 2004. These equity investments allow the
promissory notes ($729,770) issued in 2003 to be automatically
converted to common stock at $2.40 per share.
The Company has incurred substantial operating losses through
March 31, 2004, and numerous factors make it necessary for the
Company to seek additional capital. In order to support the
initiatives envisioned in its business plan, it will need to
raise additional funds through the sale of assets, public or
private financing, collaborative relationships or other
arrangements. Its ability to raise additional financing
depends on many factors beyond its control, including the
state of capital markets, the market price of its common stock
and the development or prospects for development of
competitive products by others. Because the common stock is
not listed on a major stock exchange, many investors may not
be willing or allowed to purchase it or may demand steep
discounts. The necessary additional financing may not be
available or may be available only on terms that would result
in further dilution to the current owners of the common stock.
The following discussion should be read in conjunction with the
Financial Statements and Notes contained herein.
The following section contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Any
statements that express, or involve discussions as to expectations,
beliefs, plans, objectives, assumptions or future events or performance
(often, but not always, through the use of words or phrases such as
will likely result, are expected to, will continue, is anticipated,
estimated, projection, outlook) are not statements of historical fact
and may be forward looking. Forward-looking statements involve
estimates, assumptions and uncertainties that could cause actual
results to differ materially from those expressed in the
forward-looking statements. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of
risks and uncertainties, including but not limited to economic,
competitive, regulatory, growth strategies, available financing and
other factors discussed elsewhere in this report and in other documents
filed by the Company with the Securities and Exchange Commission. Many
of these factors are beyond the Company's control. Actual results could
differ materially from the forward-looking statements made. In light of
these risks and uncertainties, there can be no assurance that the
results anticipated in the forward-looking information contained in
this report will, in fact, occur.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or
circumstances after the date on which such statements are made or
reflect the occurrence of unanticipated events, unless necessary to
prevent such statements from becoming misleading. New factors emerge
from time to time and it is not possible for management to predict all
factors, nor can it assess the impact of each such factor on the
business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in
any forward-looking statements.
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United
States of America requires management to make judgments, assumptions
and estimates that affect the amounts reported in the Financial
Statements and accompanying notes. Note 2 to the Financial Statements
in the Annual Report on Form 10-KSB for the year ended December 31,
2003 describes the significant accounting policies and methods used in
the preparation of the Financial Statements. Estimates are used for,
but not limited to, accounting for doubtful accounts, inventory
allowances, property and equipment depreciable lives, patents and
licenses useful lives, asset retirement obligations and assessing
changes in which impairment of certain long-lived assets may occur.
Actual results could differ from these estimates. The following
critical accounting policies are impacted significantly by judgments,
assumptions and estimates used in the preparation of the Financial
Statements. The allowance for doubtful accounts is based on our
assessment of the collectibility of specific customer accounts and the
aging of the accounts receivable.
If there is a deterioration of a major customer's credit worthiness or
actual defaults are higher than our historical experience, our
estimates of the recoverability of amounts due us could be adversely
affected. Inventory purchases and commitments are based upon future
demand forecasts. If there is a sudden and significant decrease in
demand for our products or there is a higher risk of inventory
obsolescence because of rapidly changing technology and customer
requirements, we may be required to increase our inventory allowances
and our gross margin could be adversely affected. Depreciable and
useful lives estimated for property and equipment, licenses and patents
are based on initial expectations of the period of time these assets
and intangibles will provide benefit to our Company. Cost estimates for
removal and repair of the current leased building or a change in timing
of the relocation could impact the estimate. Changes in circumstances
related to a change in our business, change in technology or other
factors could result in these assets becoming impaired, which could
adversely affect the value of these assets.
To date, the Company has received revenue predominantly from commercial
sales, government research contracts and non-government research
contracts. The Company has incurred cumulative losses of $7,014,107
from inception to March 31, 2004.
Revenues for the three months ended March 31, 2004 were $509,777
compared to $657,879, a decrease of $148,102 or 22.5% from the three
months ended March 31, 2003.
Product revenues decreased to $464,856 in 2004 from $624,546 in 2003 or
a decrease of 25.6%. The decline in revenues for the first three months
is due to lower product shipments as a result of the weak U.S. economy
and the relocation of the Company's facilities. The Company intends to
intensify its marketing efforts by increasing the number of
manufacturers representatives representing the Company. Also, a sales
manager was added to the organization at January 1, 2004.
Contract research revenues were $44,921 in 2004 as compared to $33,333
in 2003. The increase was due to a Phase II Small Business Innovation
Research grant for $523,612 from the Department of Energy that was
awarded in 2003. This award was to develop an advanced method to
manufacture continuous reacted lengths of High Tc Superconductor:
The Company became a member of a team led by Oxford Instruments
Superconducting Technology, which was awarded a grant from the
Department of Energy Superconductivity Partnership Initiative Program.
Revenues of $1,654 were generated in the first quarter 2004.
Total gross margin in 2004 was $54,150 or 10.6% of total revenue
compared to $149,218 or 22.7% in 2003. Gross margin on product revenue
was 11.6% in 2004 versus 23.9% in 2003. The decrease was due to lower
sales as well as the product mix. Gross margin on contract research
revenue was 0.0% for 2004 and 2003.
Selling expense in 2004 increased to $65,237 from $48,256 in 2003, an
increase of 35.2%. The increase was due to the addition of a sales
manager at January 1, 2004. This was partially offset by a reduction in
commission costs and decreased trade show attendance.
General and administrative expense in 2004 increased to $261,256 from
$179,070 in 2003, or 45.9%. The increase was due to the relocation of
the Company's facility in the first quarter of 2004. $70,390 was
expensed for this purpose. Also, rent expense increased from $16,649 to
$33,076, or 98.7% due to the relocation.
Internal research and development costs are expensed as incurred.
Research and development costs for 2004 were $11,648 compared to
$17,028 in 2003. Internal research and development costs decreased due
to a reduction in staff.
Interest expense was $10,730 for the three months ended March 31, 2004
compared to $6,440 for the three months ended March 31, 2003. Interest
expense to related parties was $8,730 and $4,294 for the three months
ended March 31, 2004, and March 31, 2003, respectively. The increase
was due to the accrued interest incurred as a result of the financing
completed in June and July of 2003.
Net loss per common share based on the loss applicable to common shares
for the three months ended March 31, 2004 and 2003 was $0.16 and $0.06,
respectively. The loss applicable to common shares includes the net
loss from operations, Series B preferred stock dividends and the
cumulative effect of the change in accounting. The net loss per common
share from operations was $0.16 and $0.04 for the three months ended
March 31, 2004 and 2003, respectively. The difference between the net
loss from operations and the loss applicable to common shares of $0.00
and $0.02 for the three months ended March 31, 2004 and 2003,
respectively, was a result of the preferred position that the preferred
shareholders have in comparison to the common shareholders and the
cumulative effect of the change in accounting.
Dividends on the Series B preferred stock accrue at 10% annually on the
outstanding shares. Dividends on the Series B preferred stock totaled
$6,296 for the three months ended March 31, 2004 and $6,885 for the
three months ended March 31, 2003.
Basic loss per common share for the three months ended March 31, 2004,
was $0.16 per share with 1,824,924 weighted average common shares
outstanding as compared to $0.04 per share and 1,823,256 weighted
average common shares outstanding for the three months ended March 31,
2003.
Diluted loss per common share for the three months ended March 31, 2004
was $0.16 per share with 1,824,924 average common shares outstanding as
compared to $0.04 per share and 1,823,256 weighted average common
shares outstanding for the three months ended March 31, 2003. For the
three months ended March 31, 2004 and 2003, all outstanding common
stock equivalents are anti-dilutive due to the net loss.
At March 31, 2004, working capital was $(250,083) compared to $235,173
at March 31, 2003. The decrease was due to a reduction in inventory and
accounts receivable. Also, an increase in notes payable and accounts
payable as a result of the facility move reduced working capital. The
Company provided cash from operations of approximately $323,000 and
$109,000 for the three months ended March 31, 2004 and March 31, 2003,
respectively, with the TFAF grant accounting for $282,000 of the March
31, 2004 cash from operations. Significant non-cash items including
depreciation, inventory reserve on excess and obsolete inventory,
allowance for doubtful accounts and the cumulative effect of the change
in accounting were approximately $55,000 and $59,000, respectively, for
the three months ended March 31, 2004 and 2003. Accounts payable and
accrued expenses increased in excess of increases in accounts
receivable, inventory and prepaids by approximately $551,000 for the
three months ended March 31, 2004. Accounts payable and accrued
expenses increased in excess of decreases in accounts receivable,
inventory and prepaids by approximately $150,000 for the three months
ended March 31, 2003, as a result of timing of receipt of inventory
versus required scheduled payments on this inventory and increased
prepaid expenses.
For investing activities, the Company used cash of approximately
$224,000 and $36,000, for the three months ended March 31, 2004 and
March 31, 2003, respectively. The amounts invested were used to
purchase machinery and equipment for increased production capacity, new
product lines and for leasehold improvements for the new facility.
Proceeds on sale of equipment totaled $1,302 and $3,200 for the three
months ended March 31, 2004 and March 31, 2003, respectively.
For financing activity for the three months ended March 31, 2004, the
Company provided cash of approximately $196,000. Cash payments to third
parties for capital lease obligations approximated $9,000; proceeds
from notes payable totaled $150,000. Proceeds from sale of common stock
was $51,000 and proceeds from the exercise of stock options totaled
$3,500. The Company incurred a new lease of $7,990 for a telephone
system for the new facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
For financing activity for the three months ended March 31, 2003, the
Company utilized cash of approximately $11,000. Cash payments to third
parties for capital lease obligations approximated $11,000.
While certain major shareholders of the Company have advanced funds in
the form of subordinated debt, accounts payable and guaranteeing bank
debt in the past, there is no commitment by these individuals to
continue funding the Company or guaranteeing bank debt in the future.
The Company will continue to seek new financing or equity financing
arrangements. However, the Company cannot be certain that it will be
successful in efforts to raise additional new funds.
The Company completed two private financing transactions in 2003
including (i) the issuance of convertible promissory notes in the
aggregate amount of $600,000 and 122,000 warrants to purchase shares of
common stock in exchange for $600,000 in cash and (ii) the redemption
of the Company's entire $129,770 obligation on its Series A redeemable
convertible preferred stock in exchange for convertible promissory
notes in the aggregate amount of $129,770, which represented the face
amount of the preferred stock plus accrued and unpaid dividends and
interest, and 26,302 warrants to purchase shares of common stock. Four
present shareholders invested the $600,000 of new money in the Company.
$500,000 in cash and the redemption of the Series A redeemable
preferred stock was received and recorded on June 30, 2003. $100,000 in
cash was received and recorded on July 1, 2003.
The principal and interest on the $729,770 of new convertible
promissory notes are payable June 30, 2006. Per the notes if the
Company completes an equity financing for at least $500,000 prior to
June 30, 2004, the notes shall automatically convert to common stock at
the same per share price as the equity financing and thereafter the
notes shall convert to common stock at the option of the holders at
$2.00 per share. The Company received $51,000 in equity financing in
the first quarter of 2004 and $620,000 in the second quarter through
May 13, 2004 and plans to raise additional equity financing in the
second quarter of 2004. These equity investments allow the promissory
notes to be automatically converted to common stock at $2.40 per share.
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. The following
factors have affected or could affect the Company's actual results and
could cause such results to differ materially from those expressed in
any forward-looking statements made by the Company. Investors should
consider carefully the following risks and speculative factors inherent
in and affecting the business of the Company and an investment in the
Company's common stock.
We commenced business in May of 1987. Our accumulated deficit since
inception was $7,014,107 (unaudited) at March 31, 2004.
We have financed the losses primarily from: (i) several private
offerings of debt and equity securities; (ii) additional investments
and loans by our major shareholders; and (iii) a private offering of
common stock and warrants to purchase common stock in October 2000. We
cannot assure you, however, that we will be able to raise additional
capital in the future to fund our operations. We expect to continue to
incur significant operating and net losses in 2004, and it is possible
that we will never be able to sustain or develop the revenue levels
necessary to attain profitability.
As of March 31, 2004, our cash on-hand was $561,297, with $299,727
restricted for equipment purchased by the TFAF grant. During the first
quarter of 2004, the Company provided $323,000 in cash to fund our
operations, with the TFAF grant accounting for $282,000 of the March
31, 2004 cash from operations. We believe, based on currently available
financing and forecasted sales and expenses, that our funding will be
adequate to sustain operations through December 2004. During the first
quarter of 2004 we began to raise additional funds through further
offerings of debt and equity. The Company received additional debt
financing of $150,000. In March 2004 the Company received $512,848 from
the State of Ohio's Third Frontier Action Fund to begin purchasing
capital equipment required to commercialize the Company's Lithium Thin
Film Battery sputtering target manufacturing process. Also, in March
2004 the Company was approved by the Ohio Department of Development's
Industrial Technology Enterprise Advisory Council Committee as an
eligible entity for the Technology Investment Tax Credit program. The
program is intended to benefit small Ohio-based research and
development and technology-oriented companies. This approval permits
individuals and businesses to receive state tax incentives for up to
twenty-five percent of their qualified investments in the Company
through September 2004. The Company received $51,000 in the first
quarter of 2004 and $620,000 in the second quarter through May 13, 2004
in qualified investments and plans to raise additional equity capital
in the second quarter 2004. These equity investments allow the
promissory notes ($729,770) issued in 2003 to be automatically
converted to common stock at $2.40 per share.
To successfully market our products, we must continue to develop
appropriate marketing, sales, technical, customer service and
distribution capabilities, or enter into agreements with third parties
to provide these services. Our failure to develop these capabilities or
obtain third-party agreements could adversely affect us.
Our success depends in large part on our ability to attract and retain
highly qualified management, administrative, manufacturing, sales, and
research and development personnel. Due to the specialized nature of
our business, it may be difficult to locate and hire qualified
personnel. The loss of services of one of our executive officers or
other key personnel, or our failure to attract and retain other
executive officers or key personnel, could have a material adverse
effect on our business, operating results and financial condition.
Although the Company has been successful in planning for and retaining
highly capable and qualified successor management in the past, there
can be no assurance that it will be able to do so in the future.
The Company has incurred substantial operating losses through March 31,
2004, and numerous factors make it necessary for the Company to seek
additional capital. In order to support the initiatives envisioned in
our business plan, we will need to raise additional funds through the
sale of assets, public or private financing, collaborative
relationships or other arrangements. Our ability to raise additional
financing depends on many factors beyond our control, including the
state of capital markets, the market price of our common stock and the
development or prospects for development of competitive products by
others. Because our common stock is not listed on a major stock
exchange, many investors may not be willing or allowed to purchase it
or may demand steep discounts. The necessary additional financing may
not be available to us or may be available only on terms that would
result in further dilution to the current owners of our common stock.
The market for Thin Film Materials is a substantial market with
significant competition in both ceramic and metal materials. While we
believe that our products enjoy certain competitive advantages in
design, function, quality, and availability, considerable competition
exists from well-established firms such as a division of Praxair's
Surface Science Technology group as well as MCR, Johnson Matthey, Pure
Tech and CERAC, all of which have more resources than we have.
In addition, a significant portion of our business is in the very
competitive market for sputtering targets made of ceramics, metals and
alloys. We face substantial competition in this area from companies
with far greater financial and other resources than we have. We cannot
assure you that developments by others will not render our products or
technologies obsolete or less competitive.
The government may cancel virtually all of our government contracts
which are terminable at the option of the government. While we have
complied with applicable government rules and regulations and contract
provisions in the past, we could fail to comply in the future.
Noncompliance with government procurement regulations or contract
provisions could result in the termination of government contracts. The
termination of our significant government contracts or the adoption of
new or modified procurement regulations or practices could adversely
affect us.
Inventions conceived or actually reduced to practice under a government
contract generally result in the government obtaining a royalty-free,
non-exclusive license to practice the invention. Similarly,
technologies developed in whole or in part at government expense
generally result in the government obtaining unlimited rights to use,
duplicate or disclose technical data produced under the contract. These
licenses and rights may result in a loss of potential revenues or the
disclosure of our proprietary information, either of which could
adversely affect us.
We rely on a combination of patent and trademark law, license
agreements, internal procedures and nondisclosure agreements to protect
our intellectual property. These may be invalidated, circumvented or
challenged. In addition, the laws of some foreign countries in which
our products may be produced or sold do not protect our intellectual
property rights to the same extent as the laws of the United States.
Our failure to protect our proprietary information could adversely
affect us.
We have received from the United States Patent and Trademark Office a
patent for Fine-Particle Bi-Sr-Ca-Cu-O Having High Phase Purity made by
a Chemical Precipitation and Low-Pressure Calcination method, and have
also received a patent for a new process to join two individual
strongly linked super-conductors utilizing a melt processing technique.
In addition, in the future we may submit additional patent applications
covering various applications. The patent application we filed and
patent applications that we may file in the future may not result in
patents being issued, and any patents issued may not afford meaningful
protection against competitors with similar technology, and may be
challenged by third parties. Because U.S. patent applications are
maintained in secret until patents are issued, and because publications
of discoveries in the scientific or patent literature tend to lag
behind actual discoveries by several months, we may not be the first
creator of inventions covered by issued patents or pending patent
applications or the first to file patent applications for such
inventions. Moreover, other parties may independently develop similar
technologies, duplicate our technologies or, if patents are issued to
us or rights licensed by us, design around the patented aspects of any
technologies we developed or licensed. We may have to participate in
interference proceedings declared by the U.S. Patent and Trademark
Office to determine the priority of inventions, which could result in
substantial costs. Litigation may also be necessary to enforce any
patents held by or issued to us or to determine the scope and validity
of others' proprietary rights, which could result in substantial costs.
The claims in granted patents often overlap and there are disputes
involving rights to inventions claimed in pending patent applications.
As a result, the patent situation in the high temperature
superconductor field is unusually complex. It is possible that there
will be patents held by third parties relating to our products or
technology. We may need to acquire licenses to design around or
successfully contest the validity or enforceability of those patents.
It is also possible that because of the number and scope of patents
pending or issued, we may be required to obtain multiple licenses in
order to use a single material. If we are required to obtain multiple
licenses, our costs will increase. Furthermore, licenses may not be
available on commercially reasonable terms or at all. The likelihood of
successfully contesting the validity or enforceability of those patents
is also uncertain; and, in any event, we could incur substantial costs
in defending the validity or scope of our patents or challenging the
patents of others.
The Thin Film Market is characterized by rapidly advancing technology.
Our success depends on our ability to keep pace with advancing
technology, processes and industry standards. To date, we have focused
our development efforts on powders and targets. We intend to continue
to develop and integrate advances in the thin film coatings industry.
However, our development efforts may be rendered obsolete by research
efforts and technological advances made by others, and materials other
than those we currently use may prove more advantageous.
Some of the Company's products are in the early stages of
commercialization and the Company believes that it will be several
years before products will have significant commercial end-use
applications, and that significant additional development work may be
necessary to improve the commercial feasibility and acceptance of its
products. There can be no assurance that the Company will be able to
commercialize any of the products currently under development.
To date, there has been no widespread commercial use of High
Temperature Superconductive (HTS) products. Additionally, the market
for the Thin Film Battery materials is still in its nascent stages.
THE MARKET FOR OUR COMMON STOCK IS LIMITED, AND AS SUCH OUR
SHAREHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR SHARES WHEN DESIRED OR
AT ATTRACTIVE MARKET PRICES.
Our stock price and our listing may make it more difficult for our
shareholders to resell shares when desired or at attractive prices.
From April 2000 until September 2001, our common stock traded on the
National Quotation Bureau (the "pink sheets"). In September 2001, our
stock once again began trading on The Over the Counter Bulletin Board
("OTC Bulletin Board"). Nevertheless, our common stock has continued to
trade in low volumes and at low prices. Some investors view low-priced
stocks as unduly speculative and therefore not appropriate candidates
for investment. Many institutional investors have internal policies
prohibiting the purchase or maintenance of positions in low-priced
stocks. This has the effect of limiting the pool of potential
purchasers of our common stock at present price levels. Shareholders
may find greater percentage spreads between bid and asked prices, and
more difficulty in completing transactions and higher transaction costs
when buying or selling our common stock than they would if our stock
were listed on a major stock exchange, such as The New York Stock
Exchange or The NASDAQ National Market.
OUR COMMON STOCK IS SUBJECT TO THE SECURITIES AND EXCHANGE COMMISSION'S
"PENNY STOCK" REGULATIONS, WHICH LIMITS THE LIQUIDITY OF COMMON STOCK
HELD BY OUR SHAREHOLDERS.
Based on its trading price, our common stock is considered a "penny
stock" for purposes of federal securities laws, and therefore is
subject to regulations, which affect the ability of broker-dealers to
sell the Company's securities. Broker-dealers who recommend a "penny
stock" to persons (other than established customers and accredited
investors) must make a special written suitability determination and
receive the purchaser's written agreement to a transaction prior to
sale.
As long as the penny stock regulations apply to our common stock, it
may be difficult to trade such stock because compliance with the
regulations can delay and/or preclude certain trading transactions.
Broker-dealers may be discouraged from effecting transactions in our
common stock because of the sales practice and disclosure requirements
for penny stock. This could adversely effect the liquidity and/or price
of our common stock, and impede the sale of our common stock in the
secondary market.
We are authorized to issue up to 15,000,000 shares of common stock,
which may be issued by our board of directors for such consideration,
as they may consider sufficient without seeking shareholders approval.
The issuance of additional shares of common stock in the future will
reduce the proportionate ownership and voting power of current
shareholders.
Our Articles of Incorporation also authorize us to issue up to 260,000
shares of preferred stock. The issuance of preferred stock in the
future could create additional securities which would have dividend and
liquidation preferences prior in right to the outstanding shares of
common stock. These provisions could also impede a non-negotiated
change in control.
We cannot assure you that our operations will result in sufficient
revenues to enable us to operate at profitable levels or to generate
positive cash flow sufficient to pay dividends. We have never paid
dividends on our common shares in the past and do not expect to do so
in the foreseeable future.
We require substantial capital resources to maintain existing
operations.
The Company has no off balance sheet arrangements including special
purpose entities.
As of the end of the period covered by this report, the Company's Chief
Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934). Based upon this
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective as
of the period covered by this report in ensuring that information
required to be disclosed by the Company in the reports that it files or
submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time period
specified by the Securities and Exchange Commission's rules and forms.
Additionally, there were no changes in the Company's internal controls
that could materially affect the Company's disclosure controls and
procedures subsequent to the date of their evaluation, nor were there
any material deficiencies or material weaknesses in the Company's
internal controls. As a result, no corrective actions were required or
undertaken.
SALES OF UNREGISTERED SECURITIES: On March 29, 2004, the Company, in a private
placement to an accredited investor sold 21,250 shares of its common stock
without par value at a purchase price of $2.40 per share. The total offering
price paid in cash was $51,000. As part of the private placement, the accredited
investor also received 4,250 warrants to purchase 4,250 shares of the Company's
common stock, without par value, at a purchase price of $2.88 per share. In
our opinion, the issuance of these shares was exempt from registration pursuant
to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder
due to the fact the shares were sold to less than 35 purchasers all of whom
were accredited investors. The Company did not use a placement agent or underwriter
for the transaction.
(A) EXHIBITS.
(B) REPORTS ON FORM 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARCH 31, DECEMBER 31,
2004 2003
---- ----
(UNAUDITED)
CURRENT ASSETS
Cash $ 261,570 266,940
Cash, restricted for equipment 299,727 --
Accounts and notes receivable
Trade, less allowance for doubtful accounts of $19,000 and $25,000 141,052 119,566
Employees 85 6,995
Other -- 119
Inventories 519,443 500,533
Prepaid expenses 13,730 30,198
----------- -----------
Total current assets 1,235,607 924,351
----------- -----------
PROPERTY AND EQUIPMENT,
AT COST
Machinery and equipment 2,042,823 2,031,437
Furniture and fixtures 22,124 22,124
Leasehold improvements 5,231 347,349
Construction in progress 179,492 --
----------- -----------
2,249,670 2,400,910
Less accumulated depreciation (1,496,655) (1,827,076)
----------- -----------
753,015 573,834
----------- -----------
OTHER ASSETS
Deposit 7,863 7,863
Intangibles 39,387 40,159
----------- -----------
Total other assets 47,250 48,022
----------- -----------
TOTAL ASSETS $ 2,035,872 1,546,207
=========== ===========
MARCH 31, DECEMBER 31,
2004 2003
---- ----
(UNAUDITED)
CURRENT LIABILITIES
Capital lease obligation, current portion $ 31,309 $ 31,994
Capital lease obligation, shareholder, current portion 68,428 68,428
Note payable shareholders, current portion 142,000 130,000
Note payable 150,000 --
Accounts payable 438,590 222,117
Accounts payable, shareholders 7,920 7,920
Accrued contract expenses 398,209 86,049
Accrued personal property taxes 55,263 43,263
Accrued interest, shareholders 48,491 39,760
Deferred contract revenue 57,908 50,742
Accrued expenses 87,572 72,195
----------- -----------
Total current liabilities 1,485,690 752,468
----------- -----------
CAPITAL LEASE OBLIGATION, NET OF
CURRENT PORTION 31,464 31,727
----------- -----------
NOTE PAYABLE SHAREHOLDERS, NET OF CURRENT
PORTION 755,625 767,625
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
SHAREHOLDERS' DEFICIT
Convertible preferred stock, Series B, 10% cumulative,
nonvoting, no par value, $10 stated value, optional
redemption at 103%; 25,185 issued and outstanding 290,887 284,591
Common stock, no par value, authorized 15,000,000 shares;
1,846,006 and 1,823,256 shares issued and outstanding, respectively 6,432,716 6,378,216
Additional paid-in capital 53,597 59,893
Accumulated deficit (7,014,107) (6,728,313)
----------- -----------
(236,907) (5,613)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,035,872 $ 1,546,207
=========== ===========
2004 2003
---- ----
SALES REVENUE $ 464,856 $ 624,546
CONTRACT RESEARCH REVENUE 44,921 33,333
----------- -----------
509,777 657,879
----------- -----------
COST OF SALES REVENUE 410,706 475,328
COST OF CONTRACT RESEARCH 44,921 33,333
----------- -----------
455,627 508,661
----------- -----------
GROSS MARGIN 54,150 149,218
GENERAL AND ADMINISTRATIVE EXPENSES 261,256 179,070
SALES AND PROMOTIONAL EXPENSES 65,237 48,256
----------- -----------
LOSS FROM OPERATIONS (272,343) (78,108)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 217 593
Interest expense (10,730) (6,440)
Gain (loss) on disposal of equipment (2,481) 3,200
Miscellaneous, net (457) (457)
----------- -----------
(13,451) (3,104)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAX (285,794) (81,212)
INCOME TAX EXPENSE -- --
----------- -----------
NET LOSS BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING (285,794) (81,212)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING -- (15,886)
----------- -----------
NET LOSS (285,794) (97,098)
DIVIDENDS ON PREFERRED STOCK (6,296) (6,885)
----------- -----------
LOSS APPLICABLE TO COMMON SHARES $ (292,090) $ (103,983)
=========== ===========
EARNINGS PER SHARE - BASIC AND DILUTED
NET LOSS PER COMMON SHARE BEFORE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
Basic $ (0.16) $ (0.04)
=========== ===========
Diluted $ (0.16) $ (0.04)
=========== ===========
NET LOSS PER COMMON SHARE AFTER CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING
Basic $ (0.16) $ (0.06)
=========== ===========
Diluted $ (0.16) $ (0.06)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 1,824,924 1,823,256
=========== ===========
Diluted 1,824,924 1,823,256
=========== ===========
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(285,794) $ (97,098)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 51,196 58,709
Amortization and accretion 772 1,600
Cumulative effect of a change in accounting -- 15,886
Gain (loss) on disposal of equipment 2,481 (3,200)
Inventory reserve (2,760) (19,837)
Provision for doubtful accounts 6,000 3,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (20,457) 16,483
Inventories (16,150) 47,999
Prepaid expenses 16,468 12,620
Increase (decrease) in liabilities:
Accounts payable 216,472 (20,562)
Accrued expenses and deferred revenue 354,607 93,487
--------- ---------
Total adjustments 608,629 206,185
--------- ---------
Net cash provided by operating activities 322,835 109,087
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale of equipment 1,302 3,200
Purchases of property and equipment (225,342) (38,790)
--------- ---------
Net cash used in investing activities (224,040) (35,590)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 150,000 --
Proceeds from exercise of common stock options 3,500 --
Proceeds from sale of common stock 51,000 --
Principal payments on capital lease obligations (8,938) (10,991)
--------- ---------
Net cash provided by (used in) financing activities 195,562 (10,991)
--------- ---------
2004 2003
---- ----
NET INCREASE IN CASH 294,357 62,506
CASH - Beginning of period 266,940 48,908
-------- --------
CASH - End of period $561,297 $111,414
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the years for:
Interest, net $ 1,310 1,552
Income taxes $ -- --
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES
Property and equipment was purchased by capital lease $ 7,990 --
provisions of SFAS #123.
March 31, March 31,
2004 2003
Net loss applicable to common shares:
As reported $ (292,090) $(103,983)
Stock-based compensation, net of tax (1,821) (546)
---------- ---------
Pro forma net loss under SFAS #123 $ (293,911) $(104,529)
Basic and diluted loss per share:
As reported $ (0.16) $ (0.06)
Pro forma under SFAS #123 $ (0.16) $ (0.06)
MARCH 31, DECEMBER 31,
2004 2003
------------ ------------
(unaudited)
Raw materials $ 365,540 $ 361,238
Work-in-progress 115,305 101,274
Finished goods 180,291 182,474
Inventory reserve (141,693) (144,453)
--------- ---------
$ 519,443 $ 500,533
========= =========
GRANT DATE # OPTIONS GRANTED OPTION PRICE
---------- ----------------- ------------
January 21, 2004 50,000 $2.60
NOTE 5. EARNINGS PER SHARE
calculations:
Three months ended March 31,
2004 2003
---- ----
Loss applicable
to common shares $ (292,090) $ (103,983)
=========== ===========
Weighted average
common shares
outstanding - basic 1,824,924 1,823,256
Effect of dilutions -
stock options -- --
----------- -----------
Weighted average
shares outstanding -
diluted 1,824,924 1,823,256
=========== ===========
Bismuth Strontium Calcium Copper Oxide - 2212 Wire. Revenues of $43,267
from this grant are included in first quarter 2004 revenues.
10(a) Lease Agreement between Superconductive Components,
Inc. and Duke Realty Ohio dated as of September 29,
2003 with Letter of Understanding dated February 17,
2004.
31.1 Rule 13a-14(a) Certification of Principal Executive
Officer.
31.2 Rule 13a-14(a) Certification of Principal Financial
Officer.
32.1 Section 1350 Certification of Principal Executive
Officer.
32.2 Section 1350 Certification of Principal Financial
Officer.
Date: May 14, 2004 /s/ Daniel Rooney
--------------------------------------------
Daniel Rooney, President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Gerald S. Blaskie
--------------------------------------------
Gerald S. Blaskie, Chief Financial Officer
(Principal Financial Officer)
Superconductive Components, Inc.
2839 Charter Street
Columbus, OH 43228
ATTN: Dan Rooney
RE: Lease Agreement by and between DUKE REALTY OHIO, an Indiana general partnership ("Landlord"), and SUPERCONDUCTIVE COMPONENTS, INC., an Ohio corporation ("Tenant"), dated September 29, 2003 (the "Lease"), for certain premises located at Westbelt West #2(184), 2839 Charter Street, Columbus, Ohio 43228.
Dear Dan:
It is my understanding that Tenant has received the tax incentives required to satisfy the contingency set forth in Section 16.17 of the Lease. Your execution below will confirm my understanding and acknowledge that Tenant is waiving all said contingencies. Please return an executed copy of this letter to me along with your security deposit check in the amount of $7,863.52 as required under the Lease.
Sincerely,
/s/ Jeffrey D. Palmquist ------------------------ Jeffrey D. Palmquist Vice President, Leasing |
Acknowledged and agreed to this 30 day of September, 2003.
SUPERCONDUCTIVE COMPONENTS, INC., an Ohio corporation
By: /s/ Daniel Rooney
-----------------
Printed: Daniel Rooney
-------------
|
Title: President and CEO
cc: Donald W. Jordan
Porter Wright Morris and Arthur, LLP
41 S. High Street
Columbus, OH 43215
THIS MEMORANDUM OF LEASE is made this 29th day of September, 2003, by and between DUKE REALTY OHIO, an Indiana general partnership ("Landlord") and SUPERCONDUCTIVE COMPONENTS, INC., an Ohio corporation ("Tenant").
1. LEASE. In consideration of the covenants, agreements, conditions and understandings to be performed and observed by Tenant, all as more fully set forth in a Lease Agreement of even date (the "Lease"), executed by Landlord and. Tenant, Landlord has leased and demised to Tenant 32,096 square feet of space in Building No. 2(184), Westbelt West Commerce Center, legally described in EXHIBIT "A" attached hereto and made a part hereof and known as 2839 Charter Street, Columbus, Ohio (the "Demised Promises").
2. TERM. The Initial term of the Lease (the "Initial Term") shall commence oil November 1, 2003 and shall continue, unless sooner terminated as provided in the Lease, to and including April 30, 2014. Tenant shall have the right to extend the term of the Lease for one additional term of 5 years on all of the terms and conditions contained in the Lease, including adjustment of Minimum Annual Rent.
3. ADDRESSES. Addresses for notices are as follows:
If to Landlord: Duke Realty Ohio
5600 Blazer Parkway, Suite 100
Dublin, Ohio 43017
Attention: Property Manager
If to Tenant: Superconductive Components, Inc.
2839 Charter Street
Columbus, Ohio 43228
Attention: Dan Rooney
4. INCORPORATION. This Memorandum of Lease is subject to all of the terms, conditions and understandings set forth in the Lease, which are made a part hereof by reference as though copied verbatim herein, In the event of a conflict between the terms and conditions of this Memorandum of Lease and the terms and conditions of the Lease, the terms and conditions of the Lease shall prevail.
IN WITNESS WHEREOF, the parties hereto have duly executed this Memorandum of Lease as of the day and year first above written.
By: /s/ Donald J. Hunter
---------------------------------------
Name: Donald J Hunter
Title: Senior Vice President
Columbus
|
STATE OF OHIO,
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 29th day of September , 2003, by Donald J. Hunter, Senior Vice President, Columbus of Duke Realty Corporation, general partner of Duke Realty Limited Partnership, general partner of Duke Realty Ohio, an Indiana general partnership, on behalf of the general partnership.
By: /s/ Dan Rooney ---------------------------------------- Name: Dan Rooney Title: President and CEO |
STATE OF OHIO,
COUNTY OF FRANKLIN, SS:
The foregoing instrument was acknowledged before me this 24th day of September, 2003, by Dan Rooney, the President and CEO of Superconductive Components, Inc., an Ohio corporation, on behalf of the corporation.
This Instrument Prepared By:
Donald W. Jordan, Esq.
Porter Wright Morris & Arthur LLP
41 South High Street
Columbus, Ohio 43215
Tenant: SUPERCONDUCTIVE COMPONENTS, INC. ("Tenant")
Landlord: DUKE REALTY OHIO ("Landlord")
Regarding: Lease by and between Tenant and Landlord dated September 29,
2003, (the "Lease")
Leased Premises: 2839 Charter Street
Columbus, Ohio 43228
The undersigned, on behalf of the Tenant certifies to the Landlord as follows:
1. The "Commencement Date" under the Lease is February 17, 2004.
2. The Rent Commencement Date is February 17, 2004, provided, however,
Landlord and Tenant agree that the Monthly Rental Installment for the first six
(6) months of the Lease Term is zero.
3. The "Expiration Date" of the Lease is August 16, 2014.
4. The Lease (including amendments or guaranty, if any) is the entire agreement between Landlord and Tenant as to the leasing of the Leased Premises and is in full force and effect.
5. The Landlord has completed the improvements designated as Landlord's obligation under the Lease (excluding punch list items as agreed upon by the Landlord and Tenant), if any, and Tenant has accepted the Leased Premises as of the Commencement Date.
6. To the best of the undersigned's knowledge, there are no uncured events of default by either Tenant or Landlord under the Lease.
IN WITNESS WHEREOF the undersigned has caused this Letter of Understanding to be executed this 27 day of February, 2004.
By: /s/ Daniel Rooney
---------------------------------------
Printed: Daniel Rooney
---------------------------------
|
Title: President and CEO
THIS LEASE is executed this 29th day of September, 2003, by and between DUKE REALTY OHIO, an Indiana general partnership ("Landlord"), and SUPERCONDUCTIVE COMPONENTS, INC., an Ohio corporation ("Tenant"),
Section 1.01. Basic Lease Provisions and Definitions.
A. Leased Premises (shown cross-hatched on Exhibit A attached hereto):
2839 Charter Street, Columbus, Ohio 43228, Building No. 2(184) (the
"Building"); located in Westbelt West Commerce Center (the "Park");
B. Rentable Area: approximately 32,096 rentable square feet;
Landlord shall use commercially reasonable standards, consistently applied, in determining the Rentable Area and the rentable area of the Building. Landlord's determination of Rentable Area, as certified by Landlord's architect to Tenant, shall conclusively be deemed correct for all purposes hereunder.
C. Tenant's Proportionate Share: 17.43%;
D. Minimum Annual Rent:
Months 1 - 6 $ 0.00 (6 months)
Year 1, Months 7 - 12 $ 47,181.12 (6 months)
Years 2 - 5 $ 94,362.24 per year
Years 6 - 10 $108,484.44 per year
Year 11, Months 121 - 126 $ 54,242.22 (6 months);
E. Monthly Rental Installments:
Months 1 - 6 $ 0.00 per month
Months 7 - 12 $ 7,863.52 per month
Months 13 - 60 $ 7,863.52 per month
Months 61 - 120 $ 9,040.37 per month
Months 121 - 126 $ 9,040.37 per month;
F. Lease Term: Ten (10) years and six (6) months;
G. Target Commencement Date: January. 1, 2004;
H. Security Deposit: $7,863.52;
I. Guarantor(s): None;
J. Broker(s): Duke Realty Services Limited Partnership representing Landlord and Ohio Industrial Realty Company representing Tenant;
K. Permitted Use: Light manufacturing, light assembly, general office and
related purposes;
L. Address for notices:
Landlord: Duke Realty Ohio
5600 Blazer Parkway, Suite 100
Dublin, OH 43017
Attn: Property Manager
Tenant: Superconductive Components, Inc.
Attn: Dan Rooney
2839 Charter Street
Columbus, OH 43228
With a copy to: Donald W. Jordan
Porter Wright Morris and Arthur, LLP
41 S. High Street
Columbus, OH 43215
Address for rental and other payments:
Duke Realty Ohio 75 Remittance Drive, Suite 3205 Chicago, IL 60675-3205
Section 1.02. Leased Premises. Landlord hereby leases to Tenant and Tenant leases from Landlord, under the terms and conditions herein, the Leased Premises.
Section 2.01. Term. The term of this Lease ("Lease Term") shall be for the period of time as set forth in Section 1.01F hereof, and shall commence on the date the Leased Premises are Substantially Complete (as hereinafter defined) ("Commencement Date") provided, however the Commencement Date for purposes of the payment of rent hereunder shall not be extended as a result of any delays in Substantial Completion caused by Tenant. "Substantially Complete" or "Substantial Completion" shall mean the date on which Landlord has completed the Tenant Improvements in accordance with the terms of Exhibit B attached hereto subject only to minor punch list items of work which do not substantially interfere with Tenant's use of the Leased Premises in accordance with the terms of the Lease.
Section 2.02. Construction of Tenant Improvements.
Tenant has personally inspected the Leased Premises and accepts the same "AS IS" without representation or warranty by Landlord of any kind and with the understanding that Landlord shall have no responsibility with respect thereto except to construct in a good and workmanlike manner the improvements described on EXHIBIT B attached hereto and made a part hereof (the "Tenant Improvements"). Notwithstanding the foregoing to the contrary, based upon Landlord's inspection of the Building systems servicing the Leased Premises prior to the Commencement Date, Landlord represents that as of the Commencement Date the building systems servicing the Leased Premises are in good working order and repair. Within five (5) days of Landlord's Substantial Completion of the Tenant Improvements, Landlord and Tenant shall complete a walk-through of the Leased Premises at which time Tenant shall notify Landlord in writing of any deficiencies in the Tenant Improvements ("Punch List Items"). Landlord shall promptly commence and diligently proceed until the Punch List Items are completed or remedied.
Promptly following the Commencement Date, Tenant shall execute Landlord's Letter of Understanding in substantially the form attached hereto as EXHIBIT C and made a part hereof, acknowledging, among other things, that Tenant has accepted the Leased Premises. If Tenant takes possession of and occupies the Leased Premises, then, subject to the foregoing paragraph, Tenant shall be deemed to have accepted the Leased Premises and that the condition of the Leased Premises and the Building was at the time satisfactory and in conformity with the provisions of this Lease in all respects.
In addition to the foregoing, Tenant shall be responsible for the installation of Tenant's fixtures and equipment (the "Tenant's Work") within the Leased Premises. Tenant's proposed architect/engineer, construction contractor, and mechanical, electric and plumbing subcontractors are subject to Landlord's prior written approval, which approval shall not be unreasonably withheld or delayed. Promptly following the selection and approval of the contractor, Tenant shall forward to said contractor (and copy Landlord on the transmittal) Landlord's mechanical and plumbing specifications, all of which have been delivered to Tenant prior to the date of this Lease. Tenant shall cause said contractor. to comply with said specifications. At Landlord's request, Tenant shall coordinate a meeting among Landlord, Tenant and Tenant's contractor to discuss the Building systems and other matters related to the construction of the Tenant's Work. Tenant's Work shall be completed in accordance with plans and specifications which shall be approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed; provided, however, such plans and specifications shall not materially alter the exterior appearance or basic nature of the Building, or any Building systems.
Tenant, its contractors, and subcontractors, shall maintain in full force and effect during the construction of the Tenant's Work: (i) worker's compensation insurance in an amount no less than the minimum statutory amount; (ii) commercial general liability insurance (which shall not exclude blanket, contractual liability, broad form property damage, personal injury, completed operations, products liability, and fire damage) with a combined single limit of not less than $3,000,000 (which may be satisfied by any combination of primary or excess/umbrella coverage) for both bodily injury and property damage; and (iii) all risk coverage for the full cost of replacement of Tenant's business personal property, including Tenant's Work and betterments. Notwithstanding anything contained in this Lease to the contrary, Tenant and its contractor's and subcontractors' insurance required hereunder shall be the primary policy with respect to any liability, claims, demands or expenses (including reasonable attorneys' fees) for injury (including death) or damages to person or property arising from or in connection with the construction of the Tenant's Work. Tenant shall indemnify and hold harmless Landlord from and against any and all such claims, except for such liability, claim, or demand arising directly out of the sole negligence of Landlord. Tenant further agrees to indemnify, defend and hold harmless Landlord and its agents, directors and employees from all claims and suits of whatever type, including court costs, attorneys' fees, and other expenses, caused by any act or omission of its contractors and subcontractors. Tenant's obligations to indemnify and hold harmless Landlord hereunder shall survive the termination of this Lease.
Prior to commencing the construction of the Tenant's Work, Tenant shall deliver to Landlord (i) evidence of insurance (carried by Tenant, its contractors, and any subcontractors) reasonably satisfactory to Landlord, which insurance shall name Landlord as an additional insured and shall be maintained throughout the construction of the Tenant's Work, and (ii) a project schedule in detail reasonably satisfactory to Landlord. Throughout the construction of the Tenant's Work, Tenant shall notify Landlord promptly of any material deviations from such project schedule. Tenant or its contractor shall construct the Tenant's Work in a good, first-class and workmanlike manner and in accordance with the approved plans and specifications and all applicable governmental regulations. If Tenant shall fail to .complete the Tenant's Work by the Commencement Date, Tenant's obligation to pay Minimum Annual Rent in the amount set forth in Sections 1.01(D) and (E) and Additional Rent hereunder shall nevertheless begin on the Commencement Date. Landlord shall have the right, from time to time throughout the construction process, to enter upon the Leased Premises to perform periodic inspections of the Tenant's Work. Tenant agrees to respond to and address promptly any reasonable concerns raised by Landlord during or as a result of such inspections.
Upon substantial completion of the Tenant's Work, a representative of Landlord and a representative of Tenant together shall inspect the Leased Premises and generate a punchlist of defective or uncompleted items relating to the completion of construction of the Tenant's Work. Tenant shall, within a reasonable time after such punchlist is prepared and agreed upon by Landlord and Tenant, complete such incomplete work and remedy such defective work as are set forth on the punchlist.
Tenant acknowledges and agrees that Tenant shall have no right to conduct its business at the Leased Premises unless and until Tenant delivers to Landlord an original certificate of occupancy for the Leased Premises.
No person shall be entitled to any lien derived through or under Tenant for any labor or material furnished to the Leased Premises, and nothing in this Lease shall be construed to constitute a consent by Landlord to the creation of any lien. If any lien is filed against the Leased Premises for work claimed to have been done for or material claimed to have been furnished to Tenant, Tenant shall cause such lien to be discharged of record within thirty (30) days after filing. Tenant shall indemnify Landlord from all costs, losses, expenses and attorneys' fees in connection with any construction or alteration and any related lien.
Section 2.03. Surrender of the Premises. Upon the expiration or earlier termination of this Lease, Tenant shall immediately surrender the Leased Premises to Landlord in broom-clean condition and in good condition and repair, reasonable wear and tear and loss by fire or other insured casualty excepted. Tenant shall also remove its personal property, trade fixtures and any of Tenant's alterations designated by Landlord, promptly repair any damage caused by such removal, and restore the Leased Premises to the condition existing upon the Commencement Date, reasonable wear and tear and loss by fire or other insured casualty excepted. If Tenant fails to do so, Landlord may restore the Leased Premises to such condition at Tenant's expense, Landlord may cause all of said property to be removed at Tenant's expense, and Tenant hereby agrees to pay all the costs and expenses thereby reasonably incurred. All Tenant property which is not removed within ten (10) days following Landlord's written demand therefor shall be conclusively deemed to have been abandoned by Tenant, and Landlord shall be entitled to dispose of such property at Tenant's cost without thereby incurring any liability to Tenant. The provisions of this section shall survive the expiration or other termination of this Lease.
Section 2.04. Holding Over. If Tenant retains possession of the Leased Premises after the expiration or earlier termination of this Lease, Tenant shall become a tenant from month to month at 150% of the Monthly Rental Installment in effect at the end of the Lease Term, and otherwise upon the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent in such event shall not result in a renewal of this Lease, and Tenant shall vacate and surrender the Leased Premises to Landlord upon Tenant being given thirty (30) days' prior written notice from Landlord to vacate whether or not said notice is given on the rent paying date. This Section 2.04 shall in no way constitute a consent by Landlord to any holding over by Tenant upon the expiration or earlier termination of this Lease, nor limit Landlord's remedies in such event.
Section 3.01. Base Rent. Tenant shall pay to Landlord the Minimum Annual Rent in the Monthly Rental Installments, in advance, without deduction or offset except as expressly permitted herein, beginning on the Commencement Date in the amounts set forth in Section 1.01 (D) and (E) and on or before the first day of each and every calendar month thereafter during the Lease Term. The Monthly Rental Installment for partial calendar months shall be prorated.
Section 3.02. Additional Rent. In addition to the Minimum Annual Rent, commencing on the Commencement Date, Tenant shall pay to Landlord for each calendar year during the Lease Term, as "Additional Rent", Tenant's Proportionate Share of all costs and expenses incurred by Landlord during the Lease Term for Real Estate Taxes and Operating Expenses for the Building and Common Areas (collectively, "Common Area Charges").
"Operating Expenses" shall mean all of Landlord's reasonable expenses for operation, repair, replacement and maintenance to keep the Building and Common Areas in good order, condition and repair (including all additional and actual direct costs and expenses of operation and maintenance of the Building which actual and direct costs and expenses Landlord reasonably determines it would have paid or incurred for the Building during such year if the Building had been fully occupied), including, but not limited to, management/administrative fee; utilities not separately metered and paid by Tenant, stormwater discharge fees; license, permit, inspection and other fees; fees and assessments imposed by any covenants or owners' association; security services; insurance premiums and deductibles and maintenance, repair and replacement of the driveways, parking areas (including snow removal), exterior lighting, landscaped areas, walkways, curbs, drainage strips, sewer lines, exterior walls, foundation, structural frame, roof and gutters. Operating Expenses shall include the cost of capital improvements to the extent such capital improvements are made for the purpose of reducing Operating Expenses, of complying with any law, code, ordinance, rule, regulation or order applicable to the Building or Common Areas; or of enhancing or protecting the health and safety of the tenants, occupants, licensees and invitees of the Building and Common Areas. The cost of any capital improvement shall be amortized over the useful life of such improvement (as reasonably determined by Landlord), and only the amortized portion shall be included in Operating Expenses.
"Operating Expenses" shall not include advertising; leasing or marketing expenses; costs to enforce leases against other tenants in the Building; environmental remediation expenses caused 4" Landlord or other tenants of the Building; expenses properly chargeable only to certain tenants as a result of their negligence or noncompliance; expenses reimbursed from insurance proceeds, condemnation awards, or warranties; interest and penalties incurred as a result of Landlord's late payment of expenses; debt service payments; expenses incurred because of Landlord's gross negligence or expenses incurred because of Landlord's default under other leases; fines and penalties incurred as a result of Landlord's failure to comply with applicable laws, rules, and regulations (other than the Americans with Disabilities Act); any damage to the Common Areas caused by Landlord or its agents resulting from the construction by Landlord of buildings on adjacent property owned by Landlord; and expenses in connection with services or other benefits which are provided to another tenant of the Building and are not available to Tenant.
For purposes of this Lease, "Common Areas" shall mean the areas of the Building, the Park and the land which are designed for use in common by all tenants of the Building and their respective employees, agents, customers, invitees and others, and includes, by way of illustration and not limitation, entrances and exits, sidewalks, driveways, parking areas, landscaped areas and other areas as may be designated by Landlord as part of the Common Areas of the Building and the Park. Tenant shall have the non-exclusive right, in common with others, to the use of the Common Areas.
"Real Estate Taxes" shall include any form of real estate tax or assessment or service payments in lieu thereof, and any license fee, commercial rental tax, improvement bond or other similar charge or tax (other than inheritance, personal income or estate taxes) imposed upon the Building or Common Areas (or against Landlord's business of leasing the Building) by any authority having the power to so charge or tax, together with costs and expenses of contesting the validity or amount of Real Estate Taxes, which at Landlord's option may be calculated as if such contesting work had been performed on a contingent fee basis (whether charged by Landlord's counsel or representative; provided, however, that said fees are reasonably comparable to the fees charged for similar services by others not affiliated with Landlord, but in no event shall said fees exceed thirty-three percent (33%) of the good faith estimated tax savings). Additionally, Tenant shall pay, prior to delinquency, all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all personal property of Tenant contained in the Leased Premises.
Notwithstanding anything in this Lease to the contrary:
(a) Uncontrollable Expenses. Tenant will be responsible for Tenant's Proportionate Share of Real Estate Taxes, including the reasonable costs and expenses of contesting the validity or amount of Real Estate Taxes; service payments in lieu of real estate taxes; fees or charges imposed by any governmental entity; insurance premiums; association dues; utilities; costs imposed by covenants or easements and snow removal costs ("Uncontrollable Expenses"), without regard to the level of increase in any or all of the above in any year or other period of time.
(b) Controllable Expenses. Tenant's obligation to pay all other Building Operating Expenses which are not Uncontrollable Expenses (herein "Controllable Expenses"), including management and administrative fees, shall be limited to a four percent (4%) per annum increase over the amount the Controllable Expenses for the immediately preceding calendar year would have been had the Controllable Expenses increased at the rate of one hundred four percent (104%) in all previous calendar years beginning with the actual Controllable Expenses for the year ending December 31 of the second full calendar year of the Lease Term.
Section 3.03. Payment of Additional Rent. Landlord shall estimate the total amount of' Additional Rent to be paid by Tenant during each calendar year of the Lease Term, pro-rated for any partial years. Commencing on the Commencement Date, Tenant shall pay to Landlord each month, at the same time the Monthly Rental Installment is due, an amount equal to one-twelfth (1/12) of the estimated Additional Rent for such year. Within a reasonable time after the end of each calendar year, Landlord shall submit to Tenant a statement of the actual amount of such Additional Rent and within thirty (30) days after receipt of such statement, Tenant shall pay any deficiency between the actual amount owed and the estimates paid during such calendar year. In the event of overpayment, Landlord shall credit the amount of such overpayment toward the next installments of Minimum Annual Rent,
Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur certain additional unanticipated administrative and legal costs and expenses if Tenant fails to timely pay any payment required hereunder. Therefore, in addition to the other remedies available to Landlord hereunder, if any payment required to be paid by Tenant to Landlord hereunder shall become overdue by more than three (3) business days, such unpaid amount shall bear interest from the due date thereof to the date of payment at the prime rate (as reported in the Wall Street Journal of interest ("Prime Rate") plus four percent (4%) per annum.
Section 3.05. Tenant Verification. If Tenant does not agree with Landlord's determination of Operating Expenses, Tenant shall have the right to inspect such of Landlord's books and records as pertain to the Operating Expenses. Such books and records shall be available to Tenant for inspection, upon prior reasonable written notice to Landlord, during the ninety (90) day period following the delivery of Landlord's statement to Tenant. Such inspection sh~ll take place at Landlord's office located at 5600 Blazer Parkway, Suite 100, Dublin, Ohio. Such inspection of Landlord's books and records shall be conducted only by Tenant or a qualified independent certified public accountant that is not being compensated for its services on a contingency fee basis. If as a result of any audit conducted by Tenant, Landlord and Tenant mutually agree in writing (or Tenant obtains a final unappealable judgment to the effect) that any Landlord's statement of actual Operating Expenses was five percent (5%) or more higher than the actual Operating Expenses as determined by such audit, then Landlord agrees (in addition to refunding any overpayment by Tenant) to reimburse Tenant for the reasonable documented out-of-pocket costs paid by Tenant in connection with such audit. Tenant's failure to exercise its rights hereunder within said ninety (90) day period shall be a waiver of its rights to inspect or contest the method, accuracy or amount of the Annual Rental Adjustment and such Annual Rental Adjustment shall be conclusively deemed to be approved and accepted by Tenant. Pending resolution of any dispute with respect to statements of Tenant's Annual Rental Adjustment, Tenant shall pay its Annual Rental Adjustment as shown on such statement, and upon final determination of the amount of Tenant's Annual Rental Adjustment, Landlord shall promptly refund any overpayment to Tenant or Tenant shall promptly pay any amount due to Landlord, as applicable.
Tenant, upon execution of this Lease, shall deposit with Landlord the Security Deposit as security for the performance by Tenant of all of Tenant's obligations contained in this Lease. In the event of a default by Tenant, Landlord may apply all or any part of the Security Deposit to cure all or any part of such default; and Tenant agrees to promptly, upon demand, deposit such additional sum with Landlord as may be required to maintain the full amount of the Security Deposit. All sums held by Landlord pursuant to this section shall be without interest. At the end of the Lease Term, provided that there is then no uncured default, Landlord shall promptly return the Security Deposit to Tenant.
Section 5.01. Use of Leased Premises. The Leased Premises are to be used by Tenant solely for the Permitted Use and for no other purposes without the prior written consent of Landlord. Landlord represents that the Building is zoned M.
Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use and maintain the Leased Premises and conduct its business thereon in a safe, careful, reputable and lawful manner, (ii) comply with all laws, rules, regulations, orders, ordinances, directions and requirements of any governmental authority or agency, now in force or which may hereafter be in force, including without [imitation those which shall impose upon Landlord or Tenant any duty with respect to or triggered by a change in the use or occupation of, or any improvement or alteration to, the Leased Premises, and (iii) comply with and obey all reasonable directions of the Landlord, including any rules and regulations that may be adopted by Landlord from time to time and provided to Tenant in writing. Tenant shall not do or permit anything to be done in or about the Leased Premises or Common Areas which constitutes a nuisance or which interferes with the rights of other tenants or injures them. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building of its lease or of any rules and regulations but shall use commercially reasonable efforts to enforce such performance by other tenants. Tenant shall not overload the floors of the Leased Premises. All damage to the floor structure or foundation of the Building due to improper positioning or storage of items or materials shall be repaired by Landlord at the sole expense of Tenant, who shall reimburse Landlord immediately therefor upon demand. Tenant shall not use the Leased Premises, or allow the Leased Premises to be used, for any purpose or in any manner which would invalidate any policy of insurance now or hereafter carried on the Building or increase the rate of premiums payable on any such insurance policy unless Tenant reimburses Landlord as Additional Rent for any increase in premiums charged.
Section 5.03. Landlord's Rights Regarding Use. In addition to the rights specified elsewhere in this Lease, Landlord shall have the following rights regarding the use of the Leased Premises or the Common Areas, each of which may be exercised without notice or liability to Tenant, (a) Landlord may install such signs, advertisements, notices or tenant identification information as it shall deem necessary or proper; (b) Landlord shall have the right at any time to control, change or otherwise after the Common Areas as it shall deem necessary or proper provided that Tenant's parking and access to the Leased Premises shall not be materially altered or reduced; and (c) Landlord or Landlord's agent shall be permitted to inspect or examine the Leased Premises at any reasonable time upon reasonable notice (except in an emergency when no notice shall be required), and Landlord shall have the right to make any repairs to the Leased Premises which are necessary for its preservation if Tenant fails to make such repairs within thirty (30) days after written notice from Landlord; provided, however, that any repairs made by Landlord shall be at Tenant's expense, except as provided in Sectio!] 7.02 hereof. Landlord shall incur no liability to Tenant for such entry, nor shall such entry constitute an eviction of Tenant or a termination of this Lease, or entitle Tenant to any abatement of r6nt therefor.
Tenant shall obtain in its own name and pay directly to the appropriate supplier the cost of all utilities and services serving the Leased Premises. Landlord and Tenant acknowledge that Tenant's water will be submetered. However, if any services or utilities are jointly metered with other property, Landlord shall make a reasonable determination of Tenant's proportionate share of the cost of such utilities and services and Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord's written statement. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility or other Building service and no such failure or interruption shall entitle Tenant to terminate this Lease or withhold sums due hereunder. In the event of utility "deregulation", Landlord shall choose the service provider.
Notwithstanding the foregoing, in the event that (i) such interruption is due to Landlord's negligence or intentional wrongful acts, or (ii) the restoration of service is entirely within Landlord's control, and (iii) Landlord negligently fails to restore such service within a reasonable time, and (iv) the Leased Premises are untenantable (meaning that Tenant is unable to use such space in the normal course of its business for the Permitted Use) for more than five (5) consecutive days, then Tenant shall notify Landlord (and Landlord's tender, if any) in writing that Tenant intends to abate rent. If service has not been restored within five (5) days of Landlord's receipt of Tenant's notice, then Minimum Annual Rent and Additional Rent shall abate on a per them basis for each day commencing on the day which the Leased Premises became untenantable and continuing until the Leased Premises becomes tenantable, Such abatement shall be Tenant's sole remedy for Landlord's failure to restore service as set forth above, and Tenant shall not be entitled to damages (consequential or otherwise) as a result thereof.
Section 7.01. Tenant's Responsibility. During the Lease Term, Tenant shall, at its own cost and expense, maintain the Leased Premises in good condition. regularly servicing and promptly making all repairs and replacements thereto, including but not limited to the electrical systems, heating and air conditioning systems, plate glass, floors, windows and doors, sprinkler and plumbing systems, and shall obtain a preventive maintenance contract on the heating, ventilating and air-conditioning systems, and provide Landlord with a copy thereof, The preventive maintenance contract shall meet or exceed Landlord's standard maintenance criteria, and shall provide for the inspection and maintenance of the heating, ventilating and air conditioning system on not less than a semi-annual basis.
Section 7.02. Landlord's Responsibility. During the term of this Lease, Landlord shall maintain in good condition and repair, and replace as necessary, the roof, exterior walls, foundation and structural frame of the Building, access drives, lighting, utility lines, and the parking and landscaped areas, the costs of which shall be included in Operating Expenses; provided, however, that to the extent any of the foregoing items require repair solely because of the negligence, misuse, or default of Tenant, its employees, agents, customers or invitees, Landlord shall make such repairs solely at Tenant's expense.
Section 7.03. Alterations. Tenant shall not permit alterations in or to
the Leased Premises unless and until the plans have been approved by Landlord
in writing. As a condition of such approval, Landlord may require Tenant to
remove the alterations and restore the Leased Premises upon termination of
this Lease; otherwise, all such alterations shall at Landlord's option become
a part of the realty and the property of Landlord, and shall not be removed
by Tenant except Tenant may remove all trade fixtures, machinery, equipment,
tanks, special electrical equipment and other personal property installed
by Tenant. Tenant shall ensure that all alterations shall be made in accordance
with all applicable laws, regulations and building codes, in a good and workmanlike
manner and of quality equal to or better than the original construction of
the Building. No person shall be entitled to any lien derived through or under
Tenant for any labor or material furnished to the Leased Premises, and nothing
in this Lease shall be construed to constitute a consent by Landlord to the
creation of any lien. If any lien is filed against the Leased Premises for
work claimed to have been done for or material claimed to have been furnished
to Tenant, Tenant shall cause such lien to be discharged of record within
thirty
(30) days after filing. Tenant shall indemnify Landlord from all costs, losses,
expenses and attorneys' fees in connection with any construction or alteration
and any related lien. Landlord agrees that work on any subsequent tenant finish
improvements and/or alterations may be performed by Tenant's own contractors
provided Landlord approves such contractors and Tenant and Tenant's approved
contractors complete such work in accordance with Section 2.02(11).
Section 8.01. Casualty. In the event of total or partial destruction of the Building or the Leased Premises by fire, or other casualty, Landlord agrees to promptly restore and repair the Leased Premises; provided, however, Landlord's obligation hereunder shall be limited to the reconstruction of such of the tenant finish improvements as were originally required to be made by Landlord, if any, as more particularly described on Exhibit B. Rent shall proportionately abate during the time that the Leased Premises or part thereof are unusable because of any such damage. Notwithstanding. the foregoing, if the Leased Premises are (i) so destroyed that they cannot be repaired or rebuilt within one hundred eighty (180) days from the casualty date; or (ii) destroyed by a casualty which is not covered by the insurance required hereunder or, if covered, such insurance proceeds are not released by any mortgagee entitled thereto or are insufficient to rebuild the Building and the Leased Premises; then, in case of a clause (i) casualty, either Landlord or Tenant may, or, in the case of a clause (ii) casualty, then Landlord may, upon thirty (30) days' written notice to the other party, terminate this Lease with respect to matters thereafter accruing. In the event of a casualty rendering the Leased Premises untenantable and neither Landlord or Tenant terminate the Lease as provided hereunder, upon receipt of a written request from Tenant, Landlord will use commercially reasonable efforts to find Tenant temporary space owned or controlled by Landlord at the time of Landlord's receipt of such request, which space shall be leased by Landlord to Tenant at the same rental rate and upon the terms contained in this Lease, Provided the casualty rendering the Leased Premises unteriantable is not caused by the negligence of Tenant, its contractors, agents, employees, invitees, or customers, Landlord shall relocate Tenant to such temporary space at Landlord's expense, provided, however, Landlord shall only be required to pay such expenses that are not covered by Tenant's insurance.
Section 8.02. All Risk Coverage Insurance. During the Lease Term, Landlord shall maintain all risk coverage insurance on the Building in an amount equal to its full replacement cost, but shall not protect Tenant's property on the Leased Premises; and, notwithstanding the provisions of Section 9.01, Landlord shall not be liable for any damage to Tenant's property, regardless of cause, including the negligence of Landlord and its employees, agents and invitees. Tenant hereby expressly waives any right of recovery against Landlord for damage to any property of Tenant located in or about the Leased Premises, however caused, including the negligence of Landlord and its employees, agents and invitees. Notwithstanding the provisions of Section 9.01 below, Landlord hereby expressly waives any rights of recovery against Tenant for damage to the Leased Premises or the Building which is insured against under Landlord's all risk coverage insurance required to be insured by the terms of the Lease, Within thirty (30) days of Landlord's receipt of a written request from Tenant, Landlord will provide Tenant with a certificate of insurance. All insurance policies maintained by Landlord or Tenant as provided in this Lease shall contain an agreement by the insurer waiving the insurer's right of subrogation against the other party to this Lease, if available.
Section 9.01. Tenant's Responsibility. Landlord shall not be liable to Tenant or to any other person for (i) damage to property or injury or death to persons due to the condition of the Leased Premises, the Building or the Common Areas, or (ii) the occurrence of any accident in or about the Leased Premises or the Common Areas, or (iii) any act or neglect of Tenant or any other tenant or occupant of the Building or of any other person, unless such damage, injury or death is directly the result of Landlord's negligence or willful misconduct; and Tenant hereby releases Landlord from any and all liability for the same. Tenant shall be liable for, and shall indemnify and defend Landlord from, any and .all liability for (i) any act or neglect of Tenant and any person coming on the Leased Premises or Common Areas by the license of Tenant, express or implied, (ii) any damage to the Leased Premises, and (iii) any loss of or damage or injury to any person (including death resulting therefrom) or property occurring in, on or about tile Leased Premises, regardless of cause, except for any loss or damage from fire or casualty insured as provided in Section 8.02 and except for that caused directly by Landlord's negligence or willful misconduct. This provision shall survive the expiration or earlier termination of this Lease.
Section 9.02. Tenant's Insurance. Tenant shall carry the following insurance, issued by one or more insurance companies acceptable to Landlord, which insurance companies shall be admitted in the state in which the Leased Premises is located, with the following minimum coverages:
A. Worker's Compensation: minimum statutory amount.
B. Commercial General Liability Insurance (which shall not exclude blanket, contractual liability, broad form property damage, personal injury, completed operations, products liability, and fire damage) with a combined single limit of not less than $3,000,000.00 (which may be satisfied by any combination of primary or excess/umbrella coverage) for both bodily injury and property damage,
C. All Risk Coverage for the full cost of replacement of Tenant's business personal property, including Tenant's improvements and betterments.
D. Business interruption insurance.
Tenant's commercial liability insurance shall protect Tenant and Landlord as their interests may appear, naming Landlord and Landlord's managing agent and mortgagee as additional insureds, and shall provide that they may not be canceled on less than thirty (30) days' prior written notice to Landlord. Tenant shall furnish Landlord with Certificates of Insurance evidencing all required coverages on or before the Commencement Date. If Tenant fails to carry such insurance, or fails to furnish Landlord with such Certificates of Insurance within thirty (30) days after a request to do so, Landlord may obtain such insurance and collect the cost thereof from Tenant.
If all or any substantial part of the Building or Common Areas shall be acquired by the exercise of eminent domain or by voluntary conveyance in lieu thereof, Landlord may terminate this Lease by giving written notice to Tenant on or before the date that actual possession thereof is so taken. If all or any part of the Leased Premises shall be acquired by the exercise of eminent domain or by voluntary conveyance in lieu thereof so that the Leased Premises shall become unusable by Tenant for the Permitted Use, Tenant may terminate this Lease as of the date that actual possession thereof is taken or transferred by giving written notice to Landlord. All damages awarded shall belong to Landlord; provided, however, that Tenant reserves the right to bring an action in its own name for its loss of business, as well as any other damages that Tenant is entitled to recover as a result of the condemnation action provided such amount is not subtracted from Landlord's award. Tenant's claim for such damages shall survive termination of this Lease.
Tenant shall not assign this Lease or sublet the Leased Premises in whole or in part without Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or denied (provided that it shall not be unreasonable for Landlord to withhold or deny its consent with respect to any proposed assignment or subletting to a third party that is already a tenant in the Building or the Park), In the event of any assignment or subletting, Tenant shall remain primarily liable hereunder, and any extension, expansion, rights of first offer, rights of first refusal or other options granted to Tenant tinder this Lease shall be rendered void and of no further force or effect. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease or to be a consent to the assignment of this Lease or the subletting of the Leased Premises. Without in any way limiting Landlord's right to refuse to consent to any assignment or subletting of this Lease, Landlord reserves the right to refuse to give such consent if in Landlord's reasonable opinion (i) the Building or the Leased Premises are or may be in any way materially and adversely affected; (ii) the business reputation of the proposed assignee or subtenant is unacceptable, or (iii) the financial worth of the proposed assignee or subtenant is insufficient to meet the obligations hereunder. Landlord further expressly reserves the right to refuse to give its consent to any subletting if the proposed rent is publicly advertised to be less than the then current rent for similar premises in the Park. Tenant agrees to reimburse Landlord for reasonable accounting and attorneys' fees incurred in conjunction with the processing and documentation of any such requested assignment, subletting or any other hypothecation of this Lease or Tenant's interest in and to the Leased Premises. If Tenant shall make any assignment or sublease, with Landlord's consent, for a rental in excess of the rent payable under this Lease, Tenant shall pay to Landlord fifty percent (50%) of any such excess rental upon recei