<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For period ended September 30, 1998
[ ] 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 0-29026
ENSTAR INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1831611
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6479 City West Parkway
Eden Prairie, Minnesota 55344
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (612) 941-3200
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
------- --------
At November 6, 1998, 2,976,723 shares of common stock of the registrant were
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ENStar Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 9,950 $ 12,609
Accounts receivable, net 9,665 7,086
Inventories 4,562 5,145
Prepaid expenses and other current assets 228 316
--------------------------------
Total current assets 24,405 25,156
Property and equipment, net 2,128 2,164
Investment in unconsolidated subsidiary 12,128 11,170
Goodwill, net 4,525 4,642
Other assets 156 183
--------------------------------
$ 43,342 $ 43,315
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to bank $ 2,330 $ 2,680
Current portion of long-term debt 4,844 165
Accounts payable 5,756 4,200
Accrued expenses 5,991 5,165
--------------------------------
Total current liabilities 18,921 12,210
Long-term debt, net of current maturities 13,828 16,168
Commitments and contingencies --- ---
--------------------------------
Shareholders' Equity
Common stock, $.01 par value 100,000,000
shares authorized, issued and outstanding
2,976,723 shares in 1998 and 3,266,989 in
1997 30 33
Additional paid-in-capital 14,492 16,961
Retained deficit (3,929) (2,057)
--------------------------------
Total shareholders' equity 10,593 14,937
--------------------------------
$ 43,342 $ 43,315
================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENStar Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------
1998 1997 1998 1997
----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 17,738 $ 15,990 $ 48,967 $ 41,314
Operating and product costs 12,676 11,773 35,435 29,783
----------------------------------------------
Gross profit 5,062 4,217 13,532 11,531
Selling, general,
and administrative expenses 4,936 5,050 15,518 14,863
----------------------------------------------
Operating profit (loss) 126 (833) (1,986) (3,332)
Interest expense, net (378) (248) (1,008) (522)
----------------------------------------------
Loss before income taxes
and equity in earnings of
unconsolidated subsidiary (252) (1,081) (2,994) (3,854)
Income tax benefit --- (375) --- (1,325)
----------------------------------------------
Loss before equity in earnings
of unconsolidated subsidiary (252) (706) (2,994) (2,529)
Equity in earnings of
unconsolidated subsidiary 387 350 1,122 989
----------------------------------------------
Net income (loss) $ 135 $ (356) $ (1,872) $ (1,540)
==============================================
Basic and diluted net income
(loss) per share $ 0.04 $ (0.11) $ (0.58) $ (0.47)
==============================================
Weighted average shares
outstanding 3,110,678 3,279,419 3,207,856 3,295,999
==============================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENStar Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(Unaudited, in thousands)
<TABLE>
<CAPTION>
1998 1997
-------------------------------
<S> <C> <C>
Net cash used in operating activities $ (1,829) $ (1,262)
Cash flows from investing activities
Capital expenditures (971) (977)
Other 27 (50)
--------------------------------
Net cash used in investing activities (944) (1,027)
--------------------------------
Cash flow from financing activities
Proceeds from long-term debt 2,360 14,536
Payments on long-term debt (21) (21)
Proceeds from notes payable 49,390 45,792
Payments on notes payable (49,740) (44,822)
Additional capital invested
(constructive dividends) --- (1,280)
Purchase of common stock (1,875) (233)
--------------------------------
Net cash provided by financing
activities 114 13,972
--------------------------------
Net increase (decrease) in cash and
cash equivalents (2,659) 11,683
Cash and cash equivalents
at beginning of period 12,609 824
--------------------------------
Cash and cash equivalents
at end of period $ 9,950 $ 12,507
==================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENStar Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business --
ENStar Inc. ("ENStar" or the "Company") is a holding company principally
comprised of three operating companies, Americable, Inc. ("Americable"), Enstar
Networking Corporation ("Enstar Networking") and Transition Networks, Inc.
("Transition"), and an equity investment in CorVel Corporation ("CorVel").
ENStar was formerly an operating unit of North Star Universal, Inc. ("North
Star"). In November 1996, North Star contributed the operating unit's assets
to ENStar. On February 28, 1997 North Star, in connection with its merger with
Michael Foods, Inc. ("Michael Foods"), distributed its ownership interest in
ENStar to North Star's shareholders through a tax free dividend, thus causing
ENStar to become a publicly held company.
Americable is a provider of premise wiring, connectivity products, and
low-end networking electronics. Enstar Networking is a network integrator that
provides services to design, build, maintain, and protect corporate network
infrastructures. Transition designs, manufactures and markets connectivity
devices and network applications. CorVel is a health care services company.
At September 30, 1998 and 1997, the Company's ownership interest in CorVel was
approximately 25%. The Company's investment in CorVel is accounted for as an
unconsolidated subsidiary using the equity method of accounting.
2. Principals of Consolidation and Basis of Presentation --
PRINCIPALS OF CONSOLIDATION The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
BASIS OF PRESENTATION The accompanying unaudited condensed consolidated
financial statements have been prepared by ENStar without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of such financial statements. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest annual report on
Form 10-K.
Results for the nine months ended September 30 may not necessarily be
indicative of the results to be expected for the full year.
<PAGE>
ENStar, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. Investment in Unconsolidated Subsidiary --
The Company's unconsolidated subsidiary consists of its investment in
CorVel Corporation ("CorVel"). At September 30, 1998, ENStar owned 1,025,000
shares, or an approximate 25% ownership, in CorVel. The Company's investment
in CorVel is accounted for as an unconsolidated subsidiary using the equity
method of accounting. CorVel has a fiscal year ended March 31. The following
is summarized balance sheet and income statement information of the Company's
unconsolidated subsidiary as of, and for the nine month period ended September
30,1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 36,391
Noncurrent assets 24,005
Current liabilities 9,715
Noncurrent liabilities 2,554
Revenues 117,470
Gross profit 20,977
Net income 7,463
</TABLE>
In January 1997, ENStar, at the direction of North Star, sold 200,000
shares of CorVel for approximately $5.1 million cash. The proceeds from the
sale were distributed to and retained by North Star. The book value of the
shares sold was approximately $1.4 million, net of deferred taxes, and was
reflected as a dividend to North Star during the period ended March 31, 1997.
In addition, as a result of other equity transactions of CorVel, ENStar
decreased its investment in unconsolidated subsidiary by approximately
$912,000, additional paid-in capital by $547,000, and deferred income taxes by
$356,000 for the nine months ended September 30, 1998. At September 30, 1998,
the value of the Company's investment in CorVel, based on the closing market
price, was approximately $39.7 million.
<PAGE>
ENStar, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Inventories --
Inventories are stated at the lower of average cost (first-in, first-out)
or market. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------
<S> <C> <C>
Finished goods $ 2,666 $ 3,934
Purchased parts 1,896 1,211
--------------------------------
$ 4,562 $ 5,145
--------------------------------
--------------------------------
</TABLE>
5. Net Income (Loss) Per Share --
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128 - "Earnings per Share". All current and prior year
income (loss) per share data have been restated to conform to the provisions
of SFAS 128.
The Company's basic and diluted net income (loss) per share was computed by
dividing the net income (loss) by the weighted average number of outstanding
common shares, after giving effect to the assumed exercise of outstanding stock
options, except where the effects are antidulutive. Options to purchase 348,250
and 78,250 shares of common stock with weighted average exercise prices of $7.74
and $9.00 were outstanding during the three and nine months ended September 30,
1998 and 1997. These options were included in the computation of common share
equivalents for the three months ended September 30, 1998, but were excluded
from all other periods presented, because they were antidilutive.
6. New Accounting Pronouncements --
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive
income includes certain changes in equity that are excluded from net earnings.
The adoption of this statement did not impact the Company's consolidated
financial statements; historically there have been no differences between net
earnings and comprehensive income.
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement requires companies to disclose financial and other information about
its business segments as part of their consolidated financial statements. The
Company will include the required business segment disclosures in its 1998
annual report.
<PAGE>
ENStar, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Income Taxes --
Deferred income taxes arise from temporary differences between financial
and tax reporting. To the extent the Company's financial reporting basis in
its investment in unconsolidated subsidiary exceeds its tax basis, and is not
expected to be realized in a tax-free manner, the Company records a deferred
tax liability. At September 30, 1998, the deferred tax liability includes a
cumulative tax effect of approximately $4.6 million for the differences in the
financial reporting and tax basis of the Company's investment in CorVel. This
deferred tax liability is offset by deferred tax assets related to accrued
expenses not deductible until paid and net operating loss carryforwards. No
tax expense has been recorded in the three month period ended September 30,
1998, as the net operating loss carryforwards generated in the prior periods
offset the current period income. For the nine months ended September 30, 1998,
no tax benefit has been recorded due to the additional valuation allowance
recorded against the net deferred tax asset generated in the period.
8. Contingencies --
In connection with the merger of North Star and Michael Foods, ENStar,
through the operation of an indemnification agreement, is contingently liable
for any, and all, liabilities arising from the activities of North Star,
through, and including, the reorganization of North Star and Michael Foods.
Under the terms of the indemnification agreement, the Company is required to
maintain certain minimum levels of market capitalization or net worth for a
period of five years.
9. Use of Estimates --
In the preparation of the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and related revenues and expenses. Actual results could
differ from the estimates used by management.
10. Reclassification --
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
Operations of the Company should be read in conjunction with the Condensed
Consolidated Financial Statements and the Notes thereto included elsewhere
in this report.
FORWARD-LOOKING STATEMENTS
This report 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 and are made in reliance under the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements include statements regarding intent, belief or current
expectations of the Company and its management. Shareholders and prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve a number of risks and uncertainties
that may cause the Company's actual results to differ materially from the
results discussed in the forward-looking statements. Among the factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are general economic conditions, computer and
computer networking industry conditions, risks associated with the cost required
for the development and offering of new products and services that may not be
commercially successful, the rapid technological changes occurring in the
markets in which the Company operates, dependence on and the need to recruit and
retain key personnel, the concentration of the Company's revenues with certain
customers, dependence on key suppliers and product supply, the substantial
competition in the markets in which the Company operates and certain
indemnification obligations relating to the merger of North Star and Michael
Foods. Each of these factors is more fully discussed in Exhibit 99 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
GENERAL
ENStar is a holding company. Its principal subsidiaries are Americable,
Enstar Networking and Transition. ENStar also owns 1,025,000 shares of common
stock of CorVel Corporation ("CorVel"), or an approximate 25% interest in
CorVel. ENStar's investment in CorVel is accounted for as an unconsolidated
subsidiary using the equity method of accounting. The common stock of CorVel
is included on the Nasdaq National Market under the symbol CRVL.
Prior to 1997, Enstar Networking operated as the network integration
business of Americable. Enstar Networking was organized in April 1997 to
distinctly focus the networking service activities from the traditional
distribution and manufacturing operations of Americable. Enstar Networking
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
was incorporated on January 1, 1998. The separate results of operations for
Enstar Networking have been prepared from the books and records of Americable
for all periods presented. The results of operations include an allocation of
general and administrative expenses for certain items such as accounting, human
resources and information systems along with facility related expenses.
Management believes these allocations are reasonable and present the operations
of Enstar Networking and Americable as though they had operated as separate
businesses.
During 1997, Enstar Networking made significant investments in new sales,
consulting, engineering and technical personnel as part of its effort to build a
network services organization. As part of this strategy, Enstar Networking has
shifted its focus from historical commodity-based networking and connectivity
hardware sales towards more service oriented solutions. As part of this
change, the company has experienced an increase in operating expenses resulting
in operating losses in 1997 and 1998. Enstar Networking expects to incur an
operating loss for the remainder of 1998 as it continues to build its network
service and security consulting practice.
Transition's products have life cycles of 18 to 36 months and are generally
sold based on price, availability and functionality. More recently, Transition
has focused its product development and marketing efforts on expanding its
conversion technology based products. In addition, the company provides related
LAN products, such as hubs and transceivers, that integrate with the conversion
technologies to enable network expansion. Transition's future operations are
highly dependent on its ability to introduce conversion technology based
products on a timely basis, at competitive prices that meet customer demands.
YEAR 2000 COMPLIANCE
The Company's operating subsidiaries have made a preliminary assessment of
its computer systems and equipment with respect to Year 2000 compliance. Based
on assessments to date, the Company does not believe the cost of addressing any
potential systems issues will have a material impact on its results of
operations or financial position. However, the Company could be adversely
impacted if Year 2000 compliance is not properly completed by the Company, its
vendors, or any entity with whom its operating companies conduct business.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The following are unaudited summarized operating results for each of the
Company's continuing operations for the three and nine months ended September 30
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Americable $ 4,799 $ 5,063 $13,750 $14,373
Enstar Networking 6,909 7,958 20,033 18,437
Transition 7,226 4,518 17,697 12,556
Eliminations (1,196) (1,549) (2,513) (4,052)
-------------------------------------------------
$17,738 $15,990 $48,967 $41,314
=================================================
Gross Profit
Americable $ 1,091 $ 986 $ 2,995 $ 2,993
Enstar Networking 1,018 1,486 3,398 3,606
Transition 2,953 1,745 7,139 4,932
-------------------------------------------------
$ 5,062 $ 4,217 $13,532 $11,531
=================================================
Selling, General and Administrative Expenses
Americable $ 987 $ 993 $ 2,881 $ 2,639
Enstar Networking 1,669 2,130 5,745 6,401
Transition 2,031 1,701 6,166 4,884
Corporate 249 226 726 939
-------------------------------------------------
$ 4,936 $ 5,050 $15,518 $14,863
=================================================
Operating Income (Loss)
Americable $ 104 $ (7) $ 114 $ 354
Enstar Networking (651) (644) (2,347) (2,795)
Transition 922 44 973 48
Corporate (249) (226) (726) (939)
-------------------------------------------------
$ 126 $ (833) $(1,986) $(3,332)
=================================================
</TABLE>
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 vs. THREE MONTHS ENDED SEPTEMBER 30, 1997
Consolidated revenues increased approximately $1.7 million or 11%, to $17.7
million from $16 million in 1997. This includes decreased intercompany sales
eliminations of approximately $350,000, which is primarily due to reduced
sales of structured wiring products from Americable to Enstar Networking.
Revenues at Americable decreased $264,000 to approximately $4.8 million.
The sales decrease resulted from a reduction in bulk distribution sales. The
company has shifted its product strategy to place greater emphasis on selling
value-added products to include fiber optic cable assemblies and accessories
to the Telco industry.
Revenues at Enstar Networking decreased approximately $1.1 million, or
13.2%, to $6.9 million. This includes increased sales of networking and network
security products of approximately $332,000 and $192,000 of higher network
and security integration service revenues. Offsetting these increases was
approximately $1.6 million of lower structured wiring services and products due
to lower demand in certain regional locations.
Revenues at Transition increased approximately $2.7 million, or 60%, to
$7.2 million. Sales of Transition's media and rate conversion products
increased approximately $2.9 million, or 109%, to $5.5 million, reflecting an
expansion of its distribution channel through partnerships with large wholesale
distributors. Sales of supporting LAN products decreased approximately
$600,000, or 26%, to $1.7 million due primarily to reduced sales of Ethernet
hubs and switches which reflects Transition's shift in product strategy towards
conversion type products. Sales to domestic customers increased approximately
$2.3 million, or 75%, to $5.4 million. Sales to international customers
increased approximately $365,000, or 25%, to $1.8 million. Sales to
international customers accounted for approximately 25% and 32% of net sales in
1998 and 1997, respectively. Transition's ability to maintain its present level
of sales and sales growth is highly dependent upon its ability to offer new
products that meet customer's demands in a rapidly changing market, particularly
in light of the relatively short life cycle of its products.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Consolidated gross profit, as a percent of revenues, increased to 28.5% in
1998 as compared to 26.4% in 1997. Margins at Transition increased to 40.9%
from 38.6% due to growth in media conversion products which have higher margins
than other products offered by the company. Margins at Americable increased to
22.7% in 1998, as compared to 19.5% in 1997. This increase results primarily
from a reduction in the distribution of low margin bulk cable and an increase in
the sale of higher margin fiber optic accessories and related products. Margins
at Enstar Networking decreased to 14.7% from 18.7% primarily due to unfavorable
labor variances on certain structured wiring projects.
ENStar's selling, general and administrative expenses decreased
$114,000, or 2%, to approximately $4.9 million from $5 million in 1997.
Operating expenses at Americable were $987,000 relatively unchanged between
periods. Enstar Networking's operating expenses decreased $461,000, or 22%, to
approximately $1.7 million, due primarily to cost reductions effected through
the elimination of personnel and consolidation of certain regional offices.
Transition had increased operating expenses of $330,000, or 19%, which reflects
the addition of international sales facilities and related personnel. Enstar's
research and development expenses (incurred exclusively within Transition) were
approximately $265,000 and $354,000 for 1998 and 1997, respectively. The
increase in corporate expenses primarily reflects higher professional fees.
Net interest expense increased $130,000 to $378,000 from $248,000 in 1997,
due primarily to the higher level of ENStar subordinated debentures in addition
to higher borrowings under the Americable credit facility.
The income tax benefit in 1997 reflects ENStar's estimated effective annual
tax rate. No tax expense has been recorded in the current period as the net
operating loss carryforwards generated in the prior periods offset the current
period income. See Note 7 to the Condensed Consolidated Financial Statements of
ENStar.
Equity in earnings of unconsolidated subsidiary increased $37,000 to
$387,000, which is a result of higher earnings at CorVel. CorVel's net earnings
for the three months ended September 30, 1998 were approximately $2.6 million,
an increase of approximately $175,000 or 7% from the previous year. Further
information with respect to the results of operations of CorVel is contained in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations section of its annual and Quarterly reports as filed on Forms 10-K
and 10-Q with the Securities and Exchange Commission.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1998 vs. NINE MONTHS ENDED SEPTEMBER 30, 1997
Consolidated revenues increased approximately $7.7 million, or 18.5%, to
approximately $49 million from $41.3 million in 1997. This includes decreased
intercompany sales eliminations of approximately $1.5 million which is primarily
due to reduced sales of structured wiring products from Americable to Enstar
Networking.
Revenues at Americable decreased $623,000, or 4.3%, to approximately $13.8
million. The sales decrease resulted from a reduction in bulk distribution
sales. The company has shifted its product strategy to place greater emphasis
on selling value-added products to include fiber optic cable assemblies and
accessories to the Telco industry.
Revenues at Enstar Networking increased approximately $1.6 million, or
9%, to $20 million. This includes increased sales of networking and network
security products of approximately $3.4 million and $680,000 of higher network
and security integration service revenues. Offsetting these increases was
approximately $2.5 million of lower structured wiring services and products due
to lower demand in certain regional locations.
Revenues at Transition increased approximately $5.1 million, or 41%,
to $17.7 million. Sales of Transition's media and rate conversion products
increased approximately $6.3 million, or 96%, to $13 million, reflecting an
expansion of its distribution channel through partnerships with large
wholesale distributors. Sales of supporting LAN products decreased
approximately $1.2 million, or 19%, to $4.7 million due primarily to reduced
sales of Ethernet hubs and switches which reflects Transition's shift in product
strategy towards conversion type products. Sales to domestic customers
increased approximately $3.7 million, or 44%, to $12.3 million. Sales to
international customers increased approximately $1.4 million, or 35%, to $5.4
million. Sales to international customers accounted for approximately 31% and
32% of net sales in 1998 and 1997, respectively. Transition's ability to
maintain its present level of sales and sales growth is highly dependent upon
its ability to offer new products that meet customer's demands in a rapidly
changing market, particularly in light of the relatively short life cycle of its
products.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Consolidated gross profit, as a percent of revenues, was 27.6%,
relatively unchanged between periods. Margins at Transition and Americable
were 40% and 21.8%, respectively, relatively unchanged between periods. Margins
at Enstar Networking decreased to 17% from 19.6% primarily due to unfavorable
labor variances on certain structured wiring projects. ENStar expects its gross
profit margins to decline due to expected competitive pricing pressures on
products and services sold by each of its operating companies.
ENStar's selling, general and administrative expenses increased $655,000,
or 4.4%, to approximately $15.5 million from $14.9 million in 1997. Operating
expenses at Americable increased $242,000, to approximately $2.9 million, or
9%, from $2.6 million in 1997, due primarily to the expansion of its fiber optic
operations. Enstar Networking's operating expenses decreased $656,000, or 10%,
to approximately $5.7 million from $6.4 million in 1997. This reflects
approximately $1 million of cost reduction effected through the elimination of
personnel and consolidation of certain regional offices. This was offset by
approximately $400,000 of increased salaries, benefits, training and other
related expenses due to the addition of new network security consulting
personnel. Transition had increased operating expenses of approximately
$1.3 million, or 26%, which reflects the addition of international sales
facilities and related personnel. Enstar's research and development expenses
(incurred exclusively within Transition) were approximately $919,000 and
$1.1 million for 1998 and 1997, respectively. The decrease in corporate
expenses reflects severance related costs in 1997 associated with a former
executive of Americable and lower costs associated with the debenture program.
Net interest expense increased $486,000 to approximately $1 million from
$522,000 in 1997, due primarily to the higher level of ENStar subordinated
debentures in addition to higher borrowings under the Americable credit
facility.
The income tax benefit in 1997 reflects ENStar's estimated effective annual
tax rate. No tax benefit has been recorded in the current period due to the
Company's recording an additional valuation allowance against a net deferred
tax asset generated in the period. See Note 7 to the Condensed Consolidated
Financial Statements of ENStar.
Equity in earnings of unconsolidated subsidiary increased $133,000 to
$1,122,000, which is a result of higher earnings at CorVel. CorVel's net
earnings for the nine months ended September 30, 1998 were approximately $7.5
million, an increase of approximately $602,000 or 9% from the previous year.
Further information with respect to the results of operations of CorVel is
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
contained in the Management's Discussion and Analysis of Financial Condition and
Results of Operations section of its annual and Quarterly reports as filed on
Forms 10-K and 10-Q with the Securities and Exchange Commission.
CAPITAL RESOURCES AND LIQUIDITY
ENStar has experienced cash flow deficits from operations and has
experienced fluctuations in its working capital, which are primarily
attributable to the change in receivables and inventories associated with
the fluctuation in sales and timing of payments on accounts payable. Cash used
in operations was approximately $1.8 million and $1.3 million for the nine
month periods ended September 30, 1998 and 1997, respectively.
ENStar does not have the use of cash generated by CorVel and its
subsidiaries. Also, since its initial public offering in 1991, CorVel has not
declared any dividends and has indicated that it does not anticipate doing so
for the foreseeable future. ENStar may from time to time, depending on market
conditions and other factors, sell a portion of its CorVel holdings. The
ability of ENStar to sell its CorVel holdings is limited, however, to sales
pursuant to Rule 144 of the Securities Act and the volume limitations thereof,
and to private negotiated sales, which may adversely affect the ability of
ENStar to sell a large portion of the CorVel holdings at a given time.
The Company maintains a program (the "Debenture Program") whereby it sells
subordinated debentures of various maturities primarily to individual investors.
The debentures are offered on a continuous basis at interest rates that change
from time to time depending on market conditions. Proceeds from long-term debt
of approximately $2.4 million represent sales of debentures under this program.
At September 30, 1998, the Company had approximately $18.5 million principal
amount of subordinated debentures outstanding with a weighted average interest
rate of 9.59%.
The companies maintain revolving line of credit facilities with their
principal bank to provide aggregate borrowings up to $8 million, due in
September 1998. Borrowings under these facilities are based on eligible
accounts receivable and inventory with interest at prime (8.25% at September
30, 1998). At September 30, 1998, there were aggregate outstanding borrowings
of approximately $2.3 million and approximately $4 million of available
borrowings under these credit facilities. At June 30, 1998, the companies
were in compliance or had obtained the necessary waivers from its bank to waive
its compliance with certain financial covenants under the terms of its credit
agreement. Under the terms of the credit agreement, ENStar is required to make
capital contributions if pretax losses are in excess of specified levels. The
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
CAPITAL RESOURCES AND LIQUIDITY (Continued)
companies are currently in the process of extending the terms of their credit
agreements with their principal bank beyond September 1998. Management believes
they will obtain credit facilities with terms comparable to its existing
agreements.
For the nine months ended September 30, 1998, ENStar has provided an
aggregate of $2,468,000 of cash contributions under the terms of the amended
credit agreement of Americable and Enstar Networking, as a result of operating
losses at Enstar Networking. Additional cash contributions from ENStar are
expected in 1998 to fund anticipated operating losses and capital expenditures
at Enstar Networking.
In March 1998, the Company announced a stock repurchase plan pursuant
to which the Company plans to repurchase up to 350,000 shares of its common
stock from time-to-time in open market or privately negotiated transactions.
Through November 6, 1998, approximately 290,300 shares had been repurchased at
an average price of $6.46 per share.
ENStar expects to be able to fund its working capital and capital
expenditures along with any repurchase of common stock for 1998 with cash flow
from operations along with available cash and cash equivalents and amounts
available under the credit facilities of its operating companies. At November
6, 1998, ENStar had approximately $8.7 million of cash and cash equivalents,
excluding cash of its operating subsidiaries.
<PAGE>
ENStar Inc.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company will include the required disclosures in its 1998 annual report
on Form 10-K.
<PAGE>
PART II - OTHER INFORMATION
ENStar Inc. and Subsidiaries
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed with this report on
Form 10-Q.
10.24 Eleventh Amendment to Amended and Restated Loan and
Security Agreement dated as of August 31, 1998, among
Americable, Inc., Cable Distribution Systems, Inc.,
Enstar Networking Corporation, and U.S. Bank National
Association, amending the terms of the Amended and
Restated Loan and Security Agreement dated June 30,
1998.
10.25 Lease Agreement dated September 23, 1998 by and between
Lexmark Office One Partners, LLP, a North Dakota limited
liability partnership and Enstar Networking Corporation
of Eden Prairie, Minnesota.
10.26 Lease Agreement dated September 14, 1998 by and between
PYLON, INC., a North Carolina corporation and
Americable, Inc., a Minnesota corporation.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
ENSTAR INC.
--------------------------
(Registrant)
Date November 12, 1998 by /s/ Jeffrey J. Michael
--------------------------- --------------------------
Jeffrey J. Michael
President and Chief Executive Officer
Date November 12, 1998 by /s/ Thomas S. Wargolet
--------------------------- --------------------------
Thomas S. Wargolet
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- --------
10.24 Eleventh Amendment to Amended and Restated Loan and Security
Agreement dated as of August 31, 1998, among Americable, Inc.,
Cable Distribution Systems, Inc., Enstar Networking Corporation,
and U.S. Bank National Association, amending the terms of the
Amended and Restated Loan and Security Agreement dated June 30,
1998.
10.25 Lease Agreement dated September 23, 1998 by and between Lexmark
Office One Partners, LLP, a North Dakota limited liability
partnership and Enstar Networking Corporation of Eden Prairie,
Minnesota.
10.26 Lease Agreement dated September 14, 1998 by and between PYLON,
INC., a North Carolina corporation and Americable, Inc., a
Minnesota corporation.
27.1 Financial Data Schedule
<PAGE>
Exhibit 10.24
ELEVENTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT AND WAIVER
THIS ELEVENTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AND WAIVER (the "Amendment") is dated as of August 31, 1998, and is by and among
AMERICABLE, INC., a Minnesota corporation ("Americable"), CABLE DISTRIBUTION
SYSTEMS, INC., a Georgia corporation ("Cable"), (Americable and Cable are
hereinafter each individually referred to as an "Original Borrower" and
collectively as the "Original Borrowers") ENSTAR NETWORKING CORPORATION, a
Minnesota corporation ("ENC") (Americable, Cable, and ENC are hereinafter each
individually referred to as a "Borrower" and collectively as the "Borrowers")
and U.S. BANK NATIONAL ASSOCIATION, a national banking association and the
successor by merger with First Bank National Association, (the "Bank").
Capitalized terms not otherwise expressly defined herein shall have the meanings
set forth in the Loan Agreement hereinafter described.
RECITALS
WHEREAS, the Original Borrowers and the Bank are parties to an Amended and
Restated Loan and Security Agreement, dated as of June 1, 1993, as amended by a
First Amendment dated as of November 29, 1993, a Waiver, a Second Amendment
dated March 3, 1995, a Third Amendment dated May 31, 1996, a letter amendment
dated June 28, 1996, a letter amendment dated July 31, 1996, a Sixth Amendment
dated as of August 9, 1996, a Seventh Amendment dated as of May 29, 1997, an
Eighth Amendment dated as of September 30, 1997, a Ninth Amendment dated as of
March 5, 1998, and a Tenth Amendment dated as of June 30, 1998 (as so amended,
the "Loan Agreement");
WHEREAS, the Borrows have requested and the Bank has agreed further to
amend the Loan Agreement;
WHEREAS, the Bank desires to waive the Borrowers' compliance with certain
provisions of the Loan Agreement,
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
ARTICLE 1 - AMENDMENTS TO LOAN AGREEMENT
1.1 Amendments to Loan Agreement. As of the effective date of this
Amendment, Section 5.4 of Supplement A attached to the Assumption Agreement and
Ninth Amendment to Amended and Restated Loan and Security Agreement and Waiver
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<PAGE>
is hereby amended in its entirety to read as follows:
"5.4 Capital Expenditures. Make Capital Expenditures in an amount
exceeding $1,000,000 determined on a consolidated basis for the Borrowers
only (excluding Transition) during Americable's fiscal year ending
December 31, 1998."
1.2 Construction. All references in the Loan Agreement to "this
Agreement," "herein" and similar references shall be deemed to refer to the Loan
Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Loans under the Loan Agreement as amended hereby, the Borrowers hereby
warrant and represent to the Bank that: (a) The execution, delivery and
performance by the Borrowers of this Amendment and any other documents to which
any Borrower is a party have been duly authorized by all necessary corporate or
partnership action, do not require any approval or consent of, or any
registration, qualification or filing with, any government agency or authority
or any approval or consent of any other person (including, without limitation,
any stockholder or partner), do not and will not conflict with, result in any
violation of or constitute any default under, any provision of such Borrower's
articles of incorporation or bylaws, any agreement binding on or applicable to
such Borrower or any of its property, or any law or governmental regulation or
court decree or order, binding upon or applicable to such Borrower or of any
of its property and will not result in the creation or imposition of any
security interest or other lien or encumbrance in or on any of its property
pursuant to the provisions of any agreement applicable to the such Borrower
or any of its property; (b) The Loan Agreement as amended by this Amendment
is the legal, valid and binding obligations of each Borrower and is enforceable
in accordance with its terms, subject only to bankruptcy, insolvency,
reorganization, moratorium or similar laws, rulings or decisions at the time in
effect affecting the enforceability of rights of creditors generally and to
general equitable principles which may limit the right to obtain equitable
remedies.
ARTICLE III - CONDITIONS AND EFFECTIVENESS
This Amendment shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions:
3.1 Before and after giving effect to this Amendment, the representations
and warranties in ARTICLE IV of the Loan Agreement shall be true and correct as
though made on the date hereof except for changes that are permitted by the
terms of the Loan Agreement. The execution by the Borrowers of this Amendment
shall be deemed a representation that the Borrowers have complied with the
foregoing condition.
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<PAGE>
3.2 Before and after giving effect to this Amendment, no Event of Default
or no Default, shall have occurred and be continuing under the Loan Agreement
except for those expressly waived by the terms hereof. The execution by the
Borrowers of this Amendment shall be deemed a representation that the
Borrowers have complied with the foregoing condition.
3.3 The Bank shall have received the following documents appropriately
completed and duly executed by the Borrowers and the other Obligors where
appropriate:
(a) This Amendment appropriately completed and duly executed by
the Borrowers, together with a resolution of each of the Borrowers
authorizing the execution and delivery of this Amendment in form and
substance satisfactory to the Bank;
(b) An Acknowledgment and Consent duly executed by ENStar in form
and substance satisfactory to the Bank; and
(c) Such other approvals, opinions or documents, as the Bank may
reasonably request.
ARTICLE IV - GENERAL
4.1 Expenses. The Borrowers jointly and severally agree to reimburse the
Bank upon demand for all reasonable expenses, including reasonable fees of
attorneys (who may be employees of the Bank) and legal expenses incurred by the
Bank in the preparation, negotiation and execution of this Amendment and any
other document required to be furnished herewith, and in enforcing the
obligations of the Borrowers hereunder, and to jointly and severally pay and
save the Bank harmless from all liability for, any stamp or other taxes which
may be payable with respect to the execution or delivery of this Amendment,
which obligations of the Borrowers shall survive any termination of the Loan
Agreement.
4.2 Counterparts. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto
on separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
4.3 Severability. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
4.4 Law. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
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<PAGE>
4.5 Successors: Enforceability. This Amendment shall be binding upon the
Borrowers and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrowers and the Bank and the successors and
assigns of the Bank. Except as hereby amended, the Loan Agreement shall remain
in full force and effect and is hereby ratified and confirmed in all respects.
4.6 Recitals. The recitals hereto are incorporated herein by reference
and constitute an integral part of this Amendment.
4.7 Acknowledgement and Release. In order to induce the Bank to enter
into this Amendment, the Borrowers: (a) represent and warrant to the Bank that
no events have taken place and no circumstances exist at the date hereof which
would give the Borrowers the right to assert a defense, offset or counterclaim
to any claim by the Bank for payment of the Obligations; and (b) hereby release
and forever discharge the Bank and its successors, assigns, directors, officers,
agents, employees and participants from any and all actions, causes of action,
suits, proceedings, debts, sums of money, covenants, contracts, controversies,
claims and demands, at law or in equity, which the Borrowers ever had or now
have against the Bank or its successors, assigns, directors, officers, agents,
employees or participants by virtue of their relationship to the Borrowers in
connection with the Loan Documents and the transactions related thereto.
ARTICLE V - WAIVER
5.1 Waiver. On the date on which this Amendment becomes effective in
accordance with ARTICLE III hereof, the Lender agrees to waive Event of Default
arising under Section 7.1(g)(i) of the Loan Agreement because of the Borrowers'
violation of Section 5.4 of Supplement A at any time during Americable's 1998
fiscal year prior to August 31, 1998. The waiver granted herein is limited to
the specific Events of Default arising under the Loan Agreement described above
and is not intended, and shall not be construed, to be a general waiver of any
term or provision of the Loan Agreement or a waiver of any other existing or
future Unmatured Event of Default or Event of Default.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
AMERICABLE, INC., a Minnesota corporation
By: /s/ THOMAS S. WARGOLET
------------------------
Thomas S. Wargolet
Vice President, Finance
CABLE DISTRIBUTION SYSTEMS, INC.,
a Georgia corporation
By: /s/ THOMAS S. WARGOLET
------------------------
Thomas S. Wargolet
Vice President, Finance
ENSTAR NETWORKING CORPORATION,
a Minnesota corporation
By: /s/ THOMAS S. WARGOLET
------------------------
Thomas S. Wargolet
Vice President, Finance
U.S. BANK NATIONAL ASSOCIATION,
a national banking association
and the successor by merger with
First Bank National Association
By: /s/
-----------------------
Kim Leppanen
Assistant Vice President
-5-
<PAGE>
Exhibit 10.25
Lease by and between
Lexmark Office One Partners, LLP
Fargo, North Dakota
Landlord
and
Enstar Networking Corporation
Tenant
This Lease is made as of September 23, 1998, by and between Lexmark Office
One Partners, LLP, a North Dakota limited liability partnership ("Landlord") and
Enstar Networking Corporation of Eden Prairie, Minnesota ("Tenant").
DATA SHEET
(The legal significance of the terms set forth in this Data Sheet is governed by
references to such terms in the remainder of this Lease.)
1. Premises. That space in the Project, as designated on Exhibit A annexed
hereto, consisting of approximately 3,874 square feet of Rentable Area. The
Premises are assigned the following Unit identification Suite 200, situated at
1402 43rd St. SW, Fargo, ND, 58103:
Tenant shares the washrooms, janitorial area, kitchen, refuse area, any
mechanical room serving Tenant's space, and the following: As per attached
Site Plan Exhibit A.
2. Term. (3) years and (11) months and if the Commencement Date is not the
first day of a calendar month, the partial calendar month in which the
Commencement Date occurs and being fully completed September 30, 2002.
3. Scheduled Commencement Date. December 1, 1998, or such earlier date as the
Tenant may occupy the Premises.
4. Fixturing Days. (7) days.
5. (a) Initial Rental Rate. (i) $11.00 per square foot of Rentable Area
for each lease year, all on a triple net "fully carefree" basis. (The Rental
Rate times the Rentable Area of the Premises is (i) $42,614.00 or $3,551.17 per
month for each lease year.
(b) Operating Charges ("CAM"). Tenant's percentage of CAM charges is
26.2 %, which has been calculated by a factor, the numerator of which is 3,874,
being the Rentable Area and the denominator of which is 14,796 being the total
Rentable square feet of the Project.
-1-
<PAGE>
6. Fit-up Allowance. $14.00 per square foot of useable space, below Sheetrock
ceiling exclusive of areas which are shared or used for delivery or refuse
collection, being 3,480 square feet.
7. Permitted Use. General Office/Warehouse
8. Trade Name. Enstar Networking Corporation
9. Lease Deposit. $10,000.00
10. Landlord Address.
Lexmark Office One Partners, LLP
c/o Lexmark Development Company., LLC
1535 42nd St. SW, Unit 300A
Fargo, ND 58103
11. Data Sheet Acknowledgement Signatures.
Lexmark Office One Partners, LLP
By Its Managing Partner
Lexmark Development Company, LLC Enstar Networking Corporation
By: /s/Robert H. Leslie By: /s/Thomas S. Wargolet
------------------- ---------------------
Robert H. Leslie Thomas S. Wargolet
Its: President Its: Vice President,
Landlord Finance and Operations
By: /s/Jerry Mears
--------------
Jerry Mears
Its: Regional Manager
Tenant
-------------------- -------------------
Date Date
-2-
<PAGE>
1. PREMISES:
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for
the term and upon the conditions hereinafter provided, the Premises described
in Item 1 of the Data Sheet. The Premises are to be located in the mixed-use
commercial building in Fargo, North Dakota, commonly known as 1402 43rd St. SW,
Fargo, North Dakota and legally described as West 1/2 of Lot 6, Block 1, West
Acres 2nd Addition to the City of Fargo, Cass County, North Dakota (such land
and building are hereafter referred to as the "Project").
1.2 Landlord shall construct the Project generally in accordance with the
Project description as contained in Exhibit A. Landlord shall cause Tenant's
Premises to be constructed as closely as reasonably practicable, to the
description/specifications for the Premises, as set forth on Exhibit B. The
Premises and the Project as a whole shall be constructed with quality
workmanship and materials and shall be made ready for Tenant's fixturing by
the Scheduled Commencement Date, except to the extent delayed by strikes,
material or labor shortages, action or inaction of Tenants, and other such
matters as to which Landlord has little or no control. In the case of any such
permissible delay, the Scheduled Commencement Date shall be set back
accordingly.
1.3 If agreed to by the Parties, Tenants' occupancy of the Premises for any
purposes, shall be deemed possession by Tenant for all purposes under this
Lease; provided that Landlord shall be obliged to complete any unfinished
portions of the Project and the Premises which are the responsibility of the
Landlord. However, Landlord shall be excused from the consequences of any delay
relating to any premature occupancy of the Premises by Tenant.
1.4 To that the extent that the Premises include (whether the use is exclusive
or non-exclusive) any mechanical, receiving, storage, delivery or refuse
collection space, Tenant acknowledges that Landlord shall not be obliged to
finish such space beyond insulation, sheetrock and suspended lighting
appropriate for such type of space., excepting any such space as may be
specifically included Exhibit B.
1.5 If the Premises include, or have access to, a shared vestibule or other
common interior access to the area occupied exclusively by Tenant, Tenant agrees
to such joint use. If the Premises share a mechanical room with other parts of
the Project, Tenant also agrees to such joint-use. Tenant agrees to share in
the cost of the cleaning and other maintenance of such joint-use space(s), with
the other Tenants who also have the use of such space(s). Such cost shall be
allocated among those Tenants in such proportion as Landlord deems fair (e.g.,
per square foot of Rentable Area or per Tenant), or as the affected Tenants
otherwise agree.
2. RENTABLE AREA:
The Rentable Area of the Premises is estimated to be the area set forth in
Item 1 of the Data Sheet. The actual Rentable Area of the Premises shall be
measured from the inside surface of the walls. No deduction shall be made for
columns or other structural or mechanical elements or areas within the Premises.
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<PAGE>
If the Premises shall ever include a mezzanine, its area shall be included.
Rentable Area includes any receiving, storage, delivery or trash area included
within the definition/description of the Premises. In addition thereto, the
actual Rental Area shall include the Tenant's proportionate share of any shared
space with other tenants of the Project. The Rentable Area of all areas as to
which a Rentable Area determination is required will be determined in accordance
with this Lease by a licensed architect or engineer selected by Landlord, who
will deliver to Landlord and Tenant an appropriate certificate prior to the date
such determination becomes necessary under this Lease; provided, however, that
the Rentable Area of the Premises in any event be deemed not to exceed 3,874
square feet. Each such certificate will be conclusive and binding upon the
parties hereto. Tenant will pay Base Rent and additional rent on the basis of
the Certificate's determination of the Rentable Area, and, upon such resolution,
Landlord and Tenant will make appropriate cash adjustments between them.
3. TENANT'S IMPROVEMENTS:
The Tenant shall fixture the Premises to its satisfaction (the "Tenant
Improvements") at Landlord's expense; provided, however, that Landlord's
obligation for such Tenant Improvements shall not exceed the Fit-up Allowance on
the Data Sheet unless the parties hereto agree otherwise. In that regard the
Tenant has requested the Landlord to arrange with such contractor(s) that it may
determine to perform the Tenant's improvements as specified in Exhibit B,
Tenant's Floor Plan and Work Letter. In that regard the Landlord shall provide
the Tenant with a fit-up allowance as set forth in Data Sheet Item No. 6. To
the extent that the Tenant approved finishing of the Premises exceeds the fit-up
allowance, (referred to as "excess fit-up") the Landlord shall pay for the cost
of such excess fit-up and shall charge to the Tenant, the cost of such excess
fix-up, which shall be paid at the Tenant's option by (i) invoice payable within
thirty (30) days from Commencement Date, or alternatively (2) by way of
additional rent the amortized cost of such fit-up, together with interest
thereon at the rate of ten (10%) per centum per annum, compounded annually.
All such fit-up improvements shall be the property of Landlord. Landlord is
under no obligation to make any structural or other improvements, alterations,
decoration, additions or improvements in or to the Premises except as may be
mutually agreed upon between the Landlord and the Tenant. If the total cost of
the Tenant Improvements shall be less than the Fit-up Allowance ("Excess
Allowance"), Landlord shall pay to the Tenant the Excess Allowance by cash
payment within thirty (30) days after the Tenant has commenced doing business in
and is paying rent for the Premises. In the event that the Landlord shall fail
to pay the Excess Allowance on the date when due and shall fail to make such
payment within fifteen (15) days after receipt by the Landlord of additional
written notice from the Tenant that such payment is due, the Tenant shall be
authorized to deduct from the next payment(s) of Basic Rent due under the Lease,
an amount not exceeding in aggregate the Excess Allowance. Prior to substantial
completion of the Tenant Improvements, the tenant shall inspect the Premises,
Landlord shall demonstrate all systems and Landlord and Tenant shall prepare and
execute a punchlist. The punchlist shall list incomplete, minor and
insubstantial details of construction, necessary mechanical adjustments, and
needed finishing touches. Landlord shall complete the punchlist items within
thirty (30) days after the Commencement Date. Landlord will promptly correct any
latent defects as they become known to Landlord, or if Tenant notifies Landlord
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<PAGE>
of a latent defect within thirty (30) days after Tenant's notice. Tenant shall
have the right to request and authorize changes, to the construction documents
during construction. All such changes shall be subject to Landlord's prior
written approval, which shall not be unreasonably withheld, delayed, or
conditioned, and shall be delivered within three (3) days after receipt thereof.
Prior to commencing any change, whether requested by the Tenant or not, Landlord
shall prepare and deliver to Tenant for Tenant's approval, a change order
setting forth the totla cost of such change which will include associated
architectural and engineering fees and any delay in substantial completion
caused by that change order. If Tenant fails to approve such change order within
one (1) business day after delivery by Landlord, the change order shall not be
implemented. Upon Landlord's receipt of Tenant's approval, Landlord shall
proceed with the change. Any change orders made subsequent to the awarding of
a contract, which do not involve or adjust the pricing of the Tenant
Improvements, shall not be charged to Tenant, or be a Tenant Improvement cost.
In the event that any change orders required by Tenant, or a Tenant request for
a change order which is not implemented causes additional Tenant Improvement
costs to be incurred, Tenant shall be notified of the additional costs and shall
pay for the same within thirty (30) days after receipt of Landlord's Statement
of Cost, to the extent the total Tenant Improvement costs, including cost of
such change order exceeds the Fit-up Allowance. This process for the completion
of change orders shall be included in the construction contract between the
Landlord and the contractors selected to construct the Tenant Improvements.
4. TERM:
The term of this Lease shall commence upon the "Commencement Date", which shall
be:
the Scheduled Commencement Date set forth in Item 3 of the Data Sheet,
which shall be October 1, 1998; or
the first business day following the last of the Fixturing Days set forth
in Item 4 of the Date Sheet which Fixturing Days commence to run on the date
Landlord delivers possession of the Premises to Tenant with Landlord's work
substantially completed in accordance with Exhibit B.
However, if Tenant commences business in any portion of the Premises prior
thereto, the Commencement Date shall be the date Tenant so commences business.
Landlord shall give at least seven (7) days notice of the estimated delivery
date. Following the Commencement Date the term of this Lease shall continue
for the Term as set forth in Item 2 of the Data Sheet. Any entry by Tenant
prior to the Commencement Date shall be subject to all of the terms and
conditions of this Lease other than the obligation to pay Base Rent.
Notwithstanding anything contained herein to the contrary, Tenant, Tenant's
agents, contractors and employees may enter the Project, the Common Area and the
Premises prior to the Fixturing Days for the sole purpose of installing Tenant's
phone lines and data cabling and equipment provided that (1) such entry for such
limited purpose shall not unreasonably interfere with the Landlord's work
pursuant to Exhibit B, and (2) such entry shall not be deemed to be any form of
occupancy of the Premises or the Project, or an acceptance of any defective
work, by the Tenant.
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<PAGE>
4.1 If the Commencement Date shall not have occurred, by January 15, 1999,
either party may, by notice to the other, terminate this Lease, whereupon each
party shall be relieved from any further liability hereunder, and all funds
advanced shall be returned to the advancing party.
4.2 Landlord will prepare a Supplement to this Lease confirming the
Commencement Date, Expiration Date and the Rentable Area of the Premises.
Tenant shall execute and return such Supplement within ten (10) business days
after submission unless Tenant gives written notice specifying in reasonable
detail Tenant's objections thereto.
4.3 Notwithstanding anything in the Lease to the contrary, it is expressly
understood and agreed between the parties hereto that the Tenant is granted an
option to cancel this Lease, upon at least 180 days written notice to the
Landlord, after the completion of the thirtieth (30th) month of the Lease Term.
In the event that the Tenant shall exercise its option to cancel the Lease
aforesaid, the Tenant shall pay to the Landlord as liquidated damages a sum
equal to any and all unamortized Tenant Improvements, whether within the tenant
Fit-Up Allowance, or in excess thereof, as well as any and all unamortized
leasing commissions. The foregoing shall be amortized on a straight-line basis
over the original term of the Lease.
In the event that the Tenant shall exercise its option to cancel the Lease,
pursuant to the provisions of this Section, the Tenant shall permit the
Landlord, or its representatives, to enter the Premises to exhibit same to
prospective tenants, during reasonable business hours. The Landlord shall
provide the Tenant 24 hours notice of such exhibition. The Landlord shall use
reasonable efforts not to interfere with the conduct of the Tenant's business.
The Landlord shall in no event be liable to the Tenant for any damages in
connection with entry for such exhibition.
5. BASE RENT:
Tenant shall pay as monthly "Base Rent" for the Premises one-twelfth (1/12) of
the product of: (i) the Rental Rate set forth in Item 5 of the Data Sheet, times
(ii) the number of square feet of Rentable Area of the Premises. If the Data
Sheet provides for a subsequent adjustment of the Rental Rate, all references in
this lease to the "Rental Rate" shall, after the date such adjustment is to
occur, be deemed to be references to such adjusted rental rate. The Base Rent
shall be paid in monthly installments, in advance, on the first day of each and
every calendar month during the Term. If the initial or final month of the Term
of this Lease is less than a calendar month, Base Rent for such partial month
shall be prorated at the rate of one-thirtieth of the monthly Base Rent for each
day, payable in advance. Tenant will pay said Base Rent, together with
Operating Costs and all other amounts due under this Lease, to Landlord at
Landlord Address set forth in Item 10 of the Data Sheet, or to such other party
or to such other address as Landlord may designate from time to time by written
notice to Tenant. Tenant's obligation to pay the Base Rent, Operating Costs and
other amounts due under this Lease is an independent covenant, not subject to
any abatement, deduction, counterclaim, reduction, setoff or defense of any kind
whatsoever. On the provison that the Tenant executes this Lease on or before
Wednesday, September 23, 1998, and delivers an executed copy to the Landlord,
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the Landlord will abate, in favor of the Tenant, the Base Rent otherwise payable
by the Tenant pursuant to the provisions of this Lease, for a period 2 months,
beginning December 1998 and January 1999.
6. COMMON AREAS:
The term "Common Areas" is defined as all areas and facilities within the
exterior boundary line of the Project that are provided and designated by
Landlord from time to time for the general nonexclusive use of Landlord, Tenant,
and all other Tenants of the Project and their respective employees, suppliers,
shippers, customers, and invitees, including parking areas, loading and
unloading areas, trash areas (if accessible by all Tenants), roadways,
sidewalks, walkways, parkways, driveways, and landscaped areas.
6.1 Landlord hereby grants to Tenants for the benefit of Tenant and its
employees, suppliers, shippers, customer, and invitees, during the term of this
Lease, the non-exclusive right to use, in common with others entitled to such
use, the Common Areas as they exist from time to time, subject to any rights,
powers, and privileges reserved by landlord under the terms hereof or under the
terms of any rules and regulations or restrictions governing the use of the
Project. Under no circumstances shall the right herein granted to use the
Common Areas be deemed to include the right to store any property, temporarily
or permanently, in the Common Areas. Any such storage shall be permitted only
by the prior written consent of Landlord or Landlord's designated agent, which
consent may be revoked at any time following three (3) days notice from
Landlord. In the event that any unauthorized storage occurs then Landlord, or
as otherwise provided in Landlord's written consent, shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove the property and charge the reasonable cost to Tenant, which cost
shall be immediately payable upon demand by Landlord.
6.2 Landlord or such other person(s) as Landlord may appoint shall have the
exclusive control and management of the Common Areas and shall have the right,
from time to time, to establish, modify, amend, and enforce reasonable and
nondiscriminatory rules and regulations with respect thereto. Tenant agrees to
abide by and conform to all such rules and regulations, and to cause its
employees, and to use reasonable efforts to cause its suppliers, shippers,
customers, and invitees to so abide and conform. Landlord agrees to cause its
employees, and to use reasonable efforts to cause its suppliers, shippers,
customers, other tenants, and invitees to abide by and conform to such rules
and regulations. Landlord agrees that all rules and regulations shall be
reasonable and shall be promulgated and enforced in a non-discriminatory way.
Tenant shall not be required to comply with any new rules and regulations unless
the rule or regulation (i) applies to all other tenants in the Project, (ii)
pertains to matters of health, safety, sanitation or the operation of utilities
and does not materially interfere with Tenant's use, enjoyment or occupancy of
the Premises and (iii) shall not materially increase Tenant's obligations under
this Lease nor materially decrease any of Tenant's rights hereunder.
6.3 Landlord shall have the right, in Landlord's sole discretion, from time to
time; (i) to make changes to the Common Areas, including, without limitation,
changes in the location, size, shape, and number of driveways, entrances,
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parking spaces, parking areas, loading and unloading areas, ingress, egress,
direction of traffic, landscaped areas, and walkways; (ii) to close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to and adequate parking for the Premises remains available;
(iii) to designate other land outside the boundaries of the Project to be a part
of the Common Areas; (iv) to add additional buildings and improvements to the
Common Areas; (v) to use the Common Areas while engaged in making additional
improvements, repairs, or alterations to the Project, or any portion thereof;
(vi) to do and perform such other acts and make such other changes in, to, or
with respect to the Common Areas and the Project as Landlord may, in the
exercise of sound business judgment, deem to be appropriate; provided, however,
that such actions do not materially interfere with Tenant's ability to conduct
its business in the Premises or on the Project, materially increase the Tenant's
obligations under this Lease, or materially decrease any of the Tenant's rights
hereunder.
7. VEHICLE PARKING:
Tenant shall, subject to the provisions of Section 7 (c) herein, be entitled to
employee and customer vehicle parking, unreserved and unassigned, on those
portions of the Common Areas designated by Landlord for parking. Common area
parking shall be used only for parking by vehicles no larger than full-size
passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles, including semi cabs and
trailers, are herein referred to as "Oversized Vehicles."
(a) Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, and will use reasonable effort so as
not to permit suppliers, shippers, customers, or invitees, to be loaded,
unloaded, or parked in areas other than those designated by Landlord for such
activities.
(b) Tenant shall not permit or allow overnight parking or storage of
Oversized Vehicles anywhere within the Project.
(c) The Landlord shall designate, at its discretion, 7 reserved parking
spaces, for the employees or customers of the Tenant.
8. DEPOSIT:
Upon the execution of this Lease, Tenant shall deposit with Landlord a lease
assurance deposit, which may be commingled with Landlord's funds and which shall
not bear interest. Such deposit shall be returned to Tenant within thirty (30)
days after the termination of the Lease provided that Tenant was not in breach
of the lease at termination and that Tenant has complied with all of the
post-termination provisions of this Lease, including but not limited to
Tenant's obligation to repair any damage occasioned by the removal of any
fixtures. Landlord may withhold any portion of the deposit required by Landlord
to remedy any breach of the Lease by Tenant, to be applied in such order as
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Landlord may determine or as the law may require, including but not limited to
the following:
Any of Tenant's obligations advanced by Landlord (such as unpaid utilities); any
interest owed to Landlord; unpaid rent; costs of cleaning; repair of damage;
costs of collection of any amount owed Landlord; and Operating Cost charges.
This provision does not constitute a liquidated damages clause. Landlord
reserves the right to pursue all remedies available to it, at law and in equity,
for breach of this lease by Tenant, notwithstanding the existence or use of all
or any part of the deposit by Landlord.
9. CONTRIBUTION TO OPERATING COSTS:
Tenant shall, for the entire Term of the Lease, and without any abatement,
set-off or deduct therefrom, pay to Landlord as additional rent its Pro Rata
Share, as hereinafter defined, of all costs which Landlord may incur in
maintaining and operating the Project including the Common Areas. Said costs
shall be referred to herein as "Operating Costs" and are hereby defined with
respect to any calendar year to include but not be limited to the following
costs incurred by Landlord in such calendar year with respect to the Project:
all real estate taxes and installments of special assessments (which shall be
amortized by the Municipality over the longest period of time the Municipality
may permit) and which shall accrue or become a lien against, or are payable in
respect of, any part of the Project during the Term of this Lease; all other
governmental impositions, including but not limited to amounts payable under
assessment agreements, gross receipts taxes and taxes on rentals (other than
income taxes) relating to the Project; the costs of providing heating, cooling
and utilities to any Common Areas, including any common signs; insurance
(including but not limited to liability insurance and fire and casualty
insurance with rental abatement endorsement, boiler and pressure vessel
insurance, war risk insurance, and owners protective liability insurance),
security, landscaping, janitorial and cleaning services for any Common Area;
all management fees, including expenses reimbursable to any manager and rental
of property management office; fees for professional services; (all fees of
which shall be in accordance with generally accepted accounting principals),
charges under maintenance and service contracts for any Common Area; all
supplies purchased for use in the Common Areas of the Project; all maintenance
and repair costs for any Common Areas of the Project; subject to the provisions
in the next paragraph regarding leasing of capital items, equipment rental;
subject to the provisions set forth in the next paragraph, the depreciation of
the cost of capital improvements made to (i) reduce Operating Costs or limit
increases therein to the extent that Operating Costs are reduced or increases
are limited, or (ii) required by Landlord's insurance carrier or (iii) subject
to Sections 10.3 and 10.4, required by any law, rule, regulation or order of any
governmental or quasi-governmental authority having jurisdiction over the
Premises or Project; and any and all other costs of operation, whether ordinary
or extraordinary, to the extent relating to the operation of the Project as a
whole, and not any particular rented space. Operating Costs shall not include
direct out-of-pocket costs of the following: leasing commissions and costs of
marketing; the cost of constructing leasehold improvements; payments of
principal and interest on any mortgages, or other encumbrances upon the Project;
the cost (or amortization thereof) of any alteration, addition, change,
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replacement, improvement, repair, or other item which under generally accepted
accounting principles consistently applied are properly capitalized, and costs
of leasing any such capital items to the extent the annual cost of such lease
exceeds the annual amount which would have been charged had such item been
purchased and amortized (using an interest rate equal to the Interest Rate set
forth in Section 22 and a period equal to the manufacturer's estimated useful
life of the item; the cost of any items for which Landlord is directly
reimbursed by insurance proceeds, condemnation awards, a tenant of the Project
or the like; wages, salaries or other compensation paid to executive employees
of Landlord or the property manager ranking above the highest-ranking, on-site
employee; costs associated with the operation of the business of the entity
which constitutes Landlord, which costs are not directly related to maintaining
or operating the Project (by way of example, the formation of the entity,
internal accounting and legal matters, including but not limited to preparation
of tax returns and financial statements and gathering of data therefor, costs of
defending any lawsuits related to maintaining or operating the Project, costs of
selling, syndicating, financing, mortgaging or hypothecating any of Landlord's
interest in the Project, and costs of any disputes between Landlord and its
employees); any expense representing an amount paid for products or services
(other than overall property management) to a person or entity relating to or
affiliated with Landlord which is in excess of the fair market value of such
services and products; fees incurred in disputes with tenants; costs of
remediation of Hazardous Materials which are (i) in or on the Project as of the
date of this Lease and which are classified as Hazardous Materials as of the
date of this Lease under laws in effect as of the Commencement Date of this
Lease, or (ii) which are subsequently brought onto the Project by Landlord or
with the express consent of Landlord and which are on the date of their
introduction onto the Project classified as Hazardous materials under laws in
effect as of the date of such introduction, excluding in the case of both (i)
and (ii) above; lawful use and disposition of reasonable quantities of supplies
used in the ordinary course of operation and maintenance of like projects; and
expenses incurred by individual Tenants for the direct benefit of their own
leased space. Operating Costs shall further not include (i) costs attributable
to enforcing leases against other tenants in the Project, such as attorney's
fees, court costs, adverse judgments and similar expenses, (ii) costs that are
reimbursable to the Landlord by tenants as a result of provisions contained in
their specific leases, such as excessive use of utilities, (iii) costs incurred
due to violations by Landlord of any of the terms and conditions of any leases
in the Project, (iv) any compensation paid to clerks, attendants or other
persons in commercial concessions operated by Landlord, (v) rentals and other
related expenses incurred in leasing air conditioning systems, elevators or
other equipment ordinarily considered to be or a capital nature, (vi) all items
and services for which tenants reimburse Landlord or pay third persons or which
Landlord provides selectively to one or more tenants without reimbursement,
(vii) repairs and other work occasioned by fire, windstorm or other casualty,
(viii) costs incurred in operating and maintaining the parking facilities if
Landlord charges for parking, (ix) any costs, fines or penalties incurred due to
violations by Landlord or any governmental rule or authority, (x) costs for
sculpture, paintings or other objects of art, (xi) the costs of correcting any
code violations that occurred prior to the commencement of the term, (xii) costs
attributable to repairing items that are covered by warranties, (xiii) repairs
and maintenance performed in a Tenant's exclusive space and not in the common
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areas, (xiv) penalties for late payment of real estate taxes, (xv) costs of
insurance coverage not customarily carried by landlords of similar buildings in
the area in which the Project is located, (xvi) costs of management fees in
excess of rates standard for first class office buildings in the area in which
the Project is located, (xvii) costs of bad debts, rent delinquencies or
reserves for same, (xviii) costs of any sprinkler installation in the Project,
(xix) costs of compliance with the Americans with Disabilities Act or with other
handicap access rules and regulations applicable to the Project, (xx) net
income, franchise, capital stock, state, inheritance, transfer, succession and
gift taxes and any tax or increase in tax which is imposed as a result of a
change in ownership of the Project, (xxi) costs of compliance with laws,
ordinances, rules, regulations or governmental or quasi-governmental directives
regarding the indoor air quality of the Premises or the Project and the
maintenance of any heating, ventilating and air conditioning equipment or system
in the Premises or the Project.
9.1 Prior to the Commencement Date and prior to the first day of each calendar
year after the Commencement Date, or as soon as reasonably possible after the
first day of such calendar year, Landlord will furnish Tenant with a statement
of estimated Operating Costs for that calendar year ("Estimated Operating
Costs"). Tenant shall pay on the first day of each calendar month during the
Term, as additional rent hereunder, one-twelfth (1/12)(or rentable portion
thereof for partial months) of Tenant's Pro Rata Share of Estimated Operating
Costs. The estimated amount of Tenant's Operating Costs for the initial year
of the Lease is $13,985.14 and shall be paid in annual installments in the
amount of $3.61 per square foot which shall be payable monthly beginning on
the Commencement Date.
9.2 Tenant's "Pro Rata Share" is a fraction, the numerator of which is the
Rentable Area of the Premises, and the denominator of which is the Rentable Area
of all areas in the Project designated by Landlord for lease, excluding
separately-leased storage and separately-leased parking areas. Rentable Area
shall be determined in accordance with Section 2 above.
9.3 Within a reasonable time after the expiration of each calendar year,
Landlord shall submit to Tenant a statement setting forth the actual Operating
Costs of the Project for such calendar year ("Actual Operating Costs"),
(a) Tenant's Pro Rata Share of Actual Operating Costs, and (b) the aggregate of
Tenant's payments of Estimated Operating Costs for such year. Within sixty (60)
days after the delivery of such statement (including any statement delivered
within eighteen (18) months after the expiration or termination of the Term of
this Lease), the party in whose favor the difference, if any, between (a) and
(b) exists shall pay the amount of such difference to the other; provided,
however, that overpayments by Tenant may at Landlord's option be credited
against future payments of Estimated Operating Costs except with respect to the
last year of the Term. Landlord's books and records relating to Actual
Operating Costs for any particular calendar year shall be available for
inspection by Tenant, during the ninety (90) day period following delivery of
Landlord's statement with respect to such year, and during normal business hours
upon prior appointment at Landlord Address set forth in Item 10 of the Data
Sheet or such other address within the Fargo, North Dakota, metropolitan area
as designated by Landlord in notice to Tenant. Each statement furnished by
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Landlord hereunder shall constitute a final determination upon Tenant unless
Tenant shall within ninety (90) days after delivery give written notice to
Landlord that Tenant disputes the accuracy thereof, which notice shall specify
in reasonable detail the claimed inaccuracies of the statement. Disputes
pertaining to Operating Costs shall be resolved pursuant to arbitration in
accordance with the attached Exhibit "C".
9.4 Landlord may at its option by thirty (30) days written notice to Tenant
change its accounting year hereunder from the calendar year to a fiscal year,
making such adjustments from the end of the last calendar year to the
commencement of the first full fiscal year as shall be appropriate pursuant to
generally accepted accounting principles. Upon such change, references in this
Section 9 to a calendar year shall be deemed to be references to a fiscal year.
9.5 When in the reasonable determination of Landlord any service, provided by
Landlord is provided disproportionately either to the Premises or to any other
premises within the Project, then the Operating Cost per square foot payable
hereunder may be increased or reduced, as the case may be, by Landlord's
determination of the increased or reduced cost per square foot of such
disproportionate service. In the case of unoccupied space, those elements of
Operating Costs that increase with occupancy shall be adjusted upward to the
amount that would be incurred if the Project were fully occupied. However, in
no event shall such adjustment permit Landlord to collect from tenants in the
Project, as Operating Costs, more than 100% of actual Operating Costs
attributable to such adjusted elements.
10. USE:
Office/Warehouse: If the Premises constitutes office/computer warehouse space,
Tenant will use and occupy the Premises solely for general office and warehouse
purposes as stated in Item 7 of the Data Sheet, or any other lawful use, save
and except any use in the insurance industry. Tenant will not use or occupy the
Premises for any unlawful purpose, or in contravention of any deed restrictions,
and will comply with all present and future laws, ordinances, regulations and
orders of all governmental units having jurisdiction over the Premises. Tenant
shall not cause or permit any unusual noise, vibrations, odors or nuisance in or
about the Premises. Landlord disclaims any warranty that the Premises are
suitable for Tenant's use and Tenant acknowledges that it has had a full
opportunity to make its own determination in this regard.
10.1 Tenant will not conduct or permit to be conducted any activity, or place
any equipment in or about the Premises, which will in any way increase the rate
of fire insurance or other insurance on the Project; if any increase in the rate
of fire insurance or other insurance is stated by any insurance company or by
the applicable Insurance Rating Bureau to be due to activity or equipment of
Tenant in or about the Premises, Tenant shall be liable for such increase and
shall reimburse Landlord therefor; provided, however, that Tenant has a
reasonable opportunity to contest such rating. Tenant shall, as soon as
possible, discontinue or cause the discontinuance of such conduct or shall
remove such equipment upon Landlord's demand made at any time thereafter.
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10.2 Tenant shall not install, use, generate, store or dispose of in or about
the Premises any Hazardous Material, as defined below, without Landlord's
written approval of each Hazardous Material; provided, however, that no such
notice shall be required for immaterial quantities of Hazardous Materials
customarily used in [office/retail] business operations so long as Tenant uses
such Hazardous Materials in accordance with all applicable laws. Tenant shall
indemnify, defend and hold Landlord harmless from and against any claim, damage
or expense arising out of Tenant's installation, use, generation, storage, or
disposal of any Hazardous Materials.
Landlord hereby warrants that as of the date of this Lease there are no
Hazardous Materials currently existing on, in or under the Project and that
there are no underground storage tanks under the Project. Tenant hereby
covenants and agrees that it will not discharge any Hazardous Materials on,
in or under the Project. Landlord represents Landlord shall require each tenant
in Project to also covenant not to discharge Hazardous Materials in, on or under
the Project, and that the Landlord shall use reasonable efforts to enforce such
covenants. Each party shall fully indemnify and hold the other party harmless
from any liability, damage, loss, cost or expense that the other party might
otherwise suffer form the other party's breach or default of its warranties or
covenants, as the case may be in this Section. The indemnity of this Section
shall survive the expiration of other termination of this Lease for a period of
six (6) months from the expiration or earlier termination of this Lease.
"Hazardous Materials" means and includes any of the substances, materials,
elements or compounds that are contained in the list of hazardous substances
adopted by the United States Environmental Protection Agency (the "EPA") and
the list of toxic pollutants designated by the United States Congress or the
EPA or any substances, materials, elements or compounds designated by any other
federal, state or local statute, law ordinance, code rule, regulation, order or
decree now or at any time in the hereafter, in effect regulating, relating to,
or imposing liability of standards of conduct concerning any hazardous, toxic,
dangerous, restricted or otherwise regulated waster, substance or material, as
now or at any time hereafter in effect.
10.3 Landlord warrants to Tenant that the Premises are currently in compliance
with the Americans With Disabilities Act of 1990 and all regulations issued
thereunder and the Accessibility Guidelines for Buildings and Facilities issued
pursuant thereto, as the same have been amended to the date hereof (the "ADA"),
and agrees that Landlord shall be responsible, at its sole cost and expense, for
compliance with the ADA, as hereafter modified, amended or supplemented, with
regard to the Premises and the building in which the Premises are located and
the property on which the same are located. The Landlord agrees to indemnify,
defend and save harmless Tenant from and against any and all liabilities,
claims, demand, costs, and expenses of every kind and nature arising out of the
failure of Landlord to comply with ADA.
10.4 Notwithstanding anything to the contrary herein, Tenant shall only be
obligated, and shall be solely responsible, for complying with any laws,
ordinances, regulations or orders ("Legal Requirements") which are Tenant
Generated (as defined herein) whether such Legal Requirements are structural
or nonstructural in nature. Landlord shall be solely responsible for compliance
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with Legal Requirements which are Landlord Generated (as defined herein) or are
General Requirements (as defined herein), whether the same are structural or
nonstructural in nature. "Tenant Generated" shall mean that the Legal
Requirement was made necessary by any act or work performed by Tenant or by the
particular nature of Tenant's use or by the particular manner in which Tenant
conducts its permitted use. "Landlord Generated" shall mean that the Legal
Requirement was made necessary by any act or work performed by Landlord or its
agents. If the Legal Requirements are neither Tenant Generated or Landlord
Generated, then such requirements shall be referred to as "General
Requirements".
11. ASSIGNMENT AND SUBLETTING:
Tenant will not assign, transfer, mortgage or encumber this Lease or sublet or
rent or permit occupancy or use of the Premises, or any part thereof by any
third party; nor shall any assignment or transfer of this Lease be effectuated
by operation of law or otherwise, (any of the foregoing being hereinafter
referred to as an "Assignment") without in each such case obtaining the prior
written consent of Landlord, which consent shall be subject to Landlord's
discretion, which consent shall not be unreasonably withheld. The consent
by Landlord to any Assignment shall not be construed as a waiver or release of
Tenant from the terms of any covenant or obligation under this Lease, nor shall
the collection or acceptance of rent from any transferee under an Assignment
constitute an acceptance of the Assignment or a waiver or release of Tenant or
any transferee of any covenant or obligation contained in this Lease, nor shall
any Assignment be construed to relieve Tenant from the requirement of obtaining
the consent in writing of Landlord to any further Assignment.
Notwithstanding anything contained herein to the contrary, Tenant shall be
entitled, without the consent of the Landlord and without triggering any right
of the Landlord to terminate or cancel this Lease, to assign this Lease or any
interest thereunder, to any subsidiary or affiliate of the Tenant. The term
"affiliate" shall include any corporation or other entity, which controls, is
controlled by, or is under common control with the Tenant. No merger,
consolidation or other reorganization of Tenant or the sale or transfer of any
or all of the common stock of the Tenant shall be deemed an assignment or
sublease, by operation of law or otherwise within the meaning of this Section.
The term "Assignment" shall not include an assignment of this Lease or any
interest thereunder, to any subsidiary or affiliate of the Tenant, or a merger,
consolidation or other reorganization of Tenant or the sale or transfer of any
or all of the common stock of the Tenant, where the Tenant controls or is
controlled by or is under common control of the corporation of other entity.
11.1 If Tenant desires at any time to make an Assignment, it shall first
notify Landlord of its desire to do so and shall submit in writing to Landlord
(i) the name of the proposed assignee, mortgagee, subtenant or other transferee
(any of the foregoing being hereinafter referred to as an "Assignee"), (ii) the
nature of the proposed Assignee's business to be carried on the Premises, (iii)
a copy of the proposed Assignment agreement and any other agreements to be
entered into concurrently with such Assignment, including full disclosure of all
financial terms, and (iv) such financial information as Landlord may reasonably
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request concerning the proposed Assignee. Tenant shall pay to Landlord a
reasonable fee for Landlord's expenses, including attorneys' fees, in reviewing
such proposed Assignment, which fee shall not exceed the sum of Five Hundred
Dollars ($500.00). Neither the furnishing of such information nor the payment
of such fee shall limit any of Landlord's rights or alternatives under this
Section 11.
12. MAINTENANCE:
Tenant agrees to keep and maintain the Premises and the fixtures and equipment
therein in first class, properly functioning, safe, orderly and sanitary
condition, ordinary wear and tear and casualty damage to the extent covered by
insurance and damage not caused by the fault or negligence of the Tenant
excepted, will suffer no waste or injury thereto, and will at the expiration or
other termination of the Term of this Lease, surrender the same with all
improvements in the same order and condition in which they were on the
Commencement Date, or in such better condition as they may hereafter be put,
ordinary wear and tear and casualty damage to the extent covered by insurance
and damage not caused by the fault or negligence of the Tenant excepted.
Landlord agrees to assign all warranties to Tenant that Landlord receives from
contractors or subcontractors providing labor, material or equipment for the
construction of the Tenant Improvements which are applicable to any aspect of
the Useable Area of the Premises which Tenant is obliged to maintain pursuant
to Section 12; or, if such warranties are nonassignable by Landlord, Landlord
agrees to cooperate with Tenant in enforcing such warranties in the event that
any damage occurs to, or any defect is discovered in, the Premises and which is
covered by such warranties. Landlord shall make all necessary repairs to the
outer walls, roof, downspouts, gutters and basic structural elements,
electrical, plumbing, heating, ventilating and air conditioning system and
common areas of the Project. Landlord shall also make all necessary repairs to
the portions of the building systems (plumbing, sewage, heating, air
conditioning and electrical) providing service jointly to the Premises and other
portions of the Project. Tenant shall be responsible for all other portions of
the building systems serving the Premises, if due to the negligence or default
of Tenants. Notwithstanding anything apparently to the contrary in this
Section, any cost of repairs or improvements to the Project, to the Premises or
to any common areas which are occasioned by the negligence or default of Tenant,
its officers, employees, agents or invitees, or by requirements of law,
ordinance or other governmental directive and are occasioned by the Tenant's use
and occupancy of the Premises or the installations of Tenant in the Premises
shall be paid for by Tenant, as additional rent hereunder, immediately upon
billing.
Landlord shall comply with all present and future laws, ordinances, rules,
regulations or governmental or quasi-governmental directives (including without
limitation those requirements of the Occupational Safety and Health
Administration that relate to the Premises) regarding the indoor air quality of
the Premises or the Project and the maintenance of any heating, ventilating and
air conditioning equipment or the system in the Premises or the Project.
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13. ALTERATIONS; SIGNS; EQUIPMENT; MOVING:
Tenant will not make or permit anyone to make any alterations, decorations,
additions or improvements, structural or otherwise, in or to the Premises or the
Project without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, delayed or conditioned. As a condition precedent to
consent of Landlord hereunder, Tenant agrees to obtain and deliver to Landlord
such security against mechanic's liens as Landlord shall reasonably request. If
any mechanic's lien is filed against any part of the Project for work claimed to
have been done for, or materials claimed to have been furnished to Tenant, such
mechanic's lien shall be discharged by Tenant within thirty (30) days
thereafter, at Tenant's sole cost and expense, by the payment thereof or by
making any deposit required by law. Regardless of whether Landlord's consent is
required or obtained hereunder: (i) all alterations shall be made in accordance
with applicable laws, codes and insurance guidelines, and shall be performed in
a good and workmanlike manner, and (ii) if the construction or installation of
Tenant's alterations or fixtures causes any labor disturbance, Tenant shall
immediately take any reasonable action necessary to end such labor disturbance.
All alterations, decorations, additions or improvements in or to the Premises or
the Project made by Tenant shall become the property of Landlord upon expiration
of the Term and shall remain upon and be surrendered with the Premises as a part
thereof without disturbance or injury, unless Landlord requires specific items
thereof to be removed by Tenant at Tenant's sole expense, in which event Tenant
shall do so prior to the expiration of the Term at its expense, and shall repair
any damage caused thereby. The Landlord shall not require the Tenant to remove,
at the expiration of the Lease, any of the tenant improvements which were made
to the Premises pursuant to the provisions of Section 3 hereof. Notwithstanding
anything in the Lease to the contrary, Tenant shall have the right to remove,
provided it is not then in default of any term of this Lease, all movable
furniture, furnishings or trade fixtures installed in the Premises at the
direct expense of Tenant, provided the same is completed with no damage to the
Premises.
Notwithstanding anything contained herein to the contrary, Tenant shall not be
required to remove any improvements or additions unless Landlord expressly
reserves the right to require such removal by written notice to Tenant at the
same time Landlord consents to the making of such improvements or additions.
13.1 Tenant shall not place or maintain any sign, advertisement or notice on
any part of the outside of the Premises or the Project except (i) such place,
number, size, color and style as has been approved in writing by Landlord, which
approval shall not be unreasonably withheld and (ii) in accordance with the sign
criteria to be developed by Landlord. Any such signs shall be at the sole
expense of Tenant. Tenant shall remove all signs at the expiration or
termination of this lease and restore the affected area to a condition
comparable to the surrounding area.
13.2 Tenant shall not install any equipment which will or may necessitate any
changes, replacements or additions to, or in the use of, any heating,
ventilating or air-conditioning system, or electrical system to the extent
outside of the Premises, nor any equipment containing Hazardous Materials,
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without first obtaining the prior written consent of Landlord. Equipment
belonging to Tenant which causes noise or vibration that may be transmitted to
the structure of the Project or to any space therein to such a degree as to be
objectionable to Landlord or to any tenant in the Project shall be installed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or other
devices sufficient to eliminate noise and vibration.
13.3 No oversize furniture or equipment or other bulky matter of any
description will be received into the Project except as approved by Landlord.
All moving of furniture, equipment and other material shall be done at other
than normal business hours, be under the direct control and supervision of
Landlord who shall, however, not be responsible for any damage to or charges
for moving the same unless damage is the direct result of the negligence of
Landlord's or Landlord's agents or employees. Unless due to the negligence of
the Landlord or Landlord's agents or employees, any and all damage or injury to
the premises or the Project caused by moving the property of Tenant in or out of
the Premises, or due to the same being on the Premises, shall be repaired by,
and at the sole cost of, Tenant. No deliveries or pickups shall be left
unattended outside the Premises.
13.4 RIGHT OF ENTRY:
Tenant will furnish a master key to the Premises to Landlord and permit
Landlord, or its representative, to enter the Premises, to examine, inspect and
protect the Premises, and to make such alterations, renovations, restorations
and/or repairs as in the judgment of Landlord may be deemed necessary or
desirable for the Premises, for any other premises in the Project, or the
Project itself (including access to distribution systems above the ceiling of
the Premises), or to exhibit the same to prospective tenants during the last six
(6) months of the Term of this Lease or during any period Tenant is in default
hereunder, or to prospective purchasers or lenders at any time. Landlord shall
use reasonable efforts to not unreasonably interfere with the conduct of
Tenant's business, but Landlord shall in no event be liable to Tenant for any
damages in connection with such entry or installation, unless due to the gross
negligence of the Landlord or Landlord's agents or employees. Except in the case
of entries to supply janitorial or other services, if any, Landlord shall give
reasonable notice, not less than twenty-four (24) hours in advance, to Tenant of
any entry into the Premises, provided that in the case of an emergency Landlord
shall only be required to provide such notice as is consistent with the nature
of the emergency.
14.1 Landlord reserves the right to impose such security restrictions in any
common areas as it deems appropriate.
15. SERVICES AND UTILITIES:
During Project business days and hours as established by Landlord from time to
time, Landlord shall arrange for reasonably adequate grounds-keeping and snow
removal services during such seasons of the year when such services are normally
furnished in the Fargo-Moorhead metropolitan area. Charges for such grounds
keeping and snow removal services shall be part of the Operating Cost allocated
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among the Tenants of the Project. Landlord will not be liable for any loss or
damage resulting from temporary interruption of the above utilities and services
due to repairs, alterations or improvements, or any variation, interruption or
failure of these services due to governmental controls, unavailability of
energy, or any cause beyond Landlord's control, except to the extent that the
same is caused by the negligence or willful act or omission of Landlord's agents
or employees. Landlord will use reasonable efforts to notify Tenant in advance
of any temporary interruption of service. No such interruption of failure of
these services will deemed to be an eviction of Tenant or will relieve the
Tenant from any of its obligations under this Lease; provided, however, that
(1) Base Rent and additional rent applicable to any space rendered Untenantable,
as defined below, for more than five (5) days by such interruption or failure
will equitably abate from and including the sixth (6th) day of such interruption
or failure and continuing until the space is no longer Untenantable, and (2) if
such space remains Untenantable after the date ten (10) days after such
interruption or failure, Landlord will reimburse Tenant for all costs reasonably
paid by Tenant to lease alternative premises during the period of
Untenantability after such date and all costs reasonably paid by Tenant to move
to and from such alternate premises. Landlord will restore utilities and
services as rapidly as possible. If Landlord fails to restore such utilities and
services within thirty (30) days, Tenant may restore them and Landlord will
reimburse Tenant for any such costs. If Landlord fails to reimburse Tenant for
any amounts requested by Tenant under this Section 15 within ten (10) days after
Tenant's written request (which request shall include reasonable evidence of the
amounts paid by Tenant), Tenant may set off the costs of doing so (together with
accrued interest on such costs at an annual rate of interest equal to the
Interest Rate as defined in Section 22) against installments of Base Rent and
additional rent due under this Lease. Tenant shall be permitted to continue to
set off against succeeding installments of Base Rent and additional rent until
the total amount of such costs and interest have been set off against Base Rent
and additional rent under this Lease. The provisions of this Section 15 will not
apply, and will be superseded by the provisions of Section 18 and 19 of this
Lease, if utilities or services are interrupted in conjunction with damage to
the Premises or Project caused by a casualty. "Untenantable" means that the
space in question is in such a condition that the Tenant is unable to reasonably
conduct business in such space in a normal fashion without reasonable
inconvenience.
15.1 Tenant shall pay before same become delinquent, all charges made by any
public or private utility or others, for utility services furnished to or placed
upon the Premises beginning upon Tenant's occupancy of the Premises and
continuing thereafter until the later of (a) the termination of this Lease or
(b) the end of Tenant's occupancy. The term "utility services" shall include
gas, water, sewage services, trash disposal services, electric power, telephone
services, fire line charges and other similar services, to the extent serving
only the Premises. The Tenant shall pay to the appropriate utility, as its
exclusive additional expense, separately metered electrical and janitorial
services.
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16.1 WAIVER AND INDEMNITY:
Notwithstanding anything apparently to the contrary in this Lease, Landlord and
Tenant hereby release one another and their respective partners, officers and
employees and property manager from any and all liability (to the other or
anyone claiming through or under them by way of subrogation or otherwise) for
any loss or damage covered by property insurance or coverable by a customary
policy of insurance required by Section 17(a) or 17.2(a), even if such loss or
damage shall have been caused by the fault or negligence of the other party, or
anyone for whom such party may be responsible. The releases in the Section will
be effective whether or not the loss was actually covered by insurance.
16.1 Notwithstanding anything apparently to the contrary in this Lease,
Landlord and its partners, officers and employees and property manger shall not
be liable to Tenant, and Tenant hereby releases such parties from all damage,
compensation or claims from any cause other than the intentional misconduct or
negligence of Landlord or its partners, agents, officers or employees or
property manager arising from: loss or damage to personal property or trade
fixtures in the Premises including books, records, files, computer equipment,
computer data, money, securities, negotiable instruments or other papers; lost
business or subject to Section 15, other consequential damage arising out of
interruption in the use of the Premises; and any criminal act by any person
other than Landlord or its partners, agents, officers or employees.
16.2 Tenant agrees to indemnify, defend and hold Landlord and its partners,
officers and employees and property manager harmless from and against any claim,
loss or expense arising out of injury, death or property loss or damage
occurring in the Premises, except only to the extent caused by the negligent act
or omission or intentional misconduct of Landlord or its partners, agents,
officers or employees or property manager.
16.3 Landlord agrees to indemnify, defend and hold Tenant and its partners,
officers and employees harmless from and against any claim, loss or expense
arising out of injury, death or property loss or damage occurring in the
common areas of the Project, except to the extent caused by the negligent act
or intentional misconduct of Tenant or its partners, officers or employees.
17. INSURANCE:
Tenant agrees to purchase, in advance, and to carry in full force and effect
the following insurance:
(a) "All risk" property insurance covering the full replacement value of
all of Tenant's leasehold improvements, trade fixtures and personal property
within the Premises. Landlord shall be named as loss payee only under all such
policies covering leasehold improvements.
(b) Commercial general liability insurance, providing coverage on an
"occurrence" rather than a "claims made" basis, which policy shall include
coverage for Bodily Injury, Property Damage, Personal Injury, Contractual
Liability (applying to this Lease), and Independent Contractors, in current
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Insurance Services Office form or other form which provides coverage at least
as broad. Tenant shall maintain a combined policy limit of at least $2,000,000
applying to Bodily Injury, Property Damage and Personal Injury, which limit may
be satisfied by Tenant's basic policy, or by the basic policy in combination
with umbrella or excess policies so long as the coverage is at least as broad as
that required herein. Such liability, umbrella and/or excess policies may be
subject to aggregate limits so long as the aggregate limits have not at any
pertinent time been reduced to less than the policy limit stated above, and
provided further that any umbrella or excess policy provides coverage from the
point that such aggregate limits in the basic policy become reduced or
exhausted. Landlord shall be named as additional insured under all such
policies, as its interests may appear.
17.1 Landlord agrees to purchase in advance, and to carry in full force and
effect the following insurance:
(a) "All risk" property insurance coverage on the Project, exclusive of
Tenant's leasehold improvements, in such amount as Landlord deems prudent, which
shall in no event be less than the replacement cost of the Project.
(b) Commercial general public liability insurance covering the Project,
in a combined single limit amount of at least $2,000,000, and written on an
"occurrence" basis.
17.2 At the entry by Tenant on the Premises, Landlord and Tenant shall deliver
to the other evidence that the insurance required by this Lease is in full force
and effect. At least ten (10) business days prior to expiration of any such
coverage, each party shall deliver evidence that the coverage in question will
be renewed or replaced upon expiration. Such evidence of insurance shall
contain sufficient information to enable Landlord and Tenant to determine
whether the other's insurance complies with the requirements of this Lease.
Upon request, Landlord and Tenant shall also furnish to each other with
Certificates of insurance from the other's insurance broker or insurer. All
polices used to provide the coverage required by this Lease shall (i) be
endorsed to require the insurer to provide at least ten (10) days' notice to
Landlord or Tenant, as the case may be, prior to cancellation or non-renewal,
and (ii) be issued by financially sound companies having an A.M. Best Company
rating of at least A:VII.
17.3 If any insurance required hereunder ceases to be available, or is
available on terms so unacceptable that prudent landlords or tenants, as the
case may be, generally do not carry such insurance, then in lieu of such
insurance the pertinent party may carry the most comparable insurance which is
available and generally carried by prudent parties.
18. FIRE OR OTHER CASUALTY:
If the Premises or the Project shall be damaged by fire or other cause Landlord
shall at its option either (a) undertake to restore such damage with all due
diligence, or (b) in the event the Premises or the Project are damaged by fire
or other cause to such extent that damage cannot, in Landlord's sole judgment,
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be economically repaired within ninety (90) days after the date of such damage
(taking into account the time necessary to effectuate a satisfactory settlement
with any insurance company and using normal construction methods without
overtime or other premium), terminate this Lease, by notice given to Tenant
within sixty (60) days after the date of the damage. In the event that the
Landlord can not repair or restore such damage to the Premises within one
hundred and eighty (180) days after the date of such damage, the Tenant, may
at its option terminate the Lease upon providing the Landlord thirty (30) days
written notice thereof. Any termination hereunder by reason of damage to the
Premises shall be effective as of the date of the damage. Any termination by
reason of damage to the Project but not the Premises shall be effective as of
the date notice is given. If Landlord elects to restore, Landlord shall not be
obligated to restore any improvements in the Premises which were not owned and
constructed by Landlord. The Landlord shall not be obligated to restore the
tenant improvements that it caused to constructed prior to the commencement of
the Lease. Upon substantial completion by Landlord of its work, Tenant shall
undertake to restore its leasehold improvements and trade fixtures with all due
diligence. This Lease shall, unless terminated by Landlord pursuant to this
Section 18, remain in full force and effect following such damage, and, in the
case of damage to the Premises, the Base Rent and additional rent, prorated to
the extent that the Premises are rendered Untenantable, shall be equitably
abated until such repairs are completed; provided, however, that if Tenant does
not restore its leasehold improvements and trade fixtures with due diligence,
abatement shall cease as of the date restoration could have been completed using
due diligence.
19. CONDEMNATION:
If the whole or any substantial part of the Premises shall be taken or condemned
or purchased under threat of condemnation by any governmental authority, then
the Term of this Lease shall cease and terminate as of the date when the
condemning authority takes possession of the Premises and Tenant shall have no
claim against the condemning authority, Landlord or otherwise for any portion of
the amount that may be awarded as damages as a result of such taking or
condemnation or for the value of any unexpired term of this Lease; provided,
however, that Landlord shall not be entitled to any separate award made to
Tenant for loss of business or costs of relocation. In the event part of the
Project, but not the Premises, is condemned to the extent that the Project
cannot, in Landlord's reasonable judgment, be economically restored within one
hundred and eighty (180) days after the date of such taking, or, if the taking
occurs within the last twelve (12) months of the Lease term, within one (1)
month after the date of taking, either the Landlord or Tenant may terminate this
Lease by giving written notice to the other party within sixty (60) days after
the date the condemning authority takes possession.
20. CONDOMINIUM
Landlord reserves the right to dedicate all or a portion of the Project, to a
business condominium. So long such conversion does not increase Tenant's share
of the operating costs, and so long such conversion does not materially impact
Tenant's use and enjoyment of the Premise for the purposes for which the
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Premises have been leased, no such condominium conversion shall be deemed to be
breach of any express or implied covenant of quiet enjoyment.
21. DEFAULT:
Any one of the following events shall constitute an Event of Default:
(i) Tenant shall fail to pay any monthly installment of Base Rent or
additional rent as herein provided, and such default shall continue for a period
of ten (10) days after written notice by the Landlord to the Tenant of such
default;
(ii) Tenant shall violate or fail to perform any of the other conditions,
covenants or agreements herein made by Tenant and such default shall continue
for thirty (30) days after notice from Landlord; provided, however, if the
nature of the failure is such that more than thirty (30) days are required for
performance, then the Tenant shall not be in default, if the Tenant commences
performance within the said thirty (30) day period and thereafter diligently
proceeds to correct such failure;
(iii) Tenant shall file or have filed against it or any guarantor of this
Lease any bankruptcy or other creditor's action, and in the case of an action
filed against Tenant it is not dismissed within sixty (60) days, or make an
assignment for the benefit of its creditors.
21.1 If an Event of Default shall have occurred and be continuing, Landlord may
at its sole option by written notice to Tenant terminate this Lease. Neither
the passage of time after the occurrence of the Event of Default nor exercise by
Landlord of any other remedy with regard to such Event of Default shall limit
Landlord's rights under this Section 21.1.
21.2 If an Event of Default shall have occurred and be continuing, and Landlord
elects to terminate this Lease, Landlord may enter upon and repossess the
Premises (said repossession being hereinafter referred to as "Repossession") by
force, summary proceedings, ejectment or otherwise, and may remove Tenant and
all other persons and property therefrom.
21.3 No termination of this Lease pursuant to Section 21.1 and no Repossession
of the Premises pursuant to Section 21.2 or otherwise shall relieve Tanant of
its liabilities and obligations under this Lease, all of which shall survive any
such termination or Repossession. In the event of any such termination or
Repossession, whether or not the Premises shall have been relet, Tenant shall
pay to Landlord the Base Rent and other sums and charges to be paid by Tenant
up to the time of such termination or Repossession, and thereafter Tenant,
until the end of what would have been the Term in the absence of such
termination or Repossession, shall pay to Landlord, as and for liquidated and
agreed current damages for Tenant's default, the equivalent of the amount of
the Base Rent and such other sums and charges which would be payable under this
Lease by Tenant if this Lease were still in effect, less the net proceeds, if
any, of any reletting effected pursuant to the provisions of Section 21.3 after
deducting all of Landlord's expenses in connection with such reletting,
including, without limitation, all repossession costs, brokerage and management
commissions, operating expenses, legal expenses, reasonable attorneys fees,
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alteration costs, and expenses of preparation for such reletting. Tenant shall
pay such current damages to Landlord monthly on the days on which the Base Rent
would have been payable under this Lease if this Lease were still in effect,
and Landlord shall be entitled to recover the same from Tenant on each such day.
At any time after such termination or Repossession, whether or not Landlord
shall have collected any current damages as aforesaid, Landlord shall be
entitled to recover from Tenant, and Tenant shall pay to Landlord on demand, as
and for liquidated and agreed final damages for Tenant's default, an amount
equal to the then present value of the excess of the Base Rent and other sums
or charges reserved under this Lease from the day of such termination or
Repossession for what would be the then unexpired term if the same had remained
in effect, over the amount of rent Tenant demonstrates that Landlord could in
all likelihood actually collect for the Premises for the same period, said
present value to be arrived at on the basis of a discount of eight percent
(8%) per annum.
21.4 In addition to all other remedies of Landlord, Landlord shall be entitled
to reimbursement upon demand of all reasonable attorneys fees incurred by
Landlord in connection with any Event of Default.
21.5 Landlord shall in no event be considered to be in default of Landlord's
obligations hereunder for thirty (30) days after receipt of written notice by
Tenant to Landlord specifying in detail, the nature of Landlord's failure to
perform; but Landlord shall be in default thereafter if it fails to perform
within the said thirty (30) day period after receipt of detailed written
Tenant's notice. However, if the nature of the failure is such that more than
thirty (30) days are required for performance, then the Landlord shall not be in
default, if the Landlord commences performance within the said thirty (30) day
period and thereafter diligently proceeds to correct such failure.
22. LANDLORD'S RIGHT TO CURE DEFAULT; LATE PAYMENT;
If Tenant commits an Event of Default (or if any default exists and Landlord has
cause for action prior to expiration of Tenant's grace period), then Landlord
may, but shall not be required to, make such payment or do such act, or correct
any damage caused by such prohibited act and to enter the Premises as
appropriate in connection therewith, and the amount of the expense thereof, if
made or done so by Landlord, with interest thereon at the Interest Rate (as
hereinafter defined) from the date paid by Landlord, shall be paid by Tenant to
Landlord and shall constitute additional rent hereunder due and payable with the
next monthly installment of rent; but the making of such payment or the doing of
such act by Landlord shall not operate to cure such default or to estop Landlord
from the pursuit of any remedy of which Landlord would otherwise be entitled.
If any installment of rent is not paid by Tenant within ten (10) days after the
same becomes due and payable: the unpaid balance due Landlord shall bear
interest at the Interest Rate from the date such installment became due and
payable to the date of payment thereof by Tenant, and such interest shall
constitute additional rent hereunder which shall be immediately due and payable.
The "Interest Rate" as used herein means the lesser of: the maximum rate
permitted by law; and three (3) points over the rate of interest publicly
announced from time to time by Norwest Bank Minnesota N.A. as its "prime rate",
"base rate" or "reference rate", (or if more than one exist, whichever is
highest) each change in the interest rate hereunder to become effective on the
date the corresponding change in such prime rate becomes effective.
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23. WAIVER:
No waiver by either party of any breach of any agreement herein contained shall
operate as a waiver of such agreement itself, or of any subsequent breach
thereof. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly installments of rent herein stipulated shall be deemed to be other
than on account of the earliest stipulated rent nor shall any endorsement or
statement on any check or letter accompanying a check for payment of rent be
deemed an accord and satisfaction, nor shall acceptance of rent with knowledge
of breach constitute a waiver of the breach, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
rent, to terminate this Lease, to Repossess the Premises or to pursue any other
remedy provided in this Lease. No re-entry by Landlord, and no acceptance by
Landlord of keys from Tenant, shall be considered an acceptance of a surrender
of the Lease.
24. SUBORDINATION:
For the purposes of this Section 24, the term "Mortgage" shall mean at any time,
any mortgage of record now or hereafter placed against the Project, any
increase, amendment, extension, refinancing or recasting of a Mortgage and, in
the case of a sale or lease and leaseback by Landlord of all or any part of the
Project, the lease creating the leaseback. For the purposes hereof, a Mortgage
shall be deemed to continue in effect after foreclosure thereof and during the
period of redemption therefrom.
24.1 This Lease is subject and subordinate to the lien of any Mortgage which
may now or hereafter encumber the Project or any development of which the
Project is a part. In confirmation of such subordination, Tenant shall, at
Landlord's request from time to time, promptly execute any certificate or other
document requested by the holder of the Mortgage. Tenant agrees that in the
event that any proceedings are brought for the foreclosure of any Mortgage,
Tenant shall immediately and automatically attorn to the purchaser at such
foreclosure sale, as the landlord under this Lease, and Tenant waives the
provisions of any statute or rule of law, now or hereafter in effect, which
may give or purport to give Tenant any right to terminate or otherwise
adversely affect this Lease or the obligations of Tenant hereunder in the event
that any such foreclosure proceeding is prosecuted or completed. Neither the
holder of the Mortgage (whether it acquires title by foreclosure or by deed in
lieu thereof) nor any purchaser at foreclosure sale shall be liable for any act
or omission of Landlord, subject to any offsets or defenses which Tenant might
have against Landlord or bound by any prepayment by Tenant of more than one
month's installment of Base Rent and additional rent. Notwithstanding anything
to the contrary in this Section 24.1, so long as Tenant is not in default under
this Lease, this Lease shall remain in full force and effect and the holder of
the Mortgage and any purchaser at foreclosure sale thereof shall not disturb
Tenant's possession hereunder, nor impose additional obligations or burdens upon
Tenant.
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25. RULES AND REGULATIONS:
Tenant shall use the Premises and the common areas of the Project in accordance
with the terms of this Lease and such additional nondiscriminatory rules and
regulations as may from time to time be reasonably made by Landlord for the
general safety, comfort and convenience of the owners, occupants and tenants of
the Project, and Tenant shall use reasonable efforts to cause Tenant's
customers, employees and invitees to abide by such rules and regulations.
Landlord shall use reasonable efforts to cause Landlord's tenants, remployees
and invitees to abide by such rules and regulations.
26. COVENANT OF QUIET ENJOYMENT:
Landlord covenants that it has the right to make this Lease for the term
aforesaid and covenants that if Tenant shall pay the rent and perform all of the
covenants, terms and conditions of this Lease to be performed by Tenant, Tenant
shall, during the Term hereby created, freely, peaceable and quietly occupy
and enjoy the full possession of the Premises. The term "Landlord" as used in
this Lease shall mean solely the owner of the Project and underlying land, or in
the case of a sale-leaseback, the Tenant of the underlying land, at the relevant
time. The liability of the original Landlord and any successor Landlord under
this Lease is limited to its interest in the Project.
27. NO REPRESENTATIONS BY LANDLORD:
Neither Landlord nor any agent or employee of Landlord has made any
representations or promises with respect to the Premises or the Project except
as herein expressly set forth, and no right, privileges, easements or licenses
are acquired by Tenant except as herein expressly set forth. No exhibit
attached to this Lease nor any other materials provided by Landlord shall
constitute a warranty or agreement as to the configuration of the Project or
the occupants thereof. Landlord reserves the right from time to time to modify
the Project, including common areas, appurtenances and rentable areas, without
in any case reducing the obligations of Tenant hereunder; provided, however,
that such modifications doe not materially interfere with Tenant's ability to
conduct its business in the Premises or on the Project, materially increase
Tenant's obligations under this Lease, or materially decrease any of Tenant's
rights hereunder. Tenant has no right to light or air over any premises
adjoining the Project. Tenant, by taking possession of the Premises, subject to
Landlord's obligations to complete check-list items and prepare defective work
as set forth in Section 3, accept the same "as is" except as expressly provided
in this Lease and such taking of possession shall be conclusive evidence that
the Premises and the Project are in good and satisfactory condition at the time
of such taking of possession. For the purposes of this paragraph, Landlord and
Developer Lexmark Development Company. LLC, shall be deemed to be one and the
same. Notwithstanding the foregoing, the Landlord warrants to the Tenant that
the Premises are fit for the use set forth in Item 7 of the Data Sheet.
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28. NOTICES:
All notices or other communications hereunder shall be in writing and shall be
sent by overnight air express service, (i) if to Landlord at Landlord Address
set forth on Item 10 of the Data Sheet, and (ii) if to Tenant, at Enstar
Networking Corporation, 7450 Flying Cloud Drive, Eden Prairie, Minnesota, 55344,
Attention: T. Wargolet, unless notice of a change of address is given pursuant
to the provisions of this Section. The day notice is given by mail shall be
deemed to be the day following the day of mailing.
29. ESTOPPEL CERTIFICATES:
Tenant agrees at any time and from time to time, upon not less than ten (10)
days prior written notice by Landlord, to execute, acknowledge and deliver to
Landlord or a party designated by Landlord a statement in writing (i) certifying
that this Lease is unmodified and in full force and effect, or if there have
been modifications, that the Lease is in full force and effect as modified and
stating the modifications, (ii) stating the dates to which the rent and other
charges hereunder have been paid by Tenant, (iii) stating whether or not to the
best of the Tenant's knowledge, Landlord is in default in the performance of any
covenant, agreement or condition contained in this Lease, and, if so, specifying
each such default (iv) agreeing that Tenant and Landlord will not thereafter
modify the Lease without the approval of any mortgagee identified by Landlord,
and (v) agreeing that, except for any security deposit required herein, Tenant
shall not prepay any rent more than thirty (30) days in advance, and (vi) such
other matters relating to this Lease as may reasonably be requested. Any such
statement delivered pursuant hereto may be relied upon by any owner of the
Project, any prospective purchaser of the Project, any mortgagee or prospective
mortgagee of the Project or of Landlord's interest, or any prospective assignee
of any such mortgagee.
30. SURRENDER; HOLDING OVER:
Upon the expiration of this Lease or the earlier termination of Tenant's right
to possession, Tenant shall immediately vacate the Premises, remove all of its
property therefrom, remove any Hazardous Materials installed, used, generated,
stored or disposed of by Tenant, and leave the Premises in the condition
required by this Lease. Any property not removed shall be deemed abandoned, and
Tenant shall be liable for all costs of removal. Should Tenant continue to
occupy the Premises or any part thereof, after the expiration or termination of
the Term, such tenancy shall be from month to month. If the holdover is with the
consent of the Landlord such holdover shall be at the same terms, conditions and
rent as in effect during the last month of the term of the Lease, or any renewal
thereof. If the holdover is without the consent of the Landlord, then the Base
Rent shall be two times that which would otherwise be payable under Section 5.
If Tenant's holdover is without the consent of Landlord, neither this Section
nor the acceptance of any rent hereunder shall prevent Landlord from exercising
any remedy to regain immediate possession of the Premises.
-26-
<PAGE>
31. GOVERNMENTAL ACTION:
Wherever in this Lease any terms, covenants or conditions are required to be
kept or performed by Landlord, Landlord shall be deemed to have kept and
performed such terms, covenants and conditions notwithstanding any act or
omission of Landlord, if such act or omission is pursuant to any governmental
regulations, requirements, directives.
32. BROKERS:
Tenant warrants that it has not engaged or dealt with any broker in connection
with this Lease other than Jeff Schlossman, of Schlossman and Gunkelman as
Tenant agent and Tenant agrees to indemnify, defend and hold Landlord harmless
from and against any claim for broker's fees or finder's fees asserted by anyone
other than those specified above, on account of any dealings with Tenant in
connection with this Lease.
33. TENANT'S TAXES:
At least ten (10) days prior to delinquency, Tenant shall pay all taxes levied
or assessed upon (i) Tenant's equipment, furniture and other personal property
located in or about the Premises, and (ii) this Lease or the rent paid hereunder
or any portion thereof, excluding any tax measured by Landlord's net income.
If any such taxes are imposed upon Landlord, Tenant shall pay to Landlord, at
least twenty (20) days before the date each installment is due to the taxing
authority, the portion allocable to Tenant pursuant to this Section 33.
34. MISCELLANEOUS:
(a) This is a North Dakota contract and shall be construed according to the
laws of North Dakota.
(b) The captions in this Lease are for convenience only and are not a part of
this Lease.
(c) If more than one person or entity shall sign this Lease as Tenant, the
obligations set forth herein shall be deemed joint and several obligations of
each such party.
(d) Time is of the essence of all provisions of this Lease.
(e) The provisions of this Lease which relate to periods subsequent to the
expiration of the Term shall survive expiration.
(f) If any provision of this Lease is invalid or unenforceable to any extent,
then such provision and the remainder of this Lease shall continue in effect and
be enforceable to the fullest extent permitted by law.
(g) This Lease contains the entire agreement of the parties with respect to the
Premises and Project. This Lease may be modified only by a document in writing
executed and delivered by both parties.
(h) Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture between Landlord and Tenant, or to create any
relationship between the parties other than that of landlord and tenant.
(i) When the consent of any party thereto is required by the terms and
provisions of this Lease, the parties agree that such consent shall not be
unreasonably withheld, delayed or conditioned unless specifically so stated to
the contrary in the applicable section.
-27-
<PAGE>
(j) Unless the parties hereto agree to the contrary in writing, any dispute
arising under this Lease shall be resolved pursuant to arbitration n accordance
with attached Exhibit "C".
This Lease shall be binding upon and inure to the benefit of the parties hereto
and, subject to the restrictions and limitations herein contained their
respective heirs, successors and assigns.
This Lease was executed by the parties as of the date first written above.
Lexmark Office One Partners, LLP Enstar Networking Corporation
By: Its Managing Partner
Lexmark Development Company, LLC
By: s/s Robert H. Leslie By: s/s Thomas S. Wargolet
-------------------------- -----------------------------
Robert H. Leslie, Thomas S. Wargolet
Its: President Its: Vice-President, Finance
and Operations
By:
-----------------------------
Jerry Mears
Its: Regional Manager
Landlord Tenant
- --------------------------- ---------------------------
Date Date
----------------------- -----------------------
-28-
<PAGE>
Exhibit 10.26
NORTH CAROLINA
WAKE COUNTY
LEASE AGREEMENT
THIS LEASE, made and entered into this 14th day of September by PYLON,
INC., a NORTH CAROLINA corporation with its principal office in Raleigh,
Wake County, North Carolina, hereinafter referred to as "Landlord", and
Americable, Inc., a Minnesota corporation, hereinafter referred to as "Tenant".
WITNESSETH:
WHEREAS, Landlord is the owner of a certain building situated on a tract of
land in the City of Raleigh, Wake County, North Carolina, at 533-102 Hutton
Street, Pylon Commercial Park, Raleigh, North Carolina, and Tenant desires to
lease approximately 2,400 square feet of building to be used for office and
laboratory space for a period of three (3) years beginning October 1, 1998.
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) by each
to the other paid, the receipt of which is hereby acknowledged, and of the
covenants and agreements hereinafter set forth, Landlord does hereby demise
and lease to Tenant, its successors and assigns, and Tenant does hereby take
and hire from Landlord, subject to the conditions hereinafter expressed, the
following rental space in a building (hereinafter referred to as "leased
premises") in the City of Raleigh, Wake County, North Carolina, and more
particularly described as follows: The rental space in the building will
consist of approximately 2,400 square feet of office and warehouse space as
indicated on Exhibit "A" attached hereto.
TOGETHER WITH the rights of ingress, egress, and regress to and from said
leased premises across the property of the Landlord to public streets, and the
exclusive right of 8 parking spaces in that certain parking area adjacent to
the leased premises as marked by Landlord, and the non-exclusive right of
parking in other parking areas and using all alleys, streets and ways on the
Landlord's property in the area adjacent to the leased premises for the benefit
of the Tenant, its employees, agents, licensees, visitors and invitees.
TO HAVE AND TO HOLD said leased premises, together with rights, privileges
and appurtenances hereinafter set forth, unto it, the Tenant, its successors
and assigns, for the full term of an in accordance with the provisions of this
indenture.
-1-
<PAGE>
And the Landlord and Tenant do hereby covenant and agree as follows:
1. TERM. The agreed term of this lease shall be three (3) years
commencing on October 1, 1998 and shall terminate on September 30, 2001.
2. OPTION TO EXTEND TERM OF LEASE. The initial term of this lease may be
extended for an additional period of N/A at the option of Tenant. Such option
to extend shall be exercised by Tenant by giving written notice to Landlord not
more than six (6) nor less than two (2) months prior to the expiration of the
existing term. Said extended term shall be upon the same terms, covenants and
conditions as provided in this lease for the initial term except that the rent
payable during said extended term shall be negotiable. Any termination of this
lease during the initial term or during the extended term shall terminate all
rights of extension hereunder.
3. RENT. (a) Tenant shall pay to Landlord during the term of this lease,
rental as follows:
The annual rental for said space shall be as follows. The annual rent
for each year of the lease shall be twenty-six thousand four hundred
dollars and no cents ($26,400.00). The rent shall be paid monthly in the
amount of two thousand two hundred dollars and no cents ($2,200.00). This
rent shall commence on the first day of October 1998, and continue to be
due on the first day of every month through September 2001. Rent received
after the tenth (10) day of the month will be subject to a two percent (2%)
late fee.
4. COMMON AREA MAINTENANCE. Tenant to pay Landlord a monthly sum equal to
ninety dollars ($90.00) for common area maintenance.
5. SECURITY DEPOSIT. Tenant is required to pay a security deposit equal
to one months rent ($2,200.00). This deposit shall be returned to the Tenant at
the end of this lease term provided the Tenant has met all provisions of this
lease and has left the premises in good condition.
6. TAXES. During the term of this lease, Landlord shall pay all ad
valorem property taxes and assessments levied on the leased premises by the
City of Raleigh, the County of Wake, or any other governmental agency, and
Tenant, in addition to the basic rent and overage rent, shall also pay to
Landlord as additional rent the amount, if any, which is equal to the
increase in the amount paid by the Landlord for City and County ad valorem
taxes on the leased premises for such year over the amount paid by the
Landlord as such taxes for the first calendar year after the effective date
of this lease. It is understood and agreed that Tenant is only leasing a
percentage of the warehouse building, therefore, if the tax increase is
computed on the entire building, then Tenant shall be responsible for only
this pro rata share, such additional rent shall be payable within fifteen
(15) days after demand by Landlord in writing accompanied by a copy of
applicable tax receipts and a computation of the amount of the additional
rent.
-2-
<PAGE>
7. FIRE INSURANCE. Landlord agrees to secure and maintain adequate
fire and extended coverage insurance upon the leased premises in such an
amount as is necessary to carry out its obligation under this lease
concerning repairs to said leased premises and the Landlord agrees to use
the proceeds of said insurance to make such repairs or rebuild. Further,
Landlord warrants that its insurance carrier waives all subrogation rights
against Tenant in all events.
8. INSURANCE PREMIUMS. The Tenant agrees that it will pay any
increase in the hazard insurance premiums allocable to said leased premises,
which increase shall be caused by use of said premises by the Tenant for
purposes other than office and storage space; and in case the Tenant shall
omit to pay such increase in insurance premiums allocable to said leased
premises, the Landlord shall be entitled to pay the same and the amount
so paid shall be added to the rent then or next to become due hereunder;
provided that Landlord shall have first given Tenant at least two weeks
written notice of such amount of premium increase.
9. DESTRUCTION TO BUILDING BY FIRE OR OTHER CASUALTY. In the event
of a partial destruction of the leased premises, whether by fire,
unavoidable casualty, act of God, or otherwise, then Landlord shall
forthwith repair the same, provided such repairs can be made within
ninety (90) days; said partial destruction shall in no way annul or
void this lease, except that Tenant shall be entitled a proportionate
reduction to be based upon the extent to which the damage and making of
such repairs shall interfere with the business carried on by Tenant in
the leased premises; if the leased premises are totally destroyed by
any fire, unavoidable casualty, act of God, or otherwise, and thereby
rendered unfit for use, then and in that event this lease shall terminate
and the Tenant shall be relieved of any further rental payments provided
for herein.
10. LIABILITY INSURANCE. Tenant shall be responsible for and shall
save Landlord harmless from and against any and all claims for damages to
persons or property resulting from or arising out of the use and occupancy
of the leased premises throughout the term of the lease. Tenant, at all
times during the term hereof, at its sole cost and expense, shall procure,
or cause to be procured, and keep in force comprehensive liability
insurance with limits of liability of not less that two hundred thousand
dollars ($200,000.00) for injury to any one person, not less than five
hundred thousand dollars ($500,000.00) for injuries to more than one
person arising out of any one accident, and not less than fifty thousand
dollars ($50,000.00) for property damage. The policy or policies of
insurance shall be in standard form and shall name Landlord therein as an
additional insured, together with Tenant, and shall be issued by insurers
acceptable to Landlord, if such acceptance is not unreasonably withheld.
Premiums for all policies of insurance herein referred to and all renewals
thereof shall be paid by Tenant on or before the beginning date of the next
annual policy or renewal period and certificates thereof shall be furnished
to Landlord by Tenant promptly upon the issuance of each policy or renewal
thereof.
-3-
<PAGE>
11. MAINTENANCE. Tenant, during the initial term of this lease or an
extension thereof, at its sole expense, shall keep the interior of the building
on the leased premises in as good order and repaid as it is at the effective
date of this lease, reasonable wear and tear and damage by fire or other
casualty excepted; provided, however, that during the first year of the initial
term of this lease, Landlord shall repair at its own expense any of the interior
of the building which is in need of repair as a result of poor workmanship or
the use of defective materials in the construction of the building. Tenant
shall be responsible for routine maintenance and the Landlord is responsible for
all repairs other than those resulting from failure by Tenant to exercise proper
maintenance.
12. SIGNS. Any signs placed on the external portion of the building must
be approved by the Landlord and be in compliance with ordinances of The City of
Raleigh.
13. ALTERATIONS. Tenant shall not make any structural improvements or
additions to the leased premises other than as provided herein without the
written consent of Landlord, but Tenant, at its own expenses and with the
herein grated consent of Landlord, may make non-structural alteration,
improvements and additions, and install equipment, lighting fixtures,
partitions and wiring and tenant shall have the right, at its option and
expense, upon termination of the lease to remove such alterations, additions,
improvements, and installations and, in the event of such removal, shall then
be obligated to restore the property at its own expense to the condition that
existed at the commencement of the term of the lease. Upon termination of the
lease, Landlord, if it so elects, shall have the right to require Tenant, at
Tenant's expense, to so remove any alterations, improvements, additions and
fixtures made or installed without Landlord's consent and to so restore the
leased premises.
14. USE AND OCCUPANCY. Tenant, at all times during the term shall have
sole and exclusive control and right of use and occupancy of the leased
premises and all improvements thereon. Landlord, or its representatives,
shall have the right, however, to enter the leased premises, at any
reasonable time and after reasonable notice, for the purpose of inspection
of the property or performing any work which Landlord elects to undertake
or is required to perform under the provisions of this lease. Tenant may
use and occupy the leased premises for any lawful purpose but shall not use
or occupy or permit the property to be used or occupied, nor do or permit
anything to be done on the leased premises, which shall make void or
voidable the appropriate insurance then contemplated by this lease to be in
force with respect thereto, or which will cause or be likely to cause
structural damage to the building or any part thereof, or which will constitute
a public or private nuisance. Tenant shall be permitted use of the leased
front, outside, exterior wall for the purpose of displaying its corporate name
in accordance with item number ten hereinabove set forth.
-4-
<PAGE>
15. WARRANTY OF TITLE. Landlord warrants that it has good legal right to
execute and deliver this indenture and to grant and convey to Tenant the
leasehold estate herein provided for the term, at the rental, and upon the
conditions herein set forth. Landlord also warrants and agrees to defend the
title to the leased premises and covenants that Tenant, so long as it shall not
be in default hereunder, shall peaceably and quietly have, hold and enjoy the
leased premises for the full term. Landlord further warrants that use of the
leased premises for the purpose herein stipulated comply with the applicable
zoning laws and regulations.
16. UTILITIES. After the effective date of this lease, Tenant shall pay
all charges for gas, electricity, light, heat, power, and telephone or other
communcations services used, rendered, or supplied upon or in connection with
the leased premises, and shall indemnify Landlord against any liability or
damages on such account.
17. CONDEMNATION. In the event during the term of this lease or any
extension thereof the entire leased premises are acquired by the exercise of
the power of eminent domain, or so much thereof as shall render the same not
reasonably suitable to Tenant's uses, this lease shall terminate at the time
possession must be surrendered, and the Tenant shall be relieved of all future
rental payments provided for herein. Tenant shall be entitled to receive a
portion of the condemnation award allocable to Lessee's alterations,
improvements, additions and installation in said leased premises.
18. BANKRUPTCY. If at any time during the term of this indenture, Tenant
shall be adjudged bankrupt or insolvent by any federal or state court of
competent jurisdiction and such adjudication shall not be set aside or vacated
within a period of sixty (60) days. Landlord may, at its option, and ten (10)
days after delivery of notice to Tenant, declare this lease terminated and
canceled and take possession of the leased premises.
19. SUBORDINATION. This lease shall be subject and subordinate at all
times to the lien of any mortgage or deed of trust which hereafter may be made
a lien on the leased premises by Landlord. Although no instrument or act on
the part of Tenant shall be necessary to effectuate such subordination, Tenant
will, nevertheless execute such further instruments subordinating the lease to
the lien of any such mortgage or deed of trust as may be desired by the lender,
provided, however, and not withstanding anything herein contained to the
contrary, that as long as the said Tenant, its successors and assigns, shall
fully perform the covenants and conditions contained herein, including the
payment of all rentals hereunder, it shall have the right to peaceably occupy
and possess the demised premises under this lease without interruption or
disturbance by the purchaser at a foreclosure sale.
20. DEFAULT. Tenant agrees that if default shall be made by it, its
successors or assigns, in the payment of the rent herein reserved or in any
other term or condition set forth herein and such default shall continue
for a period of thirty (30) days after mailing of notice thereof in writing
to the Tenant, its successors or assigns, then in either or any event it may
and shall be lawful for the Landlord at any time thereafter to enter into or
on the said premises, repossess and expel the Tenant or anyone holding under
-5-
<PAGE>
it, its successors and assigns, and remove its effects forcibly if necessary
without prejudice to any rights or remedies whether by statute or common law
upon such entry by the Landlord, it may lease or re-let the premises in whole
or in part or the buildings and improvements thereon to any Tenant or Tenants
that may be satisfactory to it.
21. ASSIGNMENT OR SUBLETTING. Tenant may not assign or transfer this
lease or let or sublet all or any part of the leased premises without the
consent of the Landlord, which shall not be unreasonably withheld or delayed,
an no assignment, transfer or subletting shall in any way relieve or release
Tenant of its obligations hereunder unless such release is expressly agreed
to by Landlord in writing.
22. WAIVER OF CONDITIONS. In the event Landlord shall fail to exercise
any right, power or option immediately upon the same arising, such failure
shall not be construed a waiver of the right to exercise that right, power
or option at a subsequent time, and the failure on the part of the Landlord
to insist upon strict compliance with any of the terms of this agreement by
the Tenant shall not be construed as a waiver of the right of the Landlord
to insist upon compliance in the future.
23. ARBITRATION. Any controversy which shall arise between Landlord
and Tenant regarding the rights, duties or liabilities hereunder of either
party shall be submitted to arbitration pursuant to Article 45, Chapter 1,
General Statutes of North Carolina. Such arbitration shall be before one (1)
disinterested arbitrator, if one can be agreed upon, otherwise before three (3)
disinterested arbitrators, one named by Landlord, one by Tenant and one by the
two thus chosen. The arbitrator or arbitrators shall determine the controversy
in accordance with the laws of North Carolina as applied to the facts found by
them, and the determination so made shall be binding and conclusive upon the
parties hereto.
24. SITUS. This indenture shall be binding upon and shall inure to the
benefit of Landlord and Tenant and their respective successors and assigns.
25. HAZARDOUS MATERIALS. Environmental Compliance.
A. Tenant's Responsibility. Tenant covenants and agrees that the
Premises will, at all times during its use or occupancy thereof, be kept and
maintained so as to comply with all now existing or hereafter enacted or
issued statutes, laws, rules, ordinances, orders, permits, and regulations
of all state, federal, local, and other governmental and regulatory authorities,
agencies, and bodies applicable to the Premises, pertaining to environmental
matters, or regulating, prohibiting or otherwise having to do with asbestos and
all other toxic, radioactive, or hazardous wastes or materials, including, but
not limited to the Federal Clean Air Act, the Federal Water Pollution Control
Act, and the Comprehensive Environmental Response, Compensation and Liability
act of 1980, as from time to time amended (all hereafter collectively called
"Laws").
-6-
<PAGE>
B. Tenant's Liability. Tenant shall hold Landlord free, harmless, and
indemnified from any penalty, fine, claim, demand, liability, cost, or charge
whatsoever which Landlord shall incur, or which Landlord would otherwise incur,
by reason of Tenant's failure to comply with this Section 25; including, but
not limited to: (i) the cost of bringing the Premises into compliance with all
Laws; (ii) the reasonable cost of all appropriate test and examinations of the
Premises to confirm that the premises have been brought into compliance with
all Laws; and (iii) the reasonable fees and expenses of Landlord's attorneys,
engineers, and consultants incurred by Landlord in enforcing and confirming
compliance with Section 25.
C. Property. For the purpose of this Section 25, the Premises shall
include the real estate covered by this Lease; all improvements thereon; all
personal property used in connection with the Premises (including that owned
by Tenant); and the soil, ground, water, and surface water of the Premises.
D. Inspections by Landlord. Landlord and its engineers, technicians,
and consultants (collectively the "Auditors") may from time to time as Landlord
deems appropriate, conduct periodic tests and examinations ("Audits") of the
Premises to confirm and monitor Tenant's compliance with this Section 25.
Such audits shall be conducted in such manner as to minimize the interference
with Tenant's permitted activities on the premises; however, in all cases, the
audits shall be of such nature and scope as shall be reasonably required by
then existing technology to confirm Tenant's compliance with this Section 25.
Tenant shall fully cooperate with Landlord and its Auditors in the conduct of
such Audits. The cost of such Audits shall be paid by Landlord unless an Audit
shall disclose a material failure of Tenant to comply with this Section 25, in
which case the cost of such Audit, and the cost of all subsequent Audits made
during the Lease term and within thirty (30) days thereafter (not to exceed two
(2) such audits per calendar year) shall be paid for on demand by Tenant.
E. Landlord's Liability. Provided, however, the foregoing covenants and
undertakings of Tenant contained in this Section 25 shall not apply to any
condition or matter constituting a violation of any Law: (i) which existed prior
to the commencement of Tenant's use or occupancy of the premises and was not
caused, in whole or in part, by Tenant or tenant's agents, employees, officers
partners, contractors, or invitees; or (ii) to the extent such violation is
caused by, or results from, the acts or neglects of Landlord or Landlord's
agents, employees, officers, partners, contractors, guests, or invitees.
F. Tenant's Liability After Termination of Lease. The covenants contained
in this Section 24 shall survive the expiration of termination of this Lease,
and shall continue for so long as Landlord and its successors and assigns may be
subject to any expense, liability, charge, penalty, or obligation against which
Tenant has agreed to indemnify Landlord under this Section 25.
26. HOLDING OVER. If the tenant should continue to occupy the leased
premises after the expiration of the term herein provided and any extension or
renewal thereof, without any agreement in writing with the Landlord as to the
term of such continued possession, then such additional tenancy shall be on a
month to month basis under the same terms and conditions as existed immediately
prior to such holding over, except that the rent shall increase to 125% of the
-7-
<PAGE>
rent in effect at the time of the expiration. In case of such continued
possession the month to month tenancy created thereby may be terminated and
canceled by the Landlord or by the Tenant by giving sixty (60) days written
notice to the other party.
27. NOTICE. All mail sent for the purpose of paying rent or to serve any
notice, demand or communication upon the other party, if intended for Landlord
shall be addressed to:
Pylon, Inc.
501-E Uwharrie Ct.
Raleigh, NC 27606
and intended for Tenant shall be addressed to:
Americable, Inc.
7450 Flying Cloud Drive
Eden Prairie, MN 55344
Attn: Peter Flynn
or to such other address as either party may have furnished to the other in
writing as a place for the service of notice.
IN WITNESS WHEREOF, Landlord and Tenant have each caused this instrument
to be executed, sealed and attested by their respective duly authorized
officers, all as of the day and year first above written.
PYLON, INC. (Landlord)
By: -------------------------
President
ATTEST
By: ---------------------------
Secretary
AMERICABLE, INC. (Tenant)
By: -------------------------
President
ATTEST
By: ---------------------------
Secretary
-8-
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