-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WNWlwmA+mNPiNtj6eT1BvmyP9n/VmY7iRicB9Zb829jo3nKTrR3RR2HKaj3IEETT RNp0ozGpShXVMtpSBlaUiw== 0000950147-98-000661.txt : 19981105 0000950147-98-000661.hdr.sgml : 19981105 ACCESSION NUMBER: 0000950147-98-000661 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19980821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLPOWER CORP CENTRAL INDEX KEY: 0001068618 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 870384678 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: SEC FILE NUMBER: 000-29780 FILM NUMBER: 98696122 BUSINESS ADDRESS: STREET 1: 7309 EAST STETSON DRIVE STREET 2: STE 102 CITY: SCOTTSDALE STATE: AZ ZIP: 85251 BUSINESS PHONE: 6029476366 MAIL ADDRESS: STREET 1: 7309 EAST STETSON DR STREET 2: STE 102 CITY: SCOTTSDALE STATE: AZ ZIP: 85251 10SB12B 1 FORM 10 OF SOLPOWER CORPORATION ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 SOLPOWER CORPORATION (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) NEVADA 87-0384678 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 7309 EAST STETSON DRIVE, SUITE 102 SCOTTSDALE, ARIZONA 85251 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) ISSUER'S TELEPHONE NUMBER: (602) 947-6366 SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT: NONE SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE (TITLE OF CLASS) ================================================================================ PART I Except for historical information contained herein, this Form 10-SB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "SECURITIES ACT") and Section 21E of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and Solpower Corporation (the "COMPANY") intends that such forward-looking statements be subject to the safe harbors created thereby. Wherever possible, the Company has identified these forward-looking statements by words such as "ANTICIPATES," "BELIEVES," "ESTIMATES," "EXPECTS," "INTENDS" and similar expressions. Such forward-looking statements involve risks and uncertainties and include, but are not limited to, statements regarding future events and the Company's plans and expectations. The Company's actual results may differ materially from such statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in "ITEM 1. DESCRIPTION OF BUSINESS - FACTORS AFFECTING FUTURE PERFORMANCE" and "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," as well as those discussed elsewhere herein and in the exhibits hereto and incorporated by reference. Although the Company believes that the assumptions underlying the forward-looking statements herein are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in such forward-looking statements will be realized. In addition, as disclosed under "ITEM 1. BUSINESS - FACTORS AFFECTING FUTURE PERFORMANCE," the business and operations of the Company are subject to substantial risks which increase the uncertainties inherent in the forward-looking statements included in this Form 10-SB. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans or expectations contemplated by the Company will be achieved. ITEM 1. DESCRIPTION OF BUSINESS OVERVIEW The Company has licensed the rights to distribute and market SOLTRON, an enzyme based fuel enhancing product, and SP34E, an ozone safe refrigerant gas, throughout North America. The Company intends to distribute these products directly and to sub-license the sales and distribution rights to the SOLTRON product on a regional basis throughout the United States, Canada and Mexico. The Company was incorporated in Utah on June 7, 1982 as Dynafuel Corporation. The Company originally conducted limited research and development of an experimental fuel using alcohol and other chemicals in a proprietary combination to produce a gasoline like motor fuel. The Company ceased these operations in 1988 and remained dormant until 1995. In November 1995, the Company acquired the marketing rights to a virtual reality motion based simulator and, in December 1995, changed its name to Virtual Technologies, Inc. In July 1996, the Company merged into a newly formed subsidiary incorporated in Nevada to change its domicile to the State of Nevada. During the fiscal year ended March 31, 1997 the Company sold the motion based simulator contract and related assets. In November 1996, the Company entered into a licensing agreement with Dominion Capital Pty., Ltd. ("DOMINION CAPITAL") to acquire the exclusive manufacturing, distribution, marketing and sales rights for the product SOLTRON in the United States, Canada and Mexico. As a result of entering into the licensing agreement, Dominion Capital and its affiliates gained control of the Company. A new Board of Directors was then elected and new management installed. A corporate philosophy of acquiring and commercializing environmentally friendly products was initiated. In June 1998 the Company entered into a second licensing agreement with Dominion Capital and acquired the exclusive manufacturing, distribution, marketing and sales rights for the product SP34E in the United States, Canada and Mexico. PRODUCTS SOLTRON. SOLTRON is an enzyme based liquid fuel enhancing product that was developed over a period of 18 years by a group of scientists at the Japanese Institute of Bio-Energy. When added to fossil fuels SOLTRON reduces exhaust emissions, improves fuel economy, dispenses fuel sludge and other impurities and ultimately lowers engine maintenance costs. When mixed with liquid fuels, SOLTRON changes the molecular structure of fuel and improves oxygen absorption. The enzymes "FEED" on the damaging contaminants that cause fuel degradation. SOLTRON can be added to all liquid fossil fuels including gasoline, diesel and light and heavy oils either at the fuel pump or in bulk fuel tanks. SOLTRON has been sold commercially in Japan since 1993 and in Australia since 1996. SOLTRON was awarded the 1997 Best New Aftermarket Product Award (Chemical) by the Australian Automotive Aftermarket Association. SOLTRON will be marketed by the Company in North America as a natural enzyme product that will reduce emissions and improve fuel economy. Testing of SOLTRON has been conducted on behalf of Ford Motor Company of Australia Limited, Cetec Pty Ltd. (an independent science and technology laboratory and consulting firm in Australia), the Thailand Department of Marine Engineering - Marine Diesel Engine Laboratory and by various other independent end users. The results of such tests have shown that use of SOLTRON caused increased fuel economy, reduction of emissions and control of diesel sludge. The Company intends to conduct extensive field testing and objective laboratory testing of SOLTRON once the Phoenix, Arizona production facility is fully operational. SP34E. SP34E is a refrigerant gas developed in Japan by the Kinoh-Kinzohu Company as a replacement gas for ozone-depleting fluorinated refrigerants. SP34E is currently being sold in Japan, Australia and other Asian rim countries. Its applications include utilization in automotive, domestic, commercial and transport refrigeration and air-conditioning systems as an alternative to FREON(R) (R-12) and other fluorinated refrigerants. SP34E generally does not require replacement of mechanical components or removal of mineral and synthetic oils that are found in older refrigeration systems and has a lower discharge pressure and a much shorter atmospheric life span than other commonly used refrigerant gases. Testing of SP34E has been conducted by the Army Technology & Engineering Agency, Mechanical Laboratory, Victoria, Australia and various independent refrigeration companies in Australia, New Zealand, Japan, Thailand and Taiwan. The results of these tests consistently show that SP34E is an acceptable direct drop-in replacement gas for R-12 and R-134a with improved operating characteristics over other refrigerant replacement gases. The Company intends to conduct extensive field testing, objective laboratory testing and make the necessary Environmental Protection Agency ("EPA") applications in connection with development of its marketing strategy for this product. SUPPLIERS SOLTRON. SOLTRON consists of natural organic enzymes mixed with kerosene. SOLTRON enzyme concentrate is supplied exclusively to the Company by Neway Japan K.K. of Tokyo, Japan. Neway Japan K.K. has informed the Company that it currently has sufficient inventory of enzyme concentrate on hand to supply the Company's anticipated needs through 1999. Kerosene is readily available through local suppliers. The Company has produced its own proprietary bottle design for retail packaging and has selected a manufacturer that can produce in both the eastern and western United States in quantities to meet the Company's and its licensees' anticipated needs. 3 SP34E. The components of SP34E are readily available through a variety of local suppliers. MARKETING STRATEGIES SOLTRON. The fuel market can be divided into distinct groups such as diesel, gasoline, bunker and aviation fuel. These groups can be further sub-divided into distinct user segments: commercial transport fleets, government fleets, marine transport fleets, retail distribution and industrial. The EPA recently quadrupled the number of "NON-ATTAINMENT ZONES" in areas with severe emission problems resulting in certain fleet operators being forced to test or to start using alternative fuels such as propane or natural gas. New regulations such as restricted hours of service are also being considered. The Company believes that this increased regulation creates opportunities for consumer acceptance of its SOLTRON product and intends to focus on all North American markets with a major emphasis on commercial transport fleets. The Company's objective is to penetrate the fuel treatment market and increase fuel treatment usage of SOLTRON over a five year period while establishing consumer recognition of the SOLTRON brand name. The Company intends to exploit its SOLTRON manufacturing, marketing, sales and distribution rights in the United States, Canada and Mexico through the operation of a retained corporate territory and by granting exclusive licenses to an additional eight territories. The territories are as follows: SOLPOWER NORTHEAST Maine, Vermont, Massachusetts, Connecticut, Rhode Island, New Hampshire, New York, New Jersey and Pennsylvania. SOLPOWER MID-ATLANTIC Delaware, Washington DC, Maryland, West Virginia, Virginia, North Carolina, South Carolina, Tennessee and Kentucky. SOLPOWER CENTRAL Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska, Kansas, Wyoming and Colorado. SOLPOWER SOUTHEAST Alabama, Arkansas, Florida, Georgia, Louisiana and Mississippi. SOLPOWER SOUTH Oklahoma, New Mexico and Texas. SOLPOWER GREAT LAKES Ohio, Indiana, Michigan, Illinois and Wisconsin. SOLPOWER NORTHWEST Alaska, Canada, Idaho, Oregon, Montana and Washington. SOLPOWER SOUTHWEST Arizona, California, Hawaii, Nevada and Utah. SOLPOWER MEXICO Mexico. The Company will retain all commercial marine applications throughout North America and the Southwest Territory (California, Utah, Arizona, Nevada and Hawaii) for sales and distribution by the Company. The Company has entered into license agreements with Masters Marketing Group, Inc. for the Great Lakes Territory, Solpower Southeast Corporation for the Southeast Territory and Houston Mercantile Exchange, Inc. for the South and Mexico Territories. The Company is currently in negotiation with other parties related to two additional territories. The license agreements define the territory in which the licensees can manufacture, distribute, market and sell SOLTRON for a period of five years and require the licensees to purchase minimum annual amounts of SOLTRON enzyme concentrate from the Company. The agreements may be extended once by either party for additional five year periods. The license fee for each territory varies from $600,000 to $1,800,000. A 10% down payment on the licensee fee is required on entering into the agreement and the balance, which is evidenced by a promissory note payable over a two year period, is payable by charging a premium to the licensees on the SOLTRON enzyme concentrate price. The licensees are required to contribute to a national and territorial marketing fund that is administered by the Company to ensure that adequate marketing funds are dedicated to promotion of the product. Annual sales targets are set to encourage licensees to maximize sales efforts. Licensees have the right to appoint independent operators in their territory or utilize a direct sales force similar to that of the Company. 4 Distribution of SOLTRON in the Company's Southwest territory commenced in June 1998. Within its territory, the Company intends to deploy sales personnel to attempt to create a demand for SOLTRON in all market segments. The Company intends to coordinate a direct sales force to provide a focused marketing effort, which it believes will expose SOLTRON directly to the prospective customers more rapidly than by independent sales representatives offering multiple product lines. The Company also anticipates developing a national marketing effort focused on trade shows, trade journals and direct solicitations to potential major customers. The Company's overall goal is to successfully penetrate and create a substantial demand for SOLTRON in each market user segment. The Company retained Master Marketing Group, Inc. to develop a marketing plan for the national product launch of SOLTRON. To initiate such plan, the Company has employed two Area Sales Managers ("ASMS") for the southern California and Phoenix regions of the Company's territory. The marketing plan contemplates six ASMs in the Company's territory whose sales efforts will be serviced from the Company's Phoenix, Arizona production facility. The Great Lakes and Southeast Territories are being developed under a similar marketing plan by the individual licensees. The Company is developing product awareness at the national level through advertising in trade journals and participation in transportation and other industry related trade shows. Other activities to promote the Company's products include the identification and development of operations, marketing, accounting and administrative systems to achieve efficiency for the Company and licensees, the establishment of a corporate communications system supported by an in-house desktop publishing department and redesign and upgrading of the corporate image with new logos, web site, product brochures, trade show materials, product labeling and packaging and all related marketing materials. SP34E. SP34E is a direct drop-in refrigerant gas that replaces R-12 and R-134a refrigerant gases in existing air-conditioning and refrigerant units. Refrigerant gas is widely used in air-conditioning and refrigeration units in the residential, automotive, commercial and transportation sectors. Historically, chlorofluorocarbons ("CFCS"), hydrochlorofluorocarbons ("HCFCS") and hydrofluorocarbons ("HFCS") have been utilized as refrigerant gasses. CFCs used as refrigerant gases include R-12, HCFCs include R- 406A and HFCs include R-134a. Emissions of these gases have been proven to cause depletion of the ozone layer resulting in global warming. The EPA has banned production or importation of CFCs and production of HCFCs is scheduled to be phased-out in the United States by 2029. HFCs have not been banned or scheduled for phase-out, but contain gases that have global warming potential and are generally less effective as a refrigerant gas than CFCs or HCFCs. The Company intends to market SP34E as an environmentally safe replacement for R-12 refrigerants with greater efficiency and less environmental impact than R-134a. The Company has only recently acquired the distribution and marketing rights related to the SP34E and has not fully developed its marketing strategy for this product. The Company anticipates that it will develop a territorial strategy for certain market segments and also market this product directly, similar to the strategy developed for its SOLTRON product. PRODUCT RIGHTS ACQUISITION AGREEMENTS SOLTRON. The Company acquired the exclusive rights to produce, market and distribute SOLTRON in North America through an agreement with Dominion Capital in consideration for 5,000,000 shares of the Company's Common Stock and the grant of certain options and payment of cash consideration upon meeting certain sales levels. The agreement is for a period of five years and is renewable for an additional five year term. The Company also has a right of first refusal to commercialize SOLTRON and other products controlled by Dominion Capital on a global basis, except Japan. 5 SP34E. The Company acquired the exclusive North American manufacturing, distribution, marketing and sales rights to SP34E from Dominion Capital in consideration of the issuance of 6,000,000 shares of the Company's Common Stock and the payment to Dominion Capital of a royalty of $2.25 per kilogram of SP34E sold by the Company. The term of the agreement is for five years and the Company has an option to renew the agreement for an additional five year term. PROPRIETARY RIGHTS The Company intends to rely on a combination of trade secret and copyright laws, sub-license agreements and confidentiality and non-compete agreements to establish and protect its proprietary rights in its products. There can be no assurance that any license, confidentiality or non-compete agreement between the Company and its employees, consultants and licensees will provide meaningful protection for the Company's proprietary information in the event of any unauthorized use or disclosure of such proprietary information. The Company has applied with the United States Patent and Trademark Office ("USPTO") for a trademark registration for SOLTRON and a service mark registration for the mark SOLPOWER. Registration of the SOLTRON product has also been made with the EPA. Dominion Capital has applied with the USPTO for tradename registration for SP34E. COMPETITION The Company will compete with numerous well-established fuel additive and chemical products companies that possess substantially greater experience, financial, marketing, personnel and other resources than the Company. Many of the Company's competitors have achieved significant national, retail and local brand name and product recognition and engage in extensive advertising and promotional programs, both generally and in response to efforts by additional competitors to enter new markets and to introduce new products. The Company's ability to compete successfully will depend on the Company's success at penetrating each targeted market segment with its product, the consumer acceptance of its product and the Company's ability to license and develop new and improved products. There can be no assurance that the Company will be able to compete successfully, that its products will meet with consumer approval, that competitors will not develop and market products that are similar or superior to the Company's products or that the Company will be able to successfully enhance its products or develop new products meeting with consumer approval. The Company intends to focus on the environmentally friendly characteristics of its products in comparison to its competitors' products. Some products that may compete directly with the Company's SOLTRON product include STP Fuel Stabilizer and STP Diesel Fuel Treatment produced by First Brands Corporation, Slick 50 produced by Slick 50 Products Corporation, Valutect VT-5000 produced by Valutect Petroleum Products Corp. and Fuelen produced by Fuelen International, Inc. The Company believes that it can successfully compete with these products and penetrate the fuel additive market due to the unique environmentally friendly characteristics and multi-function applications of its SOLTRON product. The Company will compete with numerous national and international companies that produce refrigerant gas including DuPont, Elf Autochem, ICI and Allied Signal. The Company believes that the ban and phase-out of other refrigerant gases combined with the environmentally safe characteristics and product utility of its SP34E product will allow it to compete successfully in the refrigerant gas market. 6 PRODUCTION FACILITIES The Company has an approximate 12,000 square foot industrial facility in Phoenix, Arizona that serves as its production, warehousing and distribution plant for its SOLTRON product as well as its territorial sales office. The facility has capacity to produce 1,000,000 gallons of SOLTRON product per year which is expected to meet the Company's anticipated needs for product for the foreseeable future. The Company anticipates that the production facility will be operational in August 1998. The Company has an approximate 2.25 acre production facility in Elkhart, Indiana with an approximate 10,000 square foot warehouse. The facility is sufficient to accommodate an SP34E tank farm and production area with an annual capacity of 20,000 tons of finished product. The Company anticipates additional production facilities will be acquired or leased as the marketing and distribution of SP34E is developed. REGULATION The use of certain chemicals and other substances is subject to extensive and frequently changing federal, state, provincial and local laws and substantial regulation under these laws by governmental agencies, including the EPA, the Occupational Health and Safety Administration, various state agencies and county and local authorities acting in conjunction with federal and state authorities. Among other things, these regulatory bodies impose requirements to control air, soil and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use and release of certain hazardous chemicals and substances. The Company's products utilize chemicals that are classified under applicable laws as flammable and hazardous chemicals or substances. The Company provides all required label warnings and instructions for the handling of these substances. The EPA has established the EPA Motor Vehicle Aftermarket Retrofit Device Evaluation Program to evaluate the effects of fully developed aftermarket devices on vehicle emissions and fuel economy. Participation in the program by manufacturer of devices is voluntary. EPA evaluations of engines, retrofit devices, emission control devices and related products are conducted for the purpose of keeping policy makers, technical personnel in government and industry, and the general public abreast of developments in the field of automotive fuel economy and pollutant emission control. Aftermarket fuel additives are also included in the evaluation program and are required to be registered with the EPA Fuels and Energy Division. The Company has registered its SOLTRON product under this program. The Company will also be subject to regulation by the Federal Trade Commission ("FTC") with respect to the marketing of its products. Although the FTC has a long history of pursuing enforcement actions against fuel saving, fuel additive and oil additive products, the Company believes that it has sufficient research, independent testing and scientific evidence to substantiate the Company's advertising and promotional claims regarding its SOLTRON product. The Company will be subject to making application to the EPA under the Significant New Alternatives Policy ("SNAP"), the American Society of Heating and Air Conditioning Engineers, Inc. ("ASHRAE") and Underwriters Laboratories, Inc. ("UL(R)") in order to categorize the acceptable uses of its SP34E product. The Company intends to make all the necessary EPA-SNAP, ASHRAE and UL(R) submissions prior to marketing SP34E in the United States. The Company believes that it is in substantial compliance with all laws and regulations governing its material business operations and has obtained all required licenses and permits for the operation of its 7 business. There can be no assurance that the Company in the future will be able to comply with, or continue to comply with, current or future government regulations in every jurisdiction in which it will conduct its material business operations without substantial cost or interruption of its operations, or that any present or future federal, state, provincial or local environmental protection regulations may not restrict the Company's present and possible future activities. In the event that the Company is unable to comply with such requirements, the Company could be subject to substantial sanctions, including restrictions on its business operations, monetary liability and criminal sanctions, any of which could have a material adverse effect upon the Company's business. EMPLOYEES At August 1, 1998, the Company employed five full time personnel, including two administrative, one production and two marketing employees. The Company's employees are not covered by any collective bargaining agreements. The Company considers its relationship with its employees to be good. FACTORS AFFECTING FUTURE PERFORMANCE LIMITED OPERATING HISTORY. The Company's current operations have only been implemented since November 1996. Accordingly, the Company has a limited operating history with respect to the distribution and marketing of fuel additives and has not yet commenced its marketing strategies with respect to its refrigerant gas product. The Company's immediate strategy with respect to its SOLTRON product is to enter into sub-licensing agreements for territories covering substantially all of North America and to expand its sales and marketing efforts through direct sales personnel and independent sales representatives. The Company may require significant additional capital to fully implement its business plan and expand its operations. There can be no assurance that the Company will be able to achieve, or maintain, profitable operations or positive cash flow at any time in the future. NEED TO DEVELOP LICENSEE NETWORK. The Company has only recently commenced sub-licensing the sales and distribution rights to its SOLTRON product for its North American territories. Establishment of a distribution network sufficient to supply customer demand for the Company's SOLTRON product will be critical to the success of the Company. The Company anticipates developing this network primarily through its licensees and secondarily through direct sales and marketing efforts. The Company has not yet fully developed its strategies with respect to its SP34E product. Numerous factors, including lack of sufficient inventory or capital, failure of the Company's products to generate sufficient demand and lack of sufficient qualified, experienced personnel may contribute to the difficulties the Company will face in establishing an efficient distribution network for its products. While the Company intends to engage qualified personnel and believes it is sufficiently capitalized, no assurance can be given that the Company's products will be accepted by industrial or retail consumers, that a satisfactory distribution network can be established or that the Company's proposed operations will be profitable. UNCERTAINTY OF WIDESPREAD MARKET ACCEPTANCE OF PRODUCTS, LIMITED MARKETING EXPERIENCE. The Company has just commenced marketing SOLTRON and only recently acquired the North American rights to its second product SP34E. The Company has conducted limited marketing activities and has limited marketing experience with respect to its products. As is typical with new products, demand and market acceptance for the Company's products is subject to a high level of uncertainty. Achieving widespread market acceptance for its products will require substantial marketing efforts and the expenditure of sufficient funds to create brand recognition and customer demand and to cause potential customers to consider the potential benefits of the Company's products. The prospects for the Company's product line will be largely dependent upon the Company's ability to achieve market penetration. Achieving market penetration will require sufficient efforts by the Company to create awareness of and demand for the 8 Company's products. The Company's ability to build its customer base will depend in part on the Company's ability to locate, hire and retain sufficient qualified marketing personnel and to fund marketing efforts, including advertising. There can be no assurance that the Company's products will achieve widespread market acceptance or that the Company's marketing efforts will result in profitable operations. LIMITED PRODUCT LINE. The Company currently holds the marketing and distribution rights to two products, SOLTRON and SP34E. The Company's profitability will be dependent upon the market acceptance of these products and the Company's ability to improve these products and develop additional products to meet consumer approval. SUPPLY, CAPACITY AND DISTRIBUTION CONSTRAINTS. In order for the Company to successfully market its products, the Company must be able to timely fill orders for its sales distributions as well as supplying its licensees with the SOLTRON concentrate. Additionally, the licensees will have to likewise timely meet their order demands. The ability of the Company and its licensees to timely meet their supply requirements will depend on numerous factors including their ability to successfully establish an effective distribution network and to maintain adequate inventories and the ability of the Company's sole supplier to adequately produce the SOLTRON product in volumes sufficient to meet demand. Failure of the Company and its licensees to adequately supply product to retailers or of the Company's supplier to adequately produce product to meet demand could materially adversely impact the operations of the Company. DEPENDENCE UPON RAW MATERIALS AND SUPPLIERS. The SOLTRON concentrate will be subject to price fluctuations based upon supply and demand of such product. In addition, because the product is produced in Japan, fluctuations of the relative value of the yen and dollar could adversely affect the cost of the product to the Company. The Company's sole supplier of its SOLTRON product is Neway Japan K.K. Interruption of the Company's product supply could result from several factors, such as disruption of supply of raw product, work stoppages, strikes or other labor difficulties, changes in governmental or international regulations or natural or man caused disasters occurring with respect to its supplier. Any increase of costs of the Company's raw products or disruption of its supplier could severely affect the Company's business operations. RELIANCE ON MANAGEMENT; LIMITED PERSONNEL. The Company is highly dependent on the services of its executive officers, James H. Hirst and Leif Schipper. Neither Messrs. Hirst nor Schipper are subject to an employment agreement. The loss of the services of Mr. Hirst or Mr. Schipper or the inability to attract or retain alternative or additional qualified personnel will have a materially adverse affect on the Company. Attracting and retaining qualified personnel is critical to the Company's business plan. No assurances can be given that the Company will be able to retain or attract such qualified personnel or agents, or to successfully implement its business plan. CAPITAL REQUIREMENTS. The Company anticipates that additional funding will be required to meet management's growth objectives and fully implement its business plan. The Company may seek additional debt or equity financing through banks, other financial institutions, companies or individuals. No assurance can be given that the Company will be able to obtain any such additional equity or debt financing on satisfactory terms or at all. No assurance can be given that any such financing, if obtained, will be adequate to meet the Company's needs for the foreseeable future. If the Company is not able to successfully obtain sufficient capital, the Company's ability to continue as a viable business enterprise will be substantially impaired. MANAGEMENT OF GROWTH. The Company anticipates rapid growth in the future if its marketing efforts are successful. In such event it will require effective management and resources. This growth, if achieved, will place significant strains on the Company's financial, managerial and other resources. 9 Failure to effectively manage growth could have a materially adverse effect on the Company's business and profitability. SEASONAL FLUCTUATIONS. The Company's limited experience suggests that a greater demand for its SP34E product will occur in summer months, which is anticipated to result in more revenues in the Company's third and fourth fiscal quarters ending June 30 and September 30, respectively. Fluctuations in quarterly operating results may impact the market for the Company's Common Stock and result in high volatility the price of the Company's Common Stock. COMPETITION. The markets for fuel additives and refrigerant gases are highly competitive. The Company believes that its products can compete and that its management's qualifications will enable it to compete effectively. There is no assurance that the Company's business plan can be successfully implemented. The Company will compete with established manufacturers and distributors that have developed brand recognition, many of which will have significantly greater operating history, name recognition and resources than the Company. Other companies and vendors may also enter into competition with the Company as a result of the Company's increased marketing efforts. The lack of financial strength of the Company may be a negative factor for the Company's ability to penetrate its product markets even if the Company's products are superior. LIMITED PATENT AND PROPRIETARY INFORMATION PROTECTION. The Company believes that the proprietary processes used in production of its products does not infringe on the proprietary rights of others. In the event that the Company's products infringe the patent or proprietary rights of others, the Company may be required to modify its process or obtain a license. There can be no assurance that the Company would be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do so would have a material adverse effect on the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to prosecute or defend a patent infringement or proprietary rights action. Moreover, if any of the Company's products infringe patents or proprietary rights of others, the Company could, under certain circumstances, become liable for damages, which could have a material adverse effect on the Company. The Company also relies on proprietary know-how and confidential information and employs various methods to protect the processes, concepts, ideas and documentation associated with its proprietary rights. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such processes, concepts, ideas and documentation. Although the Company requires all of its employees to sign non-disclosure, non-competition and inventions agreements, there can be no assurance that such agreements will be enforceable or will provide meaningful protection to the Company. There can be no assurance that the Company will be able to adequately protect its trade secrets or that other companies will not acquire information that the Company considers proprietary. Moreover, there can be no assurance that other companies will not independently develop know-how comparable to or superior to that of the Company. PRODUCT ACQUISITION AGREEMENT. The Company's rights to a substantial portion of its product lines are dependent upon its rights under the product acquisition agreements with and the rights of Dominion Capital with respect to its SOLTRON and SP34E products and the process, formulae and other proprietary rights related to such products. Any termination or impairment of the rights of Dominion Capital to such proprietary rights or to the rights of the Company under the agreements would materially adversely affect the Company. Additionally, the Company's rights to the products under the agreements are limited to a term of five years, each of which are extendable for an additional five years. NEED FOR ADDITIONAL DEVELOPMENT OF CERTAIN PRODUCTS. The Company believes that development work on its SOLTRON and SP34E products is substantially complete. However, testing of these products in 10 the United States has been limited. The Company anticipates that its future research and development activities combined with experience gained from commercial production and use of the SOLTRON and SP34E products could result in the need for further refinement and development. There can be no assurance that unforeseen circumstances will not require expensive additional development of the Company's products and their applications. In addition, the Company may in the future need to make improvements in its product line in order for such products to remain competitive. ADEQUACY OF PRODUCT LIABILITY INSURANCE. The use of the Company's products entails inherent risks of adverse effects that could expose the Company to product liability claims. Product liability claims could have a material adverse effect on the business and financial condition of the Company. While the Company has obtained $5,000,000 in product liability insurance, there can be no assurance that the Company will be able to maintain such product liability insurance on acceptable terms or if maintained that such insurance will provide adequate coverage against all potential claims. CONTROL BY EXISTING SHAREHOLDERS. The Company's principal shareholders and their affiliates own or control a substantial voting block of the Company's outstanding Common Stock. As a result, these shareholders, if acting together, would be able to effectively control matters requiring approval by the shareholders of the Company, including the election of the Company's Board of Directors. INTERNATIONAL TRADE. The Company anticipates engaging in sales in both Canada and Mexico and will import SOLTRON concentrate from Japan. Currency fluctuation and other normal risks of conducting business internationally, including regulatory changes and requirements, fluctuating exchange rates, tariffs and other barriers, management difficulties, potentially adverse tax consequences and potentially difficult legal enforcement and collection problems could have a materially adverse impact on the financial condition of the Company. ILLIQUIDITY AND LACK OF PUBLIC MARKET. At the present time there is only a limited public market for any of the Company's securities through its listing on the OTC Bulletin Board. The Company is in the process of qualifying its Common Stock for listing with the NASDAQ SmallCap Market and by attracting additional qualified broker/dealers to make a market in its Common Stock. There can be no assurance that an active trading market in the Company's Common Stock will develop or be sustained. If a market for the Company's Common Stock does develop, the market price of the Common Stock may be highly volatile. Any broker/dealer that makes a market in the Company's securities may have a significant influence over the market for the Company's Common Stock, if such market develops, and the price and liquidity of the Common Stock may be affected by the degree of participation of any person in such market. Even if a market develops, there can be no assurance that all market making activity may cease at any time. As a result, purchasers of the Company's Common Stock may be unable to liquidate their investment readily or at all. SECURITIES LAW COMPLIANCE. The Company has been involved in complex transactions and in offerings of securities which may have associated compliance defects by the Company or one or more of its shareholders. While management is not aware that the Company has failed to comply with applicable rules and regulations, no assurances can be made that all such transactions were in complete compliance with applicable federal and state securities laws or that a claim with respect to non-compliance will not be made. Costs may be incurred by the Company to defend any claim of non-compliance and the Company may be required to offer rescission rights with respect to sales of its securities which would severely affect the operations and financial condition of the Company. 11 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes included herein. Certain statements contained herein are not based on historical facts, but are forward-looking statements that are based upon assumptions about future conditions that could prove to be inaccurate. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. The Company's ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the existence of demand for and acceptance of the Company's products and services, regulatory approvals and developments, economic conditions, the impact of competition and pricing, and other factors affecting the Company's business that are beyond the Company's control. The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release the result of any revisions to these forward-looking statements that may be made to reflect future events or circumstances. RESULTS OF OPERATIONS Management anticipates a material rise in revenue, during the next fiscal year, as a result of the contracted performance required under existing Master License Agreements and from sales in the Company's corporate territory. During the past year sales were entirely related to the sale of licenses and costs were related to organization of the corporate offices and business plan; organization and production of licensing agreements and related materials; identification and qualification of territory licensees; locating, leasing, permitting and equipping the Phoenix production facility; financing and investor relations activities; technology transfer and requisite trademark, service mark and product registrations. YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997. At March 31, 1998, the Company had a positive working capital of $3,426,744 including $78,724 of unrestricted cash, $104,619 in certificates of deposit, as compared to a positive working capital of $437 at March 31, 1997. The increase in working capital was primarily due to a private placement of the Company's Common Stock and the sale of two licensed territories. Operating activities for the year ended March 31, 1998 utilized cash of $975,000 as compared to $857,879 for the year ended March 31, 1997. The increased utilization of cash resulted primarily from the expansion of the Company's territory licensing activity, systems development and establishment of the corporate manufacturing and distribution facility in Phoenix, Arizona. Cash flow of $1,854,364 was provided from shareholder advances, placement of the Company's Common Stock and the sale of two licenses for the year ended March 31, 1998 as compared to $440,000 for the year ended March 31, 1997 which resulted from placement of the Company's Common Stock. As of March 31, 1998 the Company had no material commitments for capital expenditures. For the year ended March 31, 1998, the Company incurred net profits of $1,411,928 compared to a net loss of $976,764 for the year ended March 31, 1997, which contributed to net cash used in operating activities of $1,330,332 and $964,902 for each of the years ended March 31, 1998 and 1997 respectively. SEASONALITY. Sales of the Company's SP34E product may be subject to higher volumes in the summer months resulting in higher revenues in the Company's first and second fiscal quarters. However, no pattern of sales volumes has yet been established. 12 IMPACT OF INFLATION. The Company does not believe that inflation will have any material impact on its commercial activities for the ensuing year as its products do not fall under categories that are traditionally affected. YEAR 2000 COMPLIANCE. Management has utilized the latest versions of recognized computer software and therefore believes it will not encounter any of the computer software problems contemplated or predicted to occur at the entrance into the year 2000. OUTLOOK. The year ended March 31, 1998 was a year of organization and planning for the Company as it devoted its focus to defining and implementing its corporate plan; finalizing a comprehensive and workable Master License Agreement; identifying, negotiation and execution of Master License Agreements with qualified licensees; negotiation and finalization of financing; and the negotiation and finalization of the SP34E product rights acquisition. Management foresees that implementation of the marketing plan at the corporate level and by all licensees will result, by the end of the 1999 fiscal year, in increased revenues and product acceptance. An important milestone will be acceptance of the product by any one of the tier one participants (100 million gallons of fuel consumed per annum) in the North American transport industry. Sale of the remaining licensed territories and development of the corporate Marine Division are also anticipated to enhance revenues and corporate development. The introduction of SP34E and other environmentally friendly products are expected to increase revenues and diversify its product line. ITEM 3. DESCRIPTION OF PROPERTY The Company leases approximately 1,400 square feet of office space utilized as its corporate offices at 7309 East Stetson Drive, Suite 102, Scottsdale, Arizona 85251. The lease is for a term through June 30, 2001, with current monthly rental payments of $1,845 that increases to approximately $1,960 per month in March 1999. The Company also leases approximately 12,000 square feet of space at 4247 West Adams, Suite 2, Phoenix, Arizona 85009 that is utilized as its corporate manufacturing, warehousing and distribution plant and as a corporate territory sales office. Monthly lease payments are approximately $4,900 and the lease expires on September 14, 2002. The Company is in the process of exercising an option to purchase the building for $639,000. The Company anticipates the purchase to be completed on or before September 14, 1998. The Company leases an approximate 2.25-acre production facility in Elkhart, Indiana. The property improvements include an approximate 10,000 square foot warehouse and sufficient outside area to accommodate an SP34E tank farm and production area with an annual capacity of 20,000 tons of finished product. The lease is for a term through May 31, 2003 and monthly rental payments are $2,500 through the term. The Company intends to sublease 3,500 square feet of the warehouse space to the Solpower Great Lakes and Solpower Southeast licensees for SOLTRON production. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of June 30, 1998, the ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock, each officer and director individually, and all officers and directors as a group. The Company has been advised that each person has sole voting and investment power over the shares listed below unless otherwise indicated. 13 NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF OF BENEFICIAL OWNERSHIP OF OWNERSHIP CLASS(1) - - ----------------------- ----------------- ---------- Fraser M. Moffat III 0 0% 18 Lake Avenue Montrose, Pennsylvania James H. Hirst 100 (2) 7309 East Stetson Drive, Scottsdale Arizona Leif Schipper 100 (2) 7309 East Stetson Drive, Scottsdale Arizona Jerry W. Goddard 135,000(3) 0.8% 7309 East Stetson Drive, Scottsdale Arizona Naoya Yoshikawa 100 (2) 2-16-42 Takanawa Minato-Ku, Japan Angelus Inc. 4,000,000 23% Suite IA Hirzel Court Hirzel Street, St. Peter Port Guernsey Peter Voss(4) 6,894,950 39.6% Level 11, Dominion Building 533 Little Lourdale Street Melbourne, Victoria 3000 Australia Dominion Capital Pty. Ltd.(4)(5) 5,614,650 32% 3 Hewitt Street, Cheltenham, Australia Marino Investments Ltd. 1,000,000 5.7% c/o Warwick Nominees Ltd. Smith Street, St. Peter Port Guernsey All Directors and Officers 135,300 0.8% As a Group (5 persons) (1) Based upon 17,391,560 shares of Common Stock being issued and outstanding on July 31, 1998. (2) Less than 0.1%. (3) Includes 100,000 shares held by an entity associated with Jerry W. Goddard over which he has an exercisable control. 14 (4) Mr. Peter Voss controls Dominion Capital Pty. Ltd which holds 5,614,650 shares and A1 Financial Planners Pty. Ltd. which holds 980,200 shares. The total reflected includes 300,000 shares held by Mr. Voss' wife and two adult children and in which Mr. Voss disclaims all beneficial interest. (5) Dominion Capital will be granted options to purchase up to an additional 750,000 shares of Common Stock at prices ranging from $2.50 To $5.00 per share upon Soltron sales revenues attaining certain levels. In addition to the above, the Company is obligated to issue an additional 6,000,000 shares of its Common Stock to Dominion Capital and its assigns under the terms of the agreement by which it acquired its right to market and distribute the SP34E product. ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The directors and executive officers of the Company, their ages and positions held in the Company are as follows: NAME AGE POSITIONS HELD - - ---- --- -------------- Fraser M. Moffat III 69 Director & Chairman James H. Hirst 51 Director, President & CEO Leif Schipper 41 Director & Secretary/Treasurer Jerry W. Goddard 58 Director Naoya Yoshikawa 52 Director FRASER M. MOFFAT III joined the Company as a Director and Chairman of the Board in May 1998. From January 1985 through February 1995, Mr. Moffat was First Vice President of Institutional Sales at Lehman Brothers, Inc. Hamburg, Germany office. From October 1971 to December 1984, Mr. Moffat was a Vice President at Merrill Lynch Pierce & Fenner. Previously, Mr. Moffat served in the United States Navy from 1953 to 1956 where he attained the rank of Lieutenant Commander. Mr. Moffat graduated from Williams College in 1951 with a BA degree. JAMES H. HIRST has served as Chief Executive Officer of the Company since September 1997, and a Director and President since May 1998. Mr. Hirst has served as President of Mesquite Management Ltd. from March 1986 to present where he has provided consulting services to early stage companies in connection with their operations, financial information systems and legal compliance. In performing his consulting services, Mr. Hirst served as a director of Rock Resources Inc. from November 1996 to present, as director and President of Consolidated Bahn Foods Ltd. From April 1998 to present, as a vice president from January 1991 to 1996 and President to October 1996 of Parisco Foods Limited, as the Chief Executive Officer from January 1991 to 1997 and director from November 1997 to present of Global Tree Technologies, Inc., as a director of Consolidated Shoshoni Gold Inc. from August 1996 to August 1997, as the president and director of Consolidated Newgate Resources Ltd. from October 1990 to May 1992 and as the president and director of Yuma Gold Mines Ltd. from October 1990 to August 1994. From 1966 to 1980, Mr. Hirst was a member of the Royal Canadian Mounted Police - Commercial Crime Section. Mr. Hirst attended the Canadian Police College, Ottawa, Ontario, Canada in 1980 and completed the Computer Crime Investigation Course and Senior Investigators Course. He achieved the rank of Sergeant after only 13 years of service and in 1981 resigned to establish his private consulting business. In 1979, Mr. Hirst graduated with a Bachelor of Commerce (Accounting and Management Information Systems) from the University of British Columbia. LEIF SCHIPPER has served as a Director of the Company since November 1996 and as the Company's Secretary, Treasurer and Chief Financial Officer since May 1998. Mr. Schipper has practiced accounting 15 in Australia since 1974 and since 1979 was the founding partner of the firm Schipper, Lissauer & Associates.. Mr. Schipper's accounting practice had an extensive emphasis on companies involved in technology development. In June 1997, Mr. Schipper retired from his accounting practice in order to devote his full energies to the Company. Mr. Schipper graduated with a Bachelor of Economics (specializing in Accounting) from Monash University in Australia and with a Masters in Taxation from Melbourne University in Australia. Mr. Schipper was made a Fellow of the Australian Society of Certified Practicing Accounts (FCPA) with Specialist Designation in Taxation in October 1996. JERRY W. GODDARD has served as Director of the Company since November 1996. Mr. Goddard has been the Managing Director of Prime Mortgage Group Limited (Australia) from 1991 to present and is directly responsible for the implementation of strategies including fund raising and marketing of the group's products to the financial community. Mr. Goddard has served as director of Golden Triangle Resources Ltd., an Australian mining company from 1994 through present. NAOYA YOSHIKAWA has served as Director of the Company since November 1996. Mr. Yoshikawa served as President of Crest Japan Inc. from 1987 to present. Mr. Yoshikawa has served as a director of several companies in the past decade, including the Japan - America Friendship Association from 1989 to present, Japan Environmental Protection Organization from 1991 to present. Mr. Yoshikawa also served as Chief Executive Officer of Dominion Capital Japan Ltd. from 1996 to present. In his capacity as General Manager and Chief Executive Officer of Dominion Capital Japan Ltd., Mr. Yoshikawa represents Solpower Australia Pty. Ltd. and SOLTRON operations in Japan. Mr. Yoshikawa has a Masters Degree in Economics and Business Administration and is Honorary Professor of the University of Mindanao for Environment and Protection, as well as holding the position of President of the Association of Clean Air Devices. ITEM 6. EXECUTIVE COMPENSATION The following table reflects all forms of compensation for services to the Company for the fiscal years ended March 31, 1998, 1997 and 1996 for the Chief Executive Officer and Chief Financial Officer of the Company. No officer of the Company received salary or bonus in excess of $100,000 for any of these fiscal years. SUMMARY COMPENSATION TABLE LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------------------- OTHER STOCK FISCAL ANNUAL OPTIONS NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION (SHARES) James H. Hirst 1998 -- $58,333(2) 300,0003 Chief Executive Officer 1997 -- -- -- 1996 -- -- -- Leif Schipper 1998 $65,000(1) -- -- Chief Financial Officer 1997 -- -- -- 1996 -- -- -- (1) The director's fees for fiscal year ended March 31, 1998 were $90,000, $25,000 of which Mr. Schipper elected to defer. (2) During the fiscal year ended March 31, 1998, Mr. Hirst acted as a consultant to the Company for the compensation stated. (3) The options have not yet vested and have been allotted pursuant to an option plan with requisite vesting requirements to be achieved. 16 OPTION GRANTS The following table sets forth information regarding the grant and exercise of options to the Company's executive officers for the fiscal year ended March 31, 1998. OPTION GRANTS IN FISCAL YEAR 1998
NUMBER OF SHARES OF PERCENT OF TOTAL COMMON STOCK OPTIONS GRANTED TO UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE ON BASE PRICE NAME GRANTED YEAR ($/SH) EXPIRATION DATE - - ---------------------------------------------------------------------------------------------------- James H. Hirst 100,000 16.67% $1.00 Jan. 30, 2003 100,000 16.67% $1.75 Jan. 30, 2003 100,000 16.67% $2.50 Jan. 30, 2003
OPTION EXERCISES AND VALUES The following table sets forth information regarding the exercise and values of options held by the Company's executive officers as of March 31, 1998. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES VALUE OF NUMBER OF UNEXERCISED IN- UNEXERCISED THE-MONEY OPTIONS AT OPTIONS AT SHARES MARCH 31, 1998 MARCH 31, 1998 ACQUIRED ON EXERCISABLE/ EXERCISABLE/ NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE - - -------------------------------------------------------------------------------- James H. Hirst 0 0 0/300,000 0/$300,000 EMPLOYMENT AGREEMENTS The Company has no employment agreements with its executive officers. DIRECTOR COMPENSATION All authorized out-of-pocket expenses incurred by a Director on behalf of the Company are subject to reimbursement. The Company has agreed to compensate all of the directors in the amount of $500 per month commencing July 1, 1998. 17 STOCK OPTION PLAN In November 1997, the Board of Directors adopted a Stock Option and Incentive Plan (the "PLAN"), which the shareholders approved on November 22, 1997. The purpose of the Plan is to provide a means through which the Company may attract able persons to enter the employ of and provide services for the Company and to provide a means whereby those persons upon whom the responsibilities for the successful administration and management of the Company rest, and whose present and potential contributions to the welfare of the Company are of importance, can acquire and maintain an ownership interest, thereby strengthening their commitment to the welfare of the Company and the desire to remain in the employ or service of the Company. A further purpose of the Plan is to provide such persons with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. So that the appropriate incentive can be provided, the Plan provides for granting options, incentive stock options, stock appreciation rights, restricted stock awards, performance shares and dividend equivalents, or any combination of the foregoing. As of July 1, 1998, 1,200,000 stock options had been granted under the Plan at exercise prices ranging from $1.00 to $7.00 per share. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On November 4, 1996 the Company entered into an Acquisition Agreement with Dominion Capital for the acquisition of the exclusive manufacturing, distribution, marketing and sales rights in North America to the product SOLTRON. The original term of the original agreement was for five years and provided that the Company issue 5,000,000 shares of its Common Stock, issue preferred stock and grant certain options to Dominion Capital as consideration for such rights. On November 22, 1997 the Company renegotiated the terms of the Acquisition Agreement to extend its term for an additional five year period and eliminate the option and preferred share issuance granting to Dominion Capital. The amended agreement provided that options and performance bonuses would be payable to Dominion Capital as follows: (i) upon gross sales for SOLTRON equaling $10,000,000, Dominion Capital has the option to purchase 100,000 shares at $2.50 per share, plus a cash performance bonus of $400,000; (ii) upon gross sales for SOLTRON equaling $20,000,000, Dominion Capital has the option to purchase 150,000 shares at $3.50 per share, plus cash performance bonus of $400,000; (iii) upon gross sales for SOLTRON equaling $50,000,000 Dominion Capital has the option to purchase 250,000 shares at $4.50 per share, plus cash performance bonus of $500,000; and (iv) upon gross sales for SOLTRON equaling $100,000,000, Dominion Capital has the option to purchase 250,000 shares at $5.00 per share, plus a cash performance bonus of $1,000,000. Effective May 13, 1998 the Company and Dominion Capital agreed to an addendum to the Acquisition Agreement of November 4, 1996 by allowing the Company, on a first right of refusal basis, an interest in all other territories, except Japan, where SOLTRON and other products and services area currently being commercialized by the Dominion Capital, on terms and conditions to be negotiated on a product by product and a territory by territory basis. On November 4, 1996, the Company issued 3,520,000 shares of Common Stock to Dominion Capital at a price of $0.125 per share. On April 1, 1997, the Company issued 4,160,000 shares of Common Stock to Dominion Capital in exchange for cancellation of advances payable to Dominion Capital in the amount of $520,000. On June 17, 1998 the Company and Dominion Capital entered into a second Acquisition Agreement for the acquisition of the exclusive manufacturing, distribution, marketing and sales rights in North American to the product SP34E. The Company agreed to issue 6,000,000 shares of its Common Stock and pay a royalty of $2.25 for each kilogram of SP34E sold in the Company's territory. The term of the Acquisition Agreement was for five years with an option renew for an additional five years. 18 On July 1, 1998 the Company entered into a Client Service Agreement with Dominion Capital Securities, Inc., ("DCSI") an Arizona corporation, for the provision of all investor and corporate communications services required by the Company. The term of the agreement is for six months and is renewable for further six month periods. In consideration for DCSI providing the services it will receive $275,000 of which $125,000 is payable in cash and the balance in the form of 50,000 shares of the Company's Common Stock. As further consideration DCSI has been granted an option to buy 100,000 shares of the Company's Common Stock at the exercise price of $3.00 per shares for a period of two years. ITEM 8. DESCRIPTION OF SECURITIES The following statements with respect to the Company's securities are qualified by and subject to the detailed provisions of the Company's Articles of Incorporation and Bylaws, which are filed as exhibits hereto. The Company is authorized to issue up to 30,000,000 shares of Common Stock, $0.01 par value, of which 17,391,560 shares are issued and outstanding and 6,000,000 are reserved for issuance and 5,000,000 shares of preferred stock, $0.001 par value, undesignated as to class, powers, designations, preferences, limitations, restrictions or relative rights of which none are issued and outstanding. The Board of Directors of the Corporation is authorized to fix and determine any class or series of preferred stock and the number of shares of each class or series and to prescribe the powers, designations, preferences, limitations, restrictions and relative rights of any class or series established, all by resolution of the Board of Directors and in accordance with Section 78.1955 of the Nevada Revised Statutes, as the same may be amended and supplemented. The Company has issued 2,000,000 A Warrants exercisable at $1.50 per share that expire on January 7, 1999, and 2,000,000 B Warrants exercisable at $3.00 per share that expire on January 7, 2000. The Company also granted certain warrants to Dominion Capital pursuant to the SOLTRON Acquisition Agreement to purchase up to 750,000 shares of the Company's Common Stock at prices ranging from $2.50 to $5.00 per share. Under its Stock Option Plan the Company has granted options to acquire a total of 1,200,000 shares, subject to certain vesting requirements, at the exercise prices ranging from $1.00 to $7.00 per share. All holders of Common Stock are entitled to one vote per share on any matter coming before the stockholders for a vote, unless the matter is one upon which by express provision of law a different vote is required. The Common Stock does not have cumulative voting rights, which means that holders of more than 50% of the shares can elect all the Directors. Each holder of Common Stock is entitled to share ratably in distributions to stockholders and to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor and, in the event of the liquidation, dissolution or winding up of the Company, is entitled to share ratably in all assets of the Company remaining after payment of liabilities. Holders of Common Stock have no conversion, preemptive or other rights to subscribe for additional shares, and there are no redemption rights with respect to the Common Stock. The outstanding shares of Common Stock are validly issued, fully paid and nonassessable. 19 PART II ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER SHAREHOLDER MATTERS The Company's Common Stock is traded on the OTC Bulletin Board under the symbol "SLPW." The following table sets forth the quarterly high and low bid prices per share for the Common Stock, as reported by the OTC Bulletin Board. On March 31, 1998, there were approximately 350 beneficial holders of the Common Stock. HIGH LOW ---- --- 1996 Quarter ended March 31, 1996 $25.00(1) $25.00(1) Quarter ended June 30, 1996 $23.75(1) $23.75(1) Quarter ended September 30, 1996 $7.50(1) $5.3125(1) Quarter ended December 31, 1996 $1.25 $1.25 1997 Quarter ended March 31, 1997 $1.75 $1.125 Quarter ended June 30, 1997 $1.50 $1.50 Quarter ended September 30, 1997 $0.4062 $0.4062 Quarter ended December 31, 1997 $0.625 $0.625 1998 Quarter ended March 31, 1998 $2.75 $2.625 Quarter ended June 30, 1998 $3.50 $2.25 (1) The Company is unaware of any bids on the Company's Common Stock during this period ended. The Company has not paid, and the Company does not currently intend to pay cash dividends on its Common Stock in the foreseeable future. The current policy of the Company's Board of Directors is to retain all earnings, if any, to provided funds for operation and expansion of the Company's business. The declaration of dividends, if any, will be subject to the discretion of the Board of Directors, which may consider such factors as the Company's results of operations, financial condition, capital needs and acquisition strategies, among others. ITEM 2. LEGAL PROCEEDINGS The Company is not currently a party to any pending litigation. ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS None. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES On November 4, 1995, the Company issued 4,000,000 shares of Common Stock to 16 persons in exchange for control of Quantum Motion, Inc., a Colorado corporation. Current management is unaware of all facts and circumstances of the issuance, but believes the Company relied upon the exemption from registration of the shares issued in this transaction afforded by Section 4(2) of the Securities Act. On November 4, 1995, the Company issued 4,000,000 shares of its Common Stock, at the issue price of $0.125 per share, to 24 persons in exchange for a note receivable in the amount of $500,000. 20 Current management is unaware of all facts and circumstances of the issuance, but believes the offering was exempt from registration under Rule 504 of Regulation D and Section 4(2) of the Securities Act. On April 19, 1996, the Company issued 1,600,000 shares of its Common Stock to Philmont A.V.P., at the issue price of $5.00 per share, in exchange for a promissory note in the amount of $8,000,000. This offering was made in reliance upon the exemption from registration provided under Regulation S of the Securities Act. On June 12, 1996 the 1,600,000 shares issued to Philmont A.V.P. were cancelled for non-payment. On November 4, 1996, the Company acquired the North American manufacturing, marketing, distribution and sales rights to the Solpower product SOLTRON in exchange for the issuance of 5,000,000 shares of its Common Stock to Dominion Capital. The Company relied upon the exemption from registration of the shares issued in this transaction afforded by Section 4(2) of the Securities Act. On November 4, 1996, the Company issued 3,520,000 shares of its Common Stock, at $0.125 per share, to Dominion Capital, in exchange for a promissory note in the amount of $440,000. This offering was conducted by the Company and was made in reliance upon the exemption from registration provided under Rule 504 of Regulation D. On April 1, 1997, the Company issued 4,160,000 shares of its Common Stock, at $0.125 per share, to Dominion Capital, in exchange for cancellation of advances payable to Dominion Capital in the amount of $520,000. This offering was conducted by the Company and was made in reliance upon the exemption from registration provided under Rule 504 of Regulation D. On January 7, 1998, the Company issued 4,000,000 shares of its Common Stock, 2,000,000 A Warrants and 2,000,000 B Warrants to Angelus, Inc., for $2,000,000. Each A Warrant entitles the holder to acquire a share of Common Stock at $1.50 per share on or before January 7, 1999. Each B Warrant entitles the holder to acquire a share of Common Stock at $3.00 per share on or before January 7, 2000. This offering was made in reliance upon the exemption from registration provided under Regulation S of the Securities Act. On June 17, 1998, the Company agreed to issue 6,000,000 shares of its Common Stock to Dominion Capital and its assigns in exchange for the sales, distribution and marketing rights in North America to SP34E. The shares have not yet been issued, but are required to be issued with the agreement of the Company to register such shares after issuance. ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Articles of Incorporation of the Company eliminate the personal liability of the Directors and officers of the Company to the fullest extent permitted by the General Corporation Law of the State of Nevada (the "NEVADA CORPORATION LAW"). In addition, the Articles provide that the Company shall, to the fullest extent permitted by the Nevada Corporation Law, indemnify any and all persons that it has the power to indemnify thereunder from and against any and all expenses, liabilities or other matters referred to in or covered by the Nevada Corporation Law. The Articles further provide that the indemnification provided therein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested Directors or otherwise. The Bylaws of the Company also provide for indemnification to the fullest extent permitted by the Nevada Corporation Law. 21 PART F/S INDEX Independent Auditors' Report.......................................23 Balance Sheet at March 31, 1998 and 1997...........................24 Statement of Operations for the Years Ended March 31, 1998, 1997 and 1996......................................25 Statement of Stockholders' Equity for the Period From Inception (June 7, 1982) Through March 31, 1998...............26 Statement of Cash Flows for the Years Ended March 31, 1998, 1997 and 1996......................................29 Notes to the March 31, 1998, 1997 and 1996 Financial Statements...............................................31 Balance Sheet at June 30, 1998 - Unaudited.........................44 Statement of Operations for the Period Ended June 30, 1998 - Unaudited..........................................45 Statement of Cash Flows for the Period Ended June 30, 1998 - Unaudited..........................................46 Notes to the June 30, 1998 Financial Statements....................47 All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 22 INDEPENDENT AUDITORS' REPORT Board of Directors Solpower Corporation Scottsdale, Arizona 85251 We have audited the accompanying balance sheet of Solpower Corporation (the Company), as of March 31, 1998 and 1997 and the related statements of operations, stockholders' equity and cash flows for the years ended March 31, 1998, 1997 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit of the financial statements provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at March 31, 1998 and 1997 and the results of its operations and its cash flows for the years ended March 31, 1998, 1997 and 1996, in conformity with generally accepted accounting principles. /s/ Clancy & Co. Clancy and Co., P.L.L.C. Phoenix, Arizona July 22, 1998 23 SOLPOWER CORPORATION BALANCE SHEET MARCH 31, 1998 AND 1997
ASSETS 1998 1997 ---- ---- Current Assets Cash $ 183,842 $ 437 Inventory (Note 3) 101,906 0 License Fee Receivable (Note 4) 2,160,000 0 Stock Subscription Receivable (Note 5) 1,000,000 0 Prepaid Expenses 2,917 0 ---------- ----------- Total Current Assets 3,448,665 437 Property and Equipment, Net (Note 6) 131,942 49,050 Other Assets Marketing Rights (Note 7) 35,833 45,833 Security Deposits 14,422 2,162 ---------- ----------- Total Other Assets 50,255 47,995 ---------- ----------- Total Assets $3,630,862 $ 97,482 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 ---- ---- Current Liabilities Accounts Payable $ 2,432 0 Capital Lease Obligation, Current Portion (Note 8) 4,575 0 Income Taxes Payable (Note 9) 14,914 0 ---------- ----------- Total Liabilities 21,921 0 Long Term Liabilities Capital Lease Obligation, Noncurrent Portion (Note 8) 5,167 0 Advances Payable, Related Party (Note 10) 39,725 465,361 ---------- ----------- Total Long Term Liabilities 44,892 465,361 ---------- ----------- Total Liabilities 66,813 465,361 Commitments and Contingencies (Note 8) Stockholders' Equity Preferred Stock; $0.001 Par Value, 5,000,000 Authorized; Issued and Outstanding, NONE NONE NONE Common Stock; $0.01 Par Value, 30,000,000 Authorized; Issued and Outstanding, 17,391,560 Shares at March 31, 1998 and 9,231,560 Shares at March 31, 1997 173,916 92,316 Additional Paid In Capital 3,410,904 972,504 Accumulated Deficit (20,771) (1,432,699) ---------- ----------- Total Stockholders' Equity 3,564,049 (367,879) ---------- ----------- Total Liabilities and Stockholders' Equity $3,630 862 $ 97,482 ========== ===========
The accompanying notes are an integral part of these financial statements. 24 SOLPOWER CORPORATION STATEMENT OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
For the For the For the Year Ended Year Ended Year Ended March 31, March 31, March 31, 1998 1997 1996 ---- ---- ---- Revenues (Note 4) $ 2,400,000 $ 0 $ 1,995 Expenses General and Administrative 975,379 857,879 442,143 ------------ ----------- ----------- Operating Income (Loss) 1,424,621 (857,879) (440,148) Other Income (Expense) Interest Income 3,405 0 19,908 Interest Expense (1,184) 0 0 Loss From Discontinued Operations 0 (118,885) 0 ------------ ----------- ----------- Total Other Income (Expense) 2,221 (118,885) 19,908 ------------ ----------- ----------- Net Income (Loss) Before Provision For Income Taxes 1,426,842 (976,764) (402,240) Provision For Income Taxes (Note 9) 14,914 0 0 ------------ ----------- ----------- Net Income (Loss) Available to Common Stockholders $ 1,411,928 $ (976,764) $ (402,240) ============ =========== =========== Earnings (Loss) Per Common Share Equivalents $ 0.09 $ (0.23) $ (.21) ============ =========== =========== Weighted Number of Common Shares and Common Share Equivalents Outstanding 14,982,469 4,261,560 1,882,500 ============ =========== ===========
The accompanying notes are an integral part of these financial statements. 25 SOLPOWER CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (JUNE 7, 1982) THROUGH MARCH 31, 1998
Retained Additional Earnings Common Stock Paid In (Accumulated Shares Amount Capital Deficit) Total ------ ------ ------- -------- ----- Inception June 7, 1982 $ $ $ $ Issuance of Common Stock to Related Parties for Cash at $0.01 Per Share 2,579,800 25,798 25,798 Issuance of Common Stock to Related Parties for Services at $0.01 Per Share 67,700 677 677 Loss From Inception (June 7, 1982) Through March 31, 1987 (232) (232) ---------- ------- ------ ------- ------- Balance, March 31, 1987 2,647,500 26,475 0 (232) 26,243 Loss, Year Ended March 31, 1988 (10,823) (10,823) ---------- ------- ------ ------- ------- Balance, March 31, 1988 2,647,500 26,475 0 (11,055) 15,420 Contribution to Capital 5,645 5,645 Loss, Year Ended March 31, 1989 (21,065) (21,065) ---------- ------- ------ ------- ------- Balance, March 31, 1989 2,647,500 26,475 5,645 (32,120) 0 Contribution of Capital 1,000 1,000 Loss, Year Ended March 31, 1990 (605) (605) ---------- ------- ------ ------- ------- Balance, March 31, 1990 2,647,500 26,475 6,645 (32,725) 395 Contribution to Capital 100 100 Loss, Year Ended March 31, 1991 (440) (440) ---------- ------- ------ ------- ------- Balance, March 31, 1991 2,647,500 26,475 6,745 (33,165) 55 Contribution to Capital 300 300 Loss, Year Ended March 31, 1992 (1,272) (1,272) ---------- ------- ------ ------- ------- Balance, March 31, 1992 2,647,500 26,475 7,045 (34,437) (917) Contribution to Capital 500 500 Loss, Year Ended March 31, 1993 (343) (343) ---------- ------- ------ ------- ------- Balance, March 31, 1993 2,647,500 26,475 7,545 (34,780) (760) Contribution to Capital 300 300 Loss, Year Ended March 31, 1994 (350) (350) ---------- ------- ------ ------- ------- Balance, March 31, 1994 2,647,500 26,475 7,845 (35,130) (810) Contribution to Capital 500 500
The accompanying notes are an integral part of these financial statements. 26 SOLPOWER CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (JUNE 7, 1982) THROUGH MARCH 31, 1998
Retained Additional Earnings Common Stock Paid In (Accumulated Shares Amount Capital Deficit) Total ------ ------ ------- -------- ----- Loss, Year Ended March 31, 1995 (565) (565) ---------- -------- ---------- ---------- -------- Balance, March 31, 1995 2,647,500 26,475 8,345 (35,695) (875) Issuance of Common Stock for Notes Receivable at $.125 Per Share, 1,363,000 13,630 156,745 170,375 November 4,1995 Issuance of Common Stock for Notes Receivable at $.125 Per Share, 2,637,000 26,370 303,255 329,625 November 4, 1995 Issuance of Common Stock for Marketing Rights at $.01 Per Share, 4,000,000 40,000 40,000 December 11, 1995 3:1 Reverse Split, February 29,1996 (7,090,000) (70,900) 70,900 0 Loss, Year Ended March 31, 1996 (420,240) (420,240) ---------- -------- ---------- ---------- -------- Balance, March 31, 1996 3,557,500 35,575 539,245 (455,935) 118,885 Issuance of Common Stock for Note Receivable at $5.00 Per Share, April 1,600,000 16,000 7,984,000 8,000,000 19, 1996 Cancellation of Common Stock for Note Receivable for Nonperformance, (1,600,000) (16,000) (7,984,000) (8,000,000) June 12, 1996 5:1 Reverse Split, October 30, 1996 (2,845,940) (28,459) 28,459 0 Issuance of Common Stock for Cash at $.125 Per Share, November 4, 1996 3,520,000 35,200 404,800 440,000 Issuance of Common Stock for Marketing Rights at $.01 Per Share, 5,000,000 50,000 50,000 November 4, 1996 Loss, Year Ended March 31, 1997 (976,764) (976,764) ---------- -------- ---------- ---------- -------- Balance, March 31, 1997 9,231,560 92,316 972,504 (1,432,699) (367,879) Issuance of Common Stock Under Reg D Private Offering at $.125 Per Share in Exchange for Cancellation of Advances Made to April 1, 1997 4,160,000 41,600 478,400 520,000
The accompanying notes are an integral part of these financial statements. 27 SOLPOWER CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (JUNE 7, 1982) THROUGH MARCH 31, 1998
Retained Additional Earnings Common Stock Paid In (Accumulated Shares Amount Capital Deficit) Total ------ ------ ------- -------- ----- Issuance of Common Stock Under Reg S Placement at $.50 Per Share, January 9, 1998 4,000,000 40,000 1,960,000 2,000,000 Income, Year Ended March 31, 1998 1,411,928 1,411,928 ---------- ---------- ---------- ----------- ---------- Balance, March 31, 1998 17,391,560 $ 173,916 $3,410,904 $ (20,771) $3,564,049 ========== ========== ========== =========== ==========
The accompanying notes are an integral part of these financial statements. 28 SOLPOWER CORPORATION STATEMENT OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
For The For The For The Year Ended Year Ended Year Ended March 31, March 31, March 31, 1998 1997 1996 ---- ---- ---- Cash Flows From Operating Activities Net Income (Loss) $ 1,411,928 $(976,764) $(420,240) Adjustments to Reconcile Net Income (Loss) to Net Cash Used In Operating Activities Depreciation and Amortization 37,477 6,767 2,203 Changes in Assets and Liabilities (Increase) Decrease in Accounts Receivable 0 1,995 (1,995) (Increase) Decrease in License Fee Receivable (2,160,000) 0 0 (Increase) Decrease in Inventory (101,906) 0 0 (Increase) Decrease in Prepaid Expenses (2,917) 16,994 (16,994) (Increase) Decrease in Security Deposits (12,260) (2,162) 0 Increase (Decrease) in Accounts Payable 2,432 (11,732) 10,824 Increase (Decrease) in Income Taxes Payable 14,914 0 0 ----------- --------- --------- Total Adjustments (2,222,260) 11,862 (5,962) ----------- --------- --------- Net Cash Used In Operating Activities (810,332) (964,902) (426,202) Cash Flows From Investing Activities Capital Expenditures (110,369) (51,650) (61,000) Sale of Equipment and Marketing Rights 0 98,797 0 ----------- --------- --------- Net Cash Flows Provided By (Used In) Investing Activities (110,369) 47,147 (61,000) Cash Flows From Financing Activities Proceeds From Issuance of Common Stock 1,000,000 440,000 500,000 Capital Lease Obligations 9,742 0 0 Notes Receivable From Stock Sale 0 0 (500,000) Proceeds From Notes Receivable and Interest 0 0 500,000 Net Advances (Repayments) From Stockholders 94,364 465,361 0 ----------- --------- --------- Net Cash Provided by Financing Activities 1,104,106 905,361 500,000 ----------- --------- ---------
The accompanying notes are an integral part of these financial statements. 29 SOLPOWER CORPORATION STATEMENT OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
For The For The For The Year Ended Year Ended Year Ended March 31, March 31, March 31, 1998 1997 1996 ---- ---- ---- Increase (Decrease) in Cash and Cash Equivalents $ 183,405 $(12,394) $12,798 Cash and Cash Equivalents, Beginning of Year 437 12,831 33 ---------- -------- ------- Cash and Cash Equivalents, End of Year $ 183,842 $ 437 $12,831 ========== ======== ======= SUPPLEMENTAL INFORMATION - - ------------------------ Cash Paid For: Interest $ 1,184 $ 0 $ 0 ========== ======== ======= Income Taxes $ 0 0 $ 0 ========== ======== ======= Noncash Investing and Financing: Issuance of 4,000,000 Shares of Common Stock for Marketing Rights, December, 1995 $ 0 $ 0 $40,000 ========== ======== ======= Issuance of 5,000,000 Shares of Common Stock for Marketing Rights, November 4, 1996 $ 0 $ 50,000 $ 0 ========== ======== ======= Issuance of Common Stock in Exchange for Stock Subscription Receivable $1,000,000 $ 0 $ 0 ========== ======== ======= Issuance of Common Stock in Exchange for Cancellation of a Portion of Advances Payable $ 520,000 $ 0 $ 0 ========== ======== =======
The accompanying notes are an integral part of these financial statements. 30 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 1 - ORGANIZATION ------------ Solpower Corporation (the Company), formerly known as Virtual Technologies, Inc. and Dynafuel Corporation, was incorporated under the laws of the State of Utah on June 7, 1982, with an authorized capital of 30,000,000 shares of common stock with a par value of one cent ($0.01) per share. On December 12, 1995, the Company amended its articles of incorporation, changing its name to Virtual Technologies, Inc. and increasing the authorized preferred stock to 5,000,000 shares at $.25 par value. On July 22, 1996, the Company changed its legal domicile to the State of Nevada. On November 22, 1997, the Company restated the articles of incorporation, changing its name to Solpower Corporation and changing its preferred stock par value to one-tenth of one cent ($.001) per share. The Company has the exclusive sales, distribution, marketing and manufacturing rights for the United States, Mexico and Canada to the Solpower product, SOLTRON, a fuel enhancing product. On November 1, 1995, the Company issued 4,000,000 shares of common stock at $0.125 per share in exchange for a note receivable in the amount of $500,000. On December 11, 1995, the Company issued 4,000,000 shares of common stock at $0.01 per share in exchange for marketing rights, or $40,000. On February 29, 1996, the Company authorized a reverse split of common stock of 3:1. On April 19, 1996, the Company issued 1,600,000 shares of common stock at $5.00 per share in exchange for a note receivable in the amount of $8,000,000. On June 12, 1996, the agreement and the shares issued were canceled for nonperformance. On October 30, 1996, the Company authorized a reverse split of common stock of 5:1. On November 4, 1996, the Company issued 3,520,000 shares of common stock at $0.125 per share for cash, or $440,000. On November 4, 1996, the Company issued 5,000,000 shares of common stock at $0.01 per share in exchange for marketing rights. On April 1, 1997, the Company issued 4,160,000 share of common stock under a REG D private offering in exchange for cancellation of advances payable at $.125 per share, or $520,000. On January 9, 1998, the Company issued 4,000,000 shares of common stock under a REG S placement at $.50 per share, or $2,000,000. 31 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 1 - ORGANIZATION (CONTINUED) ------------------------ The Company was formed on June 7, 1982, and was in the development stage through March 31, 1997. The fiscal year ended March 31, 1998, is the first year during which it is considered an operating company. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES ------------------------------- A. Method of Accounting -------------------- The Company's financial statements are prepared using the accrual method of accounting. B. Cash and Cash Equivalents ------------------------- The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash and cash equivalents. C. Inventory --------- Inventory is stated at the lower of cost or market using the first-in, first-out (fifo) method. D. Property, Equipment, and Depreciation ------------------------------------- Property and equipment, stated at cost, is depreciated over their estimated useful lives as follows: Computer and Office Equipment 5 years Furniture 7 years Vehicles 5 years Plant Equipment 7 years Depreciation is computed under the straight-line method for financial statement purposes and under accelerated methods for income tax purposes. Repairs and maintenance expenses are charged to operations as incurred. E. Revenue Recognition ------------------- Revenues from sales to distributors and resellers is recognized when related products are shipped. Revenues from corporate license programs is recognized when the agreement is executed. 32 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------- F. Earnings or (Loss) Per Common Share ----------------------------------- Earnings or (loss) per common share is computed based on weighted average number of shares outstanding at the date of the financial statements. Stock options are included as common share equivalents using the treasury stock method. The number of shares used in computing earnings (loss) per share was 14,982,469, 4,261,560, 1,882,500 for the years ended March 31, 1998, 1997 and 1996, respectively. G. Income Taxes ------------ The Company accounts for income taxes under the liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." See Note 9. H. Use of Estimates ---------------- Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results may vary from the estimates that were assumed in preparing the financial statements. I. Pending Accounting Announcements -------------------------------- It is anticipated that current pending accounting pronouncements will not have an adverse impact on the financial statements of the Company. J. Presentation ------------ Certain accounts from prior years have been reclassified to conform with the current year's presentation. NOTE 3 - INVENTORY --------- Inventory at March 31, 1998 of $101,906 consists of a small quantity of twenty five 55 gallon drums of fuel additive concentrate. 33 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 4 - LICENSE FEE RECEIVABLE ---------------------- During the year ended March 31, 1998, the Company entered into two licensing agreements for the sole and exclusive use and distribution of its product, SOLTRON, in the territories as defined below: SOLPOWER GREAT LAKES - Ohio, Indiana, Michigan, Illinois, and Wisconsin -------------------- SOLPOWER SOUTHEAST - Florida, Mississippi, Alabama, Georgia, Arkansas, ------------------ and Louisiana On February 6, 1998, the Company entered into an agreement with Masters Marketing Group, Inc. (licensee) for the exclusive use and distribution of its product, SOLTRON, in the Great Lakes territory as defined above. The license fee is $1,200,000, with a down payment of $120,000 due upon signing the agreement. The licensee signed a promissory note for the balance of $1,080,000 of the license fee due. The note bears interest at one half percent (0.5%) on the unpaid principal balance, with all unpaid principal and interest due on or before February 6, 2000. On March 18, 1998, the Company entered into an agreement with Solpower Southeast Corporation (licensee) for the exclusive use and distribution of its product, SOLTRON, in the Southeast territory as defined above. The license fee is $1,200,000, with a down payment of $120,000 due upon signing the agreement. The licensee signed a promissory note for the balance of $ 1,080,000 of the license fee due. The note bears interest at one half percent (0.5%) on the unpaid principal balance, with all unpaid principal and interest due on or before March 18, 2000. The licensees are required to pay the Company the greater of the amount payable per the payment schedule in the agreement or the product of $5.50 times the number of liters of concentrate shipped by the Company to the licensee during the immediately preceding calendar month. At a minimum, future annual principal payments due the Company under both notes are as follows at March 31: 1999 $ 520,000 2000 $1,640,000 NOTE 5 - STOCK SUBSCRIPTION RECEIVABLE/STOCK WARRANTS -------------------------------------------- Subscription receivable at March 31, 1998, of $1,000,000 represents the balance of a subscription agreement with Angelus, Inc. On January 9, 1998, the Company issued 4,000,000 shares of common stock under a REG S placement at a price of $.50 per unit, or $2,000,000. A unit consists of one common share of capital stock of the Company, 34 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 5 - STOCK SUBSCRIPTION RECEIVABLE/STOCK WARRANTS (CONTINUED) -------------------------------------------------------- and two nontransferable share purchase warrants. Each A Warrant entitles the purchaser to purchase an additional 2,000,000 common shares in the capital stock of the Company on or before 12 months from the date of subscription at a price of $1.50 per share, after which it expires. Each B Warrant entitles the purchaser to purchase an additional 2,000,000 common shares in the capital stock of the Company, on or before 24 months from the date of the subscription at a price of $3.00 per share, after which it expires. The purchaser therefore has the right to purchase up to an additional 4,000,000 common shares in the capital stock of the Company. The common shares and any shares issued pursuant to the exercise of the A and B Warrants are subject to a 12 month holding period commencing January 7, 1998. NOTE 6 - PROPERTY AND EQUIPMENT, NET --------------------------- Property and equipment consists of the following at March 31, 1998 and 1997: 1998 1997 ---- ---- Furniture and Fixtures $ 47,436 35,284 Computer and Office Equipment 59,872 16,366 Vehicles 15,172 0 Plant Equipment 39,538 0 -------- -------- Total 162,018 51,650 Less Accumulated Depreciation 30,076 2,600 -------- -------- Net Book Value $131,942 49,050 ======== ======== Depreciation expense charged to operations for the years ended March 31, 1998, 1997, and 1996 was $30,076, $2,600, and $774, respectively. NOTE 7 - LONG-LIVED ASSETS ----------------- On December 11, 1995, the Company acquired the marketing rights to a virtual reality motion based simulator in exchange for 4,000,000 shares of common stock or $40,000. The contract was for a period of 25 years, from October, 1995, and required that the Company purchase one simulator per month commencing April, 1996. The transaction was accounted for in accordance with the process for valuation of intangible assets as described in Statement No. 17 of the Accounting Principles Board. During the fiscal year ended March 31, 1997, the Company sold the contract and related assets. On November 4, 1996, the Company acquired the exclusive sales, distribution, marketing and manufacturing rights to the Solpower product, SOLTRON, a fuel enhancing product, encompassing the North American Market (United States, Mexico and Canada), in exchange for 5,000,000 of common stock or $50,000. The contract is for a period of five 35 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 7 - LONG-LIVED ASSETS (CONTINUED) ---------------------------- years. The transaction was accounted for in accordance with the process for valuation of intangible assets as described in Statement No. 17 of the Accounting Principles Board. The Company intends to amortize the marketing rights over the period of contract. Management will reassess annually the estimated useful life. Such amortization will result in charges against earnings of $10,000 per year. Amortization charged to operations for the years ended March 31, 1998 and 1997 was $10,000 and $4,167, respectively. NOTE 8 - LEASE COMMITMENTS ----------------- OPERATING LEASES - The Company leases 1,364 square feet of office space for its executive offices at 7309 E. Stetson Drive, Suite 102, Scottsdale, Arizona, 85251. The lease is for a period of one year beginning March 12, 1997, and expires March 11, 1998. The monthly rent is $1,614.67. On December 22, 1997, the Company's first amendment to the lease agreement extended the term to March 11, 1999 with the guaranteed minimum monthly rental being increased to $1,845.33. On March 31, 1998, the Company's second amendment extended the lease from March 12, 1999 to June 30, 2000, with the guaranteed minimum monthly rental being increased to $1,960.67 On August 25, 1997, the Company entered into a lease for approximately 11,879 square feet of a 14,859 warehouse on 87,000 square feet of land, for its production facility located at 4247 W. Adams, Suite 2, Phoenix, AZ, 85009. The term of the lease is for five years commencing on September 1, 1997 and ending on August 31, 2002. Base rent is $3,920.07, plus property rental tax (currently 2.15%), for a total of $4,004.35. The Company has the option to lease the remainder of the warehouse, approximately 2,980 square feet at a lease rate of $.58 per square foot, with 180 days prior written notice of exercise to expand. On August 25, 1997, an addendum to the lease signed by the Company extends the lease period to September 14, 2002 and grants an option to purchase the real property and improvements for $600,000 if exercised between September 15, 1997 and March 15, 1998, or $639,000 if the option is exercised between March 15, 1998 through September 14, 1998. Additionally, the Company leases additional space located at 8270 N. Hayden Road, #2021, Scottsdale, Arizona, 85251, on a month to month basis, at the rate of $2,500 per month. On March 25, 1998, the Company entered into a rental agreement for a copier/printing machine for a term of 39 months, at $566.37 per month. Future minimal rental commitments are as follows at March 31: 1999 $76,993 2000 $78,377 2001 $60,731 2002 $49,751 2003 $24,026 36 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 8 - LEASE COMMITMENTS (CONTINUED) ----------------------------- CAPITAL LEASES - On September 16, 1997, the Company entered into a motor vehicle lease agreement for a 1997 Ford Explorer for 24 months, at a monthly payment of approximately $508. Total payments due under the lease are $15,172, with $2,981 representing interest. The vehicle is included in property and equipment and is being depreciated over the life of the lease. Future minimum lease payments for the vehicle under capital lease at March 31, 1998 are as follows: 1999 $ 6,096 2000 5,521 ------- Total 11,617 Less Amount Representing Interest 1,875 ------- Present Value of Net Obligations 9,742 Capital Lease Obligation, Current Portion 4,575 ------- Capital Lease Obligation, Noncurrent Portion $ 5,167 ======= Lease expense charged to operations for the years ended March 31, 1998, 1997, and 1996 was $106,932, $12,722, and $0, respectively. NOTE 9 - PROVISION FOR INCOME TAXES -------------------------- The current year net income of $1,426,842 is offset by prior year net operating losses of $1,397,004. The components of the provision for income taxes using the U.S. and state statutory tax rates are as follows: Provision/ Tax Payable Rate ------- ---- Current Federal $11,553 34% State 3,361 9% ------- Total $14,914 ======= NOTE 10 - ADVANCES PAYABLE, RELATED PARTIES --------------------------------- During the years ended March 31, 1998 and 1997, the majority stockholder of the Company, Dominion Capital Pty., LTD., (Dominion) made net advances to the Company of $94,363 and $465,361. On April 1, 1997, the Company issued 4,160,000 shares of 37 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 10 - ADVANCES PAYABLE, RELATED PARTIES (CONTINUED) --------------------------------------------- common stock at $.125 per share, or $520,000 to Dominion, in exchange for cancellation of a portion of the advances payable. On November 4, 1996, the Company entered into an agreement with Dominion for a period of five years. Dominion agreed to provide up to $1,000,000 on an "as needed" basis for operational costs and for the development and construction of manufacturing facilities. Dominion was to be repaid for the advances with convertible preferred shares of the Company. The note payable was originally convertible into convertible preferred stock of the Company. On November 24, 1997, an addendum was signed by the Company deleting this from the agreement. The addendum grants stock options and pay performance bonuses based solely on gross sales figures of the Solpower product SOLTRON in the North American market. See Note 11. Additionally, the Company has the option to extend the term of this agreement for an additional period of five years, unless canceled by notice in writing, by either party, with a thirty day notice of cancellation. NOTE 11 - STOCK OPTIONS ------------- On November 24,1997, an addendum to the agreement was signed by the Company which grants the following options to Dominion based solely on the gross sales figures of the Solpower product SOLTRON in the North American Market as follows: a. Gross sales for the product equaling $10,000,000, option to purchase 100,000 shares of common stock at $2.50 per share, plus a cash performance bonus of $400,000. b. Gross sales for the product equaling $20,000,000, option to purchase 150,000 shares of common stock at $3.50 per share, plus a cash performance bonus of $400,000. c. Gross sales for the product equaling $50,000,000, option to purchase 250,000 shares of common stock at $4.50 per share, plus a cash performance bonus of $500,000. d. Gross sales for the product equaling $100,000,000, option to purchase 250,000 shares of common stock at $5.00 per share, plus a cash performance bonus of $1,000,000. The contract has an anti-dilution provision, that in the event that the Company shall at any time subdivide the outstanding shares of common stock, or shall issue a stock dividend on its outstanding stock, the conversion price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in the case the corporation shall at any time combine the outstanding shares of common stock, the conversion price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. 38 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 11 - STOCK OPTIONS (CONTINUED) ------------------------- On January 30, 1998, the Company granted the option to purchase shares of the Company's common stock to certain individuals at a purchase price for each share subject to a fixed price per individual, that is equal to or greater than 100% of the fair market value of such stock as determined under the Solpower Corporation Stock Option and Incentive Plan (the Plan) as of this date. Mr. James H. Hirst was granted 300,000, Mr. Trond Matteson was granted 150,000 and Mr. Joshua Ward was granted 150,000 shares. The terms of such options shall commence as of January 30, 1998, and expire on January 30, 2003 or the termination of employment of Mr. Hirst or the services of Mr. Matteson or Mr. Ward. The options shall vest independently with respect to each grantee based upon two factors: (a) the minimum market price and (b) the minimum reported gross revenues being achieved as illustrated in the table below: Percentage Exercise Minimum Minimum Reported Amount Price Market Price Gross Revenues ------ ----- ------------ -------------- Hirst 33 1/3% $1.00 $2.00 $6 million 33 1/3% $1.75 $3.00 $9 million 33 1/3% $2.50 $4.00 $12 million Matteson/ 33 1/3% $1.00 $2.00 $6 million Ward 33 1/3% $2.00 $3.00 $9 million 33 1/3% $3.00 $4.00 $12 million The Minimum Reported Gross Revenues shall have been achieved during a reporting period which is the lesser of (i) the four quarterly reporting periods preceding any date on which the Minimum Market Price exists, and (ii) that number of quarterly reporting periods occurring subsequent to the date on which both Vesting Requirements last were achieved and any date on which the next Minimum Market Price requirement is achieved. Additionally, the options of Mr. Matteson shall not vest before August 1, 1998. A Company's stock option transactions for the years ended March 31, 1998, 1997, and 1996 are summarized as follows: Number of Option Shares Price ------ ----- Options Granted Under Marketing Agreement 1,500,000 $ 0.20 During Fiscal Year Ended 2,000,000 0.25 March 31, 1997 7,500,000 0.30 5,000,000 0.32 --------- 39 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 11 - STOCK OPTIONS (CONTINUED) ------------------------- Number of Option Shares Price ------ ----- Options Outstanding and Exercisable at 16,000,000 $0.20-$0.32 March 31, 1997 Cancellation of Options Per Amendment (16,000,000) Marketing Agreement Options Granted Under Amended 100,000 $2.50 Marketing Agreement 150,000 $3.50 250,000 $4.50 250,000 $5.00 Options Granted Under Stock Option 200,000 $1.00 and Incentive Plan 100,000 $1.75 100,000 $2.00 100,000 $2.50 100,000 $3.00 --------- Options Outstanding and Exercisable 1,350,000 $1.00-$5.00 at March 31, 1998 ========= The Company has granted options to certain individuals subsequent to March 31, 1998. See Note 13. NOTE 12 - DISCONTINUED OPERATIONS ----------------------- The Company sold its virtual reality motion based simulator business in early fiscal 1997 and recorded a loss of $118,885. No revenues or expenses are included in the financial statements for the year ended March 31, 1997. NOTE 13 - SUBSEQUENT EVENTS ----------------- MAY 28, 1998 - The Company granted the option to purchase shares of the Company's common stock to certain directors at a purchase price for each share subject to a fixed price per individual, that, with the exception of the nonqualifying options, is equal to or greater than 100% of the fair market value of such stock as determined under the Plan as of this date. Mr. Fraser Moffat III was granted 350,000, 100,000 of which are nonqualifying, Mr. Naoya Yoshikawa was granted 100,000, Mr. Jerry Goddard was granted 100,000 shares and Mr. Jim Hirst was granted 100,000. The options may be exercised in whole or in part at any time after the vesting requirements with respect to any option shares has been achieved. The terms of such options shall commence as of May 28, 1998, and expire on May 28, 2003, or the termination as directors of the Company. 40 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 13 - SUBSEQUENT EVENTS (CONTINUED) ----------------------------- The options shall vest independently with respect to each grantee, provided each grantee is a director of the Company on such vesting date, based upon two factors: (a) the minimum market price and (b) the minimum reported gross revenues being achieved as illustrated in the table below:
Percentage Exercise Minimum Minimum Reported Moffat Amount Price Market Price Gross Revenues ------ ----- ------------ -------------- (Incentive Stock Options) 40% $3.00 $3.00 $6 million 40% $5.00 $5.00 $9 million 20% $7.00 $7.00 $12 million (Nonqualifying Options) 100% $2.00 $2.00 $4 million Yoshikawa/ 50% $3.00 $3.00 $6 million Goddard/ 50% $7.00 $7.00 $12 million Hirst
With respect to Mr.'s Yoshikawa, Goddard, and Hirst, the Minimum Reported Gross Revenues shall have been achieved during a reporting period which is the lesser of (i) the four quarterly reporting periods preceding any date on which the Minimum Market Price exists, and (ii) that number of quarterly reporting periods occurring subsequent to the date on which both Vesting Requirements last were achieved and any date on which the next Minimum Market Price requirement is achieved. On May 18, 1998, Mr. Joshua Ward was terminated as a service provider to the Company and the 150,000 nonqualifying options granted to Mr. Ward on January 30, 1998, terminated on May 18, 1998. JUNE 1, 1998 - The Company has leased a 2.24 acre site located in Elkhart, Indiana, for activities including the manufacture and production of SOLTRON, to service the Solpower Great Lakes and Solpower Southeast licensees. The lease commences on June 1, 1998 and expires on May 31, 2003, at $2,500 per month. The Company has an option to renew this lease for an additional period of five years commencing with the expiration of the term granted. JUNE 17,1998 - The Company entered into an agreements with Dominion Capital Pty., LTD. that gives the Company the exclusive North American sales, distribution, marketing and manufacturing rights for SP34E, a direct drop-in replacement refrigerant gas for R-12 and R-134a, in exchange for the issuance of 6,000,000 common shares of 41 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 13 - SUBSEQUENT EVENTS (CONTINUED) ----------------------------- the Company's common stock and payment of a royalty of $2.25 per kilogram of SP34E sold. JUNE 30, 1998 - The Company entered into two separate agreements with Houston Mercantile Exchange, Inc. (licensee) for the exclusive use and distribution of its product, SOLTRON, in the South territory, which includes Texas, Oklahoma, and New Mexico, and the Mexico territory, which includes Mexico exclusively. The South license fee is $600,000, with a down payment of $60,000 due upon signing the agreement. The licensee signed a promissory note for the balance of $540,000 of the license fee due. The note bears interest at one half percent (0.5%) on the unpaid principal balance, with all unpaid principal and interest due on or before June 30, 2000. The licensee is required to pay the Company the greater of the amount payable per the payment schedule in the agreement or the product of $5.50 times the number of liters of concentrate shipped by the Company to the licensee during the immediately preceding calendar month. The Mexico license fee is $1,800,000, with a down payment of $180,000 due upon signing the agreement. The licensee signed a promissory note for the balance of $1,620,000 of the license fee due. The note bears interest at one half percent (0.5%) on the unpaid principal balance, with all unpaid principal and interest due on or before June 30, 2000. The licensee is required to pay the Company the greater of the amount payable per the payment schedule in the agreement or the product of $5.50 times the number of liters of concentrate shipped by the Company to the licensee during the immediately preceding calendar month. JULY 1, 1998 - The Company entered into an agreement with a related party, Dominion Capital Securities, Inc., (an Arizona Corporation) to perform investor relations and shareholders relations services commencing as of this date and continuing until completion, which is expected to be within the next six months. This agreement shall automatically renew for successive six month periods, on terms and conditions yet to be agreed upon, subject to termination by either party on thirty days written notice. The Company agrees to pay Dominion Capital Securities, Inc. as follows: (i) $125,000 in cash and 50,000 free trading shares upon execution of this agreement, for a total of $275,000; and (ii) an option to purchase 100,000 free trading shares valued at $3.00 per share. The option term shall expire 24 months from the day this date. JULY 1, 1998 - The Company granted the option to purchase 100,000 shares of the Company's common stock to Dominion Capital Securities, Inc., at a purchase price for 42 SOLPOWER CORPORATION NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 13 - SUBSEQUENT EVENTS (CONTINUED) ----------------------------- each share subject to a fixed price, that is equal to or greater than 100% of the fair market value of such stock as determined under the Plan as of this date. The options may be exercised in whole or in part at any time after the vesting requirements with respect to any option shares that has been achieved. The terms of such options shall commence as of July 1, 1998, and expire on July 1, 2000, or the termination of grantee's service to the Company. The options shall vest with respect to the grantee, provided grantee is providing services to the Company on such vesting date, based upon two factors: (a) the minimum market price and (b) the minimum reported gross revenues being achieved as illustrated in the table below: Percentage Exercise Minimum Minimum Reported Amount Price Market Price Gross Revenues ------ ----- ------------ -------------- 100% $3.00 $3.00 $6 million The Minimum Reported Gross Revenues shall have been achieved during a reporting period which is the lesser of (i) the four quarterly reporting periods preceding any date on which the Minimum Market Price exists, and (ii) that number of quarterly reporting periods occurring subsequent to the date on which both Vesting Requirements last were achieved and any date on which the next Minimum Market Price requirement is achieved. 43 SOLPOWER CORPORATION BALANCE SHEET FOR THE QUARTER ENDED JUNE 30, 1998 (UNAUDITED) ASSETS Current Assets Cash $ 305 Inventory (Note 3) 94,830 License Fee Receivable (Note 4) 4,557,762 Stock Subscription Receivable (Note 5) 900,000 Accounts Receivable 38,803 ---------- Total Current Assets $5,591,700 Property and Equipment, Net (Note 6) 147,455 Other Assets Marketing Rights (Note 7) 93,333 Security Deposits 14,422 ---------- Total Other Assets $ 255,210 ---------- Total Assets $5,846,910 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Capital Lease Obligation, Current Portion (Note 8) 3,517 Income Taxes Payable (Note 9) 825,444 ---------- Total Liabilities $ 828,961 Long Term Liabilities Capital Lease Obligation, Noncurrent Portion (Note 8) 5,167 Advances Payable, Related Party (Note 10) 169,891 ---------- Total Long Term Liabilities $ 175,058 ---------- Total Liabilities $1,004,019 Commitments and Contingencies (Note 8) Stockholders' Equity Preferred Stock; $0.001 Par Value, 5,000,000 Authorized; Issued and Outstanding, NONE Common Stock; $0.01 Par Value, 30,000,000 Authorized; Issued and Outstanding, 17,391,560 Shares at June 30, 1998 233,916 Additional Paid in Capital 3,410,904 Retained Earnings 1,198,071 ---------- Total Stockholders' Equity $4,842,891 ---------- Total Liabilities and Stockholders' Equity $5,846,910 ========== The accompanying notes are an integral part of these financial statements. 44 SOLPOWER CORPORATION STATEMENT OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1998 (UNAUDITED) Revenues (Note 4) $ 2,425,802 Expenses General and Administrative 396,279 ------------ Operating Income (Loss) 2,029,523 ------------ Other Income (Expense) Interest Income 309 Interest Expense (462) Loss From Discontinued Operations -- ------------ Total Other Income (Expense) (153) ------------ Net Income (Loss) Before Provision For Income Taxes 2,029,370 Provision For Income Taxes (Note 9) 810,530 Net Income (Loss) Available to Common Stockholders $ 1,218,840 ------------ Earnings (Loss) Per Common Share Equivalents $ 0.08 ============ Weighted Number of Common Shares and Common Share Equivalents Outstanding $ 15,429,932 ============ The accompanying notes are an integral part of these financial statements 45 SOLPOWER CORPORATION STATEMENT OF CASH FLOWS FOR THE QUARTER ENDED JUNE 30, 1998 (UNAUDITED) Cash Flows From Operating Activities Net Income (Loss) $ 1,218,840 Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities -- Depreciation and Amortization 9,369 Changes in Assets and Liabilities -- (Increase) Decrease in Accounts Receivable 63,436 (Increase) Decrease in License Fee Receivable (2,400,000) (Increase) Decrease in Inventory 7,075 (Increase) Decrease in Prepaid Expenses -- (Increase) Decrease in Security Deposits -- Increase (Decrease) in Accounts Payable (2,432) Increase (Decrease) in Income Taxes Payable $ 810,530 ----------- Total Adjustments $(1,512,022) =========== Cash Flows From Investing Activities Capital Expenditures (22,383) Sale of Equipment and Marketing Rights $ ----------- Net Cash Flows Provided By (Used In) Investing Activities (22,383) Cash Flows From Financing Activities -- Proceeds From Issuance of Common Stock -- Capital Lease Obligations 8,680 Notes Receivable From Stock Sale -- Proceeds From Notes Receivable and Interest 2,239 Net Advances (Repayments) From Stockholders $ 37,035 ----------- Net Cash Provided by Financing Activities $ 47,954 ----------- Increase (Decrease) in Cash and Cash Equivalents (183,537) Cash and Cash Equivalents, Beginning of Year $ 183,842 ----------- Cash and Cash Equivalents, End of Year $ 305 =========== Supplemental Information Cash Paid For: Interest $ 462 =========== Income Taxes $ -- =========== The accompanying notes are an integral part of these financial statements. 46 SOLPOWER CORPORATION NOTES TO THE UNAUDITED FINANCIAL STATEMENTS QUARTER ENDED JUNE 30, 1998 NOTE 1 - ORGANIZATION ------------ Solpower Corporation (the Company), formerly known as Virtual Technologies, Inc. and Dynafuel Corporation, was incorporated under the laws of the State of Utah on June 7, 1982, with an authorized capital of 30,000,000 shares of common stock with a par value of one cent ($0.01) per share. On December 12, 1995, the Company amended its articles of incorporation, changing its name to Virtual Technologies, Inc. and increasing the authorized preferred stock to 5,000,000 shares at $.25 par value. On July 22, 1996, the Company changed its legal domicile to the State of Nevada. On November 22, 1997, the Company restated the articles of incorporation, changing its name to Solpower Corporation and changing its preferred stock par value to one-tenth of one cent ($.001) per share. The Company has the exclusive sales, distribution, marketing and manufacturing rights for the United States, Mexico and Canada to the Solpower product, SOLTRON, a fuel enhancing product and SP34E a refrigerant gas. On November 1, 1995, the Company issued 4,000,000 shares of common stock at $0.125 per share in exchange for a note receivable in the amount of $500,000. On December 11, 1995, the Company issued 4,000,000 shares of common stock at $0.01 per share in exchange for marketing rights, or $40,000. On February 29, 1996, the Company authorized a reverse split of common stock of 3:1. On April 19, 1996, the Company issued 1,600,000 shares of common stock at $5.00 per share in exchange for a note receivable in the amount of $8,000,000. On June 12, 1996, the agreement and the shares issued were canceled for nonperformance. On October 30, 1996, the Company authorized a reverse split of common stock of 5:1. On November 4, 1996, the Company issued 3,520,000 shares of common stock at $0.125 per share for cash, or $440,000. On November 4, 1996, the Company issued 5,000,000 shares of common stock at $0.01 per share in exchange for marketing rights. On April 1, 1997, the Company issued 4,160,000 share of common stock under a REG D private offering in exchange for cancellation of advances payable at $.125 per share, or $520,000. On January 9, 1998, the Company issued 4,000,000 shares of common stock under a REG S placement at $.50 per share, or $2,000,000. On June 17, 1998 the Company agreed to issue 6,000,000 shares of Common Stock in exchange for marketing rights to SP34E. The Company was formed on June 7, 1982, and was in the development stage through March 31, 1997. The fiscal year ended March 31, 1998, was the first year during which it was considered an operating company. 47 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES ------------------------------- A. Method of Accounting -------------------- The Company's financial statements are prepared using the accrual method of accounting. B. Cash and Cash Equivalents ------------------------- The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash and cash equivalents. C. Inventory --------- Inventory is stated at the lower of cost or market using the first-in, first-out (fifo) method. D. Property, Equipment and Depreciation ------------------------------------ Property and equipment, stated at cost, is depreciated over their estimated useful lives as follows: Computer and Office Equipment 5 years Furniture 7 years Vehicles 5 years Plant Equipment 7 years Depreciation is computed under the straight-line method for financial statement purposes and under accelerated methods for income tax purposes. Repairs and maintenance expenses are charged to operations as incurred. E. Revenue Recognition ------------------- Revenues from sales to distributors and resellers is recognized when related products are shipped. Revenues from corporate license programs is recognized when the agreement is executed. F. Earnings or (Loss) Per Common Share ----------------------------------- Earnings or (loss) per common share is computed based on weighted average number of shares outstanding at the date of the financial statements. Stock options are included as common share equivalents using the treasury stock method. The number of shares used in computing earnings (loss) per share was 15,429,932 for the quarter ended June 30, 1998. G. Income Taxes ------------ The Company accounts for income taxes under the liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." See Note 9. H. Use of Estimates ---------------- Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results may vary from the estimates that were assumed in preparing the financial statements. 48 I. Pending Accounting Announcements -------------------------------- It is anticipated that current pending accounting pronouncements will not have an adverse impact on the financial statements of the Company. J. Presentation ------------ Certain accounts from prior years have been reclassified to conform with the current year's presentation. NOTE 3 - INVENTORY --------- Inventory at June 30, 1998 of $94,830 consists of a small quantity of twenty three 55 gallon drums of fuel additive concentrate, and an amount of finished product. NOTE 4 - LICENSE FEE RECEIVABLE ---------------------- During the year quarter ended June 30, 1998, the Company entered into two licensing agreements for the sole and exclusive use and distribution of its product, SOLTRON in the territories as defined below: SOLPOWER MEXICO - Mexico --------------- SOLPOWER SOUTH - Texas, Oklahoma and New Mexico -------------- On June 30, 1998, the Company entered into agreements with Houston Mercantile Exchange, Inc. (licensee) for the exclusive use and distribution of its product, SOLTRON in the South and Mexico territories as defined above. The license fee is $1,800,000 and $600,000 respectively with a down payment of $180,000 and $60,000 respectively due upon signing the agreements. The licensee signed promissory notes for the amounts outstanding. The notes bear interest at one half percent (0.5%) on the unpaid principal balance, with all unpaid principal and interest due on or before June 30, 2000. The licensee is required to pay the Company the greater of the amount payable per the payment schedule in the agreements or the product of $5.50 times the number of liters of concentrate shipped by the Company to the licensee during the immediately preceding calendar month. At a minimum, future annual principal payments due the Company under all notes are as follows at March 31: 1999 $1,720,000 2000 $2,840,000 NOTE 5 - STOCK SUBSCRIPTION RECEIVABLE/STOCK WARRANTS -------------------------------------------- Subscription receivable at June 30, 1998, of $900,000 represents the balance of a subscription agreement with Angelus, Inc. On January 9, 1998, the Company issued 4,000,000 shares of common stock under a REG S placement at a price of $.50 per unit, or $2,000,000. A unit consists of one common share of capital stock of the Company, and two nontransferable share purchase warrants. Each A Warrant entities the purchaser to purchase an additional 2,000,000 common shares in the capital stock of the Company on or before 12 months from the date of subscription at a price of $1.50 per share, after which it expires. Each B Warrant entities the purchaser to purchase an additional 2,000,000 common shares in the capital stock of the Company, on or before 24 months from the date of the subscription at a price of $3.00, per share, after which it expires. The purchaser therefore has the right to purchase up to an additional 4,000,000 common shares in the capital stock of the 49 Company. The common shares and any shares issued pursuant to the exercise of the A and B Warrants are subject to a 12 month holding period commencing January 7, 1998. NOTE 6 - PROPERTY AND EQUIPMENT, NET --------------------------- Property and equipment consists of the following at June 30, 1998 1998 ---- Furniture and Fixtures $ 47,853 Computer and Office Equipment 63,760 Vehicles 15,172 Plant Equipment 57,616 ------ Total 184,401 Less Accumulated Depreciation 36,946 Net Book Values $144,455 Depreciation expense charged to operations for the quarter ended June 30, 1998 was $6,869. NOTE 7 - LONG-LIVED ASSETS ----------------- On December 11, 1995, the Company acquired the marketing rights to a virtual reality motion based simulator in exchange for 4,000,000 shares of common stock or $40,000. The contract was for a period of 25 years, from October, 1995, and required that the Company purchase one simulator per month commencing April, 1996. The transaction was accounted for in accordance with the process for valuation of intangible assets as described in Statement No. 17 of the Accounting Principles Board. During the fiscal year ended March 31, 1997, the Company sold the contract and related assets. On November 4, 1996, the Company acquired the exclusive sales, distribution, marketing and manufacturing rights to the Solpower product, SOLTRON, a fuel enhancing product, encompassing the North American Market (United States, Mexico and Canada), in exchange for 5,000,000 of common stock or $50,000. The contract is for a period of 5 years. The transaction was accounted for in accordance with the process for valuation of intangible assets as described in Statement No. 17 of the Accounting Principles Board. The Company intends to amortize the marketing rights over the period of contract. Management will reassess annually the estimated useful life. Such amortization will result in charges against earnings of $2,500 per quarter. Amortization charged to operations for the quarter ended June 30, 1998 was $2,500 On June 17, 1998 the Company acquired the exclusive sales, distribution, marketing and manufacturing rights to the Solpower refrigerant product, SP34E, encompassing the North American Market (United States, Mexico and Canada), in exchange for 6,000,000 of Common Stock or $60,000 and payment of a royalty of $2.25 per kilogram of SP34E. The contract is for a period of 5 years. The transaction was accounted for in accordance with the process for valuation of Intangible Assets as described in Statement No. 17 of the Accounting Principles Board. The Company intends to amortize the marketing rights over the period of the contract. Management will reassess annually, the estimated useful life. Such amortization will result in charges against earnings of $3,000 per quarter. NOTE 8 - LEASE COMMITMENTS ----------------- OPERATING LEASES - The Company leases 1,364 square feet of office space for its executive offices at 7309 E. Stetson Drive, Suite 102, Scottsdale, Arizona, 85251. The lease is for a period of one year beginning March 12, 1997, and expires March 11, 1998. The monthly rent is $1,614.67. On December 22, 1997, the Company's first amendment to the lease agreement extended the term to 50 March 11, 1999, with the guaranteed minimum monthly rental being increased to $1,845.33. On March 31, 1998, the Company's second amendment extended the lease from March 12, 1999 to June 30, 2000, with the guaranteed minimum monthly rental being increased to $1,960.67. On August 25, 1997, the Company entered into a lease for approximately 11,879 square feet of a 14,859 warehouse on 87,000 square feet of land, for its production facility located at 4247 W. Adams, Suite 2, Phoenix, AZ, 85009. The term of the lease is for five years commencing on September 1, 1997 and ending on August 31, 2002. Base rent is $3,920.07, plus property rental tax (currently 2.15%), for a total of $4,004.35. The Company has the option to lease the remainder of the warehouse, approximately 2,980 square feet at a lease rate of $.58 per square foot, with 180 days prior written notice of exercise to expand. On August 25, 1997, an addendum to the lease signed by the Company extends the lease period to September 14, 2002 and grants an option to purchase the real property and improvements for $600,000 if exercised between September 15, 1997 and March 15, 1998, or $639,000 if the option is exercised between March 15, 1998 through September 14, 1998. Additionally, the Company leases additional space located at 8270 N. Hayden Road, #2021, Scottsdale, Arizona, 85251, on a month to month basis, at the rate of $2,500 per month. On March 25, 1998, the Company entered into a rental agreement for a copier/printing machine for a term of 39 months, at $566.37 per month. On June 1, 1998 the Company leased a 2.24 acre site located in Elkhart, Indiana, for activities including the manufacture and production of SOLTRON to service the Solpower Great Lakes and Solpower Southeast licensees. The lease commences on June 1, 1998 and expires on May 31, 2003, at $2,500 per month. The Company has an option to renew this lease for an additional period of five years commencing with the expiration of the term granted. Future minimal rental commitments are as follows at March 31: 1999 $106,993 2000 $108,377 2001 $90,731 2002 $79,751 2003 $54,026 CAPITAL LEASES - On September 16, 1997, the Company entered into a motor vehicle lease agreement for a 1997 Ford Explorer for 24 months, at a monthly payment of approximately $508. Total payments due under the lease are $15,172, with $2,981 representing interest. The vehicle is included in property and equipment and is being depreciated over the life of the lease. Future minimum lease payments for the vehicle under capital lease at June 30, 1998 are as follows: 1999 $ 4,572 2000 5,521 ------- Less Amount Representing Interest 10,093 Present Value of Net Obligations 1,413 ------- Capital Lease Obligation, Current Portion 8,680 Capital Lease Obligation, Noncurrent Portion 3,513 ------- $ 5,167 ------- Lease expense charged to operations for the years ended Quarter ended June 30, 1998, was $25,099. 51 NOTE 9 - PROVISION FOR INCOME TAXES -------------------------- The current quarter net income of $2,029,370 has US Federal Taxes provided for as follows: Provision/ Tax Payable Rate ------- ---- Current Federal $627,887 34% State $182,643 9% -------- Total $810,530 NOTE 10 - ADVANCES PAYABLE, RELATED PARTIES --------------------------------- During the quarter ended June 30, 1998 the majority stockholder of the Company, Dominion Capital Pty., LTD., (Dominion) made net advances to the Company of $37,035. On November 4, 1996, the Company entered into an agreement with Dominion for a period of five years. Dominion agreed to provide up to $1,000,000 on an "as needed" basis for operational costs and for the development and construction of manufacturing facilities. Dominion was to be repaid for the advances with convertible preferred shares of the Company. The note payable was originally convertible into convertible preferred stock of the Company. On November 24, 1997, an addendum was signed by the Company deleting this from the agreement. The addendum grants stock options and pay performance bonuses based solely on gross sales figures of the Solpower product SOLTRON in the North American market. See Note 11. Additionally, the Company has the option to extend the term of this agreement for an additional period of five years, unless canceled by notice in writing, by either party, with a thirty day notice of cancellation. NOTE 11 - STOCK OPTIONS ------------- On November 24, 1997, an addendum to the agreement was signed by the Company which grants the following options to Dominion based solely on the gross sales figures of the Solpower product SOLTRON in the North American Market as follows: a. Gross sales for the product equaling $10,000,000, option to purchase 100,000 shares of common stock at $2.50 per share, plus a cash performance bonus of $400,000. b. Gross sales for the product equaling $20,000,000, option to purchase 150,000 shares of common stock at $3.50 per share, plus a cash performance bonus of $400,000. c. Gross sales for the product equaling $50,000,000, option to purchase 250,000 shares of common stock at $4.50 per share, plus a cash performance bonus of $500,000. d. Gross sales for the product equaling $100,000,000, option to purchase 250,000 shares of common stock at $5.00 per share, plus a cash performance bonus of $1,000,000. The contract has an anti-dilution provision, that in the event that the Company shall at any time subdivide the outstanding shares of common stock, or shall issue a stock dividend on its outstanding stock, the conversion price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in the case the corporation shall at any time combine the outstanding shares of common stock, the conversion price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. 52 On January 30, 1998, the Company granted the option to purchase shares of the Company's common stock to certain individuals at a purchase price for each share subject to a fixed price per individual, that is equal to or greater than 100% of the fair market value of such stock as determined under the Solpower Corporation Stock Option and Incentive Plan (the Plan) as of this date. Mr. James H. Hirst was granted 300,000, Mr. Trond Matteson was granted 150,000 and Mr. Joshua Ward was granted 150,000 shares. The terms of such options shall commence as of January 30, 1998, and expire on January 30, 2003 or the termination of employment of Mr. Hirst or the services of Mr. Matteson or Mr. Ward. The options shall vest independently with respect to each grantee based upon two factors: (a) the minimum market price and (b) the minimum reported gross revenues being achieved as illustrated in the table below: Percentage Exercise Minimum Minimum Reported Amount Price Market Price Gross Revenues --------------------------------------------------------- Hirst 33 1/3% $1.00 $2.00 $6 million 33 1/3% $1.75 $3.00 $9 million 33 1/3% $2.50 $4.00 $12 million Matteson/ 33 1/3% $1.00 $2.00 $6 million Ward 33 1/3% $2.00 $3.00 $9 million 33 1/3% $3.00 $4.00 $12 million The Minimum Reported Gross Revenues shall have been achieved during a reporting period which is the lesser of (i) the four quarterly reporting periods preceding any date on which the Minimum Market Price exists, and (ii) that number of quarterly reporting periods occurring subsequent to the date on which both Vesting Requirements last were achieved and any date on which the next Minimum Market Price requirement is achieved. Additionally, the options of Mr. Matteson shall not vest before August 1, 1998. On May 18, 1998, Mr. Joshua Ward was terminated as a service provider to the Company and the 150,000 nonqualifying options granted to Mr. Ward on January 30, 1998, terminated on May 18, 1998. On May 28, 1998, the Company granted the option to purchase shares of the Company's common stock to certain directors at a purchase price for each share subject to a fixed price per individual, that, with the exception of the nonqualifying options, is equal to or greater than 100% of the fair market value of such stock as determined under the Plan as of this date. Mr. Fraser Moffat III was granted 350,000, 100,000 of which are nonqualifying, Mr. Naoya Yoshikawa was granted 100,000, Mr. Jerry Goddard was granted 100,000 shares and Mr. Jim Hirst was granted 100,000. The options may be exercised in whole or in part at any time after the vesting requirements with respect to any option shares has been achieved.The terms of such options shall commence as of May 28, 1998, and expire on May 28, 2003, or the termination as directors of the Company. The options shall vest independently with respect to each grantee, provided each grantee is a director of the Company on such vesting date, based upon two factors: (a) the minimum market price and (b) the minimum reported gross revenues being achieved as illustrated in the table below: 53
Percentage Exercise Minimum Minimum Reported Amount Price Market Price Gross Revenues ----------------------------------------------------------- Moffat (Incentive Stock Options) 40% $3.00 $3.00 $6 million 40% $5.00 $5.00 $9 million 20% $7.00 $7.00 $12 million (Nonqualifying Options) 100% $2.00 $2.00 $4 million Yoshikawa/ 50% $3.00 $3.00 $6 million Goddard/ 50% $7.00 $7.00 $12 million Hirst
With respect to Mr.'s Yoshikawa, Goddard, and Hirst, the Minimum Reported Gross Revenues shall have been achieved during a reporting period which is the lesser of (i) the four quarterly reporting periods preceding any date on which the Minimum Market Price exists, and (ii) that number of quarterly reporting periods occurring subsequent to the date on which both Vesting Requirements last were achieved and any date on which the next Minimum Market Price requirement is achieved. The Company's stock option transactions for the years ended March 31, 1998, and Quarter ended June 30, 1998, are summarized as follows: Number of Option Shares Price ------ ----- Options Granted Under Marketing Agreement 1,500,000 $0.20 During Fiscal Year Ended 2,000,000 $0.25 March 31, 1997 7,500,000 $0.30 5,000,000 $0.32 Options Outstanding and Exercisable at March 31, 1997 16,000,000 $0.20-$0.32 Cancellation of Options Per Amendment Marketing Agreement (16,000,000) Options Granted Under Amended Marketing Agreement 100,000 $2.50 150,000 $3.50 250,000 $4.50 250,000 $5.00 Options Granted Under Stock Option and Incentive Plan 200,000 Options Cancelled May 18, 1998 (50,000) ----------- 150,000 $1.00 100,000 $1.75 200,000 Options Cancelled May 18, 1998 (50,000) ----------- 150,000 $2.00 100,000 $2.50 54 350,000 Options Cancelled May 18, 1998 (50,000) ---------- 300,000 $3.00 100,000 $5.00 200,000 $7.00 Options Outstanding and Exercisable at June 30, 1998 $1,850,000 $1.00-$7.00 ========== NOTE 12 - SUBSEQUENT EVENTS ----------------- JULY 1, 1998 - The Company entered into an agreement with a related party, Dominion Capital Securities, Inc., (an Arizona Corporation) to perform investor relations and shareholders relations services commencing as of this date and continuing until completion, which is expected to be within the next six months. This agreement shall automatically renew for successive six month periods, on terms and conditions yet to be agreed upon, subject to termination by either party on thirty days written notice. The Company agrees to pay Dominion Capital Securities, Inc. as follows: (i) $125,000 in cash and 50,000 free trading shares upon execution of this agreement, for a total of $275,000; and (ii) an option to purchase 100,000 free trading shares valued at $3.00 per share. The option term shall expire 24 months from the day this date. JULY 1, 1998 - The Company granted the option to purchase 100,000 shares of the Company's common stock to Dominion Capital Securities, Inc., at a purchase price for each share subject to a fixed price, that is equal to or greater than 100% of the fair market value of such stock as determined under the Plan as of this date. The options may be exercised in whole or in part at any time after the vesting requirements with respect to any option shares that has been achieved. The terms of such options shall commence as of July 1, 1998, and expire on July 1, 2000, or the termination of grantee's service to the Company. The options shall vest with respect to the grantee, provided grantee is providing services to the Company on such vesting date, based upon two factors: (a) the minimum market price and (b) the minimum reported gross revenues being achieved as illustrated in the table below: Percentage Exercise Minimum Minimum Reported Amount Price Market Price Gross Revenues ----------------------------------------------------------------- 100% $3.00 $3.00 $6 million The Minimum Reported Gross Revenues shall have been achieved during a reporting period which is the lesser of (i) the four quarterly reporting periods preceding any date on which the Minimum Market Price exists, and (ii) that number of quarterly reporting periods occurring subsequent to the date on which both Vesting Requirements last were achieved and any date on which the next Minimum Market Price requirement is achieved NOTE 13 - DISCONTINUED OPERATIONS ----------------------- The Company sold its virtual reality motion based simulator business in early fiscal 1997 and recorded a loss of $118,885. No revenues or expenses are included in the financial statements for the year ended March 31, 1997. 55 PART III ITEM 1. INDEX TO EXHIBITS 2.1 Articles of Merger, merging Virtual Technologies Inc., a Utah Corporation, into Virtual Technologies Inc., a Nevada Corporation, dated July 26, 1996. 2.2 Plan of Merger of the Company, merging Virtual Technologies Inc., a Utah Corporation into Virtual Technologies Inc., a Nevada Corporation, dated July 19, 1996. 3.1 Restated Articles of Incorporation of Solpower Corporation dated November 24, 1997. 3.2 Amended and Restated Bylaws of Solpower Corporation dated November 24, 1997. 10.1 Acquisition Agreement dated November 4, 1996 between Dominion Capital Pty. Ltd. and Virtual Technologies, Inc. for the Distribution & Manufacturing Rights of SOLTRON Product. 10.2 Acquisition Agreement amendment dated November 24, 1997 outlining clarifications and extensions of original Acquisition Agreement dated November 4, 1996. 10.3 Addendum to Acquisition Agreement dated May 13, 1998. 10.4 Acquisition Agreement dated June 17, 1998 between Dominion Capital Pty. Ltd. and Solpower Corporation for the Distribution and Manufacturing Rights of SP34E Product. 10.5 Form of Master License Agreement. 10.6 Form of Security Agreement. 10.7 Property Lease Agreement between Arizona Industrial Capital Limited Partnership and Virtual Technologies, Inc. dated August 25, 1997. 10.8 Property Lease Agreement and amendments between Scottsdale Stetson Corporation and Virtual Technologies, Inc. dated March 12, 1997. 10.9 First Amendment to Property Lease Agreement between Scottsdale Stetson Corporation and Virtual Technologies, Inc. 10.10 Second Amendment to Property Lease Agreement between Scottsdale Stetson Corporation and Virtual Technologies, Inc. 10.11 Commercial Lease between D.I. South, Inc. and Solpower Corporation dated June 1, 1998 10.12 Solpower Corporation Stock Option and Incentive Plan dated November 22, 1997. 10.13 Territory Licensee Finders Fee Agreement between Virtual Technologies, Inc. and Charles C. Van Zee dated November 5, 1997. 10.14 Territory Licensee Finders Fee Agreement between Solpower Corporation and Josh Ward dated February 1, 1998. 10.15 Territory Licensee Finders Fee Agreement between Solpower Corporation and Trond Matteson dated February 1, 1998. 56 10.16 Client Services Agreement between Solpower Corporation and Dominion Capital Securities, Inc. dated July 1, 1998. 11.1 Statement re Computation of Per Share Earnings. 23.1 Auditor's Consent. 27.1 Financial Data Schedule. 57 SIGNATURES In accordance with Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. SOLPOWER CORPORATION (Registrant) Dated: 08/21/98 By: /s/ James H. Hirst ----------------- -------------------------------------------- James H. Hirst, Chief Executive Officer In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: 08/21/98 By: /s/ James H. Hirst ----------------- -------------------------------------------- James H. Hirst, Chief Executive Officer and Director Dated: 08/21/98 By: /s/ Leif Schipper ----------------- -------------------------------------------- Leif Schipper, Chief Financial Officer and Director 58 EX-2.1 2 ARTICLES OF MERGER OF VIRTUAL TECHNOLOGIES ARTICLES OF MERGER OF VIRTUAL TECHNOLOGIES, INC. (A UTAH CORPORATION) AND VIRTUAL TECHNOLOGIES, INC. (A NEVADA CORPORATION) Pursuant to the provisions of Chapter 78, Nevada Revised Statutes, and Section 16-10a-1105 of the Utah Revised Business Corporation Act, the corporations herein named do hereby adopt the following Articles of Merger. 1. Annexed hereto and made a part hereof is the Plan of Merger for merging, Virtual Technologies, Inc., a Utah corporation ("Virtual - Utah"), with and into Virtual Technologies, Inc., a Nevada corporation ("Virtual - Nevada"). The said Plan of Merger has been adopted by the Board of Directors of Virtual - Utah and by the Board of Directors of Virtual - Nevada. 2. The merger of Virtual - Utah with and into Virtual - Nevada is permitted by the laws of the states of Utah and Nevada and has been authorized in compliance with said laws. 3. The said Plan of Merger was submitted to the stockholders of Virtual - - - Utah pursuant to the provisions of Section 16-10a-1104(3) of the Utah Revised Business Corporation Act and the manner of approval thereof by said stockholders was as follows: (i) The designation, number of outstanding shares and the number of votes entitled to be cast by each entitled to vote on the said Plan of Merger are as follows: Number Entitled Designation Outstanding Shares to Vote ----------- ------------------ ------- Common 3,557,500 3,557,500 (ii) The total number of votes cast for and against the merger herein provided for by each class entitled to vote on the said Plan of Merger is as follows: Designation Voted For Voted Against ----------- --------- ------------- Common 2,881,575 None (iii) The said number of votes cast for the said Plan of Merger was sufficient for the approval thereof by the said class. 4. Virtual - Utah owns 100% of the outstanding shares of Virtual - Nevada and therefore the vote of the stockholders of Virtual - Nevada is not required. 5. No amendments to the Articles of Incorporation of Virtual - Nevada are affected by the merger herein provided for. 6. The merger herein provided for shall become effective on the date that these Articles of Merger are filed with the Secretary of State of the State of Nevada, in compliance with Section 16-10a-1104(5) of the Utah Revised Business Corporation Act and Section 78.45 8(3) of the Nevada Revised Statutes. 7. The address of the principal executive office for both of the corporations shall be 1420 Blake Street, Denver, CO 80202. The Surviving Corporation shall also maintain a registered office in Nevada at 4079 Syracuse, Las Vegas, NV 89121. VIRTUAL TECHNOLOGIES, INC., a Utah corporation Date: 7/22/96 /s/ James Speir --------------- -------------------------------- James Speir, President Date: 7/22/96 /s/ Les Bates --------------- -------------------------------- Les Bates, Assistant Secretary STATE OF COLORADO ) ) ss COUNTY OF DENVER ) On the 22nd day of July, 1996, personally appeared before me, a Notary Public in and for the State and County aforesaid, James Speir, President, and Les Bates, Assistant Secretary of Virtual - Utah, personally known to me to be persons whose names are subscribed to the above instrument in the said capacities, who acknowledged that they executed the said instrument. /s/ Diana L. McKee ------------------------------ NOTARY PUBLIC My commission expires: - - --------------------------------- 2 VIRTUAL TECHNOLOGIES, INC., a Nevada Corporation By /s/ Andrew Croson ------------------------------ Andrew Croson, President Attest: /s/ James Richards - - ---------------------------------- James Richards, Secretary STATE OF ARIZONA ) ) ss COUNTY OF MARICOPA ) On the 22nd day of July, 1996, personally appeared before me Andrew Croson, President and James Richards, Secretary, Virtual who duly acknowledged to me that they are authorized to and did sign the foregoing Plan of Merger for and on behalf of Virtual-Nevada. /s/ Melvin E. Richards II -------------------------------- NOTARY PUBLIC My commission expires: 07/09/99 - - ---------------------------------- 3 EX-2.2 3 PLAN OF MERGER OF VIRTUAL TECHNOLOGIES PLAN OF MERGER OF VIRTUAL TECHNOLOGIES, INC. (a Utah Corporation) INTO VIRTUAL TECHNOLOGIES, INC. (a Nevada Corporation) THIS PLAN OF MERGER entered into this 19th day of July, 1996, by and between VIRTUAL TECHNOLOGIES, INC., a Utah corporation ("Virtual-Utah"), and VIRTUAL TECHNOLOGIES, INC., a Nevada corporation ("Virtual-Nevada"). WHEREAS, Virtual-Utah is a corporation organized and existing under the laws of the State of Utah with its principal office in Salt Lake County, Utah; and WHEREAS, Virtual-Utah desires to change its domicile to the State of Nevada. and WHEREAS, Virtual-Utah has caused Virtual-Nevada to be formed under the laws of the State of Nevada solely to effect such change of domicile; NOW, THEREFORE, in consideration of the premises and of the mutual agreement of the parties hereto, the Plan of Merger and the terms and conditions thereof and the mode of carrying the same into effect, together with any provisions required or permitted to be set forth therein, are hereby determined and agreed upon for submission to the stockholders of Virtual-Utah and Virtual-Nevada as required by the laws of the States of Utah and Nevada as follows: 1. Merger and Surviving Corporation -------------------------------- Virtual-Utah will merge into Virtual-Nevada, and Virtual-Nevada will be the "Surviving Corporation." 2. Terms and Conditions of Merger ------------------------------ 2.1 Each share of common stock of Virtual-Utah ("Shares") shall, upon the effective date of the Plan, be converted into on share of common stock of Virtual-Nevada. On the effective date of the Plan, such shares so converted shall constitute all of the then issued and outstanding shares of common stock of the Surviving Corporation. 2.2 The separate existence of Virtual-Utah shall cease. 2.3 The Surviving Corporation shall thereupon and thereafter possess all the rights, privileges, powers and franchises as well of a public as of a private nature, and be subject to all of the restrictions, disabilities and duties of Virtual-Utah; and all and singular, the rights, privileges, powers and franchises of Virtual-Utah; and all property, real, personal and mixed, and all debts due to Virtual-Utah on whatever account as well for stock subscriptions as all other things in action or belonging to Virtual-Utah shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of Virtual-Utah, and the title to any real estate vested by deed or otherwise in Virtual-Utah shall not revert or be in any impaired by reason of the Plan; but all rights of creditors and all liens upon any property of Virtual-Utah shall be preserved unimpaired, and all debts, liabilities and duties of Virtual-Utah shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it. Specifically, but not by way of limitation, the Surviving Corporation shall be responsible and liable to dissenting stockholders of Virtual-Utah; and any action -or proceeding whether civil, criminal or administrative, pending by or against Virtual-Utah shall be prosecuted as if the Plan had not taken place, or the Surviving Corporation may be substituted in such action or proceeding. 2.4 All corporate acts, plans, policies, contracts, approvals and authorizations of Virtual-Utah and its stockholders, Board of Directors, committees, elected or appointed by the Board of Directors, officers and agents, which were valid and effective immediately prior to the effective time of the Plan shall be taken for all purposes as the acts, plans, policies, contracts, approvals and authorizations of the Surviving Corporation and shall be as effective and binding thereon as the same were with respect to Virtual-Utah. The employees of Virtual-Utah shall become the employees of the Surviving Corporation and continue to be entitled to the same rights and benefits which they enjoyed as employees of Virtual-Utah. 2.5 The assets, liabilities, reserves and accounts of Virtual-Utah shall be recorded on the books of the Surviving Corporation at the amounts at which they, respectively, shall then carried on the books of Virtual-Utah, subject to such adjustments or eliminations of intercompany items as may be appropriate in giving effect to the Plan. 2.6 The Articles of Incorporation of Virtual-Nevada shall be the Articles of Incorporation of the Surviving Corporation; and the Bylaws of Virtual-Nevada shall become the Bylaws of the Surviving Corporation. 2.7 All of the present directors of Virtual-Utah shall be designated directors of the Surviving Corporation to serve until the next annual meeting of stockholders and until their successors are elected and qualified. 2.8 The principal office of both Corporation's shall be 4155 E. Jewell Avenue, Suite 412, Denver, CO 80222. The Surviving Corporation shall also maintain a registered office in Nevada at 4079 Syracuse, Las Vegas, NV 89121. 2.9 The Plan must be adopted by persons owing a majority of the shares of Virtual-Utah and Virtual-Nevada. Stockholders of Virtual-Utah shall be given such written notice as may be required by the laws of the State of Utah. 2.10 Stockholders of both corporation shall be afforded all rights, privileges and obligations contained within the Utah Revised Business Corporation Act and the Nevada Revised Statues regarding dissenters' rights, and the Surviving Corporation shall be obligated to notify the stockholders as provided therein. 2.11 The effective date of the Plan shall be the date when the Articles of Merger are filed and accepted by the Secretary of State of the State of Nevada and at such time as all applicable provisions of the Utah Revised Business Corporation Act have been met. IN WITNESS WHEREOF, the parties hereto have executed this Plan of Merger the day and year first above written. VIRTUAL TECHNOLOGIES, INC., a Utah Corporation By /s/ James Speir ------------------------------ James Speir, President Attest: /s/ Les Bates - - ------------------------------ Les Bates, Assistant Secretary STATE OF COLORADO ) ) ss COUNTY OF DENVER ) On the 22nd day of July, 1996, personally appeared before me James Speir, President and Les Bates, Assistant Secretary, Virtual who duly acknowledged to me that they are authorized to and did sign the foregoing Plan of Merger for and on behalf of Virtual-Utah /s/ Diana L. McKee --------------------------- NOTARY PUBLIC VIRTUAL TECHNOLOGIES, INC. A Nevada corporation Date: July 22, 1996 By /s/ Andrew Croson ------------- ------------------------- Andrew Croson, President Date: July 22, 1996 By /s/ James Richards ------------- ------------------------- James Richards, Secretary STATE OF ARIZONA ) ) ss COUNTY OF MARICOPA ) On the 22nd day of July, 1996, personally appeared before me, a Notary Public in and for the State and County aforesaid, Andrew Croson, President, and James Richards, Secretary of Virtual - Nevada, personally known to me to be persons whose names are subscribed to the above instrument in the said capacities, who acknowledged that they executed the said instrument. /s/ Melvin E. Richards II ---------------------------- NOTARY PUBLIC My commission expires: 07/09/99 - - ------------------------- EX-3.1 4 CERTIFICATE OF RESTATEMENT CERTIFICATE OF RESTATEMENT OF ARTICLES OF INCORPORATION OF VIRTUAL TECHNOLOGIES, INC. The undersigned hereby certify on behalf of Virtual Technologies, Inc. (the "Corporation") that the Restated Articles of Incorporation ("Restated Articles") have been duly adopted pursuant to the provisions of Sections 78.390 and 78.403 of the Nevada General Corporation Law, and submit the following: 1. The Restated Articles are set forth in Exhibit A attached hereto and incorporated herein. 2. The shareholders of the Corporation have approved the Restated Articles at the annual meeting of the shareholders held on November 22, 1997 as follows: Total Number of Number of Shares Shares in Number of Shares Number of Shares Entitled to Vote Attendance Voted For Voted Against ---------------- ---------- --------- ------------- 13,391,560 12,365,250 12,365,250 NIL DATED: November 24, 1997. VIRTUAL TECHNOLOGIES, INC., a Nevada corporation By /s/ Leif Schipper --------------------- Leif Schipper President By /s/ James H. Hirst --------------------- James H. Hirst Secretary STATE OF VICTORIA ) ) ss. COUNTY OF ) The foregoing instrument was acknowledged before me this 24th day of November, 1997, by Leif Schipper, as President of Virtual Technologies, Inc., a Nevada corporation, on behalf of the corporation. Michael Richard Brereton -------------------------------- A Current Practitioner under the Legal Practice Act of 1996 - - --------------------- STATE OF VICTORIA ) ) ss. COUNTY OF ) The foregoing instrument was acknowledged before me this 24th day of November, 1997, by James H. Hirst, as Secretary of Virtual Technologies, Inc., a Nevada corporation, on behalf of the corporation. Leif Schipper -------------------------------- Notary Public Fellow Australian Society of Certified Practicing Accountants My Commission Expires: - - --------------------- 2 RESTATED ARTICLES OF INCORPORATION OF SOLPOWER CORPORATION (FORMERLY VIRTUAL TECHNOLOGIES, INC.) FIRST: The name of the corporation (hereinafter called the "Corporation") is: Solpower Corporation SECOND: The name of the person designated as the resident agent of the Corporation and the street address of the resident agent where process may be served upon the Corporation, which is also the mailing address of the resident agent, is: Capitol Document Services 400 West King Street, Suite 302 Carson City, Nevada 89703 THIRD: The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under Chapter 78 of the Nevada Revised Statutes. FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is thirty million (30,000,000) shares of common stock with a par value of one cent ($.01) per share and five million (5,000,000) shares of preferred stock with a par value of one-tenth of one cent ($.001) per share, undesignated as to class, powers, designations, preferences, limitations, restrictions or relative rights. The board of directors of the Corporation is authorized to fix and determine any class or series of preferred stock and the number of shares of each class or series and to prescribe the powers, designations, preferences, limitations, restrictions and relative rights of any class or series established, all by resolution of the board of directors and in accordance with Section 78.1955 of the Nevada Revised Statutes, as the same may be amended and supplemented. FIFTH: The governing board of this Corporation shall be known as directors, and the number of directors may from time to time be increased or decreased in such manner as shall be provided in the Bylaws of this Corporation. SIXTH: The present board of directors of the Corporation consists of three (3) directors whose names and street addresses are: Leif Schipper 7309 East Stetson Drive, Suite 102 Scottsdale, Arizona 85251 Jerry W. Goddard 7309 East Stetson Drive, Suite 102 Scottsdale, Arizona 85251 Naoya Yoshikawa 7309 East Stetson Drive, Suite 102 Scottsdale, Arizona 85251 SEVENTH: The personal liability of the directors and officers of the corporation is hereby eliminated to the fullest extent permitted by the provisions of the Nevada Revised Statues and particularly Section 78.037.1 thereof, as the same may be amended and supplemented. EIGHTH: The Corporation shall, to the fullest extent permitted by the provisions of Section 78.751 of the Nevada Revised Statutes, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under such section from and against any and all of the expenses, liabilities or other matters referred to in or covered by such section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified persons may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in any other capacity while holding such office, and shall continue as to persons who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such persons. The Corporation shall pay or otherwise advance all expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding as such expenses are incurred and in advance of the final disposition of the action, suit or proceeding, provided that the indemnified officer or director undertakes to repay the amounts so advanced if a court of competent jurisdiction ultimately determines that such officer or director is not entitled to be indemnified by the Corporation. Nothing herein shall be construed to affect any rights to advancement of expenses to which personnel other than officers or directors of the Corporation may be entitled under any contract or otherwise by law. NINTH: From time to time any of the provisions of these Restated Articles of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Nevada at the time in force may be added or inserted in the manner and at the time prescribed by such laws, and all rights at any time conferred upon the stockholders of the Corporation by these Restated Articles of Incorporation are granted subject to the provisions hereof. Filed with the Nevada Secretary of State on November 24, 1997. 2 EX-3.2 5 RESTATED BYLAWS ================================================================================ RESTATED BYLAWS OF SOLPOWER CORPORATION ADOPTED EFFECTIVE NOVEMBER 22, 1997 ================================================================================ TABLE OF CONTENTS ARTICLE I OFFICES AND CORPORATE SEAL.............................................................. 1 1.1 Offices.......................................................................... 1 1.2 Corporate Seal................................................................... 1 ARTICLE II SHAREHOLDERS........................................................................... 1 2.1 Annual Meeting................................................................... 1 2.2 Special Meetings................................................................. 1 2.3 Place of Meeting................................................................. 1 2.4 Notice of Meeting................................................................ 1 2.5 Fixing Date for Determination of Shareholders of Record.......................... 2 2.6 Shareholder List................................................................. 2 2.7 Quorum........................................................................... 2 2.8 Proxies.......................................................................... 2 2.9 Voting Rights.................................................................... 2 2.10 Voting of Shares................................................................. 3 2.11 Nominations of Directors......................................................... 4 2.12 Informalities and Irregularities................................................. 5 ARTICLE III BOARD OF DIRECTORS.................................................................... 5 3.1 General Powers................................................................... 5 3.2 Number, Tenure and Qualifications................................................ 5 3.3 Annual Meetings.................................................................. 5 3.4 Regular Meetings................................................................. 5 3.5 Special Meetings................................................................. 5 3.6 Telephonic Meetings.............................................................. 6 3.7 Waiver of Notice................................................................. 6 3.8 Quorum........................................................................... 6 3.9 Newly Created Directorships...................................................... 6 3.10 Removal of Directors............................................................. 6 3.11 Vacancies........................................................................ 6 3.12 Committees of the Board.......................................................... 6 3.13 Action without a Meeting......................................................... 7 3.14 Compensation..................................................................... 7 3.15 Presumption of Assent............................................................ 7 ARTICLE IV OFFICERS............................................................................... 7 4.1 Number........................................................................... 7 4.2 Tenure and Duties of Officers.................................................... 7 4.3 Removal.......................................................................... 7 4.4 Chairman of the Board............................................................ 8 4.5 President........................................................................ 8
i 4.6 Vice Presidents.................................................................. 8 4.7 Secretary........................................................................ 8 4.8 Treasurer........................................................................ 8 ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER.............................................. 9 5.1 Certificates for Shares.......................................................... 9 5.2 Transfers of Shares.............................................................. 10 5.3 Lost, Destroyed, Mutilated, or Stolen Certificates............................... 10 ARTICLE VI INDEMNIFICATION........................................................................ 10 6.1 Indemnification.................................................................. 10 6.2 Insurance........................................................................ 11 6.3 Right to Amend Indemnification Provisions........................................ 11 ARTICLE VII REPEAL, ALTERATION OR AMENDMENT....................................................... 11
ii RESTATED BYLAWS OF SOLPOWER CORPORATION ARTICLE I OFFICES AND CORPORATE SEAL 1.1 Offices. The registered office of the Corporation in the State of Nevada shall be located at 400 West King Street, Suite 302, Carson City, Nevada 89703. The Corporation may conduct business and may have such other offices, either within or without the state of incorporation, as the Board of Directors may designate or as the business of the Corporation may from time to time require. 1.2 Corporate Seal. A corporate seal is not required on any instrument executed for the Corporation. If a corporate seal is used, it shall be either a circle having on its circumference "Solpower Corporation," and in the center "Incorporated 1996 Nevada," or a circle having on its circumference the words "Corporate Seal." ARTICLE II SHAREHOLDERS 2.1 Annual Meeting. The annual meeting of the shareholders shall be held at such time and on such day as shall be designated by the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. At the annual meeting, any business may be transacted and any corporate action may be taken, whether stated in the notice of meeting or not, except as otherwise expressly provided by statute or the Articles of Incorporation. 2.2 Special Meetings. The Chairman of the Board may and the Chairman of the Board or the Secretary shall, on written request of two members of the Board of Directors or of shareholders owning not less than 50 percent of the outstanding voting shares of the Corporation, call special meetings of the shareholders, for any purpose or purposes unless otherwise prescribed by statute. The written request and the notice of the special meeting shall state the purposes of the meeting and the business transacted at the meeting shall be limited to the purposes stated in the notice. 2.3 Place of Meeting. The Board of Directors and the Chairman of the Board or the Secretary shall fix the time and place of all meetings of shareholders. 2.4 Notice of Meeting. Written notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting either personally, by facsimile or by mail to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at this address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. 2.5 Fixing Date for Determination of Shareholders of Record. To determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to express written consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares or for the purpose of any other lawful action, the Board of Directors of the Corporation may fix, in advance, a record date which shall not be more than 60 days nor less than 10 days before the date of such meeting, nor more than 60 days nor less than 10 days prior to any other action. 2.6 Shareholder List. The officer or agent having charge of the stock transfer books shall prepare, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order with the address of and the number of shares held by each shareholder of record. 2.7 Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. All shares represented and entitled to vote on any single subject matter which may be brought before the meeting shall be counted for the purposes of a quorum. Only those shares entitled to vote on a particular subject matter shall be counted for the purposes of voting on that subject matter. Business may be conducted once a quorum is present and may continue until adjournment of the meeting notwithstanding the withdrawal or temporary absence of sufficient shares to reduce the number present to less than a quorum. Unless otherwise required by law, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on a subject matter shall constitute the act of the shareholders; provided, however, that if the shares then represented are less than required to constitute a quorum, the affirmative vote must be such as would constitute a majority if a quorum were present and, provided further, that the affirmative vote of the majority of the shares then present is sufficient in all cases to adjourn the meeting. 2.8 Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after six months from the date of its execution, unless otherwise provided in the proxy, but in no event shall the proxy be valid for greater than seven years. Subject to these restrictions, any proxy properly created is not revoked and continues in full force and effect until another instrument or transmission revoking it or a properly created proxy bearing a later date is filed with or transmitted to the Secretary. 2.9 Voting Rights. Unless otherwise provided in the Articles of Incorporation or by the Nevada Revised Statutes, each outstanding share of capital stock shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Directors shall be elected by 2 a plurality of the votes cast at the election and cumulative voting shall not be permitted. The candidates receiving the highest number of votes up to the number of directors to be elected shall be elected. 2.10 Voting of Shares. The following additional provisions shall apply to the voting of shares: (a) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the elections of directors of such other corporation is held by this Corporation, shall neither be entitled to vote nor counted for quorum purposes. Nothing in this paragraph shall be construed as limiting the right of this Corporation to vote its own stock held by it in a fiduciary capacity. (b) A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. In the event any instrument granting a proxy shall designate two or more persons to act as proxy, the majority of such persons present at the meeting, or if only one should be present then that one, shall have and may exercise all the powers conferred by such instrument upon all the persons so designated, unless such instrument shall otherwise provide. No proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient at law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the share itself or an interest in the Corporation generally. A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted or quorum is determined, written notice of the death or incapacity is given to the Corporation. A proxy may be revoked by an instrument expressly revoking it, a duly executed proxy bearing a later date, or by the attendance of the person executing the proxy at the meeting and his voting of his shares personally. (c) Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaws of such other corporation may prescribe or, in the absence of such provision, as the Board of Directors of such other corporation may determine. The Secretary of the Corporation shall have the authority to require that such documents be filed with the Secretary of the Corporation as the Secretary shall reasonably require in order to verify the authority and power of any such officer, agent or proxy to vote the shares of the Corporation held by any such other corporation. (d) Shares held by an administrator, executor, guardian, conservator or personal representative may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee, other than a trustee in bankruptcy, may be voted by him, either in person or by proxy, but no such trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver, trustee in bankruptcy, or assignee for the benefit of creditors may be voted by such representative, either in person or by proxy. Shares held by or under the 3 control of such a receiver or trustee may be voted by such receiver or trustee, either in person or by proxy, without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver or trustee was appointed. The Secretary of the Corporation shall have the authority to require that such documents be filed with the Secretary of the Corporation as the Secretary shall reasonably require in order to verify the authority and power of such representative or other fiduciary to vote the shares of the Corporation registered in the name of such other person. (e) A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee or unless the pledgee is specifically empowered by such shareholder to vote the shareholder's shares. (f) If shares stand in names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety of tenants by community property or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (i) If only one votes, his acts bind. (ii) If more than one votes, the act of the majority so voting binds all. (iii) If more than one votes, but the vote is evenly split on any particular matter, each faction may vote the shares in question proportionally. 2.11 Nominations of Directors. Nomination for election to the Board of Directors of the Corporation at a meeting of shareholders may be made by the Board of Directors or on behalf of the Board by a nominating committee appointed by the Board, or by any shareholder of the Corporation entitled to vote for the election of directors at such meeting. Such nominations, other than those made by or on behalf of the Board, shall be made by notice in writing delivered or mailed by United States mail, first class postage prepaid, to the Secretary of the Corporation, and received by him not less than 30 days nor more than 60 days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than 35 days' notice of the meeting is given to shareholders, such nomination shall have been mailed or delivered to the Secretary of the Corporation not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. The foregoing notwithstanding, if the Corporation is subject to the proxy solicitation rules under the Securities Exchange Act of 1934, the timing of nominations by shareholders shall be as determined by the Board of Directors in compliance with such rules. Such notice shall set forth as to each proposed nominee who is not an incumbent director (a) the name, age, business address and telephone number and, if known, residence address of each nominee proposed in such notice; (b) the principal occupation or employment of each such nominee; (c) the number of shares of 4 stock of the Corporation which are beneficially owned by each such nominee and by the nominating shareholder; and (d) any other information concerning the nominee that must be disclosed with respect to nominees in proxy solicitations pursuant to the rules, regulations and forms then promulgated under Section 14(a) of the Securities Exchange Act of 1934. The chairman of the meeting may, if the facts warrant, determine that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 2.12 Informalities and Irregularities. All informalities and irregularities in any call or notice of a meeting, or in the areas of credentials, proxies, quorums, voting and similar matters, will be deemed waived if no objection is made at the meeting. ARTICLE III BOARD OF DIRECTORS 3.1 General Powers. The business and affairs of the Corporation shall be managed by its Board of Directors. The directors shall in all cases act as a Board, and they may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation, as they may deem proper, not inconsistent with these Bylaws and the laws of Nevada. 3.2 Number, Tenure and Qualifications. The Board of Directors shall consist of a minimum of two and a maximum of nine directors. The Board of Directors shall have the authority to fix the number of directors comprising the Board within the limits set forth above; provided, however, that no decrease in the number of directors comprising the Board shall affect the term of any incumbent director. Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified, or until his earlier resignation or removal. Directors need not be residents of the State of Nevada or shareholders of the Corporation. 3.3 Annual Meetings. The Board of Directors shall hold its annual meeting immediately following the annual meeting of shareholders at the place announced at the annual meeting of shareholders. No notice is necessary to hold the annual meeting, provided a quorum is present. If a quorum is not present, the annual meeting shall be held at the next regular meeting or as a special meeting. 3.4 Regular Meetings. The Board of Directors may hold regular meetings without notice at the times and places determined by the Board of Directors. 3.5 Special Meetings. The Chairman of the Board or Secretary may, and on written request of two directors shall, call special meetings of the Board of directors on not less than two days' notice to each director personally or by facsimile or telephone, or on not less than five days' notice to each director by mail. 5 3.6 Telephonic Meetings. Regular or special meetings of the Board of Directors may be held at any place within or without State of Nevada and may be held by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, their participation in such a meeting to constitute presence in person. 3.7 Waiver of Notice. Attendance of a director at a meeting shall constitute waiver of notice unless the director objects at the commencement of the meeting that the meeting is not lawfully called or convened. Any director may waive notice of any meeting by executing a written waiver of notice. 3.8 Quorum. A majority of the directors then serving shall constitute a quorum for the transaction of business, but if less than said number is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. The act of a majority of the directors present at a meeting at which a quorum is present, unless otherwise provided by the Nevada Revised Statutes, these Bylaws or the Articles of Incorporation, shall be the act of the Board of Directors. 3.9 Newly Created Directorships. The Board of Directors may increase the number of directors by a majority vote. Newly created directorships resulting from an increase in the number of directors may be filled by a majority vote of the directors then in office. The term of any newly created directorship shall be determined by the Board of Directors. 3.10 Removal of Directors. At a meeting of shareholders called expressly for that purpose and by a vote of the holders of not less than two-thirds of the shares then entitled to vote at an election of the directors, any director or the entire Board of Directors may be removed, with or without cause. 3.11 Vacancies. Directors shall be elected to fill any vacancy by a majority vote of the remaining directors, though not less than a quorum, or by a sole remaining director. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office for the unexpired term of his or her successor. 3.12 Committees of the Board. The Board of Directors, by resolution adopted by a majority of the Board of Directors, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in such resolution and permitted by the Nevada Revised Statutes, shall have and may exercise all the authority of the Board. The Board, with or without cause, may dissolve any such committee or remove any member thereof at any time. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board, or any member thereof, of any responsibility imposed by law. No committee shall have the power or authority to amend the Articles of Incorporation or Bylaws; adopt a plan of merger or consolidation, recommend to the shareholders the sale, lease, or other disposition of all or substantially all the property and 6 assets of its business, or recommend to the shareholders a voluntary dissolution of the Corporation. Each committee shall keep regular minutes of its meetings. 3.13 Action without a Meeting. Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if all directors consent thereto in writing. Such consent shall have the same effect as a unanimous vote. The writing or writings shall be filed with the minutes of the Board of Directors. 3.14 Compensation. The Corporation may pay, or reimburse the directors for, the expenses of attendance at each meeting of the Board of Directors. The Corporation may pay the directors a fixed sum for attendance at each meeting of the Board of Directors and a stated salary as director or directors may be granted stock options or a combination thereof. The Board of Directors shall establish and set forth in its minutes the amount or rate of compensation of directors. 3.15 Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action unless his dissent shall be entered in the minutes of the meeting or unless he shall file a written dissent to such action with the Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the Secretary of the Corporation within three business days after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. ARTICLE IV OFFICERS 4.1 Number. The officers of the Corporation shall be a Chairman of the Board, a President, a Secretary and a Treasurer, each of whom shall be appointed by the Board of Directors. Such other officers, assistant officers and agents as deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary. 4.2 Tenure and Duties of Officers. The officers of the Corporation to be appointed by the Board of Directors at the annual meeting of the Board of Directors. Officers shall hold office at the pleasure of the Board and shall exercise the power and perform the duties determined from time to time by the Board of Directors until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. 4.3 Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the affirmative vote of a majority of the directors, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 7 4.4 Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and, subject to the control of the directors, shall in general supervise and control all of the business and affairs of the Corporation. He shall, when present, preside at all meetings of the shareholders and of the directors and in general shall perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the directors from time to time. Unless otherwise ordered by the Board of Directors, the Chairman of the Board shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of security holders of other corporations in which the Corporation may hold securities. At such meeting, the Chairman of the Board shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation might have possessed and exercised if it had been present. The Board of Directors from time to time may confer similar powers upon any other person or persons. 4.5 President. In the absence of the Chairman of the Board or in the event of his inability or refusal to act, the President shall perform the duties of the Chairman of the Board, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board. 4.6 Vice Presidents. There shall be as many vice presidents as the Board of Directors chooses to appoint. Vice Presidents shall perform the duties assigned to them by the Board of Directors of the Chairman of the Board or the President. Any one of the vice Presidents, as authorized by the Board of Directors, shall have all the powers and perform all the duties of President if the President is temporarily absent or unable to act. 4.7 Secretary. The Secretary shall attend all meetings of the Board of Directors and the shareholders and shall keep the minutes of the shareholders' and of the directors' meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law, have charge of the corporate records, books, and accounts, and keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder, have general charge of the stock transfer books of the Corporation, sign with the Chairman of the Board certificates for shares of the Corporation, and in general perform all duties incident to the office of Secretary, and perform such other duties as from time to time may be assigned to him by the Board of Directors or the Chairman of the Board. 4.8 Treasurer. The Treasurer shall be the chief financial officer of the Corporation. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the Corporation; receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies or other depositories as shall be selected by the Board of Directors and in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chairman of the Board or by the directors. 8 ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER 5.1 Certificates for Shares. (a) Certificates representing the shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board or President and by the Secretary or an Assistant Secretary of the Corporation. The signatures of such officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation itself or an employee of the Corporation. No certificate shall be issued for any share until such share is fully paid. (b) If the Corporation is authorized to issue shares of more than one class, every certificate representing shares issued by the Corporation shall set forth or summarize upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued, together with the variations in the relative rights and preferences between the various shares. (c) Each certificate representing shares shall state upon the face thereof (i) that the Corporation is organized under the laws of the State of Nevada, (ii) the name of the person to whom issued, (iii) the number, class and designation of the series, if any, which the certificate represents, and (iv) the par value of each share represented by the certificate or a statement that the shares are without par value; and the (v) date of issue. (d) Any restriction on the right to transfer shares and any reservation of lien on the shares shall be noted on the face or the back of the certificate by providing (i) a statement of the terms of such restriction or reservation, (ii) a summary of the terms of such restriction or reservation and a statement that the Corporation will mail to the shareholder a copy of such restrictions or reservations without charge within five (S) days after receipt of written notice therefor, (iii) if the restriction or reservation is contained in the Articles of Incorporation or Bylaws of the Corporation, or in an instrument in writing to which the Corporation is a party, a statement of that effect and a statement that the Corporation will mail to the shareholder a copy of such restriction or reservation without charge within five days after receipt of written request therefor, or (iv) if each such restriction or reservation is contained in an instrument in writing to which the Corporation is not a party, a statement to that effect. (e) Each certificate for shares shall be consecutively numbered or otherwise identified. 9 5.2 Transfers of Shares. (a) Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the Corporation. (b) The Corporation shall be entitled to treat the holder of record of any shares as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Nevada. 5.3 Lost, Destroyed, Mutilated, or Stolen Certificates. The holder of any shares of the Corporation shall immediately notify the Corporation of any loss, destruction, mutilation, or theft of the certificate therefor, and the Board of Directors, may, in its discretion, cause a new certificate or certificates to be issued to him, in case of mutilation of the certificate, upon the surrender of the mutilated certificate, or, in case of loss, destruction, or theft of the certificate, upon a satisfactory proof of such loss, destruction, or theft, and, if the Board of Directors shall so determine, the submission of a properly executed lost security affidavit and indemnity agreement, or the deposit of a bond in such form and in such sum, and with such surety or sureties, as the Board may direct. ARTICLE VI INDEMNIFICATION 6.1 Indemnification. Every person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a director or officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under the general corporation law of the State of Nevada from time to time against all expenses, liability and loss (including attorneys' fees, judgments, fines and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. The Board of Directors may in its discretion cause the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding to be paid by the Corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Corporation. No such person shall be indemnified against, or be reimbursed for, any expense or payments incurred in connection with any claim or liability established to have arisen out of his own willful misconduct or gross 10 negligence. Any right of indemnification shall not be exclusive of any other right which such directors, officers or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any Bylaws, agreement, vote of stockholders, provision of law or otherwise, as well as their rights under this Article. 6.2 Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. 6.3 Right to Amend Indemnification Provisions. The Board of Directors may from time to time adopt further Bylaws with respect to indemnification and may amend these and such Bylaws to the full extent permitted by the General Corporation Law of the State of Nevada. ARTICLE VII REPEAL, ALTERATION OR AMENDMENT These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by a vote of the majority of the Board of Directors. CERTIFICATE I, James H. Hirst, the duly elected, qualified and acting Secretary of Solpower Corporation, a Nevada corporation, do hereby certify that the above and foregoing are the Restated Bylaws of this Corporation duly and regularly adopted by the Board of Directors effective as of November 22, 1997. IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of November, 1997. /s/ James H. Hirst ------------------------- James H. Hirst, Secretary 11 EX-10.1 6 ACQUISITION AGREEEMENT ACQUISITION AGREEMENT This Acquisition Agreement (the "Agreement") is made and entered into as of this 4th day of November, 1996, by and between Virtual Technologies, Inc., a Nevada corporation, with its principal offices located at 2519 E. Thomas Rd., Phoenix, Arizona 85016, hereinafter referred to as "Buyer", and Dominion Capital Pty., Ltd., an Australian corporation, with its principal offices located at 3 Hewitt Street, Cheltenham, Victoria, Australia 3192, hereinafter referred to as "Seller". RECITALS WHEREAS, Seller owns the sales, distribution, marketing and manufacturing rights, world wide to the Solpower product, Soltron, the fuel enhancing product. WHEREAS, Seller desires to sell and Buyer desires to purchase the exclusive sales, distribution, marketing and manufacturing rights to the Solpower product, Soltron, encompassing the North American market (United States, Canada and Mexico) owned by Seller on the terms and subject to the conditions set forth in this Agreement. AGREEMENT NOW THEREFORE, in consideration of the Recitals and the conditions and representations hereinafter set forth, the parties agree as follows: 1. SELLER, hereby agrees to: A. Deliver the exclusive sales, distribution, marketing and manufacturing rights for the Solpower product, Soltron, encompassing the North America market (United States, Mexico and Canada). B. Provide up to $1 million on an "as needed" basis. These funds shall be used for operational costs and for the development and construction of manufacturing facilities in the metropolitan Phoenix (Arizona) area. C. Offer, on a first right of refusal basis, and possible contract basis, additional products and services to be considered and consequently offered by the Buyer. The acceptance or rejection of said products and services is to be at the discretion of the Buyer. D. Purchase the 3,520,000 shares for $440,000 of the Buyers Company's Common Stock as offered in the 504 Offering, dated November 4, 1996. 2. BUYER, hereby agrees to: A. Purchase the exclusive sales, distribution, marketing and manufacturing rights to the Solpower product, Soltron, encompassing the North American Market (United States, Mexico and Canada). For these rights, Buyer, agrees to issue 5,000,000 (five million) Shares of its Common Stock. These shares shall be issued in the name of Seller and/or its nominees. B. Based solely on the gross sales figures of the Solpower product, Soltron in the North American Market, Buyer shall offer Stock Options to be issued in the name of the Seller and/or its nominees, as follows: If gross sales for the product reach $10,000,000 (ten million), then Seller and/or its nominees shall have the option to purchase 1,500,000 (one million five hundred thousand) shares at $.20 (twenty cents) per share. If gross sales for the product reach $15,000,000 (fifteen million), then Seller and/or its nominees shall have the option to purchase 2,000,000 (two million) shares at $.25 (twenty five cents) per share. If gross sales for the product reach $20,000,000 (twenty million), then Seller and/or its nominees shall have the option to purchase 2,500,000 (two million five hundred thousand) shares at $.30 (thirty cents) per share. If gross sales for the product reach $50,000,000 (fifty million), then Seller and/or its nominees shall have the option to purchase 5,000,000 (five million) shares at $.30 (thirty cents) per share. If gross sales for the product reach $100,000,000 (one hundred million), then Seller and/or its nominees shall have the option to purchase 10,000,000 (ten million) shares at $.32 (thirty two cents) per share. C. See Item 1.B. above. Compensate Seller for the funds they provide by way of Convertible Preferred Shares. These Preferred Shares shall have conversion rights of 100 Common Shares for every one Preferred Share. Seller and/or its nominees shall receive 25,000 (twenty five thousand) Preferred Shares for every $100,000 (one hundred thousand) provided. D. See Item 1.C. above. Based solely on the gross sales figures of any new products and/or services that Seller brings to Buyer, Buyer shall offer Stock Options to be issued in the name of the Seller and/or its nominees, as follows: If gross sales for the product reach $10,000,000 (ten million), then Seller and/or its nominees shall have the option to purchase 1,500,000 (one million five hundred thousand) shares at $.40 (forty cents) per share. If gross sales for the product reach $15,000,000 (fifteen million), then Seller and/or its nominees shall have the option to purchase 2,000,000 (two million) shares at $.50 (fifty cents) per share. If gross sales for the product reach $20,000,000 (twenty million), then Seller and/or its nominees shall have the option to purchase 2,500,000 (two million five hundred thousand) shares at $.75 (seventy five cents) per share. -2- If gross sales for the product reach $50,000,000 (fifty million), then Seller and/or its nominees shall have the option to purchase 5,000,000 (five million) shares at $.75 (seventy five cents) per share. If gross sales for the product reach $100,000,000 (one hundred million), then Seller and/or its nominees shall have the option to purchase 10,000,000 (ten million) shares at $1.00 (one dollar) per share. 3. Anti-Dilution Provision - In the event that Buyers Corporation shall at any time subdivide the outstanding shares of common stock, or shall issue a stock dividend on its outstanding stock, the conversion price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in the case the corporation shall at any time combine the outstanding shares of common stock, the conversion price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. 4. Term of Contract - The term of this Contract shall be 5 (five) years. This Agreement shall be in force upon the signing of this Agreement by Buyer and by Seller, and can only be canceled for good cause by notice in writing, by either party, with a thirty (30) day notice of cancellation. The compensation obligations of Buyer and Seller arising under this Agreement shall survive termination of this Agreement. 5. Confidential Information A. Confidential Information shall mean all information relating to Buyer's business provided by Buyer to Seller and identified in writing as confidential at the time, or within fifteen (15) days, of the disclosure. Confidential Information does not include any material or information Buyer which has been or may hereafter be acquired by Seller from any third person not under binder of secrecy to Buyer, which is made public by Buyer, or which is otherwise in the public domain. B. Seller shall not in any manner communicate the Confidential Information of Buyer to any third party without Buyer's written consent. Seller shall not use the Confidential Information except for the purpose of providing services for the benefit of Buyer. Seller shall treat the Confidential Information with at least the same care in which Seller uses in the protection of Seller's own proprietary information. 6. Independent Parties - Buyer and Seller are independent parties and nothing contained herein shall be construed to mean otherwise. Any incidence of agency of other relationship shall be specifically outlined and attached hereto. Seller is not an employee or officer of Buyer and further indemnifies Buyer against any claim by any Federal or State Agency regarding the payment or withholding of employment related taxes on fees or commissions paid by Buyer in accordance with this Agreement. 7. Requisite Authority - Each party represents to the other party that all necessary corporate and/or such other approvals and authorizations needed to make this Agreement enforceable have been obtained by the undersigned. Each party will provide the other with documentation -3- regarding such approvals and authorizations within five (5) days upon request by the other party. 8. Liability/Indemnification - Seller/Buyer shall in no way be held responsible or liable to Seller/Buyer or any other party for the performance of Seller/Buyer or the failure of Seller/Buyer in any capacity whatsoever in which the Seller/Buyer operates, including any and all contracts which Seller/Buyer may have with other parties. Seller/Buyer shall defend and hold harmless Seller/Buyer against any and all liability, claim, or demand on account of property loss or damage or others arising out of or in any manner connected with the performance of this Agreement, whether such injury, loss, or damage shall be caused by the negligence of Seller/Buyer, its employees, or any other party for whom Seller/Buyer is responsible, and Seller/Buyer, at its own expense, shall defend any and all actions based thereon and shall pay all attorney's fees and all costs and all other expenses arising therefrom; provided however, that this indemnity shall not cover any liability for damages caused by or resulting from any negligence of Seller/Buyer, his representatives, employees, or agents. 9. No Assignment - Neither party shall assign this Agreement or any rights or obligations under this Agreement without the prior written consent of the other party. Subject to the foregoing, this Agreement shall bind and inure to the benefit of the respective parties hereto and their heirs, personal representatives, successors and assigns. 10. Amendment or Modification - This Agreement may be amended or modified by, and only by, a written instrument executed by all signing parties. 11. Nonwaiver - The waiver of one breach or default hereunder shall not constitute the waiver of any subsequent breach or default. 12. Severability - In the event any one or more provisions of this Agreement are determined to be invalid or unenforceable, such provision or provisions shall be deemed severable from the remainder of this Agreement and shall not cause the invalidity of the remainder of this Agreement. 13. Governing Law - This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. 14. Arbitration - Any controversy, claim, or dispute between the parties directly or indirectly concerning this Agreement or the breach thereof, or the subject matter hereof, including questions concerning the scope and applicability of this arbitration clause, shall be finally settled by arbitration in Scottsdale, Arizona in accordance with the rules then pertaining to the American Arbitration Association with regard to commercial arbitration. 15. Entire Agreement - This Agreement and the Exhibits hereto, as signed by the parties, sets forth the entire Agreement and understanding of the parties and merges all prior discussions and writings between them with regard to the services to be provided under this Agreement. -4- The parties have executed this Agreement as of the date first set forth above. Dominion Capital Pty, Ltd. Virtual Technologies, Inc. /s/ Peter Voss /s/ Leif Schipper ------------------------ ------------------------ By: Peter Voss By: Leif Schipper WITNESSED: By: /s/ Eddie Williams on this 4th day of November, 1996. ---------------------------- ***Note: All dollar figures are represented in United States Dollars.*** -5- EX-10.2 7 AMENDMENT AGREEMENT DATED 11/24/97 VIRTUAL TECHNOLOGIES, INC. 7309 East Stetson Drive, Suite #102 Scottsdale, AZ 85251 Tel: (602) 947-6366 Fax: (602) 947-6324 November 24, 1997 Dominion Capital Pty. Ltd. 3 Hewitt Street Cheltenham 3192 Victoria, Australia Attention: Mr. Peter Voss, President & Managing Director Dear Sir: Re: Amendment Agreement Dated November 24, 1997 ------------------------------------------- Pursuant to an Acquisition Agreement (the "Agreement") dated November 4, 1996 between Virtual Technologies, Inc., (the "Buyer") and Dominion Capital Pty. Ltd., (the "Seller") the Buyer acquired the exclusive sales, distribution, marketing and manufacturing rights for the Solpower product, SOLTRON, for the United States, Mexico and Canada. The Buyer and the Seller effective this 24th day of November 1997 have agreed to amend the Agreement by making the following deletions, additions and changes: 1. The following words be added to the RECITALS after the first sentence: "SOLTRON BEING DEFINED AS A MIXTURE OF 1(ONE) PART SOLTRON ENZYME CONCENTRATE AND 10 (TEN) PARTS KEROSENE." 2. By deletion of ITEMS 2B, 2C and 2D and that the following be replaced as ITEM 2B: "BASED SOLELY ON THE GROSS SALES FIGURES OF THE SOLPOWER PRODUCT SOLTRON IN THE NORTH AMERICAN MARKET, BUYER SHALL OFFER STOCK OPTIONS TO BE ISSUED IN THE NAME OF THE SELLER AND/OR ITS NOMINEES AND PAY PERFORMANCE BONUSES, AS FOLLOWS: (i) IF GROSS SALES FOR THE PRODUCT EQUALING $10,000,000 (TEN MILLION DOLLARS), THE SELLER HAS THE OPTION TO PURCHASE 100,000 (ONE HUNDRED THOUSAND) SHARES OF COMMON STOCK AT $2.50 (TWO DOLLARS AND FIFTY CENTS) PER SHARE, PLUS A CASH PERFORMANCE BONUS OF $400,000 (FOUR HUNDRED THOUSAND DOLLARS). (ii) IF GROSS SALES FOR THE PRODUCT EQUALING $20,000,000 (TWENTY MILLION DOLLARS), THE SELLER HAS THE OPTION TO PURCHASE 150,000 (ONE HUNDRED AND FIFTY THOUSAND) SHARES OF COMMON STOCK AT $3.50 (THREE DOLLARS AND FIFTY CENTS) PER SHARE, PLUS A CASH PERFORMANCE BONUS OF $400,000 (FOUR HUNDRED THOUSAND DOLLARS). (iii) IF GROSS SALES FOR THE PRODUCT EQUALING $50,000,000 (FIFTY MILLION DOLLARS), THE SELLER HAS THE OPTION TO PURCHASE 250,000 (TWO HUNDRED AND FIFTY THOUSAND) SHARES OF COMMON STOCK AT $4.50 (FOUR DOLLARS AND FIFTY CENTS) PER SHARE, PLUS A CASH PERFORMANCE BONUS OF $500,000 (FIVE HUNDRED THOUSAND DOLLARS). (iv) IF GROSS SALES FOR THE PRODUCT EQUALING $100,000,000 (ONE HUNDRED MILLION DOLLARS), THE SELLER HAS THE OPTION TO PURCHASE 250,000 (TWO HUNDRED AND FIFTY THOUSAND) SHARES OF COMMON STOCK AT $5.00 (FIVE DOLLARS) PER SHARE, PLUS A CASH PERFORMANCE BONUS OF $1,000,000 (ONE MILLION DOLLARS)." 3. That ITEM 4 be amended by adding the following words after the first sentence: "THE BUYER SHALL HAVE THE OPTION TO EXTEND THE TERM OF THIS AGREEMENT FOR AN ADDITIONAL PERIOD OF 5 (FIVE) YEARS." The Buyer and Seller have executed this Amendment Agreement as of the date first set forth above. VIRTUAL TECHNOLOGIES, INC. DOMINION CAPITAL PTY. LTD. /s/ Naoya Yoshikawa /s/ Peter Voss - - --------------------- -------------------------- By: Naoya Yoshikawa By: Peter Voss WITNESSED: By: /s/ James H. Hirst on this 17th day of December, 1997. --------------------- ----- EX-10.3 8 ADDENDUM TO ACQUISITION AGR. DATED 11/24/97 May 13, 1998 Dominion Capital Pty. Ltd. 3 Hewitt Street Cheltenham 3192 Victoria, Australia Attention: Mr. Peter Voss, President & Managing Director Dear Sir: Re: Addendum to Acquisition Agreement Dated November 24, 1997 --------------------------------------------------------- Pursuant to an Acquisition Agreement (the "Agreement") dated November 4, 1996 between Solpower Corporation, formerly Virtual Technologies, Inc., (the "Buyer") and Dominion Capital Pty. Ltd., (the "Seller") the Buyer acquired the exclusive sales, distribution, marketing and manufacturing rights for the Solpower product, SOLTRON(TM) for the United States, Mexico and Canada. The Buyer and the Seller effective this 13th day of May, 1998 have agreed to an addendum to the Agreement by adding the following item E to paragraph 1: E. OFFER, ON A FIRST RIGHT OF REFUSAL BASIS, AN INTEREST IN ALL OTHER TERRITORIES, EXCEPT JAPAN, WHERE SOLTRON(TM) AND OTHER PRODUCTS AND SERVICES ARE CURRENTLY BEING COMMERCIALIZED BY THE SELLER, ON TERMS AND CONDITIONS TO BE NEGOTIATED ON A PRODUCT BY PRODUCT AND A TERRITORY BY TERRITORY BASIS. The Buyer and Seller have executed this Amendment Agreement as of the date first set forth above. SOLPOWER CORPORATION DOMINION CAPITAL PTY. LTD. /s/ James H. Hirst /s/ Peter Voss - - ----------------------- ----------------------------- By: James H. Hirst By: Peter Voss President & CEO Chairman & Managing Director WITNESSED: By: Leif Schipper on this 21st day of May, 1998. --------------------------- ---- EX-10.4 9 ACQUISITION AGREEMENT ACQUISITION AGREEMENT This Acquisition Agreement (the "Agreement") is made and entered into as of this 17th day of June, 1998, by and between SOLPOWER CORPORATION, a Nevada corporation, with its principal offices located at 7309 East Stetson Drive, Suite #102, Scottsdale, Arizona 85251, hereinafter referred to as "Buyer", and DOMINION CAPITAL PTY, LTD., an Australian corporation, with its principal offices located at Level 11, Dominion Building, 533 Little Lonsdale Street, Melbourne 3000, Victoria, Australia, hereinafter referred to as "Seller". RECITALS WHEREAS, Seller owns the sales, distribution, marketing and manufacturing rights world wide to the product, SP34E, a refrigerant gas product. WHEREAS, Seller desires to sell and Buyer desires to purchase the exclusive sales, distribution, marketing and manufacturing rights to the product, SP34E, encompassing the North American market (United States, Canada and Mexico) owned by Seller on the terms and subject to the conditions set forth in this Agreement. AGREEMENT NOW THEREFORE, in consideration of the Recitals and the conditions and representations hereinafter set forth, the parties agree as follows: 1. SELLER, hereby agrees to deliver the exclusive sales, distribution, marketing and manufacturing rights for the product, SP34E, encompassing the North America market (United States, Mexico and Canada). 2. BUYER, hereby agrees to: A. Purchase the exclusive sales, distribution, marketing and manufacturing rights to the product, SP34E, encompassing the North American Market (United States, Mexico and Canada). For these rights, Buyer, agrees to issue 6,000,000 (six million) shares of its Common Stock. These shares shall be issued in the name of Seller and/or its nominees. B. Based solely on the gross sales figures of the product, SP34E in the North American Market, Buyer shall pay a royalty of $2.25 per kilogram of SP34E sold. 3. Anti-Dilution Provision - In the event that Buyer shall at any time subdivide the outstanding shares of common stock, or shall issue a stock dividend on its outstanding stock, the conversion price in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in the case the corporation shall at any time combine the outstanding shares of common stock, the conversion price in effect immediately prior to such combination shall be proportionately increased, effective at the close of business on the date of such subdivision, dividend or combination, as the case may be. 4. Term of Contract - The term of this Agreement shall be five (5) years, and the Buyer shall have the option to renew the Agreement for a further five (5) years. This Agreement shall be in force upon the signing of this Agreement by Buyer and by Seller, and can only be canceled for good cause by notice in writing, by either party, with a thirty (30) day notice of cancellation. The compensation obligations of Buyer and Seller arising under this Agreement shall survive termination of this Agreement. 5. Confidential Information A. Confidential Information shall mean all information relating to Seller's business provided by Seller to Buyer and identified in writing as confidential at the time or within fifteen (15) days, of the disclosure. Confidential Information does not include any material or information of Seller which has been or may hereafter be acquired by Buyer from any third person not under binder of secrecy to Seller, which is made public by Seller, or which is otherwise in the public domain. B. Buyer shall not in any manner communicate the Confidential Information of Seller to any third party without Seller's written consent. Buyer shall not use the Confidential Information except for the purpose of providing services for the benefit of Seller. Buyer shall treat the Confidential Information with at least the same care in which Buyer uses in the protection of Buyer's own proprietary information. 6. Independent Parties - Buyer and Seller are independent parties and nothing contained herein shall be construed to mean otherwise. Any incidence of agency of other relationship shall be specifically outlined and attached hereto. Seller is not an employee or officer of Buyer and further indemnifies Buyer against any claim by any Federal or State Agency regarding the payment or withholding of employment related taxes on fees or commissions paid by Buyer in accordance with this Agreement. 7. Requisite Authority - Each party represents to the other party that all necessary corporate and/or such other approvals and authorizations needed to make this Agreement enforceable have been obtained by the undersigned. Each party will provide the other with documentation regarding such approvals and authorizations within five (5) days upon request by the other party. 8. Liability/Indemnification - Seller/Buyer shall in no way be held responsible or liable to Seller/Buyer or any other party for the performance of Seller/ Buyer or the failure of Seller/Buyer in any capacity whatsoever in which the Seller/Buyer operates, including any and all contracts which Seller/ Buyer may have with other parties. Seller/ Buyer shall defend and hold harmless Seller/Buyer against any and all liability, claim or demand on account of property loss or damage or others arising out of or in any manner connected with the performance of this Agreement, whether such injury, loss, or damage shall be caused by the negligence of Seller/Buyer, its employees, or any other party for whom Seller/Buyer is responsible, and Seller/Buyer, at its own expense, shall defend any and all actions based thereon and shall pay all attorney's fees and all costs and all other expenses arising therefrom; provided however, that this indemnity shall not cover any liability for damages caused by or resulting from any negligence of Seller/Buyer, his representatives, employees, or agents. 9. No Assignment - Neither party shall assign this Agreement or any rights or obligations under this Agreement without the prior written consent of the other party. Subject to the foregoing, this Agreement shall bind and inure to the benefit of the respective parties hereto and their heirs, personal representatives, successors and assigns. 10. Amendment or Modification - This Agreement may be amended or modified by, and only by, a written instrument executed by all signing parties. 11. Nonwaiver - The waiver of one breach or default hereunder shall not constitute the waiver of any subsequent breach or default. 12. Severability - In the event any one or more provisions of this Agreement are determined to be invalid or unenforceable, such provision or provisions shall be deemed severable from the remainder of this Agreement and shall not cause the invalidity of the remainder of this Agreement. 13. Governing Law - This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona. 14. Currency - All dollar figures are represented in United States Dollars. 15. Arbitration - Any controversy, claim or dispute between the parties directly or indirectly concerning this Agreement or the breach thereof, or the subject matter hereof, including questions concerning the scope and applicability of this arbitration clause, shall be finally settled by arbitration in Scottsdale, Arizona in accordance with the rules then pertaining to the American Arbitration Association with regard to commercial arbitration. 16. Entire Agreement - This Agreement and the Exhibits hereto, as signed by the parties, sets forth the entire Agreement and understanding of the parties and merges all prior discussions and writings between them with regard to the services to be provided under this Agreement. The parties have executed this Agreement as of the date first set forth above. SOLPOWER CORPORATION DOMINION CAPITAL PTY LTD By: /s/ James H. Hirst By: /s/ Peter D. Voss ------------------------------- -------------------------- James H. Hirst, President & CEO Peter D. Voss, Chairman & Managing Director EX-10.5 10 MASTER LICENSE AGREEMENT MASTER LICENSE AGREEMENT THIS AGREEMENT, is effective as of _________, 199_, by and between Solpower Corporation, a Nevada corporation ("Licensor"), and ___________________________ ("Licensee"). RECITALS A. WHEREAS Licensor is the owner of certain rights in and to the product described in Schedule A (hereinafter collectively referred to as the Product). B. WHEREAS Licensee desires to acquire from Licensor the right to establish itself as the holder of a license for the sole and exclusive (except as otherwise provided herein) use and distribution of the Product in the territory as limited and defined in Schedule B (the "Territory"). NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties, intending legally to be bound, agree as follows: 1. LICENSE FEE. The License Fee to be paid by Licensee $__________________ (the "License Fee"). 2. PAYMENT OF LICENSE FEE. On signing this Agreement, Licensee shall pay Licensor $_______________ (the "Downpayment"). 3. MONTHLY CONCENTRATE PAYMENTS. The amount of monthly payments payable under the Note for each liter of Concentrate shipped by Licensor to Licensee during the preceding month until the Note is paid is $5.50. 4. STATE OF FORMATION OF LICENSEE. Licensee is formed under the laws of the State of Indiana. Licensee is a [__] corporation, [__] limited liability company, [__] general partnership, [__] limited partnership, [__] trust, or [__] sole proprietorship. 5. LICENSEE'S MARKETING FUND PAYMENT OBLIGATION. For each liter of Concentrate shipped to Licensee, Licensee shall pay $5.50 into the Marketing Fund. 6. LICENSOR'S MARKETING FUND PAYMENT OBLIGATION. For each $1.00 deposited into the Marketing Fund by Licensee, Licensor shall pay $1.00 into the Marketing Fund. 7. LICENSEE'S ADDRESS FOR NOTICES. Licensee's address and zip code for notice purposes are: ___________________________ __________________ ______________ 8. GRANT OF LICENSE. In consideration of the payment of the License Fee stated in Section 1 by Licensee to Licensor and in further consideration of the performance and observance of the covenants herein to be observed and performed by Licensee, Licensor HEREBY GRANTS Licensee, subject to the terms and conditions of this Agreement, a license to: a. use the Product for Licensee's own purposes; b. manufacture the Product; and c. exclusively (except as otherwise provided herein) market, distribute and sell the Product only within the Territory through its employees and/or through other parties (hereinafter referred to as "Independent Operators"). Licensee shall not have any rights hereunder or with respect to the Product outside the Territory. Notwithstanding anything herein to the contrary, Licensee shall not market, distribute or sell the Product to any Marine Purchaser. The term "Marine Purchaser" shall mean any person or entity that would use the Product in connection with any commercial activity that involves vessels that operate on any lake, river, sea, ocean or body of water and any person or entity that would distribute or sell the Product to such a person or entity; provided, however, Marine Purchaser does not mean any people or entities who would sell the Product to people who operate privately owned pleasure boats. 9. PAYMENT OF LICENSE FEE. Licensee shall pay Licensor the License Fee as follows: a. On signing this Agreement Licensee shall pay Licensor the Downpayment stated in Section 2 by a cashier's check or by funds wired to Licensor's account; and b. On signing this Agreement Licensor shall sign and deliver its promissory note (the "Note") for the balance of the License Fee, which Note shall be substantially in the form of Schedule C. The Note shall provide that until the Note is paid in full, Licensee shall pay Licensor monthly payments thereunder in the amount stated in Section 3 for each liter of Concentrate shipped by Licensor to Licensee during the preceding month. The Note shall be secured by a first lien on all tangible and intangible assets of Licensee, which lien shall be evidenced by a Security Agreement acceptable to Licensor in its sole discretion. 10. LICENSEE'S DUTIES. a. Commencement Date. Licensee shall begin manufacturing, distributing and selling the Product within thirty days after the date of this Agreement. b. Promote Business. Licensee, at its expense, shall personally use its best efforts to develop and maximize sales of the Product within the Territory, to service its Territory on a basis consistent with good industry practice, to maintain an adequate and fresh supply of Product for the needs of Licensee and Independent Operators, to remove all unmerchantable and/or defective Product from distribution within the Territory and to destroy it in an environmentally safe manner, and to maintain proper service and delivery of Product to all Independent Operators. Licensee shall maintain such inventories of Product as are recommended by Licensor and are adequate to fill orders reasonably anticipated from Independent Operators and other customers. c. Restrictions. Licensee shall sell Products only within the Territory and only to (i) any Independent Operators that may be appointed by Licensee in accordance with this Agreement, and (ii) customers within such portions of the Territory; provided, however, Licensee may not sell to any Marine Purchasers or any Independent Operator or customer Licensor knows or has reason to know the Independent Operators or customer will resell the Products outside the Territory or to Marine Purchasers. Licensee shall not market, sell, deliver or otherwise deal in the goods or products of any other manufacturer that directly competes with the Products covered by this Agreement without the prior written approval of Licensor, which it may withhold is its sole discretion. d. No Unauthorized Representations. Licensee shall not make any representations, statements or warranties concerning the Product that: (1) exceed or are inconsistent with the marketing materials and technical specifications provided by Licensor; and 2 (2) are not accurate in all material respects. e. Not to Prejudice Licensor's Property. Licensee shall not knowingly be a party at any time to the doing or causing to be done any act or matter or thing whereby any of Licensor's property including Licensor's business name, trademarks, copyrights, designs and reputation, goodwill and know-how may be prejudicially affected or contested or in anyway impaired either during the term of this Agreement or after it is terminated for any reason. f. Secrecy and Confidential Information. Licensee will at all times during and after the termination of this Agreement: (1) Maintain strict secrecy about Licensor's modes and methods of business and finances, including, but without limiting the generality of the foregoing, any trade secrets, advertising and publicity material issued during the term of this Agreement; (2) Ensure that its nominees, employees or agents also observe all requirements of secrecy and confidentiality imposed on Licensee, and, if required by Licensor, Licensee shall cause all nominees, employees or agents to enter into a Confidentiality Agreement in a form approved by Licensor; (3) Except in the proper course of Licensee's duties hereunder, Licensee shall not disclose any confidential information received by it from Licensor to any person, corporation or other entity whatsoever and shall use reasonable efforts to prevent the publication or disclosure of any secret or confidential information unless the disclosure is required by law; (4) Inform Licensor of any legal process that seeks to obtain any confidential information immediately upon Licensee acquiring knowledge of matter; and (5) Use the said secrets or confidential information without the written consent of Licensor first being had and obtained. For the purposes of this Agreement, the term "confidential information" shall not include information to the extent Licensee can demonstrate that the information (i) is known to the public at the time of disclosure or becomes known through no wrongful act of Licensee or its agents, (ii) is in Licensee's possession at the time of disclosure otherwise than as a result of Licensee's breach of any legal obligation, (iii) becomes known to Licensee through a third party without breach of any agreement, (iv) is independently developed by Licensee, or (v) is required by law to be disclosed by Licensee; provided, however, that Licensee shall first notify Licensor as set forth in this subparagraph. g. Use of Property. Licensee shall use and continue to use Licensor's property referred to in Section 10.e above in the use of the Product as is prescribed from time to time by Licensor. Licensee shall not make any alterations to the said property without the prior written consent of Licensor. Licensee shall not use the Products' trade name in its corporate name or in any business name without the prior written consent of Licensor. All rights in and to Licensor's property referred to in Section 10.e above shall be and remain the property of Licensor and Licensee shall not acquire any right, title or interest therein, except as provided in this Agreement. Any unauthorized use of such property by Licensee shall be deemed a breach of this Agreement. h. Assignment. This Agreement is personal in nature to Licensee and is not assignable (voluntarily, involuntarily, by operation of law or otherwise) by Licensee without the prior written consent of Licensor, which consent Licensor may withhold in its sole discretion for any reason or for no reason. Except as authorized herein, any attempt by Licensee to assign, transfer, or subcontract any of the rights, duties, or obligations set forth hereunder shall render this Agreement void and unenforceable. i. Licenses. Licensee, at its cost, shall obtain and maintain any registrations, licenses or permits that may be required for or in connection with the use of the Product. 3 j. Compliance with Laws. During the term of this Agreement Licensee shall comply with all applicable laws, regulations and ordinances in carrying out its obligations hereunder. k. Licensor's Policies. Licensee shall comply at its expense with reasonable policies established by Licensor from time to time that are intended to make Licensee's business more profitable. Licensee shall adhere to all Licensor's quality control standards in dealing with the Products. Except as otherwise provided, herein, the parties shall agree on any of Licensor's policies that require Licensee to expend funds. l. Sales Information. Licensee shall maintain and furnish to Licensor on its request from time to time such sales information as Licensor may reasonably require, including, but not limited to, the names and addresses of all of Licensee's customers, purchases by and service requirements of customers and credit information about customers. m. Facilities. Licensee shall at all times keep and maintain a warehouse facility within the Territory which meets the standards of Licensor and of a size sufficient to store such inventories of Products as are recommended by Licensor. Said warehouse facility must be at all times kept in good order, condition and repair, in compliance with all state and local laws and regulations, and clean and free from all dirt, grime, insects, rodents and other pests. Products shall be stored at all times under conditions which will prevent adulteration. Licensee shall be responsible for providing, and shall provide all security services for the warehouse necessary to protect, guard and preserve the Products in good condition. n. Independent Operators. If Licensee elects to utilize Independent Operators, Licensee shall take all necessary steps to ensure that all Independent Operators are complying at all times with the terms and conditions of the Independent Operator Agreement, as such may be amended from time to time in accordance herewith. In the event any Independent Operator is for any reason temporarily unable to service all or a portion of its territory, Licensee shall ensure that such territory is adequately serviced until Independent Operator is able to do so. Licensee shall provide Licensor with a complete list of all Independent Operators appointed by Licensee and the territories assigned thereto, and shall notify Licensor of any changes, deletions or additions thereto. o. Advertising. Licensee shall discontinue any advertising, marketing or merchandising practices, upon receipt of notice from Licensor, which Licensor reasonably determines may be injurious to its interest or business. Licensee shall properly handle and store such point-of-sale materials and other merchandising and advertising materials, if any, as are provided by Licensor and to allocate such materials fairly and equitably among and distribute such materials to the Independent Operators. p. Sales of Products. Licensee shall meet or exceed the minimum annual sales of Products within the Territory set forth in Schedule D. q. Insurance. During the term of this Agreement, Licensee, at its cost, will obtain and maintain the following amounts and types of insurance and shall cause all of its Independent Operators, if any, to obtain and maintain such coverages: (1) Comprehensive General Liability Insurance coverage including premises, operations, products, completed operations, and contractual liability coverages in an amount no less than $1,000,000 per occurrence, $1,000,000 personal injury and advertising injury, $2,000,000 Products and Completed Operations Aggregate and $2,000,000 General Aggregate. Coverage shall include: (a) Waiver of Subrogation to Licensor, its related or affiliated entities, parents, subsidiaries, partnerships, joint ventures, and limited liability companies and their respective directors, officers, partners, agents, employees, volunteers, members, and shareholders; (b) Dedcutible of no more than $5,000 per occurrence; 4 (c) A provision that the insurance company has a duty to defend all insureds under the policy and a provision that defense costs are paid in addition to and do not deplete the policy limits; and (d) Umbrella policy with limits of not less than $5,000,000 per occurrence. (2) Workers Compensation insurance to cover statutory limits of Workers Compensation Laws of each state in which Licensee has operations and any employee is hired. This insurance shall include a Waiver of Subrogation Endorsement waiving the carrier's right of subrogation to Licensor, its related or affiliated entities, parents, subsidiaries, partnerships, joint ventures, and limited liability companies and their respective directors, officers, partners, agents, employees, volunteers, members, and shareholders. (3) Employers Liability coverage in an amount not less than $1,000,000 each accident; $1,000,000 disease policy limit; $1,000,000 disease each employee. (4) Any other insurance reasonably required by Licensor. The following general requirements shall apply to all insurance policies required to be maintained under this Agreement: (5) Liability insurance policies shall be written on an occurrence basis. (6) The insurance policies must: (i) name Licensor, its related or affiliated entities, parents, subsidiaries, partnerships, joint ventures, and limited liability companies and their respective directors, officers, partners, agents, employees, volunteers, members, and shareholders as "additional insureds," (ii) be issued by an insurer and in a form approved by Licensor; and (iii) provide that the policies may not be canceled or not renewed without the insurer giving at least thirty days prior written notice to Licensor. (7) Liability insurance policies must provide that the insurance be primary on a non-contributory basis. (8) All insurers must be rated A- VII or better by Best's. Within ten days of signing this Agreement or of receiving a demand from Licensor, Licensee will deliver to Licensor certificates evidencing the insurance coverages required under this Agreement. Licensee will not begin any activity or operation that could give rise to a loss to be covered by insurance required hereunder without first obtaining the required insurance and delivering a certificate(s) thereof to Licensor. Licensee shall cause replacement certificates to be sent to Licensor as insurance policies are renewed, replaced, or modified. The foregoing insurance coverage must be maintained in force at all times during the term of this Agreement; provided, however, the Commercial General Liability insurance (for Products and Completed Operations) must be maintained for five years after the termination of this Agreement. All third parties engaged by Licensee shall satisfy the insurance requirements set forth herein. Licensee shall remain primarily liable for the acts or omissions of any such third parties. Notwithstanding anything to the contrary herein, no insurance requirement specified herein, including the amount or extent of insurance coverage, may be waived by Licensor unless Licensor signs a written document in which Licensor expressly waives the requirement. 11. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSOR. Licensor represents and warrants to and covenants with Licensee as follows: a. The execution and delivery of this Agreement has been duly and validly authorized, and all necessary action has been taken to make this Agreement a legal, valid and binding obligation of Licensor enforceable in accordance with its terms. 5 b. So long as Licensee is not in default hereunder, Licensor shall not sell or grant any further licenses to use the Product in the Territory. c. Licensor has good and marketable title to the Product. Licensor warrants that the Product and all component parts thereof and their use by Licensee pursuant to this Agreement does not and will not violate the copyright, trademark, servicemark, patent, trade secrets or other proprietary rights of any third party and that there is currently no actual or threatened suit by any third party based on an alleged violation of any such rights by Licensor. Licensor shall indemnify and save Licensee harmless from and against all costs, losses, damages and liabilities, including, without limitation, attorneys' fees that may be incurred on account of the breach of any representation, warranty, or covenant set forth in this Section 11. Licensor, upon demand by Licensee and at Licensor's expense, shall defend all such claims, suits or actions against Licensee related to the breach of any representation, warranty or covenant made by Licensor in this subsection, provided Licensor is notified timely of the commencement thereof. d. Subject to Sections 16 and 17, Licensor shall sell the Concentrate to Licensee at the initial price set forth in Schedule E hereto. Licensor also agrees to provide, at no additional cost to Licensee, the form and content of literature, information and updates relating to the marketing of the Product; provided, however, Licensee shall pay the cost to reprint and distribute the literature, information and updates. e. This Agreement complies in all respects with Licensor's obligations under the Acquisition Agreement as defined in Section 23.g. 12. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LICENSEE. Licensee represents and warrants to and covenants with Licensor as follows: a. If Licensee is a corporation, limited partnership, or limited liability company, it is duly incorporated or formed, validly existing and in good standing under the laws of the State set forth in Section 4. b. The execution and delivery of this Agreement have been duly and validly authorized, and all necessary action has been taken to make this Agreement a legal, valid and binding obligation of Licensee enforceable in accordance with its terms; c. Licensee has not previously and shall not, grant sub-licenses of the Product; and d. Licensee has or can acquire all technical know-how and skill and all personnel, facilities, equipment and materials required for the performance of its obligations hereunder. e. Licensee warrants and represents that the information set forth on Schedule F hereto is true, correct and complete, and Licensee agrees to notify Licensor within ten days after any changes therein. 13. SALES OF PRODUCTS BY LICENSOR WITHIN THE TERRITORY. Licensor reserves the right to sell Products directly to certain businesses within the Territory which from time to time it determines shall be serviced pursuant to the Retail and Non-Retail National Accounts Policies and Procedures established by Licensor, including, but not limited to, the businesses listed on Schedule G. Licensor reserves the right to sell Products or arrange to have Products sold to businesses within the Territory if the businesses have not been properly serviced by Licensee or a Independent Operator; provided, however, that prior to any such sale Licensor shall notify Licensee and the appropriate Independent Operators, if any and if known to Licensor, of its intentions and offer said persons the opportunity to properly service the business or businesses. 14. LICENSOR'S RIGHTS. Licensor may, from time to time, set quality control standards applicable to the Products and Licensee, at its cost, shall conform to the standards. Licensor may at any reasonable time, at 6 Licensor's expense, inspect Licensee's places of business and storage facilities and delivery system to determine that Licensee is complying with its obligations hereunder. During any inspection of Licensee's facilities, Licensor shall abide by all reasonable safety and confidentiality standards established by Licensee. Licensor may audit Licensee's books and records at any reasonable time, at Licensor's expense; provided, however, if the audit shows that Licensee has underpaid Licensor by more than three percent in any one year period, Licensee shall reimburse Licensor for the cost of the audit. If an audit shows that Licensee has over or under paid Licensor, the party who owes the other party money shall immediately pay the money to the other party. Licensor shall have the right, at any time and at any location and without notice, to discontinue the sale of any or all Products or packages on a national, regional, statewide or media coverage area basis. Licensor shall have the further right, at any time and at any location and without notice, to change the formula, recipe, ingredients or packaging of the Concentrate and/or Products. This Agreement shall only cover the Products listed on Schedule A. Licensee shall have neither the right nor the obligation to sell any other product that Licensor may, at any time, decide to sell. At such time in the future as Licensor may decide to sell, and Licensee may decide to buy, any other products produced or distributed by Licensor, such other products shall be entered on Schedule A upon the mutual agreement of the parties. 15. ORDERS. Licensor agrees to sell and Licensee agrees to buy such quantities of the Soltron enzyme concentrate (the "Concentrate") needed to manufacture Products as the parties mutually agree from time to time in writing. The initial price of the Concentrate shall be the price stated in Schedule E, which price may be adjusted from time to time by Licensor in its sole discretion. Licensee shall pay Licensor for Concentrate within ten days of receiving Licensor's invoice for payment. Until the Note is paid in full, Licensee shall pay Licensor the amount stated in Section 3 for each liter of Concentrate purchased by Licensee, which amount is a payment on account of the Note rather than a payment on account of any Concentrate purchased or an increase in the price of the Concentrate. Licensor shall make shipments of Concentrate promptly unless prompt shipment is prevented by any act of God, failure of machinery or equipment used in the manufacture or the processing of the Concentrate, crop failure, capacity limitations, labor disputes, governmental action, riots, war, fire, accidents or any other cause beyond the reasonable control of Licensor. Licensor shall not be obligated to ship Concentrate to Licensee if Licensee is in default of any obligation owed by Licensee to Licensor or during any time that Licensor is prevented from doing so in whole or in part by any of the causes enumerated in the immediately preceding sentence. 16. PAYMENT. The prices charged by Licensor to Licensee for the Concentrate shall be established from time to time by Licensor and published in writing for Licensee. Licensor shall have the right to change prices and other terms of sale at any time upon reasonable notice to Licensee. The Products sold to Licensee under this Agreement shall be sold "f.o.b. plant" or "f.o.b. destination" as designated by Licensor. If Licensee shall default in any payment due and owing to Licensor, if Licensee's financial condition shall at any time be, in Licensor's reasonable opinion, inadequate to warrant further shipments of Concentrate, or if for any other reason Licensor should have reasonable grounds for insecurity with respect to Licensee's performance of this Agreement, then Licensor without waiving its rights under this Agreement and notwithstanding anything herein to the contrary, shall have the right in its sole discretion to cancel any orders or to delay any shipments to Licensee and otherwise suspend its performance of this Agreement until Licensor receives the defaulted payment, if any, and otherwise receives adequate assurances of performance from Licensee, and also such additional action as may be appropriate under the circumstances in accordance with the Uniform Commercial Code of the state in which Licensee's main office exists. 17. MANAGER OF LICENSEE'S BUSINESS. Licensee and Licensor agree that this Agreement is a personal service contract and that it is signed by Licensor with Licensee in reliance on and in consideration of the personal qualifications of the person named as Manager on the Licensee Information Sheet attached hereto as Schedule F. Licensee's Manager shall maintain satisfactory and continuous liaison with the accounts, including the maintenance of a contact schedule together with records thereof, of no less than once every four weeks for the top 10% of the accounts in the Territory as measured by dollar volume, and no less than once every thirteen weeks for the next 20% of the accounts in the Territory as measured by dollar volume. Should the Manager become unable or cease to manage Licensee's business, Licensee shall notify Licensor within ten days. Within sixty days after Licensee ceases to have a Manager, Licensee shall notify Licensor and name a new Manager. The reference in 7 subpart (a) of this Section to the Manager being "unable" to manage Licensee's business shall mean an inability arising from any cause, including, but not limited to death, retirement, cessation of employment, or physical or mental incapacity. Failure to name a new Manager within the aforesaid sixty day period shall be deemed failure to comply with a material term of this Agreement. Licensor shall have the right to approve any new Manager named by Licensee, which approval shall not be unreasonably withheld. Licensor shall notify Licensee whether it approves or disapproves the new Manager within thirty days after receipt of notice from Licensee naming a new Manager. In the event Licensor does not approve the person named as Manager by Licensee, Licensee shall have thirty days from the receipt of notice from Licensor of said disapproval to name a different Manager, which manager shall also be subject to Licensor's approval as provided in this subsection. Licensor shall have the right at any time, for good cause, to withdraw approval of any person previously named Manager by Licensee. In such an event, Licensee shall have sixty days after receipt of notice from Licensor of said withdrawal of approval to name a new Manager, which Manager shall be subject to Licensor's approval as provided in subsection c of this Section. The name of the new Manager shall be entered on the Licensee Information Sheet after approval by Licensor. Nothing contained herein shall be interpreted as giving the Manager any right to be retained in Licensee's employ or to continue as Manager. 18. OWNERSHIP OF LICENSEE. Although this Agreement is a personal service contract and the participation of the Manager is vital to both parties, the ownership of Licensee is also important. Licensor looks to the owner or owners to maintain an active interest in the business, to be knowledgeable of the operation at all times, and to regularly supervise the work of the Manager. If Licensee desires to change the ownership of the business so that the current owner or owners have an ownership interest less than 50.1% or if Licensee desires to sell, transfer or otherwise dispose of a 25% or more interest in the business, or if Licensee desires to change the form of business entity used by it, Licensee shall immediately notify Licensor. A notice of change of ownership, sale, transfer, or other disposition shall include the name and address of the current owners, the number of shares to be transferred, the name and address of the new owners, and the percent of total outstanding shares to be held by both current and new owners. Licensee, authorized representatives of Licensor and the proposed purchasers shall meet as promptly as possible after Licensor receives such notice to discuss the proposed change of ownership, sale, transfer or other disposition. Licensee and the proposed purchasers shall provide such information as is requested by Licensor concerning the proposed change of ownership, sale, transfer or other disposition. If Licensee has received an offer to purchase all or a part of its business or its rights under this Agreement, which offer Licensee desires to accept, Licensor shall have a right of first refusal with respect to the proposed transfer on the same terms and conditions. Licensor shall have the right to approve all changes in ownership, sale, transfer or other disposition, including any such change in ownership, sale, transfer or other disposition caused by the death of one or more owners, which approval shall not be unreasonably withheld. Licensor shall notify Licensee whether it approves or disapproves such change in ownership, sale, transfer or other disposition, or whether it intends to exercise its right of first refusal, within thirty days after the date Licensor received notification of said change of ownership, sale, transfer or other disposition or, in the event Licensor requests additional information, within thirty days after the date Licensor receives all such requested information. If Licensor approves the proposed change of ownership, sale, transfer, or other disposition, then such change must be completed within sixty days of the date of Licensor's written approval, and if not complete within such 60-day period, Licensor's approval shall be null and void. Licensee shall notify Licensor of the consummation of any approved transaction within the sixty day period. Under no circumstances shall Licensee, or any owner of Licensee, have the right to transfer any ownership interest in the business of Licensee if such transfer would result in Licensee being owned in whole or in part, directly or indirectly, by the public. Ownership of Licensee, in whole or in part, directly or indirectly, by the public shall be deemed a failure to comply with a material term of this Agreement. For the purposes of this Agreement, ownership "by the public" shall be deemed to include any situation in which any securities of Licensee, or of a corporation which, directly or indirectly, has an ownership interest in Licensee, are traded in the open market, or sold over-the-counter or on any stock exchange. Licensee shall take whatever action may be required by law, and whatever action otherwise may be prudent, including but not limited to appropriate legends on stock certificates issued, to assure compliance with the provisions of this subpart. 8 The execution of so-called Buy-Sell Agreements, representing any agreements entered into by one or more owners of Licensee, which provide that, under certain circumstances, the interest of one of them in the business will be sold to and purchased by one or more of the other owners or Licensee, shall be subject to Licensor's approval as provided in this Section. The granting of stock options and the establishment of a trust to hold stock in Licensee's business shall also be subject to Licensor's approval as provided in this Section. 19. MARKETING FUND. For each liter of Concentrate shipped to Licensee, Licensee shall, within thirty days after receiving the Concentrate, pay Licensor the amount stated in Section 5, and Licensor shall, within ten days of receiving the funds, deposit the funds into a bank account in Licensor's name (the "Marketing Fund"). All funds received by Licensor from Licensee for deposit in the Marketing Fund ("Licensee Source Funds") and any interest earned thereon shall be the sole property of Licensor and may be commingled with other marketing funds of other licensees of Licensor ("Other Licensee Funds"). The bank account for the Marketing Fund shall be a separate account in Licensor's name into which only Licensee Source Funds, Licensor Source Funds and Other Licensee Funds shall be deposited. Within thirty days after the end of each calendar quarter, Licensor shall deliver to Licensee a statement showing the dates and amounts of deposits and withdrawals of Licensee Source Funds and Licensor Source Funds into and from the Marketing Fund during the quarter. For each $1.00 received from Licensee to deposit into the Marketing Fund, Licensor shall, within thirty days of receipt, pay the amount set forth in Section 6 into the Marketing Fund; provided, however, that in computing amounts payable by Licensor under this sentence, Licensor shall be credited with any funds previously deposited into the Marketing Fund that have not been allocated to prior Licensee Source Funds. All funds deposited into the Marketing Fund by Licensor shall be referred to as "Licensor Source Funds." Licensor shall use the money in the Marketing Fund for advertising and other marketing expenses that are intended to increase sales and goodwill of the Products. From time to time, Licensee may submit detailed advertising and marketing plans or programs, including itemized costs and vendors, to Licensor with respect to proposed or completed advertising and marketing by Licensee within the Territory. Licensor, in its reasonable discretion, shall reject or approve the advertising and marketing plans or programs within ten days of receiving detailed information. Any proposed plan or program not approved in writing within ten days of receipt shall be deemed to have been rejected. If Licensor approves a plan or program, Licensor shall pay to Licensee from the Marketing Fund an amount necessary to reimburse Licensee for the costs of the plan or program; provided, however, the total amount payable from the Marketing Fund shall not exceed the lesser of the cost of the plan or program as approved by Licensor or the balance of the Licensee Source Funds then remaining in the Marketing Fund. To the extent that any Licensee Source Funds are not paid or payable to Licensee within one year of the date the funds are received by Licensor, the Licensee Source Funds shall be reduced by the amount of such unused funds ("Excess Funds"). To the extent Excess Funds are created, Licensor shall spend at least seventy-five percent of the Excess Funds for marketing within the Territory; provided, however, Licensor shall have sole control over how and when the funds will be spent. 20. APPOINTMENT OF INDEPENDENT OPERATORS. Licensee may appoint Independent Operators to distribute the Products in such portions of the Territory approved by Licensor in its reasonable discretion. All Independent Operators shall enter into an Independent Operators Agreement the form and content of which is subject to Licensor's approval in its sole discretion. Each Independent Operator is subject to the prior written approval of Licensor, which approval Licensor may withhold in its sole discretion. In the event any portion of the Territory is not subject at any time to a valid and binding Independent Operator Agreement for any reason, Licensee shall ensure that such portion of the Territory is adequately serviced by Licensee and Licensee shall actively and effectively promote, sell and service the Products in said portion of the Territory. At all times, Licensee and all Independent Operators shall comply with such sales, service and merchandising standards as are reasonably imposed by Licensor. Failure to so comply shall constitute a material breach of this Agreement. The Independent Operator Agreement shall provide that it shall terminate if this Agreement terminates for any reason. If any Independent Operator pays any consideration to Licensee for any rights under its Independent Operator Agreement while the Note is unpaid, then in addition to any other amounts payable under the Note, Licensee shall 9 pay one half of such amount to Licensor within ten days of receipt by Licensee, which amount shall be paid as a prepayment of amounts due under the Note. Licensee shall not amend said agreement nor the Exhibits or Schedules attached thereto, nor utilize any other form of agreement or exhibits or schedules with any Independent Operators, without the prior written consent of Licensor, which consent shall not be unreasonably withheld. 21. DEFAULT. A party to this Agreement not in default may, at its option and without prejudice to any other rights or remedies provided for hereunder or by law or equity, upon giving thirty days notice in writing, terminate this Agreement upon the occurrence of the following: a. Default under the Note. Licensee defaults under the Note. b. Nonpayment of Money. The failure by a party to pay any money to the other party owed hereunder as and when due, where the failure shall continue for a period of five days after written notice thereof from one party to the other. c. Breach of Non-Observance or Non-Performance of Nonmonetary Covenant. The failure by a party to observe or perform any of the covenants, conditions or provisions of this Agreement to be observed or performed by the party, other than described in the preceding subsection, where the failure shall continue for a period of thirty days after written notice thereof from one party to the other party; provided, however, that if the nature of a party's default is such that more than thirty days are required for its cure, then the party shall not be deemed to be in default if the party commences the cure within the thirty-day period and thereafter diligently prosecutes the cure to completion. d. Financial Problems. (i) The making by Licensee of any general assignment, or general arrangement for the benefit of creditors; (ii) the filing by or against Licensee of a petition to have Licensee adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Licensee, the petition is dismissed within sixty days); (iii) the appointment of a trustee or receiver to take possession of substantiall all of Licensee's assets or of Licensee's interest in this Agreement, where possession is not restored to Licensee within thirty days; or (iv) the attachment, execution or other judicial seizure of substantially all of Licensee's assets or of Licensee's interest in this Agreement, where the seizure is not discharged within thirty days. e. Property Seized or Arrangement or Composition with Creditors. A party hereto shall commit an act of bankruptcy or have its property seized under any distress or execution or make any arrangement or composition with its creditors or fail to contest within two weeks of service any petition on bankruptcy or for winding-up. f. Receiver or Manager Appointed. A party hereto has a receiver or a receiver and manager appointed over the whole or any part of its property or undertaking or has an official manager appointed pursuant to the provisions of applicable law. g. Multiple Breach of Covenant. A party hereto serves upon another party hereto three or more notices for breach of the same covenant or condition herein contained to be observed and performed by the defaulting party. h. Failure to Commence. Licensee does not commence the use and distribution of the Product within the period prescribed by Section 10.a. i. Misrepresentation. A party hereto makes a material misrepresentation or engages in conduct which reflects unfavorable in a substantial way on the operation and reputation of the License hereby granted. j. Other Default. The default by Licensee under any other agreement between Licensee and Licensor, including, but not limited to the Note and any security agreement that secures the Note. 10 22. INDEMNITIES. Licensee hereby agrees to indemnify and hold harmless Licensor, its parent, affiliates and the directors, officers and agents of each from and against any and all costs, losses, liabilities, damages, claims or expenses (including, without limitation, legal fees and expenses incurred in defending against any such claims) incurred by Licensor arising out of or resulting from: a. any misrepresentation, breach of any warranty, or the non-fulfillment of any obligation or covenant made by Licensee in this Agreement, including the Schedules annexed hereto or in any other document, instrument or agreement delivered by or on behalf of Licensee to Licensor or Licensor's accountants, auditors or counsel in connection with this Agreement or the transactions contemplated hereby; or b. the performance or non-performance by Licensee of any representation, warranty, obligation or other duty under the Independent Operator Agreements, now in effect or hereafter signed by Licensee; provided, however that Licensor (as referred to in this Agreement) shall retain sole responsibility for the fitness for use and merchantability of any Concentrate sold by it to Licensee under this Agreement, so long as both Licensee and any Independent Operators who purchases such Product from Licensee have properly performed all of their respective obligations under this Agreement and any Independent Operator Agreement have not otherwise acted or failed to act in a manner necessary to preserve the merchantability and fitness for use of such Product. Licensor hereby agrees to indemnify and hold harmless Licensee from and against any and all costs, losses, liabilities, damages, claims or expenses (including, without limitation, legal fees and expenses incurred in defending against any such claims) incurred by it and arising out of or resulting from any misrepresentation, breach of any warranty or the non-fulfillment of any obligation or covenant made by Licensor in this Agreement. 23. TERM AND TERMINATION. The term of this agreement shall commence as of the date of this Agreement and shall continue for five years thereafter, unless terminated earlier pursuant to the provisions hereof. Each party has one option to extend the term of this Agreement for an additional period of five years; provided, however the party exercising the option must notify the other party not less than ninety days and not more than one hundred fifty days before the expiration of the then current term and the party may not be in default hereunder on the date of exercising the option or on the last day of the then current term. Licensor shall have the right to terminate this Agreement immediately upon giving notice to Licensee, which termination shall be effective upon receipt of notice, if any one of the following events occurs: a. Licensee fails to perform or to comply with one or more material terms of this Agreement after any applicable notice and cure period; b. There is a change of ownership, sale, transfer, assignment or other disposition as described herein, including Buy-Sell agreements, voting trusts or stock options, of Licensee or Licensee's Territory which has not received the prior written approval of Licensor. c. Licensee or any owner of Licensee engages in fraudulent conduct in its dealings with Licensor, its Products, Independent Operators or customers purchasing the Products; d. Licensee or any owner of Licensee is convicted of a felony which, in Licensor's reasonable judgment, may adversely affect the good will or interests of Licensee or of Licensor; e. Licensee becomes insolvent, fails to pay for the Products in accordance with terms established by Licensor, fails to pay to Licensor any other amounts due and owing, assigns or attempts to assign its business or assets for the benefit of creditors, institutes or has instituted against it proceedings in bankruptcy, or dissolves or liquidates the business of Licensee. f. If Licensee permanently ceases business operations at any time, at Licensor's option, Licensee shall be deemed to have terminated this Agreement, which termination shall be effective on the date business operations cease. 11 g. The Acquisition Agreement terminates for any reason. The term "Acquisition Agreement" shall mean that certain Acquisition Agreement between Licensor and Dominion Capital Pty., Ltd., an Australian corporation, dated November 4, 1996, as amended. Licensor covenants that Licensor shall not voluntarily terminate the Acquisition Agreement and Licensor shall use its best efforts to not default thereunder. In the event of any termination of this Agreement, regardless of the reason for such termination, Licensor shall purchase, and Licensee shall sell to Licensor, its inventory of Licensor Products at laid-in cost. For purposes of this Agreement, "laid-in cost" shall mean the aggregate of (a) the amount paid by Licensee to Licensor for the Concentrate, (b) the cost of transporting the Products to Licensee's warehouse, and (c) the amount of any state and local taxes paid by Licensee in connection with the purchase of the Concentrate from Licensor. In the event of any termination of this Agreement within one year from its effective date, regardless of the reason for such termination, including any voluntary termination by Licensee, or in the event of any sale of all or a part of the assets or stock of Licensee's business within one year from the effective date of this Agreement, Licensee shall pay to Licensor an amount equal to the sum of any amounts previously received by Licensee from any Independent Operators in return for granting to such Independent Operators the right to distribute Products in a portion of the Territory plus any such amounts due to Licensee. Licensee shall be entitled to a credit against such amounts for any portion of such amounts previously paid to Licensor. The obligations of both Licensor and Licensee under this Section will survive termination of this Agreement. 24. NO AGENCY. This Agreement is not an appointment of Licensee as the agent or legal representative of Licensor for any purpose whatsoever. Licensee is not granted any right or authority to assume or to create any obligation or responsibility, express or implied, on behalf of or in the name of Licensor, or to bind Licensor in any manner whatsoever. 25. TRADEMARKS. Licensee is hereby granted a limited, nonassignable and nontransferable right to use trademarks and trade names used by Licensor (collectively "Trademarks") in distributing, advertising and promoting the sale of the Products, but only in accordance with the policies of Licensor regarding the use of Trademarks. The right conferred herein shall cease and terminate upon termination of this Agreement. The Trademarks, however, shall remain the sole and exclusive property of Licensor. Licensor reserves all rights, including the right to license the use of the Trademarks, designs, brand names, labels and promotional slogans or trademarks on merchandise, goods, items or services, including but not limited to the Products sold and distributed hereunder. Licensee, before leasing, selling or otherwise transferring to another, or putting to a use other than that originally intended, any vehicles, warehouse facilities, equipment, office supplies or other materials having had affixed temporarily or permanently Trademarks, shall remove, obliterate or eliminate said Trademarks. Licensee shall not manufacture or have manufactured any merchandise bearing the Trademarks without the prior written approval of Licensor. Licensee agrees to use its best efforts to notify Licensor of any and all infringements of the Trademarks pertaining to the Products or Trademarks or other merchandise that may come to Licensee's attention and to assist Licensor in taking such action against said infringements as Licensor shall in its sole discretion decide, with all expenses and costs incident thereto being paid for by Licensor. Upon any termination of this Agreement for whatever reason, Licensee shall immediately cease using in any manner whatsoever any of the Trademarks, symbols, slogans, emblems, insignia or other designs used in connection with the Products. 26. NOTICES. Any notice, communication, request, reply, or advice, or duplicate thereof (hereinafter, severally and collectively, for convenience, called (the "Notice"), in this Agreement provided or permitted to be given, made, or accepted by either party to any other party must be in writing. Notice given by depositing the same in the United States mail, postage prepaid, registered or certified, and addressed to the party to be notified, with return receipt requested, shall be effective from and after the expiration of two days after it is so deposited. Notice given by depositing the same with a nationally recognized commercial overnight courier service (e.g., Federal Express or UPS) shall be effective from and after the expiration of one day after it has been so deposited. Notice given in any other manner shall be effective only if and when received by the party to be notified. For purposes of notice, the addresses of the parties shall, until changed as hereinafter provided, be as follows: 12 If to Licensor, to: James Hirst Solpower Corporation 7309 East Stetson Drive, Suite 102 Scottsdale, Arizona 85251 With a copy to: Richard Keyt Gallagher & Kennedy, P.A. 2600 North Central Avenue Phoenix, Arizona 85004-3020 If to Licensee, to: the address set forth in Section 7. However, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time to change their respective addresses and each shall have the right to specify as its address any other address by at least ten days' written notice to the other party. 27. NON-WAIVER. No waiver or waivers by either party of any breach, default, liability, or performance by the other party shall be deemed or construed a waiver of any other term, condition, or liability or the breach or default thereof. Failure on the part of either party to complain of any action or inaction on the part of the other party or to declare the other party in default, no matter how long such failure may continue, shall not be deemed to be a waiver by such party of any of its rights hereunder. 28. PARTIAL INVALIDITY. If any provision of this Agreement, or the application thereof to any particular party or circumstance, shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such provision to any other particular party or circumstance, shall not be affected thereby and each remaining provision of this Agreement, or the application of such provision to any other particular party or circumstance, shall be valid and enforceable to the full extent permitted by law unless enforcement would frustrate the intent or purposes of the parties. 29. GOVERNING LAW. This Agreement pertains to the sale of goods. This Agreement shall be construed and enforced in accordance with the laws of the State of Arizona. The proper venue for any proceeding at law or in equity or under the provisions for arbitration shall be Maricopa County, Arizona, and the parties waive any right to object to the venue. All dollar amounts herein are United States dollars. 30. INDEPENDENT PARTIES. In making and performing this Agreement, the parties set and shall set at all times as independent entities and nothing contained in this Agreement shall be construed or implied to create an agency, partnership, joint venture or employer and employee relationship between the parties. At no time shall either party make commitments or incur any charges or expenses for or in the name of the other party. 31. EVENTS BEYOND CONTROL OF PARTIES. A party to this Agreement shall not be liable to any other party for any loss suffered by such other party caused by the first party's failure to observe the terms and conditions of this Agreement and on its part to be observed and performed where such failure is occasioned by any cause beyond such party's reasonable control which, without limiting the generality of the foregoing shall include war, fires, floods, strikes, lock-outs, delays in transport, restrictions or prohibitions by any Government or semi-Government authorities or embargoes. 13 32. COSTS. The parties hereto shall be responsible for their own costs in connection with this Agreement. 33. LATE CHARGES & INTEREST. A late payment by Licensee to Licensor of amounts due hereunder will cause Licensor to incur costs not contemplated by this Agreement, the exact amount of which will be extremely difficult to ascertain. If any money due from Licensee to Licensor is not received by Licensor within five days after the amount shall be due, then, without any requirement for notice to Licensee, Licensee shall pay to Licensor a late charge equal to six percent of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Licensor will incur by reason of late payment by Licensee. Acceptance of such late charge by Licensor shall in no event constitute a waiver of Licensee's default with respect to such overdue amount, nor prevent Licensor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, is payable three times within any one year period, Licensor shall have the option to require that Licensee pay in advance for all shipments of Concentrate. Any amount other than late charges not paid within thirty days of its due date shall accrue interest from the thirty-first day after it was due at the rate of eighteen percent per annum, but not exceeding the maximum rate allowed by law, in addition to any applicable late charge. 34. INCORPORATION OF SCHEDULES. The Schedules set forth in the List of Schedules after the signatures of the parties are attached and incorporated herein by this reference and made a part hereof for all purposes. 35. BINDING EFFECT. This Agreement and all of its terms and provisions shall be binding upon and inure to the benefit of the parties and their heirs, legal representatives, successors, and permitted assigns. 36. CONSTRUCTION. As used in this Agreement, the masculine, feminine or neuter gender and the singular or plural numbers shall each be deemed to include the other whenever the context so requires. This Agreement shall be construed as a whole and in accordance with its fair meaning and without regard to any presumption or other rule requiring construction against the party preparing this Agreement or any part thereof. Whenever the pronoun "he" or "his" is used herein, it is understood that the usage is the common gender and refers to masculine, feminine, and neuter genders and also singular and plural. 37. WAIVER OF TRIAL BY JURY. Any suit, action or proceeding, whether claim or counterclaim, brought or instituted by either party against the other party, on or with respect to this Agreement or any event, transaction or occurrence arising out of or in any way connected with this Agreement or the dealings of the parties with respect hereto, shall be tried only by a court and not by a jury. EACH PARTY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH PARTY, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BE JURY WOULD OTHERWISE ACCRUE. 38. ATTORNEYS' FEES AND LEGAL EXPENSES. If any proceeding or action shall be brought to recover any amount under this Agreement, or for or on account of any breach of, or to enforce or interpret any of the terms, covenants, or conditions of this Agreement, the prevailing party shall be entitled to recover from the other party, as part of the prevailing party's costs, reasonable attorneys' fees, the amount of which shall be fixed by the court, and shall be made a part of any award or judgment rendered. 39. TIME OF THE ESSENCE. Time is of the essence with respect to all provisions of this Agreement. 40. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties with respect to the matters dealt with herein. No representations, warranties, inducements, or oral agreements have been made by any of the parties, except as expressly set forth herein or in other contemporaneous written agreements. This Agreement may not be modified or amended orally or in any other manner than by an agreement in writing, signed by all of the parties. 14 41. FURTHER INSTRUMENTS. Each party, promptly upon the request of the other at any time, shall sign and have acknowledged and delivered to the other, any and all further instruments reasonably requested or appropriate to evidence or give effect to the provisions of this Agreement and that are consistent with the provisions hereof. 42. SCHEDULE H. Any modifications to this Agreement shall be set forth on Schedule H. To the extent any terms and conditions in Schedule H conflict with the terms and conditions in this Agreement, Schedule H shall govern and control. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed effective the date and year first above written. SOLPOWER CORPORATION, ____________________________________ a Nevada corporation By__________________________________ By__________________________________ Its_________________________________ Its_________________________________ "Licensor" "Licensee" 15 SCHEDULE A (DESCRIPTION OF PRODUCTS) 1. SOLTRON(TM) SCHEDULE B (TERRITORY) The Sates of . -------------------------------- SCHEDULE C PROMISSORY NOTE $______________ Phoenix, Arizona _______________ , 199__ For value received, ______________________ ("Maker"), promises to pay to the order of Solpower Corporation, a Nevada corporation ("Holder") the principal sum of ______________ Dollars ($______________), together with interest thereon from the date hereof until all amounts due hereunder have been paid in full. Beginning on the twentieth day of the month following the date first written above, and continuing on the same day of each month thereafter, Maker shall pay Holder the greater of ______________ Dollars ($______________) or the product of ______________ Dollars ($______________) times the number of liters of Concentrate (as defined in the Master License Agreement between Maker and Holder of even date herewith) shipped by Holder to Maker during the immediately preceding calendar month. Interest in the amount of _______________ percent (___%) shall accrue on the unpaid principal balance. The unpaid principal and all unpaid accrued interest and any other amounts payable hereunder shall be paid on or before __________________, _________. Maker shall have the option of prepaying this Note, in full or in part, at any time without penalty. All amounts payable hereunder shall be paid in lawful money of the United States. All amounts payable hereunder shall be payable in United States dollars at the offices of Holder at _______________________, or such other place as Holder may from time to time designate in writing to Maker. All past-due payments of principal and interest shall bear interest from their due date until paid at a rate of interest of six percent (6%) per annum higher than the interest otherwise provided herein, payable on demand. The entire unpaid principal, interest, and all other amounts due hereunder shall become immediately due and payable at the option of Holder ten (10) days after written notice to Maker if such default is not cured within the ten (10) day period, upon default in the payment of any of the principal or any interest thereon when due or if Maker defaults under any other agreement between Maker and Holder. In the event that garnishment, attachment, levy, execution, foreclosure, forfeiture, or notice of sale is issued or commenced against any of the property or assets of Maker, or in the event Maker shall become insolvent or make a general assignment for the benefit of creditors, or an insolvency proceeding be instituted against Maker, such event shall be deemed a default hereunder, and Holder may declare this Note immediately due and payable ten (10) days after written notice to Maker if the default is not cured within the ten (10) day period. If Holder uses the services of an attorney in attempting to collect any amount due hereunder or to enforce the terms hereof or the terms of any agreement related to this indebtedness, or if Holder becomes a plaintiff or defendant in any legal proceeding relating to this Note or for the recovery or protection of the indebtedness evidenced hereby, Maker, its successors and assigns, shall repay to Holder, on demand, all costs and expenses so incurred, including reasonable attorneys' fees, and those costs, expenses and attorneys' fees incurred after the filing by or against Maker of any proceeding under any chapter of the Bankruptcy Code, or similar federal or state statutes, and whether incurred in connection with the involvement of Holder as creditor in the proceedings or otherwise. Maker and all sureties, endorsers and guarantors of this Note waive: (i) demand, presentment for payment, notice of non-payment, protest, notice of protest and any other notice that might otherwise be required; (ii) the filing of suit and diligence in collecting this Note; (iii) the release of any party primarily or secondarily liable hereon and any such release shall not release Maker or any other surety, endorser, or guarantor who is not expressly released. Maker and all sureties, endorsers and guarantors of this Note agree that it will not be necessary for Holder, to enforce payment of this Note by any of them, to first institute suit or exhaust Holder's remedies against Maker or any others liable hereunder. Maker and all sureties, endorsers and guarantors of this Note consent to any extension or postponement of time of payment of this Note or any other indulgence with respect hereto without any notice thereof to any of them. If Holder fails to exercise any option hereunder, it shall not constitute a waiver of Holder's right to exercise the same in the event of any subsequent default, or in the event of the continuance of any existing default after a demand for strict performance hereof. All notices provided for herein shall be validly given if in writing and delivered personally or sent by certified mail, postage prepaid, to Maker at _____________________, or to such other address as Maker may from time to time designate in writing delivered to Holder. Notice given by mail as set out above shall be deemed delivered at the time and on the date the notice is mailed. Time is of the essence of this Note and of each and every term and provision hereof. The sole place of venue for any proceeding to enforce collection of this Note shall be Maricopa County, Arizona. This Note shall be governed and construed in accordance with the laws of the State of Arizona. This Note is secured by a lien on certain assets of Maker. [ADD SIGNATURE BLOCK FOR MAKER] "Maker" 2 SCHEDULE D (MINIMUM ANNUAL SALES OF PRODUCTS IN THE TERRITORY) 1998 _________ liters of Soltron 1999 _________ liters of Soltron 2000 _________ liters of Soltron 2001 _________ liters of Soltron 2002 _________ liters of Soltron If this Agreement extends beyond the last year indicated on this Schedule, the minimum annual sales of Products within the Territory for subsequent calendar years shall be increased each year by the amount of the increase in the Consumer Price Index for all urban consumers as stated in the Wall Street Journal on the date that is closest to the first day of each year. SCHEDULE E (PRICES) SOLTRON ENZYME CONCENTRATE PRICES Pursuant to Item 11.d of this Agreement at all times while Licensee is not in default, the sales price per liter of Soltron Enzyme Concentrate to Licensee shall be $50.25 SCHEDULE F (LICENSEE INFORMATION SHEET) Name of Licensee: __________________________ D/B/A (if any): __________________________ Principal Business Address: __________________________ __________________________ Manager of Licensee: __________________________ Form of Business Entity (Check One) A___ Corporation - state of incorporation: ______________________ B___ Limited Liability Company - state of formation:______________________ C___ General Partnership - state of formation:______________________ D___ Limited Partnership - state of formation:______________________ E___ Sole Proprietorship - state of residence:______________________ F___ Other Owners of Licensee ================================================================================ Name Nature of Interest, e.g., Percentage of Partners/Stockholders/ Ownership Sole Proprietor Interest ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ================================================================================ SCHEDULE G (OUTLETS WITHIN THE TERRITORY RESERVED TO LICENSOR) Licensor has the option to sell Products to the following businesses within the Territory: 1._______________________________________ 2._______________________________________ 3._______________________________________ 4._______________________________________ 5._______________________________________ SCHEDULE H (AMENDMENTS TO THE MASTER LICENSE AGREEMENT) Notwithstanding anything in the Master License Agreement to the contrary, it is hereby amended as follows: EX-10.6 11 SECURITY AGREEMENT SECURITY AGREEMENT In consideration of an extension of credit made by Solpower Corporation, a Nevada corporation ("Creditor"), to [name of Licensee] ("Debtor"), evidenced by a promissory note (the "Note") in the principal sum of * Dollars ($*) dated ____________, 199___, and to secure: a. the timely payment of all amounts due under the Note and any other sums advanced or credit extended by Creditor to Debtor; and b. the performance by Debtor of all the covenants herein contained or contained in any other agreement between Debtor and Creditor, Debtor grants to Creditor (the secured party), pursuant to the ________________ Uniform Commercial Code, a security interest in all of the following property of Debtor: 1. Any property of Debtor, whether Debtor owns it now or acquires it in the future, which is in your possession (this includes, but is not limited to, property given to you for safekeeping, collection, or exchange, and all dividends an distributions from the property); 2. The property described below, together with all parts, accessories, repairs, improvements and accessions to the property, and all proceeds and products from the property, and all replacements, substitutions, and additions to the property. [___] INVENTORY: All inventory wherever it is located which Debtor owns now or may own in the future, that Debtor sells or leases, or that has been or will be supplied under contracts of service, or that are raw materials, work in progress, or materials used or consumed in Debtor's business. [___] EQUIPMENT: All equipment that Debtor owns now or may own in the future including, but not limited to, all machinery, vehicles, furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop equipment, office and recordkeeping equipment, and parts and tools. Any equipment described in a list or schedule that I give to you will also be included in the secured property, but such a list is not necessary for a valid security interest in Debtor's equipment. [___] FARM PRODUCTS: All farm products that Debtor owns now or may own in the future including, but not limited to: (a) All poultry and livestock and their young, along with their products and produce; (b) All crops, annual or perennial, and all products of the crops; and (c) All feed, seed, fertilizer, medicines, and other supplies used or produced in Debtor's farming operations. [___] ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO PAYMENT: All rights Debtor has now or may have in the future to the payment of money including, but not limited to: (a) Payment for goods sold or leased or for services rendered, whether or not Debtor has earned the payment by performance; and (b) Rights to payment arising out of all present and future debt instruments, chattel paper and loans and obligations receivable. The above include any rights and interests (including all liens and security interests) that Debtor may have by law or agreement against any account debtor or obligor of Debtor. [___] GENERAL INTANGIBLES: All general intangibles Debtor owns now or may own in the future including, but not limited to, tax refunds, applications for patents, patents, copyrights, trademarks, trade secrets, good will, trade names, customer lists, permits and franchises, and the right to use Debtor's name. [___] ADDITIONAL PROPERTY: Described as follows: see Exhibit A. All of the above-described property shall be referred to collectively as the "Collateral." The security interest of Creditor in the Collateral shall attach immediately upon the signing of this Agreement, or, with respect to after acquired property, as soon as Debtor acquires rights therein. 1. WARRANTIES AND REPRESENTATIONS. Debtor warrants and represents that: a. Debtor has, or upon acquisition will have, title to all of the Collateral, and no other person, entity or government has or purports to have, or upon acquisition will have, any right, title, encumbrance or adverse claim or lien in or to any of the Collateral. a. LOCATION OF COLLATERAL: The Collateral will be kept at the following address: ------------------------------------------------------------------------- (Number and Street) (City) (County) (State) which location shall be called the "Property." a. Debtor has authority to enter into this Agreement without the consent of any other party. a. Any person signing this Agreement on Debtor's behalf has been duly authorized to sign it as Debtor's representative. a. Except for the financing statement signed by Debtor to perfect the security interest in the Collateral in favor of Creditor, no financing statement covering the Collateral or any portion thereof is on file in any public office and Debtor agrees not to sign or authorize the filing of any additional financing statements in favor of any person or entity, other than Creditor, as long as any portion of the indebtedness evidenced by the Note remains unpaid. 1. COVENANTS AND AGREEMENTS. a. Debtor shall pay when due all of Debtor's indebtedness to Creditor, and shall repay immediately on demand all expenses (including reasonable attorneys' fees, legal expenses and costs, and the cost of filing financing statements and any renewals or extensions thereof) incurred by Creditor under this Agreement or under any other instrument securing payment of the Note, with interest at the rate of ten percent per year from the date of the expenditure. a. Any replacements, renewals or additional personal property hereafter acquired by Debtor shall immediately and automatically (without action by Creditor or Debtor) become subject to this Agreement. Upon demand of Creditor, Debtor, in order to further confirm the same, shall sign a new or amended security agreement. 2 a. Debtor shall not commence or permit the continuation of, any proceeding in bankruptcy, receivership or similar proceedings, or commit any act of bankruptcy or make any assignment for benefit of creditors or become insolvent. a. Debtor shall not remove or permit the removal of the Collateral or any part thereof (including renewals, replacements and other after-acquired property) from the Property without the prior written permission of Creditor, provided that obsolete and worn out articles may be removed concurrently with the replacement or renewal thereof with property of at least equal value and of equal usefulness. a. Debtor shall not sell, contract to sell, lease, encumber or dispose of the Collateral (or any part thereof) without the prior written consent of Creditor; provided, however, Debtor may sell or dispose of portions of the Collateral in the ordinary course of business of Debtor. a. Debtor shall keep the Collateral in good condition and repair and permit no waste thereof and will permit Creditor from time to time to inspect the same and will replace any worn out or obsolete Collateral with property satisfactory to Creditor, at Creditor's option. Debtor shall not allow the value of the Collateral to be impaired. a. Debtor shall pay when due all taxes, assessments, charges, liens or encumbrances now or hereafter affecting the Collateral. a. Debtor, at Debtor's own expense, shall appear in and defend any action or proceeding that may affect Creditor's security interest in or Debtor's title to the Collateral. a. If Debtor fails to make any payment or perform any act herein agreed to be made or performed, Creditor may pay or perform the same, and in that event Debtor shall reimburse Creditor in full for all payments, expenses and costs thereby incurred, with interest thereon at the rate of ten percent per annum. Creditor shall be the sole judge of the validity of any adverse claims, taxes, assessments, charges or encumbrances, and the amount to be paid in satisfaction thereof, and of the necessity for, and of the time and manner of, doing all things herein authorized to be done, provided Creditor shall be under no obligation to do any such acts or to make any of such payments. a. The inclusion as Collateral herein of any personal property that may now be or hereafter become affixed or in any manner attached to the Property shall not prevent the Collateral from being subject to the lien of any deed of trust on the Property given to Creditor by Debtor. If the Collateral includes any appliances, equipment, fixture or other items that are also covered by a deed of trust, any sale held either under the deed of trust or under this Agreement pursuant to the Arizona Uniform Commercial Code, shall conclusively bar the rights of Debtor in such items. a. Debtor hereby assigns to Creditor all rents and income from the Collateral subject to the right of Debtor to collect and retain the same before any default hereunder. a. Debtor shall immediately advise Creditor in writing of any change of address of Debtor. a. Debtor shall keep the Collateral free from all liens, encumbrances and security interests (other than those created or expressly permitted by this Agreement). a. Debtor shall not permit the Collateral to be used in violation of any applicable law, regulation or policy of insurance. 1. INSURANCE. Debtor shall keep the Collateral and Creditor's interest therein insured under policies with such provisions, for such amounts and by such insurers as shall be satisfactory to Creditor from time to time, and shall furnish evidence on demand of Creditor of such insurance satisfactory to Creditor. Creditor shall be named as a loss payee on all insurance policies. The Collateral shall at all times be insured in an amount not less 3 than its full replacement value and against hazards and in such form and in such amounts and with such companies as Creditor may from time to time require and will deliver the policies or appropriate certificates to Creditor on Creditor's demand. Debtor assigns (and directs any insurer to pay) to Creditor the proceeds of all such insurance and any premium refund and authorizes Creditor to endorse in the name of Debtor any unpaid balance of the Note, whether or not due, and/or to restoration of the Collateral, returning any excess to Debtor. Creditor is authorized, in the name of Debtor or otherwise, to make, adjust, settle claims under and/or cancel any insurance on the Collateral. 1. INSPECTION OF COLLATERAL. Creditor is authorized to examine the Collateral wherever located at any reasonable time or times. Debtor shall assist Creditor in making any inspection. 1. MAINTENANCE OF SECURITY INTEREST. Debtor shall pay all expenses and, upon request of Creditor, take any action reasonably deemed advisable by Creditor to preserve and protect the Collateral or to establish, determine priority of, perfect, continue perfection, terminate and/or enforce Creditor's interest in the Collateral or Creditor's rights under this Agreement. 1. DEFAULT. The occurrence of one or more of the following shall constitute a default hereunder: a. any warranty or representation made by Debtor to Creditor is false; a. any covenant herein or in the Note is breached; a. the priority of the security interest of the Creditor in the Collateral is impaired; a. the Collateral is levied on, seized, or attached; a. there is any default in the payment when due of interest or principal of the indebtedness secured hereby; a. there is any default by Debtor under the terms of any other agreement between Debtor and Creditor; a. Debtor, a shareholder of Debtor (if Debtor is a corporation), a partner of Debtor (if Debtor is a partnership), a member of Debtor (if Debtor is a limited liability company) dies, ceases to exist, makes an assignment for the benefit of creditors, becomes insolvent or the subject of bankruptcy or insolvency proceedings. 1. REMEDIES. Debtor agrees that in the event of a default hereunder by Debtor, Creditor may, in addition to any remedies provided by law and to the extent permitted by law: a. Incur expenses, including reasonable attorneys' fees, legal expenses and costs appropriate to the exercise of any right or power under this Agreement. Debtor shall reimburse Creditor in full for all such expenses incurred with interest thereon at the rate of ten percent per year. a. Make any payment agreed to be made by Debtor and perform any obligation of Debtor hereunder, without, however, any obligation so to do. a. Declare without notice that the entire indebtedness secured hereby is immediately due and payable. a. Take possession of the Collateral and render it usable, or repair or renovate the Collateral, without, however, any obligation so to do, and enter upon the real property where the Collateral may be located for that purpose; control, manage, rent and lease the Collateral, either separately or in conjunction with the Property; collect all rents and income from the Collateral and apply the same to reimburse Creditor for any costs or expenses incurred hereunder and to the payment or performance of 4 Debtor's obligations hereunder, and apply the balance first to interest and then to principal of the indebtedness secured hereby. a. Secure the appointment of a receiver for the Collateral. Creditor shall not exercise any remedies provided for herein until the expiration of any notice and grace periods given to Debtor under Arizona law. 1. POST DEFAULT RIGHTS OF CREDITOR. With respect to Creditor's rights and remedies following a default by Debtor, the following shall apply: a. Creditor may require Debtor to assemble the Collateral and to make it available to Creditor at any convenient place designated by Creditor in the county where it is authorized herein to be located. a. Written notice, when required by law, sent to any address of Debtor in this Agreement at least ten calendar days (not counting the day of sending) before the date of a proposed disposition of the Collateral is reasonable notice. a. Debtor shall reimburse Creditor for any expense incurred by Creditor in protecting or enforcing Creditor's rights under this Agreement, including without limitation, reasonable attorneys' fees and legal expenses and all expenses of taking possession, holding, preparing for disposition, and disposing of the Collateral. After deduction of such expenses, Creditor may apply the proceeds of disposition to the amount due under the Note in such order and amounts as Creditor elects. a. Creditor may permit Debtor to remedy any default without waiving the default so remedied, and Creditor may waive any default without waiving any other subsequent or prior default by Debtor. 1. CONSTRUCTION OF AGREEMENT. a. Creditor has no duty to protect, insure or realize upon the Collateral. Debtor releases Creditor from any liability for any act or omission relating to the Note, the Collateral, and this Agreement, except Creditor's willful misconduct. a. Debtor shall not assert against any assignee of Creditor's rights under this Agreement or the Note any claim or defense Debtor may have against Creditor. a. Debtor grants Creditor, as further security for the Note, a security interest and lien in any credit balance and other money now or hereafter owed Debtor by Creditor or any assignee of Creditor and, in addition, agrees that Creditor may, without prior notice or demand, charge against any such credit balance or other money any amount owing upon the Note, whether due or not. a. This Agreement may be amended only by a written Agreement signed by all of the parties. nn. This Agreement shall be construed under the laws of the State of Arizona. The proper venue for any proceeding related to this Agreement shall be Maricopa County, Arizona, and the parties waive any right to object to the venue. a. Time is of the essence of this Agreement. a. Creditor's acceptance of partial or delinquent payments or Creditor's exercise of any right or remedy, shall not constitute a waiver of any right of Creditor or constitute a modification of this Agreement or of the Note. The taking of this Agreement shall not waive or impair any other security Creditor may have or 5 hereafter acquire for the payment of the indebtedness secured hereby, nor shall the taking of any such additional security waive or impair this Agreement. Creditor may resort to any security Creditor may have in any order Creditor may deem proper, and notwithstanding any additional security, Creditor shall retain Creditor's right of setoff against Debtor. a. This Agreement shall inure to the benefit of Creditor's heirs, legatees, devisees, administrators, executors, successors and assigns and shall bind Debtor's heirs, legatees, devisees, administrators, executors, successors and assigns. a. The release of the security interest in any or all of the Collateral shall not affect the liability of the Debtor on the indebtedness secured hereby. a. The pleading of the statute of limitations to any demand for the performance of any obligations secured hereby is hereby waived. IN WITNESS WHEREOF, this Security Agreement has been duly signed by Debtor or Debtor's authorized representative to be effective as of the date first written above. [add signature blocks for Debtor and Secured Party] 6 EX-10.7 12 STANDARD INDUSTRIAL LEASE-MULTI TENANT STANDARD INDUSTRIAL LEASE - MULTI-TENANT AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. PARTIES. This Lease, dated for reference purposes only August 25, 1997, is made by and between ARIZONA INDUSTRIAL CAPITAL LIMITED PARTNERSHIP, (herein called "Lessor") and VIRTUAL TECHNOLOGIES, INC., a Nevada corporation (herein called "Lessee"). 2. PREMISES, PARKING AND COMMON AREAS. 2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, real property situated in the County of MARICOPA, State of ARIZONA, commonly known as 4247 W. ADAMS, SUITE 2, PHOENIX, AZ 85009 and described as AN APPROXIMATE 11,879 SQUARE FOOT PORTION OF A LARGER CONCRETE BLOCK BUILDING SITUATED ON APPROXIMATELY 87,000 SQUARE FEET OF LAND herein referred to as the "Premises", as may be outlined on an Exhibit attached hereto, including rights to the Common Areas as hereinafter specified but not including any rights to the roof of the Premises or to any Building in the Industrial Center. The Premises are a portion of a building, herein referred to as the"Building." The Premises, the Building, the Common Areas, the land upon which the same are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Industrial Center." 2.2 VEHICLE PARKING. Lessee shall be entitled to 80% of the vehicle parking spaces, unreserved and unassigned, on those portions of the Common Areas designated by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used only for parking by vehicles no larger than full size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized Vehicles." 2.2.1 Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. 2.2.2 If Lessee permits or allows any of the prohibited activities described in paragraph 2.2 of this Lease, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Industrial Center that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor. Lessee and of other lessees of the Industrial Center and their respective employees, suppliers, shippers, customers and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers. customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center, Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have. to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.5 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations with respect thereto. Lessee agrees to abide by and conform to all such rules and regulations, and to cause its employees, suppliers, shippers, customers, and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Industrial Center. 2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Industrial Center to be a part of the Common Areas; (d) To add additional buildings and improvements to the Common Areas; (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Industrial Center, or any portion thereof; (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Industrial Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 2 2.6.1 Lessor shall at all times provide the parking facilities required by applicable law and in no event shall the number of parking spaces that Lessee is entitled to under paragraph 2.2 be reduced. 3. TERM. 3.1 TERM. The term of this Lease shall be for FIVE (5) YEARS commencing on SEPTEMBER 1, 1997 and ending on AUGUST 31, 2002 unless sooner terminated, pursuant to any provision hereof. 3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date. Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease. except as may be otherwise provided in this Lease, until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminally and be of no further force or effect. 3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions of this Lease, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT. 4.1 BASE RENT. Lessee shall pay to or, as Base Rent for the Premises, without any offset or deduction, except as may be otherwise expressly provided in this Lease, on the 1ST day of each month of the term hereof, monthly payments in advance of $THREE THOUSAND, NINE HUNDRED AND TWENTY DOLLARS AND SEVEN CENTS ($3,920.07), PLUS PROPERTY RENTAL TAX (CURRENTLY - 2.15%). Lessee shall pay Lessor upon execution hereof $4,004.35 as Base Rent plus P.R.T. for SEPTEMBER 1997. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the Base Rent. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of all Operating Expenses, 3 as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Lessee's Share" is defined, for purposes of this Lease, as 80 percent. (b) "Operating Expenses" is defined, for purposes of this Lease, as all costs incurred by Lessor, if any, for: (i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: (aa) The Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area lighting facilities and fences and gates; (bb) Trash disposal services; (cc) Tenant directories; (dd) Fire detection systems including sprinkler system maintenance and repair; (ee) Security services: AND MANAGEMENT FEE, TO BE CAPPED AT SIX PERCENT (6%); (ff) Any other service to be provided by Lessor that is elsewhere in this Lease stated to be an "Operating Expense;" (ii) Any deductible portion of an insured loss concerning any of the items or matters described in this paragraph 4.2; (iii) The cost of the premiums for the liability and property insurance policies to be maintained by Lessor under paragraph 8 hereof; (iv) The amount of the real property tax to be paid by Lessor under paragraph 10.1 hereof; (v) The cost of water, gas and electricity to service the Common Areas. (c) The inclusion of the improvements, facilities and services set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those 4 services unless the Industrial Center already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessee's Share of Operating Expenses shall be payable by Lessee within ten (10) days after a reasonably detailed statement of actual expenses is presented to Lessee by Lessor. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each twelve-month period of the Lease term, on the same day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Operating Expenses incurred during the preceding year. If Lessee's payments under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated on said statement, Lessee shall be entitled to credit the amount of such overpayment against Lessee's Share of Operating Expenses next failing due. It Lessee's payments under this paragraph during said preceding year were less than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $11,760 as security for Lessee's faithful performance of Lessee's obligations hereunder. It Lessee fails lo pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit. Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount then required of Lessee. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall, at the time of such increase, deposit with Lessor additional money as a security deposit so that the total amount of the security deposit held by Lessor shall at all times bear the same proportion to the then current Base Rent as the initial security deposit bears to the initial Base Rent set forth in paragraph 4. Lessor shall not be required to keep said security deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. USE. 5 6.1 USE. The Premises shall be used and occupied only for WAREHOUSING, DISTRIBUTION AND BOTTLING OF FUEL ADDITIVES AND RELATED ACTIVITIES or any other use which is reasonably comparable and for no other purpose. 6.2 COMPLIANCE WITH LAW. (a) TO THE BEST OF LESSOR'S KNOWLEDGE, the Premises, in the state existing on the date that the Lease term commences, but without regard to the use for which Lessee will occupy the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. (b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's expense, promptly comply with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements of any fire insurance underwriters or rating bureaus, now in effect or which may hereafter come into effect, whether or not they reflect a change in policy from that now existing, during the term or any part of the term hereof, relating in any manner to the Premises and the occupation and use by Lessee of the Premises and of the Common Areas. Lessee shall not use nor permit the use of the Premises or the Common Areas in any manner that will tend to create waste or a nuisance or shall tend to disturb other occupants of the Industrial Center. 6.3 CONDITION OF PREMISES. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on the Lease commencement date (unless Lessee is already in possession) and Lessor warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was an owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accept's the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any 6 representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES. 7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2 (Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or Destruction) and except for damage caused by area, negligent or intentional act or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good condition and repair the foundations, exterior walls, structural condition of interior bearing walls, and root of the Premises, as well as the parking lots, walkways, driveways, landscaping, fences, signs and utility installations of the Common Areas and all parts thereof, as well as providing the services for which there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not, however, be obligated to paint the exterior or interior surface of exterior walls, nor shall Lessor be required to maintain, repair or replace windows, doors or plate glass of the Premises. Lessor shall have no obligation to make repairs under this paragraph 7.1 until a reasonable time, after receipt of written notice from Lessee of the need for such repairs. Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. Lessor shall not be liable for damages or loss of any kind or nature by reason of Lessor's failure to furnish any Common Area Services when such failure is caused by accident, breakage, repairs, strikes, lockout, or other labor disturbances or disputes of any characters or by any other cause beyond the reasonable control of Lessor. 7.2 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, ventilating and air conditioning systems (Lessee shall procure and maintain, at Lessee's expense, a ventilating and air conditioning system maintenance contract), electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surfaces of exterior walls, ceilings, windows, doors, plate glass, and skylights located within the Premises. Lessor reserves the right to procure and maintain the ventilating and air conditioning system maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. (b) If Lessee fails to perform Lessee's obligations under this paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon the Premises after ten 7 (10) days' prior written notice to Lessee (except in the case of emergency, in which no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next Base Rent installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, alterations, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease. Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the Premises in good operating condition. 7.3 ALTERATIONS AND ADDITIONS. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, or the Industrial Center, except for nonstructural alterations to the Premises not exceeding $2,500 in cumulative costs, during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the Building nor the Industrial Center without Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises and the Industrial Center to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work, Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may, at any time during the term of this Lease, require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in or about the Premises or the Industrial Center that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work 8 and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises, or the Industrial Center,or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises or the Building as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises or the Industrial Center, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises and the Industrial Center free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to Lessor's best interest to do so. (d) All alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall be the property of Lessor and shall remain upon and be surrendered with the Premises at the expiration of the Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, and other than Utility Installations, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of paragraph 7.2. 7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or additional utility facilities throughout the Building and the Common Areas for the benefit of Lessor or Lessee, or any other lessee of the Industrial Center, including, but not by way of limitation, such utilities as plumbing, electrical systems, security systems, communication systems, and fire protection and detection systems, so long as such installations do not unreasonably interfere with Lessee's use of the Premises. 8. INSURANCE; INDEMNITY. 8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and the Industrial Center. Such insurance shall be in an amount not less than $500,000.00 per occurrence. The policy shall 9 insure performance by Lessee of the indemnity provisions of this paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Industrial Center in an amount not less than $500,000.00 per occurrence. 8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Industrial Center improvements, but not Lessee's personal property, fixtures, equipment or tenant improvements, in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry), plate glass insurance and such other insurance as Lessor deems advisable. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all Operating Expenses for said period. In the event that the Premises shall suffer an insured loss as defined in paragraph 9.1 (g) hereof, the deductible amounts under the casualty insurance policies relating to the Premises shall be paid by Lessee. 8.4 PAYMENT OF PREMIUM INCREASE. (a) After the term of this Lease has commenced, Lessee shall not be responsible for paying Lessee's Share of any increase in the property insurance premium for the Industrial Center specified by Lessor's insurance carrier as being caused by the use, acts or omissions of any other lessee of the Industrial Center, or by the nature of such other lessee's occupancy which create an extraordinary or unusual risk. (b) Lessee, however, shall pay the entirety of any increase in the property insurance premium for the Industrial Center over what it was immediately prior to the commencement of the term of this Lease it the increase is specified by Lessor's insurance carrier as being caused by the nature of Lessee's occupancy or any act or omission of Lessee. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least 8 plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide," Lessee shall not do or permit to be done anything which shall invalidate the insurance policies carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph B.1 or certificates evidencing the 10 existence and amounts of such insurance within seven (7) days after the commencement date of this Lease No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof. 8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Industrial Center, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any act or omission of Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Industrial Center arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises or the Industrial Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water of rain, or from the breakage, leakage, obstruction or of her defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises or upon other portions of the Industrial Center, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee, Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, occupant or user of the Industrial Center, nor from the failure of Lessor to enforce the provisions of any other lease of the Industrial Center. 11 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "Premises Partial Damage" shall mean if the Premises are damaged or destroyed to the extent that the cost of repair is less than fifty percent of the then replacement cost of the Premises. (b) "Premises Total Destruction" shall mean if the Premises are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Premises. (c) "Premises Building Partial Damage" shall mean of the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is less than fifty percent of the then replacement cost of the Building. (d) "Premises Building Total Destruction" shall mean if the Building of which the Premises are a part is damaged or destroyed to the extent that the cost to repair is fifty percent or more of the then replacement cost of the Building. (e) "Industrial Center Buildings" shall mean all of the buildings on the Industrial Center site. (f) "Industrial Center Buildings Total Destruction" shall mean if the Industrial Center Buildings are damaged or destroyed to the extent that the cost of repair is fifty percent or more of the then replacement cost of the Industrial Center Buildings. (g) "Insured Loss" shall mean damage or destruction which was covered by an event required to be covered by the insurance described in paragraph 8. The fact that an Insured Loss has a deductible amount shall not make the loss an uninsured loss. (h) "Replacement Cost" shall mean the amount of money necessary to be spent in order to repair or rebuild the damaged area to the condition that existed immediately prior to the damage occurring excluding all improvements made by lessees. 9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE. (a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of either Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. 12 (b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), which damage prevents Lessee from using the Premises. Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which even[ this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease. Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in lull force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION; INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION. (a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any time during the term of this Lease there is damage, whether or not it is an Insured Loss, and which falls into the classifications of either (i) Premises Total Destruction, or (ii) Premises Building Total Destruction, or (iii) Industrial Center Buildings Total Destruction, then Lessor may at Lessor's 'option either (i) repair such damage or destruction, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible at Lessor's expense, and this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of occurrence of such damage of Lessor's intention to cancel and terminate this Lease, in which case this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4 DAMAGE NEAR END OF TERM. (a) Subject to paragraph 9.4(b), if at any time during the last six months of the term of this Lease there is substantial damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage. Lessor may at Lessors option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an option lo extend or renew this Lease, and the time within which said option may be exercised has not yet expired. Lessee shall exercise such option, if it is to be exercised at 13 all, no later than twenty (20) days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said twenty (20) day period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said twenty (20) day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said twenty (20) day period by giving written notice to Lessee or Lessor's election to do so within ten (10) days after the expiration of said twenty (20) day period, notwithstanding any term or provision in the grant of option to the contrary. 9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event Lessor repairs or restores the Premises pursuant to the provisions of this paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this paragraph 9 and shall not commence such repair or restoration within ninety (90) days after such obligation shall accrue. Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor, Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Industrial Center subject to reimbursement by Lessee of Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2. 14 10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying Lessee's Share of any increase in real property tax specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Industrial Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor at the time that Operating Expenses are payable under paragraph 4.2(c) the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Industrial Center or any portion thereof by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Industrial Center or in any portion thereof, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Industrial Center. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, it previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Industrial Center or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 JOINT ASSESSMENT. If the Industrial Center is not separately assessed, Lessee's Share of the real property tax liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed. Such proportion to be determined by Lessor from the respective valuations assigned in the assessor's worksheets or such other information as may be reasonably available Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 PERSONAL PROPERTY TAXES. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. 15 (b) If any of Lessee's said personal property shall be assessed with Lessor's real property. Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. UTILITIES. Lessee shall pay for all water, gas, heal, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises in the Building. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in the Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease without the need for notice to Lessee under paragraph 13.l. 12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, all of which are referred to as "Lessee Affiliate," provided that before such assignment shall be effective said assignee shall assume, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under,the terms cf this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no assignment shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating Expenses, and to perform all other obligations to be performed by Lessee hereunder. Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of rent shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph 12 or this Lease. Consent to one assignment shall not be deemed consent to any subsequent assignment. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof. Lessor may proceed directly against Lessee without the necessity of 16 exhausting remedies against said assignee. Lessor may consent to subsequent assignments of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be included in subleases: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease, provided, however, that until a default shall occur in the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor slating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request from Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee or Lessor for any such rents so paid by said sublessee to Lessor, (b) No sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublease as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublessee shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) If Lessee's obligations under this Lease have been guaranteed by third parties, then a sublease, and Lessor's consent thereto, shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (d) The consent by Lessor to any subletting shall not release Lessee from its obligations or alter the primary liability of Lessee to pay the rent and perform and comply with all of the obligations of Lessee to be performed under this Lease. 17 (e) The consent by Lessor to any subletting shall not constitute a consent to any subsequent subletting by Lessee or to any assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee of anyone else liable on the Lease or sublease and without obtaining their consent and Such action shall not relieve such persons from liability. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or any one else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (g) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (h) Each and every consent required of Lessee under a sublease shall also require the consent of Lessor. (i) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (j) Lessor's written consent to any subletting of the Premises by Lessee shall not constitute an acknowledgement that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (k) With respect to any subletting to which Lessor has consented, Lessor agrees to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within ten (10) days after service of said notice of default upon such sublessee, and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cured by the sublessee. 12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 18 13. DEFAULT; REMEDIES. 13.1 DEFAULT. The occurrence of any one or more of the following events shall constitute a material default of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three (3) days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) Except as otherwise provided in this Lease, the failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's noncompliance is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. To the extent permitted by law, such thirty (30) day notice shall constitute the sole and exclusive notice required - to be given to Lessee under applicable Unlawful Detainer statutes. (d) (i) The making by Lessee of any general arrangement or general assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution of other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, was materially false. 13.2 REMEDIES. In the event of any such material default by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: 19 (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises: expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid, the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have vacated or abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease Shall bear interest from the date due at the maximum rate then allowable by law. 13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. 13.4 LATE CHARGES. Lessee hereby acknowledges that the payment by Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Property. Accordingly, if any installment of Base Rent. Operating Expenses, or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee. Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late 20 payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of any of the aforesaid monetary obligations of Lessee, then Base Rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease to the contrary. 14. CONDEMNATION. If the Premises or any portion thereof or the Industrial Center are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent of the floor area of the Premises, or more than twenty-five percent of that portion of the Common Areas designated as parking for the Industrial Center is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the premises remaining, except that the rent shall be reduced in the proportion that the floor area of the Premises taken bears to the total floor area of the Premises. No reduction of rent shall occur if the only area taken is that which does not have the Premises located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. BROKER'S FEE. (a) Upon execution of this Lease by both parties, Lessor shall pay to LEE & ASSOCIATES ARIZONA AND URBAN INVESTMENT CORPORATION, Licensed real estate broker(s), a fee as set forth in a separate agreement between Lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $______________ for brokerage services rendered by said broker(s) to Lessor in this transaction. 21 (b) Lessor further agrees that if Lessee exercises any Option, as defined in paragraph 3.9 of this Lease, which is granted to Lessee under this Lease, or any subsequently granted option which is substantially similar to an Option granted to Lessee under this Lease, or if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or if Lessee remains in possession of the Premises after the expiration of the term of this Lease after having failed to exercise an Option, or if said broker(s) are the procuring cause of any other lease or sale entered into between the parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, then as to any of said transactions, Lessor shall pay said broker(s) a fee in accordance with the schedule of said broker(s) in effect at the time of execution of this Lease. (c) Lessor agrees to pay said fee not only on behalf of Lessor but also on behalf of any person, corporation, association, or other entity having an ownership interest in said real property or any part thereof, when such fee is due hereunder. Any transferee of Lessor's interests in this Lease, whether such transfer is by agreement or by operation of law shall be deemed to have assumed Lessor's obligation under this paragraph 15. Said broker shall be a third party beneficiary of the provisions of this paragraph 15. 16. ESTOPPEL CERTIFICATE. (a) Each party (as "responding party") shall at any time upon not less than ten (10) days' prior written notice from the other party ("requesting party") execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, it any, and (ii) acknowledging that there are not, to the responding party's knowledge, any uncured defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or of the business of the requesting party. (b) At the requesting party's option the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that (i) this Lease is in full force and effect, without modification except as may be represented by the requesting party, (if) there are no uncured defaults in the requesting party's performance, and (iii) it Lessor is the requesting party, not more than one month's rent has been paid in advance. (c) If Lessor desires to finance, refinance, or sell the Property, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or 22 purchaser. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners, at the time in question, of the fee title or a lessee's interest in a ground lease of the Industrial Center, and except as expressly provided in paragraph 15, in the event of any transfer of Such title of interest. Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease; provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to be performed under this Lease. 21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the terms of this Lease, imploding but not limited to Lessee's Share of Operating Expenses and insurance and tax expenses payable shall be deemed to be rent. 22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous agreement of understanding pertaining to any such matter shall be effective. This lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employee or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of the Premises or the Property and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Promises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23 23. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may front time to time hereafter designate by notice to Lessee. 24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all Options, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the Industrial Center is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the Industrial Center is located. 24 30. SUBORDINATION. (a) This Lease, and any Option granted hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Industrial Center and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee. this Lease and such Options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such Options are dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder without further notice to Lessee or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises or the Common Areas without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this 25 Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises or the Industrial Center without Lessor's prior written consent. Under no circumstances shall Lessee place a sign on any roof of the Industrial Center. 35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld or delayed. 37. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Property. 39. OPTIONS. 39.1 DEFINITION. As used in this paragraph the word "Option" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor: (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other space within the Industrial Center or other property of Lessor or the right of first offer to lease other space within the Industrial Center or other property of Lessor; (3) the right or option to purchase the Premises or the Industrial Center. or the right of first refusal to purchase the Premises or the Industrial Center, or the right of first offer to purchase the Premises or the Industrial Center, or the right or option to purchase other property of Lessor. or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is personal to the original Lessee and may be exercised only by the original Lessee while occupying the Premises who does so without the intent of thereafter assigning this Lease or subletting the 26 Premises or any portion thereof, and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee; provided, however, that an Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are not assignable separate and apart from this Lease, nor may any Option be separated from this Lease in any manner, either by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in said notice of default is cured, or (ii) during the period of time commencing on the date after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) and continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), nor (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts to exercise the subject Option. (b) The period of time within which an Option may ne exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within thirty (30) days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured. 40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the 27 Premises or the Industrial Center. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option, from providing security protection for the Industrial Center or any part thereof, in which event the cost thereof shall be included within the definition of Operating Expenses, as set forth in paragraph 4.2(b). 41. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material default of this Lease by Lessee without the need for further notice to Lessee. 42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 43. AUTHORITY. It Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 44. CONFLICT. Any conflict between the printed provisions of this Lease and the type written or handwritten provisions, if any, shall be controlled by the typewritten or handwritten provisions. 45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by Lessor and Lessee. 46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 48 through 52 which constitute a part of this Lease. 47. OPTION TO EXPAND: THE LESSEE SHALL HAVE THE OPTION TO EXPAND THEIR LEASED PREMISES TO INCLUDE THE SPACE CURRENTLY OCCUPIED 28 BY REYWEST DEVELOPMENT CORPORATION SUBJECT TO THE SAME TERMS AND CONDITIONS OF THE LEASE EXCEPT: (A) LEASE RATE: $.58 NNN PER FOOT (B) SIZE: APPROXIMATELY 2,980 SQUARE FEET (C) ONE HUNDRED AND EIGHTY (180) DAYS PRIOR WRITTEN NOTICE OF EXERCISE OF OPTION TO EXPAND. 47.1 TENANT IMPROVEMENTS: The Lessor, at Lessor's expense, shall install three (3) Evaporative Coolers in the warehouse. The Lessee, at Lessee's expense, may construct an additional office, as needed, and/or paint, recarpet and repair the existing office. Within thirty (30) days following the completion of the work and submittal of invoices to Lessor, Lessor shall reimburse the Lessee for actual cost of work, but in no event shall the cash reimbursement exceed $5000.00 for Tenant Improvements to the office space. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY. LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 29 LESSOR LESSEE ARIZONA INDUSTRIAL CAPITAL LIMITED VIRTUAL TECHNOLOGIES, INC., LIMITED PARTNERSHIP a Nevada corporation By Arizona Industrial Capital, Inc. By /s/ Leif Schipper ----------------------------------- ------------------------- By /s/ Bradley S. Cohen By ----------------------------------- ------------------------- Executed on Executed on -------------------------- --------------- (Corporate Seal) (Corporate Seal) ADDRESSES FOR NOTICES AND RENT ADDRESS P.O. Box 24710 4247 W. Adams Los Angeles, CA 90024-0710 Phoenix, AZ 85009 310-441-2235 30 RENT ADJUSTMENT(S) ADDENDUM TO STANDARD LEASE DATED AUGUST 25, 1997 BY AND BETWEEN (LESSOR) ARIZONA INDUSTRIAL CAPITAL LIMITED PARTNERSHIP (LESSEE) VIRTUAL TECHNOLOGIES, INC. PROPERTY ADDRESS: 4247 W. ADAMS, SUITE 2 Paragraph 48 A. RENT ADJUSTMENTS: The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately) [ ] 1. COST OF LIVING ADJUSTMENT(S) (COL) (a) On (Fill in COL Adjustment Date(s): MARCH 1, 2000 the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and Clerical Workers) or [ ] CPI U (All Urban Consumers), for (Fill in Urban Area):________________________ ________________________________________________________________________________ All Items (1982-1984 = 100), herein referred to as "C.P.I." (b) The monthly rent payable in accordance with paragraph AI(a) of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the C.P.I. of the calendar month 2 (two) months prior to the month(s) specified in paragraph AI(a) above during which the adjustment is to take effect, and the denominator of which shall be the C.P.I. of the calendar month which is two (2) months prior to (select one): [X] the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or [ ] (Fill in Other "Base Month"): . The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent 31 be less than the rent payable for the month immediately preceding the date for rent adjustment. (c) In the event the compilation and/or publication of the C.P.I. shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the C.P.I. shall be used to make such calculation. In the event that Lessor and Lessee cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitrators shall be paid equally by Lessor and Lessee. B. BROKER'S FEE: The Real Estate Brokers specified in paragraph 1.10 of the attached Lease shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the attached Lease. 32 ADDENDUM TO STANDARD LEASE DATED AUGUST 25, 1997 BY AND BETWEEN ARIZONA INDUSTRIAL CAPITAL LIMITED PARTNERSHIP AND VIRTUAL TECHNOLOGIES, INC. 49. Option to Purchase. 1. GRANT OF OPTION. Lessor does hereby grant to Lessee an option (the "Option") to purchase the real property, improvements, and fixtures located at 4247 West Adams, Phoenix, Arizona 85009 (the "Property") which is legally described in Schedule "A" attached hereto together with all rights, privileges, easements, and appurtenances therein, whether or not recorded, and the Lessor's interest under this Lease, upon the terms and conditions herein set forth. A. OPTION TERM. Lessee must exercise the Option, if it is to be exercised at all, during the period from September 1, 1997 to August 31, 1998, hereinafter referred to as the "Option Period." B. EXERCISE OF OPTION. In order to exercise the Option herein granted, Lessee must give written notice of the exercise of the option to Lessor and Lessor must receive the same during the Option Period, time being of the essence, and if not so given and received, this option shall automatically expire and terminate. C. LESSEE NOT IN DEFAULT UNDER LEASE. The provisions of Paragraph 39, including the provision relating to default of Lessee set forth in Paragraph 39.4 of this Lease, are conditions of this option. D. PURCHASE PRICE. The purchase price to be paid by Lessee to Lessor for the Property, if Lessee exercises its Option, shall be Six Hundred Thousand Dollars ($600,000) if the Option is exercised anytime between September 1, 1997 and February 28, 1998, or Six Hundred Thirty-Nine Thousand Dollars ($639,000) if the Option is exercised on or after March 1, 1998. E. CONDITIONS PRIOR TO OPENING OF ESCROW. (i) TITLE COMMITMENT. Within ten (10) days after Lessor receives Lessee's written notice of the exercise of the option, and prior to the opening of escrow, Lessor shall cause a commitment for title insurance on the 33 Property (the "Title Commitment"), issued by First American Title Co., and copies of all liens and encumbrances referenced therein ("Exceptions") to be delivered to Lessee. Within five (5) days after receipt of the Title Commitment and copies of all Exceptions, Lessee shall notify Lessor in writing of any items appearing thereon of which Lessee disapproves or Lessee shall be deemed to have approved the same. If Lessee, in its sole discretion, disapproves any item appearing on the Title Commitment that cannot be cured or eliminated on or before the close of escrow, Lessee's exercise of the option shall be cancelled in which event its obligation to purchase the Property shall be terminated. In such event, Lessee shall receive a refund of all the earnest money, if any, and neither party shall have any further obligation to the other party with respect to liabilities arising out of Lessee's exercise of the Option and the Lease shall continue in full force and effect. (ii) LEASES. Within ten (10) days after Lessor receives Lessee's written notice of the exercise of the Option, and prior to the opening of escrow, Lessor shall provide Lessee with legible copies of all leases or documents evidencing the rights and privileges of any party claiming an interest in the Property (collectively "Leases") and Tenant Estoppel Certificates in the form Treasonably approved by Lessee for each lease that comprises the Lease signed by the appropriate tenant (collectively "Certificates"). Lessee shall have five (5) days after receipt of all Leases and Certificates to object to all or any of the Leases or Certificates in writing. If Lessee fails to object timely, those Leases and Certificates as to which no objection has been raised shall be deemed approved. If Lessee objects timely, in writing, to any of the Leases, Lessee's exercise of the Option shall be cancelled, in which event its obligation to purchase the Property shall be terminated. In such event, Lessee shall receive a refund of all the earnest money, if any, and neither party shall have any further obligation to the other party with respect to liabilities arising out of Lessee's exercise of the Option and the Lease shall continue in full force and effect. If Lessee objects timely in writing to any Certificate, Lessor shall attempt, in good faith and using due diligence, to obtain a revised Tenant Estoppel Certificate satisfactory to Lessee. If any Certificate cannot be revised to Lessee's satisfaction after Lessor's attempts to do so, Lessor being under no obligation to institute litigation or to expend any money to induce a Lessee to agree to revise any Certificate, Lessor shall give notice to the Lessee, and Lessee shall elect within five (5) days after receipt of Lessor's notice: (a) to cancel the exercise of the Option, or (ii) to close escrow waiving its objection and taking title subject to the Leases. Failure to timely give notice to Lessor of 34 Lessee's election shall constitute an election to waive the objection. All right, title and interest of Lessor in and to all Leases, if any, shall be assigned by Lessor to Lessee at closing. F. ESCROW. Upon Lessee's approval or waiver of the contingencies specified in Paragraph F, Lessor and Lessee shall give instructions to consummate the sale to FIRST AMERICAN TITLE CO. who shall act as escrow holder, on the normal and usual escrow forms then used by such escrow holder, as follows: (i) within five (5) days following Lessee's approval of the contingencies in Paragraph F, both parties shall have executed escrow instructions. Escrow shall close within fifteen (15) days following Lessee's approval of the contingencies in Paragraph P; (ii) Within three (3) days following Lessee's approval of the contingencies in Paragraph F, Lessee shall deliver to escrow holder a check for Fifty Thousand Dollars ($50,000) payable to FIRST AMERICAN TITLE CO., to be a part of the purchase price, with the balance of the purchase price in readily available funds to be deposited into escrow one (1) day prior to the close of escrow; (iii) Lessor shall furnish Lessee at closing a standard owner's title insurance policy insuring Lessee in the full amount of the purchase price, subject only to those items appearing on the Title Commitment as approved by Lessee. Lessor shall convey title to the Property, including all rights and privileges appurtenant to or arising from the Property, to Lessee at closing by Lessor's special warranty deed warranting title to the Property to be fee simple absolute, free and clear of all matters, claims, liens, and encumbrances except: a. taxes not yet due and payable at closing; b. reservations in patents from the United States or the State of Arizona; and c. any other matters disclosed by the Title Commitment (or any amendments thereto) that are deemed waived or approved by Lessee as provided herein. (iv) Escrow fees shall be shared equally; (v) Interest, if any, and rents will be prorated to the close of escrow; 35 (vi) The costs of a standard title insurance policy to be issued to Lessee shall be paid by Lessor; (vii) The parties agree to execute any additional instruction.-; as are normal and usual; (viii) All real estate transfer taxes shall be paid by Lessor. G. LESSEE'S DEFAULT. After approving of the conditions precedent, if the purchase is not consummated due solely to Lessee' fault, Ten Thousand Dollars ($10,000) of the earnest money deposit shall be paid to Lessor as Lessor's sole remedy and as adequate liquidated damages thereupon releasing both Lessee and Lessor from any further obligation to the other under the Option. H. LESSOR'S DEFAULT. If Lessor defaults under the option, Lessee's sole remedy against Lessor shall be to seek and obtain specific performance. If Lessee does not seek specific performance after a default by Lessor under the Option, Lessee may cancel the option and the escrow, such cancellation to be effective immediately upon Lessee giving written notice of cancellation to Escrow Agent. Upon such cancellation and without further instructions from Lessor, Lessee shall be entitled to a return of, and Escrow Agent shall deliver to Lessee, any earnest money (and any interest thereon) deposited into escrow. I. NOMINATION. Lessee, by written instruction to Escrow Agent, may substitute a nominee to take title in Lessee's place and stead under the Option, which substitution shall be made by Lessee in Lessee's sole and absolute discretion. Any substitutions shall not release Lessee of its obligations under the Option of the Lease. Although Lessee may designate another party to take title to the Property at the close of escrow, Lessee may not transfer or assign its rights under the Option. J. LESSOR'S CERTIFICATION. At the closing, Lessor shall deliver or cause to be delivered to Lessee, at Lessor's sole cost and expense, a certification in a form to be provided or approved by Lessee, signed and acknowledged by Lessor under penalties of perjury, certifying the following: a. Lessor's U.S. Taxpayer identification Number. b. The home address of Lessor (or the business address of Lessor it Lessor is not an individual). c. Lessor is not a nonresident alien, foreign corporation, foreign partnership, foreign trust, foreign estate, or other foreign person within 36 the meaning of Sections 1445 and 7701 of the Internal Revenue Code and the Treasury Regulations thereunder (collectively the "Code") . In the event that Lessor certifies that Lessor is not a "foreign corporation" on the basis of an election under Section 897)i) of the Code to be treated as a domestic corporation, Lessor shall attach a true and correct copy of the acknowledgement of such election from the Internal Revenue Service (the "Service") to Lessor's certification. Lessee is authorized to submit any certification delivered by Lessor pursuant to this Section to the Service and, at Lessee's election, to request a withholding certificate from the Service or a reduction in the amount of taxes required to be withheld, and in connection therewith, to disclose the details of this transaction to the Service. In the event that Lessor fails to deliver the required certification at closing or Lessor delivers such certification, but Lessee has actual knowledge that such certification is false or Lessee receives notice that the certification is false from any agent of Lessee or Lessor, then unless Lessor provides such other evidence to Lessee that Lessee is not required to withhold taxes pursuant to Section 1445 of the Code as Lessee reasonably determines to be acceptable as meeting the requirements of Section 1445(b) of the Code, Lessee shall be entitled to withhold (or to direct Escrow Agent to withhold) from the purchase price a sum equal to the amount required to be so withheld pursuant to Section 1445 (a) of the Code, which sum will be paid by Lessee to the United States Treasury pursuant to the requirements of Section 1445 of the Code. Any amount withheld shall he considered as a payment by Lessee towards the purchase price. K. BROKERS. Lessor agrees to pay Lee & Associates and Urban Investment Corp. commission due on account of this transaction. Lessor and Lessee each represent, covenant, and warrant to the other that each has employed no other broker or finder in connection with the transaction contemplated herein. Lessor and Lessee each agree to indemnify and hold the other harmless from and against liability, claims, demands, damages or costs of any kind, including attorney's fees, arising from or connected with any broker's commissions or finder's fees or commission or charge claimed to be due any person arising from the other party's conduct with respect to this transaction. L. CONDITION OF PROPERTY; AS-IS PURCHASE. Lessee acknowledges that Lessee will, prior to the exercise of the option, be in possession of the majority of the Property pursuant to this Lease. Lessee also acknowledges that Lessee is, or will be prior to the exercise of the option, in a position to have full and complete knowledge of the physical condition of the Property and the economic and financial history thereof. Accordingly, the Property will be conveyed "AS IS, WHERE IS, AND WITH ALL FAULTS". Lessor makes no representation or warranty whatsoever whether expressed, implied or 37 statutory with respect to the Property, the size of the Property, the zoning, the roof, the construction, the availability of utilities, access, or the adequacy of the Property for the Lessee's purposes. Lessee agrees that Lessee is not relying on any warranty or representation of the Lessor or his agents, employees, or representatives and that the Lessee is buying the Property "AS IS, WHERE IS, AND WITH ALL FAULTS" and without any expressed or implied warranties of any kind including but not limited to, materials, workmanship, good and workmanlike construction, design, condition, tenantability, earthquake codes, fitness for a particular purpose, marketability, the environmental condition of the Property and the presence of or contamination of hazardous materials and, Lessor hereby disclaims any such warranty. Lessee has determined: a. The physical condition of the Property and that there is no defect or condition which is unacceptable to Lessee. b. whether any portion of the Property lies in any flood plain or flood hazard area. c. Whether any geological fault or unsatisfactory soil conditions exist on any portion of the Property. d. That all environmental conditions relating to the Property are acceptable to the Lessee. It is the sole responsibility of the Lessee to inspect the Property prior to the exercise of the Option and satisfy itself as to the physical and environmental condition, value and, extent of needed repairs if any. M. ENVIRONMENTAL ASSESSMENT. Lessee, at Lessee's role cost and expense, may at any time prior to the exercise of its Option, hire an environmental assessment company to perform an environmental assessment of the Property. An environmental assessment of the Property by Lessee shall not, however, be a condition or a contingency to the opening or closing of escrow. At Lessor's request, Lessee will provide to Lessor, at no charge, a copy of any environmental assessment ordered by Lessee. Lessee shall hold Lessor and the Property harmless from and against all claims, damages, liens, liabilities, costs and expenses, including reasonable attorneys' fees and costs, resulting from Lessee's conducting inspections or testing of the Property including, without limitation, repairing any and all damages to any portion of the Property, arising out of or related (directly or indirectly) to Lessee's conducting such inspections or tests. 38 "LESSEE" "LESSOR" Virtual Technologies, Inc., Arizona Industrial Capital a Nevada corporation Limited Partnership, an Arizona limited partnership By: /s/ Leif Schipper By: Arizona Industrial Capital, Inc. --------------------- ---------------------------------- Its: President Its: General Partner By: /s/ Bradley S. Cohen ------------------------------- Its: President 39 ADDENDUM TO STANDARD LEASE Dated August 25, 1997 By and Between ARIZONA INDUSTRIAL CAPITAL LIMITED PARTNERSHIP AND VIRTUAL TECHNOLOGIES, INC. RE: 4247 W. ADAMS, PHOENIX, AZ 85009 HAZARDOUS SUBSTANCES. 5.0(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used In this Lease shall mean any product, substance, chem material or waste whose presence, nature, quantity and/or Intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Promises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Promises; (ii) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products or by-products thereof. Lessee shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Requirements (as defined in Paragraph 51). "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage lank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Laws require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but upon notice to Lessor and in compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability 40 therefor, including but not limited to the installation (and, at Lessor's option, removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises or the Building, other than as previously consented to by Lessor, Lessee shall immediately give Lessor written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system). (c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's obligations under this Paragraph 50.(c) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultants' and attorneys' fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. 51. LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Requirements," which term is used in this Lease to mean all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance), now in effect or which may hereafter come into effect. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, 41 reports and certificates, evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Requirements. 52. INSPECTION; COMPLIANCE WITH LAW. Lessor Lessor's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Requirements (as defined in Paragraph 51), and Lessor shall be entitled to employ experts and/or consultants in connection therewith to advise Lessor with respect to Lessee's activities, including but not limited to Lessee's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease by Lessee or a violation of Applicable Requirements or a contamination, caused or materially contributed to by Lessee, is found to exist or to be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 42 EXHIBIT A 43 ADDENDUM TO THE LEASE DATED AUGUST 25, 1997 Between Arizona Industrial Capital Limited Partnership (Lessor) and Virtual Technologies, Inc. (Lessee) The Lease is hereby amended as follows: 1. COMMENCEMENT DATE: September 15, 1997 2. TERMINATION DATE: September 14, 2002 3. The advance base rent of $4,004.35 (Including Property Rental Tax) described in Paragraph 4 of the Lease shall apply as base rent for the period of September 15, 1997 through October 14, 1997. 4. OPTION TO PURCHASE: The Option Period, described in Paragraph 49 of the Lease shall be from September 15, 1997 until September 14, 1998. The Purchase Price shall be Six Hundred Thousand Dollars ($600,000.00) if Lessee exercised Purchase Option anytime between September 15, 1997 through March 14, 1998, or Six Hundred and Thirty Nine Thousand Dollars ($639,000.00) if the Purchase Option is exercised anytime between March 15, 1998 through September 14, 1998. 5. BROKERS COMMISSION: Seller shall pay all brokerage commissions to Lee & Associates only. Brokerage Commissions collected shall be split equally between Lee & Associates and Urban Investment Corporation. 6. RENT ADJUSTMENT: Pursuant to Paragraph 48 of the Lease, the adjustment date shall be March 15, 2000. AGREED AND ACCEPTED AGREED AND ACCEPTED LESSOR Arizona Industrial Capital, Inc. LESSEE Virtual Technologies, Inc., General Partner By: /s/ Bradley S. Cohen By: /s/ Leif Schipper ------------------------ --------------------- Its: President Its: President ----------------------- -------------------- Date: 10/20/97 Date: 7/10/97 -------------- ------------- 44 EX-10.8 13 PROPERTY & LEASE AGREEMENT AND AMENDMENTS 7309 E. STETSON BUILDING ------------------------ SCOTTSDALE, ARIZONA TABLE OF CONTENTS ----------------- 1. USE................................................................. 4 2. PREMISES............................................................ 4 3. TERM................................................................ 5 4. RENTAL.............................................................. 5 a. Guaranteed Minimum Monthly Rental.......................... 5 b. [DELETED ON ORIGINAL]...................................... 5 c. Additional Rent............................................ 5 d. Interest On Late Payments.................................. 6 5. EXCISE TAXES AND RENTAL TAX......................................... 6 6. PERSONAL PROPERTY TAXES............................................. 6 7. PARKING AND COMMON FACILITIES....................................... 7 8. CONSTRUCTION........................................................ 8 9. USES PROHIBITED..................................................... 8 10. ALTERATIONS AND FIXTURES............................................ 8 11. MAINTENANCE AND REPAIR.............................................. 9 12. COMPLIANCE WITH LAWS................................................ 10 13. INSURANCE........................................................... 10 14. INDEMNIFICATION, WAIVER AND RELEASE................................. 11 15. MECHANICS LIEN...................................................... 12 16. ABANDONMENT......................................................... 13 17. SIGNS AND AUCTIONS.................................................. 13 18. UTILITIES........................................................... 14 19. ENTRY AND INSPECTION................................................ 14 20. DAMAGE AND DESTRUCTION ON DEMISED PREMISES.......................... 14 21. ASSIGNMENT AND SUBLETTING........................................... 15 a. Restriction of Tenant's Rights............................. 15 b. Request to Assign the Lease................................ 16 c. Response to Request to Assign the Lease.................... 17 d. Modification to the Lease.................................. 18 e. Limitation of Landlord's Consent........................... 18 f. Corporate Stock or Partnership Interest of Tenant.......... 18 22. DEFAULT............................................................. 18 23. ASSIGNMENT OF RENTS................................................. 22 24. TENANT'S FINANCIAL CONDITION........................................ 23 25. NO WAIVER OF BREACHES............................................... 23 26. INSOLVENCY OF TENANT................................................ 23 27. SURRENDER OF LEASE.................................................. 23 28. SALE OF PREMISES BY LANDLORD........................................ 23 29. HOURS OF BUSINESS................................................... 24 30. ATTORNEY'S FEES..................................................... 24 31. SECURITY DEPOSIT.................................................... 24 32. HOLDING OVER........................................................ 25 33. NOTICES............................................................. 25 34. SUCCESSORS IN INTEREST.............................................. 26 35. TENANT'S PERFORMANCE................................................ 26 36. FORCE MAJEURE....................................................... 26 37. PARTIAL INVALIDITY.................................................. 26 38. MARGINAL CAPTIONS................................................... 27 39. TIME................................................................ 27 40. SUBORDINATION, ATTORNMENT........................................... 27 41. ESTOPPELS........................................................... 27 42. REVISION OF EXHIBIT A............................................... 28 43. CONDEMNATION........................................................ 29 44. NO ORAL AGREEMENTS OR REPRESENTATIONS............................... 29 45. LIMITATION OF LIABILITY............................................. 29 46. WAIVER OF REDEMPTION BY TENANT...................................... 30 47. CAPACITY AND AUTHORITY.............................................. 30 48. GUARANTEE........................................................... 30 49. OPTION TO RENEW..................................................... 31 50. ZONING/USE.......................................................... 31 51. REAL ESTATE BROKERS................................................. 31 Exhibit A - Plot Plan of Office Building Exhibit B - Schedule of Tenant Improvements Exhibit C - Rules & Regulations Exhibit D - Tenant Use of Premises Exhibit E - Guarantee Exhibit F - Landlord's Sign Criteria Exhibit G - Covered Parking 7309 E. STETSON BUILDING ------------------------ SCOTTSDALE, ARIZONA THIS LEASE, is made and entered into this 12TH day of MARCH, 1997, by and between SCOTTSDALE STETSON CORPORATION, AN ARIZONA CORPORATION (Landlord) and VIRTUAL TECHNOLOGIES, INC., A UTAH CORPORATION, (Tenant) who is hereinafter respectively referred to as Landlord and Tenant, without regard to number or gender. W I T N E S S E T H: 1. USE. The Landlord hereby leases to Tenant and Tenant hereby hires from Landlord those certain premises known as 7309 E. Stetson Drive, Suite 102, Scottsdale, Arizona, 85251 hereinafter described for the sole purpose of conducting such business thereon as described in EXHIBIT "D" under the following trade name: VIRTUAL TECHNOLOGIES, INC. Tenant shall not use the Demised Premises for any other purpose or operate its business in the Demised Premises under any different, trade name whatsoever without Landlord's prior written consent. Tenant acknowledges and agrees that the Rental Rate for the Demised Premises is based in part upon the use which Tenant has represented to Landlord that Tenant will make of the Demised Premises. Tenant's specified use is also anticipated to be complementary and compatible with other uses in the office building of which it is a part, and consistent with the type of office building which Landlord considers material to its public image and to its economic benefit. Landlord would not have leased the Demised Premises to Tenant without the restrictions contained herein, and may suffer economic harm or other detriment if, subsequent to the date hereof, the use or trade name changes. Accordingly, Landlord shall have the right, to be exercised in its sole and absolute discretion, to deny any requested change in the use or trade name, or to condition the granting of consent upon modifications to the terms of the Lease, including but not limited to rental and term length. Tenant shall supply Landlord with such information as Landlord reasonably requires in order to analyze Tenant's request for any such change. Tenant acknowledges that Landlord has made no representations or warranties to Tenant concerning the presence or absence of any particular tenant, use, or tenant or use mix in the office building, and has no obligation to Tenant to obtain or refrain from allowing any particular tenant or use in the office building. 2. PREMISES. The premises leased to Tenant, together with appurtenances, are hereinafter referred to as the "Demised Premises", and are situated in the City of Scottsdale, County of Maricopa, State of Arizona. The Demised Premises shall contain approximately 1,384 square feet of leasable space with approximate dimensions as shown on EXHIBIT "A". Tenant accepts the premises in "as is" condition. 3. TERM. The term of this Lease shall be for a period of One (1) Year. The term of this Lease, and Tenant's obligation to pay rent (unless the contrary is specifically set forth elsewhere herein), shall commence on March 12th, 1997 and end March 11th, 1998. Should the beginning date not occur on the first day of a calendar month, the term hereunder shall be extended for such fractional month. In that event, the Tenant shall pay rent for the fractional month on a per them basis (calculated on the basis of a thirty-day month) until the first day of the month. The rental for such fractional month shall be payable from the initial payment of Guaranteed Minimum Monthly Rental as provided in Article 4, below. The balance, if any, shall be applied to the next sums due Landlord hereunder. Thereafter the Guaranteed Minimum Monthly Rental shall be paid in equal monthly installments on the first day of each and every month in advance. Landlord and Tenant acknowledge and agree that immediately upon execution of this Lease, binding, legal obligations are created, and that without regard to the date upon which Tenant's obligation to pay rent commences, the relationship of Landlord and Tenant exists between the parties on the date the term commences. 4. RENTAL. A. GUARANTEED MINIMUM MONTHLY RENTAL. Tenant shall pay to Landlord during the term of this Lease as the Guaranteed Minimum Monthly Rental for the Demised Premises the sum of (as noted below) per month which sum shall be paid in advance on the FIRST DAY OF EACH CALENDAR MONTH AS FOLLOWS: MARCH 12TH, 1997 THROUGH MARCH 11TH, 1998 - $1,614.67 PER MONTH However, Tenant shall pay to Landlord its initial payment of Guaranteed Minimum Monthly Rental at time of the execution of this Lease. All rental to be paid by Tenant to Landlord shall be in lawful money of the United States of America and shall be paid without deduction or offset, prior notice or demand at the address designated in Article 33. Any rent payment not paid within five (5) days of its due date shall be subject to a five (5%) percent late charge. B. [DELETED ON ORIGINAL] C. ADDITIONAL RENT. Tenant shall pay, as additional rent, all sums of money required to be paid pursuant to any of the terms of this Lease, including without limitation, those required by Articles 4D, 5, 11, 15, 20, 21B, 21C, and all Exhibits of this Lease, whether or not the same be designated elsewhere as "additional rent." If such amounts or charges are not paid at the time provided in this Lease, they shall nevertheless be collectible as additional rent with the next installment of Guaranteed Minimum Monthly Rental thereafter falling due but nothing herein contained 5 shall be deemed to suspend or delay the payment of any amount of money or charge at the time the same becomes due and payable hereunder, or limit any other remedy of Landlord. All sums due Landlord hereunder, no matter how denominated, shall be deemed Rent. D. INTEREST ON LATE PAYMENTS. In the event Tenant shall fail to pay the fixed minimum rent or any other rental amounts thereof or any other sum due from Tenant to Landlord within five (5) days after the same becomes due, both Tenant and Landlord agree that Landlord will incur additional expenses in the form of extra collection effort, handling costs and potential impairment of credit on loans for which this Lease is security. Both parties agree that should Tenant so fail to pay its rent or other sum, Landlord should be entitled to compensation for such detriment, but that it is extremely difficult and impractical to ascertain the extent of the detriment. Landlord and Tenant therefore agree that should Tenant fail to pay the rent or other sum due within the five (5) days after the same becomes due, Landlord shall be entitled to recover from Tenant five percent (5%) of the amount due as liquidated damages. Such past-due amount shall further bear interest at the rate of eighteen (18%) percent per annum from its due date until paid. Tenant further agrees to pay Landlord as a condition precedent to curing the default any costs incurred by Landlord in affecting the collection of such past-due rent or other sum, including but not limited to, fees of any attorney or collection agency. Nothing herein contained shall limit any other remedy of Lessor. 5. EXCISE TAXES AND RENTAL TAX. Tenant shall pay to Landlord as additional rent any and all excise, privilege, rental, sales, gross proceeds, and other taxes, other than Landlord's net income and estate taxes, levied or assessed by any federal, state or local authority upon the rent received by Landlord hereunder, and Tenant shall bear any business tax imposed upon Landlord by any governmental authority which is based or measured in whole or in part by amounts charged or received by Landlord from Tenant under this Lease. 6. PERSONAL PROPERTY TAXES. During the term hereof Tenant shall pay prior to delinquency, all taxes assessed against and levied upon fixtures, furnishings, equipment and all other personal property of Tenant contained in the Demised Premises. When possible, Tenant shall cause said fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the real property of Landlord. In the event any or all of the Tenant's fixtures, furnishings, equipment and other personal property shall be assessed and taxed with the Landlord's real property, the Tenant shall pay to Landlord, as additional rent, its share of such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to the Tenant's property. 6 7. PARKING AND COMMON FACILITIES. Landlord covenants that the common and parking areas of the office building of which the Demised Premises are a part shall be available for the nonexclusive use of Tenant during the full term of this Lease or any extension of the term hereof, provided that the condemnation or other taking by any public authority, or sale in lieu of condemnation, or any or all such common and parking areas shall not constitute a violation of this covenant. Landlord reserves the right to change the entrances, exits, traffic lanes and the boundaries and locations of such parking area or areas. This Lease shall be subordinate to any agreement existing as of the date of this Lease or subsequently placed upon the real property of which the Demised Premises are a part, which agreement provides for reciprocal easements and restrictions pertaining to the common and parking areas, and in the event of conflict between the provisions of such agreement and this Lease, the provisions of said agreement shall prevail. A. The Landlord shall keep, or cause to be kept, the parking and common areas in a neat, clean and orderly condition, properly lighted and landscaped, and shall repair any damage to the facilities thereof. B. Tenant, for the use and benefit of Tenant, its agents, employees, customers, licensees and any approved subtenant, shall have a non-exclusive right in common with Landlord and other present and future owners, licensees and subtenants, to use the common and non-reserved parking areas during the entire term of this Lease, or any extension thereof, for ingress and egress, roadway, sidewalk and automobile parking, provided however, Tenant and Tenant's employees shall park their automobiles in those areas designated for employee parking, or at Landlord's written request shall park their automobiles outside of the office building. C. The Tenant, in the use of said common and parking areas, agrees to comply with such reasonable rules and regulations as the Landlord may adopt from time to time for the orderly and proper operation of said common and parking areas, and to otherwise conduct itself so as not to unreasonably interfere with the rights of other tenants or approved users, including Landlord, in and to the parking and common areas. D. Tenant shall at its expense arrange for the collection of its trash in a prompt, regular, and sanitary manner, unless Landlord elects to provide trash collection as a part of the parking and common area maintenance. E. Landlord reserves the right to alter, rearrange the common areas, parking areas, driveways and entrances and exits thereof so long as Landlord conforms with the requirements of appropriate governmental bodies. Landlord reserves the right to require Tenant and their officers, agents, employees, customers and suppliers to restrict their parking to any area or areas designated 7 by Landlord. Subject to the above, the Lessee shall receive One (1) covered parking spaces, designated as Space(s) Five (5) as indicated on EXHIBIT "G". 8. CONSTRUCTION. Landlord agrees that it will, at its sole cost and expense and after the execution of this Lease, commence and pursue to completion the construction of the tenant improvements to be erected by Landlord to the extent shown on the attached EXHIBIT B. 9. USES PROHIBITED. Tenant shall not use, or permit said Demised Premises, or any part thereof, to be used for any purpose or purposes other than set forth in Article 1, above. No use shall be made or permitted to be made of the Demised Premises, nor acts done, which will increase the existing rate of insurance upon the building or the office building in which said Demised Premises is located (once said rate is established), or cause a cancellation of any insurance policy covering said building or any part thereof, nor shall Tenant sell or permit to be kept, used or sold in or about said Demised Premises any article which may be prohibited by standard form of fire insurance policies. Tenant shall, at his sole cost, comply with any and all requirements, pertaining to the use of said Demised Premises, of any insurance organization or company necessary for the maintenance of reasonable fire and public liability insurance covering said building and appurtenances. In the event Tenant's use of the Demised Premises as set forth in Article 1 hereof, results in a rate increase for the building of which the Demised Premises are a part, Tenant shall pay annually on the anniversary date of this Lease, as additional rent, a sum equal to that of the additional premium occasioned by said rate increase. 10. ALTERATIONS AND FIXTURES. Tenant shall not make or suffer to be made, any alterations of the Demised Premises, or any part thereof, without the prior written consent of Landlord, and any additions to, or alterations of, said Demised Premises, except movable furniture and trade fixtures, shall become at once a part of the realty and belong to Landlord. Any such alterations shall be in conformance with the requirements of all municipal, state and federal authorities. In addition, no alterations, additions or changes shall be made to any storefront, the exterior walls or the roof of the Demised Premises, nor shall Tenant erect any mezzanine or increase the size of same, if one be initially constructed, unless and until the written consent and approval of the Landlord shall first have been obtained. In no event shall Tenant make or cause to be made any penetration through the roof of the Demised Premises without the prior written approval of Landlord. Tenant shall be directly responsible for any and all damages resulting from any violation of the provisions of this Article. All alterations, additions, or changes to be made to the Demised Premises which require the approval of the Landlord shall be under the supervision of a 8 competent architect or competent licensed structural engineer and made in accordance with plans and specifications with respect thereto, approved in writing by the Landlord before the commencement of work. All work with respect to any alterations, additions, and changes must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Demised Premises shall at all times be a complete unit. Upon completion of such work, Tenant shall file for record in the office of the County Recorder where the office building is located a Notice of Completion as permitted by law. Upon termination of the Tenant's leasehold estate such alterations, additions or changes shall be considered as improvements and shall not be removed by the Tenant but shall become a part of the Demised Premises. In performing the work of any such alterations, additions or changes, the Tenant shall have the work performed in such a manner as not to obstruct the access to the Demised Premises or of any other tenant in the office building. Landlord's consent or approval, when called for in this Article, may be granted or withheld in its sole discretion and may be conditioned upon the posting by Tenant, Tenant's contractor, or both, of such surety bonds as Landlord reasonably deems necessary to assure the timely, workmanlike, lien free completion of any such work. 11. MAINTENANCE AND REPAIR. Tenant shall at all times during the term hereof, and at Tenant's sole cost and expense, keep, maintain and repair the interior and other improvements which constitute the Demised Premises in good and sanitary order and condition (except as hereinafter provided). Tenant shall also at its sole cost and expense be responsible for any alterations or improvements to the Demised Premises necessitated as a result of the requirement of any municipal, state or federal authority. Tenant hereby waives all right to make repairs at the expense of Landlord. By entering into the Demised Premises, Tenant shall be deemed to have accepted the Demised Premises as being in good and sanitary order, condition and repair, and Tenant agrees on the last day of the term or on the sooner termination of this Lease, to surrender the Demised Premises with appurtenances, in the same condition as when received, reasonable use and wear thereof and, where insurance proceeds are available to Landlord to restore the Demised Premises, damage by fire, act of God or by the elements excepted. Landlord shall maintain the heating/air conditioning units, roof and structural parts of the building in good repair. Landlord shall make all necessary repairs to the Demised Premises and to the property wherein located at Landlord's cost and when such repairs are not the obligation of Tenant by reason of the above; however, Landlord shall not be liable for breakdowns or 9 temporary interruptions of service when reasonable efforts to restore same have been made by Landlord. 12. COMPLIANCE WITH LAWS. Tenant shall, at its sole cost and expense, comply with all of the requirements of all municipal, state and federal authorities including the Americans With Disabilities Act of 1990, now in force or which may hereafter be in force pertaining to the use of said Demised Premises, and shall faithfully observe in said use all municipal ordinances and state and federal statutes now in force or which shall hereinafter be in force. Without limiting the foregoing, Tenant shall not use, store, keep or permit any one else to use, store, or keep on the Demised Premises any material which is classified by any municipal, state, federal, or other governmental agency as hazardous, toxic, or similarly detrimental to health or the environment, without the express written consent of Landlord first being obtained, which consent may be withheld in Landlord's sole and absolute discretion. In any event, and notwithstanding any consent by Landlord, Tenant shall at all times comply with all laws, rules and regulations concerning hazardous, toxic, or similar materials. Tenant hereby agrees to indemnify, defend, and hold Landlord harmless from any and all loss it may suffer arising out of or related to Tenant's use, storage, keeping or presence of hazardous, toxic or similar materials on the Demised Premises, which indemnity shall survive the term of this Lease. The judgment of any court of competent jurisdiction, or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such order or statute in said use, shall be conclusive of that fact as between the Landlord and Tenant. Tenant shall not commit, or suffer to be committed, any waste upon the Demised Premises, or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the premises in which the Demised Premises is located. 13. INSURANCE. Landlord shall maintain fire and extended coverage insurance throughout the term of this Lease in an amount equal to at least eighty percent (80%) of the replacement value of the building which includes the Demised Premises, together with such other insurance as may be required by Landlord's lender or by any governmental agency. At Landlord's option, Landlord may maintain earthquake, flood, or "all risks" insurance on the building or office building of which the Demised Premises are a part, for an amount not less than 90% of the replacement value of the insured property. With respect to "all risks" insurance, Landlord and Tenant agree that Landlord's insurable interest in the Demised Premises includes all improvements to the premises, except Tenant's removable trade fixtures or Tenant's personal property which are insured by Tenant's personal property insurance. Tenant hereby waives any right of recovery from Landlord, its officers and employees, and Landlord, to the extent permitted under its 10 insurance policies, hereby waives any right of recovery from Tenant, its officers or employees, for any loss or damage (including consequential loss) resulting from any of the perils insured against in the standard form fire insurance policy with extended coverage endorsement. Any or all of the insurance which Landlord is required to or may maintain under this Lease, including that for the parking and common areas, may be carried by Landlord as part of a blanket policy or policies, which also covers other properties of Landlord. In such event, Landlord shall allocate to the office building a portion of the total premium for such policies which fairly and reasonably represents costs attributable to the subject property. In making such allocation, Landlord shall be entitled to consider, among other things, the relationship between the size and value of the subject property compared to all covered properties, and any special requirements resulting in a disproportionate allocation imposed upon the subject property by Landlord's mortgage holders, partners, governmental agencies or others who may legitimately impose insurance requirements on Landlord. 14. INDEMNIFICATION, WAIVER AND RELEASE. (A) Tenant will neither hold nor attempt to hold Landlord or its employees or agents liable for, and Tenant will indemnify and hold harmless Landlord, its employees and agents from and against, any and all demands, claims, causes of action, fines, penalties, damages (including consequential damages), liabilities, judgments, and expenses (including, without limitation, attorneys' fees) incurred in connection with or arising from: (i) the use or occupancy or manner of use or occupancy of the Premises by Tenant or any person claiming under Tenant; (ii) any activity, work or thing done, permitted or suffered by Tenant in or about the demised Premises, the Building or the common areas; (iii) any acts, omissions or negligence of Tenant or any person claiming under Tenant, or the contractors, agents, employees, invitees or visitors of Tenant or any such person; (iv) any breach, violation or nonperformance by Tenant or any person claiming under Tenant or the employees, agents, contractors, invitees or visitors of Tenant or any such person of any term, covenant or provision of this Lease or any law, ordinance or governmental requirement of any kind; (v) any injury or damage to the person, property or business of Tenant, its employees, agents, contractors, invitees, visitors or any other person entering upon the demised Premises, the Building or the common areas under the express or implied 11 invitation of Tenant; except for any injury or damage to persons or property on the Premises which is proximately caused by or results proximately from the negligence or deliberate act of Landlord or its employees. If any action or proceeding is brought against Landlord or its employees by reason of any such claim for which Tenant has indemnified Landlord, Tenant, upon notice from Landlord, will defend the same at Tenant's expense with counsel reasonably satisfactory to Landlord. (B) Tenant, as a material part of the consideration to Landlord for this Lease, by this Paragraph 14, waives and releases all claims against Landlord, its employees and agents with respect to all matters for which Landlord has disclaimed liability pursuant to the provisions of this Lease. Except for any damage or injury to person or property on the Premises which is proximately caused by or results proximately from the negligence or deliberate act of Landlord or its employees, Tenant covenants and agrees that Landlord and its employees will not at any time or to any extent whatsoever be liable, responsible or in any way accountable for any loss, injury, death or damage (including consequential damages) to persons, property or Tenant's business occasioned by any cause, either ordinary or extraordinary, beyond Landlord's control. During the entire term of this Lease, the Tenant shall, at the Tenant's sole cost and expense, but for the mutual benefit of Landlord and Tenant, maintain general public liability insurance against claims for personal injury, death or property damage occurring in, upon or about the Demised Premises and on sidewalks directly adjacent to the Demised Premises. The limitation of liability of such insurance shall not be less than One Million Dollars ($1,000,000) in respect to injury or death of one person and to the limit of not less than Two Million Dollars ($2,000,000) in respect to any one accident and to the limit of not less than Five Hundred Thousand Dollars ($500,000) in respect to property damage. All such policies of insurance shall be issued in the name of Tenant and Landlord by a company reasonably satisfactory to Landlord and for the mutual and joint benefit and protection of the parties, and such policies of insurance or copies thereof shall be delivered to the Landlord. 15. MECHANICS LIEN. Tenant agrees that it will pay or cause to be paid all costs for all work done by it or caused to be done by it on the Demised Premises, and Tenant will keep the Demised Premises free and clear of all mechanic's liens and other liens on account of work done for Tenant or persons claiming under it. Tenant agrees to and shall indemnify, defend and save the Landlord free and harmless against liability, loss, damage, costs, attorneys' fees, and all other expenses on account of claims of lien of laborers or materialmen or others for work performed or 12 materials or supplies furnished for the Tenant or persons claiming under it. If the Tenant shall desire to contest any claim of lien, it shall furnish the Landlord adequate security of the value or in the amount of the claim, plus estimated costs and interest, or a bond of a responsible corporate surety in such amount conditioned on the discharge of the lien. If a final judgment establishing the validity or existence of a lien for any amount is entered, the Tenant shall pay and satisfy the same at once. If the Tenant shall be in default in paying any charge for which a mechanic's lien claim and suit to foreclose the lien have been filed, and shall not have given the Landlord security to protect the property and the Landlord against such claim of lien, the Landlord may (but shall not be required to) pay the said claim and any costs, and the amount so paid, together with reasonable attorneys' fees incurred in connection therewith, shall be immediately due and owing from the Tenant to the Landlord, and the Tenant shall pay the same to Landlord with interest at a maximum rate allowed under the law of the State of Arizona in effect at the time this Lease was executed from the dates of the Landlord's payments. Should any claims of lien be filed against the Demised Premises or any action affecting the title to such property be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof. The Landlord or its representatives shall have the right to go upon and inspect the Demised Premises at all reasonable times and shall have the right to post and keep posted thereon notices of non- responsibility, or such other notices which the Landlord may deem to be proper for the protection of the Landlord's interest in the Demised Premises. The Tenant shall, before the commencement of any work which might result in any such lien, give to the Landlord written notice of his intention to do so in sufficient time to enable the posting of such notices. 16. ABANDONMENT. Tenant shall not vacate or abandon the Demised Premises at any time during the term of this Lease; and if Tenant shall abandon, vacate or surrender the Demised Premises or be dispossessed by process of law, or otherwise, any personal property belonging to Tenant and left on the Demised Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord. This abandonment shall in no way effect Landlord's lien rights, pursuant to Arizona law. 17. SIGNS AND AUCTIONS. Tenant shall not place or permit to be placed any sign, designs, words, or pictures upon the exterior or in or upon the windows of the Demised Premises without Landlord's prior written consent, nor shall Tenant change the color or exterior appearance of the Demised Premises without Landlord's prior written consent. Landlord's approved sign criteria drawings are attached hereto as EXHIBIT F, or if not available as of the 13 execution of this Lease shall be provided to Tenant by Landlord. Tenant shall at its sole cost and expense prepare sign construction drawings, in accordance with said criteria drawings, which shall be submitted to Landlord for Landlord's written approval. Tenant agrees to install a sign in accordance with the approved sign construction drawings within thirty (30) days after the commencement of the term of the Lease. Tenant shall not, without Landlord's prior written consent, display or sell merchandise or keep or place any promotional or advertising signs, devices or materials outside the defined exterior walls and permanent doorways of the Demised Premises. Tenant shall not conduct or permit to be conducted any sale by auction in, upon or from the Demised Premises, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors, or pursuant to any bankruptcy or other solvency proceeding. 18. UTILITIES. Tenant shall pay before delinquent all charges for janitorial, separately metered water, gas, heat, electricity, power, telephone service, and all other services or separately metered utilities used in, upon, or about the Demised Premise by Tenant or any of its Subtenants, licensees, or concessionaires during the term of this Lease. Notwithstanding any other provisions herein, Landlord shall not furnish janitorial or refuse services for the Demised Premises. Landlord will maintain the upkeep of common areas. Tenant will use common courtesy in the use of these areas to prevent unsightly or unsanitary conditions as a result of Tenant's negligence of Tenant's invitees, employees or agents. 19. ENTRY AND INSPECTION. Tenant shall permit Landlord and its agents to enter into and upon the Demised Premises at all reasonable times for the purpose of inspecting the same or for the purpose of maintaining the building in which said Demised Premises are situated, or for the purpose of making repairs, alterations or additions to any other portion of said building, including the erection and maintenance of such scaffolding, canopy, fences and props as may be required, or for the purpose of posting notices of non-liability for alterations, additions or repairs, or for the purpose of placing upon the property in which the Demised Premises are located any usual or ordinary "For Sale" or "For Lease" signs. Landlord shall be permitted to do any of the above without any rebate of rent and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Demised Premises thereby occasioned. Tenant shall permit Landlord or its agents, at any time within a sixty (60) day period prior to expiration of the Lease term, during normal business hours, to enter upon said Demised Premises and exhibit same to prospective tenants. 20. DAMAGE AND DESTRUCTION ON DEMISED PREMISES. In the event 14 of, (a) partial or total destruction of the Demised Premises or the building containing same during the term which requires repairs to either the Demised Premises or the building, or (b) the Demised Premises or the building being declared unsafe or unfit for occupancy by any authorized public authority for any reason other than Tenant's act, use or occupancy, which declaration requires repairs to either the Demised Premises or the building, Landlord shall forthwith make said repairs provided Tenant gives to Landlord thirty (30) days written notice of the necessity therefor. No such partial destruction (including any destruction necessary in order to make repairs required by any declaration made by any public authority) shall in any way annul or void this Lease except that Tenant shall be entitled to a proportionate reduction of the Minimum Guaranteed Rental while such repairs are being made, such proportionate reduction to be based upon the extent to which the making of such repairs shall interfere with the business carried on by Tenant in said Demised Premises. However, if during the last two (2) years of the term of this Lease the building is damaged as a result of fire or any other insured casualty to an extent in excess of twenty-five percent (25%) of its then replacement cost, (excluding foundations), Landlord may within thirty (30) days following the date such damage occurs, terminate this Lease by written notice to Tenant. If Landlord, however, elects to make said repairs, and provided Landlord uses due diligence in making said repairs, this Lease shall continue in full force and effect, and the minimum guaranteed rental shall be proportionately reduced as hereinabove provided. If Landlord elects to terminate this Lease, all rentals shall be prorated between Landlord and Tenant as of the date of such destruction. The foregoing to the contrary notwithstanding, if the building is damaged or destroyed at any time during the term hereof to an extent of more than twenty-five (25%) of its then replacement cost (excluding foundation(s)) as a result of a casualty not insured against, Landlord may within thirty (30) days following the date of such destruction terminate this Lease upon written notice to Tenant. If Landlord does not elect to so terminate because of said uninsured casualty, Landlord shall promptly rebuild and repair said Demised Premises and Tenant's rental obligation shall be proportionately reduced as hereinabove provided. In respect to any partial or total destruction (including any destruction necessary in order to make repairs required by any such declaration of any authorized public authority) which Landlord is obligated to repair or may elect to repair under the terms of this Article 20, Tenant waives any legal, equitable or statutory right it may have to cancel this Lease as a result of such destruction. 21. ASSIGNMENT AND SUBLETTING. A. RESTRICTION OF TENANT'S RIGHTS. Tenant shall not assign this Lease, or any right or interest, voluntarily, 15 involuntarily, or by operation of law, or otherwise hypothecate or encumber all or any part of Tenant's interest in this Lease, nor sublet the Premises or any part thereof, nor permit any subtenant, franchisee or concessionaire on the Premises (collectively "assignment of the Lease" or "assign the Lease" and the proposed transferee "assignee") without full compliance with this Article 21. B. REQUEST TO ASSIGN THE LEASE. If Tenant desires to assign the Lease, it shall submit to Landlord, in writing, all of the following: (1) All agreements and letters of intent between Tenant and other parties to the proposed transaction including documentation thereof, and sources, commitments and terms of any financing arrangements; (2) The identity of any escrow holders and real estate or business brokers involved, together with copies of escrow instructions and agreements with any real estate and business brokers; (3) A summary of proposed assignees: (a) Business history; (b) Business plan for the Premises; (c) Financial statements (balance sheet and full prior year and present year to date income statements) completed, dated and signed within thirty (30) days prior to submission, together with a complete copy of the most recently filed federal income or franchise tax returns; (d) A listing of the key employees, partners and financial backers, together with background, personal and other pertinent information concerning each of them; and (e) Business, trade and personal references; and (4) A description of any proposed changes to the Premises. In addition, Tenant shall concurrently submit to Landlord the non-refundable sum of up to $500 to reimburse Landlord for its cost of reviewing the above described material. If Landlord determines that in order to properly review this material, professional assistance is required, Tenant shall be notified of the same in advance, and shall, in addition, reimburse Landlord for the cost of such professional assistance not to exceed $500.00. 16 C. RESPONSE TO REQUEST TO ASSIGN THE LEASE. Landlord shall not be required to commence its review of Tenant's request until it shall have received all of the above described items, in form reasonably satisfactory to Landlord, and upon such receipt, shall have a reasonable time period during which to review the same. In view of the complexity of the material to be submitted, the parties agree that up to 30 days is a reasonable time period. Landlord, after review of those items submitted pursuant to subparagraph B, shall have the right to request from Tenant additional information should Landlord determine that the items submitted pursuant to subparagraph B are not sufficient for a proper analysis of the proposed assignment of the Lease. Tenant shall promptly and completely respond to any such requests for additional information. Landlord's consent to a requested assignment of the Lease, submitted as set forth in subparagraph B, shall be granted or denied in Landlord's sole judgment, provided Landlord's consent shall not be unreasonably denied. The parties agree that Landlord would be acting reasonably in denying consent, if for example (but not by way of limitation) the proposed assignee's net worth is less than that of Tenant; the proposed assignee's business experience is less than that of Tenant; the proposed assignee already operates more than one other business in the office building; the proposed assignee is by character or of a background (or through past business dealings) unacceptable to Landlord; the proposed transferee's business may achieve lower gross sales and therefore provide less percentage rent to Landlord; the business to be conducted by the proposed transferee is not compatible with that of other tenants in the office building, or is not likely to enhance the draw of customers to the office building; the proposed assignee desires material changes to the Demised Premises, without regard to responsibility for the costs of such changes; the proposed transfer will create a vacancy elsewhere in the office building or in other property owned by Landlord; the proposed transferee is a person with whom Landlord is, or recently has been, negotiating to lease space in property owned by Landlord, including the office building; Tenant is in default under the Lease, or has defaulted hereunder on more than three (3) occasions during the twelve (12) months preceding the request by Tenant; or the proposed business plan (or past business history) indicates a possible likelihood of detriment to any portion of the office building or to the rent to be received by Landlord hereunder or under any other agreement to which Landlord is a party. In addition, Landlord reserves the right to condition Landlord's consent to any assignment, sublease, or other transfer upon Landlord's receipt of a written agreement, executed by Tenant, pursuant to which Tenant shall pay to Landlord all rent or other consideration received by Tenant from any assignee, subtenant or transferee in excess of the rent called for hereunder, or in the case of the sublease or transfer of a portion of the Demised Premises, in excess of such rent fairly allocable to such portion. Any such excess shall be considered rent to Landlord, and Landlord may require its payment either in a lump sum, initially, or over 17 the term of the assignment, sublease or other transfer. D. MODIFICATION TO THE LEASE. In order to facilitate the requested assignment of the Lease, Landlord may suggest to Tenant modifications to the Lease or to the terms of the material submitted to Landlord pursuant to this Article. Any such suggestions shall not be deemed a consent or conditional consent to the proposed transaction; only an unconditional written consent, signed by Landlord, shall be binding upon Landlord. E. LIMITATION OF LANDLORD'S CONSENT. The consent to any proposed assignment of the Lease: (1) Shall not be deemed to be a consent to any subsequent attempted or proposed assignment of the Lease; (2) Shall not be deemed to be a consent to any change in the use of the Premises or the trade name under which the Premises are to be operated; or (3) Shall not in any way relieve Tenant, or any Guarantor, and/or any subsequent assignee or Guarantor of liability under this Lease. Any attempted or purported assignment of the Lease made without obtaining the prior written consent of Landlord shall, at the option of Landlord, be null and void and/or constitute a default under this Lease. F. CORPORATE STOCK OR PARTNERSHIP INTEREST OF TENANT. In the event Tenant is a corporation whose stock is not traded on a public stock exchange, or in the event Tenant is a partnership, any attempted dissolution, merger, consolidation, or other reorganization of such corporation or partnership, or any attempted sale or other transfer of a controlling percentage of the corporate stock of Tenant, or of controlling partnership interests in Tenant, as the case may be, shall constitute an attempted assignment of the Lease for all purposes of this Article. The term "controlling percentage" means the ownership of stock or partnership interests possessing or having the right to exercise at least thirty percent (30%) of the total combined voting power of all classes of such stock or partnership interests. 22. DEFAULT. (A) The following events are referred to collectively, as "Events of Default", or individually, as an "Event of Default": (i) Tenant defaults in the due and punctual payment of Rent, and such default continues for five (5) days after notice from Landlord; however, Tenant will not be entitled to more than one (1) notice for monetary defaults during any twelve (12) month period, and if after such notice any Rent is not paid when due, an Event of Default will be considered to have occurred without 18 further notice; (ii) Tenant vacates or abandons the Premises; (iii) This Lease or the Premises or any part of the Premises are taken upon execution or by other process of law directed against Tenant, or are taken upon or subject to any attachment at the instance of any creditor or claimant against Tenant, and said attachment is not discharged or disposed of within fifteen (15) days after its levy; (iv) Tenant files a petition in bankruptcy or insolvency or for reorganization or arrangement under the bankruptcy laws of the United States or under any insolvency act of any state, or admits the material allegations of any such petition by answer or otherwise, or is dissolved or makes an assignment for the benefit of creditors; (v) Involuntary proceedings under any such bankruptcy law or insolvency act for the dissolution of Tenant are instituted against Tenant, or a receiver or trustee is appointed for all or substantially all of the property of Tenant, and such proceeding is not dismissed or such receivership or trusteeship vacated within sixty (60) days after such institution or appointment; (vi) Tenant fails to take possession of the Premises on the Commencement Date of the Term; or (vii) Tenant breaches any of the other agreements, terms, covenants or conditions which this Lease requires Tenant to perform, and such breach continues for a period of thirty (30) days after notice from Landlord to Tenant; or if such breach cannot be cured reasonably within such thirty (30) day period and Tenant fails to commence to cure such breach within thirty (30) days after notice from Landlord or fails to proceed diligently to cure such breach within a reasonable time period thereafter. (B) If any one or more Events of Default set forth in Paragraph 22(A) occurs, then Landlord has the right, at its election: (i) to give Tenant written notice of Landlord's intention to terminate this Lease on the earliest date permitted by law or on any later date specified in such notice, in which case Tenant's right to possession of the Premises will cease and this Lease will be terminated, except as to Tenant's liability, as if the expiration of the term fixed in such notice were the end of the Term; or (ii) without further demand or notice, to reenter and take possession of the Premises or any part of the Premises, repossess the same, expel Tenant and those claiming through or 19 under Tenant, and remove the effects of both or either, using such force for such purposes as may be necessary, without being liable for prosecution, without being deemed guilty of any manner of trespass, and without prejudice to any remedies for arrears of Monthly Rent or other amounts payable under this Lease or as a result of any preceding breach,of covenants or conditions; or (iii) without further demand or notice to cure any Event of Default and to charge Tenant for the cost of effecting such cure, including, without limitation, attorneys' fees and interest on the amount so advanced at the maximum allowable rate provided that Landlord will have no obligation to cure any such Event of Default of Tenant. Should Landlord elect to reenter as provided in subsection (b), or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided by law, Landlord may, from time to time, without terminating this Lease, relet the Premises or any part of the Premises in Landlord's or Tenant's name, but for the account of Tenant, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and on such conditions and upon such other terms (which may include concessions of free rent and alteration and repair of the Premises) as Landlord, in its sole discretion, may determine, and Landlord may collect and receive the rent. Landlord will in no way be responsible or liable for any failure to relet the Premises, or any part of the Premises, or for any failure to collect any rent due upon such reletting. No such reentry or taking possession of the Premises by Landlord will be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention is given to Tenant. No notice from Landlord under this Section or under a forcible or unlawful entry and detainer statute or similar law will constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Landlord reserves the right following any such reentry or reletting to exercise its right to terminate this Lease by giving Tenant such written notice, in which event this Lease will terminate as specified in such notice. (C) CERTAIN DAMAGES. In the event that Landlord does not elect to terminate this Lease as permitted in Paragraph 22(A), but on the contrary, elects to take possession as provided in Paragraph 22(B)(ii), Tenant will pay to Landlord: (i) Monthly rent and other sums as provided in this Lease, which would be payable under this Lease if such repossession had not occurred, less (ii) the net proceeds, if any, of any reletting of the Premises after deducting all of Landlord's reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, attorneys' fees, expenses of employees, alteration and repair costs and expenses of preparation for such reletting. If, in connection with any reletting, the new lease term extends beyond the existing Term, or the premises covered by 20 such new lease include other premises not part of the Premises, a fair apportionment of the rent received from such reletting and the expenses incurred in connection with such reletting as provided in this Section will be made in determining the net proceeds from such reletting, and any rent concessions will be equally apportioned over the term of the new lease. Tenant will pay such rent and other sums to Landlord monthly on the day on which the Monthly Rent would have been payable under this Lease if possession had not been retaken and Landlord will be entitled to receive such rent and other sums from Tenant on each such day. (D) CONTINUING LIABILITY AFTER TERMINATION. If this Lease is terminated on account of the occurrence of an Event of Default, Tenant will remain liable to Landlord for damages in an amount equal to Monthly Rent and other amounts which would have been owing by Tenant for the balance of the Term, had this Lease not been terminated, less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to such termination, after deducting all of the Landlord's expenses in connection with such reletting, including, but without limitation, the expenses enumerated in Paragraph 22(C). Landlord will be entitled to collect such damages from Tenant monthly on the day on which Monthly Rent and other amounts would have been payable under this Lease if this Lease had not been terminated, and Landlord will be entitled to receive such Monthly Rent and other amounts from Tenant on each such day. Alternatively, at the option of Landlord, in the event this Lease is so terminated, Landlord will be entitled to recover against Tenant as damages for loss of the bargain and not as a penalty: (i) the worth at the time of award of the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term of this Lease (had the same not been so terminated by Landlord) after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at the time award" of the amounts referred to in clauses (i) and (ii) above is computed by adding interest at the per annum maximum allowable interest rate on the date on which this Lease is 21 terminated from the date of termination until the time of the award. The worth at the time of award of the amount referred to in clause (iii) above is computed by discounting such amount at the discount rate of the Federal Reserve Bank of Denver at the time of award plus one percent. (E) CUMULATIVE REMEDIES. Any suit or suits for the recovery of the amounts and damages set forth in Paragraph 22(C) and Paragraph 22(D) may be brought by Landlord, from time to time, at Landlord's election, and nothing in this Lease will be deemed to require Landlord to await the date upon which this Lease or the Term would have expired had there occurred no Event of Default. Each right and remedy provided for in this Lease is cumulative and is in addition to every other right or remedy provided for in this Lease now or after the Date existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease or now or after the Date existing at law or in equity or by statute or otherwise will not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or after the Date existing at law or in equity or by statute or otherwise. All costs incurred by Landlord in collecting any amounts and damages owing by Tenant pursuant to the provisions of this Lease or to enforce any provision of this Lease, including reasonable attorneys' fees from the date any such matter is turned over to an attorney, whether or not one or more actions are commenced by Landlord, will also be recoverable by Landlord from Tenant. (F) WAIVER OF REDEMPTION. Tenant waives any right of redemption arising as a result of Landlord's exercise of its remedies under this Paragraph 22. 23. ASSIGNMENT OF RENTS. As security for the performance by Tenant of all of its duties and obligations hereunder, Tenant does hereby assign to Landlord the right, power and authority, during the continuance of this Lease, to collect the rents, issues and profits of the Demised Premises, reserving unto Tenant the right, prior to any breach or default by it hereunder, to collect and retain said rents, issues and profits as they become due and payable. Upon any such breach or default, Landlord shall have the right at any time thereafter, without notice except as provided for above, either in person, by agent or by a receiver to be appointed by a court, to enter and take possession of said Demised Premises and collect such rents, issues and profits, including those past due and unpaid, and apply the same, less costs and expenses of operation and collection, including reasonable attorneys' fees, upon any indebtedness secured hereby, and in such order as Landlord may determine. Landlord's remedies under this Lease are cumulative, and shall be in addition to any other remedies and rights Landlord may have 22 at law or in equity. 24. TENANT'S FINANCIAL CONDITION. Tenant acknowledges that Landlord has executed this Lease in reliance on the financial information furnished by Tenant to Landlord as to Tenant's financial condition. In the event that it is determined by any time subsequent to the date of this Lease that any of the financial information furnished by Tenant is substantially untrue or inaccurate, Tenant shall be deemed to be in default under this Lease, which default shall not be subject to cure, and which shall entitle Landlord to exercise all remedies reserved to Landlord under this Lease or otherwise available to Landlord at law. 25. NO WAIVER OF BREACHES. The subsequent acceptance of rental hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rental. No term, covenant or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing and signed by Landlord. 26. INSOLVENCY OF TENANT. Tenant agrees that in the event all, or substantially all, of its assets are placed in the hands of a receiver or trustee, and in the event such receivership or trusteeship continues for a period of ten (10) days or should Tenant make an assignment for the benefit of creditors or be adjudicated a bankrupt, or should Tenant institute any proceedings under any state or federal bankruptcy act wherein Tenant seeks to be adjudicated a bankrupt, or seeks to be discharged of its debts, or should any involuntary proceeding be filed against Tenant under such bankruptcy laws and Tenant consents thereto or acquiesces therein by pleading or default, then this Lease or any interest in and to the Demised Premises shall not become an asset in any of such proceedings and, in any of such events and in addition to any and all rights or remedies of Landlord hereunder or as provided by law, it shall be lawful for Landlord at his option to declare the term hereof ended and to re-enter the Demised Premises and take possession thereof and remove all persons therefrom and Tenant shall have no further claim herein or hereunder. 27. SURRENDER OF LEASE. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to him of any or all of such subleases or subtenancies. 28. SALE OF PREMISES BY LANDLORD. In the event of any sale of the Demised Premises by Landlord, Landlord shall be and is hereby entirely freed and relieved of all liability under any and 23 all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or any subsequent sale of the Demised Premises, shall be deemed without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Landlord under this Lease. 29. HOURS OF BUSINESS. Subject to the provisions of Article 19 hereof, Tenant shall continuously during the entire term hereof conduct and carry on, under the trade name and style set forth in Article 1, above. Tenant expressly acknowledges that the ongoing conduct of Tenant's business in the Demised Premises is of material concern to Landlord, and that Landlord may suffer economic harm and other detriment through Tenant's failure to conduct its business as aforesaid, and that the failure to conduct the business in the manner described herein shall be a material breach of this Lease, notwithstanding Tenant's current payment of rent and related charges. 30. ATTORNEY'S FEES. If any dispute or action between Landlord or Tenant arises out of this Lease, the prevailing party in such dispute or action shall be entitled to recover its reasonable attorneys' fees from the. other as determined by the court. If Landlord is involuntarily made a party defendant to any litigation concerning this Lease or the Demised Premises by reason of any act or omission of Tenant, then, Tenant shall hold harmless Landlord from all liabilities by reason thereof, including reasonable attorneys' fees and all costs incurred by Landlord in such litigation. 31. SECURITY DEPOSIT. Tenant contemporaneously with the execution of this Lease, has deposited with Landlord the sum of one Thousand Six Hundred Fourteen and 67/100 Dollars ($1,614.67), receipt of which is hereby acknowledged by Landlord, said deposit being given to secure the faithful performance by the Tenant of all of the terms, covenants, and conditions of this Lease by the Tenant to be kept and performed during the term hereof. Tenant agrees that if the Tenant shall fail to pay the rent herein reserved promptly when due, said deposit may, at the option of the Landlord (but Landlord shall not be required to) be applied to any rent due and unpaid, and if the Tenant violates any of the other terms, covenants, and conditions of this Lease, said deposit shall be applied to any damages suffered by Landlord as a result of Tenant's default to the extent of the amount of the damages suffered. Nothing contained in this Article 31 shall in any way diminish or be construed as waiving any of the Landlord's other remedies as provided in Article 22 hereof, or by law or in equity. Should the entire security deposit, or any portion thereof, be appropriated and applied by Landlord for the payment of overdue rent or other 24 sums due and payable to Landlord by Tenant hereunder, then Tenant shall on the written demand of Landlord, forthwith remit to Landlord a sufficient amount in cash to restore said security deposit to its original amount, and Tenant's failure to do so within fifteen (15) after receipt of such demand, shall constitute a breach of this Lease. Should Tenant comply with all of the terms, covenants, and conditions of this Lease and promptly pay all of the rental herein provided for as it falls due, and all other sums payable by Tenant to Landlord hereunder, such security deposit shall be returned in full to Tenant at the end of the term of this Lease, or upon the earlier termination of this Lease pursuant to the provision of Article 20 hereof, except in the event the Demised Premises are sold as a result of the exercise of any power of sale under any mortgage or deed of trust, in which event this Lease shall be automatically amended to delete any reference to this Article 32, and Tenant shall be entitled to immediate reimbursement of its security deposit from the party then holding said deposit. Any funds held by Landlord as a security deposit pursuant to this paragraph which are ultimately returned to Tenant shall be returned without accruing any interest on said security deposit funds. 32. HOLDING OVER. Any holding over after the expiration of the term of this Lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, cancelable upon thirty (30) days written notice by Landlord or Tenant and at a rental and upon terms and conditions as existed during the last year of the term hereof, except that the Guaranteed Minimum Monthly Rental shall be increased to one hundred twenty-five percent (125%) of the Guaranteed Minimum Monthly Rental during the last year of the term hereof. 33. NOTICES. Wherever in this Lease it shall be required or permitted that notice and demand be given or served by either party to this Lease to or on the other, such notice or demand shall be given or served and shall not be deemed to have been duly given or served unless in writing and forwarded by certified mail, return receipt requested, addressed as follows: TO: LANDLORD TO: TENANT AT: Scottsdale Stetson Corp. AT: Virtual Technologies, Inc. PO Box 4-422-5 7309 East Stetson Drive Phoenix, AZ 85064-4225 Suite 102 Attn: Mr. Patrick J. Logue Scottsdale, AZ 85251 Attn: WITH A COPY TO: WITH A COPY TO: Mr. Wayne Smith Mr. Leif Schipper Robbins & Green Level 6, 468 ___ Kilda Rd. 1800 Citibank Plaza Melbourne _____,Australia 3300 North Central Avenue Phoenix, AZ 85012 25 Either party may change such address by written notice by certified mail to the other. Notices or demands shall also be deemed to be properly given or served if successfully transmitted on facsimile machine, telecopier, or telex, provided that the party to whom such notice or demand is given has such a machine in operation. All notices and demands shall be deemed given upon transmittal, which, in the case of mail, shall be upon mailing. 34. SUCCESSORS IN INTEREST. The covenants herein contained shall, subject to the provisions as to assignment and sale of the Demised Premises by Landlord apply to and bind the heirs, successors executors, administrators and assigns of all parties hereto; and all of the parties hereto shall be jointly and severally liable hereunder. 35. TENANT'S PERFORMANCE. In the event Tenant shall fail within any time limits which may be provided herein to complete any work or perform any other requirements provided to be performed by Tenant prior to commencement of the term hereof, or in the event Tenant shall cause a delay in the completion of any work, Landlord may send Tenant written notice of said default and if said default is not corrected within ten (10) days thereafter, Landlord may by written notice prior to the curing of said default terminate this Lease. Landlord shall be entitled to retain as liquidated damages all deposits made hereunder and such improvements as Tenant may have annexed to the real estate that cannot be removed without damage thereto. 36. FORCE MAJEURE. If either party hereto shall be delayed or prevented from the performance of any act required hereunder by reason of acts of God, strikes, lockouts, labor troubles, objective inability to procure materials, restrictive governmental laws or regulations or other cause without fault and beyond the control of the party obligated (financial inability excepted), performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay; provided, however, nothing in this Article 36 contained shall excuse Tenant from the prompt payment of any rental or other charge required of Tenant hereunder except as may be expressly provided elsewhere in this Lease. 37. PARTIAL INVALIDITY. If any term, covenant, condition or provision of this Lease is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. 26 38. MARGINAL CAPTIONS. The various headings and numbers herein and the grouping of the provisions of this Lease into separate articles and paragraphs are for the purpose of convenience only and shall not be considered a part thereof. 39. TIME. Time is of the essence of this Lease. 40. SUBORDINATION, ATTORNMENT. This Lease, at Landlord's option, shall be subordinate to the lien of any first deed of trust or first mortgage subsequently placed upon the real property of which the Demised Premises are a part, and to any and all advances made on the security thereof, and to all renewals modifications, consolidations, replacement and extensions thereof; provided, however, that as to the lien of any such deed of trust or mortgage Tenant's right to quiet possession of the Demised Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust, or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by the Landlord covering the Demised Premises, Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease. 41. ESTOPPELS. If upon any sale, assignment, or hypothecation of the Demised Premises or the land thereunder by Landlord,, or at any other time,, an estoppel certificate and/or financial statement shall. be requested of Tenant, Tenant agrees within ten (10) days thereafter, to deliver such financial statement, and to deliver such estoppel certificate (in recordable form) addressed to any such proposed mortgagee or purchaser or to the Landlord certifying the requested information, including among other things: (i) that the Tenant entered into occupancy of the premises described in the Lease; (ii) that the Lease is in full force and effect and has not been amended in any way or, if amended, specifying such amendments; (iii) that the Tenant has not assigned its interest in the Lease or subleased the premises, or if it has done so, specifying such assignment or sublease; (iv) that the person or persons who signed the Lease were duly authorized to do so; (v) specifying the date on which the Lease term expires and any options by Tenant to extend or renew the Lease; (vi) that the Tenant has no right or option to purchase the premises or specifying such right or option if one exists; (vii) specifying the 27 minimum monthly rental due under the Lease and the date to which said rental has been paid; (viii) that all conditions of the Lease (including the construction of any improvements) to be performed by Landlord and necessary to the enforceability of the Lease have been satisfied; (ix) that, to the best of Tenant's knowledge, there are no defaults or breaches by either Tenant or Landlord under the Lease or specifying such defaults or breaches if Tenant has knowledge of any; (x) that no rents have been prepaid, except as provided in the Lease, and that Tenant is not entitled to any free rent or other deductions from the minimum monthly rental due under the Lease or specifying such deductions if they exist; (xi) that, to the best of Tenant's knowledge, Tenant has no claim against Landlord which might be set off or credited against future accruing rents; (xii) that there is no action pending against Tenant under the bankruptcy laws of the United States; (xiii) that the person signing the estoppel certificate on behalf of the Tenant is duly authorized and empowered to do so; and (xiv) that the estoppel certificate may be relied upon by Landlord and by any prospective purchaser of the premises or any prospective lender making a loan to be secured by the premises, the dates of commencement and termination of this Lease, the amounts of security deposits, and that this Lease is in full force and effect (if such be the case) and that there are no differences, offsets or defaults of Landlord, or noting such differences, offsets or defaults as actually exist. Tenant shall be liable for any loss or liability resulting from any incorrect information certified, and such mortgagee and purchaser shall have the right to rely on such estoppel certificate and financial statement. Tenant shall in the same manner acknowledge and execute any assignment of rights to receive rents as required by any mortgagee of Landlord. Tenant acknowledges that Landlord may suffer substantial economic and other injury if Tenant fails to supply any such requested item. Therefore, should Tenant fail to supply such estoppel certificate, financial statement or assignment of rights within ten (10) days of the service on Tenant of a request for same, Tenant shall pay to Landlord additional rent equal to one-thirtieth (1/30) of the Guaranteed Minimum Monthly Rental for each day commencing with the eleventh day after said notice, until such item has been received. The daily additional rent shall be in addition to all other rent hereunder, shall be due and payable daily, and shall be in default if not so paid. 42. REVISION OF EXHIBIT A. It is understood and agreed that the plot plan attached hereto as Exhibit A as preliminary and that prior to the commencement of the term hereof Landlord may revise said plot plan and change the location of the Tenant's Demised Premises; provided, however, relocation of Tenant's Demised Premises shall be subject to Tenant's approval. In the event Tenant does not approve said relocation, Tenant may cancel this Lease, in which event any security deposit or prepaid rent paid by 28 Tenant shall be refunded to Tenant and neither party shall thereafter have any further obligations to each other respecting this Lease. Following the commencement of the term, Landlord may modify the site plan without Tenant's consent, so long as such modification does not unreasonably affect the use of Tenant's Demised Premises. 43. CONDEMNATION. In the event of a condemnation or a transfer in lieu thereof, twenty percent (20%) or more of the Demised Premises is taken, or in the event as a result of such taking or transfer in lieu thereof, Landlord is unable to provide the parking required by Article 7 hereof, Landlord or Tenant may, upon written notice given within thirty (30) days after such taking or transfer in lieu thereof, terminate this Lease. Tenant shall not be entitled to share in any portion of the award, and Tenant hereby expressly waives any right or claim to any part thereof. Tenant shall, however, have the right to claim and recover, only from the condemning authority (but not from Landlord), any amounts necessary to reimburse Tenant for the cost of removing stock and fixtures. 44. NO ORAL AGREEMENTS OR REPRESENTATIONS. This Lease covers in full each and every agreement of every kind or nature whatsoever between the parties hereto concerning this Lease, and all preliminary negotiations and agreement of whatsoever kind or nature are merged herein, and there are no oral agreements or implied covenants. Without limiting the foregoing, Landlord specifically does not warrant that any other occupant, present or future, in the office building of which the Demised Premises is a part, shall be or remain an occupant during the term of the Lease. Landlord does not warrant that any particular tenant, user or type of use shall be present in the office building, notwithstanding any notations on Exhibit A or any other site plan or schematic representation now or hereafter in existence. 45. LIMITATION OF LIABILITY. Tenant expressly agrees that its sole recourse in the event of a claim of default by Landlord shall be against Landlord itself, and Tenant shall have no recourse against, nor will it sue, name, seek to execute against or otherwise subject to legal process any officer, director, agent, or shareholder of Landlord in connection with any breach, claim of breach or action for performance or declaration of rights related to this transaction contemplated by this Agreement. a) Commencement of Action. Any claim, demand, right, or defense by Tenant that arises out of this Lease, prior Leases or the negotiations that preceded this Lease(s) shall be barred unless Tenant commences an action thereon, or interposes a defense by reason thereof, within six (6) months after the date of the inaction, omission, event, or action that gave rise to such claim, 29 demand, right, or defense. b) Tenant Acknowledgment. Tenant acknowledges and understands, after having consulted with its legal counsel, that the purpose of Paragraph (a) above is to shorten the period within which Tenant would otherwise be able to raise such claims, demands, rights or defenses under applicable law and agrees to such time frame. 46. WAIVER OF REDEMPTION BY TENANT. Tenant hereby waives for Tenant and for all those claiming under Tenant all right now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease. 47. CAPACITY AND AUTHORITY. If Tenant is a corporation, Tenant and each individual executing this Lease on Tenant's behalf, warrants, by its execution hereof, that Tenant is in good standing, authorized to do business in Arizona, and authorized and empowered to execute and deliver this Lease, and to perform the acts provided for herein. If Tenant is a partnership, joint venture, or other unincorporated association, each individual executing the Lease on behalf of Tenant represents and warrants that the entity is duly formed and authorized to do business in Arizona, and upon such execution, the entity shall be fully bound to perform hereunder. In all events, Tenant and the individuals executing this Lease on Tenant's behalf, shall, upon Landlord's request, supply Landlord with written certificates or other appropriate indicia of authority and capacity. 48. GUARANTEE. If this Lease shall have been guaranteed, any such guarantee shall be deemed a material part of the consideration for Landlord's execution of this Lease. If the guarantor under any such guarantee is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors, or institutes or is the subject of any proceeding under the Bankruptcy Act or other similar law for the protection of creditors (or, if the guarantor is a partnership or consists of more than one person or entity, if any partner of the partnership or such other person or entity is or becomes bankrupt or insolvent institutes any such proceeding, or makes an assignment for the benefit of creditors), then Landlord shall have the option to terminate this Lease upon thirty (30) days written notice unless Tenant, within such thirty (30) day period, provides Landlord with either (i) a substitute or additional guarantor satisfactory to Landlord and any Mortgagee of Landlord, or (ii) adequate assurance of the performance of each and every obligation of Tenant hereunder, satisfactory to Landlord and such Mortgagee; provided, however, that no such termination of this Lease shall become effective without the prior written consent of such Mortgagee, if required under any agreements between Landlord and such Mortgagee. 30 49. OPTION TO RENEW. Lessee has the right to renew their lease for an additional TWO (2) year period on the same terms and conditions as their existing lease, upon written notice to Landlord of Tenant's intent to do so no later than 90 days prior to the expiration of the lease. The guaranteed minimum monthly rental rate shall be adjusted as follows: March 12th, 1998 to March 11th, 1999 - $1,672.33 per month March 12th, 1999 to March 11th, 2000 - $1,730.00 per month 50. ZONING/USE. The herein described property is zoned C-2, P-2, and P-3 commercial by the City of Scottsdale. Tenant shall investigate the current zoning to verify it's existence and adequacy for tenant's proposed use. Landlord assumes no liability for tenant's use as it shall or shall not conform to the zoning restrictions currently in place or modified in the future by the City of Scottsdale. 51. REAL ESTATE BROKERS. Landlord and Tenant hereby expressly release, hold harmless and indemnify all brokers in this transaction from any and all liability and responsibility regarding the condition, square footage, lot lines or boundaries, value, rent rolls, environmental problems, sanitation systems, roof, wood infestation and wood infestation report, compliance with building codes or other governmental regulations, or any other material matters relating to the premises. Neither Landlord, Tenant, nor any Broker shall be bound by any understanding, agreement, promise or representation, express or implied, written or verbal, not specified herein. IN WITNESS WHEREOF, the parties have duly executed this Lease together with the herein referred to Exhibits which are attached hereto, on the date and year first above written. SCOTTSDALE STETSON CORPORATION /s/ /s/ Leif Schipper - - -------------------------------- ------------------------------- President President-Virtual - - -------------------------------- ------------------------------- Technologies, Inc. - - -------------------------------- ------------------------------- Title Title 03/12/97 03/12/97 - - -------------------------------- ------------------------------- DATE DATE 31 EXHIBIT A --------- PLOT PLAN OF OFFICE BUILDING EXHIBIT B --------- SCHEDULE OF TENANT IMPROVEMENTS The following tenant improvements shall be performed by Landlord, and previously agreed to in writing by Tenant. The improvements shall be started and completed after the beginning of the lease term. Listed below is a basic outline of the improvements to be performed, and payment responsibilities. Should the Landlord and Tenant, for whatever reason, not agree to the eventual improvements and payments, the Lease shall remain in full force and effect, and this shall not constitute a default by either party. This paragraph supersedes any provisions to the contrary in the Lease. The basic outline is as follows: 1. The lockers in the reception area, and the surrounding drywall, shall be removed, and the remaining wall patched and painted. The existing spare carpeting shall be used on the floor. 2. Northeast Office - The top portion of the interior walls, where the walls have been extended to the ceiling, shall be removed and the walls shall be extended to the ceiling again, textured to match, and painted to match existing walls. 3. North Office - All interior walls shall be completed to the ceiling, textured and painted to match. A complete wall shall be installed dividing the office into 2 offices, along with a door, in the to-be-created office. Location of wall and door as indicated on attached of f ice layout. 4. Middle/Entry Work Area/office - All interior walls to be completed to ceiling, textured and painted to match. 5. Southwest Office/ Conference Room - All interior walls to be completed to ceiling, textured and painted to match. 6. The cost of such tenant improvements, subject to agreement by Landlord and Tenant, shall not exceed $7,000.00. Tenant agrees to reimburse Landlord for FIFTY (50%) PERCENT of the actual cost of the Tenant Improvements. Tenant's payment will be due upon execution of a contract with a General Contractor, or other entity agreed to by all parties. 7309 EAST STETSON DRIVE Scottsdale, Arizona 85251 SUITE 102 --------- EXHIBIT C --------- 7309 E. STETSON BUILDING ------------------------ RULES AND REGULATIONS --------------------- 1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the building without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice with notice to and at the expense of Tenant. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Landlord shall not place anything or allow anything to be placed near the glass of any window, door, partition, or wall which may appear unsightly from outside the premises. 2. Any directory of the building will be provided exclusively for the display of the name of Tenant only and Landlord reserves the right to exclude any other names therefrom. 3. The sidewalks, halls, passages, exits, entrances shall not be obstructed by any of the Tenants or used by them for any purpose other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, and roof are not for the use of the general public and the Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of the Landlord shall be prejudicial to the safety, character, reputation and interests of the building and its Tenants provided that nothing herein contained shall be construed to prevent such access to persons with whom the Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. No Tenant and no employees or invitees of any Tenant shall go upon the roof of the building, except for HVAC maintenance and repair. 4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees shall have caused it. 1 5. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the building and also the times and manner of moving the same in and out of the building. Safes or other heavy objects, shall, if considered necessary by Landlord, stand on wood strips of such thickness as is necessary to property distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the building by moving or maintaining any such safe or other property shall be repaired at the expense of Tenant. 6. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of cleanliness. Landlord shall in no way be responsible to any Tenant for any loss of property on the premises, however occurring, or for any damage done to the effects of any Tenant by any person other than an employee or agent of Landlord. 7. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premises to be occupied or used in a manner offensive or objectionable to the Landlord or other occupants of the building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought in or kept in or about the premises or the building, except as specifically allowed by the terms of the lease. 8. The premises shall not be used for washing clothes, for lodging, or for any improper, objectionable or immoral purposes. 9. Tenant shall not use or keep in the premises or the building any kerosene, gasoline or inflammable or combustible fluid or material. 10. Landlord will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the consent of Landlord. The location of telephones, call boxes and other office equipment affixed to the premises shall be subject to the approval of Landlord. 11. Each Tenant, upon the termination of the tenancy, shall deliver to the Landlord the keys of offices, rooms, and toilet rooms which shall have been furnished the Tenant or which the Tenant shall have had made, and in the event of loss of any keys so furnished, shall pay the Landlord therefor. 12. No Tenant shall lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor 2 of the premises in any manner except as approved by the Landlord. The expense of repairing any damage resulting from violations of this rule or removal of any floor covering shall be borne by the Tenant by whom, or by whose contractors, employees, or invitees, the damage shall have been caused. 13. No furniture, packages, supplies, equipment or merchandise will be received in the building, except between such hours as shall be designated by the Landlord. 14. The Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the building of any person. In case of invasion, mob, riot, public excitement, or other commotion, the Landlord reserves the right to prevent access to the building during the continuance of the same by closing the doors or otherwise, for the safety of the Tenants and protection of property in the building and the building. 15. For any default or carelessness Tenant shall make good all injuries sustained by other tenants or occupants of the building or Landlord. 16. Landlord reserves the right to exclude or expel from the building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the building. 17. The requirements of Tenant will be attended to only upon application at the office of the Management of the Building. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from the Tenant, and no employee will admit any person (Tenant or otherwise) to any office, or store without specific instructions from the Landlord. 18. No vending machine or machines of any description shall be installed, maintained or operated upon the premises exterior without the written consent of the Landlord. 19. Landlord shall have the right, exercisable with notice and without liability to Tenant, to change the name and the street address of the building of which the premises are a part only if and when required by the City of Scottsdale or other regulatory body. 20. The word "building" as used herein means the building of which the premises are a part. 21. The driveways and loading zones must be kept free of parked automobiles. 3 22. The Landlord reserves the right at any time to rescind any one or more of these rules and regulations, or to make such other and further reasonable rules and regulations as in the Landlord's judgment may from time to time be necessary for the safety, care and cleanliness of the premises, and for the preservation of order herein. 4 EXHIBIT D --------- TENANT USE OF PREMISES GENERAL OFFICE PURPOSES. 5 EXHIBIT D --------- TENANT USE OF PREMISES GENERAL OFFICE PURPOSES. 6 EXHIBIT E --------- GUARANTY -------- DOMINION CAPITAL _______ LTD. ("Guarantor"), whose address is Level 6, 468 ___ Kilda Road, Melbourne _____, Australia, as a material inducement to and in consideration of Scottsdale Stetson Corporation (Landlord) entering into a written lease (the "Lease") with Virtual Technologies, Inc. ("Tenant"), dated the same date as this guaranty, pursuant to which Landlord leased to Tenant, and Tenant leased from Landlord, premises located in the City of Scottsdale, County of Maricopa, State of Arizona, in the office building commonly known as 7309 E. STETSON BUILDING, unconditionally guarantees and promises to and for the benefit of Landlord that Tenant shall perform the provisions of the Lease that Tenant is to perform. Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability under this guaranty. The provisions of the Lease may be changed by written agreement between Landlord and Tenant at any time without the consent of or without notice to Guarantor. This guaranty shall guarantee the performance of the Lease as changed. Assignment of the Lease (whether or not permitted by the Lease) shall not affect this guaranty. This guaranty shall not be affected by Landlord's failure or delay in enforcing any of its rights. If Tenant defaults under the Lease, Landlord can proceed immediately against Guarantor or Tenant, or both, to enforce any rights that it has under the Lease, or pursuant to applicable laws. If the Lease terminates and Landlord has any rights it can enforce against Tenant after termination, Landlord can not enforce those rights against Guarantor without giving previous notice to Tenant or Guarantor, or without making any demand on either of them. Guarantor waives the right to require Landlord to (1) proceed against Tenant; (2) proceed against or exhaust any security that Landlord holds from Tenant; or (3) pursue any other remedy in Landlord's power. Guarantor waives any defense by reason of any disability of Tenant, and waives any other defense based on the termination of Tenant's liability from any cause, other than satisfaction in full of Tenant's obligations. Until all Tenant's obligations to Landlord have been discharged in full, Guarantor has no right to subrogation against Tenant. Guarantor waives its right to enforce any remedies that Landlord now has, or later may have, against Tenant. Guarantor waives any right to participate in any security now or later held by Landlord. Guarantor waives presentments, demands for performance, notices of nonperformance, protests, notices of dishonor, and notices of acceptance of this 7 guaranty, and waives all notices of the existence, creation, or incurring of new or additional obligations. Without limiting the generality of the preceding waivers, Guarantor hereby expressly waives any and all benefits under Arizona Revised Statutes. If Landlord disposes of its interest in the Lease, "Landlord", as used in this guaranty, shall mean Landlord's successors. If Landlord is required to enforce Guarantor's obligations by legal proceedings, Guarantor shall pay to Landlord all costs incurred, including, without limitation, reasonable attorney's fees. Guarantor's obligations under this guaranty shall be binding on Guarantor's successors. GUARANTOR: /s/ DATE: 03/12/97 --------------------------------------- -------------------- 8 EXHIBIT F --------- LANDLORD'S SIGN CRITERIA ------------------------ All exterior signage to be approved in writing by Landlord. 9 EXHIBIT G --------- COVERED PARKING 10 EX-10.9 14 1ST AMENDMENT TO LEASE AGREEMENT FIRST AMENDMENT TO LEASE AGREEMENT THIS FIRST AMENDMENT TO LEASE AGREEMENT is made this 22ND day of DECEMBER, 1997, to the Lease dated March 12th, 1997, by and between SCOTTSDALE STETSON CORPORATION, AN ARIZONA CORPORATION, as Landlord, and VIRTUAL TECHNOLOGIES, INC., A NEVADA CORPORATION, as Tenant for the premises located at 7309 East Stetson Drive, Suite 102, City of Scottsdale, County of Maricopa, State of Arizona, known as the "Existing Lease". WITNESSETH: WHEREAS, it is the mutual desire of the parties herein above to amend said Lease as follows: 1. Under the terms of the lease between Scottsdale Stetson Corporation and Virtual Technologies, Inc, Tenant failed to exercise its Option to Renew as specified on page 30, paragraph 49, of the lease, and such option is null and void. 2. The term of the lease is hereby extended from March 12th, 1998 to March 11, 1999, with the Guaranteed Minimum Monthly Rental being increased to $1,845.33. All other terms and conditions set forth in the existing lease remain in effect. In witness whereof, this First Amendment to Lease Agreement has been executed on the date first written above. SCOTTSDALE STETSON CORPORATION, LANDLORD /s/ Patrick J. Logue - - ----------------------------------------- BY: PATRICK J. LOGUE TITLE: PRESIDENT VIRTUAL TECHNOLOGIES, INC., TENANT /s/ Leif Schipper - - ----------------------------------------- BY: LEIF SCHIPPER TITLE: PRESIDENT EX-10.10 15 2ND AMENDMENT TO LEASE AGREEMENT SECOND AMENDMENT TO LEASE AGREEMENT THIS SECOND AMENDMENT TO LEASE AGREEMENT is made this 31ST day of MARCH, 1998, to the Lease dated March 12th, 1997, and First Amendment to Lease Agreement, dated December 22, 1997, by and between SCOTTSDALE STETSON CORPORATION, AN ARIZONA CORPORATION, as Landlord, and SOLPOWER CORPORATION (FORMERLY KNOWN AS VIRTUAL TECHNOLOGIES, INC.), A NEVADA CORPORATION, as Tenant, for the premises located at 7309 East Stetson Drive, Suite 102, City of Scottsdale, County of Maricopa, State of Arizona, known as the "Existing Lease". WITNESSETH: WHEREAS, it is the mutual desire of the parties herein above to amend said Lease as follows: 1. The name of Tenant has been formally changed to SOLPOWER CORPORATION, a Nevada corporation. 2. The term of the lease is hereby extended from March 12th, 1999 to June 30th, 2000, with the Guaranteed Minimum Monthly Rental being increased to $1,960.67. All other terms and conditions set forth in the existing Lease Agreement and First Amendment to Lease Agreement remain in effect. In witness whereof, this Second Amendment to Lease Agreement has been executed on the date first written above. SCOTTSDALE STETSON CORPORATION, LANDLORD /s/ Patrick J. Logue - - ---------------------------------------- BY: PATRICK J. LOGUE TITLE: PRESIDENT SOLPOWER CORPORATION, TENANT /s/ LEIF SCHIPPER - - ---------------------------------------- BY: LEIF SCHIPPER TITLE: PRESIDENT EX-10.11 16 COMMERCIAL LEASE COMMERCIAL LEASE THIS INDENTURE WITNESSETH, that D.I. South, Inc., an Indiana corporation, LEASES TO: Solpower Corporation, a Nevada corporation, with offices at 7309 East Stetson Dr., Suite 102, Scottsdale, AZ 85251, hereafter referred to as "Lessor", for and in consideration of the covenants and agreements hereinafter mentioned, the premises in Elkhart County, State of Indiana, known and described as follows: See attached Exhibit "A" To have and to hold the same unto the lessee from June 1, 1998, to and including May 31, 2003, and the lessee, in consideration of said demise, does covenant and agree with the lessor as follows: 1. The Lessee hereby represents that he will use said premises for the following described purposes and for no other purposes whatsoever: 2. To pay as rent for said leased premises the sum of [see paragraph #21] dollars payable as follows: without notice or demand, each installment to be paid in advance upon the first day of each installment period to the Lessor or at such other place as the Lessor may from time to time designate in writing. 3. That the Lessee has examined and knows the condition of said premises and has received the same in good order and repair, except as herein otherwise specified, and that no representations as to the condition of repair thereof have been made by the Lessor or his representative, prior to or at the execution of this lease that are not herein expressed or endorsed herein; and that Lessee will keep the interior and exterior of said premises in good repair, including the roof and walls, replacing all broken glass with glass of the same size and quality as that broken, and will keep said premises and appurtenances, as well as all eaves, downspouting, catch basins, drains, stools, lavatories, sidewalks, adjoining alleys and all other facilities and equipment in connection with said premises, in a clean and healthy condition, according to the city ordinances, and the direction of the proper public officers, during the term of this lease, at his own expense; and upon the termination of this lease in any way, will yield up said premises to Lessor in good condition and repair (loss by fire and ordinary wear excepted) and will deliver the keys to Lessor. 4. That Lessor shall not be liable for damage caused by hidden defects or failure to keep said premises in repair, and shall not be liable for ny damage done or occasioned by or from plumbing, gas, water, steam, or other pipes, or sewerage, or the bursting or leaking of plumbing or of any plumbing or heating fixtures or waste or soil pipe existing in connection with said building or premises, nor for damage occasioned by water, snow or ice being upon sidewalks or coming through the roof, sky-light, trap door or otherwise, nor for any damages arising from negligence of co-tenants or other occupants of the same building, or the agents, employees or servants of any of them, or of any owners or occupants of adjacent or contiguous property. 5. The Lessor shall not be liable for any injury to the Lessee or any other person, occurring on or in front of said premises, irrespective of whether said injury is caused by a defect in said premises or by reason of said premises becoming out of repair or arising from any other cause whatsoever, and the Lessor shall not be liable for damage to Lessee's property or to the property of any other person which may be located in or upon said premises and the Lessee agrees to indemnify and save harmless the Lessor from any and all claims arising out of injuries to persons or property occurring on or about said premises. 6. That the Lessee will not allow said premises to be used for any purpose that will increase the rate of insurance thereon, nor to be occupied in whole or in part by any other person, and will not sublet the same or any part thereof, nor assign this lease or any part thereof without, in each case the written consent of the Lessor first had and obtained, and will not permit any transfer, by operation of law, of any interest in said premises acquired through this lease, and will not permit said premises to be used for any unlawful purpose or purpose that will injure the reputation of the same or of the building of which it is a part, nor disturb the tenants of such building or of the neighborhood and will not allow any sign or placards posted or placed thereon; except by written consent of the Lessor. 7. That no alterations, changes or additions in said leased premises shall be made without first submitting written plans and specifications for the same to the Lessor and obtaining his written consent to make the same. In the event of any such remodeling, alterations or additions that Lessee shall make the same at his own expense and shall promptly pay for all materials and labor involved in making the same. Lessee shall not permit any liens or claims or demands of any nature to exist against the Lessor or the leased premises. In the event any lien, claim or demand or any action for enforcing the same shall be filed or made against the Lessor or said premises, the Lessee shall defend the same at his own expense and Lessee hereby agrees to indemnify and hold harmless the Lessor from any and all liability or expense arising by virtue of such claim, demand or lien or the defense of any action filed to enforce the same. Any such alterations, changes or additions shall, when made, become a part of said leased premises and remain thereon as the property of the Lessor at the termination of said lease at the option of the Lessor. If the Lessor shall require the Lessee to restore the premises to the original condition in which it was before this lease is executed, then the Lessee shall restore said premise to such condition at his own expense, and all of the provisions of this lease with reference to such restoration contracts, liens, demands and expenses shall apply to said restoration as well as the original alterations. 8. To allow Lessor free access to the premises for the purpose of examining or exhibiting the same and also to allow the Lessor to place upon said premises, at any and all times, "For Sale" signs, and within ninety (90) days of the termination of this lease "For Rent" signs. 9. Lessee shall promptly pay and discharge all store license taxes and all general property taxes or special license fees that may be assessed or levied by any lawful authority against the property of Lessee or any sub-tenants on, against, or by virtue of the business conducted in or on the demised premises during the term of this lease. 10. Lessee shall promptly pay (in addition to the rents above specified) all water, sewerage, electric, power, gas and heating bills taxed, levied, or charged against the premises for and during the term of this lease. 11. Lessee covenants that should he make default in his agreement to pay the rent above provided to be paid, or any part thereof, or in any of the other covenants and agreements herein 2 contained, he will at once deliver peaceable possession of said premises to the Lessor, and, failing to do so, it shall be lawful for the Lessor, his heirs or assigns, without notice, to declare said term ended, and to reenter said demised premises, or any part thereof, either with or without process of law, and to expel, remove and put out the Lessee, or any person or persons occupying the same, using such force as may be necessary so to do, and to repossess and use said premises as before this demise, without prejudice to any remedies which might otherwise be used for arrears of rent or preceding breach of covenants, and Lessee further covenants and agrees, that Lessor shall have, at all times, the right to distrain for rent due, and shall have a valid and first lien upon all property of Lessee whether exempt by law or not, as security for the payment of the rent herein covenanted to be paid. 12. That after the service of notice, or the commencement of a suit, or after final judgement for possession of said premises, Lessor may receive and collect any rent due and the payment of said rent shall not waive or affect said notice, said suit or said judgement. 13. If the Lessee shall make any assignment for the benefit of creditors or if a receiver is appointed for the Lessee or his assets or of the Lessee's interest under this lease, and if the appointment of such receiver is not vacated within five (5) days, or if a voluntary or involuntary petition is filed by or against Lessee under the Bankruptcy Act, the Lessor may, upon giving the Lessee ten (10) days notice of such election, either terminate Lessee's right to the possession of the demised premises or terminate this lease as in the case of a violation by the Lessee of any of the terms, covenants or conditions of this lease. 14. It is agreed by the parties hereto that in the event Lessee is declared bankrupt or voluntarily offers to creditors terms of composition or in case a receiver is appointed to take charge of and conduct the affairs of the Lessee, then Lessor shall have the right of immediate possession of said premises. 15. That in case said premises shall be so injured by fire, windstorm or other catastrophe as to be rendered untenantable, and shall not be repaired by the Lessor and rendered tenantable within ninety (90) days thereafter, it shall be optional with either party hereto to terminate the lease by written notice at the end of such ninety (90) days, in which case rent shall be paid at the agreed rate above provided up to the time of such fire; but in case such injuries are repaired and the premises rendered tenantable within ninety (90) days, the right to terminate the lease for such cause shall not exist; provided, that nothing herein contained shall relieve the Lessee from liability for rent or damage where such damage or destruction shall be caused by the carelessness, negligence or improper conduct of the Lessee, his agents or servants. 16. It is expressly agreed that no waiver nor apparent waiver, nor the failure of Lessor to require strict performance of any condition, covenant or agreement shall estop the Lessor from enforcing such condition, covenant or agreement, nor any other condition, covenant or agreement shall at any time be implied. 17. At the termination of this lease, by lapse of time or otherwise, Lessee will yield up immediate possession to Lessor, and failing so to do, will pay as liquidated damages for each day such possession is withheld, a sum equal to five times the per them rental; but the Provisions of this clause shall not be held as a waiver by Lessor of any rights of re-entry as herein set forth; nor shall the receipt of said rent or any part thereof, or any other act in apparent affirmance of tenancy, operate as a waiver 3 of the right to forfeit this lease and the term hereby granted for the period still unexpired, for any breach of any of the covenants herein. 18. It is also agreed that the Lessee shall pay and discharge all reasonable costs, attorney's fees and expenses that shall be made and incurred by the Lessor in enforcing the covenants and agreements of this lease, including the agreement to deliver possession (or any reason herein provided; and all the parties to this Law agree that the covenants and agreements herein contained shall be binding upon, apply and inure to their respective heirs, executors, administrators, successors and assigns, and the terms "Lessor" and "Lessee" shall embrace all of the parties hereto irrespective of number or gender. 19. It is agreed that all payments herein provided to be made shall be made without relief from valuation or appraisement laws, and all payments required to be made which shall not be made at the time due shall bear interest at the ate of six per cent per annum from date of delinquency. 20. Clauses numbered 21-34 are hereby incorporated in and made a part of this lease. DATED THIS 1ST DAY OF JUNE, 1998. D.I. SOUTH, INC., an IN corp. Solpower corporation, a Nevada corporation By /s/ Anthony J. Iemma By /s/ James H. Hirst --------------------------------- ---------------------------------- Anthony J. Iemma, President James H. Hirst, President Attest: Attest: /s/ Lois Thompson /s/ Leif Schipper - - ----------------------------------- ------------------------------------ Lois Thompson, Secretary Secretary LESSOR LESSEE STATE OF INDIANA, ST. JOSEPH COUNTY, SS: Before me, the undersigned, a Notary Public in and for said County and State, this day of , 19 , personally appeared: ---- ------------------- ---- and acknowledged the execution of the foregoing lease. In witness whereof, I have hereunto subscribed my name and affixed my official seal. My commission expires , 19 . ------------------------- ---- 4 Notary Public This instrument was prepared by Anthony J. Iemma, 212 S. Second St., Elkhart, IN 46516. 5 21. The rental due under this Lease shall be Two Thousand Five Hundred ($2,500.00) Dollars per month, payable an the first day of each and every month during the term hereof, plus taxes and insurance. Thereafter the sum of Two Thousand Five Hundred ($2,500.00) Dollars per month shall be considered the base rental figure which shall be increased by any escalation in the Consumer Price Index using 1982-84 equaling one hundred (100) as a base as it shall be reflected for the month of June, 1998, and any escalation through the month of May, 1999, and each year thereafter, or any renewal periods executed pursuant to this lease. The Index shall be utilized by reference to "all items" and then multiplying the escalation, if any, times the rental figure, the product of which shall be the yearly rental due for the remainder of the term of the lease. It is presently anticipated that the Bureau of Labor Statistics, United States Department of Labor, will revise the Consumer Price Index and possibly change the form or basis of calculating the Consumer Price index. If possible, the parties agree that they will request the Bureau of Labor Statistics to make available, for the life of this agreement, a monthly Consumer Price index in its present form and calculated on the same basis as the Index for June, 1998. In the event that the Consumer Price index in its present form shall not be available, then, in that event, the successor index as maintained by the Bureau of Labor Statistics as will closely correlate to the present Index shall be utilized, either by the anticipated Consumer Price Index for all urban consumers or the Consumer Price Index for urban wage earners and clerical workers. In the event that there shall be no escalation in the Consumer Price Index, or in the successor index, there shall be no reduction in the yearly and monthly rental; however, the monthly rental shall remain the same. 22. Lessee shall have an option to renew this lease for an additional period of five (5) years commencing with the expiration of the term granted herein, and upon the same terms and conditions herein. Lessee shall give written notice at least One Hundred Eighty-one (181) days prior to the expiration of the term granted herein of its intention to exercise said option to renew under the terms and conditions of this lease, The rental for the renewal term shall be on the same basis as stated herein and the beginning renewal rental shall begin with an amount equal to the last month Is rental due under the original term plus any escalation in the Consumer Price Index. All escalations shall continue to be effective throughout the renewal term on the same basis and at the same times as if restated herein giving consideration to dates one (1) year subsequent to the original dates. 23. This lease is executed by the respective President and Secretary of the Lessee corporation and it is covenanted that they have full corporate authority to act on behalf of the corporation in the execution of this lease. 24. Lessee may sublet the premises to its licensees d/b/a Solpower Great Lakes and Solpower Southeast who will form a cooperative venture for the blending of the Soltron additive. The portion to be sublet shall be the rear area that is caged along with the ,adjacent clean room", two offices and a sharing of common areas, rest rooms, entries, shipping areas and other necessary portions. 25. Lessee has inspected all heat, electrical and utility systems and agrees to make all necessary repairs at its expense. Any improvements or additional services added during this lease shall be at the expense of Lessee and shall remain at the end of the lease for Lessor's benefit at the Lessor's 6 option. All additional repairs, renovations and efforts made to bring any system operational, are hereby assumed and agreed to be paid by the Lessee. 26. Lessee agrees to keep the premises heated to no less than 55 degrees throughout the entire premises. 27. Lessee shall pay its portion of taxes and insurance on the leased premises on a monthly basis. 28. Lessee shall have the obligation of maintaining the grounds, including mowing the grass, in addition to the interior portion of the premises, and further shall have the duty in case of heavy snows that may begin to create damage to the roof, to notify Lessor of the condition and make an effort to obtain crews to remove the snow at Lessee's expense. 29. Lessee agrees to pay utilities used and consumed on the premises when billed for the same by the utility company. All utilities shall be placed in Lessee's name beginning at the execution of this lease. 30. Lessee shall be fully responsible for any and all losses of the personal property located on the premises herein described and shall insure against any loss arising out of damage to any personal property of third parties, other than that of Lessee located on said premises, which insurance shall indemnify and protect Lessor and Lessee against any liability and expense arising therefrom. Lessee also agrees to insure Lessor's property situate in the building. It is further agreed and understood that the Lessee shall also insure the building against loss or damage by fire or such other risks commonly insured against in Elkhart, Indiana, including "all risk replacement cost coverage" in an amount not less than Four Hundred Thousand ($400,000.00) Dollars, and any such increases as market conditions might warrant from time to time at the request of the Lessor, or increases as indicated by insurance carrier with whom Lessee shall insure said building for the benefit of Lessor. Lessee shall, at its own expense, carry with a responsible insurance company or companies approved by Lessor throughout the term of this lease or any extension thereof, the usual standard type insurance indemnifying and protecting Lessee and Lessor against losses and damages arising out of Lessee's failure to maintain the premises to the extent that they are obligated to do so herein, and arising out of any accident in and about the said premises or due to any act of negligence of the Lessee or any of its agents or employees. Lessee hereby agrees that the limits of such insurance shall be Twenty-five Thousand ($25,000,00) Dollars for bodily injury and medical payments in the aggregate and Five Hundred Thousand ($500,000.00) Dollars for damage to property. Lessee shall provide Lessor with copies of all of the insurance policies required hereunder evidencing compliance with the requirements contained herein and indicating that both Lessor and Lessee are insured against the losses set forth herein. 31. If any default shall be made in the payment of rent or any part thereof at the time provided, or if Lessee shall abandon or vacate the premises, or shall become bankrupt, or shall make a general assignment for the benefit of creditors, or if, after twenty days' written notice setting forth the default, default shall continue by Lessee in the performance or observance of any other covenant, term 7 or condition herein contained to be performed on Lessee's part, Lessors may at their election terminate this lease by giving Lessee written notice thereof; and thereupon Lessee may, with or without demand, re-enter and take possession and distraint of the premises, and in either case, Lessee shall peacefully surrender possession thereof to Lessors, and all rights and interests of Lessee to possession and control hereunder shall cease and terminate, but nothing herein contained shall affect Lessors' right to the rental for the term herein specified. Upon taking possession and distraint hereunder, Lessors may at their election, terminate this lease by giving Lessee written notice thereof, or Lessors may re-let said property and Lessee shall be liable for and will pay as it accrues the difference in the rental for the balance of the term and all other sums due under this lease. 32. Lessee shall be responsible for compliance with all state, federal, city, and county rules and regulations and any cost resulting therefrom pertaining to the use or occupancy of Lessee from the date of execution of this Lease and thereafter. This shall include, but not be limited to, all existing regulations, and all these promulgated in the future concerning any environmental systems that need to be present on the premises for continuation of Lessee's business. Additionally, Lessee shall be responsible for all environmental cleanup and costs that is, or may become necessary for the use of the building or premises by Lessee. 33. Lessee shall not assign this lease, in whole or in part, nor sublease all or any part of the premises, nor permit other persons to occupy said premises or any part thereof, nor grant any license or concession for all or any part of said premises, without the prior written consent of Lessor, which consent shall not be unreasonably withheld, provided that Lessor may specifically withhold consent if the proposed transferee's projected use of the premises involves the use, storage, generation or disposal of hazardous substances as previously defined. Any consent by Lessor to an assignment or subletting of this Lease shall not constitute a waiver of the necessity of obtaining that consent as to any subsequent assignment. Any assignment for the benefit of Lessee's creditors or otherwise by operation of law shall not be effective to transfer or assign Lessee's interest in this Lease unless Lessor shall have first consented thereto in writing. Neither Lessor's interest in this Lease, nor any estate created hereby in Lessor nor any interest herein or therein, shall pass to any trustee or receive or assignee for the benefit of creditors or otherwise by operation of law except as may specifically be provided in the Bankruptcy Code. If any of the corporate shares of stock of Lessee are transferred, or if any partnership interests of Lessee are transferred, by sale, assignment, bequest, inheritance, operation of law, or otherwise, so as to result in a change of the control, assets, value, ownership, or structure of Lessee, same shall be deemed an assignment for the purpose of this section and shall require Lessor's prior consent, and Lessee shall notify Lessor of any such change or proposed change. 34. (a) Lessee shall not cause or permit any hazardous material to be brought upon, kept, or used in or about the premises by Lessee, its agents, employees, contractors or invitees, without the prior written consent of Lessor (which Lessor shall not unreasonably withhold as long as Lessee demonstrates to Lessor's reasonable satisfaction that such hazardous material is necessary or useful to Lessee's business and will be used, kept, and stored in a manner that complies with all laws regulating any such hazardous material so brought upon or used or kept in or about the premises). If Lessee breaches the obligations stated in the preceding sentence, or if the presence of hazardous material on the premises caused or permitted by Lessee results in contamination of the premises, or if contamination of the premises by hazardous material otherwise occurs for which Lessee is legally liable to Lessor for damage resulting therefrom, then Lessee shall indemnify, defend, and hold Lessor harmless from any and all claims, judgements, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the premises, damages for the loss or restriction on use of rentable or useable 8 space or of any amenity of the premises, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorney's fees, consultant fees and expert fees) which arise during or after the lease term as a result of such contamination. This indemnification of Lessor by Lessee includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state, or local governmental agency or political subdivision because of hazardous material present in the soil or ground water on or under the premises. Without limiting the foregoing, if the presence of any hazardous material on the premises caused or permitted by Lessee results in any contamination of the premises, Lessee shall promptly take all actions at its sole expense as are necessary to return the premises to the condition existing prior to the introduction of any such hazardous material to the premises; provided that Lessor's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the premises. (b) As used herein, the term "hazardous material" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local government authority, the State of Indiana, or the United States Government. The term "hazardous material" includes, without limitation, any material or substance that is (i) defined as a "hazardous substance" under Indiana statutes, (ii) petroleum, (iii) asbestos, (iv) designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1321), (v) defined as a "hazardous waste," pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903), (vi) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601) , or (vii) defined as a "regulated substance" pursuant to Subchapter IX, Solid Waste Disposal Act (Regulation of Underground Storage Tanks) , 42 U.S.C. Section 6991 et seq. 9 EXHIBIT "A" A part of the Southeast Quarter (SE 1/4) of Section Nineteen (19), Township Thirty-eight (38) North, Range Five (5) East, in Osolo Township, Elkhart County, Indiana, being more particularly described as follows: Commencing at an iron stake marking the southwest corner of said quarter section; thence due East, along the south line of said quarter section, and along the center line of County Road Number Six (6), a distance of one thousand seven hundred sixty-four (1,764) feet to the place of beginning of this description; thence continuing due East, along the south line of said quarter section, a distance of three hundred ninety-four and twelve hundredths (394.12) feet to the point where said south line is intersected by the center line of County Road Number Seven (7); thence North five (5) degrees fourteen (14) minutes East, along the center line of said County Road Number Seven (7), a distance of eight hundred thirty-three and forty-eight hundredths (833.48) feet to a point where said center line is intersected by the south right-of-way line of D.I. Drive, as said Drive is known and designated; thence due West, along the south right-of-way line of said D.I. Drive, a distance of four hundred seventy-three and twenty-two hundredths (473.22) feet; thence South zero (0) degrees thirteen (13) minutes East, parallel with the west line of said quarter section, a distance of eight hundred thirty (830) feet to the place of beginning, containing 8.262 acres, more or less. EXCEPT: A part of the Southeast Quarter (SE 1/4) of Section 19, Township 38 North, Range 5 East, situate in Osolo Township, Elkhart County, State of Indiana, and being more particularly described as follows: Assuming the South line of the Southeast Quarter (SE 1/4) of said Section 19 to have a bearing of Due East and West: Beginning at a point on the South line of the Southeast Quarter (SE 1/4) of said Section 19, that is Due East a distance of 1764 feet from an iron stake marking the Southwest corner of the Southeast Quarter (SE 1/4) of said Section 19; thence Due East along the South line of the Southeast Quarter (SE 1/4) of said Section 19, a distance of 394.12 feet to the centerline of County Road 7; thence North 5 degrees 14 minutes East along the centerline of said County Road 7, a distance.of 620.59 feet; thence Due West a distance of 453.06 feet to an iron stake on grantor's West line, thence South 0 degrees 13 minutes East along grantor's West line, a distance of 618 feet to the place of beginning of this description. Containing 6.00 acres of land. SUBJECT to all taxes. SUBJECT to all public highways. SUBJECT to all easements and restrictions of record. SUBJECT to all liens and encumbrances. EX-10.12 17 STOCK OPTION & INCENTIVE PLAN SOLPOWER CORPORATION STOCK OPTION AND INCENTIVE PLAN 1. PURPOSE The purpose of the Solpower Corporation Stock Option and Incentive Plan (the "PLAN") is to provide a means through which Solpower Corporation, a Nevada corporation, and its subsidiaries, if any (collectively, the "COMPANY") may attract able persons to enter the employ of and provide services for the Company and to provide a means whereby those persons upon whom the responsibilities for the successful administration and management of the Company rest, and whose present and potential contributions to the welfare of the Company are of importance, can acquire and maintain an ownership interest, thereby strengthening their commitment to the welfare of the Company and the desire to remain in the employ or service of the Company. A further purpose of the Plan is to provide such persons with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. So that the appropriate incentive can be provided, the Plan provides for granting Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Shares and Dividend Equivalents, or any combination of the foregoing. 2. DEFINITIONS The following definitions shall be applicable throughout the Plan: (a) "AWARD" means, individually or collectively, any Option, Incentive Stock Option, Stock Appreciation Right, Restricted Stock Award, Performance Share Award or Dividend Equivalent Award. (b) "AWARD PERIOD" means a period of not less than five years. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986 and any regulations issued thereunder, as the same may be amended from time to time. (e) "COMMITTEE" means the committee of the Board described in Section 4. (f) "COMPANY" means Solpower Corporation. (g) "DATE OF GRANT" means the date on which the granting of an Award is authorized by the Committee or such later date as may be specified by the Committee in such authorization. (h) "DIVIDEND EQUIVALENT" means the Award granted under Section 11. (i) "ELIGIBLE PARTICIPANT" means any person who satisfies all of the requirements of Section 6. (j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, and any rules or regulations issued thereunder, as the same may be amended from time to time. (k) "FAIR MARKET VALUE" means: (i) For periods during which the Stock is not regularly traded on an established securities market, the value of a share of Stock as determined by the Board based on an appraisal of the Company by an independent third party as of the Valuation Date coinciding with or immediately preceding the particular date on which Fair Market Value is to be determined. (ii) For periods during which the Stock is regularly traded on an established securities market, (A) For Options, Incentive Stock Options, Restricted Stock Awards, Stock Appreciation Rights and Dividend Equivalents, it shall be the average of the highest price and the lowest price at which the Stock shall have been reported as sold on a generally recognized stock exchange (the "EXCHANGE") or quoted pursuant to an inter-dealer quotation system of a national securities association registered with the United States Securities and Exchange Commission (the "QUOTATION SYSTEM") on a specified date; (B) For Performance Share Awards, it shall be the average of the reported closing prices of the Stock on the Exchange or Quotation System for 30 consecutive trading days prior to the Valuation Date. (l) "GRANT LETTER" means a written instrument setting forth the terms and conditions of any grant of an Award under the Plan. (m) "HOLDER" means an Eligible Participant who has been granted an Award. (n) "INCENTIVE STOCK OPTION" means an Option within the meaning of Section 422 of the Code. (o) "NORMAL TERMINATION" means Termination: (i) At retirement pursuant to the Company retirement plan covering the Holder, -2- (ii) For permanent and total disability, or (iii) For any other reason, other than a Termination for cause, provided that the Committee has approved, in writing, the continuation of any Award outstanding on the date of the Holder's Termination. (p) "OPTION" means an Award granted under Section 7 of the Plan. (q) "PERFORMANCE SHARE" means an Award granted under Section 9 of the Plan. (r) "PLAN" means the Solpower Corporation Stock Option and Incentive Plan, as set forth herein and as the same may be amended from time to time. (s) "RESTRICTED STOCK AWARD" means an Award granted under Section 10 of the Plan. (t) "ROE" means return on average shareholders' equity which is defined as the Company's consolidated net earnings, divided by the average of the shareholders' equity at the beginning and end of the year, as shown in the consolidated statements of earnings and balance sheet as set forth in the Company's annual report to shareholders for such year. The Committee may, in its sole discretion, include or exclude any items in calculating ROE. "AVERAGE ROE" means, with respect to any one Award Period, the sum of the ROEs achieved in each of the years of the Award Period divided by the number of years in the Award Period. (u) "SECURITIES ACT" means the Securities Act of 1933, and any rules or regulations issued thereunder, as the same may be amended from time to time. (v) "STOCK" means Common Stock of the Company as defined in the Company's Articles of Incorporation, unless, at any time prior to the grant of the first Award under the Plan, the Committee, in its sole and absolute discretion, designates an alternative class of stock of the Company as "STOCK" for purposes of this Plan, and such designation is consistent with applicable law; and such other stock as shall be substituted therefor as provided in Section 13. (w) "STOCK APPRECIATION RIGHT" means an Award granted pursuant to Section 8 of the Plan. (x) "TERMINATION" means separation from employment with the Company for any reason other than death. (y) "VALUATION DATE" means as follows: (i) For purposes of determining the Fair Market Value under Section 2(k)(i), the last day of the fiscal year of the Company and such other dates as the Committee shall determine in its discretion; -3- (ii) For purposes of determining Fair Market Value under Section 2(k)(ii)(A), the Date of Grant of an Award or, if such day is a weekend or holiday, the first subsequent business day unless such other date is designated by the Committee; and (iii) For purposes of determining Fair Market Value of Performance Share Awards under Section 2(k)(ii)(B), the first day of the year in which the Award is made for purposes of granting Performance Share Awards and the first business day following the end of the Award Period for the purpose of making Performance Share payments. 3. EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL The Plan will become effective on the date it is approved by the shareholders of the Company holding a majority of the Company's voting stock. Awards may be made as provided herein for a period of 10 years after such date. The Plan shall continue in effect until all matters relating to the payment of Awards and administration of the Plan have been settled. 4. ADMINISTRATION The Committee shall administer the Plan. A majority of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and acts approved in writing by a majority of the Committee in lieu of a meeting shall be deemed the acts of the Committee. Except as otherwise provided in the Plan, the Committee shall have exclusive power, authority and discretion to: (a) Select Eligible Participants to participate in the Plan. (b) Determine the Awards to be made to each Eligible Participant selected. (c) Determine the time or times when Awards will be made. (d) Determine the conditions (including the performance requirements) to which the payment of Awards may be subject. (e) Prescribe the form or forms evidencing Awards. (f) Establish, adopt or revise such rules and regulations as it may deem necessary or advisable for the administration of the Plan. (g) Make all determinations relating to the Plan. The Committee's interpretation of the Plan or any Awards granted pursuant thereto and all decisions and determinations by the Committee with respect to the Plan shall be final, binding and conclusive on all parties. -4- 5. SHARES SUBJECT TO THE PLAN The Committee may, from time to time, grant Awards to one or more Eligible Participants; provided, however, that: (a) Subject to Section 13, the aggregate number of shares of Stock made subject to Awards under this Plan may not exceed 1,400,000 and the aggregate number of Awards under this Plan with respect to Stock Appreciation Rights, Dividend Equivalents and Performance Shares shall not exceed 1,400,000 as to each such Award. (b) Shares shall be deemed to have been used in payment of Stock Appreciation Rights, Dividend Equivalents and Performance Shares only if such shares are actually delivered to the Holder. (c) To the extent that an Award lapses or the rights of its Holder terminate, any shares of Stock subject to such Award shall again be available for the grant of an Award, but only if the Holder has not received any benefits of ownership from such shares prior to the time of such lapse or termination. A Holder shall not be deemed to have received benefits of ownership with respect to shares subject to an Award merely because the Holder has voting rights with respect to such shares or where dividends accumulate with respect to such shares if such dividends are forfeited by the Holder when and if the underlying shares of Stock are forfeited. (d) Stock delivered by the Company in settlement under the Plan may be authorized and unissued Stock, Stock held in the treasury of the Company, Stock purchased on the open market, or Stock purchased by private purchase at prices no higher than the Fair Market Value as defined in Section 2(k) at the time of purchase. 6. ELIGIBILITY Directors, executive employees, managerial employees or supervisory employees of the Company and such other persons providing services to the Company who, in the opinion of the Committee, are mainly responsible for the continued growth and development and financial success of the business of the Company shall be eligible to be granted Awards under the Plan; provided, however, that no Incentive Stock Option may be granted to a person unless such person is an employee of the Company. Subject to the provisions of the Plan, the Committee shall, from time to time, select from such eligible persons those to whom Awards shall be granted and determine the size or amount of each such Award. 7. STOCK OPTIONS One or more Options can be granted to any Eligible Participant. Each Option so granted shall be subject to the following conditions: -5- (a) The option price per share of Stock shall be set by the grant, provided that in the case of an Incentive Stock Option, the option period may not be for greater than 10 years and the option price per share may not be less than Fair Market Value at the Date of Grant and, in the event of a grant to any person possessing more than 10% of the combined voting power of all outstanding stock of the Company, the option period may not be for more than five years and the option price may not be less than 110% of the Fair Market Value at the Date of Grant. (b) Upon the exercise of all or any part of an Option, the option price shall be payable in full by check, in shares of Stock owned by the Holder to the extent permitted by law or in any combination thereof at the election of the Holder. Payment of the option price with shares of Stock owned by the Holder shall be made by assigning and delivering such shares to the Company. The shares shall be valued at Fair Market Value on the exercise date of the Option. Except as otherwise provided by law or the terms of the Grant Letter, the option price may also be paid by the Holder directing the Company to withhold from the shares of Stock that would otherwise be issued upon exercise of the Option that number of shares having a Fair Market Value on the exercise date equal to the option price. A Holder who elects to exercise all or any part of his Option by directing the Company to withhold shares subject to the exercised Option shall notify the Company in writing of such intent. A Holder electing to pay the option price in such manner shall receive the number of shares of Stock determined pursuant to the following formula: Number Number of Shares Fair Market Value Option of = as to which the X on Exercise Date - Price Shares Option is to be --------------------------- Exercised Fair Market Value on Exercise Date (c) If the Holder has not died or terminated, the Option shall become exercisable in such manner and within such period or periods, not to exceed 10 years from its Date of Grant, as set forth in the Grant Letter upon payment in full, in any manner permitted under Section 7(b). Except as otherwise provided in this Plan or in the applicable Grant Letter, any Option may be exercised in whole or in part at any time. An Option may lapse under the following circumstances: (i) Prior to the Holder's termination of employment for any reason, the Option shall lapse 10 years after it is granted, unless an earlier time is set by the grant. (ii) If the Holder separates from employment other than by Normal Termination, it shall lapse at the time of Termination. (iii) If the Holder's Termination is a Normal Termination, it shall lapse three months after his Normal Termination. (iv) If the Holder dies within the option period or within three months after Normal Termination, the Option shall lapse unless it is exercised within the option period -6- and in no event later than 15 months after the date of the Holder's death. Upon the Holder's death, any exercisable Options may be exercised by the Holder's legal representative or representatives, by the person or persons entitled to do so under the Holder's last will and testament or, if the Holder shall fail to make testamentary disposition of such Option or shall die intestate, by the person or persons entitled to receive the Option under the applicable laws of descent and distribution. (d) Each Option granted under the Plan shall be evidenced by a Grant Letter between the Company and the Holder of the Option containing such provisions as may be determined by the Committee, subject to the following terms and conditions. (i) Any Option or portion thereof that is exercisable shall be exercisable for the full amount or for any part thereof, except as otherwise determined by the grant. (ii) Every share purchased through the exercise of an Option shall be paid for in full at the time of the exercise. Each Option shall cease to be exercisable, as to any share, when the Holder purchases the share or exercises a related Stock Appreciation Rights or when the Option lapses. (iii) Options shall not be transferable by the Holder except by will or the laws of descent and distribution and shall be exercisable during the Holder's lifetime only by him. (iv) Notwithstanding any provision (other than Section 7(e)), in the event of a public tender for all or any portion of the Stock or in the event that a proposal to merge, consolidate, or otherwise combine with another company is submitted for shareholder approval, the Committee may in its sole discretion declare previously granted Options to be immediately exercisable. (e) The aggregate Fair Market Value (determined as of the time the Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by any Holder in any calendar year may not exceed $100,000. 8. STOCK APPRECIATION RIGHTS Any Option granted under the Plan may include a Stock Appreciation Right, either at the time of grant or by amendment. Stock Appreciation Rights may also be separately granted pursuant to an Award. Such Stock Appreciation Rights shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose, including the following: (a) A Stock Appreciation Right issued pursuant to an Option shall be exercisable to the extent the Option is exercisable and only with the consent of the Committee. A Stock Appreciation Right which is not issued pursuant to an Option shall only be exercisable during the Award period specified in the Stock rights agreement. Unless otherwise provided in the -7- Stock rights agreement, the Holder's right to exercise any outstanding Stock Appreciation Rights shall terminate upon the Holder's termination of employment with the Company for any reason, including but not limited to, resignation, discharge, death or disability. (b) If, on the last day of the option period or specified Award period, the Fair Market Value of the Stock exceeds the option price or Stock Appreciation Right price determined at the time the Award is granted, and the Holder has not exercised such Stock Appreciation Right, such right shall be deemed to have been exercised by the Holder on such last day. (c) An exercisable Stock Appreciation Right granted pursuant to an Option shall entitle the Holder to surrender unexercised the Option in which it is included, or any portion thereof, and to receive in exchange therefor an amount equal to the excess of the "VALUE", as hereinafter defined, of one share of Stock over the option price per share multiplied by the number of shares subject to the Option or portion thereof which is so surrendered. Upon exercise of a Stock Appreciation Right not issued pursuant to an Option, the Holder shall receive Stock and/or cash in an amount equal to that number of shares of Stock having an aggregate value equal to the excess of the value of one share of Stock over the Stock Appreciation Right price specified in the Stock rights agreement multiplied by the number of Stock Appreciation Rights exercised. The Committee may, in its sole discretion, elect to have the Company settle its obligation arising out of the exercise of a Stock Appreciation Right by the payment of cash, the delivery of shares of Stock having an aggregate value equal to the amount of the Company's obligation as determined pursuant to this Section 8(c), or partially by the payment of cash and partially by the delivery of shares. The Committee shall also have the right to place such limitations and restrictions on the Company's obligation to make such cash payments or deliver shares under Stock Appreciation Rights as the Committee, in its sole discretion, deems to be in the best interest of the Company. The term "VALUE" as applied to shares shall be Fair Market Value on the trading day next preceding the date on which the Stock Appreciation Right is exercised. To the extent that a Stock Appreciation Right included in an Option is exercised, such Option shall be deemed to have been exercised, and shall not be deemed to have lapsed. (d) Such other limitations as the Committee or the Grant Letter or Stock rights agreement shall impose. 9. PERFORMANCE SHARES Each Performance Share shall be deemed to be the equivalent of one share of Stock. The Award of Performance Shares under the Plan shall not entitle the Holder to any interest in or to any dividend, voting, or other rights of a shareholder of the Company. Performance Shares shall be credited to a Performance Share account to be maintained for each Holder. The value of the Performance Shares in a Holder's Performance Share account at the time of Award or the time of payment shall be an amount equal to the Fair Market Value at such time of an equivalent number of shares of the Stock (subject to the limitation provided in Section 9(c)). -8- (a) Performance Share Awards may be made by the Committee, in its discretion, taking into account a Holder's responsibility level, performance, potential, cash compensation level, the Fair Market Value of the Stock at the time of the Award and such other factors as it deems appropriate. Grants of Performance Shares shall be deemed to have been on January 1 of the year in which such grants are made. The Committee shall not, over the term of the Plan, grant to any single Holder as Performance Shares more than 20 percent of the maximum number of shares of Stock which may be granted under Paragraph 5(a). Awards cancelled or portions of Awards not paid out in full to any single Holder shall not be included for purposes of applying this limitation. (b) Following the end of the Award Period, the Holder of a Performance Share shall be entitled to receive payment from his Performance Share account based on the achievement or performance measures for such Award Period, as determined by the Committee. The Committee shall have the right to establish average ROE requirements or other criteria for measuring executive performance prior to the beginning of the Award Period but subject to such later revisions as the Committee shall deem appropriate to reflect significant or unforeseen events or changes. (c) In the event a Holder terminates employment during an Award Period, payment of outstanding Performance Share Awards will be as follows: (i) If the Holder resigns or is discharged, no payment will be made and the Award will be completely forfeited. (ii) If the Holder retires pursuant to the Company retirement plan covering that Holder, the Holder will be entitled to payment at the end of the Award Period in an amount which bears the same relationship to the Award's Fair Market Value upon the Valuation Date as the period of service completed after the grant of the Award but prior to the retirement bears to the Award Period. (iii) If the Holder dies or becomes disabled, the Holder (or the designated beneficiary or person entitled to Performance Shares under Section 12(d)) will be entitled to payment at the end of the Award Period of a prorated amount which is determined in the same manner as the amount payable under Section 9(b)(ii). (d) No payment of Performance Shares shall be made prior to the end of an Award Period. Payment therefor shall be made as soon as practicable after the receipt of audited financial statements relating to the last year of such period. The Committee may, in its discretion, limit the Company's payment obligation for Performance Shares to the lesser of Fair Market Value at the time of payment or an amount equal to not more than 200 percent of the Fair Market Value at the time such Performance Shares were granted. The payment to which a Holder shall be entitled at the end of an Award Period shall be a dollar amount equal to the Fair Market Value on the Valuation Date (or such lesser amounts as the Committee may establish) of the number of shares of Stock equal to the number of Performance Shares earned -9- and payable to him in accordance with this Section 9. The Committee may authorize payment in such combinations of cash and Stock or all in cash or all in Stock, as it deems appropriate. The number of shares of Stock to be paid in lieu of cash will be determined by dividing the portion of the payment not paid in cash by: (i) The Fair Market Value of Stock on the date on which the shares are issued by the Company, or (ii) The price per share paid for shares purchased for a Holder's account should the Committee determine, in its discretion, to authorize the purchase of shares on behalf of the Holder on the open market or through private purchase. 10. RESTRICTED STOCK AWARDS (a) At the time a Restricted Stock Award is made, the Committee shall establish a period of time (the "RESTRICTION PERIOD") applicable to such Award, which shall not be less than three years. At the discretion of the Committee, each Restricted Stock Award may have a different Restriction Period. In the event of a public tender for all or any portion of the Stock or in the event that any proposal to merge or consolidate the Company with another company is submitted to the shareholders for a vote, the Committee may in its sole discretion change or eliminate the Restriction Period. Except as permitted above, under Section 10(c) or pursuant to Section 13, the Restriction Period applicable to a particular Restricted Stock Award shall not be changed. (b) Stock awards pursuant to a Restricted Stock Award shall be represented by a stock certificate registered in the name of the Holder of such Restricted Stock Award. The Holder shall have the right to enjoy all shareholder rights during the Restriction Period with the exception that: (i) The Holder shall not be entitled to delivery of the stock certificate until the Restriction Period has expired. (ii) The Company may either issue shares subject to such restrictive legends and stop transfer instructions as it deems appropriate or provide for retention of custody of the Stock during the Restriction Period. (iii) The Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Stock during the Restricted Period. (iv) A breach of the terms and conditions established by the Committee pursuant to the Restricted Stock Award shall cause a forfeiture of the Restricted Stock Award and any dividends withheld thereon. -10- (v) Cash and Stock dividends may be either currently paid or withheld by the Company for the Holder's account. At the discretion of the Committee, interest may be paid on the amount of cash dividends withheld, including cash dividends on stock dividends, at a rate and subject to such terms as shall be determined by the Committee. (c) In the event a Holder terminates employment during a Restriction Period, the right of Holder to a Restricted Stock Award will be determined as follows: (i) If the Holder resigns or is discharged, the Award will be completely forfeited. (ii) Except as otherwise provided in Section 10(c)(iv), if the Holder retires, pursuant to the Company retirement plan covering that Holder, the Holder will be vested in that portion of the Award as bears the same relationship to the entire Award as the period of service completed beginning on the date the Award was made and ending on such retirement bears to the Restriction Period. (iii) Except as otherwise provided in Section 10(c)(iv), if the Holder dies or becomes disabled, the Holder (or his designated beneficiary or the person entitled to his Restricted Stock under Section 12(d)) will be vested in a portion of the Award, with such portion to be determined in the same manner as the portion under Section 10(c)(ii). (iv) Notwithstanding Section 10(c)(ii) and (iii), if one or more of the restrictions placed on a Restricted Stock Award by the Committee require an action by the Holder or the occurrence of an event other than the passage of time, and the Holder retires, dies or becomes disabled before such restriction or restrictions have been satisfied, the Holder shall not be vested in any portion of the Award unless the Committee, in its sole and absolute discretion, elects to waive satisfaction of such restriction or restrictions as a condition of receipt of all or any part of the Award. Any portion of a Restricted Stock Award in which the Holder is vested shall be received as soon as practicable following termination. (d) A Holder shall not be required to make any payment for Stock received pursuant to a Restricted Stock Award. 11. DIVIDEND EQUIVALENTS Any Option granted under the Plan may include at no additional cost Dividend Equivalents, either at the time of grant or by amendment. Dividend Equivalents will be based on the dividends declared on the Stock on record dates during the period between the date an Option is granted or the date the Dividend Equivalents are granted, if later, and the date such Option is exercised. Such Dividend Equivalents shall be converted to additional shares of the Stock as follows: -11- Number of Dividend Number of Shares Dividend Equivalent Shares = Under the Option X per Share ------------------------------------ Fair Market Value of Share The Dividend Equivalents earned with respect to a Holder shall be distributed to the Holder (or his successor in interest) in the form of shares of the Stock at the time the Option is exercised. Dividend Equivalents shall be computed, as of each dividend record date, both with respect to the number of shares under the Option and with respect to the number of Dividend Equivalent shares previously earned by the Holder (or his successor in interest) and not issued during the period prior to the dividend record date. 12. GENERAL (a) The obligation of the Company to make payment of Awards in Stock or otherwise shall be subject to all applicable laws, rules and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register under the Securities Act any of the shares of Stock paid under the Plan. If the shares paid under the Plan may in certain circumstances be exempt from registration under the Securities Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. (b) The Company shall have the right to deduct from all Awards paid in cash any federal, state or local taxes as required by law to be withheld with respect to such cash payments and, in the case of Awards paid in Stock, the Holder may be required to pay to the Company, by check, in shares of Stock owned by the Holder to the extent permitted by law or in any combination thereof elected by the Holder, the amount of any such taxes which the Company or Subsidiary is required to withhold with respect to such Stock. Payment of taxes with shares of Stock owned by the Holder shall be made by assigning and delivering such shares to the Company. Such shares shall be valued at Fair Market Value on the business day immediately preceding the date on which such shares are assigned or delivered. Except as otherwise provided by law or the terms of the governing Award agreement, any taxes which are required to be withheld with respect to an Award paid in Stock may also be paid by the Holder directing the Company to withhold from the shares of Stock that would otherwise be issued pursuant to the Award, that number of shares having a Fair Market Value on the earlier of the date the Award is exercised or the date the Award is paid (the "APPLICABLE DATE") equal to the taxes due. A Holder who elects to pay any taxes due by directing the Company to withhold shares subject to the Award shall notify the Company in writing of the intent to do so. A Holder making such election shall receive the number of shares of Stock determined pursuant to the following formula. Number Number of Fair Market Value Taxes of = Shares Subject X on Applicable Date - Due Shares to Award ---------------------------- Fair Market Value on Applicable Date -12- (c) No employee or other person shall have any claim or right to be granted an Award under the Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any employee any right to be retained in the employ of the Company or a Subsidiary. (d) Except as otherwise provided in Section 7, dealing with Options, or in the agreement evidencing an Award, any payment of Awards due under this Plan to a deceased Holder shall be paid to the beneficiary designated by the Holder and filed with the Committee. If no such beneficiary has been designated or survives the Holder, payment shall be made to the person entitled thereto under the Holder's will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Holder at any time provided the change or revocation is filed with the Committee. (e) Subject to Sections 7(d)(iii) and 12(d), a person's rights and interests under the Plan, including amounts payable, may not be assigned, pledged or transferred, provided that a person's rights and interests under the Plan may be assigned, pledged or transferred pursuant to a domestic relations order which satisfies the requirements for a "QUALIFIED DOMESTIC RELATIONS ORDER" set forth in Section 414(p)(1)(A) of the Code. (f) Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit, or proceeding to which such person may be a party or in which such person may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid in satisfaction of judgment in such action, suit, or proceeding. The person seeking indemnification shall give the Company an opportunity, at its expense, to defend the same before undertaking to defend on such person's own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law or otherwise, or any power that the Company may have to indemnify or hold such persons harmless. (g) Each member of the Committee and each member of the Board shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of the Company and upon any other information furnished in connection with the Plan. In no event shall any person who is or shall have been a member of the Committee or of the Board be liable for any determination made or other action taken, including the furnishing of information, or failure to act, if in good faith. (h) No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company. (i) The expenses of administering the Plan shall be borne by the Company. -13- (j) The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. (k) No fractional shares of stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or rounding down. 13. CHANGES IN CAPITAL STRUCTURE (a) In the event a stock dividend is declared upon the Stock, the shares of Stock then subject to each Award (and the number of shares subject thereto) shall be increased proportionately without any change in the aggregate purchase price therefor. In the event the Stock shall be changed into or exchanged for a different number or class of shares of stock or stock of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, there shall be substituted for each such share of Stock then subject to each Award (and for each share of Stock then subject thereto) the number and class of shares of Stock into which each outstanding share of Stock shall be so exchanged, all without any change in the aggregate purchase price for the shares then subject to each Award. (b) Subject to any required action by the shareholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any Award granted hereunder shall pertain to and apply to the securities or rights to which a holder of the number of shares of Stock subject to the Award would have been entitled; but a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving or resulting corporation, shall, in the sole discretion of the Committee: (i) Cause every Award outstanding hereunder to terminate, except that the surviving or resulting corporation, in its absolute and uncontrolled discretion, may tender an option or options to purchase its shares or exercise such rights on terms and conditions, as to the number of shares and rights and otherwise, which shall substantially preserve the rights and benefits of any Award then outstanding hereunder; or (ii) Subject to the requirements of Section 7(e), give each Holder the right to exercise Awards prior to the occurrence of the event otherwise terminating the Awards over such period as the Committee, in its sole and absolute discretion, shall determine. 14. AMENDMENTS AND TERMINATION (a) The Board may at any time terminate the Plan. (b) The Board may, at any time, or from time to time, amend or suspend and, if suspended, reinstate, the Plan, in whole or in part, provided, however, that without further shareholder approval, the authority of the Board hereunder shall be subject to such restrictions -14- as may be required to comply with Section 16(b) of the Exchange Act and Section 162(m) of the Code. (c) The Committee may cancel or reduce or otherwise alter a Holder's outstanding Awards thereunder if, in its judgment, (i) such action is necessary to comply with applicable securities laws or the provisions of Section 162(m) of the Code or (ii) such action would be in the best interests of the Company provided that it obtains the written consent of the Holder. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer this 24th day of November, 1997. SOLPOWER CORPORATION By:/s/ Leif Schipper -------------------- President ATTEST: By: /s/ James H. Hirst ---------------------- Secretary -15- EX-10.13 18 CONSULTANT AGREEMENT WITH CHARLES VAN ZEE THIS AGREEMENT is dated this 5th day of November, 1997 BETWEEN: VIRTUAL TECHNOLOGIES, INC., 7309 East Stetson Drive, Suite 102, Scottsdale, Arizona 85251 (the "Client") OF THE FIRST PART AND: CHARLES C. VAN ZEE (SSN 33N: ###-##-####), 8580 Via Heurte, Rancho Cucamonga, California, 91730 (the "Consultant") OF THE SECOND PART WHEREAS: 1. The Consultant has certain expertise and contacts in the regions/counties specified in Schedule 1 for the development of local/international markets, product marketing, finance and negotiations for commercial transactions. 2. The Client has agreed to utilize the services of the Consultant on the terms and conditions set out in this agreement. NOW THE PARTIES HERETO AGREE: 1. The Consultant is authorized by the Client to negotiate with parties deemed by the Consultant to qualify as suitable for entering into any satisfactory agreements with the Client, with respect to the objective set out in Schedule 1 hereto. 2. The Client has agreed to utilize the services of the Consultant and the Consultant hereby warrants and acknowledges that in the performance of its duties and obligations hereunder it is intended to be at all times an independent Consultant. 3. The Consultant will refrain from disclosing any material or information given to the Consultant by the Client if such material or information is specifically stated by the Client in writing in Schedule 2 hereof and should any other materials or information be given to the Consultant in the course of any meeting or briefing with the Client, then such materials or information may be disclosed to any person or company with whom the Consultant will exercise reasonable prudence and business confidentiality in so disclosing material or information. 4. The Consultant agrees that this agreement confers no authority to bind the Client in respect of any contract resulting from negotiations undertaken by the Consultant in the course of this consultancy, and no representation or warranty shall be given by the Consultant on behalf of the Client such as to legally bind the Client except with the written authority of the Client first being obtained. 5. Upon concluding negotiations, investigations or other services on behalf of the Client, the Consultant shall report the outcome of such negotiations, investigations or other services directly to the Client forthwith and in full and shall present any materials, information, draft contracts, letters of offer or notices of intention to proceed directly to the Client as soon as possible after their receipt by the Consultant. 6. The Consultant and Client agree to keep the existence of this agreement and the scope and nature of this agreement strictly confidential except in cases where both parties hereto agree that disclosure of this agreement is in the interests of the objectives of this agreement and except in cases whether either party wishes to pursue to enforcement of its rights pursuant to this agreement or is otherwise required by law to make disclosure of this agreement. 7. The Client acknowledges that the Consultant is an independent Consultant and that the Consultant contracts to supply the services referred to in the Schedule hereto and further that in no circumstances shall the Consultant, its employees, servants or agents be deemed to be an employee, servant or agent of the Client. The Consultant acknowledges that neither it nor its employees, servants or agents have any claim upon the Client in respect of annual leave, public holidays, sick leave, long service leave, other entitlements or otherwise in respect of any claims under relevant Worker's Compensation Legislation or any other Legislation or regulations affecting or relating to the relationship between an employer and employee. 8. Subject to Clause 9 the Client shall pay to the Consultant a fee for services provided hereunder in the amount and in the manner as set out in Schedule 3 of this agreement. The fees payable hereunder shall be subject to an annual review by the parties providing that in no circumstances shall the fees be reduced. 9. In the event of death or permanent incapacity of the Consultant, the Consultant's spouse Kum Sook Judy Van Zee shall receive any compensations owed to the Consultant and will continue to receive commissions pursuant to the agreement for a period of 12 months after such circumstances occurring. 10. It is envisaged by the parties that from time to time the Consultant may not be available to provide continuous services to the Client having regard to other consulting arrangements the Consultant may have now or in the future. 11. All reasonable travel, accommodation, entertainment, telephone and other such expenses incurred by the Consultant in the provision of services hereunder shall be reimbursed by the Client on a monthly basis subject to: (a) The Consultant providing to the Client upon request satisfactory documentary evidence of such expenses. (b) The Consultant obtaining prior approval from the Client before incurring expenses other that of an incidental or recurring nature. 12. The Consultant acknowledges that he shall be solely responsible for payment of the Consultant's own income tax and consents to the Client furnishing the Internal Revenue Service with the Consultant's name, address and all details of payments made to the Consultant by the Client. 13. The Client agrees that irrespective of the method of calculation of the consultancy fee to be paid to the Consultant, that such fees fairly represents reasonable remuneration to the Consultant for work actually performed by the Consultant and acknowledges that the amount of the fee has been agreed between the parties after consideration of the work involved. 14. TERM The agreement will extend for a period of three (3) years with option to renew for a further three (3) years on the provision that the agreed performance targets have been achieved. 15.1 TERMINATION Either party shall have the right to terminate this agreement forthwith by written notice to the other:- (a) In the event that the other shall be guilty of any breach, non-observance or non-performance of its obligations hereunder or any of them and shall not have remedied such breach, non-observance or non-performance (if it is capable of remedy) within fourteen (14) days after notice thereof in writing; or (b) In the event that the other shall be unable to pay its debts in the ordinary course of business or to enter into liquidation or have a receiver appointed whether compulsorily or otherwise. 15.2 The termination of this agreement for any reason shall be without prejudice to the rights and obligations of the parties accrued up to and including the date of such termination. 15.3 If by reason of any fact, circumstance, matter or thing beyond the reasonable control of the Client or the Consultant, either is unable to perform in whole or in part any obligation under this agreement, to the extent and for the period that it is unable to perform, shall not be liable to the party to this agreement in respect of such inability. 16. NEW WAIVER The failure of either party at any time to enforce a provision of this contract shall in no way constitute a waiver of the provision nor in any way affect the validity of this agreement or any part thereof or the right of such party thereafter to enforce each and every provision herein. 17. GOVERNING LAW This agreement shall be deemed to have been made in USA. It shall be construed in accordance with the laws of USA and the parties hereto agree to submit to the non-exclusive jurisdiction of the Courts of USA, in matters relating to this agreement. 18. NOTICE Any notice, requests, demands and other communications required to be given hereunder shall be in writing and sent by prepaid registered mail, cable, telex, address as stated on the face hereof or at such other address as my be noticed to the other in writing. Every notice shall be deemed to have been given and received at the time when in the ordinary course of transmission it should have been delivered at the address or number to which it was sent. IN WITNESS WHEREOF the parties hereto executed this agreement on the day and date first stated. THE COMMON SEAL OF VIRTUAL TECHNOLOGIES, INC. was hereto affixed by authority of the Board of Directors in the presence of: /s/ James H. Hirst - - ---------------------------- C/S Chief Executive Officer /s/ Lief Schipper - - ---------------------------- SIGNED SEALED AND DELIVERED BY THE SAID /s/ Charles Van Zee CHARLES VAN ZEE in the --------------------------- presence of: Charles Van Zee /s/ Frances Castellanos - - ---------------------------- Witness SCHEDULE 1 OBJECT OF CONSULTANCY 1. To identify local markets/international markets, product marketing methods, finance arrangements and potential product licenses for various products owned, manufactured or distributed by the Client at the request of the Client. 2. To assist in the negotiation of any commercial arrangements for and on behalf of the Client, resulting from the above object at the request of the Client. 3. To assist from time to time in the administration and enforcement of any ongoing obligations between the Client and any party introduced by the Consultant at the request of the Client. 4. To identify international licensees for a fuel related product known as 'Soltron'. MARKETING REGIONS/COUNTIRES 1. Mexico SCHEDULE 2 CONFIDENTIAL INFORMATION All information passing between the parties from time to time in respect to the products. 1. Soltron 2. Solpower SP34E Refrigerant Gas SCHEDULE 3 COMPENSATION FOR SERVICES 1. 5% of any License Fee paid when received by the Client. 2. $0.10 per litre of completed Soltron sold pursuant to each Master License Agreement for the first three (3) years from commencement of production of Soltron manufactured under the Master License Agreement and/or the first sales of Soltron in the Licensed Territory. EX-10.14 19 AGREEMENT BETWEEN J. WARD AND SOLPOWER CORP. THIS AGREEMENT is dated this day of , 1998. BETWEEN SOLPOWER CORPORATION 7309 East Stetson Drive, Suite 102, Scottsdale, Arizona 85251 (the "Client") OF THE FIRST PART AND: JOSHUA WARD of Scottsdale, Arizona (the "Consultant") OF THE SECOND PART WHEREAS: 1. The Consultant has certain expertise and contacts in the territory specified in Schedule 1 for the development of local markets, product marketing, finance and negotiations for commercial transactions. 2. The Client has agreed to utilize the services of the Consultant on the terms and conditions set out in this agreement. NOW THE PARTIES HERETO AGREE: 1. The Consultant is authorized by the Client to negotiate with parties deemed by the Consultant to qualify as suitable for entering into any satisfactory agreements with the Client, with respect to the objective set out in Schedule 1 hereto. 2. The Client has agreed to utilize the services of the Consultant and the Consultant hereby warrants and acknowledges that in the performance of its duties and obligations hereunder it is intended to be at all times an independent Consultant. 3. The Consultant will refrain from disclosing any material or information given to the Consultant by the Client if such material or information is specifically stated by the Client in writing in Schedule 2 hereof and should any other materials or information be given to the Consultant in the course of any meeting or briefing with the Client, then such materials or information may be disclosed to any person or company with whom the Consultant will exercise reasonable prudence and business confidentiality in so disclosing material or information. 4. The Consultant agrees that this agreement confers no authority to bind the Client in respect of any contract resulting from negotiations undertaken by the Consultant in the course of this consultancy, and no representation or warranty shall be given by the Consultant on behalf of the Client such as to legally bind the Client except with the written authority of the Client first being obtained. 5. Upon concluding negotiations, investigations or other services on behalf of the Client, the Consultant shall report the outcome of such negotiations, investigations or other services directly to the Client forthwith and in full and shall present any materials, information, draft contracts, letters of offer or notices of intention to proceed directly to the Client as soon as possible after their receipt by the Consultant. 6. The Consultant and Client agree to keep the existence of this agreement and the scope and nature of this agreement strictly confidential except in cases where both parties hereto agree that disclosure of this agreement is in the interests of the objectives of this agreement and except in cases whether either party wishes to pursue to enforcement of its rights pursuant to this agreement or is otherwise required by law to make disclosure of this agreement. 7. The Client acknowledges that the Consultant is an independent Consultant and that the Consultant contracts to supply the services referred to in the Schedule hereto and further that in no circumstances shall the Consultant, its employees, servants or agents be deemed to be an employee, servant or agent of the Client. The Consultant acknowledges that neither it nor its employees, servants or agents have any claim upon the Client in respect of annual leave, public holidays, sick leave, long service leave, other entitlements or otherwise in respect of any claims under relevant Worker's Compensation Legislation or any other Legislation or regulations affecting or relating to the relationship between an employer and employee. 8. Subject to Clause 9 the Client shall pay to the Consultant a fee for services provided hereunder in the amount and in the manner as set out in Schedule 3 of this agreement. The fees payable hereunder shall be subject to an annual review by the parties providing that in no circumstances shall the fees be reduced. 9. In the event of death or permanent incapacity of the Consultant, the Consultant's spouse shall receive any compensations owed to the Consultant and will continue to receive commissions pursuant to the agreement for a period of 12 months afer such circumstances occurring. 10. It is envisaged by the parties that from time to time the Consultant may not be available to provide continuous services to the Client having regard to other consulting arrangements the Consultant may have now or in the future. 11. All reasonable travel, accommodation, entertainment, telephone and other such expenses incurred by the Consultant in the provision of services hereunder shall be reimbursed by the Client on a monthly basis subject to: (a) The Consultant providing to the Client upon request satisfactory documentary evidence of such expenses. (b) The Consultant obtaining prior approval from the Client before incurring expenses other that of an incidental or recurring nature. 12. The Consultant acknowledges that he shall be solely responsible for payment of the Consultant's own income tax and consents to the Client furnishing the Internal Revenue Service with the Consultant's name, address and all details of payments made to the Consultant by the Client. 13. The Client agrees that irrespective of the method of calculation of the consultancy fee to be paid to the Consultant, that such fees fairly represents reasonable remuneration to the Consultant for work actually performed by the Consultant and acknowledges that the amount of the fee has been agreed between the parties after consideration of the work involved. 14. TERM The agreement will extend for a period of three (3) years. 15.1 TERMINATION Either party shall have the right to terminate this agreement forthwith by written notice to the other:- (a) In the event that the other shall be guilty of any breach, non-observance or non-performance of its obligations hereunder or any of them and shall not have remedied such breach, non-observance or non-performance (if it is capable of remedy) within fourteen (14) days after notice thereof in writing; or (b) In the event that the other shall be unable to pay its debts in the ordinary course of business or to enter into liquidation or have a receiver appointed whether compulsorily or otherwise. 15.2 The termination of this agreement for any reason shall be without prejudice to the rights and obligations of the parties accrued up to and including the date of such termination. 15.3 If by reason of any fact, circumstance, matter or thing beyond the reasonable control of the Client or the Consultant, either is unable to perform in whole or in part any obligation under this agreement, to the extent and for the period that it is unable to perform, shall be liable to the party to this agreement in respect of such inability. 16. NEW WAIVER The failure of either party at any time to enforce a provision of this contract shall in no way constitute a waiver of the provision nor in any way affect the validity of this agreement or any part thereof or the right of such party thereafter to enforce each and every provision herein. 17. GOVERNING LAW This agreement shall be deemed to have been made in USA. It shall be construed in accordance with the laws of USA and the parties hereto agree to submit to the non-exclusive jurisdiction of the Courts of USA, in matters relating to this agreement. 18. NOTICE Any notice, requests, demands and other communications required to be given hereunder shall be in writing and sent by prepaid registered mail, cable, telex, address as stated on the face hereof or at such other address as may be noticed to the other in writing. Every notice shall be deemed to have been given and received at the time when in the ordinary course of transmission it should have been delivered at the address or number to which it was sent. IN WITNESS WHEREOF the parties hereto executed this agreement on the day and date first stated. THE COMMON SEAL OF SOLPOWER CORPORATION was hereto affixed by authority of the Board of Directors in the presence of : C/S /s/ James H. Hirst - - --------------------------- Chief Executive Officer SIGNED SEALED AND DELIVERED BY THE SAID JOSHUA WARD /s/ Joshua Ward --------------------------------- presence of: Joshua Ward Witness /s/ Shenece R. Smith ---------------------------- SCHEDULE 1 OBJECT OF CONSULTANCY 1. To assist in the negotiation of any commercial arrangements for and on behalf of the Client. 2. To assist from time to time in the administration and enforcement of any ongoing obligations between the Client and any party introduced by the Consultant at the request of the Client. 3. To identify licensees for a fuel related product known as "Soltron". MARKETING TERRITORY 1. SOLPOWER GREAT LAKES territory of the United States. SCHEDULE 2 CONFIDENTIAL INFORMATION All information passing between the parties from time to time in respect to the product. 1. Soltron SCHEDULE 3 COMPENSATION FOR SERVICES 1. 2.5% of any License Fee paid when received by the Client. EX-10.15 20 CONSULTANT AGREEMENT WITH TROND MATTESON THIS AGREEMENT is dated this day of ,1998. BETWEEN: SOLPOWER CORPORATION 7309 East Stetson Drive, Suite 102, Scottsdale, Arizona 85251 (the "Client") OF THE FIRST PART AND: TROND MATTESON of Scottsdale, Arizona (the "Consultant") OF THE SECOND PART WHEREAS: 1. The Consultant has certain expertise and contacts in the territory specified in Schedule 1 for the development of local markets, product marketing, finance and negotiations for commercial transactions. 2. The Client has agreed to utilize the services of the Consultant on the terms and conditions set out in this agreement. NOW THE PARTIES HERETO AGREE: 1. The Consultant is authorized by the Client to negotiate with parties deemed by the Consultant to qualify as suitable for entering into any satisfactory agreements with the Client, with respect to the objective set out in Schedule 1 hereto. 2. The Client has agreed to utilize the services of the Consultant and the Consultant hereby warrants and acknowledges that in the performance of its duties and obligations hereunder it is intended to be at all times an independent Consultant. 3. The Consultant will refrain from disclosing any material or information given to the Consultant by the Client if such material or information is specifically stated by the Client in writing in Schedule 2 hereof and should any other materials or information be given to the Consultant in the course of any meeting or briefing with the Client, then such materials or information may be disclosed to any person or company with whom the Consultant will exercise reasonable prudence and business confidentiality in so disclosing material or information. 4. The Consultant agrees that this agreement confers no authority to bind the Client in respect of any contract resulting from negotiations undertaken by the Consultant in the course of this consultancy, and no representation or warranty shall be given by the Consultant on behalf of the Client such as to legally bind the Client except with the written authority of the Client first being obtained. 5. Upon concluding negotiations, investigations or other services on behalf of the Client, the Consultant shall report the outcome of such negotiations, investigations or other services directly to the Client forthwith and in full and shall present any materials, information, draft contracts, letters of offer or notices of intention to proceed directly to the Client as soon as possible after their receipt by the Consultant. 6. The Consultant and Client agree to keep the existence of this agreement and the scope and nature of this agreement strictly confidential except in cases where both parties hereto agree that disclosure of this agreement is in the interests of the objectives of this agreement and except in cases whether either party wishes to pursue to enforcement of its rights pursuant to this agreement or is otherwise required by law to make disclosure of this agreement. 7. The Client acknowledges that the Consultant is an independent Consultant and that the Consultant contracts to supply the services referred to in the Schedule hereto and further that in no circumstances shall the Consultant, its employees, servants or agents be deemed to be an employee, servant or agent of the Client. The Consultant acknowledges that neither it nor its employees, servants or agents have any claim upon the Client in respect of annual leave, public holidays, sick leave, long service leave, other entitlements or otherwise in respect of any claims under relevant Worker's Compensation Legislation or any other Legislation or regulations affecting or relating to the relationship between an employer and employee. 8. Subject to Clause 9 the Client shall pay to the Consultant a fee for services provided hereunder in the amount and in the manner as set out in Schedule 3 of this agreement. The fees payable hereunder shall be subject to an annual review by the parties providing that in no circumstances shall the fees be reduced. 9. In the event of death or permanent incapacity of the Consultant, the Consultant's spouse shall receive any compensations owed to the Consultant and will continue to receive commissions pursuant to the agreement for a period of 12 months after such circumstances occurring. 10. It is envisaged by the parties that from time to time the Consultant may not be available to provide continuous services to the Client having regard to other consulting arrangements the Consultant may have now or in the future. 11. All reasonable travel, accommodation, entertainment, telephone and other such expenses incurred by the Consultant in the provision of services hereunder shall be reimbursed by the Client on a monthly basis subject to: (a) The Consultant providing to the Client upon request satisfactory documentary evidence of such expenses. (b) The Consultant obtaining prior approval from the Client before incurring expenses other that of an incidental or recurring nature. 12. The Consultant acknowledges that he shall be solely responsible for payment of the Consultant's own income tax and consents to the Client furnishing the Internal Revenue Service with the Consultant's name, address and all details of payments made to the Consultant by the Client. 13. The Client agrees that irrespective of the method of calculation of the consultancy fee to be paid to the Consultant, that such fees fairly represents reasonable remuneration to the Consultant for work actually performed by the Consultant and acknowledges that the amount of the fee has been agreed between the parties after consideration of the work involved. 14. Term The agreement will extend for a period of three (3) years. 15.1 Termination Either party shall have the right to terminate this agreement forthwith by written notice to the other:- (a) In the event that the other shall be guilty of any breach, non-observance or non-performance of its obligations hereunder or any of them and shall not have remedied such breach, non-observance or non-performance (if it is capable of remedy) within fourteen (14) days after notice thereof in writing; or (b) In the event that the other shall be unable to pay its debts in the ordinary course of business or to enter into liquidation or have a receiver appointed whether compulsorily or otherwise. 15.2 The termination of this agreement for any reason shall be without prejudice to the rights and obligations of the parties accrued up to and including the date of such termination. 15.3 If by reason of any fact, circumstance, matter or thing beyond the reasonable control of the Client or the Consultant, either is unable to perform in whole or in part any obligation under this agreement, to the extent and for the period that it is unable to perform, shall not be liable to the party to this agreement in respect of such inability. 16. New Waiver The failure of either party at any time to enforce a provision of this contract shall in no way constitute a waiver of the provision nor in any way affect the validity of this agreement or any part thereof or the right of such party thereafter to enforce each and every provision herein. 17. Governing Law This agreement shall be deemed to have been made in USA. It shall be construed in accordance with the laws of USA and the parties hereto agree to submit to the non-exclusive jurisdiction of the Courts of USA, in matters relating to this agreement. 18. Notice Any notice, requests, demands and other communications required to be given hereunder shall be in writing and sent by prepaid registered mail, cable, telex, address as stated on the face hereof or at such other address as my be noticed to the other in writing. Every notice shall be deemed to have been given and received at the time when in the ordinary course of transmission it should have been delivered at the address or number to which it was sent. IN WITNESS WHEREOF the parties hereto executed this agreement on the day and date first stated. THE COMMON SEAL OF SOLPOWER CORPORATION was hereto affixed by authority of the Board of Directors in the presence of: /s/ James R. Hirst - - -------------------------------- C/S Chief Executive Officer SIGNED SEALED AND DELIVERED BY THE SAID /s/ TROND MATTESON TROND MATTESON ---------------------------- presence of: TROND MATTESON Witness /s/ ------------------------- SCHEDULE 1 OBJECT OF CONSULTANCY 1. To assist in the negotiation of any commercial arrangements for and on behalf of the Client. 2. To assist from time to time in the administration and enforcement of any ongoing obligations between the Client and any party introduced by the Consultant at the request of the Client. 3. To identify licensees for a fuel related product known as "Soltron". MARKETING TERRITORY 1. SOLPOWER GREAT LAKES territory of the United States. SCHEDULE 2 CONFIDENTIAL INFORMATION All information passing between the parties from time to time in respect to the product. 1. Soltron SCHEDULE 3 COMPENSATION FOR SERVICES 1. 2.5% of any deposit on the License Fee paid when received by the Client. 2. Advance fees in the amount of $1500.00 per month commencing 30 days after any payment paid pursuant to item 1 of this Schedule 3 and continuing for a maximum period of 6 months or such earlier date as determined by the Client in its sole discretion. 3. 2.5% of any License Fee paid when received by the Client less any amounts paid by Client pursuant to items 1 and 2 of this Schedule 3. EX-10.16 21 CLIENT SERVICE AGREEMENT CLIENT SERVICE AGREEMENT THIS AGREEEMENT is made and entered into this 1st day of July, 1998, between DOMINION CAPITAL SECURITIES, INC., located at 7309 East Stetson Drive, Suite #202, Scottsdale, AZ 85251 hereinafter referred to as ("DCS") and SOLPOWER CORPORATION, located at 7309 East. Stetson Drive, Suite #102, Scottsdale, AZ 85251, hereinafter referred to as (the "Company"). WITNESSETH: WHEREAS, DCS is a public relations company and direct marketing advertising firm specializing in the dissemination of information about publicly traded companies, and WHEREAS, the Company is publicly held with its common stock trading on one or more stock exchanges and/or over the counter or on NASDAQ, and WHEREAS, the Company desires to publicize itself with the intention of making its name and business better known to its shareholders, investors, brokerage houses, and WHEREAS, DCS is willing to accept the Company as a client. NOW THEREFORE, in consideration of the mutual covenants herein contained it is agreed that: 1. ENGAGEMENT: the Company hereby engages DCS to publicize the Company to brokers, prospective investors and shareholders described in Section 2 of this Agreement, and subject to the further provisions of this Agreement. DCS hereby accepts the Company as a client and agrees to publicize it as described in Section 2 of this Agreement, but subject to the further provisions of this Agreement. 2. MARKETING PROGRAM: Consists of the following components: (a) DCS will review and analyze all aspects of the Company's goals and make recommendations on feasibility and achievement of desired goals. (b) DCS will review all of the general information and recent filings from the Company and produce and mail a minimum 1,000 piece to a maximum 10,000 piece direct mail package to include a self mailer and an ample number of corporate profiles so as to allow for one profile for each respondent to the original mailing. Profiles will be prepared in brokerage style format, both items to be approved by the Company prior to circulation. (c) DCS will provide through their network, firms and brokers interested in participating and schedule and conduct the necessary due diligence and obtain the required approvals necessary for those firms to participate. DCS will also interview and make determinations on any firms or brokers referred by the Company with regard to their participation. (d) DCS will be available to the Company to field any calls from firms and brokers inquiring about the Company. (e) DCS will use its best efforts to obtain the Company exposure on radio programming, in independent financial newsletters, and through on-line fax and Internet broadcast services. (f) DCS will promote the Company on the Worldwide Internet via DCS's home web site. Further DCS shall create banner ads for placement on financial web sites with hyperlinks back to the Company's feature page on DCS's home web site. The banner ads shall run until such time as approximately 500,000 impressions have been achieved. (g) DCS shall write, produce and assist the Company in releasing all press announcements. The Company shall be solely responsible for paying all fees associated with the actual release(s) through Business Wire, P.R. Newswire, or any other comparable news dissemination source. (h) DCS will obtain expressed written approval from the Company on all material produced by DCS prior to disseminating the information to the public. 3. TERM: Services to be performed under this Agreement shall commence upon execution of this Agreement and shall continue until completion, which is expected to occur within six months. This Agreement shall automatically renew for successive six (6) month periods, on terms and conditions to be agreed upon between the parties from time to time, subject to termination by either party on thirty (30) days written notice and section 7 of this Agreement. 4. COMPENSATION AND EXPENSES: In consideration of the services to be performed by DCS, the Company agrees to pay compensation to DCS as follows: (a) $275,000 payable as follows: $125,000 in cash and 50,000 free trading shares. Cash and shares are due upon execution of this Agreement. (b) An Option to purchase 100,000 free trading shares valued at $3.00 per share. The term of the option shall expire 24 months from the day this Agreement is executed. 2 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY: The Company represents and warrants to DCS each such representation and warranty being deemed to be material that: (a) The Company will co-operate fully and timely with DCS to enable DCS to perform its obligations under this Agreement; (b) The execution and performance of this Agreement by the Company has been duly authorized by the Board of Directors of the company in accordance with applicable law and, to the extent required, by the requisite number of shareholders of the Company; (c) The performance by the Company of this Agreement will not violate any applicable court decree, law or regulation, nor will it violate any provisions of the organizational documents of the Company or any contractual obligation by which the Company may be bound; (d) The Company will promptly deliver to DCS a complete due diligence package to include latest 10K, latest 10Q, last 6 months of press releases and all other relevant materials, including but not limited to corporate reports, brochures etc; (e) The Company will promptly deliver to DCS a list of names and addresses of all shareholders of the Company of whom it is aware; (f) The Company will promptly deliver to DCS a list of brokers and market makers of the Company's securities which have been following the Company; (g) DCS will rely on such information to be supplied by the Company. All such information supplied by the Company shall be true, accurate, complete and not misleading in all respects. (h) The Company will act diligently and promptly in reviewing materials submitted to it by DCS to enhance timely distribution of the materials and will inform DCS of any inaccuracies contained therein prior to the projected publication date. 6. DISCLAIMER BY DCS: DCS WILL BE THE PREPARER OF CERTAIN PROMOTIONAL MATERIALS. DCS MAKES NO REPRESENTATION THAT (a) ITS SERVICE WILL RESULT IN ANY ENHANCEMENT TO THE COMPANY (b) THE PRICE OF THE COMPANY'S PUBLICLY TRADED SECURITIES WILL INCREASE, (c) ANY PERSON WILL PURCHASE SECURITIES IN THE COMPANY, OR (d) ANY INVESTOR WILL LEND MONEY TO OR INVEST IN OR WITH THE COMPANY. 3 7. EARLY TERMINATION: If the Company fails to cooperate with DCS or fails to make timely payment of the compensation set forth in section 4 of this Agreement DCS shall have the right to terminate any further performance under this Agreement. In such event all compensation shall become immediately due and payable and/or deliverable, and DCS shall be entitled to receive and retain the same as liquidated damages, and not as a penalty, in lieu of all other remedies, the parties acknowledging and agreeing that it would be too difficult currently to determine the exact extent of DCS's damage, but that the receipt and retention of such compensation is a reasonable present estimate of such damage. 8. LIMITATION OF DCS LIABILITY: If DCS fails to perform its services hereunder, its entire liability to the Company shall not exceed the lessor of (a) the amount of cash compensation DCS has received from the Company under section 4 of this Agreement or (b) the actual damage to the Company as a result of such non-performance. IN NO EVENT WILL DCS BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES NOR FOR ANY CLAIM AGAINST THE COMPANY BY AN PERSON OR ENTITIY ARISING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT, UNLESS SUCH DAMAGES RESULT FROM THE USE, BY DCS, OF INFORMATION NOT AUTHORIZED BY THE COMPANY. 9. OWNERSHIP OF MATERIALS: All right, title and interest in and to materials to be produced by DCS in connection with the contract and other services to be rendered under this Agreement shall be and remain the sole and exclusive property of DCS, except that if the Company performs fully and timely its obligations hereunder, it shall be entitled to receive upon written request, one hundred (100) copies of all such materials. 10. CONFIDENTIALITY: Until such time as the same may become publicly known, DCS agrees that any confidential material will not be revealed or disclosed to any person or entity, except in the performance of this Agreement, and upon completion of its services and upon written request of the Company all materials, original documentation provided by the Company will be returned to it. DCS will, however, require Confidentiality Agreements from its own employees and from contractors DCS reasonably believes will come in contact with confidential material. 11. NOTICES: All notices hereunder shall be in writing and addressed to the party at the address herein set forth, or at such other address as to which notice pursuant to this section may be given, and shall be given by personal delivery, by certified mail, express mail or by national overnight courier services. Notices will be deemed given upon the earlier of actual receipt or three (3) business days after being mailed or delivered to such courier service. 4 Notices shall be addressed to DCS at: Suite #202, 7309 East Stetson Drive Scottsdale, AZ 85251 and to the Company at: 7309 East Stetson Drive #102 Scottsdale, AZ 85251 Any notices to be given hereunder will be effective if executed by and sent by the attorneys for the parties giving such notice, and in connection therewith the parties and their respective counsel agree that in giving such notice such counsel may communicate directly in writing with such parties to the extent necessary to give such notice. 12. SEPARABILITY: If one or more of the provisions of this Agreement shall be held invalid, illegal, or unenforceable in any respect, such provision, to the extent invalid, illegal, or unenforceable, and provided that such provision is not essential to the transaction provided for by this Agreement, shall not affect any other provision hereof, and the Agreement shall be construed as if such provision had never been contained herein. 13. ARBITRATION: Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, and judgement upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. (g) MISCELLANEOUS: (a) EFFECTIVE DATE OF REPRENSATIONS: Shall be no later than the date DCS is prepared to distribute letters and/or brochures pursuant to this Agreement. (b) GOVERNING LAW: This Agreement shall be governed by and interpreted under the laws of the State of Arizona where DCS has been organized and this Agreement has been accepted by DCS. (c) CURRENCY: In all instances, references to dollars shall be deemed to be United States Dollars. (d) MULTIPLE COUNTERPARTS: This Agreement may be executed in multiple counterparts, each of which shall be deemed an original. 5 Executed as a sealed instrument as of the last day and year shown hereunder. CONFIRMED AND AGREED ON THE 1ST DAY OF JULY, 1998. DOMINION CAPITAL SECURITIES, INC. By: --------------------------------- A.S.O. SOLPOWER CORPORATION By: --------------------------------- President & CEO 6 EX-11.1 22 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS SOLPOWER CORPORATION STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
FULLY DILUTED QUARTER ENDED YEAR ENDED YEAR ENDED JUNE 30, 1998 MARCH 31, 1998 MARCH 31, 1997 Common Shares outstanding Beginning of year 13,391,560 9,231,560 3,557,500 Effect of weighting shares: Stock Options 38,372 590,909 0 Issuance of Common Stock 2,000,000 5,160,000 3,550,000 Reverse Split 0 0 (2,845,940) ---------- --------- --------- Weighted average number of Common Shares and Common Share equivalents Outstanding 15,429,932 14,982,469 4,261,560 ========== ========== ========= Net Income (Loss) available for common Stock $1,218,840 $1,411,928 $(976,764) ========== ========== ========= Earnings per Common and Common Equivalent Share $0.08 $0.09 $(0.23) ========== ========== =========
EX-23.1 23 AUDITOR'S CONSENT AUDITOR'S CONSENT The undersigned, Certified Public Accountants, do hereby consent to the use of the certified financial statements as of March 31, 1997 and 1996, prepared by the undersigned as appearing in the disclosure documents of Solpower Corporation, a Nevada corporation, in connection with its filing of Form 10-SB, promulgated under the Securities Act of 1933, as amended. Dated: August 21, 1998 CLANCY AND CO., P.L.L.C. 2601 East Thomas Road, Suite 110 Phoenix, Arizona 85016 /s/ Clancy and Co., P.L.L.C. ---------------------------- EX-27.1 24 FINANCIAL DATA SCHEDULE
5 1 U.S. Dollars 3-MOS 12-MOS 12-MOS MAR-31-1999 MAR-31-1998 MAR-31-1997 APR-01-1998 APR-01-1997 APR-01-1996 JUN-30-1998 JUN-30-1998 JUN-30-1997 1 1 1 305 183,842 437 0 0 0 5,496,565 3,160,000 0 0 0 0 94,830 101,906 0 5,591,700 3,448,665 437 147,455 131,942 49,050 0 0 0 5,846,910 3,630,862 97,482 828,961 21,921 0 0 0 0 0 0 0 0 0 0 233,916 173,916 92,316 3,410,904 3,410,904 972,504 5,846,910 3,630,862 97,482 0 0 0 2,425,802 2,400,000 0 0 0 0 396,279 975,379 857,879 153 2,221 118,885 0 0 0 153 2,221 0 2,029,370 1,426,842 (976,764) 810,530 14,914 (976,764) 0 0 0 0 0 (118,885) 0 0 0 0 0 0 1,218,840 1,411,928 (976,764) 0 0 0 .08 .09 (0.23)
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