-----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, OcPqvlIPwkz7nlUeY+RD4bdczG7dhB66/zhC0uKGLQSnfoE/mOXaPBeLaZCNWLZ+ p+3MjQ10T+rEJOjQ3rkjbg== 0001003297-99-000030.txt : 19990409 0001003297-99-000030.hdr.sgml : 19990409 ACCESSION NUMBER: 0001003297-99-000030 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990407 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR METHODS CORP CENTRAL INDEX KEY: 0000816159 STANDARD INDUSTRIAL CLASSIFICATION: 4522 IRS NUMBER: 840915893 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-16079 FILM NUMBER: 99584439 BUSINESS ADDRESS: STREET 1: 7301 S PEORIA STREET 2: P O BOX 4114 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037927400 MAIL ADDRESS: STREET 1: 7301 S PEORIA CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: CELL TECHNOLOGY INC /DE/ DATE OF NAME CHANGE: 19911128 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-16079 AIR METHODS CORPORATION (Exact name of registrant as specified in its charter) Delaware 84-0915893 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 7301 South Peoria, Englewood, Colorado 80112 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (303) 792-7400 Securities registered pursuant to Section 12(b) of the Act: Not Applicable Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.06 PAR VALUE PER SHARE (the "Common Stock") (Title of Class) NASDAQ Stock Market (Name of each exchange on which registered) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the common stock held by non-affiliates of the Registrant as of March 12, 1999 was approximately $11,872,000.(1) The number of outstanding shares of Common Stock as of March 12, 1999 was 8,230,737. ____________________ 1 Excludes 1,324,294 shares of Common Stock held by directors, officers, and shareholders whose ownership exceeds five percent of the shares outstanding at March 12, 1999. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management of policies of the Registrant, or that such person is controlled by or under common control with the Registrant. TABLE OF CONTENTS To Form 10-K Page PART I ITEM 1. BUSINESS 1 General 1 Competition 3 Marketing Strategy 3 Contracts in Process 3 Employees 4 Government Regulation 4 ITEM 2. PROPERTIES 4 Facilities 4 Equipment and Parts 4 ITEM 3. LEGAL PROCEEDINGS 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 7 ITEM 6. SELECTED FINANCIAL DATA 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 Results of Operations 9 Liquidity and Capital Resources 13 Outlook for 1999 13 Year 2000 Update 14 New Accounting Standards 16 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 16 i PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17 ITEM 11. EXECUTIVE COMPENSATION 21 Stock Option Plan 21 Employment Agreements 22 Director Compensation 23 Compensation Committee Report 23 Stock Performance Graph 25 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 26 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K IV-1 SIGNATURES IV-4 ii PART I ITEM 1. BUSINESS General Air Methods Corporation, a Delaware corporation ("Air Methods" or "the Company"), was originally incorporated in Colorado in 1982 and now serves as one of the largest providers of aeromedical emergency transport services and systems throughout North America. The Company determines its operating segments based on the type of products and services offered. As of December 31, 1998, the Company's Flight Services Division provided aeromedical transportation services to hospitals located in 16 states under 21 operating agreements with terms ranging from one to ten years and had transported approximately 142,000 patients. Mercy Air Service, Inc. ("Mercy"), the Company's wholly owned subsidiary, is an independent provider of air medical transportation services in southern California. The Company's Products Division designs, manufactures, and installs aircraft medical interiors and other aerospace products. Financial information for each of the Company's operating segments is included in the notes to the Company's attached consolidated financial statements in Item 8. Flight Services Division The Company's Flight Services Division provides its hospital clients with helicopters and airplanes equipped with medical interiors approved by the Federal Aviation Administration (FAA) to transport persons requiring intensive medical care from either the scene of an accident or general care hospitals to highly skilled trauma centers or tertiary care centers. The Flight Services Division conducts its operations using predominantly Instrument Flight Rules ("IFR") certified aircraft and IFR-rated pilots. Maintenance and operation of the aircraft in accordance with Federal Aviation Regulations (FAR) Part 135 standards is the Company's responsibility. The hospital clients are responsible for providing medical personnel and all medical care. Under the typical operating agreement with a hospital, the Company earns approximately 70% of its revenue from a fixed monthly fee and 30% from an hourly flight fee from the hospital, regardless of when, or if, the hospital is reimbursed for these services by its patients, their insurers, or the federal government. Both monthly and hourly fees are generally subject to annual increases based on changes in the consumer price index and in the Company's hull and liability insurance premiums. Because the majority of the division's flight revenue is generated from fixed monthly fees, seasonal fluctuations in flight hours do not significantly impact monthly revenue in total. In 1998 the Flight Services Division began operations under two new operating agreements in Flagstaff, Arizona, and Columbia, South Carolina. The division also began the process of expanding and upgrading its backup fleet of helicopters to service its customer base. The Company performs non-destructive component testing, engine repair, and component overhaul at its headquarters in the Denver metropolitan area. The Company is a Customer Service Facility for Bell Helicopter, Inc. and an FAA Certified Repair Station authorized to perform airframe, avionics, and limited engine repair. In-house repair, maintenance, and testing capabilities provide cost savings and decrease aircraft down time by avoiding the expense and delay of having this work performed by nonaffiliated vendors. Internationally, the Company relies on developing business relationships with strategic players in the medical industry within other countries to expand its aeromedical transportation business. The Company established its first international franchise in 1995 in Brazil with Unimed Air S/A ("Unimed Air"), a member of Brazil's largest healthcare cooperative, and commenced air medical operations in January 1996. The Company has assisted the franchise with aircraft selection and acquisition, medical interior and avionics installations, communications center consultation, and pilot and medical personnel training. The franchise agreement currently in effect provides for an initial acquisition price payable over 10 years plus annual royalties based upon a percentage of the venture's gross annual revenues. Revenue for the franchise is based on the number of subscribers to the service rather than on the volume of medical missions flown by the cooperative. The Company and Unimed Air negotiate agreements to provide other services, such as the manufacture and installation of medical interiors, independently of the franchise agreement. In 1998 Unimed Air discontinued services to two cities and one state and reduced its subscription rates to remain competitive. 1 The Company operates some of its domestic Flight Services Division contracts as well as its international franchise under the service mark AIR LIFEr and has successfully defended the service mark against infringement actions in Colorado and California. The aeromedical transportation industry identifies the service mark with the Company's high quality of customer support and standard of service. Mercy Air Service In July 1997 the Company acquired all of the common stock of Mercy Air Service, Inc., a California corporation, and substantially all of the net assets of Helicopter Services, Inc., a California corporation (together "Mercy"). Mercy has operated as an independent provider of aeromedical transportation services throughout southern California since 1988. Independent provider operations include medical care, aircraft operation and maintenance, 24-hour communications and dispatch, and medical billing and collections. Mercy operates eight helicopters under Visual Flight Rules in southern California and Las Vegas and is a leading provider of aeromedical transportation services in Orange, Riverside, San Diego, Kern, San Bernardino, and Los Angeles counties. Although Mercy does not contract directly with specific hospitals, it has long-standing relationships with several of the leading healthcare institutions. Revenue from Mercy's flight operations consists of flight fees billed directly to patients, their insurers, or governmental agencies. Due to weather conditions and other factors, the number of flights is generally higher during the summer months than during the remainder of the year, causing revenue generated from Mercy's operations to fluctuate accordingly. In 1998 Mercy expanded its operations into the Las Vegas market and introduced a second helicopter in San Diego. In August 1998 Mercy entered into a joint venture to provide air medical services in the Santa Barbara region. Under the joint venture agreement, Mercy provides medical staffing, dispatch, and medical billing and collection and shares equally in the net operating results of the venture with its partner. Products Division The Company's Products Division manufactures three main product lines: modular, multi-functional medical interiors; multi-mission interiors; and medical suites for fixed wing aircraft. The key features of the multi-functional and multi-mission interiors are the flexibility of the configuration, which can be easily converted for other transport needs, and the simplicity of installation and maintenance. Although medical interiors ranging from basic life support systems to intensive care units have comprised the majority of the Products Division's business, the combination of its engineering, manufacturing, and certification capabilities has also allowed the Company to design and integrate other aerospace products, such as aircraft navigation systems, environmental control systems, and structural and electrical systems. Manufacturing capabilities include composites, machining and welding, sheetmetal, and upholstery. To optimize the efficiency of the design phase, the engineering department uses computer-aided design work stations and finite element analysis software. The Company also offers quality assurance and certification services pursuant to Parts Manufacturer Approvals ("PMA's"). The Products Division markets its services and products both domestically and internationally to a variety of customers through an extensive network of marketing representatives. The division has custom designed most of its projects in accordance with specific customer contract requirements; however, with the development of the modular, multi-functional interior, the division has marketed and produced components individually for a variety of airframes. The Company maintains patents covering several products, including the Multi-Functional Floor, Articulating Patient Loading System, and Modular Equipment Frame, all of which were developed as part of the modular interior. The raw materials and components used in the manufacture of the interiors and other products are generally widely available from several different vendors. In 1998 the U.S. Air Force awarded an estimated $2.3 million cost- reimbursable contract to the Products Division to develop a Spinal Cord Injury Transport System (SCITS). In addition, the U.S. Army completed operational tests on the Multi-Mission Medevac System developed by the Products Division for the UH-60Q Blackhawk helicopter. The division installed components of its multi-functional interior for eight commercial customers during the year, in addition to completing five medical interiors and various other projects for the Flight Services Division. 2 Competition Competition in the aeromedical transportation industry comes primarily from four national operators: Corporate Jets, Inc.; OmniFlight, Inc.; Petroleum Helicopters, Inc.; and Rocky Mountain Helicopters, Inc. Mercy also faces competition from smaller regional carriers and alternative air ambulance providers such as sheriff departments. Operators generally compete on the basis of price, safety record, accident prevention and training, and the medical capability of the aircraft offered. Price is becoming a more significant element of competition as many healthcare organizations move toward consolidation and strict cost containment, reflecting the uncertainty concerning the future structure of healthcare providers. The Company's competition in the medical interior design and manufacturing industry comes primarily from two companies based in the United States and one European company. Competition is based mainly on product features and performance, price, and weight of the product. Marketing Strategy The Company believes that demand for comprehensive medical transportation will continue to increase with the closing and consolidation of hospitals. The Company will pursue growth as an aeromedical transportation operator through responses to selected Requests for Proposal (RFP's) received from healthcare centers; through growing independent programs based on the Mercy model of operations; and through business combinations such as joint ventures, mergers and acquisitions. RFP's will be evaluated based upon the program's expected contribution to the Company's profitability objectives as well as on the potential increase in market share. The Company believes that consolidation within the aeromedical transportation industry is necessary to realize economies of scale and to spread the costs and risks of operation over a larger customer base. Cost pressures and other changes within the healthcare industry recently have led to the development of additional innovative approaches to aeromedical transportation, including the turn key or independent provider (IP) model. In several of Mercy's service areas, local government agencies determine the distribution of call volume among competitors. Mercy plans to maximize its market share by developing strategic alliances with other operators in local markets and repositioning its aircraft. In addition, several governmental entities have competed against Mercy contrary to the provisions of their charters. Mercy will continue to lobby for change in the entities' practices. The Company also intends to aggressively market its three aircraft interior product lines through its domestic and foreign marketing representatives to original equipment manufacturers as well as to aeromedical operators. The government aeromedical industry continues to be a market of primary importance, both domestically and internationally. Drawing on the development of the UH-60Q Multi- Mission Medevac System, the Products Division has positioned itself to obtain the anticipated UH-60Q production contract and to leverage the technology on a global basis. The Company believes that demand for medical aircraft interiors will focus on products which are easy to install, maintain, and operate and which can be rapidly converted to other uses. Contracts in Process As of December 31, 1998, the Company was completing the installation of medical interior systems for two Bell 214ST helicopters, production of modular medical interior components for 2 companies, production of a Bell 430 helicopter medical interior upgrade, and manufacture of modular medical interior components for three Bell 430 helicopters. Design work on the developmental phase of the SCITS program was also in process. All of these projects except for SCITS are scheduled for delivery in the first and second quarters of 1999; remaining revenue on all projects is estimated at $2.4 million. In addition, in the first quarter of 1999 the Products Division received contracts to produce medical interiors for a Bell 407, a Bell 430, and an MD902 helicopter totaling approximately $1.6 million. As of December 31, 1997, the portion of medical interiors and other products in process to be completed was $430,000. 3 Employees As of December 31, 1998, the Company retained 367 full time and 71 part time employees, comprised of 150 pilots; 144 aviation machinists, A&P engineers and other manufacturing/maintenance positions; 77 flight nurses and paramedics; and 67 business and administrative personnel. All of the Company's pilots are IFR- rated and have completed an extensive ground school and flight training program at the commencement of their employment with the Company, as well as local area orientation and annual training provided by the Company. All of the Company's operating aircraft mechanics must possess FAA airframe and powerplant licenses. All flight nurses and paramedics hold the appropriate state and county licenses, as well as Cardiopulmonary Resuscitation, Advanced Cardiac Life Support, and Pediatric Advanced Life Support certifications. The Company's employees are not covered by any collective bargaining agreements and management believes that its relations with employees are satisfactory. The Company provides salary and benefits packages competitive with those offered by other providers of air medical services based on the individual qualifications of employees. Government Regulation The Company is subject to the Federal Aviation Act of 1958, as amended. All flight and maintenance operations of the Company are regulated and actively supervised by the U.S. Department of Transportation through the FAA; in addition, the medical interiors and other aerospace products developed by the Company are subject to FAA certification. The Company holds a Part 135 Air Carrier Certificate and Part 145 Repair Station (Maintenance and Avionics) Certificates from the FAA. In addition, Mercy holds its own Part 135 Air Carrier Certificate and Part 145 Repair Station Certificate from the FAA. The Company cannot predict the impact of new or changed laws or regulations on the demand for aeromedical services in the future or the costs of complying with such laws and regulations. ITEM 2. PROPERTIES Facilities The Company leases its headquarters, consisting of approximately 60,000 square feet of office and hangar space, in metropolitan Denver, Colorado at the Centennial Airport. The lease expires in March 2003 and the approximate annual rent is $472,000. Mercy's headquarters consist of approximately 19,000 square feet of office and hangar space owned by the Company in Rialto, California. The Company pays minimal rent for the land at the airport where the facilities are located. The Company believes that these facilities are in good condition and suitable for the Company's present requirements. Equipment and Parts As of December 31, 1998, the Company managed and operated a fleet of 47 aircraft, consisting of 42 helicopters and 5 airplanes. Of these aircraft, the Company owns 25 helicopters and one airplane and leases 11 helicopters and one airplane. The Company operates 6 helicopters and 3 airplanes owned by client hospitals and other third parties in connection with existing aeromedical contracts. The composition of the Company's owned and leased helicopter and airplane fleets as of December 31, 1998, is as follows: 4 COMPANY OWNED AIRCRAFT (1) (Dollar amounts in thousands) Net Book Type Number Cost Value Helicopters: Bell 206 L-1 1 $ 670 $ 417 Bell 206 L-3 4 3,579 2,494 Bell 222A 1 1,883 1,009 Bell 222B 1 1,691 1,572 Bell 222UT 11 21,472 17,204 Bell 407 2 3,646 3,434 Bell 412 4 11,630 8,608 BK 117 1 5,895 3,554 -- -------- --------- 25 50,466 38,292 Airplanes: Cessna 421B 1 263 136 -- -------- --------- TOTALS 26 $ 50,729 $ 38,428 == ======== ========= COMPANY LEASED AIRCRAFT (Dollar amounts in thousands) Remaining Total Rents Remaining Type Number Term in Years Over Lease Life Payments Helicopters: Bell 206 L-3 1 1 $ 1,751 $ 36 Bell 222B 1 2 235 216 Bell 222UT 3 10 3,025 2,815 Bell 407 4 10 6,713 6,153 Bell 412 1 4 6,008 1,877 Sikorsky S-76 1 1 2,213 26 -- --------- --------- 11 19,945 11,123 Airplanes: Pilatus PC-12 1 10 2,911 2,911 -- --------- --------- TOTALS 12 $ 22,856 $ 14,034 == ========= ========= (1) Includes aircraft acquired under capital leases. 5 The Company generally pays all insurance, taxes, and maintenance expense for each aircraft in its fleet. Because helicopters are insured at replacement cost which usually exceeds book value, the Company believes that helicopter accidents covered by hull and liability insurance will generally result in full reimbursement of any damages sustained. In the ordinary course of business, the Company may from time to time purchase and sell helicopters in order to best meet the specific needs of its contracts. The Company has experienced no significant difficulties in obtaining required parts for its helicopters. Repair and replacement components are purchased primarily through Bell Helicopter Textron, Inc. ("Bell"), since Bell aircraft make up the majority of the Company's fleet. Bell is a major helicopter manufacturer with extensive links to the defense industry, and the Company does not anticipate any interruption in Bell's manufacturing of replacement parts and components in the near future. Any termination of production by Bell would require the Company to obtain spare parts from other suppliers, which are not currently in place. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 1998. The Company expects to hold its 1999 Annual Meeting of Stockholders in August 1999. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the NASDAQ Stock Market under the trading symbol "AIRM." The following table shows, for the periods indicated, the high and low closing prices for the Company's common stock. The quotations for the common stock represent prices between dealers and do not reflect adjustments for retail mark-ups, mark-downs or commissions, and may not represent actual transactions. Year Ended December 31, 1998 Common Stock High Low First Quarter $ 3 3/4 $ 2 22/32 Second Quarter 5 1/8 3 3/8 Third Quarter 4 7/8 3 Fourth Quarter 3 7/8 2 1/2 Year Ended December 31, 1997 Common Stock High Low First Quarter $ 3 $ 2 1/8 Second Quarter 3 2 Third Quarter 4 7/16 2 3/8 Fourth Quarter 4 1/2 2 3/4 As of March 12, 1999, there were approximately 423 holders of record of the Company's common stock. The Company estimates that it has approximately 3,700 beneficial owners of common stock. The Company has not paid any cash dividends since its inception and intends to retain any future earnings to finance the growth of the Company's business rather than to pay dividends. Covenants under the Company's $2 million line of credit prohibit the payment of dividends. 7 ITEM 6. SELECTED FINANCIAL DATA The following tables present selected consolidated financial information of the Company and its subsidiary which has been derived from the Company's audited consolidated financial statements. This selected financial data should be read in conjunction with the consolidated financial statements of the Company and notes thereto appearing in Item 8 of this report. Revenue for the year ended 1997 and 1998 increased in part as a result of the Company's acquisition of Mercy. See "Business - General" at Item 1 and "Management's Discussion and Analysis" at Item 7 of this report. SELECTED FINANCIAL DATA OF THE COMPANY (Amounts in thousands except share and per share amounts)
Six Months Ended Year Ended Year Ended December 31, December 31, June 30, 1998 1997 1996 1995 1994 1994 Statement of Operations Data: Revenue $ 48,699 38,977 30,257 30,122 13,871 27,898 Operating expenses: Operating 40,242 31,017 25,072 24,248 12,678 25,314 General and administrative 6,240 4,645 3,825 3,873 2,176 5,761 Restructuring and other non-recurring - - - - - 3,010 Other income (expense), net (1,960) (1,619) (1,052) (1,042) (872) (888) Extraordinary loss - - - - - (182) ----------- ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 257 1,696 308 959 (1,855) (7,257) =========== ========== ========== ========== ========== ========== Basic and diluted income (loss) per common share .03 .21 .04 .12 (.23) (1.03) =========== ========== ========== ========== ========== ========== Weighted average number of shares of Common Stock outstanding - basic 8,202,668 8,121,395 8,100,545 8,071,010 8,023,225 7,056,445 =========== ========== ========== ========== ========== ========== Weighted average number of shares of Common Stock outstanding - diluted 8,449,904 8,188,547 8,259,154 8,186,804 8,023,225 7,056,445 =========== ========== ========== ========== ========== ==========
As of December 31, 1998 1997 1996 1995 1994 Balance Sheet Data: Total assets $60,776 59,869 45,389 42,586 48,134 Long-term liabilities 28,140 29,013 19,354 16,329 18,375 Stockholders' equity 21,671 21,213 19,428 19,062 18,031 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition should be read in conjunction with the Company's consolidated financial statements and notes thereto included in Item 8 of this report. This report, including the information incorporated by reference herein, contains forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "expects", "anticipates", "plans", "estimates", and similar words and expressions are intended to identify such statements. These forward-looking statements include statements concerning the size, structure and growth of the Company's flight services and products markets, the continuation and/or renewal of flight service contracts, the acquisition of new and profitable Products Division contracts, the volume of Mercy's operations, continued royalty revenue from Unimed Air, Year 2000 compliance issues, and other matters. The actual results that the Company achieves may differ materially from those discussed in such forward-looking statements due to the risks and uncertainties described in the Business section of this report, in Management's Discussion and Analysis of Financial Condition and Results of Operations and the heading "Outlook for 1999" thereunder, and in other sections of this report, as well as in the Company's Quarterly reports on Form 10-Q. Results of Operations Year ended December 31, 1998 compared to 1997 The Company reported net income of $257,000 for the year ended December 31, 1998, compared to $1,696,000 for the year ended December 31, 1997. The change in operating results is primarily attributable to costs invested in the start-up of new operations for the Flight Services Division and Mercy and other factors discussed below. Start-up costs include flight and medical crew salaries and training and aircraft ownership expenses, such as interest and lease expense. Flight revenue increased $9,027,000 or 26.6% from $33,969,000 for the year ended December 31, 1997, to $42,996,000 for the year ended December 31, 1998. The increase is primarily due to flight revenue of $14.8 million from Mercy's operations in 1998 compared to $6.4 million generated by Mercy from the acquisition date through December 31, 1997. Revenue for Mercy in 1998 also included $1.4 million from operations at two new locations in Las Vegas and San Diego. Flight revenue from the Company's Flight Services Division increased 2.1% for the year ended December 31, 1998, due to annual price increases in the contracts and the addition of two new contracts, offset in part by the expiration of a contract in May 1998. Revenue flight hours on continuing contracts remained basically unchanged in 1998 as compared to 1997. Flight revenue is recorded net of contractual allowances under agreements with third-party payers. Sales of medical interiors and products decreased $60,000 or 1.8% from $3,350,000 for the year ended December 31, 1997, to $3,290,000 for the year ended December 31, 1998. Significant projects in 1998 included SCITS design work for the U.S. Air Force and the manufacture of electrical system components for the HH-60G helicopter. Revenue by product line was as follows: - - - $90,000 - design and manufacture of multi-mission interiors - - - $1,594,000 - manufacture and installation of modular, multi- functional medical interiors - - - $1,606,000 - design and manufacture of other aerospace products Significant projects in 1997 included the design and manufacture of Multi-Mission Medevac Systems for the U.S. Army UH 60Q helicopter and the manufacture of electrical system components for the HH-60G helicopter. Revenue recognized in 1997 consisted of the following: - - - $1,489,000 - design and manufacture of multi-mission interiors - - - $778,000 - manufacture and installation of modular, multi- functional medical interiors - - - $1,083,000 - manufacture of other aerospace products 9 Cost of medical interiors decreased by 7.1% for the year ended December 31, 1998, as compared to the previous year, reflecting the completion of the developmental phase of the multi-mission interior for the UH-60Q helicopter in 1997. The Company has not invested in any similar developmental costs in 1998; the only developmental project currently in process, the SCITS program, is a cost reimbursable contract. All other significant projects in process or completed during the year, with the exception of the electrical system components and the avionics installation, represent adaptations of the multi-mission or modular medical interiors. The increases in parts and maintenance sales and services in 1998, as compared with 1997, are due to the acquisition of Mercy in July 1997. Mercy provides helicopter maintenance services and parts to customers primarily in Southern California. Cost of parts and maintenance sales and services also increased correspondingly in 1998. The Company recognized revenue of $275,000 from its Brazilian franchise during 1998, compared to $428,000 in 1997. The decrease is due to a decline in the number of subscribers as the Brazilian franchise has eliminated services to two cities and one state since 1997. In 1998 the franchise reduced its subscription rates to remain competitive and membership levels stabilized. In 1998 the Company recognized net gains totaling $873,000 on the disposition of assets, including $870,000 from an insurance settlement for one of the Company's helicopters destroyed in an accident in January 1998. In 1997 net gains totaled $277,000, including $61,000 on the sale of an aircraft to the Company's Brazilian franchisee and $255,000 from the insurance settlement for one of the Company's helicopters destroyed in a crash in December 1997. Flight center costs, consisting primarily of pilot and mechanic salaries and fringe benefits, increased 40.3% in 1998 compared to 1997. Mercy's flight center costs increased $2,734,000 in 1998, reflecting a full year of operations compared to five months in 1997 and the expansion of operations into three new locations. Without the effect of the Mercy acquisition, flight center costs increased 14.8% in 1998 as a result of the addition of two new hospital contracts and merit pay increases in salaries. The change in flight center costs for 1998 also includes an increase in workers compensation expense due to the impact of the helicopter accidents on the Company's workers compensation insurance rates through June 30, 1998. Aircraft operating expenses increased 28.6% for the year ended December 31, 1998, compared to 1997. Aircraft operating expenses consist of fuel, insurance, and maintenance costs and generally are a function of the size of the fleet, the type of aircraft flown, and the number of hours flown. Expenses for Mercy's operations totaled $4,242,000 for the twelve months ended December 31, 1998, compared to $1,092,000 for five months in 1997. Expenses for Mercy in 1998 included $388,000 for two aircraft added to the fleet to expand operations into new locations. Absent the impact of the Mercy transaction, aircraft operating expenses decreased 1.4% in 1998. Costs of approximately $313,000 attributable to four aircraft added to the Company's fleet since last year were offset by a reduction in the Company's hull insurance rates effective July 1, 1997. Aircraft rental expense increased 28.1% for the year ended December 31, 1998, compared to 1997. Lease expense for three aircraft added to the Company's fleet since 1997 totaled approximately $190,000 in 1998. The increase in rental expense also reflected a full year of expense for four aircraft, including two in Mercy's fleet, which were added during 1997. Depreciation and amortization expense increased 14.6% for the year ended December 31, 1998. The addition of Mercy's aircraft and equipment increased depreciation by $494,000 in 1998. Excluding the impact of the Mercy acquisition, depreciation and amortization expense remained relatively unchanged during 1998. The Company estimates bad debt expense during the period in which related services are performed based on historical experience for Mercy's operations. The provision is adjusted as required based on actual collections in subsequent periods. Bad debt expense increased 73.2% for 1998 compared to 1997, reflecting the impact of twelve months of activity for Mercy compared to five months in 1997. Mercy invoices patients and their insurers directly for services rendered rather than invoicing hospital customers. Bad debt expense related to the Flight Services Division was not significant in either 1998 or 1997. 10 In the third quarter of 1998, the Company entered into a joint venture to provide air ambulance services in the Santa Barbara region of California. Under the agreement, Mercy will provide medical staffing, dispatch, marketing, and medical billing and collection functions. The Company shares in the net income or loss of the joint venture equally with its partner. For the year ended December 31, 1998, other operating expenses reflect a loss of $101,000 recognized from the operations of the joint venture. The 34.3% increase in general and administrative expenses for the year ended December 31, 1998 compared to the year ended December 31, 1997, reflected the impact of the Mercy transaction. Excluding Mercy's expenses, general and administrative expenses would have increased 11.1% in 1998. This increase is primarily due to changes in administrative and human resources staffing to manage the expanded employee base with the acquisition of Mercy and the addition of new hospital contracts. General and administrative expenses for 1998 also included approximately $100,000 for the Company's additional safety training and review programs implemented during the year in response to the helicopter accidents. Interest expense increased 22.5% in 1998 compared to 1997. Interest expense for new debt incurred in the acquisition of Mercy totaled approximately $1,051,000 in 1998, compared to $444,000 in 1997. The impact of debt related to the Mercy transaction was offset in part during 1998 by the refinancing of notes totaling approximately $5.2 million at reduced interest rates and by the pay-down of long-term debt and capital lease obligations. Year ended December 31, 1997 compared to 1996 The Company reported net income of $1,696,000 for the year ended December 31, 1997, compared to $308,000 for the year ended December 31, 1996. The increase in net income is primarily attributable to the acquisition of Mercy on July 30, 1997, and to improved operating results for the Company's Products Division. Flight revenue increased $7,452,000 or 28.1% from $26,517,000 for the year ended December 31, 1996, to $33,969,000 for the year ended December 31, 1997. The increase is primarily due to flight revenue of $6.4 million generated by Mercy from the acquisition date through December 31, 1997. Revenue from the Company's other flight operations increased 4.0% for the year ended December 31, 1997, reflecting rate increases in the majority of the Company's hospital contracts based on changes in the Consumer Price Index and a 4.4% increase in revenue flight hours from 12,600 in 1996 to 13,200 in 1997. Sales of medical interiors and products increased $292,000 or 9.5% from $3,058,000 for the year ended December 31, 1996, to $3,350,000 for the year ended December 31, 1997. Significant projects for the year included the design and manufacture of four Multi-Mission Medevac Systems for the U.S. Army UH-60Q helicopter and the manufacture of electrical system components for the U.S. Air Force HH-60G helicopter. Revenue by product line consisted of the following: - - - $1,489,000 - design and manufacture of multi-mission interiors - - - $778,000 - manufacture and installation of modular, multi- functional medical interiors - - - $1,083,000 - manufacture of other aerospace products Significant projects in 1996 included the design of a medical interior for a Lockheed L-1011 aircraft, the manufacture of a Bell 412 medical interior, and the design of medical interior systems for the U.S. Army UH-60Q helicopter. Revenue consisted of the following: - - - $721,000 - design and manufacture of multi-mission interiors - - - $1,278,000 - manufacture and installation of modular, multi- functional medical interiors - - - $1,036,000 - design of fixed wing medical suites - - - $23,000 - manufacture of other aerospace products Cost of medical interiors decreased by 18.5% for the year ended December 31, 1997, as compared to the previous year, reflecting the decrease in developmental costs incurred in 1997. The Company incurred $1.2 million in developmental costs in 1996 on the modular, multi-functional medical interior and on the design of medical interior systems for the UH-60Q helicopter. Cost of medical interiors in 1997 also included the reduction of previously established warranty reserves based on the Company's historical warranty claims experience. 11 The increases in parts and maintenance sales and services in 1997, as compared with 1996, are due to the acquisition of Mercy in July 1997. Cost of parts and maintenance sales and services also increased correspondingly in 1997. The Company recognized revenue of $428,000 from its Brazilian franchise during 1997, compared to $262,000 in 1996. Revenue recognized in 1997 represents royalties earned on franchise operations while revenue in 1996 was primarily the second minimum installment of the 10-year franchise agreement. Under the exclusive franchise agreement, the Brazilian company purchased the right to use the trademarks and expertise of the Company to provide air medical services in Brazil, in exchange for an acquisition price of $2,250,000 payable over 10 years plus annual royalties based on gross revenues. The franchise commenced air operations in January 1996 and generated $178,000 in royalties from operations in 1997 in addition to the third installment of the initial acquisition price. In 1997 the Company recognized net gains totaling $277,000 on the disposition of assets, including $61,000 on the sale of an aircraft to the Company's Brazilian franchisee and $255,000 from the insurance settlement for one of the Company's helicopters destroyed in a crash in December 1997. Flight center costs increased 22.3% in 1997 compared to 1996. The acquisition of Mercy caused an increase of $1,480,000 in 1997. Without the effect of the Mercy transaction, flight center costs increased 4.0% in 1997 as a result of increases in pilot and mechanic salaries for merit pay raises. Costs in 1997 also reflected approximately $50,000 to adjust workers compensation expense for the expected impact of the helicopter crash on the Company's workers compensation insurance rates. Aircraft operating expenses increased 25.6% for the year ended December 31, 1997, compared to 1996. The Company added 11 helicopters to its fleet subsequent to December 31, 1996, including 7 acquired in the Mercy transaction. Absent the impact of the Mercy transaction, aircraft operating expenses increased 12.6%, reflecting higher repair and maintenance costs driven in part by a 2.6% increase in total flight hours for 1997. Repair and maintenance costs in 1997 also included the cost of overhauling a Bell 412 combining gearbox, a Bell 206 engine, and a Bell 222 transmission prior to their scheduled overhaul dates. Aircraft rental expense decreased by 2.7% for the year ended December 31, 1997, as compared to 1996, reflecting the elimination of rental expense for a helicopter previously leased from Mercy. This decrease was partially offset by the short-term lease of a backup helicopter while one of the Company's aircraft was undergoing a scheduled engine overhaul and by the addition of two leased helicopters in Mercy's fleet. Depreciation and amortization expense increased by 21.8% for the year ended December 31, 1997. The addition of Mercy's fixed assets increased depreciation by $313,000 in 1997. The remaining increase is primarily the result of adding two Bell 407 helicopters and two new medical interiors to the fleet. The Company also purchased rotable and office equipment totaling $797,000 in 1997 to replace equipment with an original cost of $283,000 which became fully depreciated in 1997 and to meet the demands of growth in operations. Bad debt expense increased in 1997 compared to an immaterial amount in 1996 because Mercy invoices patients and their insurers directly for services rendered rather than invoicing hospital customers. The increase in general and administrative expenses for the year ended December 31, 1997, compared to the corresponding periods in 1996 reflects the impact of the acquisition of Mercy. Without the acquisition, general and administrative expenses would have increased 2.8%. Interest expense increased 41.6% in 1997 compared to 1996 due to the addition of debt related to the acquisition of Mercy in July 1997. New debt included $10.2 million at 9.52% interest secured by Mercy's fleet. Interest income decreased 30.5% for the year ended December 31, 1997, compared to the year ended December 31, 1996. The decrease is due in part to the settlement of notes receivable from Mercy to the Company in July 1997 at the acquisition date. 12 Liquidity and Capital Resources The Company had cash and cash equivalents of $2,407,000 and working capital of $962,000 as of December 31, 1998, compared to cash and cash equivalents of $3,396,000 and working capital of $2,909,000 at December 31, 1997. The decreases reflect the Company's investment in additional equipment, including new aircraft medical interiors, to support its expanded operations, as well as the pay-down of long-term debt and capital lease obligations. The Company's cash position was also affected by financing accounts receivable for Mercy's new programs. Mercy invoices patients and their insurers directly for services rendered and collections typically lag at least 90 days from the date of service. In October 1998 the Company renewed an agreement with a financial institution for a $2 million line of credit with a two-year term and an interest rate of prime plus .25% to supplement cash flow from operations if necessary. The agreement requires the Company to maintain a zero balance on the line for 30 days during each year and to pay an annual commitment fee. The line has various covenants which limit the Company's ability to dispose of assets, merge with another entity, and pledge trade receivables and inventories as collateral. The Company is also required to maintain certain financial ratios as defined in the agreement; as of December 31, 1997, the Company was in compliance with or had received waivers for noncompliance with all covenants. The Company had drawn $425,000 against the line at December 31, 1998. In July 1998 the Company renewed an agreement with a financial institution for a $700,000 line of credit with a one-year term and an interest rate of prime plus .50%. This line also has various covenants which limit the Company's ability to dispose of assets, merge with another entity, and pledge trade receivables and inventories as collateral and which require the Company to maintain certain financial ratios as defined in the agreement. As of December 31, 1998, the Company was in compliance with all covenants and had drawn $700,000 against the line. In October 1998 the Company entered into a $1.2 million note payable with a company with interest at 6.85% to provide additional working capital and to fund the start up operations for Mercy and the Flight Services Division. The note is collateralized by a Bell 222 helicopter. As of December 31, 1998, the Company held unencumbered aircraft with a net book value of $3.3 million and has additional equity in other encumbered aircraft which could be utilized as collateral for borrowing funds as an additional source of working capital if necessary. The Company believes that these borrowing resources coupled with continued favorable results of operations will allow the Company to meet its obligations in the coming year. Repayment of debt and capital lease obligations as well as operating lease agreements constitute the Company's long-term commitments to use cash. Balloon payments on long-term debt of $1.1 million and $3.1 million are due in 2003 and 2007, respectively. Outlook for 1999 The statements contained in this Outlook are based on current expectations. These statements are forward looking, and actual results may differ materially. Flight Services Division In the first quarter of 1999, the Company extended an operating agreement due for renewal at the end of 1998 with a hospital client for an additional 10 years, pending execution of final contract. No other contracts are due for renewal in 1999. The Company expects 1999 flight activity at current hospital customers to remain consistent with historical levels and to begin operations under one new contract in the first quarter of 1999. Start up costs associated with the contract extension and the new contract will be incurred primarily in the first quarter of 1999. The Company anticipates a reduction of as much as 50% in operating royalties generated by Unimed Air, its Brazilian franchisee, in 1999 due to negotiated reductions in fees caused by the recent devaluation of the Brazilian currency. 13 Mercy Air Service The El Nino weather pattern adversely impacted Mercy's flight volume in the first quarter of 1998 because the Visual Flight Rules certified aircraft were unable to fly during the periods of heavy rain. The Company expects flight volume for Mercy's operations to return to historical levels in 1999 with increases for a full year of operations at its two new locations in Las Vegas and San Diego. In the first quarter of 1999 Mercy further expanded its operations in San Diego with the purchase of the business operations of another air ambulance service provider. The Company does not expect to incur additional start up costs for Mercy operations in 1999. Products Division The Company expects to complete the following projects in the first quarter of 1999: installation of medical interior systems for two Bell 214ST helicopters, production of modular medical interior components for 2 companies, and production of a medical interior upgrade on a Bell 430 helicopter. Revenue related to the manufacture of modular medical interior components for three Bell 430 helicopters will be recognized during the first and second quarters of 1999. Design work on the developmental phase of the SCITS program for the U.S. Air Force will continue throughout 1999. In the first quarter of 1999 the Products Division received contracts to produce medical interiors for Bell 407, Bell 430, and MD902 helicopters. Revenue from all of these projects is expected to total approximately $4.1 million in 1999. The Multi-Mission Medevac System developed by the Company for the U.S. Army UH-60Q helicopter completed the final operational test conducted by the Army in the third quarter of 1998. The Army is expected to issue a "Type Classification" certificate in the first half of 1999 which will allow the Company to market the product to other entities. The Department of Defense has allocated funds for and approved seven additional multi-mission medical interior systems. Authorization to produce and deliver these units is expected in 1999. Orders for these units have not yet been received, and there is no assurance that the work will be performed or units delivered in 1999 or in future periods. The Products Division completed two major design reviews on the SCITS program in 1998, with one more comprehensive review scheduled in the first half of 1999. The long-range Air Force plan includes between 75 and 250 SCITS units over the next 5 years. The production contract for SCITS has not yet been awarded and there is no assurance that the contract will be awarded in 1999 or in future periods. There can be no assurance that the Company will continue to renew operating agreements for the Flight Services Division, generate new profitable contracts for the Products Division, or expand flight volume for Mercy. In addition, there can be no assurance that Unimed Air will continue to generate royalties from operations. However, based on the anticipated level of flight activity for its hospital customers and Mercy and the backlog of projects for the Products Division, the Company expects to generate sufficient cash flow to meet its operational needs throughout 1999. Year 2000 Update The Year 2000 issue ("Y2K") results from computer programs being written using two digits rather than four to designate a year. Date-sensitive systems may fail to process dates correctly after December 31, 1999, possibly resulting in major system failure or miscalculations. State of Readiness The Company has formed a corporate-wide Y2K project team led by the information services manager and supervised by the Chief Financial Officer to ensure an uninterrupted transition to the year 2000 by assessing, modifying, and testing information technology (IT) and non-IT systems. IT systems include the Company's software and hardware; non-IT systems include embedded chip technology in various manufacturing equipment, avionics systems, utilities, and communication systems. The team has categorized the Company's systems into mission critical and non- critical systems based on the expected impact of failure or malfunction on the Company's operations. Evaluation of the Company's systems to determine Y2K compliance will be completed by the end of the second quarter of 1999. 14 The Company uses primarily software programs written and updated by outside firms, and Y2K upgrades are covered under standard maintenance contracts. The Company has received vendor representations of Y2K compliance for approximately 75% of its mission-critical software as of December 31, 1998. The remaining 25% will be addressed with the vendors prior to the end of the second quarter of 1999. The Company has been in contact with the primary manufacturers of its airframe and avionics equipment to determine the impact of imbedded chip technology on the Company's flight systems. The airframe manufacturer has completed initial tests of its products and has not identified significant Y2K issues. The avionics manufacturer has identified potential problems and the expected dates those problems may be experienced in its equipment. Initial review of these communications indicates that imbedded chip technology will not cause the Company's fleet to be grounded as a result of Y2K issues. Evaluation of the Company's mission critical systems will include an analysis of the cost of replacing airframe or avionics equipment compared to the associated risk of failure or malfunction. Although the Company has evaluated its airframe and avionics equipment based on the vendor communications, there can be no assurance that all Y2K issues have been identified or that the equipment will perform without interruption in the year 2000. The Company has begun the development of a standard questionnaire for significant suppliers and customers to determine the status of their Y2K programs. The Company has not yet determined the full extent to which it is vulnerable to the failure of vendors or customers to address Y2K compliance issues. Costs of Year 2000 Compliance Because most of the software updates related to Y2K compliance have been covered by the Company's existing maintenance contracts, the amounts expensed in 1998 were immaterial. Total capitalized costs associated with hardware and software upgrades were approximately $121,000 for the year ended December 31, 1998, including costs associated with new systems which will be Year 2000 compliant even though such compliance was not the primary reason for installation. The Company has not used and does not plan to employ independent contractors to assess or test Y2K compliance. The process for tracking internal costs, primarily salaries and benefits for employees dedicating time to Y2K compliance issues, does not capture all of the costs of Y2K compliance. Management expects, but makes no assurance, that changes required for Y2K will not have a material adverse effect on its financial position or results of operations. The Company expects to fund the cost of Y2K compliance through operating cash flows. Risks Associated with Year 2000 The Company presently believes that planned hardware and software upgrades will prevent significant operational problems for information systems resulting from Year 2000 issues. However, if such upgrades are not timely or properly implemented, the Year 2000 problem could affect the ability of the Company to maintain its fleet, manufacture products, procure materials, manage patient billings and collections, or perform other functions, which may have a material adverse effect on the Company's financial condition and results of operations. Additionally, failure of third party suppliers or customers to become Year 2000 compliant on a timely basis could create a need to change suppliers or otherwise impair the Company's ability to procure spare parts, materials, or services or to receive timely payment of accounts receivable, any of which could have a material adverse effect on the Company's financial condition and results of operations. At the present, the Company is unable to develop a most reasonably likely worst case scenario for failure to achieve Year 2000 compliance. With the completion of the evaluation phase of the Y2K project, the Company will be better able to determine such a scenario. 15 Contingency Plans The Company does not currently have in place contingency plans if Year 2000 issues are not resolved in time or go undetected. The Company will develop contingency plans as it considers necessary as a result of completion of the evaluation of IT and non-IT systems and vendor and customer surveys. The Company can give no assurance that it can identify and correct all Year 2000 issues which may affect operations. In addition, the Company can give no assurance that vendors, customers, public utilities, governmental agencies, or other service providers will not experience Year 2000 problems which may have a material adverse impact on the Company's operations. Forward-looking statements contained in the Year 2000 Update should be read in conjunction with the Company's cautionary statement regarding forward-looking statements contained on page 9 of this report, which is provided under the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. New Accounting Standards In June 1998 the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"), which is effective for fiscal quarters beginning after June 15, 1999. FAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies under the standard for hedge accounting. The Company does not anticipate a material impact on the results of operations as a result of implementing this standard. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. The Company does not use financial instruments to any degree to manage these risk and does not hold or issue financial instruments for trading purposes. All of the Company's product sales, international franchise revenue, and related receivables are payable in U.S. dollars. The Company is subject to interest rate risk on its debt obligations and notes receivable, all of which have fixed interest rates. Interest rates on these instruments approximate current market rates as of December 31, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Consolidated Financial Statements attached hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Summary information concerning the Company's current directors and executive officers as of December 31, 1998, is set forth below:
Class/Year Term as Director Name Age Position Expires (1) George W. Belsey 59 Chairman of the Board and Chief I/2001 Executive Officer Joseph E. Bernstein 49 Director III/2000 Ralph J. Bernstein 40 Director III/2000 Liam F. Dalton 38 Director I/2001 Samuel H. Gray 61 Director II/1999 MG Carl H. McNair, Jr. 64 Director I/2001 Lowell D. Miller, Ph. D. 65 Director III/2000 Roy L. Morgan 63 Co-Founder and Director II/1999 Donald R. Segner 72 Vice-Chairman of the Board I/2001 Morad Tahbaz 43 Director II/1999 David Dolstein 50 President, Mercy Air Service, Inc. N/A Maurice L. Martin, Jr. 51 Vice President, Flight Services N/A Division Michael G. Prieto 43 Vice President, Products Division N/A Aaron D. Todd 37 Secretary, Treasurer, and Chief N/A Financial Officer ____________________ (1) Refers to the calendar year in which the annual meeting of stockholders is contemplated to be held and at which the term of the pertinent director class shall expire.
Mr. George W. Belsey was elected Chief Executive Officer effective June 1, 1994, and has served as Chairman of the Company's Board of Directors since April 1994, having been appointed a director of the Company in December 1992. From February 1992 to June 1994, Mr. Belsey served as Executive Vice President, Professional Affairs, and the Chief Operating Officer of the American Hospital Association, a large national trade association and advocacy group for hospitals and health care organizations, where he was responsible for the association's activities relating to hospital operations, including medical staff affairs, nursing, health manpower, quality of care programs and hospital governance. Prior to joining the American Hospital Association, Mr. Belsey served as Chief Executive Officer and Executive Director of the University of Utah Hospital and Clinics, Salt Lake City, Utah (one of the Company's hospital customers) from March 1989 to February 1992 and was Chief Operating Officer from December 1983 to March 1989. He is a former Vice President of Northwestern Memorial Hospital, Chicago, and has held administrative positions at Rush-Presbyterian-St. Luke's Medical Center, Chicago, and MacNeal Memorial Hospital, Berwyn, IL. He received his Bachelor's Degree in Economics from DePauw University in Greencastle, Indiana, and holds a Master's Degree in Business Administration from George Washington University, Washington, D.C. Mr. Joseph E. Bernstein became a Director of the Company in February 1994. Mr. Bernstein is a co-founder and General Partner of Americas Partners, an investment and venture capital firm, and a Managing Director of Americas Tower Partners, the developer of Americas Tower, a one million square foot, 50-story office tower in New York City. Since 1981, he has been a principal of The New York Land Company, working on real estate development and acquisitions. Previously, he worked on corporate and international tax matters at Cahill/Gordon & Reindel (1975-1978) and Rosenman & Colin (1978-1981). He started his own international tax practice, Bernstein & Carter, in 1981 and has published a number of articles on corporate and international tax law. He holds a Bachelor of Arts Degree in Economics and a Bachelor of Science Degree in Agricultural Business Management from the University of California at Davis, a Juris Doctor from the University of California at Davis School of Law, a Master's Degree in Finance from the University of California at Los Angeles Graduate School of Management, and a Master of Laws' Degree in Taxation from the New York University Graduate School of Law. 17 Mr. Ralph J. Bernstein became a Director of the Company in February 1994. Mr. Bernstein is a co-founder and General Partner of Americas Partners, an investment and venture capital firm, and, since 1981 has been responsible for the acquisition, renovation, development and financing of several million square feet of commercial space. Mr. Bernstein started his career in agribusiness with a large European multi-national trading and real estate development company, where he was later responsible for that company's U.S. real estate activities. He holds a Bachelor of Arts Degree in Economics from the University of California at Davis. Mr. Liam F. Dalton became a director of the Company in December 1996. He is the Chief Executive Officer of Dalton & Pemberton Associates, an investment management company. Mr. Dalton manages individual, institutional and profit sharing portfolios and acts as the general partner of an U.S. limited partnership, Spruce Partners, which is engaged in securities trading. Since 1991, Mr. Dalton has been a principal of Axiom Capital Management, Inc. ("ACMI"), a National Association of Securities Dealers, Inc. member firm registered with the Securities and Exchange Commission as a broker-dealer. From 1983 through 1988, Mr. Dalton was a Managing Director at Bear, Stearns & Co. in the Equities and Fixed Income Area. Mr. Dalton received his B.A. in Economics from the University of Vermont in 1982. Mr. Samuel H. Gray was appointed as a director of the Company in March 1991. Since 1989, he has been Chief Executive Officer of The Morris Consulting Group, Inc., a health care industry consulting firm. From 1983 to 1989, Mr. Gray served as President and Chief Executive Officer of Kalipharma, Inc., a multi-source pharmaceutical company. From 1975 to 1983, Mr. Gray served as Executive Vice President of Sales and Marketing for G.D. Searle and Company, Inc. ("Searle") where he was responsible for pharmaceutical marketing, the consumer products division of Searle, and Searle-Canada, Ltd. In addition, his responsibilities included distribution, customer service, clinical research management, licensing and acquisitions, public relations and worldwide strategic marketing planning. He has served as a director of Searle; Searle Canada, Ltd.; Kalipharma; Kali-Duphar, Inc.; and the National Association of Pharmaceutical Manufacturers. He is a past member of the National Wholesale Druggist Association's Industry Advisory Committee and has served on the Advisory Board of Pharmaceutical Executive magazine. In 1959, Mr. Gray received a Bachelor of Science Degree from the University of Florida. Major General Carl H. McNair, Jr. (Ret.) was appointed to the Board of Directors in March 1996 as a Class I director. He currently serves as Corporate Vice President and President, Enterprise Management, for DynCorp, a technical and professional services company headquartered in Reston, Virginia, where he is responsible for the company's core businesses in facility management, marine operations, test and evaluation, administration and security, and biotechnology and health services. From 1987 to 1990, General McNair was Vice President, Army Programs, with Burdeshaw Associates, Ltd., a professional services firm in Bethesda, Maryland. For more than 32 years he served the United States Army in Research and Development, Infantry, and Army Aviation in both command and staff positions, including Deputy for Aviation to the Assistant Secretary of the Army (Research, Development and Acquisition), Aviation Officer, U.S. Army, and Commanding General, U.S. Army Aviation Center. Achieving the rank of Major General, he culminated his military career in 1987 as Chief of Staff, U.S. Army Training and Doctrine Command, Fort Monroe, Virginia. A Master Aviator with commercial, fixed wing, rotary wing, and multi-engine instructor ratings, his aerial combat service spanned six campaigns in the Republic of Vietnam during which he accrued over 1,500 combat flying hours serving as Commander to both an Assault Helicopter Company and a Combat Aviation Battalion. General McNair's academic credentials include a Bachelor of Science Degree in Engineering from the U. S. Military Academy at West Point, and both a Bachelor Degree and Master's Degree in Aerospace Engineering from Georgia Institute of Technology as well as a Master of Science Degree in Public Administration from Shippensburg University. For academic achievement in aerospace, McNair was elected to Sigma Gamma Tau, a national honorary engineering fraternity. 18 Dr. Lowell D. Miller was named a director of the Company in June 1990. Since 1989, Dr. Miller has been involved with various scientific endeavors including a pharmaceutical consulting business. From 1973 to 1989, Dr. Miller was employed by Marion Laboratories, Inc. ("Marion"), serving as Senior Vice President - Research and Development (1987 - 1989), Vice President - Research and Development (1977-1987), and Director of Scientific Affairs (1973-1977). Until his retirement in late 1989, Dr. Miller was responsible for all research, development and process development functions, new product opportunities and management of clinical trials and regulatory affairs, and served as Marion's Chief Scientist. He also served as a member of Marion's Board of Directors from November 1981 to November 1982 and as an Advisory Director from November 1982 to November 1983. The University of Missouri awarded Dr. Miller a Bachelor of Science Degree in 1957 as well as a Master's Degree in Biochemistry in 1958 and Biochemistry Doctorate Degree in 1960. Dr. Miller has been named Alumnus of the Year by the University of Missouri in Columbia, Missouri. Mr. Roy L. Morgan is one of the three founders of Air Methods-Colorado, and was the President, Chief Executive Officer and a director from the inception of Air Methods-Colorado in July 1980 until November 1991. In November 1991, he became President and a director of the Company. Although he continues in his capacity as a director, Mr. Morgan resigned as President effective December 31, 1994. Prior to his service with Air Methods-Colorado, Mr. Morgan was employed as a helicopter pilot for Public Service Company of Colorado (1969-80), as director of operations and chief pilot for Key Aviation (1964-69), and as quality control supervisor on the Atlas missile program for Convair Astronautics (1960-64). Mr. Morgan began his career at Boeing Airplane Company, involved in B-52 experimental development (1957-60). Mr. Morgan holds a number of pilot certificates including Airline Transport Pilot for Airplane Multi-Engine Land, Commercial Helicopter - Instrument Rated, Commercial Airplane for Land and Sea, and Glider, as well as Flight Instructor for all of the above. He has more than 18,850 flight hours, 12,000 of them in helicopters. Mr. Morgan has a Bachelor of Science Degree in Aviation Management from Metropolitan State College in Denver, Colorado. Mr. Donald R. Segner has served as a director of the Company since February 1992 and as Vice Chairman since April 1994. Mr. Segner has over 55 years of aviation and transportation related experience in diversified positions involving operational, flight testing, aircraft design and development and senior managerial responsibilities. Entering the military service in 1943, he was commissioned in the U.S. Marine Corps as a Naval Aviator in 1946. He served in combat in Korea and later as a military test pilot. Mr. Segner accumulated over 7,000 flight hours in over 150 types and models of aircraft. After entering private industry in 1962, Mr. Segner served as Chief Test Pilot, Manager of Advance Design and Program Manager of a major aerospace firm. In April 1981, Mr. Segner was appointed by President Reagan to the Federal Aviation Administration (FAA) as an Associate Administrator. With the advent of the Air Traffic Controller's strike in September 1981, he was given the additional responsibilities to develop, direct and control the process of allocating airspace system use by all airlines and airspace system users. Following the destruction of Korean Airline Flight 007 in 1983, he was further assigned to the White House to head the investigation of the KAL 007 shootdown and to act as Chief Delegate for the U.S.A. to the United Nations International Civil Aviation Organization (ICAO) on this matter. Later he was assigned as the United States, Chief of Delegation, by the Secretary of State, to negotiate an agreement, among the U.S.A., USSR and Japanese governments, to improve and implement future air travel safety along the North Pacific air routes. Mr. Segner has served as a director on the Board of several aviation corporations, as an advisor to NASA, and the on the Advisory Board to the University of Southern California Institute of Systems and Safety Management. He is a past president of the Society of Experimental Test Pilots. Undergraduate education was received at the University of the Pacific. Graduate work was performed at the U.S. Naval Post Graduate School, Monterey (Aero) and the University of Southern California School of Business. He is a graduate of the U.S. Navy Test Pilot School. Mr. Segner has received numerous awards recognizing his contributions to the aviation community, including the AIAA's Octave Chanute Award, the SETP's Kincheloe Award, FAA Administrator's Award, the FAA Superior Achievement Gold Medal, and the Distinguished Flying Cross for valor in combat. Mr. Segner is a Fellow in the Society of Experimental Test Pilots. 19 Mr. Morad Tahbaz was elected to the Board of Directors in February 1994. He is a co-founder and General Partner of Americas Partners, an investment and venture capital firm. Mr. Tahbaz serves as a Managing Director of Americas Tower Partners, the developer of Americas Tower, a one million square foot, 50-story office tower in New York City. Since 1983, Mr. Tahbaz has also served as Senior Vice President of The New York Land Company, a real estate acquisitions and development firm. From 1980 to 1982, he was the Project Manager for Colonial Seaboard, Inc., a residential development company in New Jersey. Mr. Tahbaz received his Bachelor's Degree in Philosophy and Fine Arts from Colgate University and attended the Institute for Architecture and Urban Studies in New York City. He holds a Master's Degree in Business Administration from Columbia University Graduate School of Business. Mr. Tahbaz lectured on real estate development and finance at the Columbia Graduate School of Business from 1984 to 1988. Mr. David L. Dolstein joined the Company with the July 1997 acquisition of the wholly owned subsidiary, Mercy Air Service, Inc. Mr. Dolstein's position of President of Mercy Air Service is a continuation of his responsibilities preceding the acquisition. Previous experience includes Executive Vice President, Mercy Air Service, from January 1995 to December 1996. Before Mercy Air Service, Rocky Mountain Helicopters, Inc. employed Mr. Dolstein in their Air Medical Division from January 1981 through December of 1994. Positions included: Executive Director, Vice President, Director of Marketing, Associate Director, Regional Manager and Air Medical Pilot. Mr. Dolstein received a Bachelor of Science degree in 1974 from Central Missouri State University with postgraduate studies in Industrial Safety. His aviation background includes employment as a pilot by Bell Helicopter International's Training Command, Isfahan, Iran (1975 to 1979) and United States Army Aviation (1967 to 1975). Mr. Maurice L. Martin, Jr. currently serves the Company as Vice President of the Air Medical Services Division and Director of Operations. Since 1982, he has served in several other positions with Air Methods including Area Manager and pilot. Mr. Martin has 17 years of aviation management experience and 12 years' experience in medical aircraft transport management. Prior to joining Air Methods, Mr. Martin was a commercial helicopter pilot (1979-82), an instructor pilot and standardization officer of the 102nd Air Rescue and Recovery Squadron in New York (1975-79), and an aircraft commander in the United States Air Force (1971-75). Mr. Martin holds pilot certificates including Airline Transport Pilot for Helicopters and Certified Flight Instructor for Helicopters. He has served as a FAA Check Airman and has over 4,100 flight hours, mostly in helicopters. Mr. Martin has a Bachelor of Science Degree in International Affairs from the United States Air Force Academy (1970) and a Master's Degree from Covenant Theological Seminary in St. Louis, Missouri (1982). Mr. Michael G. Prieto was named Vice President of Engineering & Manufacturing of the Company in January 1994 and subsequently Vice President of the Products Division in June 1994. From 1988 to 1994, Mr. Prieto served in various roles with General Dynamics/Lockheed Corp. but primarily as Manager of Manufacturing Engineering for the F-16 Fighter program. From 1977 to 1988, he was employed by John Deere Co. with management roles in engineering, manufacturing, and marketing. Mr. Prieto received a Bachelor of Science degree in 1977 from the University of Missouri. Mr. Prieto is a member of the American Society of Mechanical Engineers, the Society of Manufacturing Engineers, the American Production and Inventory Control Society, the American Management Association, and the National Management Association. Mr. Aaron D. Todd joined the Company as Chief Financial Officer in July of 1995 and was appointed Secretary and Treasurer during that same year. From 1994 to 1995, Mr. Todd served as Vice President of Finance of Centennial Media Corporation, a Colorado publishing company, where he was responsible for all financial and accounting functions. From 1986 to 1994, Mr. Todd was employed by KPMG LLP, a certified public accounting firm, in Denver, Colorado. Six of those years included serving on the Company's account in various capacities, including Senior Manager. Mr. Todd holds a Bachelor of Science Degree in Accounting from Brigham Young University. 20 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation paid by the Company in 1998 to the Chief Executive Officer and each of the other executive officers whose annual salary and bonus for 1998 exceeded $100,000. The table shows compensation received during 1996, 1997 and 1998.
Annual Compensation Long Term Compensation Securities Underlying All Other Name and Position Year Salary ($) Options (#) Compensation ($)(1) George W. Belsey 1998 189,999 -- 4,750 Chairman and Chief 1997 165,000 -- 3,960 Executive Officer 1996 165,000(2) -- 3,402 David L. Dolstein 1998 135,000 -- 2,696 President, Mercy Air 1997 54,487(3) 50,000 -- Service, Inc. 1996 -- -- -- Maurice L. Martin, Jr. 1998 145,000 -- 3,625 Vice-President, Flight 1997 135,000 -- 3,240 Services Division 1996 130,000(2) -- 2,450 Michael G. Prieto 1998 135,000 -- 3,317 Vice-President, Products 1997 115,000 -- 2,760 Division 1996 115,174(2) -- 2,579 Aaron D. Todd 1998 135,000 -- 3,375 Chief Financial Officer 1997 116,192 30,000 2,759 Secretary and Treasurer 1996 95,000 30,000 269 (1) Consists of employer matching contributions under the Company's 401(k) Plan. (2) Excludes cash payments for accrued vacation time as follows: Belsey - $6,346; Martin - $5,000; Prieto - $2,211 (3) Mr. Dolstein began his employment with the Company in July 1997.
Stock Option Plan The Company has a Stock Option Plan (the "Employee Option Plan"), in which all full-time employees, directors and consultants of the Company are eligible to participate. As of December 31, 1998, options to purchase a total of 1,675,196 shares were outstanding under the plan. The Employee Option Plan currently authorizes the grant of options to purchase an aggregate of 2,500,000 shares of Common Stock. The Employee Option Plan provides for the grant of incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), non-incentive stock options, stock appreciation rights and supplemental bonuses. 21 The following table presents for 1998 certain information regarding stock options held by the named executive officers. Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Shares Acquired Number of Securities Value of Unexercised Name On Value Underlying Unexercised In-the-Money Exercise Realized Options at FY-End (#) Options at FY-END ($) (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1) George W. Belsey -- -- 300,000 / -0- -0- / -0- David L. Dolstein -- -- 16,667 / 33,333 -0- / -0- Maurice Martin, Jr. 15,000 15,000 35,000 / -0- -0- / -0- Michael G. Prieto -- -- 50,000 / -0- -0- / -0- Aaron D. Todd -- -- 40,669 / 20,000 -0- / -0- (1) Amounts represent the fair market value of the underlying Common Stock at December 31, 1998 of $2.69 per share less the exercise price.
Employment Agreements In June 1994, the Company entered into an Employment Agreement with Mr. Belsey for an initial term of five years, subject to successive one-year extensions by written agreement of both parties. The Agreement may be terminated by either party without cause upon 30 days' written notice and provides for a severance payment equal to one year's base salary in the event of termination by the Company without cause. During the term of employment and for a period of one year following the termination of employment with the Company, Mr. Belsey may not engage in any business which competes with the Company anywhere in the United States. In November 1991, the Company entered into an Employment Agreement with Mr. Martin for an initial term of two years. Because the Agreement is subject to a continuous renewal clause, the remaining term on any date for the Agreement is two years. The Agreement may be terminated by either party without cause upon 90 days' written notice and provides for a severance payment equal to two years' base salary in the event of termination by the Company without cause. During the term of employment and for a period of two years following the termination of employment with the Company, Mr. Martin may not engage in any business which competes with the Company anywhere in the United States. Effective December 1993, the Company entered into an Employment Agreement with Mr. Prieto for an initial term of one year, subject to successive one-year extensions by written agreement of both parties. The Agreement may be terminated by either party without cause upon 90 days' written notice and provides for a severance payment in the event of termination by the Company without cause equal to the balance of Mr. Prieto's salary due for the year of such termination. During the term of employment and for a period of two years following the termination of employment with the Company, Mr. Prieto may not engage in any business which competes with the Company anywhere in the United States. The Company entered into an Employment Agreement with Mr. Todd effective July 1995, for an initial term of one year, subject to successive one-year extensions. The Agreement may be terminated by either party without cause upon 90 days' written notice. In the event of termination by the Company other than for cause, the Agreement provides for a severance payment to Mr. Todd payable at the Company's regular payment intervals and at Mr. Todd's then current salary for a period of one year following termination. During the term of employment and for a period of two years following termination of employment with the Company, Mr. Todd may not engage in any business which competes with the Company anywhere in the United States. The Company entered into an Employment Agreement with Mr. Dolstein effective July 1997, for an initial term of one year, subject to successive one-year extensions. The Agreement may be terminated by either party without cause upon 30 days' written notice. In the event 22 of termination by the Company other than for cause, the Agreement provides for a severance payment to Mr. Dolstein at his then current salary payable at the Company's regular payment intervals for a period of one year following termination. During the term of employment and for a period of one year following termination of employment with the Company, Mr. Dolstein may not engage in any business which competes with the Company anywhere in the United States. Director Compensation The Company has adopted compensation and incentive benefit plans to enhance its ability to continue to attract, retain and motivate qualified persons to serve as directors of the Company. It is the Company's policy to pay its nonemployee directors an annual retainer of $8,000, plus $800 for each Board meeting attended, $500 for each telephonic meeting, and $500 for each Board committee meeting attended (with committee chairpersons receiving $750). Each nonemployee director may elect to receive shares of Common Stock in lieu of cash payments pursuant to the Company's Equity Compensation Plan for Nonemployee Directors (discussed below). The Company also reimburses its nonemployee directors for their reasonable expenses incurred in attending Board and committee meetings. Messrs. Joseph Bernstein, Ralph Bernstein and Morad Tahbaz have voluntarily waived all director fees to date and have received no direct monetary compensation for their services as directors apart from customary reimbursement of out-of-pocket expenses. Board members who are also officers do not receive any separate compensation or fees for attending Board or committee meetings. On February 12, 1998, the Compensation/Stock Option Committee acted to additionally compensate certain Board members for additional duties performed for the Company. Specifically, recommendations were approved to pay Messrs. McNair, Morgan and Segner a total of $2,500 plus expenses. Mr. Roy Morgan also received 7,500 stock options per quarter during 1998 for duties performed as an Executive Flight Safety Officer. The Nonemployee Director Stock Option Plan (the "Director Option Plan") provides for option grants based upon the number of years that the nonemployee director has served on the Board. A year of service is defined as a fiscal year of the Company during which the nonemployee director served on the Board for the entire fiscal year. On the final day of each fiscal year, each nonemployee director in office on such date receives a five-year Option to purchase 5,000 shares, exercisable at the then-current fair market value of the Company's Common Stock, providing the director served on the Board for the entire preceding fiscal year. An aggregate of 300,000 shares of Common Stock are authorized for issuance to nonemployee directors under the Director Option Plan. As of December 31, 1998, options to purchase a total of 200,000 shares of Common Stock were outstanding under the Director Option Plan. The Company also paid Mr. Morgan $74,526 in consulting fees for marketing services provided to the Company during 1998 pursuant to a Consulting and Non-Competition Agreement, entered into on November 10, 1994 (the "Morgan Consulting Agreement"). The Morgan Consulting Agreement states that Mr. Morgan will receive $74,526 annually in consulting fees for general consulting services through July 1, 1999. Pursuant to the Morgan Consulting Agreement, the Company granted Mr. Morgan an option to purchase 200,000 shares of Common Stock in exchange for all of his existing options. Finally, Mr. Morgan agreed not to engage in any competing activity related to air medical services during the term of the agreement. Compensation Committee Report The Compensation/Stock Option Committee (the "Committee") is responsible for recommending and administering the Company's guidelines governing employee compensation. The Committee evaluates the performance of management, recommends compensation policies and levels, and makes recommendations concerning salaries and incentive compensation. Compensation Philosophy The Company's executive compensation program is designed to attract and retain executives capable of leading the Company to meet its business and development objectives and to motivate them to actions which will have the effect of increasing the long-term value of stockholder investment in the Company. The Committee considers a variety of factors, both qualitative and quantitative, in evaluating the Company's executive officers and 23 making compensation decisions. These factors include the compensation paid by comparable companies to individuals in comparable positions, the individual contributions of each officer to the Company, and most important, the progress of the Company towards its long-term objectives. At this point in the Company's development, objectives against which executive performance is gauged include the addition and retention of aeromedical service contracts and the securing of necessary capital and financing to fund business expansion. Annual compensation for the Company's executive officers for 1998 consisted of base salary. Compensation of the Chief Executive Officer Mr. Belsey assumed the Office of Chairman and Chief Executive Officer of the Company on June 1, 1994. In determining the compensation to be awarded to Mr. Belsey for his services to the Company, the Committee considered salaries paid to chief executive officers at competitive companies and the base salary initially set for Mr. Belsey in his employment agreement. The Committee recognized the significant achievements made during 1997, the third full year Mr. Belsey served as Chairman and Chief Executive Officer of the Company, including the Company's attainment of record profits and a third consecutive fiscal year of profitable operation. Due to these results and other accomplishments described below, Mr. Belsey's salary was increased by $25,000. This is the only salary increase Mr. Belsey has accepted since becoming Chief Executive Officer. Base Salary The base salary for each executive officer, including the Chief Executive Officer, was established initially by the Committee pursuant to written employment agreements. Base salaries are reviewed annually by the Committee and adjusted based on the Committee's review of salaries paid to executives at competitive companies, the particular executive officer's performance and length of time in a certain position and the Company's financial condition and overall performance and profitability. The Committee recognized the significant accomplishments in fiscal year 1997 by the Company and its executive officers, including the Company's successful acquisition of Mercy Air Service, Inc. in July, 1997; successful negotiations resulting in new contracts with ensuing increases to the Company's flight revenues; attainment of a third consecutive fiscal year of profitable operation; and award of U.S. Air Force HH-60G PAVEHAWK Helicopter Program for manufacture of helicopter electrical system components. Taking into consideration the aforementioned attainments and other factors such as date of last increase, personal accomplishments, leadership qualities and relevant data from area companies, the Committee acted on February 12, 1998 to increase salaries of the four employee/officers of Air Methods Corporation, with increases retroactively effective as of January 1, 1998. Section 162(m) Compliance Under Section 162(m) of the Code, federal income tax deductions of publicly traded companies may be limited to the extent total compensation (including base salary, annual bonus, restricted stock awards, stock option exercises and non-qualified benefits) for certain executive officers exceeds $1 million in any one year. The Committee intends to design the Company's compensation programs so that the total compensation paid to any employee will not exceed $1 million in any one year. Lowell D. Miller, Ph.D. Samuel H. Gray Members of the Compensation/Stock Option Committee 24 Stock Performance Graph The following graph compares the Company's cumulative total stockholder return for the period from December 31, 1993 through December 31, 1998 against the Standard & Poors 500 ("S&P 500") index and "peer group" companies in industries similar to those of the Company. The S&P 500 is a widely used composite index reflecting the returns of five hundred publicly traded companies in a variety of industries. Peer Group Index returns reflect the transfer of the value on that date of the initial $100 investment into a peer group consisting of all publicly traded companies in SIC Group 4522: "Non-scheduled Air Transport." The Company believes that this Peer Group is its most appropriate peer group for stock comparison purposes due to the limited number of publicly traded companies engaged in medical air or ground transport and because this Peer Group contains a number of companies with capital costs and operating constraints similar to those of the Company. [DELETED GRAPH] TOTAL RETURN TO SHAREHOLDERS ANNUAL RETURN PERCENTAGE Years Ending December Company Name / Index 1994 1995 1996 1997 1998 AIR METHODS CORP -84.09 71.43 -16.67 30.00 -17.29 S&P 500 INDEX 1.32 37.58 22.96 33.36 28.58 PEER GROUP -14.97 11.83 62.40 -13.80 -2.88 INDEXED RETURNS Base Period Years Ending December Company Name / Index Dec-93 1994 1995 1996 1997 1998 AIR METHODS CORP 100 15.91 27.27 22.73 29.55 24.44 S&P 500 INDEX 100 101.32 139.40 171.40 228.59 293.91 PEER GROUP 100 85.03 95.09 154.42 133.11 129.28 Peer Group Companies with the sic code of 4522 25 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 31, 1998, the beneficial ownership of the Company's outstanding Common Stock: (i) by each person who owns of record (or is known by the Company to own beneficially) more than 5% of the Common Stock, (ii) by each director and named executive officer of the Company, and (iii) by all directors and executive officers as a group. Number Percentage of Name and Address of Shares Common Stock Americas Tower Partners 1,155,000 12.1 520 Madison Avenue New York, NY 10022 George W. Belsey 307,600(1) 3.2 7301 South Peoria Englewood, CO 80112 Joseph E. Bernstein 1,587,500(2) 16.6 520 Madison Avenue New York, NY 10022 Ralph J. Bernstein 1,557,500(3) 18.25 520 Madison Avenue New York, NY 10022 Liam F. Dalton 5,000(4) * 399 Park Ave. New York, NY 10022-4614 David L. Dolstein 50,000(5) * 1670 Miro Way Rialto, CA 92376 Samuel H. Gray 45,729(6) * 95 Madison Avenue Morristown, NJ 07960 Maurice L. Martin, Jr. 36,000(7) * 7301 South Peoria Englewood, CO 80112 MG Carl H. McNair, Jr. (Ret.) 25,000(8) * 2000 Edmund Halley Drive Reston, VA. 22901 Lowell D. Miller, Ph.D. 53,151(9) * 16940 Stonehaven Belton, MO 64012 Roy L. Morgan 235,549(10) 2.5 7301 South Peoria Englewood, CO 80112 26 Michael G. Prieto 63,100 (11) * 7301 South Peoria Englewood, CO 80112 Donald R. Segner 52,750(12) * 290 Arch Street Laguna Beach, CA 92651 Morad Tahbaz 362,500(13) 3.8 520 Madison Avenue New York, NY 10022 Aaron D. Todd 42,767(14) * 7301 South Peoria Englewood, CO 80112 All Directors and Executive Officers as a group (14 persons) 2,669,146(15) 27.9 ___________________ * Less than one percent (1%) of Common Stock outstanding on December 31, 1998. (1) Includes 300,000 shares subject to stock options exercisable within 60 days. (2) Includes (i) 1,155,000 shares held by Americas Tower Partners, a partnership controlled by Mr. J. Bernstein; (ii) 300,000 subject to stock options exercisable within 60 days owned by Americas Partners, of which Mr. J. Bernstein is a general partner; (iii) 80,000 shares issuable upon the exercise of warrants; (iv) 22,500 shares subject to stock options exercisable within 60 days; and (v) 30,000 shares owned of record by the JB Trust as to which shares Mr. Bernstein exercises shared investment control. (3) Includes (i) 1,155,000 shares held by Americas Tower Partners, a partnership controlled by Mr. R. Bernstein; (ii) 300,000 subject to stock options exercisable within 60 days owned by Americas Partners, of which Mr. R. Bernstein is a general partner; (iii) 80,000 shares issuable upon the exercise of warrants; and (iv) 22,500 shares subject to stock options exercisable within 60 days. (4) Includes 5,000 shares subject to stock options exercisable within 60 days. (5) Includes 50,000 shares subject to stock options exercisable within 60 days. (6) Includes 3,229 shares owned of record and held by The Morris Consulting Group, Inc., of which Mr. Gray is Chief Executive Officer and a 50% stockholder, 42,500 shares subject to stock options exercisable within 60 days. (7) Includes 35,000 shares subject to stock options exercisable within 60 days. (8) Consists of 25,000 shares subject to stock options exercisable within 60 days. (9) Includes 8,156 shares owned by the Lowell D. Miller Trust as to which Dr. Miller has shared voting and investment power and 42,500 shares subject to stock options exercisable within 60 days. (10) Includes 140,000 shares subject to stock options exercisable within 60 days. (11) Includes 50,000 shares subject to stock options exercisable within 60 days. (12) Includes 52,500 shares subject to stock options exercisable within 60 days and 250 shares held in a trust as to which Mr. Segner holds shared voting and investment power. (13) Consists of (i) 300,000 shares subject to stock options exercisable within 60 days owned by Americas Partners, of which Mr. Tahbaz is a managing director; (ii) 40,000 shares issuable upon exercise of warrants; and (iii) 22,500 shares subject to stock options exercisable within 60 days. (14) Consists of (i) 40,669 shares subject to options exercisable within 60 days; and (ii) 2,098 shares beneficially owned by Mr. Todd in the Company's 401(k) plan. (15) Includes 1,140,669 shares subject to stock options exercisable within 60 days and 200,000 shares issuable upon exercise of warrants. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) Documents filed as part of the report: 1. Financial Statements included in Item 8 of this report: Independent Auditors' Report Consolidated Balance Sheets, December 31, 1998 and 1997 Consolidated Statements of Operations for the years ended December 31, 1998, 1997, and 1996 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996 Notes to Consolidated Financial Statements 2. Financial Statement Schedules included in Item 8 of this report: Schedule II - Valuation and Qualifying Accounts All other supporting schedules have been omitted because the information required is included in the financial statements or notes thereto or have been omitted as not applicable or not required. 3. Exhibits: Exhibit Number Description of Exhibits 3.1 Certificate of Incorporation 1 3.2 Amendments to Certificate of Incorporation 2 3.3 By-Laws as Amended 8 4.1 Specimen Stock Certificate 2 4.2 Warrant Agreement, and First and Second Amendment to Warrant Agreement, and form of Warrant Certificate 3 4.3 Third Amendment to Warrant Agreement 6 4.4 Warrant Agreement, dated April 6, 1993, between the Company and C.C.R.I. Corporation 6 4.5 Warrant Agreement dated February 14, 1994, between the Company and C.C.R.I. Corporation 7 4.6 Form of Reissued Warrant Agreement, dated May 3, 1995 between the Company and Americas Partners, concerning warrants originally issued December 28, 19939 4.7 Form of Reissued Warrant Agreement, dated May 3, 1995 between the Company and Americas Partners, concerning warrants originally issued February 21, 1994 9 IV-1 10.1 1995 Air Methods Corporation Employee Stock Option Plan 5 10.2 Nonemployee Director Stock Option Plan, as amended 6 10.3 Equity Compensation Plan for Nonemployee Directors, adopted March 12, 1993 4 10.4 Form of Consulting Agreement, dated November 30, 1994, between the Company and Roy L. Morgan 9 10.5 Employment Agreement, dated November 12, 1991, between the Company and Maurice L. Martin, Jr. 2 10.6 Employment Agreement, dated June 1, 1994, between the Company and George Belsey 8 10.7 Employment Agreement, dated November 30, 1993, between the Company and Michael Prieto 8 10.8 Employment Agreement dated July 10, 1995 between the Company and Aaron D. Todd 10 10.9 Lease Agreements, dated March 2, 1998, between the Company and Airplaza Co., Inc. 21 Subsidiary of Registrant 11 23 Consent of KPMG LLP 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1998. ____________________ 1 Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-15007), as declared effective on August 27, 1987, and incorporated herein by reference. 2 Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992, and incorporated herein by reference. 3 Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-59690), as declared effective on April 23, 1993, and incorporated herein by reference. 4 Filed as an exhibit to the Company's Registration Statement on Form S-8 (Registration No. 33-65370), filed with the Commission on July 1, 1993, and incorporated herein by reference. 5 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference. 6 Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, and incorporated herein by reference. IV-2 7 Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-75744) filed with the Commission on February 25, 1994 and incorporated herein by reference. 8 Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, and incorporated herein by reference. 9 Filed as an exhibit to the Company's Annual Report on Form 10-K for the transitional fiscal year ended December 31, 1994 and incorporated herein by reference. 10 Filed as an exhibit to the Company's Quarterly Report on Form 10- Q for the quarter ended September 30, 1995 and incorporated herein by reference. 11 Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference. IV-3 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AIR METHODS CORPORATION Date: March 31, 1999 By: George W. Belsey George W. Belsey Chairman of the Board, Chief Executive Officer and Director Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. George W. Belsey Chairman of the Board March 31, 1999 George W. Belsey Chief Executive Officer Aaron D. Todd Chief Financial Officer March 31, 1999 Aaron D. Todd Secretary and Treasurer Principal Accounting Officer Joseph E. Bernstein Director March 31, 1999 Joseph E. Bernstein Ralph J. Bernstein Director March 31, 1999 Ralph J. Bernstein Liam F. Dalton Director March 31, 1999 Liam F. Dalton Samuel H. Gray Director March 31, 1999 Samuel H. Gray Carl H. McNair, Jr. Director March 31, 1999 Carl H. McNair, Jr. Lowell D. Miller, Ph.D. Director March 31, 1999 Lowell D. Miller, Ph.D. Roy L. Morgan Director March 31, 1999 Roy L. Morgan Donald R. Segner Vice-Chairman of the Board March 31, 1999 Donald R. Segner Morad Tahbaz Director March 31, 1999 Morad Tahbaz IV-4 AIR METHODS CORPORATION AND SUBSIDIARY Table of Contents Independent Auditors' Report F-1 Consolidated Financial Statements Consolidated Balance Sheets, December 31, 1998 and 1997 F-2 Consolidated Statements of Operations, Years Ended December 31, 1998, 1997, and 1996 F-4 Consolidated Statements of Stockholders' Equity, Years Ended December 31, 1998, 1997, and 1996 F-5 Consolidated Statements of Cash Flows, Years Ended December 31, 1998, 1997, and 1996 F-6 Notes to Consolidated Financial Statements, December 31, 1998 and 1997 F-8 Schedules II - Valuation and Qualifying Accounts Years Ended December 31, 1998, 1997, and 1996 F-26 All other supporting schedules are omitted because they are inapplicable, not required, or the information is presented in the consolidated financial statements or notes thereto. IV-5 Independent Auditors' Report Board of Directors and Stockholders Air Methods Corporation: We have audited the accompanying consolidated balance sheets of Air Methods Corporation and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Air Methods Corporation and subsidiary as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Denver, Colorado February 26, 1999 F-1 AIR METHODS CORPORATION AND SUBSIDIARY Consolidated Balance Sheets December 31, 1998 and 1997 (Amounts in thousands, except share and per share amounts)
1998 1997 Assets Current assets: Cash and cash equivalents $ 2,407 3,396 Current installments of notes receivable (note 4) 66 58 Receivables: Trade (notes 5 and 9) 7,298 6,766 Less allowance for doubtful accounts (1,404) (2,528) ----------- ---------- 5,894 4,238 Insurance proceeds 154 -- International franchise fee 74 145 Other 259 681 ----------- ---------- 6,381 5,064 Inventories (note 5) 2,077 2,082 Work-in-process on medical interior and products contracts 147 212 Costs and estimated earnings in excess of billings on uncompleted contracts (note 3) -- 1,120 Prepaid expenses and other current assets 849 620 ----------- ---------- Total current assets 11,927 12,552 ----------- ---------- Equipment and leasehold improvements (notes 5 and 6): Flight and ground support equipment 59,371 54,540 Furniture and office equipment 2,648 2,287 ----------- ---------- 62,019 56,827 Less accumulated depreciation and amortization (16,747) (13,143) ----------- ---------- Net equipment and leasehold improvements 45,272 43,684 Excess of cost over the fair value of net assets acquired, net of accumulated amortization of $705 and $601 at December 31, 1998 and 1997, respectively 1,876 1,957 Notes receivable, less current installments (note 4) 607 673 Patent application costs and other assets, net of accumulated amortization of $866 and $717 at December 31, 1998 and 1997, respectively 1,094 1,003 ----------- ---------- Total assets $ 60,776 59,869 =========== ==========
(Continued) F-2 AIR METHODS CORPORATION AND SUBSIDIARY Consolidated Balance Sheets, Continued (Amounts in thousands, except share and per share amounts)
1998 1997 Liabilities and Stockholders' Equity Current liabilities: Notes payable (note 5) $ 1,125 729 Current installments of long-term debt (note 5) 2,781 2,655 Current installments of obligations under capital leases (note 6) 554 659 Accounts payable 1,191 1,050 Income taxes payable -- 156 Accrued overhaul and parts replacement costs 2,640 2,008 Deferred revenue 531 942 Billings in excess of costs and estimated earnings on uncompleted contracts (note 3) 119 -- Deferred income taxes (note 9) 315 159 Other accrued liabilities 1,709 1,285 ----------- --------- Total current liabilities 10,965 9,643 Long-term debt, less current installments (note 5) 19,718 19,680 Obligations under capital leases, less current installments (note 6) 2,351 2,816 Accrued overhaul and parts replacement costs 4,586 4,837 Deferred income taxes (note 9) 554 944 Other liabilities 931 736 ----------- --------- Total liabilities 39,105 38,656 ----------- --------- Stockholders' equity (note 7): Preferred stock, $1 par value. Authorized 5,000,000 shares, none issued -- -- Common stock, $.06 par value. Authorized 16,000,000 shares; issued 8,281,343 and 8,173,705 shares at December 31, 1998 and 1997, respectively 497 490 Additional paid-in capital 49,979 49,783 Accumulated deficit (28,802) (29,059) Treasury stock, 50,606 and 25,606 common shares at December 31, 1998 and 1997, respectively (3) (1) ----------- --------- Total stockholders' equity 21,671 21,213 ----------- --------- Commitments and contingencies (notes 6 and 10) Total liabilities and stockholders' equity $ 60,776 59,869 =========== ========= See accompanying notes to consolidated financial statements.
F-3 AIR METHODS CORPORATION AND SUBSIDIARY Consolidated Statements of Operations (Amounts in thousands, except share and per share amounts)
Year Ended December 31, 1998 1997 1996 Revenue: Flight revenue (note 8) $ 42,996 33,969 26,517 Sales of medical interiors and products 3,290 3,350 3,058 Parts and maintenance sales and services 1,265 953 420 International franchise fees 275 428 262 Gain on disposition of assets, net 873 277 -- ------------- ---------- ---------- 48,699 38,977 30,257 ------------- ---------- ---------- Operating expenses: Flight centers 13,868 9,886 8,086 Aircraft operations 13,547 10,531 8,383 Aircraft rental (note 6) 1,826 1,425 1,465 Cost of medical interiors and products sold 2,863 3,082 3,781 Cost of parts and maintenance sales and services 988 763 264 Depreciation and amortization 4,264 3,722 3,056 Bad debt expense 2,785 1,608 20 General and administrative 6,240 4,645 3,825 Other 101 -- 17 ------------- ---------- ---------- 46,482 35,662 28,897 ------------- ---------- ---------- Operating income 2,217 3,315 1,360 Other income (expense): Interest expense (2,250) (1,836) (1,297) Interest and dividend income 210 248 357 Other, net 80 (31) (112) ------------- ---------- ---------- Net income $ 257 1,696 308 ============= ========== ========== Basic and diluted income per common share (note 7) $ .03 .21 .04 ============= ========== ========== Weighted average number of common shares outstanding - basic 8,202,668 8,121,395 8,100,545 ============= ========== ========== Weighted average number of common shares outstanding - diluted 8,449,904 8,188,547 8,259,154 ============= ========== ========== See accompanying notes to consolidated financial statements.
F-4 AIR METHODS CORPORATION AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years Ended December 31, 1998, 1997, and 1996 (Amounts in thousands, except share amounts)
Total Additional Stock- Common Stock Treasury Stock Paid-in Accumulated holders' Shares Amount Shares Amount Capital Deficit Equity Balances at January 1, 1996 8,103,502 $ 486 25,606 $ (1) 49,640 (31,063) 19,062 Issuance of common shares for options exercised and services rendered 37,834 2 -- -- 69 -- 71 Retirement of common shares (note 7) (5,500) -- -- -- (13) -- (13) Net income -- -- -- -- -- 308 308 ------------------------------------------------------------------------------------ Balances at December 31, 1996 8,135,836 488 25,606 (1) 49,696 (30,755) 19,428 Issuance of common shares for options exercised 37,869 2 -- -- 87 -- 89 Net income -- -- -- -- -- 1,696 1,696 ------------------------------------------------------------------------------------ Balances at December 31, 1997 8,173,705 490 25,606 (1) 49,783 (29,059) 21,213 Issuance of common shares for options exercised and services rendered 107,638 7 -- -- 281 -- 288 Purchase of treasury shares -- -- 25,000 (2) (85) -- (87) Net income -- -- -- -- -- 257 257 ------------------------------------------------------------------------------------ Balances at December 31, 1998 8,281,343 $ 497 50,606 $ (3) 49,979 (28,802) 21,671 ==================================================================================== See accompanying notes to consolidated financial statements.
F-5 AIR METHODS CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows (Amounts in thousands)
Year Ended December 31, 1998 1997 1996 Cash flows from operating activities: Net income $ 257 1,696 308 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 4,264 3,722 3,056 Bad debt expense 2,785 1,608 20 Common stock and options issued for services 60 -- 26 Loss (gain) on disposition of assets (873) (277) 17 Changes in operating assets and liabilities, net of effects of acquisitions: Increase in receivables (4,102) (1,870) (171) Decrease (increase) in inventories 5 (258) (320) Decrease (increase) in prepaid expenses and other current assets (236) 108 57 Decrease (increase) in work-in-process on medical interior and products contracts and costs in excess of billings 1,185 (451) (743) Increase (decrease) in accounts payable, income tax liabilities, and other accrued liabilities 175 261 (412) Increase (decrease) in accrued overhaul and parts replacement costs (42) (152) 3 Increase (decrease) in deferred revenue, billings in excess of costs, and other liabilities (97) 226 (377) ------------------------------------ Net cash provided by operating activities 3,381 4,613 1,464 ------------------------------------ Cash flows from investing activities: Acquisition of net assets of Mercy Air Service, Inc and Helicopter Services, Inc. -- (4,609) -- Acquisition of equipment and leasehold improvements (7,184) (2,185) (5,414) Proceeds from disposition and sale of equipment and assets held for sale 2,978 2,561 3 Decrease (increase) in notes receivable, patent application costs, and other assets, net (205) 1,116 51 ------------------------------------ Net cash used by investing activities (4,411) (3,117) (5,360) ------------------------------------ (Continued)
F-6 AIR METHODS CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows, continued (Amounts in thousands)
Year Ended December 31, 1998 1997 1996 Cash flows from financing activities: Proceeds from issuance of common stock 228 89 45 Payments for purchases of common stock (87) -- (13) Net borrowings (payments) under short-term notes payable 396 (323) (341) Proceeds from long-term debt 7,857 12,643 9,746 Payments of long-term debt (7,693) (11,491) (5,430) Payments of capital lease obligations (660) (1,076) (752) ---------- --------- ------- Net cash provided (used) by financing activities 41 (158) 3,255 Increase (decrease) in cash and cash equivalents (989) 1,338 (641) Cash and cash equivalents at beginning of year 3,396 2,058 2,699 ---------- --------- ------- Cash and cash equivalents at end of year $ 2,407 3,396 2,058 ========== ========= ======= Interest paid in cash during the year $ 2,230 1,756 1,322 ========== ========= ======= Income taxes paid in cash during the year $ 390 -- -- ========== ========= ======= Non-cash investing and financing activities: Capital lease obligations of $90 were assumed to acquire equipment during the year ended December 31, 1998. In connection with the acquisition of Mercy, the Company issued notes payable of $1,398 to the sellers as partial consideration for the acquisition during the year ended December 31, 1997. (See note 2.) See accompanying notes to consolidated financial statements.
F-7 (1) Summary of Significant Accounting Policies Basis of Financial Statement Presentation and Business Air Methods Corporation, a Delaware corporation, and its subsidiary ("Air Methods" or "the Company") serves as one of the largest providers of aeromedical emergency transport services and systems throughout North America. The Company also designs, manufactures, and installs medical aircraft interiors and other aerospace products for domestic and international customers. As discussed more fully in note 2, in July 1997 the Company acquired all of the common stock of Mercy Air Service, Inc. and substantially all of the net assets of Helicopter Services, Inc., two affiliated companies. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in joint ventures in which the Company has a 50% ownership interest are accounted for under the equity method. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. Cash equivalents of $1,545,000 and $2,575,000 at December 31, 1998 and 1997, respectively, consist of short- term money market funds. Inventories Inventories are comprised primarily of expendable aircraft parts which are recorded at the lower of cost (average cost) or market. Work-in-Process on Medical Interior and Products Contracts Work-in-process on medical interior and products contracts represents costs of the manufacture and installation of medical equipment and modification of aircraft for third parties. Certain medical interior contracts provide for reimbursement of all costs plus an incremental amount. Revenue on these contracts is recorded as costs are incurred. In addition, when the total cost to complete a medical interior under a fixed fee contract can be reasonably estimated, revenue is recorded as costs are incurred using the percentage of completion method of accounting. F-8 (1) Summary of Significant Accounting Policies, continued Equipment and Leasehold Improvements Hangar, equipment, and leasehold improvements are recorded at cost. Maintenance and repairs are expensed when incurred. Major modifications and costs incurred to place aircraft in service are capitalized. Improvements to helicopters and airplanes leased under operating leases are included in flight and ground support equipment in the accompanying financial statements. Depreciation is computed using the straight-line method over the shorter of the useful lives of the equipment or the lease term, as follows: Description Lives Residual value Hangar 40 years 10% Helicopters, including medical equipment 8 - 25 years 10 - 25% Airplanes, including medical equipment 8 - 20 years 0 - 10% Ground support equipment and rotables 5 - 10 years 0 - 10% Furniture and office equipment 3 - 10 years - Leasehold improvements to hangar and office space are amortized using the straight-line method over the terms of the leases. Excess of Cost Over the Fair Value of Net Assets Acquired Excess of cost over the fair value of net assets acquired, or goodwill, is being amortized using the straight-line method over 25 years. Patent Application Costs and Supplemental Type Certificates The Company capitalizes legal costs associated with new patent applications and the defense of existing patents. At such time as patents are granted, these costs will be amortized over the estimated useful economic life of the patents. Costs relating to unsuccessful patent applications are charged to operations. The Company also capitalizes incremental direct costs related to the application for multiple Supplemental Type Certificates (STC's). STC's are issued by the Federal Aviation Administration (FAA) and represent the FAA's approval and certification of the airworthiness of an aircraft modification, such as a medical interior. A multiple STC allows the modification to be made to more than one aircraft without additional certification. STC costs are amortized using the straight-line method over the estimated useful economic life of the STC, typically 5 years. F-9 (1) Summary of Significant Accounting Policies, continued Long-lived Assets The Company accounts for long-lived assets under the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("Statement 121"). Statement 121 requires that long-lived assets and certain identifiable intangible assets, including goodwill, to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Engine and Airframe Overhaul Costs The Company uses the accrual method of accounting for major engine and airframe component overhauls and replacements whereby the cost of the next overhaul or replacement is estimated and accrued based on usage of the aircraft component over the period between overhauls or replacements. Revenue Recognition and Uncollectible Receivables Fixed fee revenue under the Company's operating agreements with hospitals is recognized monthly over the term of the agreements. Revenue relating to emergency flights is recognized upon completion of the services. Revenue and accounts receivable are recorded net of contractual allowances under agreements with third-party payors. International franchise revenue is recognized as royalties and fees are generated by the franchisee's operations. Uncollectible trade receivables are charged to operations using the allowance method. Stock-based Compensation The Company accounts for its employee stock compensation plans as prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Pro forma disclosures of net income and income per share required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation ("Statement 123"), are included in Note 7 to the consolidated financial statements. F-10 (1) Summary of Significant Accounting Policies, continued Income Taxes The Company accounts for income taxes using the asset and liability method required by Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes ("Statement 109"). Deferred tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in rates is recognized in income in the period that includes the enactment date. Income Per Share Statement of Financial Accounting Standards No. 128, Earnings Per Share ("Statement 128"), requires presentation of both basic earnings per share and diluted earnings share. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing income available to common stockholders by all outstanding and dilutive potential common shares during the period. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, accounts receivable, notes payable, and accounts payable: The carrying amounts approximate fair value because of the short maturity of these instruments. Notes receivable and long-term debt: The carrying amounts approximate fair value since the interest rates on these instruments reflect current market rates. F-11 (1) Summary of Significant Accounting Policies, continued Reclassifications Certain prior year amounts have been reclassified in the consolidated financial statements to conform with the 1998 presentation. (2) Acquisition of Subsidiary On July 31, 1997, the Company acquired all of the outstanding common stock of Mercy Air Service, Inc. and substantially all of the net assets of Helicopter Services, Inc. (together "Mercy"), two affiliated companies, for cash and notes payable totaling $6,007,000, net of purchase price adjustments. The allocation of the purchase price was as follows (amounts in thousands): Assets purchased: Flight equipment $11,514 Receivables 3,218 Office equipment 576 Inventories 248 Goodwill 132 Other 271 -------- 15,959 Debt and other liabilities assumed (9,952) -------- Purchase price $ 6,007 ======== (3) Costs in Excess of Billings and Billings in Excess of Costs As of December 31, 1998, the estimated period to complete contracts in process ranges from two to eighteen months, and the Company expects to collect all related accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts within one year. The following summarizes contracts in process at December 31 (amounts in thousands): 1998 1997 Costs incurred on uncompleted contracts $ 1,660 2,898 Estimated earnings 1,422 754 -------- ------- 3,082 3,652 Less billings to date (3,201) (2,532) -------- -------- Costs in excess of billings (billings in excess of costs) $ (119) 1,120 ======== ======== F-12 (4) Notes Receivable Notes receivable at December 31, 1998, includes an aircraft lease, accounted for as a sales-type lease. Future minimum payments under all notes receivable are as follows (amounts in thousands): Year ending December 31: 1999 $ 144 2000 144 2001 144 2002 144 2003 144 Thereafter 278 ------- 998 Less amounts representing interest (325) ------- Present value of minimum payments 673 Less current installments (66) -------- $ 607 ======== (5) Notes Payable and Long-term Debt Notes payable consist of the following at December 31, 1998 and 1997 (amounts in thousands): 1998 1997 Borrowings under a $700,000 line of credit with interest at prime plus .50% (8.25% at December 31, 1998), $ 700 700 collateralized by certain receivables Borrowings under a $2 million line of credit with interest at prime plus .25% (8% at December 31, 1998), collateralized by flight equipment, 425 -- certain receivables, and inventories Other -- 29 ------ ------ $1,125 729 ====== ====== The Company's $2 million line of credit agreement expires in October 2000 and requires the Company to maintain a zero balance on the line for 30 days during each year. The Company incurred a $10,000 commitment fee to originate the line. The Company's $700,000 line of credit agreement expires in July 1999. Both lines have various covenants which limit the Company's ability to dispose of assets, merge with another entity, and pledge trade receivables and inventories as collateral. The Company is also required to maintain certain financial ratios as defined in the agreements. At December 31, 1998, the Company was in compliance with or received waivers for non-compliance with the financial ratio covenants. F-13 (5) Notes Payable and Long-term Debt, continued Long-term debt consists of the following at December 31, 1998 and 1997 (amounts in thousands): 1998 1997 Note payable to a company with interest at 9.52%, due in monthly installments of principal and interest through July 2007 with all remaining principal due in August 2007, collateralized by flight equipment $ 9,762 10,239 Note payable to a company with interest at 7.5%, due in monthly installments of principal and interest through June 2003 with all remaining principal due in July 2003, collateralized by flight equipment 3,838 -- Notes payable with interest at 8.5% to 9.25%. Paid in full in 1998. -- 5,777 Notes payable to a company with interest at 6.91%, due in monthly payments of principal and interest through September 2003, collateralized by flight equipment 1,092 -- Note payable to a company with interest at 6.85%, due in monthly payments of principal and interest through November 2003, collateralized by flight equipment 1,184 -- Note payable to a company with interest at 9.18%, due in monthly installments of principal and interest through June 2002, collateralized by flight equipment 971 1,196 Notes payable to former shareholders of Mercy with interest at 9%, due in monthly installments of principal and interest through July 2002, collateralized by certain receivables 1,075 1,312 Notes payable to a lender with interest at 8.47%, due in monthly installments of principal and interest through March 2002, collateralized by flight equipment 1,509 1,896 Note payable to a lender with interest at 9.84%, due in monthly installments of principal and interest through August 2006, collateralized by flight equipment 937 1,016 Notes payable to a lender with interest at 8.01%, due in monthly installments of principal and interest through March 2005, collateralized by flight equipment 1,402 -- Note payable to a lender with interest at 9.02%, due in monthly installments of principal and interest through December 2006, collateralized by flight equipment 303 327 Note payable to a company with interest at 11%, due in monthly payments of principal and interest through February 2002, collateralized by equipment 320 400 Note payable to a company with interest at 10%, due in monthly payments of principal and interest through May 2000, collateralized by flight equipment 106 172 -------- ------- $22,499 22,335 Less current installments (2,781) (2,655) -------- ------- $19,718 19,680 ======== ======= F-14 (5) Notes Payable and Long-term Debt, continued Aggregate maturities of long-term debt are as follows (amounts in thousands): Year ending December 31: 1999 $ 2,781 2000 2,979 2001 3,207 2002 2,692 2003 2,957 Thereafter 7,883 -------- $ 22,499 ======== (6) Leases The Company leases hangar and office space under noncancelable operating leases and leases certain equipment and aircraft under noncancelable operating and capital leases. As of December 31, 1998, future minimum lease payments under capital and operating leases are as follows (amounts in thousands): Capital Operating leases leases Year ending December 31: 1999 $ 718 2,539 2000 557 2,364 2001 557 2,205 2002 557 2,071 2003 557 1,342 Thereafter 551 5,606 ------- -------- Total minimum lease payments 3,497 $ 16,127 Less amounts representing interest (592) ======== -------- Present value of minimum capital lease payments 2,905 Less current installments (554) -------- $ 2,351 ======== Rent expense relating to operating leases totaled $2,719,000, $2,255,000, and $1,888,000, for the years ended December 31, 1998, 1997, and 1996. At December 31, 1998 and 1997, leased property held under capital leases included in equipment, net of accumulated depreciation, totaled $5,699,000 and $6,356,000, respectively. F-15 (7) Stockholders' Equity (a) Warrants In connection with various offerings of common stock and other transactions by the Company, the following warrants to purchase the Company's common stock were issued at or above market value and are outstanding as of December 31, 1998: Number of Exercise price Expiration date warrants per share 150,000 6.88 February 14, 1999 75,000 4.50 April 6, 2000 40,000 3.00 February 21, 2002 80,000 3.00 February 21, 2002 80,000 3.00 February 21, 2002 ------- 425,000 ======= In 1998 the Company extended the expiration date of 50,000 warrants priced at $3.00 from December 29, 1998, to February 21, 2002, and the expiration date of 150,000 warrants priced at $3.00 from February 21, 1999, to February 21, 2002. The warrants were originally issued to Americas Partners, the general partners of which are directors of the Company. With the term extension, the warrants were reissued to three of the Company's directors individually. No compensation expense was recognized in conjunction with the reissuance because the exercise price exceeded the market price of the stock on the date of issue. (b) Stock Option Plans The Company has a Stock Option Plan and a predecessor plan (together, "the Plan") which provides for the granting of incentive stock options (ISO's) and nonqualified stock options (non-ISO's), stock appreciation rights, and supplemental stock bonuses. Under the Plan, 2,500,000 shares of common stock are reserved for options. The Company also grants non-ISO's outside of the Plan. Generally, the options granted under the Plan have an exercise price equal to the fair market value on the date of grant, become exercisable in three equal installments beginning one year from the date of grant, and expire five years from the date of grant. The Nonemployee Director Stock Option Plan authorizes the grant of nonstatutory stock options to purchase an aggregate of 300,000 shares of common stock to nonemployee directors of the Company. Each nonemployee director completing one fiscal year of service will receive a five-year option to purchase 5,000 shares, exercisable at the then current fair market value of the Company's common stock. F-16 (7) Stockholders' Equity, continued The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, because the Company grants its options at or above market value, no compensation cost has been recognized relating to the plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the provisions of Statement 123, the Company's net income and income per share would have been reduced to the pro forma amounts indicated below (amounts in thousands, except per share amounts): 1998 1997 1996 Net income (loss): As reported $ 257 1,696 308 Pro forma (278) 1,236 (8) Basic and diluted income (loss) per share: As reported $ .03 .21 .04 Pro forma (.03) .15 -- Pro forma net income or loss reflects only options granted after December 31, 1994. Therefore, the full impact of calculating compensation cost for stock options under Statement 123 is not reflected in the pro forma net income or loss amounts presented above because compensation cost is reflected over the options' vesting period of 3 years and compensation cost for options granted prior to January 1, 1995, is not considered. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1998, 1997, and 1996, respectively: dividend yield of 0% for all years; expected volatility of 62%, 59%, and 64%; risk-free interest rates of 4.7%, 5.5%, and 7.3%; and expected lives of 3 years for all years. The weighted average fair value of options granted during the years ended December 31, 1998, 1997 and 1996, was $1.60, $1.33, and $1.73, respectively. F-17 (7) Stockholders' Equity, continued The following is a summary of option activity, including options granted and outstanding outside of the Plan, during the years ended December 31, 1998, 1997 and 1996: Weighted Average Shares Exercise Price Outstanding at January 1, 1996 1,772,126 $ 3.81 Granted 516,675 3.49 Canceled (467,408) 4.37 Exercised (25,410) 1.77 ---------- Outstanding at December 31, 1996 1,795,983 3.88 Granted 626,732 3.01 Canceled (104,882) 4.97 Exercised (36,175) 2.27 ----------- Outstanding at December 31, 1997 2,281,658 3.71 Granted 151,640 3.32 Canceled (450,464) 6.36 Exercised (107,638) 2.12 ---------- Outstanding at December 31, 1998 1,875,196 3.13 ========== F-18 (7) Stockholders' Equity, continued The following table summarizes information about fixed stock options outstanding at December 31, 1998:
Weighted- Average Weighted- Weighted- Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Price Outstanding Life (Years) Price Exercisable Price $1.75 to 3.00 1,085,606 2.6 $ 2.86 712,599 $ 2.78 3.13 to 6.88 789,590 2.2 3.51 684,687 3.48 --------- --------- 1,875,196 1,397,286 ========= ==========
(c) Nonemployee Director Compensation Plan In February 1993, the Board of Directors adopted the Air Methods Corporation Equity Compensation Plan for Nonemployee Directors which was subsequently approved by the Company's stockholders on March 12, 1993. Under this compensation plan, 150,000 shares of common stock are reserved for issuance to non-employee directors. As of December 31, 1998, the Company had issued 51,014 shares under this plan. (d) Stock Repurchase Plan On August 5, 1994, the Board of Directors approved a stock repurchase plan authorizing the repurchase of up to 10% of the outstanding shares of the Company's common stock to be retired. Repurchases may be made from time to time in the open market or in privately negotiated transactions. The plan authorizes, but does not require, the Company to repurchase shares. Actual repurchases in any period are subject to approval by the Finance Committee of the Board of Directors and will depend on market conditions and other factors. As of December 31, 1998, 30,500 shares had been repurchased under this plan. F-19 (7) Stockholders' Equity, continued (e) Income Per Share The reconciliation of basic income per common share to diluted income per common share is as follows for the years ended December 31 (amounts in thousands except share and per share amounts): 1998 1997 1996 Weighted average number of common shares outstanding - basic 8,202,668 8,121,395 8,100,545 Common stock options 224,628 67,152 136,211 Common stock warrants 22,608 -- 22,398 Weighted average number of common --------------------------------- shares outstanding - diluted 8,449,904 8,188,547 8,259,154 ================================= Common stock options totaling 163,059, 2,030,352, and 1,041,540 and common stock warrants of 225,000, 575,592, and 439,530 were not included in the diluted income per share calculation for the years ended December 31, 1998, 1997, and 1996, respectively, because their effect would have been anti-dilutive. (8) Revenue The Company has operating agreements and leases with various hospitals and hospital systems to provide services and aircraft for periods ranging from 1 to 10 years. The agreements provide for revenue from monthly fixed fees and flight fees based upon the utilization of aircraft in providing emergency medical services. The fixed-fee portions of the agreements and leases provide for the following revenue for years subsequent to December 31, 1998 (amounts in thousands): Year ending December 31: 1999 $ 18,154 2000 15,830 2001 10,937 2002 5,781 2003 3,677 Thereafter 4,461 -------- $ 58,840 ======== F-20 (9) Income Taxes For income tax purposes, the Company has net operating loss carryforwards at December 31, 1998, of approximately $35 million, expiring at various dates through 2011. Alternative minimum tax (AMT) loss carryforwards available to offset future AMT taxable income approximate net operating loss carryforwards for regular federal income tax purposes. In 1991, the Company acquired all of the outstanding common shares of Air Methods Corporation, a Colorado corporation ("AMC"). As a result of the acquisition of AMC and other issuances of stock, the utilization of a portion of the aforementioned net operating loss carryforwards is subject to an annual limitation of $1,032,000 per year, as adjusted for unused yearly limitations, by the provisions of Section 382 of the Internal Revenue Code. Any future tax benefits recognized through utilization of AMC's net operating loss carryforwards as of the acquisition date will be applied to reduce the excess of cost over the fair value of net assets acquired. The net operating loss carryforwards include $192,000 in deductions relating to stock option exercises which will be credited to additional paid-in capital upon realization. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are as follows (amounts in thousands): 1998 1997 Deferred tax assets: Overhaul and parts replacement cost, principally due to the accrual method $ 2,934 2,779 Allowance for uncollectible accounts 954 1,305 Net operating loss carryforwards 14,238 13,157 Other 392 263 --------- -------- Total gross deferred tax assets 18,518 17,504 Less valuation allowance (7,386) (6,716) --------- -------- Net deferred tax assets 11,132 10,788 --------- -------- Deferred tax liabilities: Equipment and leasehold improvements, principally due to differences in bases and depreciation methods (10,949) (10,530) Receivables, principally due to difference in bases resulting from acquisition of subsidiary (869) (1,103) Other (183) (258) --------- -------- Total deferred tax liabilities (12,001) (11,891) --------- -------- Net deferred tax liability $ (869) (1,103) ========= ========= F-21 (9) Income Taxes, continued In the acquisition of Mercy in July 1997, the Company acquired trade receivables of $3.1 million. Mercy, a subchapter S corporation, had elected to be treated as a cash basis taxpayer. Upon acquisition, however, the new subsidiary was required to use the accrual method of accounting. This change in accounting method for tax purposes results in the recognition of approximately $3.1 million in taxable income over four years which may not be offset by the Company's net operating loss carryforwards. The net deferred tax liability represents the liability related to the taxable income to be recognized in future years. Income tax expense calculated at the federal statutory tax rate for the years ended December 31, 1998, 1997, and 1996, was primarily offset by the decrease in the valuation allowance for deferred tax assets. (10) Employee Benefit Plans The Company has a defined contribution retirement plan whereby employees who have completed six months of employment may contribute up to 15% of their annual salaries. The Company will match 50% of the employees' contributions up to 5% of their annual salaries. Company contributions totaled approximately $261,000, $181,000, and $154,000 for the years ended December 31, 1998, 1997, and 1996, respectively. In 1995 the Board of Directors approved a profit sharing plan which provides for the distribution of 5% of the Company's net income to its employees beginning in 1996. The amount distributed to employees in the years ended December 31, 1998, 1997, and 1996, totaled $83,000, $57,000, and $31,000. The continuation of the profit sharing plan is at the discretion of the Board of Directors. (11) Business and Credit Concentrations A significant percentage of the Company's trade receivables are related to the flight operations of Mercy in Southern California. Mercy receivables are due from medical insurance companies and federal and state government insurance programs, as well as private citizens. The diversity in types of payers may mitigate the potential impact of the geographical concentration of receivables. F-22 (12) Business Segment Information In 1998 the Company adopted Statement of Financial Accounting Standard No. 131, Disclosures About Segments of an Enterprise and Related Information, which changes the way the Company defines and reports information about its operating segments. The Company identifies operating segments based on management responsibility and the type of products or services offered. The operating segments and their principal products or services are as follows: - Flight Services Division - provides air medical transportation services to hospitals throughout the U.S. under exclusive operating agreements. Services include aircraft operation and maintenance. - Mercy - provides air medical transportation services in southern California to general population as an independent community-based service. Services include aircraft operation and maintenance, medical care, dispatch and communications, and medical billing and collection. - Products Division - designs, manufactures, and installs aircraft medical interiors and other aerospace products for domestic and international customers The accounting policies of the operating segments are as described in Note 1. The Company evaluates the performance of its segments based on net income. Intersegment sales are reflected at cost-related prices. Summarized financial information for the Company's operating segments is shown in the following table (amounts in thousands). Amounts in the "Corporate Activities" column represent corporate headquarters expenses, elimination of intersegment transactions, and results of insignificant operations. The Company does not allocate assets between Flight Services, Products, and Corporate Activities for internal reporting and performance evaluation purposes. F-23 (12) Business Segment Information, continued
Flight Services Products Corporate Division Mercy Division Activities Consolidated 1998 External revenue $29,290 15,845 3,289 275 48,699 Intersegment revenue 14 -- 3,298 (3,312) -- ---------------------------------------------------------------------- Total revenue 29,304 15,845 6,587 (3,037) 48,699 ---------------------------------------------------------------------- Operating expenses 22,490 11,095 5,812 (44) 39,353 Depreciation & amortization 2,962 807 172 323 4,264 Bad debt expense -- 2,785 -- -- 2,785 Interest expense 1,006 1,095 -- 149 2,250 Interest income (80) (7) -- (123) (210) ---------------------------------------------------------------------- Segment net income (loss) $2,926 70 603 (3,342) 257 ======================================================================= Total assets N/A 17,598 N/A 43,178 60,776 ======================================================================= 1997 External revenue $27,956 7,119 3,475 427 38,977 Intersegment revenue 13 -- 2,458 (2,471) -- ---------------------------------------------------------------------- Total revenue 27,969 7,119 5,933 (2,044) 38,977 ---------------------------------------------------------------------- Operating expenses 20,729 3,830 5,869 (65) 30,363 Depreciation & amortization 2,919 313 181 309 3,722 Bad debt expense -- 1,608 -- -- 1,608 Interest expense 1,016 482 -- 338 1,836 Interest income (156) (7) -- (85) (248) ---------------------------------------------------------------------- Segment net income (loss) $ 3,461 893 (117) (2,541) 1,696 ======================================================================= Total assets N/A 18,095 N/A 41,774 59,869 ======================================================================= 1996 External revenue $26,872 -- 3,124 261 30,257 Intersegment revenue -- -- 985 (985) -- ---------------------------------------------------------------------- Total revenue 26,872 -- 4,109 (724) 30,257 ---------------------------------------------------------------------- Operating expenses 19,176 -- 5,043 1,714 25,933 Depreciation & amortization 2,635 -- 124 297 3,056 Bad debt expense 20 -- -- -- 20 Interest expense 996 -- -- 301 1,297 Interest income (194) -- -- (163) (357) ---------------------------------------------------------------------- Segment net income (loss) $ 4,239 -- (1,058) (2,873) 308 ======================================================================= Total assets N/A -- N/A 45,389 45,389 =======================================================================
F-24 Independent Auditors' Report Board of Directors and Stockholders Air Methods Corporation: Under date of February 26, 1999, we reported on the consolidated balance sheets of Air Methods Corporation and subsidiary as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, which are included in the Company's Annual Report on Form 10-K for the year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying table of contents. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Denver, Colorado February 26, 1999 F-25 AIR METHODS CORPORATION AND SUBSIDIARY Schedule II - Valuation and Qualifying Accounts (Amounts in thousands)
Balance at Beginning of Transfers and Balance at End Description Period Additions (a) Other Deductions (b) of Period Allowance for trade receivables Year ended December 31, 1998 $2,528 2,785 -- (3,909) 1,404 Year ended December 31, 1997 24 1,608 2,055 (c) (1,159) 2,528 Year ended December 31, 1996 11 20 -- (7) 24 __________________ Notes: (a) Amounts charged to expense. (b) Bad debt write-offs and charges to allowances. (c) Allowance for Mercy receivables at the acquisition date. See accompanying Independent Auditors' Report. F-26
EX-10.9 2 OFFICE BUILDING LEASE This Lease between Airplaza Co., Inc, a Colorado corporation ("Landlord"), and Air Methods Corporation International, a Colorado corporation,("Tenant"), is dated March 2,1998. 1. LEASE OF PREMISES. In consideration of the Rent (as defined at Section 5.4) and the provisions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as Exhibit "A", and further described at Section 21. The Premises are located within the Building and Project described in Section 2m. Tenant shall have the non-exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees, to use of the Common Areas (as defined at Section 2e). 2. DEFINITIONS As used in this Lease, the following terms shall have the following meanings: a. Base Rent (initial): $150,613.08 per year. b. Base Year: The calendar year of 1998. c. Broker(s) Landlord's: None Tenant's: Cushman & Wakefield of Colorado, Inc. d. Commencement Date: April 1, l998 e. Common Areas: the building lobbies, common corridors and hallways, restrooms, garage and parking areas, stairways, elevators and other generally understood public or common areas. Landlord shall have the right to regulate or restrict the use of the Common Areas. f. Expense Stop: (fill in if applicable): $ N/A g. Expiration Date: March 31, 2003, unless otherwise sooner terminated in accordance with the provisions of this Lease. h. Index (Section 5.2): United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for All Urban Consumers, U.S. City Average, Subgroup "All Items" (1967 = 100). i. Landlord's Mailing Address: 5675 DTC Boulevard, Suite 100, Englewood, Colorado 80111 Tenant's Mailing Address: 7301 South Peoria Street, Suite 200, Englewood, Colorado 80112 j. Monthly Installments of Base Rent (Initial): $12,551.09 per month. k. Parking: Tenant shall be permitted, at no additional charge, to park 30 cars on a non-exclusive basis in the area(s) designated by Landlord for parking. Tenant shall abide by any and all parking regulations and rules established from time to time by Landlord or Landlord's parking operator. Landlord reserves the right to separately charge Tenant's guests and visitors for parking. l. Premises: that portion of the Building containing approximately 10,503 square feet of Rentable Area, shown by diagonal lines on-Exhibit "A", located on the first (1st) and second (2nd) floor of the Building and known as Suites 100 and 200. m. Project: the office building known as 7301 South Peoria Street of which the Premises are a part (the "Building" and any other buildings or improvements on the real property (the "Property') located at 7211 - 7331 South Peoria Street, Englewood, Colorado 80112 and further described at Exhibit "B." The Project is known as Airplaza 22. n. Rentable Area: as to both the Premises and the Project, the respective measurements of floor area as may from time to time be subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord and applied on a consistent basis throughout the Project. o. Security Deposit (Section 7): $ Zero (0) p. State: the State of Colorado q. Tenant's First Adjustment Date (Section 5.2): April 1, 1999 r. Tenant's Proportionate Share: See Addendum One - Additional Provisions s. Tenant's Use Clause (Article 8): general office purposes t. Term: the period commencing on the Commencement Date and expiring at midnight on the Expiration Date. 3. EXHIBITS AND ADDENDA. The exhibits and addenda listed below (unless lined out) are incorporated by reference in this Lease: a. Exhibit "A" - Floor Plan showing the Premises. b. Exhibit "B" - Site Plan of the Project. c. Exhibit "C" - Work Agreement. d. Exhibit "D" - Rules and Regulations. f. Addenda: Addendum One - Additional Provisions 5. RENT. 5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises. Monthly Installments of Base Rent shall be payable in advance on the first day of each calendar month of the Term. If the Term begins (or ends) on other than the first (or last) day of a calendar month, the Base Rent for the partial month shall be prorated on a per diem basis. Tenant shall pay Landlord the first Monthly Installment of Base Rent when Tenant executes the Lease. 5.2 Adjusted Base Rent. a. The Base Rent (and the corresponding Monthly Installments of Base Rent) set forth at Section 2a shall be adjusted annually (the "Adjustment Date"), commencing on Tenant's First Adjustment Date. Adjustments, if any, shall be based upon increases (if any) in the Index. The Index in publication three (3) months before the Commencement Date shall be the "Base Index" The Index in publication three (3) months before each Adjustment Date shall be the "Comparison Index." As of each Adjustment Date, the Base Rent payable during the ensuing twelve-month period shall be determined by increasing the initial Base Rent by a percentage equal to the percentage increase, if any, in the Comparison Index over the Base Index. If the Comparison Index for any Adjustment Date is equal to or less than the Comparison Index for the preceding Adjustment Date (or the Base Index, in the case-of First Adjustment Date), the Base Rent for the ensuing twelve-month period shall remain the amount of Base Rent payable during the preceding twelve- month period. When the Base Rent payable as of each Adjustment Date is determined, Landlord shall promptly give Tenant written notice of such adjusted Base Rent and the manner in which it was computed. The Base Rent as so adjusted from time to time shall be the "Base Rent" for all purposes under this Lease. b. If at any Adjustment Date the Index no longer exists in the form described in this Lease, Landlord may substitute any substantially equivalent official index published by the Bureau of Labor Statistics or its successor. Landlord shall use any appropriate conversion factors to accomplish such substitution. The substitute index shall then become the "Index" hereunder. See Addendum One - Additional Provisions. 5.3 Project Operating Costs. a. In order that the Rent payable during the Term reflect any Increase in Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's Proportionate Share of all increases in costs, expenses and obligations attributable to the Project and its operation, all as provided below. b. If, during any calendar year during the Term, Project Operating Costs exceed the Project Operating Costs for the Base Year, Tenant shall pay to Landlord, in addition to the Base Rent and all other payments due under this Lease, an amount equal to Tenant's Proportionate Share of such excess Project Operating Costs in accordance with the provisions of this Section 5.3b. (1) The term "Project Operating Costs" shall include all those Items described in the following subparagraphs (a) and (b). (a) All taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building or Project or their operation, including without limitation, (I) real property taxes or assessments levied or assessed against the Building or Project, (ii) assessments or charges levied or assessed against the Building or Project by any redevelopment agency, (iii) any tax measured by gross rentals received from the leasing of the Premises, Building or Project, excluding any net income, franchise, capital stock, estate or inheritance taxes imposed by the State or federal government or their agencies, branches or departments; provided that if at any time during the Term any governmental entity levies, assesses or imposes on Landlord any (1) general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the Rent received under this Lease or on the rent received under any other leases of space in the Building or Project, or (2) any license fee, excise or franchise tax, assessment, levy or charge measured by or based, in whole or In part, upon such rent, or (3) any transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or such other leases, or (4) any occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or other premises within the Building or Project, then any such taxes, assessments, levies and charges shall be deemed to be included in the term Project Operating Costs. If at any time during the Term the assessed valuation of, or taxes on, the Project are not based on a completed Project having at least eighty- five percent (85%) of the Rentable Area occupied, then the "taxes" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the taxes which would have been payable if the Project were completed and at least eighty-five percent (85%) occupied. (b) Operating costs incurred by Landlord in maintaining and operating the Building and Project, including without limitation the following: costs of (1) utilities; (2) supplies; (3) insurance (including public liability, property damage, earthquake, and fire and extended coverage insurance for the full replacement cost of the Building and Project as required by Landlord or its lenders for the Project; (4) services of Independent contractors; (5) compensation (including employment taxes and fringe benefits) of all persons who perform duties connected with the operation, maintenance, repair or overhaul of the Building or Project, and equipment, improvements and facilities located within the Project, Including without limitation engineers, janitors, painters, floor waxers, window washers, security and parking personnel and gardeners (but excluding persons performing services not uniformly available to or performed for substantially all Building or Project tenants); (6) operation and maintenance of a room for delivery and distribution of mail to tenants of the Building or Project as required by the U.S. Postal Service (Including, without limitation, an amount equal to the fair market rental value of the mail room premises); (7) management of the Building or Project, whether managed by Landlord or an Independent contractor (including, without limitation, an amount equal to the fair market value of any on-site manager's office) provided that such management costs for the Project shall not exceed five percent (5%) of Landlord's gross income from the Project; (8) rental expenses for (or a reasonable depreciation allowance on) personal property used in the maintenance, operation or repair of the Building or Project; (9) costs, expenditures or charges (whether capitalized or not) required by any governmental or quasi-governmental authority; (10) amortization of capital expenses (including financing costs) (I) required by a governmental entity for energy conservation or life safety purposes, or (ii) made by Landlord to reduce Project Operating Costs; and (11) any other costs or expenses incurred by Landlord under this Lease and not otherwise reimbursed by tenants of the Project. If at any time during the Term, less than eighty- five percent (85%) of the Rentable Area of the Project is occupied, the "operating costs" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the operating costs which would have been incurred if the Project had been at least eighty-five percent (85%) occupied. (2) Tenant's Proportionate Share of Project Operating Costs shall be payable by Tenant to Landlord as follows: (a) Beginning with the calendar year following the Base Year and for each calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an amount equal to Tenant's Proportionate Share of the Project Operating Costs incurred by Landlord in the Comparison Year which exceeds the total amount of Project Operating Costs payable by Landlord for the Base Year. This excess is referred to as the "Excess Expenses." (b) To provide for current payments of Excess Expenses, Tenant shall, at Landlord's request, pay as additional rent during each Comparison Year, an amount equal to Tenant's Proportionate Share of the Excess Expenses payable during such Comparison Year, as estimated by Landlord from time to time. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Comparison Year and Tenant's Proportionate Share thereof, and then to make an adjustment in the following year based on the actual Excess Expenses incurred for that Comparison Year. (c) On or before April 1 of each Comparison Year after the first Comparison Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's Proportionate Share of the Excess Expenses for the preceding Comparison Year. If Tenant's Proportionate Share of the actual Excess Expenses for the previous Comparison Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within ten (10) days of the receipt of the statement. If such total exceeds Tenant's Proportionate Share of the actual Excess Expenses for such Comparison Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section 5.3 shall survive the Expiration Date. (d) Tenant's Proportionate Share of Excess Expenses In any Comparison Year having less than 365 days shall be appropriately prorated. (e) If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Project Operating Costs by more than five percent (5%). 5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees to pay to Landlord under this Lease shall be deemed additional rent (which, together with the Base Rent is sometimes referred to as the "Rent"). The Rent shall be paid to the building manager (or other person) and at such place, as Landlord may from time to time designate in writing, without any prior demand therefor and without deduction or offset, in lawful money of the United States of America. 5.5 Rent Control. If the amount of Rent or any other payment due under this Lease violates the terms of any governmental restrictions on such Rent or payment, then the Rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions. 5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) which are not otherwise reimbursable under this Lease, whether or not now customary or within the contemplation of the parties, where such taxes are upon, measured by or reasonably attributable to (a) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, other than Building Standard Work made by Landlord, regardless of whether title to such improvements is held by Tenant or Landlord; (b) the gross or net Rent payable under this Lease, including, without limitation, any rental or gross receipts tax levied by any taxing authority with respect to the receipt of the Rent hereunder; (c) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (d) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises; If it becomes unlawful for Tenant to reimburse Landlord for any costs as required under this Lease, the Base Rent shall be revised to net Landlord the same net Rent after imposition of any tax or other charge upon Landlord as would have been payable to Landlord but for the reimbursement being unlawful. 6. INTEREST AND LATE CHARGES. If Tenant fails to pay when due any Rent or other amounts or charges which Tenant is obligated to pay-under the terms of this Lease, the unpaid amounts shall bear interest at the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Monthly Installment of Base Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within ten (10) days from the date it is due, Tenant shall pay Landlord a late charge equal to five percent (5%) of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease 8. TENANT'S USE OF THE PREMISES. Tenant shall use the Premises solely for the purposes set forth in Tenant's Use Clause. Tenant shall not use or occupy the Premises in violation of law or any covenant, condition or restriction affecting the Building or Project or the certificate of occupancy issued for the Building or Project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or the certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or any directions of any governmental agencies or authorities having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the premises, impose any duty upon Tenant or Landlord with respect to the Premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions in the use of the Premises shall be deemed to be a conclusive determination of that fact as between Landlord and Tenant. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or property located therein, and shall comply with all rules, orders, regulations, requirements and recommendations of the insurance Services Office or any other organization performing a similar function. Tenant shall promptly upon demand reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Article. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or Interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. 9. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder, Landlord agrees to furnish to the Premises during generally recognized business days, and during hours determined by Landlord in its sole discretion, and subject to the Rules and Regulations of the Building or Project, electricity for normal desk top office equipment and normal copying equipment, and heating, ventilation and air conditioning ("HVAC") as required in Landlord's judgment for the comfortable use and occupancy of the Premises. If Tenant desires HVAC at any other time, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant and Tenant shall pay Landlord's charges therefor on demand. Landlord shall also maintain and keep lighted the common stairs, common entries and restrooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (i) the installation, use or interruption of use, of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project, or (iii) the limitation, curtailment or rationing of, or restrictions on, use of water, electricity, gas or any other form of energy serving the Premises, Building or Project. Landlord shall not be liable under any circumstances for a loss of, or injury to, property or business, however occurring, through or in connection with or incidental to failure to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant shall not, without the written consent of Landlord, use any apparatus or device in the Premises, including without limitation, electronic data processing machines, punch card machines or machines using in excess of 120 volts, which consumes more electricity than is usually furnished or supplied for the use of premises as general office space, as determined by Landlord. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume water or electric current in excess of that usually furnished or supplied for the use of premises as general office space (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent, Landlord may have installed a water meter or electrical current meter in the Premises to measure the amount of water or electric current consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, the excess cost for such water and electric current shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant's expense. Nothing contained in this Article shall restrict Landlord's right to require at anytime separate metering of utilities furnished to the Premises. In the event utilities are separately metered, Tenant shall pay promptly upon demand for all utilities consumed at utility rates charged by the local public utility plus any additional expense incurred by Landlord in keeping account of the utilities so consumed. Tenant shall be responsible for the maintenance and repair of any such meters at its sole cost. Landlord shall furnish elevator service, lighting replacement for building standard lights, restroom supplies, window washing and janitor services in a manner that such services are customarily furnished to comparable office buildings in the area. 10. CONDITION OF THE PREMISES. Tenant's taking possession of the Premises shall be deemed conclusive evidence that as of the date of taking possession the Premises are in good order and satisfactory condition, except for such matters as to which Tenant gave Landlord notice on or before the Commencement Date. No promise of Landlord to alter, remodel, repair or improve the Premises, the Building or the Project and no representation, express or implied, respecting any matter or thing relating to the Premises, Building, Project or this Lease (including, without limitation, the condition of the Premises, the Building or the Project) have been made to Tenant by Landlord or its Broker or Sales Agent, other than as may be contained herein or in a separate exhibit or addendum signed by Landlord and Tenant. 11. CONSTRUCTION, REPAIRS AND MAINTENANCE. a. Landlord's Obligations. Landlord shall perform Landlord's Work to the Premises as described in Exhibit "C". Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or of any other tenant in the Building. b. Tenant's Obligations. (1) Tenant shall perform Tenant's Work to the Premises as described in Exhibit "C." (2) Tenant at Tenant's sole expense shall, except for services furnished by Landlord pursuant to Article 9 hereof, maintain the Premises in good order, condition and repair, including the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all plumbing pipes and fixtures, electrical wiring, switches and fixtures, Building Standard furnishings and special items and equipment installed by or at the expense of Tenant. (3) Tenant shall be responsible for all repairs and alterations in and to the Premises, Building and Project and the facilities and systems thereof, the need for which arises out of (i) Tenant's use or occupancy of the Premises, (ii) the installation, removal, use or operation of Tenant's Property (as defined in Article 13) in the Premises, (iii) the moving of Tenant's Property into or out of the Building, or (iv) the act, omission, misuse or negligence of Tenant, its agents, contractors, employees or invitees. (4) If Tenant falls to maintain the premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. If Tenant fails to promptly commence such work and diligently prosecute it to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at the prime commercial rate then being charged by Norwest Bank, Denver plus two percent (2%) per annum, from the date of such work, but not to exceed the maximum rate then allowed by law. Landlord shall have no liability to Tenant for any damage, inconvenience, or interference with the use of the Premises by Tenant as a result of performing any such work. c. Compliance with Law. Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, and rules of any public authority relating to their respective maintenance obligations as set forth herein d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford the Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. e. Load and Equipment Limits. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry, as determined by Landlord or Landlord's structural engineer. The cost of any such determination made by Landlord's structural engineer shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which cause noise or vibration to such a degree as to be objectionable to Landlord or other Building tenants. f. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, Interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant's lease or required by law to make in or to any portion of the Project, Building or the Premises. Landlord shall nevertheless use reasonable efforts to minimize any interference with Tenant's business in the Premises. g. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part or appurtenance of the Building's mechanical, electrical, plumbing, HVAC or other systems serving, located in, or passing through the Premises. h. Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises to Landlord clean and in the same condition as on the date Tenant took possession, except for normal wear and tear. Any damage to the Premises, including any structural damage, resulting from Tenant's use or from the removal of Tenant's fixtures, furnishings and equipment pursuant to Section 13b shall be repaired by Tenant at Tenant's expense. 12. ALTERATIONS AND ADDITIONS. a. Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord's consent may be conditioned on Tenant's removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as on the date Tenant took possession. All work with respect to any addition, alteration or improvement shall be done in a good and workmanlike manner by properly qualified and licensed personnel approved by Landlord, and such work shall be diligently prosecuted to completion. If any such work is performed by a contractor selected by Tenant and approved by Landlord, Tenant shall pay to Landlord, upon completion of any such work, an administrative fee of five percent (5%) of the cost of the work. If any such work is performed by Landlord's contractor, Tenant shall pay to Landlord, upon completion of any such work, an administrative fee of fifteen percent (15%) of the cost of the work. b. Tenant shall pay the costs of any work done on the Premises pursuant to Section 12a, and shall keep the Premises, Building and Project free and clear of liens of any kind. Tenant shall indemnify, defend against and keep Landlord free and harmless from all liability, loss, damage, costs, attorneys' fees and any other expense incurred on account of claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant. Tenant shall keep Tenant's leasehold interest, and any additions or improvements which are or become the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before that date to enable Landlord to post notices of non- responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord's interest in the Premises, Building or the Project, and Landlord shall have the right to enter the Premises and post such notices at any reasonable time. c. Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in an amount equal to at least one and one-half (1 1/2) times the total estimated cost of any additions, alterations or improvements to be made in or to the Premises, to protect Landlord against any liability for mechanic's and materialmen's liens and to insure timely completion of the work. Nothing contained in this Section 12c shall relieve Tenant of its obligation under Section 12b to keep the Premises, Building and Project free of all liens. d. Unless their removal is required by Landlord as provided in Section 12a, all additions, alterations and improvements made to the Premises shall become the property of Landlord and be surrendered with the Premises upon the expiration of the Term; provided, however, Tenant's equipment, machinery and trade fixtures which can be removed without damage to the Premises shall remain the property of Tenant and may be removed, subject to the provisions of Section 13b. 13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY. a. All fixtures, equipment, improvements and appurtenances attached to or built into the Premises at the commencement of or during the Term, whether or not by or at the expense of Tenant ("Leasehold Improvements"), shall be and remain a part of the Premises, shall be the property of Landlord and shall not be removed by Tenant, except as expressly provided in Section 13b. b. All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located in the Premises (collectively "Tenant's Property') shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of Tenant's Property is removed, Tenant shall promptly repair any damage to the Premises or to the Building resulting from such removal. 14. RULES AND REGULATIONS. Tenant agrees to comply with (and cause its agents, contractors, employees and invitees to comply with) the rules and regulations attached hereto as Exhibit "D" and with such reasonable modifications thereof and additions thereto as Landlord may from time to time make. Landlord shall not be responsible for any violation of said rules and regulations by other tenants or occupants of the Building or Project. 15. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights, exercisable without liability to Tenant for (a) damage or injury to property, person or business, (b) causing an actual or constructive eviction from the Premises, or (c) disturbing Tenant's use or possession of the Premises: a. To name the Building and Project and to change the name or street address of the Building or Project; b. To install and maintain all signs on the exterior and interior of the Building and Project; provided that Tenant shall have the right to install a sign for its business on the exterior of the Building subject to Landlord's reasonable approval of plans for same; c. To have pass keys to the Premises and all doors within the Premises, excluding Tenant's vaults and safes; d. At any time during the Term, and on reasonable prior notice to Tenant, to inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project, or to others having an interest in the Project or Landlord, and during the last six months of the Term, to show the Premises to prospective tenants thereof; and e. To enter the Premises for the purpose of making inspections, repairs, alterations, additions or improvements to the Premises or the Building (including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as may be necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord's interest therein, or as may be necessary or desirable for the operation or improvement of the Building or in order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its best efforts (except in an emergency) to minimize interference with Tenant's business in the Premises in the course of any such entry. 16. ASSIGNMENT AND SUBLETTING. No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Article 16. a. Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not, nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord. b. If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall, within twenty (20) days after Tenant's notice is given, either approve or, in Landlord's reasonable judgement, disapprove the proposed assignment or sublease. If Landlord approves the proposed assignment or sublease, Tenant may assign the Lease or sublet such space to such proposed assignee or subtenant on the following further conditions: (1) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord; (2) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord; and (3) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained; c. Notwithstanding the provisions of paragraphs a and b above, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord's consent and without extending any recapture or termination option to Landlord, to any corporation which controls, s controlled by or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that (i) the assignee or sublessee assumes, in full, the obligations of Tenant under this Lease, (ii) Tenant remains fully liable under this Lease, and (iii) the use of the Premises under Article 8 remains unchanged. d. No subletting or assignment shall release Tenant of Tenant's obligations under this Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease. 17. HOLDING OVER. If after expiration of the Term, Tenant remains in possession of the Premises with Landlord's permission (express or implied), Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to term and Base Rent), but the "Monthly Installments of Base Rent" payable by Tenant shall be increased to one hundred twenty-five percent (125%) of the Monthly Installments of Base Rent payable by Tenant at the expiration of the Term. Such monthly rent shall be payable in advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, It shall give the other party not less than thirty (30) days advance written notice of the date of termination. 18. SURRENDER OF PREMISES. a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and in as good condition as when Tenant took possession, except for (i) reasonable wear and tear, (ii) loss by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on Landlord's request, remove Tenant's Property on or before the Expiration Date and promptly repair all damage to the Premises or Building caused by such removal. b. If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant's Property left on the Premises shall be deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant's Property, the cost of removal, including repairing any damage to the Premises or Building caused by such removal, shall be paid by Tenant. On the Expiration Date Tenant shall surrender all keys to the Premises. 19. DESTRUCTION OR DAMAGE. a. If the Premises or the portion of the Building necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the elements of other casualty, Landlord shall, subject to the provisions of this Article, promptly repair the damage, if such repairs can, in Landlord's reasonable opinion, be completed within one hundred eighty (180) days. If Landlord determines that repairs can be completed within one hundred eighty (180) days, this Lease shall remain in full force and effect, except that if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, employees, contractors, licensees or invitees, the Base Rent shall be abated to the extent Tenant's use of the Premises is impaired, commencing with the date of damage and continuing until completion of the, repairs required of Landlord under Section 19d b. See addendum One - Additional Provisions. c. See addendum One - Additional Provisions. d. If the Premises are to be repaired under this Article, Landlord shall repair at its cost any injury or damage to the Building and Building Standard Work in the Premises. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. Landlord shall not be liable for any loss of business, inconvenience or annoyance arising from any repair or restoration of any portion of the Premises, Building or Project as a result of any damage from fire or other casualty. e. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, Building or Project by fire or other casualty, and any present or future law which purports to govern the rights of Landlord and Tenant in such circumstances in the absence of express agreement, shall have no application. 20. EMINENT DOMAIN. a. If the whole of the Building or Premises is lawfully taken by condemnation or in any other manner for any public or quasi-public purpose, this Lease shall terminate as of the date of such taking, and Rent shall be prorated to such date. If less than the whole of the Building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (i) Tenant shall have the right to terminate this Lease by notice to Landlord given within ninety (90) days after the date of such taking if twenty percent (20%) or more of the Premises is taken and the remaining area of the Premises is not reasonably sufficient for Tenant to continue operation of its business, and (ii) Landlord shall have the right to terminate this Lease by notice to Tenant given within ninety (90) days alter the date of such taking. If either Landlord or Tenant so elects to terminate this Lease, the Lease shall terminate on the thirtieth (30th) day after either such notice. The Rent shall be prorated to the date of termination. If this Lease continues in force upon such partial taking, the Base Rent and Tenant's Proportionate Share shall be equitably adjusted according to the remaining Rentable Area of the Premises and Project. b. In the event of any taking, partial or whole, all of the proceeds of any award, judgment or settlement payable by the condemning authority shall be the exclusive property of Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any award, judgment or settlement from the condemning authority. Tenant, however, shall have the right, to the extent that Landlord's award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by Tenant in its own right for relocation expenses and damage to Tenant's personal property. c. In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as practicable to its condition prior to the condemnation or taking, but only to the extent of Building Standard Work. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. 21. INDEMNIFICATION. a. Tenant shall indemnify and hold Landlord harmless against and from liability and claims of any kind for loss or damage to property of Tenant or any other person, or for any injury to or death of any person, arising out of: (1) Tenant's use and occupancy of the Premises, or any work, activity or other things allowed or suffered by Tenant to be done in, on or about the Premises; (2) any breach or default by Tenant of any of Tenant's obligations under this lease; or (3) any negligent or otherwise tortious act or omission of Tenant, its agents, employees, invitees or contractors. Tenant shall at Tenant's expense, and by counsel satisfactory to Landlord, defend Landlord in any action or proceeding arising from any such claim and shall indemnify Landlord against all costs, attorneys' fees, expert witness fees and any other expenses incurred in such action or proceeding. As a material part of the consideration for Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or injury to any person or property in, on or about the Premises from any cause. b. Landlord shall not be liable for injury or damage which may be sustained by the person or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises, caused by or resulting from fire, steam, electricity, gas, water or rain which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the Building or Project or from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant of the Building or Project. 22. TENANT'S INSURANCE. a. All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies acceptable to Landlord and Landlord's lender and qualified to do business in the State. Each policy shall name Landlord, and at Landlord's request any mortgagee of Landlord, as an additional insured, as their respective interests may appear. Each policy shall contain (i) a cross- liability endorsement, (ii) a provision that such policy and the coverage evidenced thereby shall be primary and noncontributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Landlord, its agents, employees and representatives, which arises or might arise by reason of any payment under such policy or by reason of any act or omission of Landlord, its agents, employees or representatives. A copy of each paid up policy (authenticated by the in surer) or certificate of the insurer evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord before the date Tenant is first given the right of possession of the Premises, and thereafter within thirty (30) days after any demand by Landlord therefor. Landlord may, at anytime and from time to time, inspect and/or copy any insurance policies required to be maintained by Tenant hereunder. No such policy shall be cancellable except after twenty (20) days written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge the Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as required by this Lease. b. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect policies of casualty insurance covering (i) all Leasehold Improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Article 12 hereof), and (ii) trade fixtures, merchandise and other personal property from time to time in, on or about the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time, providing protection against any peril included within the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under (i) shall be paid to Landlord, and the proceeds under (ii) above shall be paid to Tenant. c. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect workers' compensation insurance as required by law and comprehensive public liability and property damage insurance with respect to the construction of improvements on the Premises, the use, operation or condition of the Premises and the operations of Tenant in, on or about the Premises, providing personal injury and broad form property damage coverage for not less than One Million Dollars ($1,000,000.00) combined single limit for bodily injury, death and property damage liability. d. Not less than every three (3) years during the Term, Landlord and Tenant discuss whether to increase any or all of Tenant's Insurance policy limits for all insurance to be carried by Tenant as set forth in this Article. In the event Landlord and Tenant cannot mutually agree upon whether any such increases are necessary or, if so, the amounts thereof, then Tenant agrees that all insurance policy limits as set forth in this Article shall be adjusted for increases in the cost of living in the same manner as is set forth in Section 5.2 hereof for the adjustment of the Base Rent. 23. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents and representatives of the other, on account of loss by or damage to the waiving party of its property or the property of others under its control, to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of the loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to its insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 24. SUBORDINATION AND ATTORNMENT. Upon written request of Landlord, or any first mortgagee or first deed of trust beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing, subordinate its rights under this Lease to the lien of any first mortgage or first deed of trust, or to the interest of any lease in which Landlord is lessee, and to all advances made or hereafter to be made thereunder. However, before signing any subordination agreement, Tenant shall have the right to obtain from any lender or lessor or Landlord requesting such subordination, an agreement in writing providing that, as long as Tenant is not in default hereunder, this Lease shall remain in effect for the full Term. The holder of any security interest may, upon written notice to Tenant, elect to have this Lease prior to its security interest regardless of the time of the granting or recording of such security interest. In the event of any foreclosure sale, transfer in lieu of foreclosure or termination of the lease in which Landlord is lessee, Tenant shall attorn to the purchaser, transferee or lessor as the case may be, and recognize that party as Landlord under this Lease, provided such party acquires and accepts the Premises subject to this Lease. 25. TENANT ESTOPPEL CERTIFICATES. Within ten (10) days after written request from Landlord, Tenant shall execute and deliver to Landlord or Landlord's designee, a written statement certifying (a) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and stating the modifications; (b) the amount of Base Rent and the date to which Base Rent and additional rent have been paid in advance; (c) the amount of any security deposited with Landlord; and (d) that Landlord is not in default hereunder or, if Landlord is claimed to be in default, stating the nature of any claimed default. Any such statement may be relied upon by a purchaser, assignee or lender. Tenant's failure to execute and deliver such statement within the time required shall at Landlord's election be a default, under this Lease and shall also be conclusive upon Tenant that: (1) this Lease is in full force and effect and has not been modified except as represented by Landlord; (2) there are no uncured defaults in Landlord's performance and that Tenant has no right of offset, counter-claim or deduction against Rent; and (3) not more than one month's Rent has been paid in advance. 26. TRANSFER OF LANDLORD'S INTEREST In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or Lease occurring after the consummation of such sate or transfer, providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto. 27. DEFAULT. 27.1. Tenant's Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: a. Deleted. b. If Tenant falls to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for ten (10) days after such payment is due and payable; or c. If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; or d. If a writ of attachment or execution is levied on this Lease or on any of Tenant's Property; or e. If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with Its creditors; or f. If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws is filed and not withdrawn or dismissed within forty-five (45) days thereafter, or if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of forty-five (45) days; or g. If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant's Property; or h. If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or other person or entity is involved in any of the acts or events described in subparagraphs d through g above. 27.2. Remedies. In the event of Tenant's default hereunder, then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord's option, without further notice or demand of any kind to do the following: a. Terminate this Lease and Tenant's right to possession of the Premises and reenter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or b. Continue this Lease in effect, reenter and occupy the Premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or c. Reenter the Premises under the provisions of subparagraph b, and thereafter elect to terminate this Lease and Tenant's right to possession of the Premises. If Landlord reenters the Premises under the provisions of subparagraphs b or c above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. In the event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any Indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises; fourth to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting. Should Landlord elect to terminate this Lease under the provisions of subparagraph a or c above, Landlord may recover as damages from Tenant the following: 1. Past Rent. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus 2. Rent Prior to Award. The worth at the time of the 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; plus 3. Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus 4. Proximately Caused Damages. Any other amount necessary to compensate Landlord for all 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, including, but not limited to, any costs or expenses (including attorneys' fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant's default, (c) preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (d) reletting the Premises, including broker's commissions. "The worth at the time of the award" as used in subparagraphs 1 and 2 above, is to be computed by allowing interest at the rate of ten percent (10%) per annum. "The worth at the time of the award" as used in subparagraph 3 above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award plus one percent (1%). The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver. 27.3 Landlord's Default. If Landlord falls to perform any covenant, condition or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such default, or if such default cannot reasonably be cured within thirty (30) days, if Landlord falls to commence to cure within that thirty (30) day period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income actually received on account of Landlord's right, title and interest in the Premises, Building or Project, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, if any) wherever situated, shall be subject to levy to satisfy such judgment. If, after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to cure the default as provided herein, then Tenant shall have the right to cure that default at Landlord's expense. Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease except as otherwise specifically provided herein. 28. BROKERAGE FEES. Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except those noted in Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost, expense or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. 29. NOTICES. All notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by certified or registered U.S. mail, postage prepaid, and addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to the Building manager, and (b) if to Tenant, to Tenant's Mailing Address; provided, however, notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices. 30. GOVERNMENT ENERGY OR UTILITY CONTROLS. In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance. 32. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinated. 33. OBSERVANCE OF LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant. 34. FORCE MAJEURE. Any prevention, delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse or delay Tenant1s obligation to pay Rent or other charges under this Lease. 35. CURING TENANT'S DEFAULTS. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may (but shall not be obligated to) without waiving such default, perform the same for the account at the expense of Tenant. Tenant shall pay Landlord all costs of such performance promptly upon receipt of a bill therefor. 36. SIGN CONTROL. Tenant shall not affix, paint, erect or inscribe any sign, projection, awning, signal or advertisement of any kind to any part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent of Landlord. Landlord shall have the right to remove any signs or other matter, installed without Landlord's permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as additional rent hereunder, payable within ten (10) days of written demand by Landlord. 37. MISCELLANEOUS. a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent provided for in this Lease shall be deemed to be other than on account of the earliest due Rent, nor shall any endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of the Rent or pursue any other remedy provided for in this Lease. In connection with the foregoing, Landlord shall have the absolute right in its sole discretion to apply any payment received from Tenant to any account or other payment of Tenant then not current and due or delinquent. b. Addenda. If any provision contained in an addendum to this Lease is inconsistent with any other provision herein, the provision contained in the addendum shall control, unless otherwise provided in the addendum. c. Attorneys' Fees. If any action or proceeding is brought by either party against the other pertaining to or arising out of this Lease, the finally prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys' fees, incurred on account of such action or proceeding. d. Captions, Articles and Section Numbers. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease. All references to Article and Section numbers refer to Articles and Sections in this Lease. e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably withhold its consent to changes or amendments to this Lease requested by the lender on Landlord's interest, so long as these changes do not alter the basic business terms of this Lease or otherwise materially diminish any rights or materially increase any obligations of the party from whom consent to such charge or amendment is requested. f. Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the State. g. Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant shall have no claim, and hereby waives the right to any claim against Landlord for money damages by reason of any refusal, withholding or delaying by Landlord of any consent, approval or statement of satisfaction, and in such event, Tenant's only remedies therefor shall be an action for specific performance, injunction or declaratory judgment to enforce any right to such consent, etc. h. Corporate Authority. If Tenant is a corporation, each individual signing this Lease on behalf of Tenant, represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation and that this Lease is binding in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of a resolution of its board of directors authorizing such execution. i. Counterparts. This Lease may be executed in multiple counterparts, all of which shall constitute one and the same Lease. j. Execution of Lease; No Option. The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or option for Tenant to lease or otherwise create any interest of Tenant in the Premises or any other premises within the Building or Project. Execution of this Lease by Tenant and its return to Landlord shall not be binding on Landlord notwithstanding any time interval until Landlord has in fact signed and delivered this Lease to Tenant. k. Furnishing of Financial Statements; Tenant's Representations. In order to induce Landlord to enter into this Lease Tenant agrees that it shall promptly furnish Landlord, from time to time, upon Landlord's written request, with financial statements reflecting Tenant's current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all material respects. l. Further Assurances.. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. m. Mortgagee Protection. Tenant agrees to send by certified or registered mail to any first mortgagee or first deed of trust beneficiary of Landlord whose address has been furnished to Tenant, a copy of any notice of default served by Tenant on Landlord. If Landlord fails to cure such default within the time provided for in this Lease. such mortgagee or beneficiary shall have an additional thirty (30) days to cure such default; provided that if such default cannot reasonably be cured within that thirty (30) day period, then such mortgagee or beneficiary shall have such additional time to cure the default as is reasonably necessary under the circumstances. n. Prior Agreements; Amendments. This Lease contains all of the agreements of the parties with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest. o. Recording. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. p. Severability. A final determination by a court of competent jurisdiction that any provision of this Lease is invalid shall not affect the validity of any other provision, and any provision so determined to be invalid shall, to the extent possible, be construed to accomplish its intended effect. q. Successors and Assigns. This Lease shall apply to and bind the heirs, personal representatives. and permitted successors and assigns of the parties. r. Time of the Essence. Time is of the essence of this Lease. s. Waiver. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver of such default. t. Compliance. The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and the Americans With Disabilities Act. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular Rent payment involved. No act or conduct of Landlord, including, without limitation the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. The parties hereto have executed this Lease as of the dates set forth below. Date: March 10, 1998 Date: March 10,1998 Landlord: Airplaza Co., Inc. Tenant: Air Methods Corporation International By: /s/ Ronald J. Houseman By: /s/ Aaron D. Todd Title: President Title: CFO This Lease between AirPlaza Co., Inc. a Colorado corporation ("Landlord"), and Air Methods Corporation International, a Colorado corporation ("Tenant"), is dated March 2, 1998. 1. LEASE OF PREMISES. In consideration of the Rent (as defined at Section 5.4) and the provisions this Lease1 Landlord leases to Tenant and Tenant leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as Exhibit "A" and further described at Section 21. The Premises are located within the Building and Project described in Section 2m. Tenant shall have the non-exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees, to use of the Common Areas (as defined at Section 2e). 2. DEFINITIONS As used in this Lease, the following terms shall have the following meanings: a. Base Rent (initial): $51,910.80 per year. b. Base Year: The calendar year of 1998 c. Broker(s) Landlord's: None Tenant's: Cushman & Wakefield of Colorado, Inc. d. Commencement Date: The earlier of (1) the date that is ten (10) days following the date of issuance by Arapahoe County, Colorado, of a Certificate of Occupancy for the Premises or (2) the date of occupancy of the Premises by Tenant. e. Common Areas: the building lobbies, common corridors and hallways, restrooms, garage and parking areas, stairways, elevators and other generally understood public or common areas. Landlord shall have the right to regulate or restrict the use of the Common Areas. f. Expense Stop: (fill in if applicable): $ N/A g. Expiration Date: March 31, 2003, unless otherwise sooner terminated in accordance with the provisions of this Lease. h. Index (Section 5.2): United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for All Urban Consumers, U.S. City Average, Subgroup "All Items" (1967=100). i. Landlord's Mailing Address: 5675 DTC Boulevard, Suite 100, Englewood, Colorado 80111 Tenant's Mailing Address: 7301 South Peoria Street, Suite 200, Englewood, Colorado 80112 j. Monthly Installments of Base Rent (initial): $4,325.90 per month. k. Parking: Tenant shall be permitted, at no additional charge, to park 12 cars on a non-exclusive basis in the area(s) designated by Landlord for parking. Tenant shall abide by any and all parking regulations and rules established from time to time by Landlord or Landlord's parking operator. Landlord reserves the right to separately charge Tenant's guests and visitors for parking. l. Premises: that portion of the Building containing approximately 3,620 square feet of Rentable Area, shown by diagonal lines on Exhibit "A" located on the first (1st) floor of the Building and known as Suite 190. m. Project: the building of which the Premises are a part (the "Building") and any other buildings or improvements on the real property (the "Property") located at 7211 - 7331 South Peoria Street, Englewood, Colorado 80112 and further described at Exhibit "B" The Project is known as Airplaza 22. n. Rentable Area: as to both the Premises and the Project, the respective measurements of floor area as may from time to time be subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord and applied on a consistent basis throughout the Project. o. Security Deposit (Section 7): $ zero (0) p. State: the State of Colorado q. Tenant's First Adjustment Date (Section 5.2): April 1, 1999. r. Tenant's Proportionate Share: See Addendum One, Additional Provisions. s. Tenant's Use Clause (Article 8): general office purposes t. Term: the period commencing on the Commencement Date and expiring at midnight on the Expiration Date. 3. EXHIBITS AND ADDENDA. The exhibits and addenda listed below (unless lined out) are Incorporated by reference in this Lease: a. Exhibit "A" - Floor Plan showing the Premises b. Exhibit "B" - Site Plan of the Project c. Exhibit "C" - Work Agreement d. Exhibit "D" - Rules and Regulations e. Exhibit "E" - Deleted f. Addenda: Addendum One - Additional Provisions. 4. DELIVERY OF POSSESSION. If for any reason Landlord does not deliver possession of the Premises to Tenant on the Commencement Date, Landlord shall not be subject to any liability for such failure, the Expiration Date shall not change and the validity of this Lease shall not be impaired, but Rent shall be abated until delivery of possession. "Delivery of possession" shall be deemed to occur on the date Landlord completes Landlord's Work as defined in Exhibit "C." If Landlord permits Tenant to enter into possession of the Premises before the Commencement Date, such possession shall be subject to the provisions of this Lease, including, without limitation, the payment of Rent. 5. RENT. 5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises. Monthly Installments of Base Rent shall be payable in advance on the first day of each calendar month of the Term. If the Term begins (or ends) on other than the first (or last) day of a calendar month, the Base Rent for the partial month shall be prorated on a per diem basis. Tenant shall pay Landlord the first Monthly Installment of Base Rent when Tenant executes the Lease. 5.2 Adjusted Base Rent. a. The Base Rent (and the corresponding Monthly Installments of Base Rent) set forth at Section 2a shall be adjusted annually (the "Adjustment Date"), commencing on Tenant's First Adjustment Date. Adjustments, if any, shall be based upon increases (if any) in the Index. The Index in publication three (3) months before the Commencement Date shall be the "Base Index." The Index in publication three (3) months before each Adjustment Date shall be the "Comparison Index." As of each Adjustment Date, the Base Rent payable during the ensuing twelve-month period shall be determined by increasing the initial Base Rent by a percentage equal to the percentage increase, if any, in the Comparison Index over the Base Index. If the Comparison Index for any Adjustment Date is equal to or less than the Comparison Index for the preceding Adjustment Date (or the Base Index, in the case of First Adjustment Date), the Base Rent for the ensuing twelve-month period shall remain the amount of Base Rent payable during the preceding twelve-month period. When the Base Rent payable as of each Adjustment Date is determined, Landlord shall promptly give Tenant written notice of such adjusted Base Rent and the manner in which it was computed. The Base Rent as so adjusted from time to time shall be the "Base Rent" for all purposes under this Lease. b. If at any Adjustment Date the Index no longer exists in the form described in this Lease, Landlord may substitute any substantially equivalent official index published by the Bureau of Labor Statistics or its successor. Landlord shall use any appropriate conversion factors to accomplish such substitution. The substitute index shall then become the "Index" hereunder. See Addendum One - Additional Provisions. 5.3 Project Operating Costs. a. In order that the Rent payable during the Term reflect any increase in Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's Proportionate Share of all increases in costs, expenses and obligations attributable to the Project and its operation, all as provided below. b. If during any calendar year during the Term, Project Operating Costs exceed the Project Operating Costs for the Base Year, Tenant shall pay to Landlord, in addition to the Base Rent and all other payments due under this Lease. an amount equal to Tenant's Proportionate Share of such excess Project Operating Costs in accordance with the provisions of this Section 5.3b. (1) The term "Project Operating Costs" shall include all those items described in the following subparagraphs (a) and (b). (a)All taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building or Project or their operation, including without limitation, (i) real property taxes or assessments levied or assessed against the Building or Project, (ii) assessments or charges levied or assessed against the Building or Project by any redevelopment agency, (iii) any tax measured by gross rentals received from the leasing of the Premises, Building or Project, excluding any net income, franchise, capital stock, estate or inheritance taxes imposed by the State or federal government or their agencies, branches or departments; provided that if at any time during the Term any governmental entity levies, assesses or imposes on Landlord any (1) general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the Rent received under this Lease or on the rent received under any other leases of space in the Building or Project, or (2) any license fee, excise or franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rent, or (3) any transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or such other leases, or (4) any occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or other premises within the Building or Project, then any such taxes, assessments, levies and charges shall be deemed to be included in the term Project Operating Costs. If at any time during the Term the assessed valuation of, or taxes on, the Project are not based on a completed Project having at least eighty-five percent (85%) of the Rentable Area occupied, then the "taxes" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the taxes which would have been payable if the Project were completed and at least eighty- five percent (85%) occupied. (b)Operating costs incurred by Landlord in maintaining and operating the Building and Project, including without limitation the following: costs of (1) utilities; (2) supplies; (3) insurance (including public liability, property damage, earthquake, and fire and extended coverage insurance for the full replacement cost of the Building and Project as required by Landlord or its lenders for the Project; (4) services of independent contractors; (5) compensation (including employment taxes and fringe benefits) of all persons who perform duties connected with the operation, maintenance, repair or overhaul of the Building or Project, and equipment, improvements and facilities located within the Project, including without limitation engineers, janitors, painters, floor waxers, window washers, security and parking personnel and gardeners (but excluding persons performing services not uniformly available to or performed for substantially all Building or Project tenants): (6) operation and maintenance of a room for delivery and distribution of mail to tenants of the Building or Project as required by the U.S. Postal Service (including, without limitation, an amount equal to the fair market rental value of the mail room premises); (7) management of the Building or Project, whether managed by Landlord or an Independent contractor (including, without limitation, an amount equal to the fair market value of any on-site manager's office provided that such management costs for the Project shall not exceed five percent (5%) of Landlord's gross income from the Project); (8) rental expenses for (or a reasonable depreciation allowance on) personal property used in the maintenance, operation or repair of the Building or Project; (9) costs, expenditures or charges (whether capitalized or not) required by any governmental or quasi-governmental authority; (10) amortization of capital expenses (including financing costs) (i) required by a governmental entity for energy conservation or life safety purposes, or (ii) made by Landlord to reduce Project Operating Costs; and (ii) any other costs or expenses incurred by Landlord under this Lease and not otherwise reimbursed by tenants of the Project. If at any time during the Term, less than eighty- five percent (85%) of the Rentable Area of the Project is occupied, the "operating costs" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the operating costs which would have been incurred if the Project had been at least eighty-five percent (85%) occupied. (2) Tenant's Proportionate Share of Project Operating Costs shall be payable by Tenant to Landlord as follows: (a)Beginning with the calendar year following the Base Year and for each calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an amount equal to Tenant's Proportionate Share of the Project Operating Costs incurred by Landlord in the Comparison Year which exceeds the total amount of Project Operating Costs payable by Landlord for the Base Year. This excess is referred to as the "Excess Expenses." (b)To provide for current payments of Excess Expenses, Tenant shall, at Landlord's request, pay as additional rent during each Comparison Year, an amount equal to Tenant's Proportionate Share of the Excess Expenses payable during such Comparison Year, as estimated by Landlord from time to time. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Comparison Year and Tenant's Proportionate Share thereof, and then to make an adjustment in the following year based on the actual Excess Expenses Incurred for that Comparison Year. (c)On or before April 1 of each Comparison Year after the first Comparison Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's Proportionate Share of the Excess Expenses for the preceding Comparison Year. If Tenant's Proportionate Share of the actual Excess Expenses for the previous Comparison Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within ten (10) days of the receipt of the statement. If such total exceeds Tenant's Proportionate Share of the actual Excess Expenses for such Comparison Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section 5.3 shall survive the Expiration Date. (d)Tenant's Proportionate Share of Excess Expenses in any Comparison Year having less than 365 days shall be appropriately prorated. (e)If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Project Operating Costs by more than five percent (5%). (f)If this Lease sets forth an Expense Stop at Section 2f, then during the Term, Tenant shall be liable for Tenant's Proportionate Share of any actual Project Operating Costs which exceed the amount of the Expense Stop. Tenant shall make current payments of such excess costs during the Term in the same manner as is provided for payment of Excess Expenses under the applicable provisions of Section 5.3b(2)(b) and (c) above. 5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees to pay to Landlord under this Lease shall be deemed additional rent (which, together with the Base Rent is sometimes referred to as the "Rent"). The Rent shall be paid to the Building manager (or other person) and at such place, as Landlord may from time to time designate in writing, without any prior demand therefor and without deduction or offset, in lawful money of the United States of America. 5.5 Rent Control. If the amount of Rent or any other payment due under this Lease violates the terms of any governmental restrictions on such Rent or payment, then the Rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions. 5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) which are not other wise reimbursable under this Lease, whether or not now customary or within the contemplation of the parties, where such taxes are upon, measured by or reasonably attributable to (a) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, other than Building Standard Work made by Landlord, regardless of whether title to such improvements is held by Tenant or Landlord; (b) the gross or net Rent payable under this Lease, including, without limitation, any rental or gross receipts tax levied by any taxing authority with respect to the receipt of the Rent hereunder; (c) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (d) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any costs as required under this Lease, the Base Rent shall be revised to net Landlord the same net Rent after imposition of any lax or other charge upon Landlord as would have been payable to Landlord but for the reimbursement being unlawful. 6. INTEREST AND LATE CHARGES. If Tenant falls to pay when due any Rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Monthly Installment of Base Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within ten (10) days from the date it is due, Tenant shall pay Landlord a late charge equal to 5% of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease. 8. TENANT'S USE OF THE PREMISES. Tenant shall use the Premises solely for the purposes set forth in Tenant's Use Clause. Tenant shall not use or occupy the Premises in violation of law or any covenant, condition or restriction affecting the Building or Project or the certificate of occupancy issued for the Building or Project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or the certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or any directions of any governmental agencies or authorities having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions in the use of the Premises shall be deemed to be a conclusive determination of that fact as between Landlord and Tenant. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or property located therein, and shall comply with all rules, orders, regulations, requirements and recommendations of the Insurance Services Office or any other organization performing a similar function. Tenant shall promptly upon demand reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Article. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. 9. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder, Landlord agrees to furnish to the Premises during generally recognized business days, and during hours determined by Landlord in its sole discretion, and subject to the Rules and Regulations of the Building or Project, electricity for normal desk top office equipment and normal copying equipment, and heating, ventilation and air conditioning ("HVAC") as required in Landlord's judgment for the comfortable use and occupancy of the Premises. If Tenant desires HVAC at any other time, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant and Tenant shall pay Landlord's charges therefor on demand. Landlord shall also maintain and keep lighted the common stairs, common entries and restrooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project, or (iii) the limitation, curtailment or rationing of, or restrictions on, use of water, electricity, gas or any other form of energy serving the Premises, Building or Project. Landlord shall not be liable under any circumstances for a loss of or injury to property or business, however occurring, through or in connection with or incidental to failure to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant shall not, without the written consent of Landlord, use any apparatus or device in the Premises, including without limitation, electronic data processing machines, punch card machines or machines using in excess of 120 volts, which consumes more electricity than is usually furnished or supplied for the use of premises as general office space, as determined by Landlord. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume water or electric current in excess of that usually furnished or supplied for the use of premises as general office space (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent, Landlord may have installed a water meter or electrical current meter in the Premises to measure the amount of water or electric current consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, the excess cost for such water and electric current shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant's expense. Nothing contained in this Article shall restrict Landlord's right to require at any time separate metering of utilities furnished to the Premises. In the event utilities are separately metered, Tenant shall pay promptly upon demand for all utilities consumed at utility rates charged by the local public utility plus any additional expense incurred by Landlord in keeping account of the utilities so consumed. Tenant shall be responsible for the maintenance and repair of any such meters at its sole cost. Landlord shall furnish elevator service, lighting replacement for building standard lights, restroom supplies, window washing and janitor services in a manner that such services are customarily furnished to comparable office buildings in the area. 10. CONDITION OF THE PREMISES. Tenant's taking possession of the Premises shall be deemed conclusive evidence that as of the date of taking possession the Premises are in good order and satisfactory condition, except for such matters as to which Tenant gave Landlord notice on or before the Commencement Date. No promise of Landlord to alter, remodel, repair or improve the Premises, the Building or the Project and no representation, express or implied, respecting any matter or thing relating to the Premises, Building, Project or this Lease (including, without limitation, the condition of the Premises, the Building or the Project) have been made to Tenant by Landlord or its Broker or Sales Agent, other than as may be contained herein or in a separate exhibit or addendum signed by Landlord and Tenant. 11. CONSTRUCTION, REPAIRS AND MAINTENANCE. a. Landlord's Obligations. Landlord shall perform Landlord's Work to the Premises as described in Exhibit "C." Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or of any other tenant in the Building. b. Tenant's Obligations. (1) Tenant shall perform Tenant's Work to the Premises as described in Exhibit "C." (2) Tenant at Tenant's sole expense shall, except for services furnished by Landlord pursuant to Article 9 hereof, maintain the Premises in good order, condition and repair, including the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all plumbing, pipes and fixtures, electrical wiring, switches and fixtures, Building Standard furnishings and special items and equipment installed by or at the expense of Tenant. (3) Tenant shall be responsible for all repairs and alterations in and to the Premises, Building and Project and the facilities and systems thereof, the need for which arises out of (i) Tenant's use or occupancy of the Premises, (ii) the installation, removal, use or operation of Tenant's Property (as defined In Article 13) in the Premises, (iii) the moving of Tenant's Property into or out of the Building, or (iv) the act, omission, misuse or negligence of Tenant, its agents, contractors, employees or invitees. (4) If Tenant fails to maintain the premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. If Tenant fails to promptly commence such work and diligently prosecute it to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at the prime commercial rate then being charged Norwest Bank, Denver plus two percent (2%) per annum, from the date of such work, but not to exceed the maximum rate then allowed by law. Landlord shall have no liability to Tenant for any damage, inconvenience, or interference with the use of the Premises by Tenant as a result of performing any such work. c. Compliance with Law. Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, and rules of any public authority relating to their respective maintenance obligations as set forth herein. d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford the Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. e. Load and Equipment Limits. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry, as determined by Landlord or Landlord's structural engineer. The cost of any such determination made by Landlord's structural engineer shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which cause noise or vibration to such a degree as to be objectionable to Landlord or other Building tenants. f. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant's lease or required by law to make in or to any portion of the Project, Building or the Premises. Landlord shall nevertheless use reasonable efforts to minimize any interference with Tenant's business in the Premises. g. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part or appurtenance of the Building's mechanical, electrical, plumbing, HVAC or other systems serving, located in, or passing through the Premises. h. Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises to Landlord clean and in the same condition as on the date Tenant took possession, except for normal wear and tear. Any damage to the Premises, including any structural damage, resulting from Tenant's use or from the removal of Tenant's fixtures, furnishings and equipment pursuant to Section 13b shall be repaired by Tenant at Tenant's expense. 12. ALTERATIONS AND ADDITIONS. a.Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord's consent may be conditioned on Tenant's removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as on the date Tenant took possession. All work with respect to any addition, alteration or improvement shall be done in a good and workmanlike manner by properly qualified and licensed personnel approved by Landlord, and such work shall be diligently prosecuted to completion. If any such work is performed by a contractor selected by Tenant and approved by Landlord, Tenant shall pay to Landlord, upon completion of any such work, an administrative fee of five percent (5%) of the cost of the work. If any such work is performed by Landlord's contractor, Tenant shall pay to Landlord, upon completion of any such work, an administrative fee of fifteen percent (15%) of the cost of the work. b.Tenant shall pay the costs of any work done on the Premises pursuant to Section 12a, and shall keep the Premises, Building and Project free and clear of liens of any kind. Tenant shall indemnify, defend against and keep Landlord free and harmless from all liability, loss, damage, costs, attorneys' fees and any other expense incurred on account of claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant. Tenant shall keep Tenant's leasehold interest, and any additions or improvements which are or become the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before that date to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord's interest in the Premises, Building or the Project, and Landlord shall have the right to enter the Premises and post such notices at any reasonable time. c. Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in an amount equal to at least one and one-half (1 1/2) times the total estimated cost of any additions, alterations or improvements to be made in or to the Premises, to protect Landlord against any liability for mechanic's and materialmen's liens and to insure timely completion of the work. Nothing contained in this Section 12c shall relieve Tenant of its obligation under Section 12b to keep the Premises, Building and Project free of all liens. d. Unless their removal is required by Landlord as provided in Section 12a, all additions, alterations and improvements made to the Premises shall become the property of Landlord and be surrendered with the Premises upon the expiration of the Term; provided, however, Tenant's equipment, machinery and trade fixtures which can be removed without damage to the Premises shall remain the property of Tenant and may be removed, subject to the provisions of Section 13b. 13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY. a. All fixtures, equipment,improvements and appurtenances attached to or built into the Premises at the commencement of or during the Term, whether or not by or at the expense of Tenant ("Leasehold Improvements"), shall be and remain a part of the Premises, shall be the property of Landlord and shall not be removed by Tenant, except as expressly provided in Section 13b. b. All movable partitions, business and trade fixtures, machinery and equipment, communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building, and all furniture, furnishings and other articles of movable personal properly owned by Tenant and located in the Premises (collectively "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of Tenant's Property is removed, Tenant shall promptly repair any damage to the Premises or to the Building resulting from such removal. 14. RULES AND REGULATIONS. Tenant agrees to comply with (and cause its agents, contractors, employees and invitees to comply with) the rules and regulations attached hereto as Exhibit "D" and with such reasonable modifications thereof and additions thereto as Landlord may from time to time make. Landlord shall not be responsible for any violation of said rules and regulations by other tenants or occupants of the Building or Project. 15. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights, exercisable without liability to Tenant for (a) damage or injury to property, person or business, (b) causing an actual or constructive eviction from the Premises, or (c) disturbing Tenant's use or possession of the Premises: a. To name the Building and Project and to change the name or street address of the Building or Project; b. To install and maintain all signs on the exterior and interior of the Building and Project; c. To have pass keys to the Premises and all doors within the Premises, excluding Tenant's vaults and safes; d. At any time during the Term, and on reasonable prior notice to Tenant, to inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project, or to others having an interest in the Project or Landlord, and during the last six months of the Term, to show the Premises to prospective tenants thereof; and e. To enter the Premises for the purpose of making inspections, repairs, alterations, additions or improvements to the Premises or the Building (including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as may be necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord's interest therein, or as may be necessary or desirable for the operation or improvement of the Building or in order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its best efforts (except in an emergency) to minimize interference with Tenant's business in the Premises in the course of any such entry. 16. ASSIGNMENT AND SUBLETTING. No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Article 16. a. Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not, nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord. b. If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall within twenty (20) days after Tenant's notice is given, either approve or, in Landlord's reasonable judgment, disapprove the proposed assignment or sublease. If Landlord approves the proposed assignment or sublease, Tenant may assign the Lease or sublet such space to such proposed assignee or subtenant on the following further conditions: (1) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord; (2) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord; and (3) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained. c. Notwithstanding the provisions of paragraphs a and b above, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord's consent and without extending any recapture or termination option to Landlord, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that (i) the assignee or sublessee assumes, in full, the obligations of Tenant under this Lease, (ii) Tenant remains fully liable under this Lease, and (iii) the use of the Premises under Article 8 remains unchanged. d. No subletting or assignment shall release Tenant of Tenant's obligations under the Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease. 17. HOLDING OVER If after expiration of the Term, Tenant remains in possession of the Premises with Landlord's permission (express or implied), Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to term and Base Rent), but the "Monthly Installments of Base Rent" payable by Tenant shall be increased to 125% of the Monthly Installments of Base Rent payable by Tenant at the expiration of the Term. Such monthly rent shall be payable in advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, it shall give the other party not less than thirty (30) days advance written notice of the date of termination. 18. SURRENDER OF PREMISES. a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and in as good condition as when Tenant took possession, except for (i) reasonable wear and tear, (ii) loss by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on Landlord's request, remove Tenant's Property on or before the Expiration Date and promptly repair all damage to the Premises or Building caused by such removal. b. If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant's Property left on the Premises shall be deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant's Property, the cost of removal, including repairing any damage to the Premises or Building caused by such removal, shall be paid by Tenant. On the Expiration Date Tenant shall surrender all keys to the Premises. 19. DESTRUCTION OR DAMAGE. a. If the Premises or the portion of the Building necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the elements of other casualty, Landlord shall, subject to the provisions of this Article, promptly repair the damage, if such repairs can in Landlord's reasonable opinion, be completed within one hundred eighty (180) days. If Landlord determines that repairs can be completed within one hundred eighty (180) days, this Lease shall remain in full force and effect, except that if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, employees, contractors, licensees or invitees, the Base Rent shall be abated to the extent Tenant's use of the Premises is impaired, commencing with the date of damage and continuing until completion of the repairs required of Landlord under Section 19d. b. See Addendum One - Additional Provisions. c. See Addendum One - Additional Provisions. d. If the Premises are to be repaired under this Article, Landlord shall repair at its cost any injury or damage to the Building and Building Standard Work in the Premises. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. Landlord shall not be liable for any loss of business, inconvenience or annoyance arising from any repair or restoration of any portion of the Premises, Building or Project as a result of any damage from fire or other casualty. e. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, Building or Project by fire or other casualty, and any present or future law which purports to govern the rights of Landlord and Tenant in such circumstances in the absence of express agreement, shall have no application. 20. EMINENT DOMAIN. a. If the whole of the Building or Premises is lawfully taken by condemnation or in any other manner for any public or quasi-public purpose, this Lease shall terminate as of the date of such taking, and Rent shall be prorated to such date. If less than the whole of the Building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (i) Tenant shall have the right to terminate this Lease by notice to Landlord given within ninety (90) days after the date of such taking if twenty percent (20%) or more of the Premises is taken and the remaining area of the Premises is not reasonably sufficient for Tenant to continue operation of its business, and (ii) Landlord shall have the right to terminate this Lease by notice to Tenant given within ninety (90) days after the date of such taking. If either Landlord or Tenant so elects to terminate this Lease, the Lease shall terminate on the thirtieth (30th) day after either such notice. The Rent shall be prorated to the date of termination. If this Lease continues in force upon such partial taking, the Base Rent and Tenant's Proportionate Share shall be equitably adjusted according to the remaining Rentable Area of the Premises and Project. b. In the event of any taking, partial or whole, all of the proceeds of any award, judgment or settlement payable by the condemning authority shall be the exclusive property of Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any award, judgment or settlement from the condemning authority. Tenant, however, shall have the right, to the extent that Landlord's award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by Tenant in its own right for relocation expenses and damage to Tenant's personal property. c. In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as practicable to its condition prior to the condemnation or taking, but only to the extent of Building Standard Work. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. 21. INDEMNIFICATION. a. Tenant shall indemnify and hold Landlord harmless against and from liability and claims of any kind for loss or damage to properly of Tenant or any other person, or for any injury to or death of any person, arising out of: (1) Tenant's use and occupancy of the Premises, or any work, activity or other things allowed or suffered by Tenant to be done in, on or about the Premises; (2) any breach or default by Tenant of any of Tenant's obligations under this Lease; or (3) any negligent or otherwise tortious act or omission of Tenant, its agents, employees, invitees or contractors. Tenant shall at Tenant's expense, and by counsel satisfactory to Landlord, defend Landlord in any action or proceeding arising from any such claim and shall indemnify Landlord against all costs, attorneys' fees, expert witness fees and any other expenses incurred in such action or proceeding. As a material part of the consideration for Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or injury to any person or property in, on or about the Premises from any cause. b. Landlord shall not be liable for injury or damage which may be sustained by the person or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises, caused by or resulting from fire, steam, electricity, gas, water or rain which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the Building or Project or from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant of the Building or Project. 22. TENANT'S INSURANCE. a. All insurance required to be carried by Tenant hereunder shall be Issued by responsible insurance companies acceptable to Landlord and Landlord's lender and qualified to do business in the State. Each policy shall name Landlord, and at Landlord's request any mortgagee of Landlord, as an additional insured, as their respective interests may appear. Each policy shall contain (i) a cross- liability endorsement, (ii) a provision that such policy and the coverage evidenced thereby shall be primary and non- contributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Landlord, its agents, employees and representatives, which arises or might arise by reason of any payment under such policy, or by reason of any act or omission of Landlord, its agents, employees or representatives. A copy of each paid up policy (authenticated by the insurer) or certificate of the insurer evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord before the date Tenant is first given the right of possession of the Premises, and thereafter within thirty (30) days after any demand by Landlord therefor. Landlord may, at any time and from time to time, inspect and/or copy any insurance policies required to be maintained by Tenant hereunder. No such policy shall be cancelable except after twenty (20) days written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge the Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as required by this Lease. b. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect policies of casualty insurance covering (i) all Leasehold Improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Article 12 hereof), and (ii) trade fixtures, merchandise and other personal property from time to time in, on or about the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time, providing protection against any peril included within the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under (i) shall be paid to Landlord, and the proceeds under (ii) above shall be paid to Tenant. c. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect workers' compensation insurance as required by law and comprehensive public liability and properly damage insurance with respect to the construction of improvements on the Premises, the use, operation or condition of the Premises and the operations of Tenant in, on or about the Premises, providing personal injury and broad form property damage coverage for not less than One Million Dollars ($1,000,000.00) combined single limit for bodily injury, death and property damage liability. d. Not less than every three (3) years during the Term, Landlord and Tenant shall discuss whether to increase any or all of Tenant's insurance policy limits for all insurance to be carried by Tenant as set forth in this Article. In the event Landlord and Tenant cannot mutually agree upon whether any such increases are necessary or, if so, the amounts thereof, then Tenant agrees that all insurance policy limits as set forth in this Article shall be adjusted for increases in the cost of living in the same manner as is set forth in Section 5.2 hereof for the adjustment of the Base Rent. 23. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents and representatives of the other, on account of loss by or damage to the waiving party of its property or the property of others under its control, to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of the loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to its insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 24. SUBORDlNATlON AND ATTORNMENT. Upon written request of Landlord, or any first mortgagee or first deed of trust beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing, subordinate its rights under this Lease to the lien of any first mortgage or first deed of trust, or to the interest of any lease in which Landlord is lessee, and to all advances made or hereafter to be made thereunder. However, before signing any subordination agreement, Tenant shall have the right to obtain from any lender or lessor or Landlord requesting such subordination, an agreement in writing providing that, as long as Tenant is not in default hereunder, this Lease shall remain in effect for the full Term. The holder of any security interest may, upon written notice to Tenant, elect to have this Lease prior to its security interest regardless of the time of the granting or recording of such security interest. In the event of any foreclosure sale, transfer in lieu of foreclosure or termination of the lease in which Landlord is lessee, Tenant shall attorn to the purchaser, transferee or lessor as the case may be, and recognize that party as Landlord under this Lease, provided such party acquires and accepts the Premises subject to this Lease. 25. TENANT ESTOPPEL CERTIFICATES. Within ten (10) days after written request from Landlord, Tenant shall execute and deliver to Landlord or Landlord's designee, a written statement certifying (a) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and stating the modifications; (b) the amount of Base Rent and the date to which Base Rent and additional rent have been paid in advance; (c) the amount of any security deposited with Landlord; and (d) that Landlord is not in default hereunder or, if Landlord is claimed to be in default, stating the nature of any claimed default. Any such statement may be relied upon by a purchaser, assignee or lender. Tenant's failure to execute and deliver such statement within the time required shall at Landlord's election be a default under this Lease and shall also be conclusive upon Tenant that: (1) this Lease is in full force and effect and has not been modified except as represented by Landlord; (2) there are no uncured defaults in Landlord's performance and that Tenant has no right of offset, counter-claim or deduction against Rent; and (3) not more than one month's Rent has been paid in advance. 26. TRANSFER OF LANDLORD'S INTEREST In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or Lease occurring after the consummation of such sale or transfer, providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto. 27. DEFAULT. 27.1. Tenant's Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: a. Deleted. b. If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for 10 days after such payment is due and payable; or c. If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; or d. If a writ of attachment or execution is levied on this Lease or on any of Tenant's Property; or e. If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with its creditors; or f. If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws is filed and not withdrawn or dismissed within forty-five (45) days thereafter, of if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of forty-five (45) days; or g. If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant's Property; or h. If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or other person or entity is involved in any of the acts or events described in subparagraphs d through g above. 27.2. Remedies. In the event of Tenant's default hereunder, then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord's option, without further notice or demand of any kind to do the following: a. Terminate this Lease and Tenant's right to possession of the Premises and reenter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or b. Continue this Lease in effect, reenter and occupy the Premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or c. Reenter the Premises under the provisions of subparagraph b, and thereafter elect to terminate this Lease and Tenant's right to possession of the Premises. If Landlord reenters the Premises under the provisions of subparagraphs b or c above Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. In the event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord: second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises; fourth, to the payment of Rent due and unpaid hereunder: and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting. Should Landlord elect to terminate this Lease under the provisions of subparagraph a or c above, Landlord may recover as damages from Tenant the following: 1. Past Rent. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus 2. Rent Prior to Award. The worth at the time of the 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; plus 3. Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus 4. Proximately Caused Damages. Any other amount necessary to compensate Landlord for all 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, including, but not limited to, any costs or expenses (including attorneys' fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant's default, (c) preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (d) reletting the Premises, including broker's commissions. "The worth at the time of the award" as used in subparagraphs 1 and 2 above, is to be computed by allowing interest at the rate of ten percent (10%) per annum. "The worth at the time of the award" as used in subparagraph 3 above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award plus one percent (1%). The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver. 27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such default, or if such default cannot reasonably be cured within thirty (30) days, if Landlord fails to commence to cure within that thirty (30) day period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income actually received on account of Landlord's right, title and interest in the Premises, Building or Project, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, if any) wherever situated, shall be subject to levy to satisfy such judgment. If, after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to cure the default as provided herein, then Tenant shall have the right to cure that default at Landlord's expense. Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease except as otherwise specifically provided herein. 28. BROKERAGE FEES. Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except those noted in Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost, expense or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. 29. NOTICES. All notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by certified or registered U.S. mail, postage prepaid, and addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to the Building manager, and (b) if to Tenant, to Tenant's Mailing Address; provided, however, notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices. 30. GOVERNMENT ENERGY OR UTILITY CONTROLS. In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance. 31. RELOCATION OF PREMISES. Landlord shall have the right to relocate the Premises to another part of the Building in accordance with the following: a. The new premises shall be substantially the same in size, dimensions, configuration, decor and nature as the Premises described In this Lease, and if the relocation occurs after the Commencement Date, shall be placed in that condition by Landlord at its cost. b. Landlord shall give Tenant at least thirty (30) days written notice of Landlord's intention to relocate the Premises. c. As nearly as practicable, the physical relocation of the Premises shall take place on a weekend and shall be completed before the following Monday. If the physical relocation has not been completed in that time, Base Rent shall abate in full from the time the physical relocation commences to the time it is completed. Upon completion of such relocation, the new premises shall become the "Premises" under this Lease. d. All reasonable costs incurred by Tenant as a result of the relocation shall be paid by Landlord. e. If the new premises are smaller than the Premises as it existed before the relocation, Base Rent shall be reduced proportionately. f. The parties hereto shall immediately execute an amendment to this Lease setting forth the relocation of the Premises and the reduction of Base Rent, if any. g. Landlord shall not exercise its right to relocate the Premises hereunder more than once each five (5) years during the term of this lease. 32. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinate. 33. OBSERVANCE OF LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant. 34. FORCE MAJEURE. Any prevention, delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform hereunder shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse or delay Tenant's obligation to pay Rent or other charges under this Lease. 35. CURING TENANT'S DEFAULTS. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may (but shall not be obligated to) without waiving such default, perform the same for the account at the expense of Tenant. Tenant shall pay Landlord all costs of such performance promptly upon receipt of a bill therefor. 36. SIGN CONTROL. Tenant shall not affix, paint, erect or inscribe any sign, projection, awning, signal or advertisement of any kind to any part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent of Landlord. Landlord shall have the right to remove any signs or other mailer, installed without Landlord's permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as additional rent hereunder, payable within ten (10) days of written demand by Landlord. 37. MISCELLANEOUS. a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent provided for in this Lease shall be deemed to be other than on account of the earliest due Rent, nor shall any endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of the Rent or pursue any other remedy provided for in this Lease. In connection with the foregoing, Landlord shall have the absolute right in its sole discretion to apply any payment received from Tenant to any account or other payment of Tenant then not current and due or delinquent. b. Addenda. If any provision contained in an addendum to this Lease is inconsistent with any other provision herein, the provision contained in the addendum shall control, unless otherwise provided in the addendum. c. Attorneys' Fees. If any action or proceeding is brought by either party against the other pertaining to or arising out of this lease, the finally prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys' fees, incurred on account of such action or proceeding. d. Captions, Articles and Section Numbers. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease. All references to Article and Section numbers refer to Articles and Sections in this Lease. e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably withhold its consent to changes or amendments to this Lease requested by the lender on Landlord's interest, so long as these changes do not alter the basic business terms of this Lease or otherwise materially diminish any rights or materially increase any obligations of the party from whom consent to such charge or amendment is requested. f. Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the State. g. Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant shall have no claim, and hereby waives the right to any claim against Landlord for money damages by reason of any refusal, withholding or delaying by Landlord of any consent, approval or statement of satisfaction, and in such event, Tenant's only remedies therefor shall be an action for specific performance, injunction or declaratory judgment to enforce any right to such consent, etc. h. Corporate Authority. If Tenant is a corporation, each individual signing this Lease on behalf of Tenant, represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation and that this Lease is binding in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of a resolution of its board of directors authorizing such execution. i. Counterparts. This Lease may be executed in multiple counterparts, all of which shall constitute one and the same Lease. j. Execution of Lease; No Option. The submission of this Lease to Tenant shall be for examination purposes only and does not and shall not constitute a reservation of or option for Tenant to lease, or otherwise create any interest of Tenant in the Premises or any other premises within the Building or Project. Execution of this Lease by Tenant and its return to Landlord shall not be binding on Landlord notwithstanding any time interval, until Landlord has in fact signed and delivered this tease to Tenant. k. Furnishing of Financial Statements; Tenant's Representations. In order to induce Landlord to enter into this Lease Tenant agrees that it shall promptly furnish Landlord, from time to time, upon Landlord's written request, with financial statements reflecting Tenant's current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all material respects. l. Further Assurances. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. m. Mortgagee Protection. Tenant agrees to send by certified or registered mail to any first mortgagee or first deed of trust beneficiary of Landlord whose address has been furnished to Tenant, a copy of any notice of default served by Tenant on Landlord. If Landlord fails to cure such default within the time provided for in this Lease, such mortgagee or beneficiary shall have an additional thirty (30) days to cure such default; provided that if such default cannot reasonably be cured within that thirty (30) day period, then such mortgagee or beneficiary shall have such additional time to cure the default as us reasonably necessary under the circumstances. n. Prior Agreements; Amendments. This Lease contains all of the agreements of the parties with respect to any matter covered or mentioned in this Lease1 and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest. o. Recording. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. p. Severability. A final determination by a court of competent jurisdiction that any provision of this Lease is invalid shall not affect the validity of any other provision, and any provision so determined to be invalid shall, to the extent possible, be construed to accomplish its intended effect. q. Successors and Assigns. This Lease shall apply to and bind the heirs, personal representatives, and permitted successors and assigns of the parties. r. Time of the Essence. Time is of the essence of this Lease. s. Waiver. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver of such default. t. Compliance. The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular Rent payment involved. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. The parties hereto have executed this Lease as of the dates set forth below. Date: March 10, 1998 Date: March 9, 1998 Landlord: Airplaza Co., Inc. Tenant: Air Methods Corporation By: /s/ Ronald J. Houseman By: /s/ Aaron D. Todd Title: President Title: CFO HANGAR LEASE This Lease between Airplaza Co., Inc. a Colorado corporation ("Landlord"), and Air Methods Corporation International, a Colorado corporation, ("Tenant"), is dated March 2, 1998. 1. LEASE OF PREMISES. In consideration of the Rent (as defined at Section 5A) and the provisions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as Exhibit "A"' and further described at Section 21. The Premises are located within the 13uilding and Project described in Section 2m Tenant shall have the non-exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees. to use of the Common Areas (as defined at Section 2e). 2. DEFINITIONS As used in this Lease, the following terms shall have the following meanings: a. Base Rent (Initial): $ 206,224.47 per year. b. Base Year: The calendar year of: N/A c . Broker(s) Landlord's: None Tenant's: Cushman & Wakefield of Colorado, Inc. d. Commencement Date: April 1, 1998 e. Common Areas: the building lobbies, common corridors and hallways, restrooms. garage and parking areas, stairways, elevators and other generally understood public or common areas. Landlord shall have the right to regulate or restrict the use of the Common Areas. f. Expense Stop: (fill in if applicable): $ n/a g. Expiration Date: March 31, 2003, unless otherwise sooner terminated in accordance with the provisions of this Lease. h. Index (Section 5.2): United States Department of Labor, bureau of Labor Statistics Consumer Price Index for All Urban Consumers, U.S. City Average, Subgroup "All items" (1967 = 100). i. Landlord's Mailing Address: 5675 DTC Boulevard, Suite 100, Englewood, Colorado 80111 Tenant's mailing Address: 7301 South Peoria Street, Suite 200, Englewood, Colorado 80112 j. Monthly installments of Base Rent(initial): $17,185.37 per month. k. Parking Tenant shall be permitted, at no additional charge to park 54 cars on a non-exclusive basis in the area(s) designated by Landlord for parking. Tenant shall abide by any and all parking regulations and rules established from time to time by Landlord or Landlord's parking operator. Landlord reserves the right to separately charge Tenant's guests and visitors for parking. l. Premises: that portion of the Building containing approximately 37,701 square feet of Rentable Area, shown by diagonal lines on Exhibit "A" located on the ground floor of the Building and known as Hangars A, B, C, D, E, F and G (known as 7301, 7305, 7311, 7315, 7321, 7325 and 7331 South Peoria Street, respectively) m. Project: the hangar building of which the Premises are a part (the "Building") and any other buildings or improvements on the real property (the "Property") located at 7211 - 7331 South Peoria Street, Englewood, Colorado 80112 and further described at Exhibit "B." The Project is known as Airplaza 22. n. Rentable Areas: as to both the Premises and the Project, the respective measurements of floor area as may from time to time be subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord and applied on a consistent basis throughout the Project. o. Security Deposit (Section 7): $ -0- (zero) p. State: the State of Colorado q. Tenant's First Adjustment Date (Section 5.2): April 1, 1999. r. Tenant's Proportionate Share: See Addendum One -- Additional Provisions. s. Tenant's Use Clause (Article 8): Operation of an air ambulance facility; storage, repair (major and minor), service, charter and sale of all non-fixed wing aircraft; storage and repair (major and minor) of all aircraft owned or leased by Tenant; storage and minor repair of all aircraft; storage for parts and supplies necessary or related to 'Tenant's business; and any other lawful activity involving aircraft not prohibited by the Land Lease between the Arapahoe County Public Airport Authority, as Lessor, and Landlord, as Lessee, dated as of October 15, 1987, as amended. For purposes of the immediately preceding sentence, Tenant's right to use the Premises for "repair" purposes shall mean that Tenant shall have the right to repair all components. systems and subsystems in aircraft to the extent not prohibited by said Land Lease. t. Term: the period commencing on the Commencement Date and expiring at midnight on the Expiration Date. 3. EXHIBITS AND ADDENDA. The exhibits and addenda listed below (unless lined out) are incorporated by reference in this Lease: a. Exhibit "A"-floor Plan showing the Premises. b. Exhibit "B" - Site Plan of the Project. c. Exhibit "C" - Work Agreement. d. Exhibit "D"-Rules and Regulations. e. Addenda: Addendum One Additional Provisions. 4. DELIVERY OF POSSESSION. See Addendum One -- Additional Provisions. 5. RENT. 5:1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises. Monthly Installments of Base Rent shall be payable In advance on the first day of each calendar month of the Term. If the Term begins (or ends) on other than the first (or last) day of a calendar month, the Base Rent for the partial month shall be prorated on a per diem basis. Tenant shall pay Landlord the first Monthly Installment of' Base Rent when Tenant executes the Lease. 5.2 Adjusted Base Rent. a. The Base Rent (and the corresponding Monthly Installments of Base Rent) set forth at Section 2a shall be adjusted annually (the "Adjustment Date"), commencing on Tenant's First Adjustment Date. Adjustments. if any. shall be based upon Increases (if any) in the Index. The Index in publication three (3) months before the Commencement Date shall be the "Base Index" The Index In publication three (3) months before each Adjustment Date shall be the "Comparison Index" As of each Adjustment Date, the Base Rent payable during the ensuing twelve-month period shall be determined by increasing the initial Base Rent by a percentage equal to the percentage increase, if any, in the Comparison Index over the Base Index. If the Comparison Index for any Adjustment Date Is equal to or less than the Comparison Index for the preceding Adjustment Date (or the Base Index, In the case-of First Adjustment Date), the Base Rent for the ensuing twelve-month period shall remain the amount of Base Rent payable during the preceding twelve-month period. When the Base Rent payable as of each Adjustment Date is determined, Landlord shall promptly give Tenant written notice of such adjusted Base Rent and the manner in which It was computed. The Base Rent as so adjusted from time to time shall be the "Base Rent" for all purposes under this Lease. b. If at any Adjustment Date the Index no longer exists In the form described in this Lease, Landlord may substitute any substantially equivalent official Index published by the Bureau of Labor Statistics or its successor. Landlord shall use any appropriate conversion factors to accomplish such substitution. The substitute index shall then become the "Index" hereunder. See Addendum One -- Additional Provisions. 5.3 Project Operating Costs. a. In order that the Rent payable during the Term reflect any Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's Proportionate Share of all costs, expenses and obligations attributable to the Project and its operation, all as provided below. The purpose of this provision is to reflect the fact that Landlord and Tenant intend and agree that this Lease shall constitute a "triple net" Lease with respect to the Premises. b. During each calendar year during the term, (collectively, the "Lease Years") Tenant shall pay to Landlord, in addition to the Base Rent and all other payments due under this Lease, an amount equal to Tenant's Proportionate Share of such excess Project Operating Costs in accordance with the provisions of this Section 5.3b. (1) The term "Project Operating Costs" shall include all those Items described in the following subparagraphs (a) and (b). (a) All taxes, assessments, water and sewer charges. and other similar governmental charges levied on or attributable to the Building or Project or their operation, Including without limitation, (i) real property taxes or assessments levied or assessed against the Building or Project, (ii) assessments or charges levied or assessed against the Building or Project by any redevelopment agency, (iii) any tax measured by gross rentals received from the leasing of the Premises, Building or Project, excluding any net income, franchise, capital stock, estate or Inheritance taxes imposed by the State or federal government or their agencies, branches or departments; provided that If at any time during the Term any governmental entity levies, assesses or imposes on Landlord any (1) general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the Rent received under this Lease or on the rent received under any other leases of space in the Building or Project, or (2) any license fee, excise or franchise tax, assessment, levy or charge measured by or based, In whole or in part, upon such rent, or (3) any transfer, transaction, or similar tax, assessment, levy or charge based directly or Indirectly upon the transaction represented by this Lease or such other leases, or (4) any occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or other premises within the Building or Project, then any such taxes, assessments, levies and charges shall be deemed to be included in the term Project Operating Costs, If at any time during the Term the assessed valuation of, or taxes on, the Project are not based on a completed Project having at least eighty-five percent (85%) of the Rentable Area occupied, then the "taxes" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the taxes which would have been payable if the Project were completed and at least eighty-five percent (85%) occupied. (b) Operating costs Incurred by Landlord in maintaining and operating the Building and Project, Including without limitation the following: costs of (1) utilities; (2) supplies; (3) insurance (including public liability, property damage, earthquake, and fire and extended coverage insurance for the full replacement cost of the Building and Project as required by Landlord or its lenders for the Project; (4) services of independent contractors; (5) compensation (Including employment taxes and fringe benefits) of all persons who perform duties connected with the operation, maintenance, repair or overhaul of the Building or Project, and equipment, improvements and facilities located within the Project, Including without limitation engineers, janitors, painters, floor waxes, window washers, security and parking personnel and gardeners (but excluding persons performing services not uniformly available to or performed for substantially all Building or Project tenants); (6) operation and maintenance of a room for delivery and distribution of mall to tenants of the Building or Project as required by the U.S. Postal Service (including, without limitation, an amount equal to the fair market rental value of the mail room premises); (7) management of the Building or Project, whether managed by Landlord or an Independent contractor (including, without limitation, an amount equal to the fair market value of any on-site manager's office) provided that such management costs for the Project shall not exceed five percent (5%) of Landlord's gross income from the Project; (8) rental expenses for (or a reasonable depreciation allowance on) personal property used in the maintenance, operation or repair of the Building or Project; (9) costs, expenditures or charges (whether capitalized or not) required by any governmental or quasi-governmental authority; (10) amortization of capital expenses (Including financing costs) (i) required by a governmental entity for energy conservation or life safety purposes, or (ii) made by Landlord to reduce Project Operating Costs; and (11) any other costs or expenses Incurred by Landlord under this Lease and not otherwise reimbursed by tenants of the Project. If at any time during the Term, less than eighty- five percent (85%) of the Rentable Area of the Project is occupied, the "operating costs" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the operating costs which would have been incurred If the Project had been at least eighty-five percent (85%) occupied. (2) Tenant's Proportionate Share of Project Operating Costs shall be payable by Tenant to Landlord as follows: (a) Beginning with the Base Year and for each Lease Year thereafter, Tenant shall pay Landlord an amount equal to Tenant's Proportionate Share of the Project Operating Costs incurred by Landlord in that Lease Year. (b) To provide for current payments of Project Operating Costs, Tenant shall, at Landlord's request, pay as additional rent during each Lease Year, an amount equal to Tenant's Proportionate Share of the Project Operating Costs payable during such Lease Year, as estimated by Landlord from time to time. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Project Operating Costs. It is the intent hereunder to estimate from time to time the amount of the Project Operating Costs for each Lease Year and Tenant's Proportionate Share thereof, and then to make an adjustment in the following year based on the actual Project Operating Costs incurred for that Lease Year. (c) On or before April 1 of each Lease Year after the first Lease Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's Proportionate Share of the Project Operating Costs for the preceding Lease Year. If Tenant's Proportionate Share of the actual * for the previous Lease Year exceeds the total of the estimated monthly payments made by Tenant for such year Tenant shall pay Landlord the amount of the deficiency within ten (10) days of the receipt of the statement If such total exceeds Tenant's Proportionate Share of the actual Project Operating Costs for such Lease Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section 5.3 should survive the Expiration Date. (d) Tenant's Proportionate Share of Project Operating Costs in any Lease Year having less than 365 days shall be appropriately prorated. (e) If any dispute arises as to the amount of any additional rent due hereunder Tenant shaft have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless ills determined that Landlord's original statement overstated Project Operating Costs by more than five percent (5%). 5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees to pay to Landlord under this Lease shall be deemed additional rent (which, together with the Base Rent is sometimes referred to as the "Rent"). The Rent shall be paid to the Building manager (or other person) and at such place, as Landlord may from time to time designate in writing, without any prior demand therefor and without deduction or offset, in lawful money of the United States of America. 5.5 Rent Control. If the amount of Rent or any other payment due under this Lease violates the terms of any governmental restrictions on such Rent or payment, then the Rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions. 5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) which are not otherwise reimbursable under this Lease, whether or not now customary or within the contemplation of the parties1 where such taxes are upon, measured by or reasonably attributable to (a) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located In the Premises, or the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, other than Building Standard Work made by Landlord, regardless of whether title to such improvements is held by Tenant or Landlord; (b) the gross or net Rent payable under this Lease, including, without limitation, any rental or gross receipts tax levied by any taxing authority with respect to the receipt of the Rent hereunder; (c) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (d) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises; If it becomes unlawful for Tenant to reimburse Landlord for any costs as required under this Lease, the Base Rent shall be revised to net Landlord the same not Rent after imposition of any tax or other charge upon Landlord as would have been payable to Landlord but for the reimbursement being unlawful. 6. INTEREST AND LATE CHARGES. If Tenant fails to pay when due any Rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Monthly Installment of Base Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within ten (10) days from the date it is due, Tenant shall pay Landlord a late charge equal to five percent (5%) of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and Is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such non payment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease. 8. TENANT'S USE OF THE PREMISES. Tenant shall use the Premises solely for the purposes set forth in Tenant's Use Clause. Tenant shall not use or occupy the Premises in violation of law or any covenant, condition or restriction affecting the Building or Project or the certificate of occupancy Issued for the Building or Project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or the certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or any directions of any governmental agencies or authorities having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions In the use of the Premises shall be deemed to be a conclusive determination of that fact as between Landlord and Tenant. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or property located therein, and shall comply with all rules, orders, regulations, requirements and recommendations of the Insurance Services Office or any other organization performing a similar function. Tenant shall promptly upon demand reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Article. Tenant shall not door permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. 9. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder, Landlord agrees to furnish to the Premises during generally recognized business days, and during hours determined by Landlord in its sole discretion, and subject to the Rules and Regulations of the Building or Project, electricity and heating, ventilation and air conditioning ("HVAC") as required in Landlord's judgment for the comfortable use and occupancy of the Premises. If Tenant desires HVAC at any other time, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant and Tenant shall pay Landlord's charges there for on demand. Landlord shall also maintain and keep lighted the common stairs, common entries and rest rooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (i) the, installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing. any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project, or (iii) the limitation, curtailment or rationing of, or restrictions on, use of water, electricity, gas or any other form of energy serving the Premises, Building or Project. Landlord shall not be liable under any circumstances for a loss of or injury to property or business, however occurring, through or In connection with or incidental to failure to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of Installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant agrees to pay to Landlord promptly upon demand for all utilities consumed as shown by said meters, at the rates charged for such services by the utilities plus any additional expense incurred in keeping account of the utilities so consumed. Nothing contained in this Article shall restrict Landlord's right to require at any time additional separate metering of utilities furnished to the Premises. In the event utilities are separately metered, Tenant shall pay promptly upon demand for all utilities consumed at utility rates charged by the utility providers plus any additional expense incurred by Landlord in keeping account of the utilities so consumed. Tenant shall be responsible for the maintenance and repair of any such meters at its sole cost. Landlord shall furnish such services, if any, as are customarily furnished to comparable facilities in the area. 10. CONDITION OF THE PREMISES. Tenant's taking possession of the Premises shall be deemed conclusive evidence that as of the date of taking possession the Premises are in good order and satisfactory condition, except for such matters as to which Tenant gave Landlord notice on or before the Commencement Date. No promise of Landlord to alter, remodel, repair or improve the Premises, the Building or the Project and no representation, express or implied, respecting any matter or thing relating to the Premises, Building, Project or this Lease (including, without limitation, the condition of the Premises, the Building or the Project) have been made to Tenant by Landlord or Its Broker or Sales Agent, other than as may be contained herein or in a separate exhibit or addendum signed by Landlord and Tenant. 11. CONSTRUCTION, REPAIRS AND MAINTENANCE. a. Landlord's Obligations. Landlord shall perform Landlord's Work to the Premises as described in Exhibit "C" Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or of any other tenant In the Building. b. Tenant's Obligations. (1) Tenant shall perform Tenant's Work to the Premises as described in Exhibit "C" (2) Tenant at Tenant's sole expense shall, except for services furnished by Landlord pursuant to Article 9 hereof, maintain the Premises in good order, condition and repair, including the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all plumbing, pipes and fixtures, electrical wiring, switches and fixtures, Building Standard furnishings and special items and equipment installed by or at the expense of Tenant. (3) Tenant shall be responsible for all repairs and alterations in and to the Premises, Building and Project and the facilities and systems thereof, the need for which arises out of (i) Tenant's use or occupancy of the Premises, (ii) the installation, removal, use or operation of Tenant's Property (as defined in Article 13) in the Premises, (iii) the moving of Tenant's Property into or out of the Building, or (iv) the act, omission, misuse or negligence of Tenant, its agents, contractors, employees or invitees. * Prior to the date of this Lease, utility meters have been installed for the Premises that measure the consumption of various utilities only for the Premises and, in some cases, other space leased by Tenant. (4) If Tenant fails to maintain the Premises in good order, condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. If Tenant fails to promptly commence such work and diligently prosecute It to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably required to per form such work. Any amount so expended by Landlord shall be paid by Tenant promptly alter demand with Interest at the prime commercial rate then being charged by Norwest Bank, Denver plus two percent (2%) per annum, from the date of such work, but not to exceed the maximum rate then allowed by law. Landlord shall have no liability to Tenant for any damage, inconvenience, or Interference with the use of the Premises by Tenant as a result of performing any such work. c. Compliance with Law. Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, and rules of any public authority relating to their respective maintenance obligations as set forth herein. d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford the Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. e. Load and Equipment Limits. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry, as determined by Landlord or Landlord's structural engineer. The cost of any such determination made by Landlord's structural engineer shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which cause noise or vibration to such a degree as to be objectionable to Landlord or other Building tenants. f. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, Interruption or Injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant's lease or required by law to make in or to any portion of the Project, Building or the premises. Landlord shall nevertheless use reasonable efforts to minimize any interference with Tenant's business in the Premises. g. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part or appurtenance of the Building's mechanical, electrical, plumbing, HVAC or other systems serving, located in, or passing through the Premises. h. Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises to Landlord clean and in the same condition as on the date Tenant took possession, except for normal wear and tear. Any damage to the Premises, including any structural damage, resulting from Tenant's use or from the removal of Tenant's fixtures, furnishings and equipment pursuant to Section 13b shall be repaired by Tenant at Tenant's expense. 12. ALTERATIONS AND ADDITIONS. a. Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord's consent may be conditioned on Tenant's removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as on the date Tenant took possession. All work with respect to any addition, alteration or improvement shall be done in a good and workmanlike manner by properly qualified and licensed personnel approved by Landlord, and such work shall be diligently prosecuted to completion. If any such work is performed by a contractor selected by Tenant and approved by Landlord, Tenant shall pay to Landlord, upon completion of any such work, an administrative fee of five percent (5%) of the cost of the work. If any such work is performed by Landlord's contractor, Tenant shall pay to Landlord upon completion of any such work, an administrative fee of fifteen percent (15%) of the cost of the work. b. Tenant shall pay the costs of any work done on the Premises pursuant to Section 12a, and shall keep the Premises, Building and Project free and clear of liens of any kind. Tenant shall indemnify, defend against and keep Landlord free and harmless from all liability, loss, damage, costs, attorneys' fees and any other expense incurred on account of claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant. Tenant shall keep Tenant's leasehold Interest, and any additions or improvements which are or become the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before that date to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord's interest in the Premises, Building or the Project, and Landlord shall have the right to enter the Premises and post such notices at any reasonable time. c. Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in an amount equal to at least one and one- half (1 1/2) times the total estimated cost of any additions, alterations or improvements to be made in or to the Premises, to protect Landlord against any liability for mechanic's and materialmen's liens and to insure timely completion of the work. Nothing contained in this Section 12c shall relieve Tenant of its obligation under Section 12b to keep the Premises, Building and Project free of all liens. d. Unless their removal is required by Landlord as provided in Section 12a, all additions, alterations and Improvements made to the Premises shall become the property of Landlord and be surrendered with the Premises upon the expiration of the Term: provided, however, Tenant's equipment, machinery and trade fixtures which can be removed without damage to the Premises shall remain the property of Tenant and may be removed, subject to the provisions of Section 13b. 13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY a. All fixtures, equipment, improvements and appurtenances attached to or built into the Premises at the commencement of or during the Term, whether or not by or at the expense of Tenant ("Leasehold Improvements"), shall be and remain a part of the Premises, shall be the property of Landlord and shall not be removed by Tenant, except as expressly provided in Section 13b. b. All movable partitions, business and trade fixtures, machinery and equipment communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building, and all furniture, furnishings and other articles of movable personal property owned by Tenant and located In the Premises (collectively "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that If any of Tenant's Property is removed, Tenant shall promptly repair any damage to the Premises or to the Building resulting from such removal. 14. RULES AND REGULATIONS. Tenant agrees to comply with (and cause its agents, contractors, employees and invitees to comply with) the rules and regulations attached hereto as Exhibit "D" and with such reasonable modifications thereof end additions thereto as Landlord may from time to time make. Landlord shall not be responsible for any violation of said rules and regulations by other tenants or occupants of the Building or Project. 15. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights, exercisable without liability to Tenant for (a) damage or injury to property, person or business, (b) causing an actual or constructive eviction from the Premises, or (c) disturbing Tenant's use or possession of the Premises: a. To name the Building and Project and to change the name or street address of the Building or Project; b. To install and maintain all signs on the exterior and interior of the Building and Project, provided that Tenant shall have the right to install a sign for its business on the exterior of the Building subject to Landlord's reasonable approval of plans for same; c. To have pass keys to the Premises and all doors within the Premises, excluding Tenant's vaults and safes; d. At any time during the Term, and on reasonable prior notice to Tenant, to inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project, or to others having an interest in the Project or Landlord, and during the last six months of the Term, to show the Premises to prospective tenants thereof; and e. To enter the Premises for the purpose of making Inspections, repairs, alterations, additions or improvements to the Premises or the Building (including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as maybe necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord's interest therein, or as may be necessary or desirable for the operation or improvement of the Building or In order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its best efforts (except in an emergency) to minimize interference with Tenant's business in the Premises in the course of any such entry. 16. ASSIGNNIENT AND SUBLETTING. No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Article 16. a. Tenant shall not, without the prior written consent of Landlord, which consent shall not he unreasonably withheld, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not, nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord. b. If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall, within twenty (20) days after Tenant's notice is given, either approve or, in Landlord's reasonable judgment, disapprove the proposed assignment or sublease. If Landlord approves the proposed assignment or sublease, Tenant may assign the Lease or sublet such space to such proposed assignee or subtenant on the following further conditions: (1 ) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord; (2) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord; and (3 ) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained; c. Notwithstanding the provisions of paragraphs a and b above, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord's consent and without extending any recapture or termination option to Landlord, to any corporation which controls, Is controlled by or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that (i) the assignee or sublessee assumes, in full, the obligations of Tenant under this Lease, (ii) Tenant remains fully liable under this Lease, and (iii) the use of the Premises under Article 8 remains unchanged. d. No subletting or assignment shall release Tenant of Tenant's obligations under the Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease. 17. HOLDING OVER. If after expiration of the Term, Tenant remains in possession of the Premises with Landlord's permission (express or implied), Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to term and Base Rent), but the "Monthly Installments of Base Rent" payable by Tenant shall be increased to one hundred twenty-five percent (125%) of the Monthly Installments of Base Rent payable by Tenant at the expiration of the Term. Such monthly rent shall be payable in advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, it shall give the other party not less than thirty (30) days advance written notice of the date of termination. 18. SURRENDER OF PREMISES. a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and in as good condition as when Tenant took possession. except for (i) reasonable wear and tear, (ii) loss by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on Landlord's request. remove Tenant's Property on or before the Expiration Date and promptly repair all damage to the Premises or Building caused by such removal. b. If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant's Property left on the Premises shall be deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant's Property, the cost of removal, Including repairing any damage to the Premises or Building caused by such removal, shall be paid by Tenant. On the Expiration Date Tenant shall surrender all keys to the Premises. 19. DESTRUCTION OR DAMAGE. a. If the Premises or the portion of the Building necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the elements or other casualty, Landlord shall, subject to the provisions of this Article, promptly repair the damage, if such repairs can, in Landlords reasonable opinion. be completed within one hundred eighty (180) days. If Landlord determines that repairs can be completed within one hundred eighty (180) days, this Lease shall remain In full force and effect, except that if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, employees, contractors, licensees or invitees, the Base Rent shall be abated to the extent Tenant's use of the Premises is impaired, commencing with the date of damage and continuing until completion of the repairs required of Landlord under Section 19d. b. See Addendum One - Additional Provisions. c. See Addendum One - Additional Provisions. d. If the Premises are to be repaired under this Article, Landlord shall repair at its cost any Injury or damage to the Building and Building Standard Work in the Premises. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold improvements and Tenant's Property. Landlord shall not be liable for any loss of business, Inconvenience or annoyance arising from any repair or restoration of any portion of the Premises, Building or Project as a result of any damage from fire or other casualty. e. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, Building or Project by fire or other casualty, and any present or future law which purports to govern the rights of Landlord and Tenant In such circumstances in the absence of express agreement, shall have no application. 20. EMINENT DOMAIN. a. If the whole of the Building or Premises is lawfully taken by condemnation or in any other manner for any public or quasi public purpose, this Lease shall terminate as of the date of such taking, and Rent shall be prorated to such date. If less than the whole of the Building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (i) Tenant shall have the right to terminate this Lease by notice to Landlord given within ninety (90) days after the date of such taking if twenty percent (20%) or more of the Premises is taken and the remaining area of the Premises is not reasonably sufficient for Tenant to continue operation of its business, and (ii) Landlord shall have the right to terminate this Lease by notice to Tenant given within ninety (90) days after the date of such taking. If either Landlord or Tenant so elects to terminate this Lease, the Lease shall terminate on the thirtieth (30th) day after either such notice. The Rents shall be prorated to the date of termination. If this Lease continues in force upon such partial taking, the Base Rent and Tenant's Proportionate Share shall be equitably adjusted according to the remaining Rentable Area of the Premises and Project. b. In the event of any taking, partial or whole, all of the proceeds of any award, judgment or settlement payable by the condemning authority shall be the exclusive property of Landlord, and Tenant hereby assigns to Landlord all of Its right, title and interest In any award, judgment or settlement from the condemning authority. Tenant, however, shall have the right, to the extent that Landlord's award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by Tenant in its own right for relocation expenses and damage to Tenant's personal property. c. In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as practicable to its condition prior to the condemnation or taking, but only to the extent of Building Standard Work. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. 21. INDEMNIFICATION. a. Tenant shall indemnify and hold Landlord harmless against and from liability and claims of any kind for loss or damage to property of Tenant or any other person, or for any injury to or death of any person, arising out of: (1) Tenant's use and occupancy of the Premises, or any work, activity or other things allowed or suffered by Tenant to be done In, on or about the Premises; (2) any breach or default by Tenant of any of Tenant's obligations under this Lease; or (3) any negligent or otherwise tortious act or omission of Tenant, its agents, employees, invitees or contractors. Tenant shall at Tenant's expense, and by counsel satisfactory to Landlord, defend Landlord In any action or proceeding arising from any such claim and shall Indemnify Landlord against all costs, attorneys' fees, expert witness fees and any other expenses incurred in such action or proceeding. As a material part of the consideration for Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or injury to any person or property in, on or about the Premises from any cause. b. Landlord shall not be liable for injury or damage which may be sustained by the person or property of Tenant, its employees, invitees or customers, or any other person in or about the Premises, caused by or resulting from fire, steam, electricity, gas, water or rain which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the Building or Project or from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant of the Building or Project. 22. TENANT'S INSURANCE. a. All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies acceptable to Landlord and Landlord's lender and qualified to do business in the State. Each policy shall name Landlord, and at Landlord's request any mortgagee of Landlord, as an additional insured, as their respective interests may appear. Each policy shall contain (i) a cross- liability endorsement, (ii) a provision that such policy and the coverage evidenced thereby shall be primary and non- contributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Landlord, its agents, employees and representatives, which arises or might arise by reason of any payment under such policy or by reason of any act or omission of Landlord, its agents, employees or representatives. A copy of each paid up policy (authenticated by the insurer) or certificate of the insurer evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord before the date Tenant Is first given the right of possession of the Premises, and thereafter within thirty (30) days after any demand by Landlord therefor. Landlord may, at any time and from time to time, inspect and/or copy any insurance policies required to be maintained by Tenant hereunder. No such policy shall be cancelable except after twenty (20) days written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least ten (10) days prior to the expiration thereof Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge the Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as required by this Lease. b. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect policies of casualty Insurance covering (i) all Leasehold improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Article 12 hereof), and (ii) trade fixtures, merchandise and other personal property from time to time in, on or about the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time, providing protection against any peril included within the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under (i) shall be paid to Landlord, and the proceeds under (ii) above shall be paid to Tenant. c. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect workers' compensation insurance as required by law and comprehensive public liability and property damage insurance with respect to the construction of improvements on the Premises, the use, operation or condition of the Premises and the operations of Tenant in, on or about the Premises, providing personal Injury and broad form property damage coverage for not less than One Million Dollars ($1,000,000.00) combined single limit for bodily injury, death and property damage liability. d. Not less than every three (3) years during the Term, Landlord and Tenant shall discuss whether to increase any or all of Tenant's insurance policy limits for all insurance to be carried by Tenant as set forth in this Article. In the event Landlord and Tenant cannot mutually agree upon whether any such increases are necessary or, if so, the amounts thereof, then Tenant agrees that all insurance policy limits as set forth in this Article shall be adjusted for increases in the cost of living in the same manner as is set forth in Section 5.2 hereof for the adjustment of the Base Rent. 23. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents and representatives of the other, on account of loss by or damage to the waiving party of its property or the property of others under its control1 to the extent that such loss or damage is insured against under any fire and extended coverage insurance policy which either may have in force at the time of the loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to its insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 24. SUBORDINATION AND ATTORNMENT. Upon written request of Landlord, or any first mortgagee or first deed of trust beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing, subordinate its rights under this Lease to the lien of any first mortgage or first deed of trust, or to the interest of any lease in which Landlord is lessee, and to all advances made or hereafter to be made thereunder. However, before signing any subordination agreement, Tenant shall have the right to obtain from any lender or lessor or Landlord requesting such subordination, an agreement in writing providing that, as long as Tenant is not in default hereunder, this Lease shall remain in effect for the full Term. The holder of any security interest may, upon written notice to Tenant, elect to have this Lease prior to its security interest regardless of the time of the granting or recording of such security interest in the event of any foreclosure sale, transfer in lieu of foreclosure or termination of the lease in which Landlord is lessee, Tenant shall attorn to the purchaser, transferee or lessor as the case may be, and recognize that party as Landlord under this Lease, provided such party acquires and accepts the Premises subject to this Lease. 25. TENANT ESTOPPEL CERTIFICATES. Within ten (10) days after written request from Landlord, Tenant shall execute and deliver to Landlord or Landlord's designee, a written statement certifying (a) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and stating the modifications; (b) the amount of Base Rent and the date to which Base Rent and additional rent have been paid in advance; (c) the amount of any security deposited with Landlord; and (d) that Landlord is not In default hereunder or, if Landlord is claimed to be in default, stating the nature of any claimed default. Any such statement may be relied upon by a purchaser, assignee or lender. Tenant's failure to execute and deliver such statement within the time required shall at Landlord's election be a default under this Lease and shall also be conclusive upon Tenant that: (1) this Lease is in full force and effect and has not been modified except as represented by Landlord; (2) there are no uncured defaults in Landlord's performance and that Tenant has no right of offset, counter-claim or deduction against Rent; and (3) not more than one month's Rent has been paid in advance. 26. TRANSFER OF LANDLORD'S INTEREST. In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or Lease occurring after the consummation of such sale or transfer, providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto. 27. DEFAULT 27.1. Tenants' Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: b. If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for ten (10) days after such payment is due and payable; or c. If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; or d. If a writ of attachment or execution Is levied on this Lease or on any of Tenant's Property; or e. If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with its creditors; or f. If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws is filed and not withdrawn or dismissed within forty-five (45) days thereafter, of if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent Jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of forty-five (45) days; or g. If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or has the authority to do so for the purpose of enforcing a fine against the Premises or Tenant's Property; or h. If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or other person or entity is involved in any of the acts or events described in subparagraphs d through g above. 27.2. Remedies. In the event of Tenant's default hereunder, then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord's option, without further notice or demand of any kind to do the following: a. Terminate this Lease and Tenant's right to possession of the Premises and reenter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or b. Continue this Lease in effect, reenter and occupy the Premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or c. Reenter the Premises under the provisions of subparagraph b, and thereafter elect to terminate this Lease and Tenant's right to possession of the Premises. If Landlord reenters the Premises under the provisions of subparagraphs b or c above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. in the event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any Indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises: fourth to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting. Should Landlord elect to terminate this Lease under the provisions of subparagraph a or c above, Landlord may recover as damages from Tenant the following: 1. Past Rent. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination; plus 2. Rent Prior to Award. The worth at the time of the 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; plus 3. Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided; plus 4. Proximately Caused Damages. Any other amount necessary to compensate Landlord for all 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, including, but not limited to, any costs or expenses (including attorneys' fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant's default, (c) preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (d) reletting the Premises, including broker's commissions. "The worth at the time of the award" as used in subparagraphs 1 and 2 above, is to be computed by allowing interest at the rate of ten percent (10%) per annum. "The worth at the time of the award" as used in subparagraph 3 above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award plus one percent (1%). The waiver by Landlord of any breach of any term, covenant pr condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver. 27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such default, or if such default can not reasonably be cured within thirty (30) days, if Landlord fails to commence to cure within that thirty (30) day period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other income actually received on account of Landlord's right, title and interest in the Premises, Building or Project, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, if any) wherever situated, shall be subject to levy to satisfy such judgment. If, after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to cure the default as provided herein, then Tenant shall have the right to cure that default at Landlord's expense. Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease except as otherwise specifically provided herein. 28. BROKERAGE FEES. Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except those noted in Section 2.c. Tenant shall. indemnify and hold Landlord harmless from any cost, expense or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. 29. NOTICES. All notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by certified or registered U.S. mail, postage prepaid, and addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to the Building manager, and (b) if to Tenant, to Tenant's Mailing Address; provided, however, notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices. 30. GOVERNMENT ENERGY OR UTILITV CONTROLS. In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance. 32. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinate. 33. OBSERVANCE OF LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be In force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Landlord and Tenant. 34. FORCE MAJEURE. Any prevention1 delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse or delay Tenant's obligation to pay Rent or other charges under this Lease. 35. CURING TENANT'S DEFAULTS. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may (but shall not be obligated to) without waiving such default, perform the same for the account at the expense of Tenant. Tenant shall pay Landlord all costs of such performance promptly upon receipt of a bill therefor. 36. SIGN CONTROL. Tenant shall not affix, paint, erect or in scribe any sign, projection, awning, signal or advertisement of any kind to any part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent of Landlord. Landlord shall have the right to remove any signs or other matter, installed without Landlord's permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as additional rent hereunder, payable within ten (10) days of written demand by Landlord. 37. MISCELLANEOUS. a. Accord and Satisfaction, Allocation Of Payments. No payment by Tenant or receipt by Landlord of a lesser amount than the Rent provided for in this Lease shall be deemed to be other than on account of the earliest due Rent, nor shall any endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of the Rent or pursue any other remedy provided for in this Lease. In connection with the foregoing, Landlord shall have the absolute right in its sole discretion to apply any payment received from Tenant to any account or other payment of Tenant then not current and due or delinquent. b. Addenda. If any provision contained in an addendum to this Lease is inconsistent with any other provision herein, the provision contained in the addendum shall control, unless otherwise provided in the addendum. c. Attorneys' Fees. If any action or proceeding is brought by either party against the other pertaining to or arising out of this Lease, the finally prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys' fees, incurred on account of such action or proceeding. d. Captions, Articles And Section Numbers. The captions appearing within the body of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease. All references to Article and Section numbers refer to Articles and Sections in this Lease. e. Changes Requested By Lender. Neither Landlord or Tenant shall unreasonably withhold its consent to changes or amendments to this Lease requested by the lender on Landlord's Interest, so long as these changes do not alter the basic business terms of this lease or otherwise materially diminish any rights or materially increase any obligations of the party from whom consent to such change or amendment is requested. f. Choice of Law This Lease shall be construed and enforced in accordance with the laws of the State. g. Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant shall have no claim, and hereby waives the right to any claim against Landlord for money damages by reason of any refusal, withholding or delaying by Landlord of any consent, approval or statement of satisfaction, and in such event, Tenant's only remedies therefor shall be an action for specific performance, injunction or declaratory judgment to enforce any right to such consent, etc. h. Corporate Authority. If tenant is a corporation, each individual signing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of the corporation and that this Lease is binding on Tenant in accordance with its terms. Tenant shall at Landlord's request, deliver a certified copy of a resolution of its board of directors authorizing such execution. i. Counterparts. This Lease may be executed in multiple counterparts, all of which shall constitute one and the same Lease. j. Execution of Lease; No Option. The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or option for Tenant to lease, or otherwise create any interest of Tenant in the Premises or any other premises within the Building or Project. Execution of this Lease by Tenant and its return to Landlord shall not be binding on Landlord notwithstanding any time interval, until Landlord has in fact signed and delivered this Lease to Tenant. k. Furnishing of Financial Statements; Tenant's Representations. In order to induce Landlord to enter into this Lease Tenant agrees that it shall promptly furnish Landlord, from time to time, upon Landlord's written request, with financial statements reflecting Tenant's current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all material respects. l. Further Assurances. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. m. Mortgagee Protection. Tenant agrees to send by certified or registered mail to any first mortgagee or first deed of trust beneficiary of Landlord whose address has been furnished to Tenant, a copy of any notice of default served by Tenant on Landlord. If Landlord fails to cure such default within the time provided for in this Lease, such mortgagee or beneficiary shall have an additional thirty (30) days to cure such default; provided that If such default cannot reasonably be cured within that thirty (30) day period, then such mortgagee or beneficiary shall have such additional time to cure the default as is reasonably necessary under the circumstances. n. Prior Agreements; Amendments. This Lease contains all of the agreements of the parties with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest. o. Recording. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. p. Severability. A final determination by a court of competent jurisdiction that any provision of this Lease Is invalid shall not affect the validity of any other provision, and any provision so determined to be invalid shall, to the extent possible, be construed to accomplish its intended effect. q. Successors and Assigns. This Lease shall apply to and bind the heirs, personal representatives, and permitted successors and assigns of the parties. r. Time of the Essence. Time is of the essence of this Lease. s. Waiver. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver of such default. t. Compliance. The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign investment In Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular Rent payment involved. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. The parties hereto have executed this Lease as of the dates set forth below. Date: March 10, 1998 Date: March 9, 1998 Landlord: Airplaza Co., Inc. Tenant: Air Methods Corporation International By: \s\ Ronald J. Houseman By: \s\ Aaron D. Todd Title: President Title: CFO HANGAR LEASE This Lease between Airplaza Co., Inc., a Colorado corporation (`landlord'), and Air Methods Corporation International, a Colorado corporation, (`Tenant"), is dated March 2, 1998. 1. LEASE OF PREMISES. In consideration of the Rent (as defined at Section 5.4) and the provisions of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as Exhibit "A,' and further described at Section 21. The Premises are located within the Building and Project described in Section 2m. Tenant shall have the non- exclusive right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees, to use of the Common Areas (as defined at Section 2e). 2. DEFINITIONS As used in this Lease, the following terms shall have the following meanings: a. Base Rent (initial): $ 29,226.21 per year b. Base Year: The calendar year of N/A c. Broker(s) Landlord's: None Tenant's: Cushman & Wakefield of Colorado, Inc. d. Commencement Date: April 1, 1998 e. Common Areas: the building lobbies, common corridors and hallways, restrooms, garage and parking areas, stairways, elevators and other generally understood public or common areas. Landlord shall have the right to regulate or restrict the use of the Common Areas. f. Expense Stop: (fill in if applicable): N/A g. Expiration Date: March 31, 2003, unless otherwise sooner terminated in accordance with the provisions of this Lease. h. Index (section 5.2): United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for All Urban Consumers, U.S. City Average, Subgroup "All Items" (1967- 100). i. Landlord's Mailing Address: 5675 DTC Boulevard, Suite 100, Englewood, Colorado 80111 Tenant's Mailing Address 7301 South Peoria Street, Suite 200, Englewood, Colorado 80112 j. Monthly Installments of Base Rent (initial): $ 2,435.52 per month. k. Parking: Tenant shall be permitted, at no additional charge, to park 8 cars on a non-exclusive basis in the area(s) designated by Landlord for parking. Tenant shall abide by any and all parking regulations and rules established from time to time by Landlord or Landlord's parking operator. Landlord reserves the right to separately charge Tenant's guests and visitors for parking. l. Premises: that portion of the Building containing approximately 5,343 square feet of Rentable Area shown by diagonal lines on Exhibit `A' located on the ground floor of the Building and known as Hangar K (known as 7251 South Peoria Street). m. Project: the hangar building of which the Premises are a part (the "Building") and any other buildings or improvements on the real property (the "Property') located at 7211 - 7331 South Peoria Street, Englewood, Colorado 80112 and further described at Exhibit "B." The Project is known as Airplaza 22. n. Rentable Area: as to both the Premises and the Project, the respective measurements of floor area as may from time to time be subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord and applied on a consistent basis throughout the Project. o. Security Deposit (Section 7): $ -0- (zero) p. State: the State of Colorado q. Tenant's First Adjustment Date (Section 5.2): April 1, 1999. r. Tenant's Proportionate Share: See addendum One - Additional Provisions s. Tenant's Use Clause (Article 8): Operation of an air ambulance facility; storage, repair (major and minor), service, charter and sale of all non-fixed wing aircraft; storage and repair (major and minor) of all aircraft owned or leased by Tenant; storage and minor repair of all aircraft; storage for parts and supplies necessary or related to Tenant's business; and any other lawful activity involving aircraft not prohibited by the Land Lease between Arapahoe County Public Airport Authority, as Lessor, and Landlord, as Lessee, dated as of October 15, 1987, as amended. For purposes of the immediately preceding sentence, Tenant's rights to use the Premises for "repair" purposes shall mean that Tenant shall have the right to repair all components, systems and subsystems in aircraft to the extent not prohibited by said Land Lease. t. Term: the period commencing on the Commencement Date and expiring at midnight on the Expiration Date. 3. EXHIBITS AND ADDENDA. The exhibits and addenda listed below (unless lined out) are Incorporated by reference in this Lease: Exhibit `A"-Floor Plan showing the Premises. Exhibit "B"-Site Plan of the Project. Exhibit "C"-Work Agreement. Exhibit "D"-Rules and Regulations. Exhibit "E" - Deleted. Exhibit "F" Addenda: Addendum One - Additional Provisions. 4. DELIVERY OF POSSESSION. See Addendum One - Additional Provisions. 5. RENT. 5.1.Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises. Monthly Installments of Base Rent shall be payable in advance on the first day of each calendar month of the Term. If the Term begins (or ends) on other than the first (or last) day of a calendar month, the Base Rent for the partial month shall be prorated on a per diem basis. Tenant shall pay Landlord the first Monthly Installment of Base Rent when Tenant executes the Lease. 5.2 Adjusted Base Rent. a. The Base Rent (and the corresponding Monthly Installments of Base Rent) set forth at Section 2a shall be adjusted annually (the "Adjustment Date"), commencing on Tenant's First Adjustment Date. Adjustments, if any, shall be based upon increases (if any) in the Index. The Index in publication three (3) months before the Commencement Date shall be the "Base Index." The Index in publication three (3) months before each Adjustment Date shall be the "Comparison Index." As of each Adjustment Date, the Base Rent payable during the ensuing twelve-month period shall be determined by increasing the initial Base Rent by a percentage equal to the percentage increase, if any, in the Comparison Index over the Base Index. If the Comparison Index for any Adjustment Date is equal to or less than the Comparison Index for the preceding Adjustment Date (or the Base Index, in the case of First Adjustment Date), the Base Rent for the ensuing twelve- month period shall remain the amount of Base Rent payable during the preceding twelve-month period. When the Base Rent payable as of each Adjustment Date is determined, Landlord shall promptly give Tenant written notice of such adjusted Base Rent and the manner in which it was computed. The Base Rent as so adjusted from time to time shall be the "Base Rent" for all purposes under this Lease. b. If at any Adjustment Date the Index no longer exists in the form described in this Lease, Landlord may substitute any substantially equivalent official Index published by the Bureau of Labor Statistics or its successor. Landlord shall use any appropriate conversion factors to accomplish such substitution. The substitute index shall then become the "Index" hereunder. See Addendum One - Additional Provisions. 5.3 Project Operating Costs. a. In order that the Rent payable during the Term reflect any Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's Proportionate Share of all costs, expenses and obligations attributable to the Project and its operation, all as provided below. The purpose of this provision is to reflect the fact that Landlord and Tenant intend and agree that this Lease shall constitute a "triple net" Lease with respect to the Premises. b. During each calendar year during the Term, (collectively, the "Lease Years"), Tenant shall pay to Landlord, in addition to the Base Rent and all other payments due under this Lease. an amount equal to Tenant's Proportionate Share of such excess Project Operating Costs in accordance with the provisions of this Section 5.3b. (1) the term "Project Operating Costs" include all those items described in the following subparagraphs (a) and (b). (a) All taxes, assessments, water and sewer charges and other similar governmental charges levied on or attributable to the Building or Project or their operation, including without limitation, (i) real property taxes or assessments levied or assessed against the Building or Project, (ii) assessments or charges levied or assessed against the Building or Project by any redevelopment agency, (iii) any tax measured by gross rentals received from the leasing of the Premises, Building or Project, excluding any net income, franchise, capital stock, estate or inheritance taxes imposed by the State or federal government or their agencies, branches or departments; provided that if at any time during the Term any governmental entity levies, assesses or imposes on Landlord any (1) general or special, ad valorem or specific, excise, capital levy or other tax, assessment, levy or charge directly on the Rent received under this Lease or on the rent received under any other leases of space in the Building or Project, or (2) any license fee, excise or franchise tax, assessment, levy or charge measured by or based, In whole or in part, upon such rent, or (3) any transfer; transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this Lease or such other leases, or (4) any occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the Premises or other premises within the Building or Project, then any such taxes, assessments, levies and charges shall be deemed to be included in the term Project Operating Costs. If at any time during the Term the assessed valuation of, or taxes on, the Project are not based on a completed Project having at least eighty-five percent (85%) of the Rentable Area occupied, then the "taxes" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the taxes which would have been payable if the Project were completed and at least eighty-five percent (85%) occupied. (b) Operating costs incurred by Landlord in maintaining and operating the Building and Project, including without limitation the following: costs of (1) utilities; (2) supplies; (3) insurance (including public liability, property damage, earthquake, and fire and extended coverage insurance for the full replacement cost of the Building and Project as required by Landlord or its lenders for the Project; (4) services of independent contractors; (5) compensation (including employment taxes and fringe benefits) of all persons who perform duties connected with the operation, maintenance, repair or overhaul of the Building or Project, and equipment, improvements and facilities located within the Project, including without limitation engineers, janitors, painters, floor waxers, window washers, security and parking personnel and gardeners (but excluding persons performing services not uniformly available to or performed for substantially all Building Project tenants); (6) operation and maintenance of a room for delivery and distribution of mail to tenants of the Building or Project as required by the U.S. Postal Service (including, without limitation, an amount equal to the fair market rental value of the mail room premises); (7) management of the Building or Project, whether managed by Landlord or an independent contractor (including, without limitation, an amount equal to the fair market value of any on-site manager's office) provided that such management costs for the Project shall not exceed five percent (5%) of Landlord's gross income from the Project; (8) rental expenses for (or a reasonable depreciation allowance on) personal property used in the maintenance, operation or repair of the Building or Project; (9) costs, expenditures or charges (whether capitalized or not) required by any governmental or quasi- governmental authority; (10) amortization of capital expenses (Including financing costs) (i) required by a governmental entity for energy conservation or life safety purposes, or (ii) made by Landlord to reduce Project Operating Costs; and (iii) any other costs or expenses incurred by Landlord under this Lease and not otherwise reimbursed by tenants of the Project. If at any time during the Term, less than eighty-five percent (85%) of the Rentable Area of the Project is occupied, the "operating costs" component of Project Operating Costs shall be adjusted by Landlord to reasonably approximate the operating costs which would have been incurred if the Project had been at least eighty- five percent (85%) occupied. (2) Tenant's Proportionate Share of Project Operating Costs shall be payable by Tenant to Landlord as follows: (a) Beginning with the Base Year and for each lease year thereafter Tenant shall pay Landlord an amount equal to Tenant's Proportionate Share of the Project Operating Costs incurred by Landlord in that Lease Year. (b) To provide for current payments of Project Operating Costs Tenant shall, at Landlord's request, pay as additional rent during each Lease Year, an amount equal to Tenant's Proportionate Share of the Project Operating Costs payable during such Lease Year, as estimated by Landlord from time to time. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Project Operating Costs. It is the intention hereunder to estimate from time to time the amount of the Project Operating Costs for each Lease Year and Tenant's Proportionate Share thereof, and then to make an adjustment in the following year based on the actual Project Operating Costs incurred for that Lease Year. (c) On or before April 1 of each Lease Year after the first Lease Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's Proportionate Share of the Project Operating Costs for the preceding Lease Year. If Tenant's Proportionate Share of the actual Project Operating Costs for the previous Lease Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within ten (10) days of the receipt of the statement. If such total exceeds Tenant's Proportionate Share of the actual Project Operating Costs for such Lease Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section 5.3 shall survive the Expiration Date. (d) Tenant's Proportionate Share of Project Operating Costs in any Lease Year having less than 365 days shall be appropriately prorated. (e) If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Project Operating Costs by more than five percent (5%). 5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees to pay to Landlord under this Lease shall be deemed additional rent (which, together with the Base Rent is sometimes referred to as the "Rent"). The Rent shall be paid to the Building manager (or other person) and at such place, as Landlord may from time to time designate in writing, without any prior demand there for and without deduction or offset, In lawful money of the United States of America. 5.5 Rent Control. If the amount of Rent or any other payment due under this Lease violates the terms of any governmental restrictions on such Rent or payment, then the Rent or payment due during the period of such restrictions shall be the maximum amount allowable under those restrictions. Upon termination of the restrictions, Landlord shall, to the extent it is legally permitted, recover from Tenant the difference between the amounts received during the period of the restrictions and the amounts Landlord would have received had there been no restrictions. 5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) which are not otherwise reimbursable under this Lease, whether or not now customary or within the contemplation of the parties, where such taxes are upon, measured by or reasonably attributable to (a) the cost or value of Tenant's equipment, furniture, fixtures and other personal property located In the Premises, or the cost or value of any leasehold Improvements made in or to the Premises by or for Tenant, other than Building Standard Work made by Landlord, regardless of whether title to such improvements is held by Tenant or Landlord; (b) the gross or net Rent payable under this Lease, Including, without limitation, any rental or gross receipts tax levied by any taxing authority with respect to the receipt of the Rent hereunder; (c) the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (d) this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. If it becomes unlawful for Tenant to reimburse Landlord for any costs as required under this Lease, the Base Rent shall be revised to net Landlord the same net Rent after imposition of any tax or other charge upon Landlord as would have been payable to Landlord but for the reimbursement being unlawful. 6. INTEREST AND LATE CHARGE. If Tenant fails to pay when due any Rent or other amounts or charges which Tenant is obligated to pay under the terms of this Lease, the unpaid amounts shall bear interest at the maximum rate then allowed by law. Tenant acknowledges that the late payment of any Monthly Installment of Base Rent will cause Landlord to lose the use of that money and incur costs and expenses not contemplated under this Lease, including without limitation, administrative and collection costs and processing and accounting expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to interest, if any such installment is not received by Landlord within ten (10) days from the date it Is due, Tenant shall pay Landlord a late charge equal to five percent (5%) of such installment. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any interest or late charge shall not constitute a waiver of Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord from exercising any other rights or remedies available to Landlord under this Lease. 8. TENANT'S USE OF THE PREMISES. Tenant shall use the Premises solely for the purposes set forth in Tenant's Use Clause. Tenant shall not use or occupy the Premises in violation of law or any covenant, condition or restriction affecting the Building or Project or the certificate of occupancy issued for the Building or Project, and shall, upon notice from Landlord, immediately discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or the certificate of occupancy. Tenant, at Tenant's own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or any directions of any governmental agencies or authorities having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or its use or occupation. A judgment of any court of competent jurisdiction or the admission by Tenant in any action or proceeding against Tenant that Tenant has violated any such laws, ordinances, regulations, rules and/or directions in the use of the Premises shall be deemed to be a conclusive determination of that fact as between Landlord and Tenant. Tenant shall not do or permit to be done anything which would invalidate or increase the cost of any fire, extended coverage or other insurance policy covering the Building or Project and/or property located therein, and shall comply with all rules, orders, regulations, requirements and recommendations of the Insurance Services Office or any other organization performing a similar function. Tenant shall prompt1y upon demand reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Article. Tenant shall not do or permit anything to be done In or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. 9. SERVICES AND UTILITIES. Provided that Tenant is not in default hereunder, Landlord agrees to furnish to the Premises during generally recognized business days, and during hours determined by Landlord in its sole discretion, and subject to the Rules and Regulations of the Building or Project, heating, ventilation and air conditioning ("HVAC") as required in Landlord's judgment for the comfortable use and occupancy of the Premises. If Tenant desires HVAC at any other time, Landlord shall use reasonable efforts to furnish such service upon reasonable notice from Tenant and Tenant shall pay Landlord's charges there for on demand. Landlord shall also maintain and keep lighted the common stairs, common entries and restrooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) failure to furnish or delay in furnishing any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project, or (iii) the limitation, curtailment or rationing of, or restrictions on, use of water; electricity, gas or any other form of energy serving the Premises, Building or Project. Landlord shall not be liable under any circumstances for a loss of or injury to property or business, however occurring, through or in connection with or incidental to failure to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant shall not, without the written consent of Landlord, use any apparatus or device in the Premises which consumes more electricity than is usually furnished or supplied for the use of premises as aircraft hangar space, as determined by Landlord. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume water or electric current in excess of that usually furnished or supplied for the use of premises as aircraft hangar space (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent, Landlord may have installed a water meter or electrical current meter in the Premises to measure the amount of water or electric current consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, the excess cost for such water and electric current shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant's expense. Nothing contained in this Article shall restrict Landlord's right to require at any time separate metering of utilities furnished to the Premises. In the event utilities are separately metered, Tenant shall pay promptly upon demand for all utilities consumed at utility rates charged by the local public utility plus any additional expense incurred by Landlord in keeping account of the utilities so consumed. Tenant shall be responsible for the maintenance and repair of any such meters at its sole cost. Landlord shall furnish if any, as such services are customarily furnished to comparable aircraft hangar buildings in the area. 10. CONDITION OF THE PREMISES. Tenant's taking possession of the Premises shall be deemed conclusive evidence that as of the date of taking possession the Premises are in good order and satisfactory condition, except for such matters as to which Tenant gave Landlord notice on or before the Commencement Date. No promise of Landlord to alter, remodel, repair or improve the Premises, the Building or the Project and no representation, express or implied, respecting any matter or thing relating to the Premises, Building, Project or this Lease (including, without limitation, the condition of the Premises, the Building or the Project) have been made to Tenant by Landlord or its Broker or Sales Agent, other than as may be contained herein or in a separate exhibit or addendum signed by Landlord and Tenant. 11. CONSTRUCTION REPAIRS AND MAINTENANCE. a. Landlord's Obligations. Landlord shall perform Landlord's Work to the Premises as described in Exhibit "C,' Landlord shall maintain in good order, condition and repair the Building and all other portions of the Premises not the obligation of Tenant or of any other tenant in the Building. b. Tenant's Obligations. (1) Tenant shall perform Tenant's Work to the Premises as described in Exhibit "C." (2) Tenant at Tenant's sole expense shall, except for services furnished by Landlord pursuant to Article 9 hereof, maintain the Premises in good order; condition and repair; including the interior surfaces of the ceilings, walls and floors, all doors, all interior windows, all plumbing, pipes and fixtures, electrical wiring, switches and fixtures, Building Standard furnishings and special-items and equipment installed by or at the expense of Tenant. (3) Tenant shall be responsible for all repairs and alterations in and to the Premises, Building and Project and the facilities and systems thereof, the need for which arises out of (i) Tenant's use or occupancy of the Premises, (ii) the installation, removal, use or operation of Tenant's Property (as defined in Article 13) in the Premises, (iii) the moving of Tenant's Property into or out of the Building, or (iv) the act, omission, misuse or negligence of Tenant, its agents, contractors, employees or invitees. (4) If Tenant fails to maintain the premises in good order; condition and repair, Landlord shall give Tenant notice to do such acts as are reasonably required to so maintain the Premises. If Tenant falls to promptly commence such work and diligently prosecute it to completion, then Landlord shall have the right to do such acts and expend such funds at the expense of Tenant as are reasonably required to perform such work. Any amount so expended by Landlord shall be paid by Tenant promptly after demand with interest at the prime commercial rate then being charged by Norwest Bank, Denver plus two percent (2%) per annum, from the date. of such work, but not to exceed the maximum rate then allowed by law. Landlord shall have no liability to Tenant for any damage, inconvenience, or interference with the use of the Premises by Tenant as a result of performing any such work. c. Compliance with Law Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, and rules of any public authority relating to their respective maintenance obligations as Set forth herein. d. Waiver by Tenant. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford the Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlords failure to keep the Premises in good order; condition and repair. e. Load and Equipment Limits. Tenant shall not place any load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry. as determined by Landlord or Landlord's structural engineer. The cost of any such determination made by Landlord's structural engineer shall be paid for by Tenant upon demand. Tenant shall not install business machines or mechanical equipment which cause noise or vibration to such a degree as to be objectionable to Landlord or other Building tenants. f. Except as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant nor shall Tenant's obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease or by any other tenant's lease or required by law to make in or to any portion of the Project, Building or the Premises. Landlord shall nevertheless use reasonable efforts to minimize any interference with Tenant's business in the Premises. g. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part or appurtenance of the Building's mechanical, electrical, plumbing, HVAC or other systems serving, located in, or passing through the Premises. h. Upon the expiration or earlier termination of this Lease, Tenant shall return the Premises to Landlord clean and in the same condition as on the date Tenant took possession, except for normal wear and tear. Any damage to the Premises, including any structural damage, resulting from Tenant's use or from the removal of Tenant's fixtures, furnishings and equipment pursuant to Section 13b shall be repaired by Tenant at Tenant's expense. 12. ALTERATIONS AND ADDITIONS. a. Tenant shall not make any additions, alterations or improvements to the Premises without obtaining the prior written consent of Landlord. Landlord's consent may be conditioned on Tenant's removing any such additions, alterations or improvements upon the expiration of the Term and restoring the Premises to the same condition as on the date Tenant took possession. All work with respect to any addition, alteration or improvement shall be done in a good and workmanlike manner by properly qualified and licensed personnel approved by Landlord, and such work shall be diligently prosecuted to completion. If any such work is performed by a contractor selected by Tenant and approved by Landlord, Tenant shall pay to Landlord, upon completion of any such work, an administrative fee of five percent (5%) of the cost of the work. If any such work is performed by Landlord's contractor, Tenant shall pay to Landlord upon completion of any such work an administrative fee of fifteen percent (15%) of the cost of the work. b. Tenant shall pay the costs of any work done on the Premises pursuant to Section 12a, and shall keep the Premises, Building and Project free and clear of liens of any kind. Tenant shall indemnify, defend against and keep Landlord free and harmless from all liability, loss, damage, costs, attorneys' fees and any other expense incurred on account of claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant. Tenant shall keep Tenant's leasehold interest, and any additions or improvements which are or become the property of Landlord under this Lease, free and clear of all attachment or judgment liens. Before the actual commencement of any work for which a claim or lien may be filed, Tenant shall give Landlord notice of the intended commencement date a sufficient time before that date to enable Landlord to post notices of non-responsibility or any other notices which Landlord deems necessary for the proper protection of Landlord's interest in the Premises, Building or the Project, and Landlord shall have the right to enter the Premises and post such notices at any reasonable time. c. Landlord may require, at Landlord's sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond In an amount equal to at least one and one-half (11/2) times the total estimated cost of any additions, alterations or improvements to be made in or to the Premises, to protect Landlord against any liability for mechanic's and materialmen's liens and to insure timely completion of the work. Nothing contained in this Section 12c shall relieve Tenant of its obligation under Section 12b to keep the Premises, Building and Project free of all liens. d. Unless their removal is required by Landlord as provided in Section 12a, all additions, alterations and improvements made to the Premises shall become the property of Landlord and be surrendered with the Premises upon the expiration of the Term; provided, however, Tenant's equipment, machinery and trade fixtures which can be removed without damage to the Premises shall remain the property of Tenant and may be removed, subject to the provisions of Section 13b. 13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY a. All fixtures, equipment, improvements and appurtenances attached to or built into the Premises at the commencement of or during the Term, whether or not by or at the expense of Tenant ("Leasehold Improvements"). shall be and remain a part of the Premises, shall be the property of Landlord and shall not be removed by Tenant, except as expressly provided in Section 13b. b. All movable partitions, business and trade fixtures, machinery and equipment communications equipment and office equipment located in the Premises and acquired by or for the account of Tenant, without expense to Landlord, which can be removed without structural damage to the Building, and all furniture, furnishings and other articles of movable personal properly owned by Tenant and located in the Premises (collectively "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term; provided that if any of Tenant's Property is removed, Tenant shall promptly repair any damage to the Premises or to the Building resulting from such removal. 14. RULES AND REGULATIONS. Tenant agrees to comply with (and cause its agents, contractors, employees and invitees to comply with) the rules and regulations attached hereto as Exhibit "D" and with such reasonable modifications thereof and additions thereto as Landlord may from time to time make. Landlord shall not be responsible for any violation of said rules and regulations by other tenants or occupants of the Building or Project. 15. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord reserves the following rights, exercisable without liability to Tenant for (a) damage or injury to property, person or business, (b) causing an actual or constructive eviction from the Premises, or (c) disturbing Tenant's use or possession of the Premises: a. To name the Building and Project and to change the name or street address of the Building or Project: b. To install and maintain all signs on the exterior and interior of the Building and Project; c. To have pass keys to the Premises and all doors within the Premises, excluding Tenant's vaults and safes; d. At any time during the Term, and on reasonable prior notice to Tenant, to Inspect the Premises, and to show the Premises to any prospective purchaser or mortgagee of the Project, or to any assignee of any mortgage on the Project, or to others having an interest in the Project or Landlord, and during the last six months of the Term, to show the Premises to prospective tenants thereof; and e. To enter the Premises for the purpose of making inspections, repairs, alterations, additions or improvements to the Premises or the Building (Including, without limitation, checking, calibrating, adjusting or balancing controls and other parts of the HVAC system), and to take all steps as may be necessary or desirable for the safety, protection, maintenance or preservation of the Premises or the Building or Landlord's interest therein, or as may be necessary or desirable for the operation or improvement of the Building or in order to comply with laws, orders or requirements of governmental or other authority. Landlord agrees to use its best efforts (except in an emergency) to minimize interference with Tenant's business in the Premises in the course of any such entry. 16. ASSIGNMENT AND SUBLETTING. No assignment of this Lease or sublease of all or any part of the Premises shall be permitted, except as provided in this Article 16. a. Tenant shall not, without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, assign or hypothecate this Lease or any interest herein or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than Tenant. Any of the foregoing acts without such consent shall be void and shall, at the option of Landlord, terminate this Lease. This Lease shall not, nor shall any interest of Tenant herein, be assignable by operation of law without the written consent of Landlord. b. If at any time or from time to time during the Term Tenant desires to assign this Lease or sublet all or any part of the Premises, Tenant shall give notice to Landlord setting forth the terms and provisions of the proposed assignment or sublease, and the identity of the proposed assignee or subtenant. Tenant shall promptly supply Landlord with such information concerning the business background and financial condition of such proposed assignee or subtenant as Landlord may reasonably request. Landlord shall, within twenty (20) days after Tenant's notice is given, either approve or, in Landlord's reasonable judgment, disapprove the proposed assignment or sublease. If Landlord approves the proposed assignment or sublease, Tenant may assign the Lease or sublet such space to such proposed assignee or subtenant on the following further conditions: (1) The assignment or sublease shall be on the same terms set forth in the notice given to Landlord; (2) No assignment or sublease shall be valid and no assignee or sublessee shall take possession of the Premises until an executed counterpart of such assignment or sublease has been delivered to Landlord: and (3) No assignee or sublessee shall have a further right to assign or sublet except on the terms herein contained. c. Notwithstanding the provisions of paragraphs a and b above, Tenant may assign this Lease or sublet the Premises or any portion thereof, without Landlord's consent and without extending any recapture or termination option to Landlord, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from a merger or consolidation with Tenant, or to any person or entity which acquires all the assets of Tenant's business as a going concern, provided that (i) the assignee or sublessee assumes, In full, the obligations of Tenant under this Lease, (ii) Tenant remains fully liable under this Lease, and (iii) the use of the Premises under Article 8 remains unchanged. d. No subletting or assignment shall release Tenant of Tenant's obligations under the Lease, or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Landlord may consent to subsequent assignments of the Lease or sublettings or amendments or modifications to the Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and any such actions shall not relieve Tenant of liability under this Lease. 17. HOLDING OVER. If after expiration of the Term, Tenant remains in possession of the Premises with Landlord's permission (express or implied), Tenant shall become a tenant from month to month only, upon all the provisions of this Lease (except as to term and Base Rent), but the "Monthly Installments of Base Rent" payable by Tenant shall be Increased to one hundred twenty-five percent (125%) of the Monthly Installments of Base Rent payable by Tenant at the expiration of the Term. Such monthly rent shall be payable In advance on or before the first day of each month. If either party desires to terminate such month to month tenancy, It shall give the other party not less than thirty (30) days advance written notice of the date of termination. 18. SURRENDER OF PREMISES. a. Tenant shall peaceably surrender the Premises to Landlord on the Expiration Date, in broom-clean condition and In as good condition as when Tenant took possession, except for (i) reasonable wear and tear, (ii) loss by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on Landlord's request, remove Tenant's Property on or before the Expiration Date and promptly repair all damage to the Premises or Building caused by such removal. b. If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any of Tenant's Property left on the Premises shall be deemed to be abandoned, and, at Landlord's option, title shall pass to Landlord under this Lease as by a bill of sale. If Landlord elects to remove all or any part of such Tenant's Property, the cost of removal, Including repairing any damage to the Premises or Building caused by such removal, shall be paid by Tenant. On the Expiration Date Tenant shall surrender all keys to the Premises. 19. DESTRUCTION OR DAMAGE. a. If the Premises or the portion of the Building necessary for Tenant's occupancy is damaged by fire, earthquake, act of God, the elements of other casualty, Landlord shall, subject to the provisions of this Article, promptly repair the damage, If such repairs can, in Landlord's reasonable opinion, be completed within one hundred eighty (180) days. If Landlord determines that repairs can be completed within one hundred eighty (180) days, this Lease shall remain in full force and effect, except that if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, employees, contractors, licensees or invitees, the Base Rent shall be abated to the extent Tenant's use of the Premises is impaired, commencing with the date of damage and continuing until completion of the repairs required of Landlord under Section 19d. b. See Addendum One - Additional Provisions. c. See Addendum One - Additional Provisions. d. If the Premises are to be repaired under this Article, Landlord shall repair at its cost any injury or damage to the Building and Building Standard Work in the Premises. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. Landlord shall not be liable for any loss of business, inconvenience or annoyance arising from any repair or restoration of any portion of the Premises, Building or Project as a result of any damage from fire or other casualty. e. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, Building or Project by fire or other casualty, and any present or future law which purports to govern the rights of Landlord and Tenant in such circumstances in the absence of express agreement, shall have no application. 20. EMINENT DOMAIN. a. If the whole of the Building or Premises is lawfully taken by condemnation or in any other manner for any public or quasi- public purpose, this Lease shall terminate as of the date of such taking, and Rent shall be prorated to such date. If less than the whole of the Building or Premises is so taken, this Lease shall be unaffected by such taking, provided that (i) Tenant shall have the right to terminate this Lease by notice to Landlord given within ninety (90) days after the date of such taking if twenty percent (20%) or more of the Premises is taken and the remaining area of the Premises is not reasonably sufficient for Tenant to continue operation of its business, and (ii) Landlord shall have the right to terminate this Lease by notice to Tenant given within ninety (90) days after the date of such taking. If either Landlord or Tenant so elects to terminate this Lease, the Lease shall terminate on the thirtieth (30th) day' alter either such notice. The Rent shall be prorated to the date of termination. if this Lease continues in force upon such partial taking, the Base Rent and Tenant's Proportionate Share shall be equitably adjusted according to the remaining Rentable Area of the Premises and Project. b. In the event of any taking, partial or whole, all of the proceeds of any award, judgment or settlement payable by the condemning authority shall be the exclusive property Pf Landlord, and Tenant hereby assigns to Landlord all of its right, title and Interest in any award, judgment or settlement from the condemning authority. Tenant, however, shall have the right, to the extent that Landlord's award is not reduced or prejudiced, to claim from the condemning authority (but not from Landlord) such compensation as may be recoverable by' Tenant In its own right for relocation expenses and damage to Tenant's personal property. c. In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall restore the remaining portion of the Premises as nearly as practicable to its condition prior to the condemnation or taking, but only to the extent of Building Standard Work. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of any other Leasehold Improvements and Tenant's Property. 21. INDEMNIFICATION. a. Tenant shall indemnify and hold Landlord harmless against and from liability and claims of any kind for loss or damage to property of Tenant or any other person, or for any injury to or death of any person, arising out of: (1) Tenant's use and occupancy of the Premises, or any work, activity or other things allowed or suffered by Tenant to be done in, on or about the Premises; (2) any breach or default by Tenant of any of Tenant's obligations under this Lease; or (3) any negligent or otherwise tortious act or omission of Tenant, its agents, employees, invitees or contractors. Tenant shall at Tenant's expense, and by counsel satisfactory to Landlord, defend Landlord in any action or proceeding arising from any such claim and shall indemnify Landlord against all costs, attorneys' fees, expert witness fees and any other expenses incurred In such action or proceeding. As a material part of the consideration for Landlord's execution of this Lease, Tenant hereby assumes all risk of damage or injury to any person or property in, on or about the Premises from any cause. b. Landlord shall not be liable for injury or damage which may be sustained by the person or property of Tenant, Its employees, invitees or customers, or any other person in or about the Premises, caused by or resulting from fire, steam, electricity gas, water or rain which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the Building or Project or from other sources. Landlord shall not be liable for any damages arising from any act or omission of any other tenant of the Building or Project. 22. TENANT'S INSURANCE. a. All insurance required to be carried by Tenant hereunder shall be issued by responsible insurance companies acceptable to Landlord and Landlord's lender and qualified to do business in the State. Each policy shall name Landlord, and at Landlord's request any mortgagee of landlord, as an additional insured, as their respective interests may appear. Each policy shall contain (i) a cross-liability endorsement, (ii) a provision that such policy and the coverage evidenced thereby shall be primary and non-contributing with respect to any policies carried by Landlord and that any coverage carried by Landlord shall be excess insurance, and (iii) a waiver by the insurer of any right of subrogation against Landlord, its agents, employees and representatives, which arises or might arise by reason of any payment under such policy or by reason of any act or omission of Landlord, its agents, employees or representatives. A copy of each paid up policy (authenticated by the insurer) or certificate of the insurer evidencing the existence and amount of each insurance policy required hereunder shall be delivered to Landlord before the date Tenant is first given the right of possession of the Premises, and thereafter within thirty (30) days after any demand by Landlord therefor. Landlord may, at any time and from time to time, inspect and/or copy any insurance policies required to be maintained by Tenant hereunder. No such policy shall be cancelable except after twenty (20) days written notice to Landlord and Landlord's lender. Tenant shall furnish Landlord with renewals or "binders" of any such policy at least ten (10) days prior to the expiration thereof. Tenant agrees that if Tenant does not take out and maintain such insurance, Landlord may (but shall not be required to) procure said insurance on Tenant's behalf and charge the Tenant the premiums together with a twenty-five percent (25%) handling charge, payable upon demand. Tenant shall have the right to provide such Insurance coverage pursuant to blanket policies obtained by the Tenant, provided such blanket policies expressly afford coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as required by this Lease. b. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of tile Term, Tenant shall procure, pay for and maintain in effect policies of casualty insurance covering (i) all Leasehold Improvements (including any alterations, additions or improvements as may be made by Tenant pursuant to the provisions of Article 12 hereof), and (ii) trade fixtures, merchandise and other personal property from time to time in, on or about the Premises, in an amount not less than one hundred percent (100%) of their actual replacement cost from time to time, providing protection against any peril included within the classification "Fire and Extended Coverage" together with insurance against sprinkler damage, vandalism and malicious mischief. The proceeds of such insurance shall be used for the repair or replacement of the property so insured. Upon termination of this Lease following a casualty as set forth herein, the proceeds under (i) shall be paid to landlord, and the proceeds under (ii) above shall be paid to Tenant. c. Beginning on the date Tenant is given access to the Premises for any purpose and continuing until expiration of the Term, Tenant shall procure, pay for and maintain in effect workers' compensation insurance as required by law and comprehensive public liability and property damage insurance with respect to the construction of improvements on the Premises, the use, operation or condition of the Premises and the operations of Tenant in, on or about the Premises, providing personal injury and broad form properly damage coverage for not less than One Million Dollars ($1,000,000.00) combined single limit for bodily injury, death and property damage liability. d. Not less than every three (3) years during the Term, Landlord and Tenant shall discuss whether to increase any or all of Tenant's insurance policy limits for all insurance to be carried by Tenant as set forth In this Article. In the event Landlord and Tenant cannot mutually agree upon whether any such increases are necessary or, if so, the amounts thereof, then Tenant agrees that all insurance policy limits as set forth in this Article shall be adjusted for increases in the cost of living in the same manner as is set forth in Section 5.2 hereof for the adjustment of the Base Rent. 23. WAIVER OF SUBROGATION Landlord and Tenant each hereby waive all rights of recovery against the other and against the officers, employees, agents and representatives of the other; on account of loss by or damage to the waiving party of Its property or the property of others under its control, to the extent that such loss or damage Is insured against under any fire and extended coverage insurance policy which either may have in force at the time of the loss or damage. Tenant shall, upon obtaining the policies of insurance required under this Lease, give notice to Its insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 24. SUBORDINATION AND ATTORNMENT. Upon written request of Landlord, or any first mortgagee or first deed of trust beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing, subordinate its rights under this Lease to the lien of any first mortgage or first deed of trust, or to the interest of any lease in which Landlord is lessee, and to all advances made or hereafter to be made thereunder. However, before signing any subordination agreement, Tenant shall have the right to obtain from any lender or lessor or landlord requesting such subordination, an agreement in writing providing that, as long as Tenant is not in default hereunder, this Lease shall remain in effect for the full Term. The holder of any security interest may, upon written notice to Tenant, elect to have this Lease prior to its security interest regardless of the time of the granting or recording of such security interest. In the event of any foreclosure sale, transfer in lieu of foreclosure or termination of the lease in which Landlord is lessee; Tenant shall attorn to the purchaser, transferee or lessor as the case may be, and recognize that party as Landlord under this Lease, provided such party acquires and accepts the Premises subject to this Lease. 25. TENANT ESTOPPEL CERTIFICATES. Within ten (10) days after written request from Landlord, Tenant shall execute and deliver to Landlord or Landlord's designee, a written statement certifying (a) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and slating the modifications; (b) the amount of Base Rent and the date to which Base Rent and additional rent have been paid in advance; (c) the amount of any security deposited with landlord; and (d) that Landlord is not In default hereunder or; if Landlord is claimed to be in default, stating the nature of any claimed default. Any such statement may be relied upon by a purchaser; assignee or lender. Tenant's failure to execute and deliver such statement within the time required shall at Landlord's election be a default under this Lease and shall also be conclusive upon Tenant that: (1) this Lease is in full force and effect and has not been modified except as represented by Landlord; (2) there are no uncured defaults in Landlord's performance and that Tenant has no right of offset, counterclaim or deduction against Rent; and (3) not more than one month's Rent has been paid in advance. 26. TRANSFER OF LANDLORD'S INTEREST. In the event of any sale or transfer by Landlord of the Premises, Building or Project, and assignment of this Lease by Landlord, Landlord shall be and is hereby entirely freed and relieved of any and all liability and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises, Building, Project or Lease occurring after the consummation of such sale or transfer; providing the purchaser shall expressly assume all of the covenants and obligations of Landlord under this Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord may transfer the security deposit or prepaid Rent to Landlord's successor and upon such transfer, Landlord shall be relieved of any and all further liability with respect thereto. 27. DEFAULT 27.1. Tenant's Default. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant: a. Deleted b. If Tenant fails to pay any Rent or any other charges required to be paid by Tenant under this Lease and such failure continues for ten (10) days after such payment is due and payable; or c. If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained In this Lease and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; or d. If a writ of attachment or execution is levied on this lease or on any of Tenant's Property; or e. If Tenant makes a general assignment for the benefit of creditors, or provides for an arrangement, composition, extension or adjustment with its creditors; or f. If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the federal bankruptcy laws or other insolvency laws Is filed and not withdrawn or dismissed within forty-five (45) days thereafter, or if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction. custody or control of Tenant or any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of forty-five (45) days; or g. If on any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or Tenant's Property (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant's Property; or h. If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or other person or entity is involved in any of the acts or events described in subparagraphs d through g above. 27.2. Remedies. In the event of Tenant's default hereunder, then in addition to any other rights or remedies Landlord may have under any law, Landlord shall have the right, at Landlord's option, without further notice or demand of any kind to do the following: a. Terminate this Lease and Tenant's right to possession of the Premises and reenter the Premises and take possession thereof, and Tenant shall have no further claim to the Premises or under this Lease; or b. Continue this Lease in effect, reenter and occupy the premises for the account of Tenant, and collect any unpaid Rent or other charges which have or thereafter become due and payable; or c. Reenter the Premises under the provisions of subparagraph b, and thereafter elect to terminate this Lease and Tenant's right to possession of the Premises. If Landlord reenters the Premises under the provisions of subparagraphs b or c above, Landlord shall not be deemed to have terminated this Lease or the obligation of Tenant to pay any Rent or other charges thereafter accruing, unless Landlord notifies Tenant in writing of Landlord's election to terminate this Lease. in the event of any reentry or retaking of possession by Landlord, Landlord shall have the right, but not the obligation, to remove all or any part of Tenant's Property in the Premises and to place such property in storage at a public warehouse at the expense and risk of Tenant. If Landlord elects to relet the Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Premises: fourth to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and paid monthly Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Premises, which are not covered by the rent received from the reletting. Should Landlord elect to terminate this Lease under the provisions of subparagraph a or C above, Landlord may recover as damages from Tenant the following: 1. Past Rent. The worth at the time of the award of any unpaid Rent which had been earned at the time of termination: plus 2. Rent Prior to Award. The worth at the time of the 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; plus 3. Rent After Award. The worth at the time of the award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the rental loss that Tenant proves could be reasonably avoided: plus 4. Proximately Caused Damages. Any other amount necessary to compensate Landlord for all 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, including. but not limited to, any costs or expenses (including attorneys' fees), incurred by Landlord in (a) retaking possession of the Premises, (b) maintaining the Premises after Tenant's default, (c) preparing the Premises for reletting to a new tenant, including any repairs or alterations, and (d) reletting the Premises, including broker's commissions. "The worth at the time of the award" as used in subparagraphs 1 and 2 above, is to be computed by allowing interest at the rate of ten percent (10%) per annum. "The worth at the time of the award" as used in subparagraph 3 above, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank situated nearest to the Premises at the time of the award plus one percent (1%). The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall not be deemed a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition. Acceptance of Rent by Landlord subsequent to any breach hereof shall not be deemed a waiver of any preceding breach other than the failure to pay the particular Rent so accepted, regardless of Landlord's knowledge of any breach at the time of such acceptance of Rent. Landlord shall not be deemed to have waived any term, covenant or condition unless Landlord gives Tenant written notice of such waiver. 27.3 Landlord's Default. If Landlord falls to perform any covenant, condition or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such default, or if such default cannot reasonably be cured within thirty (30) days, if Landlord fails to commence to cure within that thirty (30) day' period, then Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's breach; provided, however, it is expressly understood and agreed that if Tenant obtains a money judgment against Landlord resulting from any default or other claim arising under this Lease, that judgment shall be satisfied only out of the rents, issues, profits, and other Income actually received on account of Landlord's right, title and interest in the Premises, Building or Project, and no other real, personal or mixed property of Landlord (or of any of the partners which comprise Landlord, if any) wherever situated, shall be subject to levy to satisfy such judgment. If, after notice to Landlord of default, Landlord (or any first mortgagee or first deed of trust beneficiary of Landlord) fails to cure the default as provided herein, then Tenant shall have the right to cure that default at Landlord's expense. Tenant shall not have the right to terminate this Lease or to withhold, reduce or offset any amount against any payments of Rent or any other charges due and payable under this Lease except as otherwise specifically provided herein. 28. BROKERAGE FEES. Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except those noted in Section 2.c. Tenant shall indemnify and hold Landlord harmless from any cost, expense or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. 29. NOTICES. All notices, approvals and demands permitted or required to be given under this Lease shall be in writing and deemed duly served or given if personally delivered or sent by certified or registered U.S. mall, postage prepaid, and addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to the Building manager, and (b) if to Tenant, to Tenant's Mailing Address; provided, however; notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time to time by notice to the other designate another place for receipt of future notices. 30. GOVERNMENT ENERGY OR UTILITY CONTROLS. In the event of imposition of federal, state or local government controls, rules, regulations, or restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation by Landlord and Tenant of any such controls, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance therewith, including the right of entry into the Premises to effect compliance. 31. RELOCATION OF PREMISES. Landlord shall have the right to relocate the Premises to another part of the Building in accordance with the following: a. The new premises shall be substantially the same in size, dimensions, configuration, decor and nature as the Premises described in this Lease, and if the relocation occurs after the Commencement Date, shall be placed in that condition by Landlord at its cost. b. Landlord shall give Tenant at least thirty (30) days written notice of landlord's intention to relocate the Premises. c. As nearly as practicable, the physical relocation of the Premises shall take place on a weekend and shall be completed before the following Monday. If the physical relocation has not been completed in that time, Base Rent shall abate in full from the time the physical relocation commences to the time it is completed. Upon completion of such relocation, the new premises shall become the "Premises" under this lease. d. All reasonable costs incurred by Tenant as a result of the relocation shall be paid by landlord. e. If the new premises are smaller than the Premises as it existed before the relocation, Base Rent shall be reduced proportionately f. The parties hereto shall immediately execute an amendment to this Lease setting forth the relocation of the Premises and the reduction of Base Rent, if any. g. Landlord shall not exercise its right to relocate the Premises hereunder more than once each five (5) years during the term of this Lease. 32. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of its obligations under this Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of this Lease and to any mortgage, lease, or other agreement to which this Lease may be subordinate. 33. OBSERVANCE OF LAW. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether landlord is a party thereto or not, that Tenant has violated any law, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between landlord and Tenant. 34. FORCE MAJEURE. Any prevention, delay or stoppage of work to be performed by landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor; materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, Judicial orders, enemy or hostile government actions. civil commotion, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse or delay Tenant's obligation to pay Rent or other charges under this Lease. 35. CURING TENANT'S DEFAULTS. If Tenant defaults in the performance of any of its obligations under this Lease, Landlord may (but shall not be obligated to) without waiving such default, perform the same for the account at the expense of Tenant. Tenant shall pay landlord all costs of such performance promptly upon receipt of a bill therefor. 36. SIGN CONTROL. Tenant shall not affix, paint, erect or inscribe any sign, projection, awning, signal or advertisement of any kind to any' part of the Premises, Building or Project, including without limitation, the inside or outside of windows or doors, without the written consent of landlord. Landlord shall have the right to remove any signs or other matter, installed without landlord's permission, without being liable to Tenant by reason of such removal, and to charge the cost of removal to Tenant as additional rent hereunder, payable within ten (10) days of written demand by landlord. 37. MISCELLANEOUS. a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or receipt by landlord of a lesser amount than the Rent provided for in this Lease shall be deemed to be other than on account of the earliest due Rent, nor shall any endorsement or statement on any check or letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and landlord may accept such check or payment without prejudice to landlord's right to recover the balance of the Rent or pursue any other remedy provided for in this Lease. in connection with the foregoing, Landlord shall have the absolute right in its sole discretion to apply any payment received from Tenant to any account or other payment of Tenant then not current and due or delinquent. b. Addenda. If any provision contained in an addendum to this Lease is inconsistent with any other provision herein, the provision contained in the addendum shall control, unless otherwise provided in the addendum. c. Attorneys' Fees. If any action or proceeding is brought by either party against the other pertaining to or arising out of this lease, the finally prevailing party shall be entitled to recover all costs and expenses, including reasonable attorneys' fees, incurred on account of such action or proceeding. d. Captions, Articles and Section Numbers. The captions appearing within the body of this Lease have been inserted as a matter of convenience and by reference only and in no way define, limit or enlarge the scope or meaning of this Lease. All references to Article and Section numbers refer to Articles and Sections in this lease. e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably withhold its consent to changes or amendments to this Lease requested by the lender on Landlord's interest, so long as these changes do not alter the basic business terms of this Lease or otherwise materially diminish any rights or materially increase any obligations of the party from whom consent to such charge or amendment is requested. f. Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the State. g. Consent. Notwithstanding anything contained in this Lease to the contrary, Tenant shall have no claim, and hereby waives the right to any claim against Landlord for money damages by reason of any refusal, withholding or delaying by Landlord of any consent, approval or statement of satisfaction, and in such event, Tenant's only remedies therefor shall be an action for specific performance, injunction or declaratory judgment to enforce any right to such consent, etc. h. Corporate Authority. If Tenant is a corporation, each individual signing this Lease on behalf of Tenant represents end warrants that he is duly authorized to execute deliver this Lease on behalf of the corporation, and that this Lease is binding on Tenant in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of a resolution of its board of directors authorizing such execution. i. Counterparts. This Lease may be executed in multiple counterparts, all of which shall constitute one and the same Lease. j. Execution of Lease; No Option. The submission of this Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or option for Tenant to lease, or otherwise create any interest of Tenant in the Premises or any other premises within the Building or Project. Execution of this Lease by Tenant and its return to Landlord shall not be binding on Landlord notwithstanding any time interval, until Landlord has in fact signed and delivered this Lease to Tenant. k. Furnishing of Financial Statements; Tenant's Representations. In order to induce Landlord to enter into this Lease Tenant agrees that it shall promptly furnish Landlord, from time to time, upon Landlord's written request, with financial statements reflecting Tenant's current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all material respects. l. Further Assurances. The parties agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. m. Mortgagee Protection. Tenant agrees to send by certified or registered mail to any first mortgagee or first deed of trust beneficiary of landlord whose address has been furnished to Tenant, a copy of any notice of default served by Tenant on Landlord. If landlord fails to cure such default within the time provided for in this Lease, such mortgagee or beneficiary shall have an additional thirty (30) days to cure such default; provided that if such default cannot reasonably be cured within that thirty (30) day period, then such mortgagee or beneficiary. shall have such additional time to cure the default as is reasonably necessary under the circumstances. n. Prior Agreements; Amendments. This Lease contains all of the agreements of the parties with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest. o. Recording. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. p. Severability. A final determination by a court of competent jurisdiction that any provision of this lease is invalid shall not affect the validity of any other provision, and any provision so determined lobe invalid shall, to the extent possible, be construed to accomplish its intended effect. q. Successors and Assigns. This Lease shall apply to and bind the heirs, personal representatives, and permitted successors and assigns of the parties. r. Time Of the Essence. Time is of the essence of this Lease. s. Waiver. No delay or omission in the exercise of any right or remedy of Landlord upon any default by Tenant shall impair such right or remedy or be construed as a waiver of such default. t. Compliance. The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the l964 Civil Rights Act and all amendments thereto, the Foreign investment in Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default; it shall constitute only a waiver of timely payment for the particular Rent payment involved. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of the Lease. Landlord's consent to or approval of any act by Tenant requiring landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the Lease. The parties hereto have executed this Lease as of the dates set forth below. Date: March 10, 1998 Date: March 10, 1998 Landlord: Airplaza Co., Inc. Tenant: Air Methods Corporation International By: \s\ Ronald J. Houseman By: \s\ Aaron D. Todd Title: President Title: Chief Financial Officer EX-23 3 Exhibit 23 Consent Of Independent Auditors BOARD OF DIRECTORS AND STOCKHOLDERS AIR METHODS CORPORATION: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-24980, 33-46691, 33-55750, 33-65370 and 33-75742) and Form S-3 (Nos. 33-59690 and 33-75744) of Air Methods Corporation of our report dated February 26, 1999, relating to the consolidated balance sheets of Air Methods Corporation and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 Annual Report on Form 10- K of Air Methods Corporation. KPMG LLP Denver, Colorado March 26, 1999 EX-27 4 FDS 12/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1998 DEC-31-1998 2407 0 7785 1404 2224 11927 62019 16747 60776 10965 0 0 0 497 49979 60776 4555 48699 3851 46482 80 2785 2040 257 0 257 0 0 0 257 .03 .03 Net non-operating income Net of interest income of $210
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