SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from _________ to __________
COMMISSION FILE NO. 0-21375
ONTRACK DATA INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
MINNESOTA 41-1521650
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6321 BURY DRIVE
EDEN PRAIRIE, MN 55346
-----------------------------------------------------
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 937-1107
REGISTRANT'S INTERNET ADDRESS: www.ontrack.com
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 1999, assuming as market value the price of $4.125 per share,
the average between the high and low sale prices on the Nasdaq National Market,
the aggregate market value of shares held by nonaffiliates was approximately
$18,500,000.
As of March 15, 1999, the Company had outstanding 9,697,234 shares of Common
Stock, $.01 par value.
Portions of the Proxy Statement for the Company's Annual Meeting of Shareholders
to be held May 20, 1999 are incorporated by reference into Part III of this Form
10-K, to the extent described in such Part.
<PAGE>
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. DESCRIPTION OF BUSINESS................................. 3
Item 2. DESCRIPTION OF PROPERTY................................. 9
Item 3. LEGAL PROCEEDINGS....................................... 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................................ 9
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................... 9
Item 6. SELECTED FINANCIAL DATA................................. 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................... 11
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................. 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............. 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................... 18
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...... 18
Item 11. EXECUTIVE COMPENSATION.................................. 18
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT........................ 18
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................................ 19
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K............................................. 19
SIGNATURES ........................................................ 21
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Ontrack Data International, Inc. ("Ontrack"), the world leader in data
recovery, specializes in services and software that help a broad range of
computer users access and recover their valuable data. Using hundreds of
proprietary tools and techniques, Ontrack is able to recover lost or corrupted
data from nearly all operating systems and types of storage devices. Ontrack
performs data recoveries for Fortune 500 corporations, governmental agencies,
educational and financial institutions, as well as small businesses and
individuals. Ontrack also offers a do-it-yourself data recovery software product
and other data access and protection software. Ontrack believes it is the only
company in the world offering this complete range of data recovery products and
services. The Company also markets several variations of DISK MANAGER(R), a hard
disk drive installation software utility which the Company originally developed
in 1985. The Company's data recovery services revenues represented approximately
81% of total revenues in 1998, with software revenues representing the balance.
BACKGROUND OF DATA RECOVERY BUSINESS
The amount of data stored in hard disk drives, floppy disks, CD-ROMs,
magnetic tape and other types of storage media has been growing rapidly over the
past several years. The growth in stored data has been fueled in part by the
rapid expansion of the installed base of personal computers, midrange computers,
servers and mainframes. With this proliferation of storage capacity has come an
increased dependence on fast and reliable access to stored data in both the
office and the home. Much of the stored data is essential, and sometimes
mission-critical, to the user or the user's organization.
Data can often become inaccessible to the user as a result of a wide
variety of either hardware or software failures. Hardware failures involve
physical damage to the mechanism that retrieves the data or to the storage media
itself, including wear, aging, physical abuse, vandalism or environmental
hazards. Software failures involve corruption of the software file structure
that makes the data accessible, including user errors, improper or incompatible
software installation or computer viruses. In both types of failures, the data
often still exists on the storage media but cannot be retrieved by the user.
In an effort to prevent data loss, users may pursue one or more
protective measures. The most common method is to automatically or manually back
up data on a routine basis for onsite or offsite storage. Backup systems and
other data protection methods have become faster, more effective and more
sophisticated in recent years, and computer users have invested heavily in
faster drives and storage systems in an attempt to prevent data loss. Now many
backup systems, such as disk array (RAID) systems, involve distribution of data
across corporate networks to minimize loss in case of a hardware or software
failure. Other methods of protecting data include securing access to computer
equipment, implementing anti-virus procedures, and developing disaster recovery
plans for floods, fires and other natural disasters. All of these methods may be
helpful in reducing the likelihood of data loss in certain instances, and the
use and effectiveness of these methods is likely to increase in future years.
However, these methods are not used by all computer users, and they have not
been able to prevent a wide variety of data loss situations from occurring and
may not represent a cost-effective alternative.
When users experience data loss, they generally first determine whether
a backup has been made and, if so, whether it is current, easily accessible and
functional. If not, the users will seek assistance from
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the nearest perceived computer expert, which may include an MIS department or
other corporate personnel, a local computer store or a third party computer
maintenance provider. In many cases, these people do not have the specialized
training, software or equipment necessary to recover lost data, and their
attempts to recover the data can actually exacerbate the data loss and hinder
the data recovery. If these recovery efforts are unsuccessful, users are often
informed or conclude that the data loss is "terminal" and that the data is not
recoverable. In many cases, however, the lost data can be recovered by a
properly trained and equipped data recovery specialist.
DATA RECOVERY SERVICES AND PRODUCTS
Ontrack provides data recovery services and products to address a wide
variety of data loss situations. Ontrack has the ability to recover data stored
in nearly all types of storage media and operating systems, regardless of the
sophistication or age of the storage media or the operating system.
Customers worldwide can call Ontrack's customer service representatives
to report a data loss. The customer service representative discusses the data
loss situation with the customer and describes the availability of TIRAMISU(TM)
software and the Company's service options, including an estimated cost range.
In most cases, the customer ships the hard disk drive or other storage media by
overnight courier to one of the Company's facilities. Remote Data Recovery and
onsite service options are also available. The Company's data recovery engineers
perform a thorough diagnostic evaluation to determine the nature and cause of
the data loss, the quantity of data that can be recovered, and the prescribed
course of data recovery. If the specified data cannot be recovered, Ontrack
returns the storage media to the customer. If the specified data is recoverable,
the sales representative quotes a specific price. If the customer elects to
proceed, the Company performs the recovery using one or more of Ontrack's data
recovery tools. These tools include numerous proprietary software programs and
specialized devices, fixtures and other equipment. The Company stores the
recovered data on the medium of the customer's choice, returns the data along
with the customer's original equipment and invoices the customer.
The Company introduced Remote Data Recovery(TM) ("RDR") in January
1998. RDR works in conjunction with ONTRACK DATA ADVISOR(TM) (Data Advisor), a
freeware diagnostic software product which the Company developed. Data Advisor
analyzes file systems and structures, system memory and the hard drive's ability
to read stored data. When a data loss occurs, Data Advisor can be used to
diagnose the problem quickly and provide the computer user with a recommendation
on how to proceed.
The Company acquired the TIRAMISU(TM) product line in December 1998
from the German company Plug'n Play Computerberatung GbR. TIRAMISU(TM) is sold
primarily over the Internet. Ontrack is expanding promotion of the software and
is integrating the product line into its wide array of data recovery solutions.
TIRAMISU(TM) is effective in cases where the lost data is relatively easy to
recover and does not require the expertise of a data recovery engineer.
TIRAMISU(TM) provides risk-free reconstruction of data in many cases where the
recovery requires rebuilding system software to access the data.
Ontrack also offers services in related areas such as computer evidence
services for both civil and criminal cases. These services assist customers in
obtaining evidence from computer systems, such as files that other parties
attempted to delete or overwrite, as well as in confirming that certain files
were created, modified, deleted, copied or destroyed. Company employees also
testify as expert witnesses on computer data-related issues.
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The Company plans to use its technical and cash resources to undertake
initiatives to grow its revenues. Ontrack intends to diversify its current
business into markets adjacent to its core data recovery business where its
knowledge of data storage and its technologies are needed. This may include the
development of new products or acquisitions of new products and services,
especially in the home and small office/home office markets. Ontrack will also
continue to support the introduction of TIRAMISU(TM) do-it-yourself data
recovery software products, which give Ontrack a low cost, low end data recovery
solution. Ontrack also plans to extend its remote data recovery capability to NT
and Netware, giving it the capability to do remote data recoveries on larger
server based networks and enhancing its leadership position in the high end
market. By further expanding its suite of services and software, the Company
hopes to further distinguish itself from its competitors. The Company also hopes
this expansion will improve the results of its strategic relationships with
large corporations, third party computer maintenance service organizations and
other organizations that agree to refer data recovery opportunities to the
Company and desire more Ontrack products they can offer to their customers.
COMMERCIAL SOFTWARE PRODUCTS
The Company's commercial software products represented 19% of the
Company's total revenues for 1998. The Company's principal software product is
DISK MANAGER(R), accounting for 92% of software revenues in 1998.
DISK MANAGER(R) is a hard disk drive installation and partitioning
utility for personal computers. DISK MANAGER(R) optimizes storage capacity on a
wide range of hard disk drives and facilitates the process of installing
replacement or upgrade drives by linking operating system software with the
drives. Since DISK MANAGER(R) was developed in 1985, the Company has developed
new versions of the program for computers using MS-DOS, Windows, Windows 95,
Windows NT, OS/2 and Macintosh operating systems. DISK MANAGER(R) is generally
sold on an original equipment manufacturer ("OEM") basis through hard disk drive
manufacturers. By bundling the program with their hard disk drives, these OEMs
are able to reduce their customer's need for technical support and increase the
probability of a successful installation.
DISK MANAGER(R) continues to be profitable for the Company; however,
competition is creating pricing pressures that are expected to continue. As
described above, the Company also markets and supports the TIRAMISU(TM) data
recovery software product it acquired in December 1998. The Company expects to
continue in the software business, with a focus on data recovery and protection
products that will be complementary with the data recovery business.
RESEARCH AND DEVELOPMENT
The Company's staff of 48 software developers continually develop and
update the Company's data recovery tools and commercial software products. In
addition, in the performance of data recovery services, the Company's data
recovery engineers collaborate with the software developers in creating new
tools and procedures. The Company will devote additional software development
resources to developing new software products related to the data recovery and
protection business.
SALES AND MARKETING
The Company has historically generated a large proportion of its data
recovery services revenue as a result of general name recognition, referrals
from existing customers and disk drive manufacturers and
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advertising. The Company believes it must expand and change its marketing
efforts to achieve growth in the data recovery business. The Company continues
to develop and support its Web site and will focus on Internet-related
marketing. The TIRAMISU(TM) software product is principally marketed over the
Internet and the Company hopes to develop further products that will serve the
needs of a range of potential customers visiting the Web site.
The Company has dedicated sales and marketing resources to obtain
relationships with other computer service companies which would offer the
Company's data recovery services to their customers as part of their service
offerings. The Company has developed a referral relationship with CompUSA and
will continue to focus on computer retailers as a source of referrals. In
addition, the Company advertises its services and products through direct mail,
periodicals and trade journals and participates in selected industry trade
shows.
The Company also markets DISK MANAGER(R) through its sales force, which
attempts to maintain and expand relationships with hard disk drive manufacturers
and other corporate partners for sales on an OEM basis.
CUSTOMERS
The Company provides data recovery services to a broad range of
customers, including Fortune 500 companies, governmental agencies, educational
and financial institutions, as well as small businesses and individuals. The
Company believes a greater proportion of its sales will come from small
businesses and individuals as it increases its focus on sales of do-it-yourself
software and remote data recovery.
The Company's software products are sold principally on an OEM basis to
hard disk drive manufacturers. Historically sales of software products to
individual OEMs have varied from period to period and there can be no assurance
that such deviations will not continue.
No single customer accounted for 10% or more of the Company's revenues
in 1996, 1997 or 1998.
COMPETITION
The data recovery market is currently served by a large number of
relatively small, independent service providers. Competition among these firms
is intense and barriers to entry are low for competitors seeking to offer data
recovery services. A large number of new, relatively small, data recovery
companies have entered the marketplace in recent years. The Company believes
that the primary competitive factors in the data recovery business are name
recognition, the effectiveness of the data recovery services, the ability to
operate within a large number of operating environments with a variety of
storage media, the timeliness of the services, the number of emergency and
custom services provided, and cost. The Company believes that its broad product
and service line, its experience with data storage, its substantial investment
in personnel, its data recovery tools and its remote data recovery capabilities
provides it with a significant competitive advantage.
The computer software industry is highly competitive and characterized
by significant and rapid technological advances. The Company currently sells the
vast majority of its Disk Manager software to hard disk drive manufacturers on
an OEM basis, and there is no assurance that any such relationships will
continue. Developers of competing software may offer their products to the OEMs
at prices lower than those
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of the Company's products. This price competition may cause the Company to lose
OEM customers or may force the Company to lower its prices, which may have a
material adverse effect on software revenues and margins. In addition, as higher
capacity drives and improved operating systems are designed and marketed,
Ontrack must continue to develop and market enhanced versions of its products to
complement the new technologies.
PROPRIETARY TECHNOLOGY
The Company currently relies on a combination of copyright, trademark
and trade secret laws, non-disclosure agreements and other methods to protect
its proprietary technology. In addition, the Company has applied for patents in
the United States and certain other countries relating to technology used in
Remote Data Recovery(TM). In July 1998, the Company also filed a U.S. patent
application covering technology for remote virus scanning and repair. There can
be no assurance that any meaningful patent protection will result from these
patent applications and/or that systems or methods disclosed in the patent
applications do not infringe any third party patents or copyrights. There can be
no assurance that any future patents acquired by Ontrack will be of sufficient
scope or strength to provide meaningful protection of its products and
technologies. In addition, the Company's proprietary technology involves the use
of copyrightable material such as computer software. Existing copyright laws
afford only limited protection, and it may be possible for unauthorized third
parties to copy the Company's products and processes or to reverse engineer or
obtain and use information that the Company regards as proprietary. Ontrack also
relies on proprietary processes and techniques, materials expertise and trade
secrets applicable to the computer data recovery industry. Ontrack believes that
these proprietary rights may provide it with a competitive advantage as
important, if not more important, to Ontrack as patent protection. There can be
no assurance that protective measures taken by Ontrack will provide Ontrack with
adequate protection of its proprietary information or with adequate remedies in
the event of unauthorized use or disclosure.
COMPANY OFFICES
The Company's main office is in Minneapolis, Minnesota. In addition,
the Company has offices in Los Angeles, Washington, D.C., San Jose, California,
New York, London, England, Stuttgart, Germany, and Paris, France. Each of the
Company's facilities has stand alone data recovery capabilities, except for the
Paris office, which is strictly a sales office. The Company also offers data
recovery, data conversion and consulting services in Japan through a licensing
arrangement with Y-E Data, a subsidiary of Yaskawa Electric, Inc., a major
technology company.
EMPLOYEES
As of March 1, 1999, the Company had a total of 303 full time
employees, including 105 in data recovery engineering, 48 in software
development, 82 in sales and marketing, 9 in customer support and 59 in
administration and finance. None of the Company's employees are represented by a
labor union or are subject to a collective bargaining agreement. The Company has
never experienced a work stoppage and believes its employee relations are good.
The success of the Company depends in large part upon the ability of
the Company to recruit and retain qualified employees, particularly highly
skilled engineers. The competition for such personnel is intense. There can be
no assurance that the Company will be successful in retaining or recruiting key
personnel.
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EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Michael W. Rogers 43 Chairman and Chief Executive Officer
Lee B. Lewis 52 President and Chief Operating Officer
Gary S. Stevens 42 Senior Vice President, Engineering and Director
Thomas P. Skiba 43 Vice President and Chief Financial Officer
John M. Bujan 54 General Counsel and Secretary
Stuart J. Hanley 38 Vice President, Worldwide Operations
MICHAEL W. ROGERS has served as Chief Executive Officer of the Company
since 1986 and as Chairman since 1989. Additionally, Mr. Rogers has served as a
Director of the Company since 1985 and from 1989 to May 1996 as Chief Financial
Officer. From 1980 to 1985, Mr. Rogers was employed by Control Data Corporation
("CDC"), where he held several software engineering positions.
LEE B. LEWIS has served as President and Chief Operating Officer since
February 1999. From 1993 to 1998, Mr. Lewis was employed by Ancor
Communications, Inc., most recently as Vice President, Administration. From 1982
to 1993 Mr. Lewis was employed by Magnetic Data, Inc. in various positions, most
recently as Vice President/General Manager of the Minnesota Division.
GARY S. STEVENS has served as Senior Vice President, Engineering and as
a Director of the Company since 1985. From 1979 to 1985, Mr. Stevens was a
designer and diagnostic programmer of disk subsystems for CDC.
THOMAS P. SKIBA has served as Vice President and Chief Financial
Officer of the Company since May 1996. From 1992 to April 1996, Mr. Skiba was
Chief Financial Officer of IVI Publishing, Inc., a publicly-held electronic
publisher of health and medical information.
JOHN M. BUJAN has served as General Counsel and Secretary to the
Company since March 1996. From 1981 to March 1996, Mr. Bujan was the principal
of John M. Bujan, P.A., an Edina, Minnesota law firm concentrating in business
and commercial matters and computer software licensing. From 1985 through March
1996, John M. Bujan, P.A. provided legal services to the Company.
STUART J. HANLEY has served as Vice President, Worldwide Operations
since November 1997. Mr. Hanley has been employed by the Company in various
capacities since 1987.
ELECTION. The Company's officers are elected by the Board of Directors.
The officers serve until their successors are elected or until their earlier
resignation, removal or death.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its headquarters in Minneapolis in approximately
47,900 square foot leased facilities. The Company has signed a lease for new
facilities of approximately 62,200 square feet which begins in August, 1999 and
runs to August, 2009. The Company also leases approximately 7,200 square feet of
space in Los Angeles under a lease expiring in July 2001; approximately 7,800
square feet of space in Washington, D.C. under a lease that expires in June
2003; approximately 4,600 square feet of space in San Jose, California under a
lease expiring in September 1999; and approximately 6,000 square feet of space
in the New York metropolitan area under a lease which expires in July 2001.
The Company also leases approximately 5,600 square feet of space which
expires in November 2005 and another 5,200 square feet of space which expires in
April 2008 for its office in London. Additionally, approximately 8,600 square
feet of space is leased for its office in Stuttgart under a lease which expires
in October 2001 and approximately 500 square feet of space in Paris office under
a lease which expires in March, 1999.
The Minneapolis, Washington, D.C., New York and Stuttgart leases each
have a three-to-five year option for extension. The Paris lease offers
month-to-month extension option.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company trades in the NASDAQ National Market under the symbol
"ONDI". As of March 15, 1999, the Company had approximately 3,293 shareholders.
High and low closing quarterly sale prices for 1998 and 1997 were as
follows:
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
1998
- ----
High $21.88 $18.25 $14.00 $9.63
Low $14.25 $11.94 $6.63 $6.38
1997
- ----
High $19.63 $23.00 $25.50 $27.75
Low $13.13 $14.25 $17.25 $18.50
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The Company paid no dividends in 1997 and 1998 and does not anticipate
paying any cash dividends on its common stock in the foreseeable future. The
Company intends to retain any future earnings for use in business development.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME DATA: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Service revenues $ 29,205 $ 26,689 $ 19,654 $ 12,048 $ 8,000
Software revenues 6,636 8,560 7,109 5,097 3,734
Total revenues 35,841 35,249 26,763 17,145 11,734
Gross margin 28,512 29,491 22,241 14,079 9,468
Operating expenses 22,531 22,091 17,609 10,614 7,920
Operating income 5,981 7,400 4,632 3,465 1,548
Net income 5,198 5,656 3,124 2,205 1,505
Net income per share - diluted $ 0.52 $ 0.56 $0 .38 $ 0.28 $ 0.19
<CAPTION>
December 31,
---------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Cash, cash equivalents and short-term
marketable securities $ 33,596 $ 32,176 $ 22,684 $ 2,028 $ 2,024
Working capital 35,914 31,745 22,198 2,896 2,090
Total assets 46,449 45,125 36,635 6,861 4,521
Total liabilities 3,669 5,794 4,229 1,753 1,570
Convertible Redeemable Preferred Stock -- -- -- 5,231 4,924
Total shareholders' equity (deficit) $ 42,780 $ 39,331 $ 32,406 $ (123) $ (1,973)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Service revenues are derived principally from the performance of data
recovery services. The principal factors affecting service revenues are the
number and type of data recovery jobs the Company performs during the period.
The Company's service revenues are dependent on the occurrence of numerous
isolated data loss events and on potential customers' decisions to use the
Company's services when a data loss occurs.
Software revenues are derived principally from royalties on the use of
DISK MANAGER(R) by hard disk drive OEMs in their disk drive products sold
through distribution channels. The market in which the OEMs are selling their
products is becoming increasingly cost competitive. They are faced with offering
products with increased storage capacity while being unable to increase the
price of their products. Consequently these OEMs are extremely cost conscious
when it comes to third party software products that are bundled with their
drives. Therefore although DISK MANAGER(R) continues to be used in greater
quantities, the price per unit charged to the OEMs has been decreasing rapidly.
International revenues consist of data recovery services from the
Company's wholly owned subsidiaries in London, England, Stuttgart, Germany,
Paris, France and royalties from the license of the Company's data recovery
technology in Japan to Y-E Data, a Japanese company. Total international
revenues were 22%, 20% and 17% of consolidated revenues for the years ended
December 31, 1998, 1997 and 1996, respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Service revenues increased 9% to $29.2 million in 1998 from $26.7
million in 1997. This compares to growth in service revenue of 35% from 1996 to
1997. Historically, the Company had seen consistent growth in its service
revenues. However, beginning in the fourth quarter of 1997 and continuing
throughout 1998, the Company's service revenues have been flat. Quarterly
service revenues for the past six quarters have been as follows (in millions):
1997 1998
- -------------- ------------------------------------------
Q3 Q4 Q1 Q2 Q3 Q4
- ---- ---- ---- ---- ---- ----
$7.2 $7.3 $7.2 $7.2 $7.6 $7.2
The Company believes the factors contributing to the lack of growth in its data
recovery service business include the following:
* The number of data recovery opportunities at the high end of the market
has declined as a result of investments by potential customers in
storage and back-up technologies.
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* There has been an increase in the number of small companies performing
low end data recovery services. Although the technology of these
companies does not match that of Ontrack, they have had a negative
impact upon service revenue growth.
* Ontrack has not had a service or product for customers who preferred a
low cost, do-it-yourself solution to data loss, and many potential
customers looked elsewhere for a solution.
In 1999 the Company plans to undertake several initiatives in order to grow its
revenues, including diversification of its current business and promotion of its
do-it-yourself data recovery software product and remote data recovery business.
There is no assurance that the Company's strategies to enhance its growth in
service revenues will be successful in the near term, or at all.
Software revenues decreased 23% to $6.6 million in 1998 from $8.6
million in 1997. DISK MANAGER(R) is the Company's principal software product and
comprised 92% and 87% of software revenue in 1998 and 1997. The decrease in DISK
MANAGER(R) revenue was attributed to lower per unit prices for DISK MANAGER(R)
charged by the Company due to pricing pressure from the OEMs. The Company
expects this situation to continue and expects 1999 revenues from DISK
MANAGER(R) to decline further.
GROSS MARGINS
Services:
Gross margins on service revenues were 79% in 1998 compared to 83% in
1997. In 1997 the Company decided that in order to support the growth in service
business that it anticipated, it needed to add people and expand geographically.
Accordingly, in late 1997 and 1998, the Company opened new offices in San Jose,
California, the New York City area, and Paris, France. These new offices
required additional staff and along with headcount expansions in its other
locations, resulted in the Company's worldwide headcount growing from 236 in
January, 1997 to 293 in January, 1998, to 311 by the end of December, 1998.
These increases coupled with slower growth in service revenues caused the
Company's service gross margin percentage to decline to 76% in the 4th quarter
of 1998.
The Company expects service margin percentages to remain at or below
the percentage experienced in the fourth quarter of 1998 until the strategies
discussed earlier produce incremental growth in service revenues.
Software:
Gross margins on software revenues were 81% in 1998 compared to 84% in
1997. The decreased percentage was attributed to lower per unit prices on
royalty revenues. As revenues from DISK MANAGER(R) software continue to decline,
the Company expects its software margin percentage also to decline.
In December, 1998 the Company purchased the TIRAMISU(TM) software
product line, as described above. The purchase price of $2.1 million was
recorded as capitalized software on the Company's balance sheet. This asset will
be amortized into cost of sales over the life of the software, which will reduce
the 1999 margin percentage for the software business from historical levels.
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OPERATING EXPENSES
Research and Development:
Research and development expenses decreased 6% to $6.5 million in 1998
from $6.9 million in 1997. As a percentage of revenue, research and development
expenses were 18% in 1998 and 20% in 1997. The decline was due principally to
lower incentive compensation, as the Company did not achieve its targeted
revenue and profit goals.
The Company's research and development efforts are expended primarily
in four main areas: the development of new data recovery tools and techniques,
the development and continued expansion of its remote data recovery
capabilities, continued upgrading and maintenance of its primary software
product, DISK MANAGER(R), and research into new products and services. The
Company expects to allocate more of its research and development resources
towards the development of new products and services in future periods.
Sales and Marketing:
Sales and marketing expenses increased 14% to $9.0 million in 1998 from
$7.9 million in 1997. As a percentage of revenues, sales and marketing expenses
were 25% in 1998 and 23% in 1997. The increase in sales and marketing dollars
was due to three main factors: 1) efforts to increase the Company's base of
corporate and service partners who refer data loss situations to the Company, 2)
efforts to obtain awareness of the Company's remote data recovery capabilities,
3) increased efforts in Europe with the Stuttgart, Germany office's first full
year of operations and the opening of a sales office in Paris, France. The
increase in such expenses as a percentage of sales was due to the lower than
anticipated increase in service revenues and decline in software revenues.
General and Administrative:
General and administrative expenses decreased 3% to $7.0 million in
1998 from $7.2 million in 1997. As a percent of revenues, general and
administrative expenses were 20% in 1998 and 21% in 1997. The decreases arose
principally from lower incentive compensation due to the Company not achieving
its targeted revenue and profit goals.
INTEREST AND OTHER INCOME
Interest and other income increased to $1.5 million in 1998 from $1.1
million in 1997. The increase was due to increased cash and marketable
securities balances throughout 1998 compared to 1997.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 31% in 1998 compared to 34% in
1997. The decrease in the rate for 1998 was due principally to tax exempt
interest earnings being a higher percentage of pre-tax income in 1998 compared
to 1997. Corporate statutory tax rates in England approximated those in the
United States for these periods while the German statutory tax rate for 1998 was
approximately 42%.
13
<PAGE>
DILUTED NET INCOME PER SHARE
Diluted net income per share decreased 7% to $0.52 in 1998 from $0.56
in 1997. The decrease was due to lower net income.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
TOTAL REVENUES
The Company's total revenues increased 31% to $35.2 million in 1997
from $26.8 million in 1996.
Services:
Service revenues increased 36% to $26.7 million in 1997 from $19.7
million in 1996. The increase was due to more data recovery jobs being performed
on a worldwide basis. The increase in jobs was a result of an increased
awareness by computer users of the Company's services as well as the addition of
new data recovery facilities that opened in Stuttgart, Germany in November, 1996
and San Jose, California in September, 1997.
Software:
Software revenues increased 21% to $8.6 million in 1997 from $7.1
million in 1996. DISK MANAGER(R) comprised 87% and 85% of software revenue in
1997 and 1996, respectively. The increase in DISK MANAGER(R) revenue was
attributed to higher volumes of shipments of hard disk drives by the Company's
customers who include copies of DISK MANAGER(R). These volume increases were
partially offset by lower per unit prices for DISK MANAGER(R) charged by the
Company.
GROSS MARGINS
Services:
Gross margins on service revenues were 83% in 1997 compared to 86% in
1996. The decrease in gross margin percentage in 1997 was principally due to
costs relating to the new offices in Germany and San Jose as well as the
addition of additional engineering personnel. The Company views the addition of
qualified engineers as critical to its growth strategy in order to support
growth in the data recovery business.
Software:
Gross margins on software revenues were 84% in 1997 compared to 76% in
1996. The improved gross margin percentage was attributed to the increase in
royalty revenue as a percent of total software revenues, which involve minimal
costs to the Company. Future gross margins in the software business will
continue to be impacted by the mix of royalty and non-royalty revenues.
14
<PAGE>
OPERATING EXPENSES
Research and Development:
Research and development expenses increased 35% to $6.9 million in 1997
from $5.1 million in 1996. The increase was due to the addition of software
developers and data recovery engineers who perform research and development
activities. Also contributing to the increase was completion in 1997 of the
development of a new process to provide diagnostic and data recovery services on
a remote basis. As a percentage of revenue, research and development expenses
were 20% in 1997 and 19% in 1996. Research and development expenses, and such
expenses as a percentage of revenues, may fluctuate in the future as the Company
identifies and responds to such market opportunities as remote data recovery
services, or as necessary to respond to new technologies that pose challenges in
the data recovery and software businesses.
Sales and marketing:
Sales and marketing expenses increased 11% to $7.9 million in 1997 from
$7.1 million in 1996. As a percentage of revenues, sales and marketing expenses
were 23% in 1997 and 26% in 1996. The decrease in percentage was due principally
to 1996 being a year of investing heavily in additional sales and marketing
personnel to support the anticipated growth in service revenue. Additional
investments were not made to the same extent in 1997. The decreased percentage
was also partially due to the 21% increase in software revenue. Software revenue
is reliant principally on shipments of hard drives by the Company's customers
and is not directly influenced by the Company's sales and marketing activities.
General and Administrative:
General and administrative expenses increased 31% to $7.2 million in
1997 from $5.5 million in 1996. As a percent of revenues, general and
administrative expenses were 21% in both 1997 and 1996. The increase in dollars
spent was due in part to costs incurred in connection with the opening of the
Company's new offices in Stuttgart, Germany and San Jose, California as well as
the cost of being a public company for a full year in 1997.
INTEREST AND OTHER INCOME
Interest and other income increased to $1.1 million in 1997 from $0.3
million in 1996. The increase was due to increased cash and marketable
securities balances, resulting from the Company's initial public offering
completed in October, 1996 and from cash flows generated from its operations.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 34% in 1997 compared to 37% in
1996. The decrease in the rate for 1997 was due principally to the cash received
from the Company's initial public offering being invested in tax-exempt
securities. Corporate statutory tax rates in England approximated those in the
United States for these periods while the German statutory tax rate for 1997 was
approximately 42%.
15
<PAGE>
DILUTED NET INCOME PER SHARE
Diluted net income per share increased 47% to $0.56 in 1997 from $0.38
in 1996. The increase was due to higher net income, partially offset by
increases in weighted average shares outstanding resulting from the Company's
initial public offering in October, 1996.
YEAR 2000
The "Year 2000" problem concerns the inability of existing information
systems to properly recognize and process date-sensitive information beyond
January 1, 2000. If not corrected, these systems could fail or create erroneous
information. The Company has undertaken various initiatives to evaluate and
respond to the potential impact of the Year 2000 issue on its computer and other
operating systems. A Year 2000 committee has formulated a plan to address the
Year 2000 issue. Under this plan, Company personnel have identified business
systems that are critical to the Company's business operations that require
testing. The Company has completed testing and remediation of its software
products and the software and hardware used in product development. The Company
is in the process of testing its internal systems, the hardware and software
tools it uses in its data recovery business and the systems in its satellite
offices. The Company has completed this testing and necessary remediation,
except for certain systems that are being updated during the first two quarters
of 1999 for reasons other than Year 2000 compliance. These systems are expected
to be tested and remediated by June 1999. The Company also expects its
non-information technology systems to be compliant after it moves into its new
leased office space, anticipated for the third quarter of 1999.
The Company is also communicating and working with its significant
vendors, customers and other business partners to minimize Year 2000 risks and
protect the Company and its customers from potential service interruptions.
However, the Company could be adversely affected by the failure of third parties
to become Year 2000 compliant, including the risk of operational outages due to
disruptions in communications or electrical service. Although the Company
believes the effect of such disruptions would be localized and temporary, there
is no assurance that these or other Year 2000 risks will not have a material
financial impact in any future period.
After assessing the information received from vendors, customers and
other business partners, and evaluating the completion of its Year 2000 project,
the Company will develop contingency plans if appropriate. It is anticipated
that these plans will be developed by the fall of 1999.
The Company believes that its expenses for the Year 2000 compliance
through December 31, 1998 are not material, and total expenses for compliance
are not expected to exceed $100,000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operations were $4.8 million in 1998, $8.3 million
in 1997, and $5.4 million in 1996. Net income, depreciation and changes in the
Company's current assets and current liabilities principally drive cash
generated from operations.
Cash used in investing activities were primarily for purchases of
marketable securities and furniture and equipment. Additions to furniture and
equipment were $2.1 million in 1998, $2.3 million in 1997, and $2.9 million in
1996. The Company expects capital expenditures to increase in 1999 when it moves
to its
16
<PAGE>
new corporate headquarters in the third quarter. Further, in 1998 the Company
purchased the do-it-yourself data recovery software product line, TIRAMISU(TM),
for $2.1 million in cash.
In 1998 the Company repurchased 302,500 shares of its common stock in
the open market at a total cost of $2.4 million. The Board of Directors has
authorized the repurchase of up to another 197,500 shares in the open market at
management's discretion.
In October, 1996 the Company completed an initial public offering which
resulted in net proceeds to the Company of $23.8 million.
At December 31, 1998 the Company has a total of cash, cash equivalents,
short-term investments and long term investments of $34.3 million, the majority
of which is invested in taxable and tax-exempt government marketable securities.
The Company expects to seek opportunities to expand its business through
acquisitions; however, there are currently no commitments, agreements or
understandings for any such acquisitions. See "Business - Data Recovery Products
and Services."
The Company expects that its current cash and marketable securities
balances along with cash generated from its operations will be adequate to meet
its capital needs for the foreseeable future.
FORWARD-LOOKING STATEMENTS
Information included in this Form 10-K which uses forward-looking
terminology such as "may," "will," "expect," "plan," "intend," "anticipate,"
"estimate," or "continue" or other variations thereon constitutes
forward-looking information. The factors set forth below and other risk factors
described elsewhere in this Form 10-K constitute cautionary statements
identifying important factors with respect to such forward looking statements,
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements: (1) the
computer industry is characterized by rapid technological changes and frequent
introductions of new enhanced products and the Company must constantly adapt its
data recovery techniques, its data recovery hardware and software tools and its
commercial software products to keep pace with these technological changes; (2)
the Company intends to invest in product development, joint ventures,
acquisitions and other projects to enhance its revenues, and there is no
assurance that these projects will yield the desired growth in revenues and
earnings; (3) future technological developments in computer operating systems,
automatic data backup systems and other data protection techniques have the
potential to eliminate or reduce the risk of data loss; (4) the Company's
software revenues depend on disk drive shipments by OEM's and trends in the disk
drive industry which the Company cannot control; (5) addressing the Year 2000
issue may involve greater cost or delay than anticipated by the Company, and
some parts of the solution will depend on the efforts of third parties; and (6)
the Company depends to a large degree on its ability to attract and retain
technical personnel.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has three foreign subsidiaries, located in England,
Germany, and France and generates approximately 22% of its revenues outside of
North America. The Company's ability to sell its products in these foreign
markets may be affected by changes in economic, political or market conditions
in the foreign markets in which it does business. The impact of the stronger
U.S. dollar on the translation of foreign currency-denominated sales and related
gross profit thereon was not material in 1998 and 1997.
17
<PAGE>
The Company experiences foreign currency gains and losses, which are
reflected in the Company's income statement, due to the strengthening and
weakening of the U.S. dollar against the currencies of the Company's three
foreign subsidiaries and the resulting effect on the valuation of the
intercompany accounts. The net exchange gain or loss arising from this was not
material in 1998, 1997 and 1996. The Company anticipates that it will continue
to have exchange gains or losses from foreign operations in the future.
The Company's net investment in its foreign subsidiaries was $798,000
and $299,000 at December 31, 1998 and 1997 translated into U.S. dollars using
the year end exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Balance Sheet of the Company as of December 31, 1998,
and related Consolidated Statements of Income, Shareholders' Equity, and Cash
Flows for the year then ended December 31, 1998, the notes thereto have been
audited by Grant Thornton LLP, independent certified public accountants. The
Consolidated Balance Sheet of the Company as of December 31, 1997, and the
Consolidated Statements of Income, Shareholders' Equity and Cash Flows for each
of the two years then ended and notes thereto have been audited by
PricewaterhouseCoopers LLP, independent accountants. These consolidated
financial statements begin on page F-1, following the signature pages.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the Company's 1999 Proxy Statement under
the captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated herein by reference. Information regarding
the executive officers of the Company is included under "Business" in Part I of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 1999 Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the 1999 Proxy Statement under the caption
"Security Ownership of Principal Shareholders and Management" is incorporated
herein by reference.
18
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the 1999 Proxy Statement under the caption
"Certain Transactions" is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
- ------- -----------
2.1 Asset Purchase Agreement dated December 14, 1998 between the Company
and Plug'n Play Computeraberatung GbR.
3.1 Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form SB-2
(File No. 333-05470C) as declared effective by the Commission on
October 21, 1996 (the "Form SB-2")).
3.2 Amended Bylaws (incorporated by reference to Exhibit 3.2 to the Form
SB-2).
10.1 1996 Stock Incentive Plan (incorporated by reference to Exhibit 10.1
to the Form SB-2) and Amendment dated January 27, 1999 (filed with
this Form 10-K).
10.2 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.2 to the Form SB-2).
10.3 Non-Qualified Stock Option Plan (incorporated by reference to Exhibit
10.3 to the Form SB-2).
10.4 License Agreement dated November 17, 1994 between the Company and Y-E
Data, Inc. (incorporated by reference to Exhibit 10.5 to the Form
SB-2).
10.5 Lease for Minneapolis, Minnesota offices between the Company and
Metropolitan Life Insurance Company dated November 2, 1988, as
amended by Amendment to Lease dated August 28, 1989, Amendment #2
dated January 8, 1990, Amendment to Lease dated December 5, 1991,
Amendment to Lease dated December 14, 1993, Second Amendment to Lease
dated November 22, 1994 and Third Amendment to Lease dated as of
January 30, 1996 (incorporated by reference to Exhibit 10.6 to the
Form SB-2).
10.6 Stock Transfer Agreement dated July 16, 1996 by and among Michael W.
Rogers, Gary S. Stevens, John E. Pence, Rogers Family L.P., Stevens
Family L.P. and Pence Family L.P. (incorporated by reference to
Exhibit 10.7 to the Form SB-2).
10.7 Employment Agreement dated August 6, 1996 between the Company and
Michael W. Rogers. (incorporated by reference to Exhibit 10.8 to the
Form SB-2).
10.8 Employment Agreement dated August 6, 1996 between the Company and
Gary S. Stevens (incorporated by reference to Exhibit 10.9 to the
Form SB-2).
10.9 Employment Agreement dated August 6, 1996 between the Company and
John E. Pence (incorporated by reference to Exhibit 10.10 to the Form
SB-2).
10.10 Letter Agreement dated April 11, 1996 between the Company and Thomas
P. Skiba (incorporated by reference to Exhibit 10.11 to the Form
SB-2).
10.11 Letter Agreement dated February 28, 1996 between the Company and John
M. Bujan (incorporated by reference to Exhibit 10.12 to the Form
SB-2).
10.12 Commercial Note, Revolving Loan Agreement, Security Agreement and
Arbitration Agreement, each dated as of July 31, 1996, between the
Company and Norwest Bank Minnesota, N.A. (incorporated by reference
to Exhibit 10.15 to the Form SB-2) and amendment dated August 18,
1998 (filed with this Form 10-K).
19
<PAGE>
10.13 Form of License Agreement with OEM Customers (incorporated by
reference to Exhibit 10.16 to the Form SB-2).
10.14 Letter Agreement dated February 9, 1999 between the Company and Lee
B. Lewis.
10.15 Consulting Agreement dated September 21, 1998 between the Company and
Roger Shober.
10.16 Lease Agreement dated September 21, 1998 between Liberty Property
Limited Partnership and the Company for new Company offices, as
amended by First Amendment to Lease dated January 26, 1999.
21.1 Subsidiaries of the Company
23.1 Consent of Grant Thornton LLP
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney, included in the Signature Page
27.1 Financial Data Schedule
(b) Reports on Form 8-K. None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 24, 1999.
ONTRACK DATA INTERNATIONAL, INC.
By/s/ Michael W. Rogers
--------------------------------------
Michael W. Rogers, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Michael W. Rogers and Thomas P. Skiba, and each of them, his or her
true and lawful attorney-in-fact and agent, with full power of substitution, to
sign on his or her behalf, individually and in each capacity stated below, all
amendments and post-effective amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto and any other documents in
connection therewith, with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as each might or could do in person, hereby ratifying
and confirming each act that said attorneys-in-fact and agents may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant, in the capacities indicated, on March 24, 1999.
Signature Title
- --------- -----
/s/ Michael W. Rogers Chairman and Chief Executive
- ----------------------- Officer (principal executive officer)
Michael W. Rogers
/s/ Thomas P. Skiba Vice President and Chief Financial Officer
- ----------------------- (principal financial and accounting officer)
Thomas P. Skiba
/s/ Gary S. Stevens Senior Vice President, Engineering and Director
- -----------------------
Gary S. Stevens
/s/ Roger D. Shober Director
- -----------------------
Roger D. Shober
21
<PAGE>
- ------------------------ Director
Robert M. White, Ph.D.
/s/ Richard J. Runbeck Director
- ------------------------
Richard J. Runbeck
/s/ John E. Pence Director
- ------------------------
John E. Pence
22
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants - Grant Thornton LLP.. F-2
Report of Independent
Accountants - PricewaterhouseCoopers LLP......................... F-3
Consolidated Balance Sheets - December 31, 1998 and 1997................. F-4
Consolidated Statements of Income - Years Ended December 31,
1998, 1997 and 1996............................................... F-5
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1998, 1997 and 1996...................... F-6
Consolidated Statements of Cash Flow - Years Ended December 31,
1998, 1997 and 1996............................................... F-7
Notes to Consolidated Financial Statements............................... F-8
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of
ONTRACK Data International, Inc.
and subsidiaries
We have audited the accompanying consolidated balance sheet of ONTRACK Data
International Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ONTRACK Data
International Inc. and subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
February 3, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
ONTRACK Data International, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of shareholders' equity and of cash flows as of and for
each of the two years in the period ended December 31, 1997 present fairly, in
all material respects, the financial position, results of operations and cash
flows of ONTRACK Data International, Inc. and its subsidiaries as of and for
each of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of ONTRACK Data International,
Inc. for any period subsequent to December 31, 1997.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 4, 1998
F-3
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
ASSETS 1998 1997
------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 14,724 $ 17,315
Marketable securities 18,872 14,861
Accounts receivable, net 3,759 3,321
Deferred income taxes and other current assets 2,228 2,042
---------- ----------
TOTAL CURRENT ASSETS 39,583 37,539
Furniture and equipment, net 4,019 4,080
Capitalized software, net 2,131 --
Long-term marketable securities 716 3,506
---------- ----------
TOTAL ASSETS $ 46,449 $ 45,125
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 782 $ 770
Accrued income taxes 810 1,019
Other accrued expenses 2,077 4,005
---------- ----------
TOTAL CURRENT LIABILITIES 3,669 5,794
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Preferred stock; $.01 par value; 1 million shares authorized; no shares
issued or outstanding -- --
Common stock; $.01 par value; 25 million shares authorized; 9,697,234
and 9,910,190 shares issued and outstanding at December 31, 1998 and
1997 97 99
Additional paid-in capital 29,131 30,880
Cumulative translation adjustment 22 20
Retained earnings 13,530 8,332
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 42,780 39,331
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 46,449 $ 45,125
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Services $ 29,205 $ 26,689 $ 19,654
Software 6,636 8,560 7,109
------------- ------------- -------------
Total revenues 35,841 35,249 26,763
COST OF REVENUES:
Services 6,064 4,415 2,804
Software 1,265 1,343 1,718
------------- ------------- -------------
Total cost of revenues 7,329 5,758 4,522
------------- ------------- -------------
GROSS MARGIN 28,512 29,491 22,241
OPERATING EXPENSES:
Research and development 6,499 6,922 5,052
Sales and marketing 9,023 7,934 7,077
General and administrative 7,009 7,235 5,480
------------- ------------- -------------
Total operating expenses 22,531 22,091 17,609
------------- ------------- -------------
OPERATING INCOME 5,981 7,400 4,632
Interest and other income 1,523 1,115 292
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 7,504 8,515 4,924
Provision for income taxes 2,306 2,859 1,800
------------- ------------- -------------
NET INCOME $ 5,198 $ 5,656 $ 3,124
============= ============= =============
NET INCOME PER SHARE
BASIC $ 0.53 $ 0.58 $ 0.46
DILUTED $ 0.52 $ 0.56 $ 0.38
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 9,860,033 9,815,657 6,791,231
DILUTED 10,020,266 10,105,054 8,219,180
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL CUMULATIVE EARNINGS
------------------------- PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT) TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 6,000 $ 60 $ -- $ 34 $ (217) $ (123)
Accrued dividends on Convertible
Redeemable Preferred Stock (231) (231)
Exercise of stock options 106 1 284 -- -- 285
Stock purchased through Employee
Stock Purchase Plan 3 1 41 -- -- 42
Conversion of Convertible Redeemable
Preferred Stock into common stock 1,500 15 5,446 -- -- 5,461
Issuance of common stock, net of expenses 2,180 21 23,828 -- -- 23,849
Translation adjustment -- -- (1) -- (1)
Net income -- -- -- 3,124 3,124
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1996 9,789 98 29,599 33 2,676 32,406
Exercise of stock options 100 1 338 -- -- 339
Tax benefit from exercise of nonqualified
stock options -- -- 628 628
Stock purchased through Employee
Stock Purchase Plan 21 -- 315 -- -- 315
Translation adjustment -- -- -- (13) -- (13)
Net income -- -- -- -- 5,656 5,656
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 9,910 99 30,880 20 8,332 39,331
Exercise of stock options 59 1 192 -- -- 193
Tax benefit from exercise of nonqualified
stock options -- -- 122 -- -- 122
Stock purchased through Employee
Stock Purchase Plan 31 -- 326 -- -- 326
Repurchase of common stock (303) (3) (2,389) -- -- (2,392)
Translation adjustment -- -- -- 2 -- 2
Net income -- -- -- -- 5,198 5,198
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 9,697 $ 97 $ 29,131 $ 22 $ 13,530 $ 42,780
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,198 $ 5,656 $ 3,124
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,230 1,930 1,320
Deferred income taxes (225) (309) (571)
Provision for doubtful accounts and returns (375) 279 409
Changes in operating assets and liabilities:
Accounts receivable (63) (1,100) (1,498)
Other current assets 38 (305) 167
Accounts payable and accrued expenses (2,001) 2,179 2,475
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,802 8,330 5,426
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of furniture and equipment (2,168) (2,275) (2,892)
Net sales (purchases) of marketable securities (1,221) (12,510) (5,857)
Purchase of capitalized software (2,131) -- --
Other assets -- 432 (197)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (5,520) (14,353) (8,946)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from Employee Stock Purchase Plan 326 315 42
Proceeds from exercise of stock options 193 339 285
Net proceeds from sale of common stock -- -- 23,849
Repurchase of common stock (2,392) -- --
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,873) 654 24,176
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,591) (5,369) 20,656
Cash and cash equivalents, beginning of year 17,315 22,684 2,028
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,724 $ 17,315 $ 22,684
========== ========== ==========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW ACTIVITY:
Income taxes paid $ 2,608 $ 1,968 $ 1,550
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
ONTRACK DATA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ONTRACK Data International, Inc. (the "Company") provides data recovery services
and software, utility software and other computer data related services. The
Company's headquarters are in Minneapolis, Minnesota, and has locations in Los
Angeles, California; San Jose, California; Washington, D.C.; New York, New York;
London, England; Stuttgart, Germany; and Paris, France.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from data recovery services is recognized upon shipment or transmission
of the recovered data back to customers. Software revenue is recognized either
upon shipment or upon receipt of OEM royalty reports, whichever is applicable.
Software revenue is stated net of estimated customer returns and allowances. The
estimated costs of future technical support to customers in their use of the
Company's software products are accrued upon shipment of the product.
The allowance for doubtful accounts and returns at December 31, 1998 and 1997
was $483 and $858.
Research and Development
Expenditures for research and software development costs are expensed as
incurred. Such costs related to the development of software products are
required to be expensed until the point that technological feasibility and
proven marketability of the product under development are established. Costs
otherwise capitalizable after technological feasibility is achieved have also
been expensed because they have been insignificant. Costs to acquire software
products which are complete and ready for sale are capitalized and are amortized
over the product's estimated life.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expenses of
approximately $2,199, $1,639, and $1,304 were charged to operations during the
years ended December 31, 1998, 1997 and 1996.
F-8
<PAGE>
NOTE 1 - CONTINUED
Cash Equivalents and Marketable Securities
Cash equivalents consist of highly liquid investments with an original maturity
of three months or less and which are readily convertible to cash. Marketable
securities generally consist of taxable and tax exempt government agency
securities and are classified as short-term or long-term in the balance sheet
based on their maturity date. Marketable securities are carried at amortized
cost and unrealized holding gains and losses have not been significant.
Fair Value of Financial Instruments
Cash, cash equivalents and marketable securities are valued at their carrying
amounts, which approximates fair value. The fair value of all other financial
instruments approximates cost as stated.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist primarily of accounts receivable. The Company grants credit to customers
in the ordinary course of business but generally does not require collateral for
amounts due. No single customer or region represents a significant concentration
of credit risk.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which
generally range from 3 to 5 years. Leasehold improvements are amortized over the
term of the lease or the asset life, whichever is less. Significant additions or
improvements extending asset lives are capitalized, while repairs and
maintenance are charged to expense as incurred.
Stock-Based Compensation
The Company utilizes the intrinsic value method of accounting for its
stock-based employee compensation plans. Pro-forma information related to the
fair value based method of accounting is contained in Note 9.
Foreign Currency
All assets and liabilities of foreign subsidiaries are translated from foreign
currencies to U.S. dollars at period-end rates of exchange, while the statement
of income is translated at the average exchange rates during the period.
Translation adjustments are recorded in shareholders' equity.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130") effective January 1, 1998. SFAS
No. 130 requires that items defined as other comprehensive income, such as
foreign currency translation adjustments, be separately classified in the
financial statements and that the accumulated balance of the other comprehensive
income be reported separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. Comprehensive income
is not separately reported within the statement of income as amounts were not
significant for the years ended 1998, 1997, and 1996.
F-9
<PAGE>
NOTE 1 - CONTINUED
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted
average number of outstanding common shares. Diluted net income per share is
computed by dividing net income by the weighted average number of outstanding
common shares and common share equivalents relating to stock options, when
dilutive. Options to purchase 430,760 and 8,940 shares of common stock with
weighted average exercise prices of $13.33 and $21.49 were outstanding during
1998 and 1997, but were excluded from the computation of common share
equivalents because they were anti-dilutive. There were no anti-dilutive options
outstanding in 1996.
NOTE 2 - FINANCIAL STATEMENT COMPONENTS
Furniture and equipment consist of the following:
December 31
-----------------------
1998 1997
--------- ---------
Computer equipment $ 8,191 $ 7,145
Furniture and office equipment 1,933 1,434
Leasehold improvements 940 503
Purchased software 868 689
Less accumulated depreciation (7,913) (5,691)
--------- ---------
$ 4,019 $ 4,080
========= =========
Accrued expenses consist of the following:
December 31
-----------------------
1998 1997
--------- ---------
Accrued wages and benefits $ 333 $ 3,054
Other accrued expenses 1,744 951
--------- ---------
$ 2,077 $ 4,005
========= =========
NOTE 3 - PURCHASE OF SOFTWARE PRODUCT LINE
In December 1998, the Company purchased the assets related to the Tiramisu
software product line from a German company. Tiramisu is a do-it-yourself data
recovery software and will be sold as a solution for those who have lost data
that is relatively easy to recover and do not need the assistance of a data
recovery engineer. The purchase price was approximately $2,100 and is classified
as capitalized software in the Company's balance sheet.
F-10
<PAGE>
NOTE 4 - LINE OF CREDIT
The Company maintains a line of credit which allows maximum borrowings of $1,000
subject to a borrowing base of 80% of accounts receivable outstanding less than
90 days. The line of credit carries an interest rate of 2% over the prime
lending rate and is collateralized by all assets of the Company. There were no
borrowings outstanding under the line of credit at December 31, 1998 and 1997.
NOTE 5 - INCOME TAXES
The provision for income taxes is based on income before income taxes reported
for financial statement purposes. The components of income (loss) before income
taxes consist of the following:
Years Ended December 31
--------------------------------------
1998 1997 1996
----------- ---------- ----------
United States $ 7,850 $ 8,487 $ 4,853
Foreign (346) 28 71
----------- ---------- ----------
Income before income taxes $ 7,504 $ 8,515 $ 4,924
=========== ========== ==========
The Company's provision for income taxes consists of the following:
Years Ended December 31
--------------------------------------
1998 1997 1996
----------- ---------- ----------
Current:
Federal $ 2,097 $ 2,541 $ 1,909
State 317 348 160
Foreign 117 272 241
----------- ---------- ----------
Total current 2,531 3,161 2,310
Deferred:
Federal (44) (186) (270)
State (4) (19) (22)
Foreign (177) (97) (218)
----------- ---------- ----------
Total deferred (225) (302) (510)
----------- ---------- ----------
$ 2,306 $ 2,859 $ 1,800
=========== ========== ==========
F-11
<PAGE>
NOTE 5 - CONTINUED
The Company's effective tax rates differed from the federal statutory tax rate
as follows:
Years Ended December 31
------------------------------
1998 1997 1996
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 2.7 2.5 1.8
Tax exempt interest (4.7) (4.1) (1.1)
Other, net (1.3) 1.2 1.9
------ ------ ------
30.7% 33.6% 36.6%
====== ====== ======
Deferred income taxes result from differences between the financial reporting
and income tax basis of the Company's assets and liabilities and are calculated
using current tax rates. Deferred tax assets consist of the following
components:
December 31,
----------------------
1998 1997
---- ----
Allowance for doubtful accounts and returns $ 170 $ 300
Accrued expenses 82 133
Loss carryforwards of foreign subsidiaries 490 315
Depreciation 300 69
---------- ----------
$ 1,042 $ 817
========== ==========
There is no limit on the loss carryforwards of any of the foreign subsidiaries.
NOTE 6 - EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan for employees who have completed one year
of service and attained the age of 21. Contributions to the plan by the Company
are determined by the Board of Directors. The Company recorded profit sharing
expense of approximately $230, $569, and $333 for the years ended December 31,
1998, 1997, and 1996.
The Company's profit sharing plan also incorporates a 401(k) savings plan for
its employees. Eligible employees may elect to contribute up to 15% of their
salaries to the plan, up to limits defined by the Internal Revenue Code. There
are no employer matching contributions.
NOTE 7 - OPERATING LEASES
The Company leases office and warehouse facilities under noncancelable operating
leases which expire on various dates through August, 2009. Rental expense under
such leases was $1,367, $934, and $782 for the years ended December 31, 1998,
1997, and 1996.
F-12
<PAGE>
NOTE 7 - CONTINUED
Future minimum lease commitments for the next five years under all operating
leases are as follows:
1999 $1,222,255
2000 1,348,629
2001 1,284,705
2002 1,146,876
2003 1,027,477
----------
$6,029,942
==========
NOTE 8 - SEGMENT INFORMATION AND FOREIGN OPERATIONS
During 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." The Company conducts its business within
one reportable segment: software and services for the protection of data.
European operations include data recovery services in England, Germany and
France by Ontrack Data Recovery Europe Ltd., Ontrack Data Recovery GmbH, and
Ontrack France Sarl, all wholly-owned subsidiaries.
The Company licenses its data recovery technology to a Japanese company, Y-E
Data. In exchange for the license, Y-E Data pays the Company royalties which are
paid monthly based on the amount of gross data recovery revenues earned by Y-E
Data each month.
Revenues, net income and identifiable assets by geographic area are summarized
as follows:
At or For Years Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
Revenues:
Domestic operations $ 29,470 $ 29,526 $ 22,555
European operations 7,284 6,470 4,011
Japanese operations 502 414 661
Eliminations (1,415) (1,161) (464)
---------- ---------- ----------
Consolidated $ 35,841 $ 35,249 $ 26,763
========== ========== ==========
Net income (loss):
Domestic operations $ 5,151 $ 5,208 $ 2,581
European operations (405) 75 (52)
Japanese operations 452 373 595
---------- ---------- ----------
Consolidated $ 5,198 $ 5,656 3,124
========== ========== ==========
Identifiable assets:
Domestic operations $ 46,347 $ 44,558 $ 36,050
European operations 3,241 2,531 1,856
Eliminations (3,139) (1,964) (1,271)
---------- ---------- ----------
Consolidated $ 46,449 $ 45,125 $ 36,635
========== ========== ==========
F-13
<PAGE>
NOTE 8 - CONTINUED
Intercompany transactions are eliminated in consolidation and consist primarily
of royalty charges by the U.S. parent to the European subsidiaries for data
recovery technology.
NOTE 9 - SHAREHOLDERS' EQUITY
Stock Option Plans
The Company has stock option plans that provide for incentive and non-qualified
stock options to be granted to directors, officers and other key employees or
consultants. The stock options granted generally have a six to ten year life,
vest over a period of three to five years, and have an exercise price equal to
the fair market value of the stock on the date of grant. At December 31, 1998,
the Company had 1,400,000 shares of common stock available for grant under the
plans.
Transactions under the plans during each of the three years in the period ended
December 31, 1998 are summarized as follows:
Number of Weighted
shares under average
option exercise price
------------ --------------
Outstanding at January 1, 1996 275,620 $ 2.56
Granted 420,128 9.79
Exercised (105,924) 2.58
--------- ------
Outstanding at December 31, 1996 589,824 7.71
Granted 265,500 17.38
Cancelled (9,100) 15.22
Exercised (99,822) 2.89
--------- ------
Outstanding at December 31, 1997 746,402 11.69
Granted 385,000 13.04
Cancelled (62,126) 9.22
Exercised (50,526) 13.23
--------- ------
Outstanding at December 31, 1998 1,018,750 $ 7.13
========= ======
The Company repriced substantially all outstanding stock options in May and
September 1998 to bring them in line with the market value of the Company.
Options exercisable at December 31:
1996 290,944 $3.29
1997 252,738 $5.56
1998 450,389 $6.31
F-14
<PAGE>
NOTE 9 - CONTINUED
The following tables summarize information concerning currently outstanding and
exercisable stock options:
OPTIONS OUTSTANDING
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- ---------------- ----------------
$ 2.58 - $ 3.99 145,322 3.2 years $3.42
$ 6.50 - $12.00 873,428 8.5 years $7.75
---------
1,018,750
=========
OPTIONS EXERCISABLE
Range of Number Weighted Average
Exercise Prices Exercisable Exercise Price
--------------- ----------- ----------------
$ 2.58 - $ 3.99 145,322 $3.42
$ 6.50 - $12.00 305,067 $7.69
-------
450,389
=======
The Company's pro forma net income and basic and diluted net income per share
would have been as follows had the fair value method been used for valuing stock
options granted to employees in 1996 through 1998:
1998 1997 1996
-------- --------- --------
Pro forma net income $4,011 $4,875 $2,949
Pro forma diluted net income per share $0.40 $0.48 $0.36
The weighted average fair value of options granted and the weighted average
assumptions used in the Black-Scholes options pricing model are as follows:
1998 1997 1996
---- ---- ----
Fair value of options granted $7.96 $14.35 $6.71
Dividend yield 0% 0% 0%
Average term 6.0 years 8.4 years 7.3 years
Volatility 82.4% 75.0% 57.8%
Risk-free rate of return 5.2% 6.0% 6.5%
F-15
<PAGE>
NOTE 9 - CONTINUED
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (ESPP) which is available to
eligible employees. Under terms of the plan, eligible employees may designate
from 1% to 10% of their compensation to be withheld through payroll deductions
for the purchase of common stock at 85% of the lower of the market price on the
first or last day of the offering period. Under the plan, 250,000 shares of
common stock have been reserved for issuance. As of December 31, 1998, 63,462
shares have been issued under the plan. Fair value disclosures under SFAS No.
123 have not been disclosed for shares under the ESPP as such values are
immaterial.
Stock Repurchase
In August 1998, the Board of Directors authorized a stock buy-back program which
allowed the Company to repurchase up to 500,000 shares, or approximately 5%, of
its outstanding shares of stock. As of December 31, 1998, a total of 302,500
shares were repurchased at a total cost of $2,392 and an average cost of $7.91
per share. No shares have been repurchased subsequent to this date.
F-16
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
between
Uwe Gissemam and
Dirk Knoblauch doing business as
PLUG'N PLAY COMPUTERBERATUNG GBR,
with liability limited to the business assets,
Scharnweberstrasse 43,
10247 Berlin
- hereinafter "Sellers" -
and the
ONTRACK DATA INTERNATIONAL, INC.
6321 Bury Drive, Suites 13-21,
Eden Prairie, MN 55346
USA
- hereinafter "Purchaser" -
who have concluded the following Agreement:
PREAMBLE
The Sellers have developed the software "TIRAMISU" to provide the reconstruction
of a file system that is no longer accessible by reason of a system or
application error. Through this software it is possible for the user to recreate
most of the original files which were once present from currently existing file
system information that is only partially accessible. The software can be
down-loaded as a demo-version from the internet free of charge and allows the
user to test the software in order to find out the extent to which the lost data
can be recovered. The demo-version shows the user in addition what quality he
can expect from the reconstructed files. Upon payment of a license fee, the user
of the demo-version receives from the Sellers an authorization code which
converts the demo-version into a version which permits the copying of the
reconstructed files onto a safe medium. The software "TIRAMISU" is available for
hard disk drives in versions for FAT 16, FAT 32, Netware, NTSF (1-4). In
addition the Sellers have developed the software program "Dolly" which permits
<PAGE>
the physical copying of an entire hard disk drive. It is suitable for
duplication of hard disks or as a method for fast copying of mechanically
damaged hard disks for later reconstruction through the software "TIRAMISU".
Purchaser is an American corporation which, among other areas, is active in the
preservation and retrieving of data, data search software, anti-virus programs
and other data recovery services. The Sellers intend to transfer the assets (but
not the liabilities) of the business (Plug'n Play Computerberatung GbR,
hereafter "business") with the software developed by them inclusive of the
source codes and all programs and information connected therewith to the
Purchaser. The Purchaser has acquired the products from the Seller for
consideration, has examined and tested same and has decided in favor of the
acquisition of the business assets (but not the liabilities) of the Sellers.
The parties hereby agree as to the following:
ss 1 SUBJECT OF PURCHASE
1. Sellers are proprietors of the registered German trademark, "TIRAMISU",
registration number 397 26 132 at the German Patent and Trademark Office, valid
in Germany for computer programs in Class 9.
2. The Sellers sell the source code for all versions of the program "TIRAMISU"
and "Dolly", as well as the firm name Plug'n Play and all "Stand-Alone" or
"Delphi-Versions" of the license key generator. The definition and the
application area of the software is found in Attachment 1. The definition and
the scope of the source codes are found in Attachment 2. The sale of the source
codes includes all necessary rights, products and developments.
3. The Sellers sell to the Purchaser in connection with the software programs
"TIRAMISU" and "Dolly", together with the respective source codes, all assets
which are listed in Attachment 3.
4. The Sellers sell to the Purchaser all trade receivables of the business as of
the Transfer Date.
2
<PAGE>
5. Sellers hereby transfer to Purchaser all of their intellectual property
rights and expectancies or such rights of Plug'n Play Computerberatung GbR,
including the rights to file applications and the rights from filed
applications, as well as all of the use-rights connected herewith. Sellers
hereby transfer to Purchaser all of their rights in connection with their
business to utilize copyright and industrial property rights, particularly their
rights on patent protection. The transfer of these rights is not limited to any
territory.
6. According to the information Sellers have or should have at Closing of this
Purchase Contract, the protected rights are not and are not expected to be
challenged, there are no other reasons for cancellation or invalidity of the
protected rights, and the protected rights or their use do not infringe rights
of third parties.
ss 2 TRANSFER
1. The Sellers assign herewith their trademark rights in ss 1 (1) to the
Purchaser.
2. The transfer of the rights in ss 1 includes all the documentation concerning
the trademark in ss 1, in particular the trademark registration patent, as well
as all agreements which have been concluded with third parties as to the
trademark in ss 1. The Sellers grant as of the signing of this Agreement, a
separate written consent (Attachment 4) for the registration of the Purchaser as
the legal successor in the trademark register and shall sign the formal
declaration provided by the German Patent and Trademark Office for the transfer
of rights to a trademark. The Sellers shall provide to the Purchaser all
information requested as to the prior use of the mark in ss 1 and will also
provide to the Purchaser at its request any existing evidence as to such use.
3. The Sellers warrant:
a) that they do not know of any rights of third persons which restrict the right
to use the mark in ss 1 or that can be the basis for deletion of the mark and
that no proceedings for deletion of the
3
<PAGE>
mark are currently pending;
b) that they have not licensed the mark in ss 1 to any third party.
The Purchaser is informed that the trademark right has a term which expires in
the year 2007.
4. As of the date of the signature of this Agreement, the Sellers shall no
longer distribute any products with the trademark in ss 1 and shall no longer
use that mark. They agree not to challenge the transferred trademark and not to
otherwise cause or support any such attack against the validity of the mark.
5. The Sellers transfer all rights in and to the software "TIRAMISU" and
"Dolly", to the Purchaser, including the source codes and the web addresses:
http://ourworld.compuserve.com/homepages/data_recovery;
http://www.recovery.de;
[email protected].
The Purchaser will assume the www.address pursuant to ss 11 of this Agreement.
The other addresses will be attempted by the parties to be assigned to the
Purchaser. ss 11 applies.
6. The Sellers and the Purchaser agree that all assets listed in Attachment 3
become the property of the Purchaser as of the Transfer Date (ss 3 hereof).
7. The Sellers are obligated to cooperate and to take all necessary steps and to
sign all documents necessary to effect and formalize the assignments and
transfers contemplated herein. The obligation of cooperation begins as of the
Transfer Date and is further detailed in Attachment 5.
8. The Sellers assign hereby all existing trade receivables of the business to
the Purchaser, which accepts this assignment. Payments (electronic or check)
from the Transfer Date belong to the
4
<PAGE>
Purchaser.
ss 3 TRANSFER DATE
The parties hereto agree that the provisions of ss 1 and ss 2 of this Agreement
become effective as of December 22, 1998, 24:00 o'clock (hereinafter "Transfer
Date"). As of the Transfer Date all the tangible assets which have been sold are
transferred into the Ownership and possession of the Purchaser as well as the
use of all intangible rights under ss 1.
ss 4 PURCHASE PRICE
1. The purchase price amounts to DM 3,500,000. (in words: Three Million Five
Hundred Thousand German Marks).
2. The parties agree that the transfer of the assets and rights provided for in
ss 1 and ss 2 of this Agreement is a non-taxable transfer pursuant to ss 1 (1a)
UStG (VAT Law) and thereby no value added tax is owed or is to be withheld.
Should it, however, later be determined that the transfer as contemplated herein
is subject to the value added tax, the Purchaser is hereby obligated to pay such
value added tax in addition to the purchase price.
3. The purchase price is to be paid in the following installments:
a. 10% of the purchase price is due as of the date of signing of the
Agreement.
b. 40% of the purchase price is due as of the Transfer Date.
c. 50% is due on the work day after completion of the transition schedule
set forth in Attachment 5, but no later than January 31, 1999.
5
<PAGE>
4. The purchase price installments are to be paid in equal amounts to:
- Uwe Gissemann, account no. 1302 9733 Volksbank Berlin, BLZ 100 900 00
- Dirk Knoblauch, account no. 5360 8006, Direktanlagebank, BLZ 701 204 00
The Purchaser shall provide through its German subsidiary a bank guarantee from
Commerzbank AG Stuttgart as to the installment payment under ss 4 (3) (c). The
bank guarantee shall be similar to that in Attachment 7.
5. If the payment of the first installment of the purchase price
according to para. 3 a) b) has not been made by December 31, 1998, the Sellers
have the right to withdraw from this Agreement or to damages from the Purchaser
for non-performance up to an amount of DM 100,000 or as to a higher proven
amount. As to the installment payment under ss 4 (3) (c) the Purchaser can
offset claims that have arisen by the due date thereof which may arise under ss
613a BGB for the former employee, out of the property transfer (ss 419 BGB) and
any deficiency in reaching the minimum planned revenues of DM 900,000 in the
calendar year 1998. The Sellers are obligated, should they make a claim under
the bank guarantee and they know or have reason to know that the Purchaser has a
right to offset, to refund to the Purchaser that corresponding amount within
three banking days.
6. If the Purchaser is delinquent in paying any part of the purchase price, the
overdue balance of the purchase price bears interest from the due date until
payment at an interest rate which corresponds to the quoted FIBOR rate, for
three month obligations as of the due date, plus 3 percentage points.
ss 5 OUTSTANDING ORDERS
1. The Purchaser agrees to assume and to fulfill the outstanding orders of the
Sellers for "TIRAMISU" and "Dolly" existing as of the Transfer Date and to
perform same upon the same
6
<PAGE>
agreed terms and conditions to the extent that the Sellers have not performed
the services or made the deliveries as of the Transfer Date.
2. As of the Transfer Date, the Purchaser shall conduct the business in its own
name and for its own account. To the extent that the Purchaser takes over
contracts, it shall perform thereunder for its own account and shall free the
Sellers from all prospective obligations under such contracts unless these
obligations arise from the actions or failure to act of the Sellers which lead
to claims for damages.
ss 6 TRANSITIONAL PERIOD, ASSISTANCE
1. The transfer of the software program "TIRAMISU" and "Dolly" shall be handled
according to the agreed transitional phase in Berlin as agreed by the parties in
Attachment 5. The language for instruction as to the business operations shall
be in German.
2. The Sellers agree that commencing as of the date of signing the Agreement,
they shall continue to conduct the business operations as before and in the
existing premises but in the name and for the account of the Purchaser for an
interim period of no longer than to January 15, 1999. The Sellers furthermore
assure their full cooperation in the transfer of all knowhow and information
required for continuing such business operations.
3. The Purchaser is obligated to cooperate as provided in Attachment 5 to assure
the proper and successful transfer of information within the scope and time
period agreed. Should the Purchaser continue to use the existing premises beyond
the transfer period, it shall be required to pay for such use after January 15,
1999. In no event can the existing premises be used after June 30, 1999. By this
date the Purchaser must have found substitute premises.
4. Should Sellers, individually or collectively violate their obligation to
cooperate as agreed in
7
<PAGE>
Attachment 5, the Purchaser has the right to warn the breaching Seller(s) and to
demand that the work resume on the following workday. Should the breaching
Seller(s) not respond to this demand, the Purchaser, if not itself in breach, is
entitled to liquidated damages from the Sellers in an amount of DM 5,000 per day
for each day in which the Seller(s) has failed to fulfill its obligations for
the transition. With the conclusion of the transition phase under Attachment 5,
each party is excused from further cooperation and performance.
5. The Purchaser has as a customer itself acquired a license for the use of the
software "TIRAMISU" and "Dolly". The Purchaser knows thereby the scope of the
services provided to Internet users upon their acceptance of the offer of the
Sellers. The Purchaser had sufficient opportunity to test the software
"TIRAMISU", which it intends to acquire, and to research and to review same.
Furthermore, the Purchaser knows the circumstances which led the Sellers to
develop and produce the software which is to be acquired. The Purchaser knows in
particular the circumstances that led the Sellers not to prepare any
documentation or manuals during the course of its development of the software.
6. At the beginning and during each phase of the transition period, the
contractual parties shall prepare a protocol which documents the cooperative
efforts made by each party as well as the equipment utilized for that portion of
the transition.
ss 7 LIABILITY, WARRANTIES
1. The Sellers accept joint and several liability to the Purchaser that the
following are true as of the Transfer Date:
a. The Sellers have the right to freely dispose of the assets described in ss 1
and ss 2 of this Agreement without requiring the consent of third parties and
without infringing on the rights of any third parties. The Sellers possess the
legal and economic ownership to all assets and rights to be sold
8
<PAGE>
pursuant to ss 1 and ss 2 of this Agreement which are free from encumbrances of
any kind as well as being free from rights in favor of third parties.
b. The Sellers warrant the existence of the rights in ss 1 of this Agreement
within the meaning of ss 437 BGB (German Civil Code). The Purchaser confirms
that the Sellers have informed it that they have made no special investigation
as to possible rights of third parties that may conflict with those rights
described in ss 1 of this Agreement.
2. The parties hereto agree that defects in the development of software, even
under application of the greatest care, cannot be fully excluded. As to the
trademark in s 1 of this Agreement, the Sellers are only liable in cases in
which the rights of third parties existed as of the date of the conclusion of
this Agreement and that the Sellers knew or had reason to know of such rights of
third parties. The Sellers provide no warranties beyond those expressly stated
in this Agreement and any liability is limited to the amount of the purchase
price (ss 4 (1)).
3. The Purchaser has in cooperation with the Sellers in the course of a
shortened due diligence reviewed the conditions affecting the acquisition of the
business of the Sellers and declares that it has made use of its rights of
examination and consultation during the negotiations leading to this Agreement.
4. The Sellers are not liable for a claim by Purchaser which arise because of
the transfer of the source codes without documentation asserted. Purchaser
declares that the production of the documentation shall be performed during the
course of the transition phase (ss 6).
ss 8 ACQUISITION OF ASSETS
The Sellers warrant that the acquisition of the assets sold to the Purchaser is
not a transfer of assets within the meaning of ss 419 BGB. The Sellers shall
hold Purchaser harmless from any claims made.
9
<PAGE>
ss 9 CONFIDENTIALITY
1. All confidential information concerning the rights under ss 1 of this
Agreement belong as of the Transfer Date to the Purchaser.
2. The contractual parties obligate themselves to treat all information that has
become available to them in conjunction with this Agreement which were
designated as confidential or which otherwise in consideration of all
circumstances are recognizable as comprising business or operational secrets of
the Sellers are to be held secret and, to the extent not required in order to
fulfill the purpose of this Agreement, are not to be copied, given to others or
utilized.
3. The Purchaser shall assure that its employees and consultants which are
active on its behalf shall not themselves use, transfer or otherwise make
unauthorized copies of such information.
4. Publication of the conclusion of this Agreement will be made by the parties
only upon mutual consent.
ss 10 NON-COMPETITION
1. The Sellers obligate themselves individually for the period of 2.5 years
after the Closing Date to avoid any competition with the Purchaser or any of its
subsidiaries in the areas of
data recovery services
data recovery-software
data diagnostic software for storage media
media data conversion services (not software)
remote virus cleaning
computer evidence (forensic) services
computer evidence (forensic) software
10
<PAGE>
hard disk drive installation software
As a breach of this obligation would be, in particular, any of the following
activities as to the above described business areas:
- Own activities (whether exercised directly or indirectly);
- Business activities for companies which are active in the foregoing
areas ("competitors");
and
- Other direct or indirect support of competitors through advice and
counsel.
The non-competition clause extends geographically throughout the territory of
the European Union, the United States and Canada and applies as well to the
supply of any of the above mentioned services through the Internet or other
electronic media.
2. As consideration for this non-competition clause is the purchase price paid
to the Sellers pursuant to ss 4 (1).
3. For every individual incident of breach of the non-competition provisions by
an individual Seller, that individual Seller shall pay to the Purchaser
liquidated damages in the amount of DM 70,000. If the non-competition violation
continues despite a written warning by the Purchaser, further liquidated damages
shall be payable in an amount of DM 50,000 for each beginning month of that
continuation. The Purchaser reserves its right to claim additional compensation
for damages as well as its right for injunctive relief against activities in
breach of this non-competition provision.
ss 11 ASSIGNMENT/ASSUMPTION OF CONTRACTS
1. The Purchaser assumes the rights and obligations under all contracts (but
only as to such contracts) listed in Attachment 7 hereto which as of the
Transfer Date are included in the business of the Sellers and releases the
Sellers from any further obligation thereunder, other than for payment
11
<PAGE>
for past services rendered thereunder.
2. To the extent that the assumption of the contracts above require the consent
of third parties, the parties hereto shall cooperate in obtaining such consent.
If the consent is not possible or does not appear appropriate or is not granted,
the contractual parties shall conduct themselves and proceed as though the
transfer of the contract as of the Transfer Date had been effective.
ss 12 CUSTOMER LISTS
The Sellers shall provide to the Purchaser an invoice and customer databank in
dBase-format which contains the data as to all customers of the Sellers (since
July 1996). Upon written request of the Purchaser, the Sellers shall prepare an
extract therefrom of all relevant data as to the customers of the Sellers who
have either accepted data recovery services or have purchased the software
program "TIRAMISU". The files contain data on some 3,200 customers and contains
the material customer data. In addition, the Sellers shall provide to the
Purchaser at its request a collection of customer letters and thank you letters
in the form of e-mails as to the software "TIRAMISU" which the Purchaser may use
for purposes of advertising, press releases or documentation purposes.
ss 13 EMPLOYEE
The Sellers have no employees. For this reason there is no assumption of any
employees by the Purchaser as otherwise required under ss 613a BGB. Should any
claim be asserted thereunder by any person, Sellers shall hold Purchaser
harmless from possible claims.
ss 14 NON-ASSUMPTION OF LIABILITIES
12
<PAGE>
The Purchaser as of the Transfer Date assumes none of the liabilities of the
Sellers. The liabilities which arose prior to the Closing Date shall be paid by
the Sellers. The Sellers obligate themselves to hold the Purchaser harmless from
all claims which are based upon liabilities which arose prior to the Transfer
Date.
ss 15 MISCELLANEOUS
1. Amendments and modifications of this Agreement, including this provision is
required to be in writing. This applies as well as to any waiver of the
requirement for the written form.
2. Should a provision of this Agreement be ineffective or void in whole or in
part, the validity and enforceability of all other provisions of this Agreement
shall not be affected thereby. The ineffective or void provision is to be
replaced with a valid provision which most nearly approximates the economic
intention of the parties.
3. In the event of disputes as to provisions agreed by the parties under ss 10
of the contract and under Attachment 5 are subject to binding arbitration.
Arbitration shall be under the rules of the German Institution for Arbitration
("DIS"). Referrals to the Courts are hereby excluded. The location shall be
Berlin, substantive law shall be that of Germany, and unless the parties
otherwise agree, there shall be three judges. The language of the proceedings
shall be in English and in German, but the arbitral award need only be in
German. The Arbitration Court may only be called upon if after 14 days no
settlement of the dispute between the parties can be reached.
4. This Agreement is subject to the law of Germany. In the event of a legal
dispute between the parties in conjunction with this Agreement, the parties
agree to the exclusive venue of Berlin.
Berlin, the ____ day of December 1998 Berlin, the ____ day of December 1998
13
<PAGE>
- ----------------------------------- ------------------------------------
Uwe Gissemann Dirk Knoblauch Mike Rogers, Chairman and CEO
also on behalf of Plug'n Play Ontrack Data International, Inc.
14
EXHIBIT 10.1
ONTRACK DATA INTERNATIONAL, INC.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
JANUARY 27, 1999
RESOLVED, that under the ONTRACK Data International, Inc. 1996 Stock Incentive
Plan, an additional authorization of 400,000 shares of the authorized and
unissued common stock of the Company is hereby adopted and reserved for said
Plan.
RESOLVED, FURTHER, that the first sentence of Section 3 of the ONTRACK Data
International, Inc. 1996 Stock Incentive Plan is hereby amended to read as
follows:
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,400,000.
RESOLVED, FURTHER, that the last two sentences of Section 5.(k) shall be
deleted, so as to eliminate the limitations on the maximum numbers of shares as
to which options may be granted to any director and to all non-employee
directors as a group.
RESOLVED, FURTHER, a new Section 5.(l) shall be added following Section 5.(k),
with Section 5.(l) to read as follows:
The maximum aggregate number of shares as to which Options may be
granted to any Participant in any calendar year shall be 500,000.
RESOLVED, FURTHER, that the foregoing resolutions and actions are hereby
recommended for approval by the Shareholders of the Company, which approval
shall be requested at the next available opportunity for Shareholder action, but
no later than within one (1) year of the effective date of these resolutions.
EXHIBIT 10.12
AMENDMENT
[Norwest Letterhead]
August 17, 1998
Ms. Kathy Feiner
ONTRACK Data International, Inc.
6321 Bury Drive, Suites 15-21
Eden Prairie, MN 55346
Dear Ms. Feiner:
I am pleased to inform you that Norwest Bank Minnesota, National Association has
approved a renewal of your $1,000,000 line of credit. A second amendment to the
credit agreement and a new commercial note reflecting this renewal are attached
for review and signature.
Please return the original, signed documents to me at your earliest convenience.
If you have any questions please call Bonnie Kennedy at 316-4183 or myself at
316-4182.
Sincerely,
Norwest Bank Minnesota, National Association
Kent Paulson
Portfolio Manager
Enclosure
<PAGE>
NORWEST BANK MINNESOTA, SECOND AMENDMENT
NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
The Second Amendment to the Revolving Loan Agreement (the "Second Amendment")
dated as of August 18, 1998 is by and between Norwest Bank Minnesota, National
Association (the "Bank") and ONTRACK Data International, Inc. (the "Borrower").
BACKGROUND
The Borrower and the Bank entered into a Revolving Loan Agreement dated to be
effective as of July 31, 1996, which was subsequently amended in the First
Amendment dated August 30, 1997, (as amended, the "Agreement") whereby the Bank
extended to the Borrower a $1,000,000.00 conditional revolving line of credit
(the "Revolving Line"). The borrowings under the Revolving Line are evidenced by
a revolving note dated the same date as the First Amendment (the "1997
Commercial Note").
The Borrower has requested that the Bank extend the maturity date of the
Revolving Line to August 30, 1999. The Bank is willing to grant this request
subject to the terms and conditions of this Second Amendment and the Agreement.
Capitalized terms not otherwise defined in this Second Amendment shall have the
meaning given them in the Agreement.
In consideration of the premises, the Bank and the Borrower agree that the
Agreement is hereby amended as follows:
1. Section 1.1 of the Agreement is hereby deleted and restated to
read as follows:
"1.1 The Bank agrees to lend to the Borrower from time to
time from the effective date hereof until August 30,
1999 (the "Maturity Date") sums not to exceed
$1,000,000.00, in aggregate principal amount at any
one time outstanding. Each borrowing under this
Section 1.1 will be evidenced by a notation on the
Bank's records, which, absent manifest error, shall
be conclusive evidence of such borrowings. Within the
limits of this Agreement and subject to the terms and
conditions hereof, prior to the Maturity Data, the
Borrower may borrow, repay, and reborrow pursuant to
this Section 1.1."
2. Section 5.6 of the Agreement is hereby deleted and restated as
follows:
"5.6 Permit its ratio of Total Liabilities (as defined by
Generally Accepted Accounting Principles ("GAAP")) to
Tangible Net Worth (defined below), at any time to be
greater than: 1.0 to 1.0."
3. Section 5.7 of the Agreement is hereby deleted in its
entirety.
4. Section 5.8 of the Agreement is hereby deleted and restated as
follows:
"5.8 Permit its Minimum Net Income, as defined by GAAP, to
be less than $1.00 as of its fiscal year end December
31, 1998."
5. Simultaneously with the execution of this Second Amendment,
the Borrower shall execute and deliver to the Bank a revolving
note (the "Commercial Note") in form and content acceptable to
the Bank, which shall replace, but not be deemed to satisfy,
the 1997 Commercial Note. The initial balance of the
Commercial Note shall be the balance of the 1997 Commercial
Note as of the date of this Second Amendment. Each reference
in the Agreement to the Commercial Note shall
<PAGE>
be deemed to refer to the Commercial Note dated as of the date
of this Second Amendment.
6. The Borrower hereby represents and warrants to the Bank as
follows:
A. The Agreement as amended by this Second Amendment
remains in full force and effect.
B. The Borrower has no knowledge of any default under
the terms of the Agreement or any note evidencing any
of the obligations of the Borrower that are
documented in the Agreement, or of any event that
with notice or the lapse of time or both would
constitute a default under the Agreement or any such
notes.
C. The resolutions set forth in the Corporate
Certificate of Authority dated June 13, 1996 and
delivered by the Borrower to the Bank have not been
amended or rescinded, and remain in full force and
effect.
7. Except as modified by this Second Amendment, the Agreement
remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the Bank and Borrower have executed this Second Amendment as
of the date and year first above written.
NORWEST BANK MINNESOTA, ONTRACK DATA INTERNATIONAL, INC.
NATIONAL ASSOCIATION
By: By: /s/ Thomas P. Skiba
----------------------------------- -----------------------------------
Bonnie Kennedy, Assist. Vice Pres. Thomas P. Skiba, VP and CFO
By: /s/ Michael W. Rogers
-----------------------------------
Michael W. Rogers, CEO
<PAGE>
NORWEST BANK MINNESOTA, COMMERCIAL NOTE
NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
$1,000,000.00 August 18, 1998
FOR VALUE RECEIVED, ONTRACK Data International, Inc. (the "Borrower") promises
to pay to the order of Norwest Bank Minnesota, National Association (the
"Bank"), at its principal office or such other address as the Bank or holder may
designate from time to time, the principal sum of One Million and No/100 Dollars
($1,000,000.00), plus interest (calculated on the basis of actual days elapsed
in a 360-day year) accruing each day on the unpaid principal balance at the
annual interest rate defined below. Absent manifest error, the Bank's records
shall be conclusive evidence of the principal and accrued interest owing
hereunder.
INTEREST RATE. The principal balance outstanding under this Commercial Note
shall bear interest at an annual rate equal to Base Rate, floating. Base Rate
means the rate of interest established by the Bank from time to time as its
"base" or "prime" rate of interest at its principal office in Minneapolis,
Minnesota.
REPAYMENT TERMS.
INTEREST. Interest shall be payable on the last day of each month, beginning
August 31, 1998.
PRINCIPAL. Principal that is outstanding, and any accrued but unpaid interest,
shall be due on the earlier of demand or August 30, 1999.
ADDITIONAL TERMS AND CONDITIONS. This Commercial Note is issued pursuant to a
Revolving Loan Agreement dated July 31, 1996 as amended by a First Amendment
dated August 30, 1997, and a Second Amendment dated August 18, 1998, between
the Bank and the Borrower (as amended the "Agreement"). The Agreement, and any
further amendments or substitutions, contains additional terms and conditions,
including default and acceleration provisions, which are incorporated into this
Commercial Note by reference. Capitalized terms not expressly defined herein
shall have the meanings given them in the Agreement. The Borrower agrees to pay
all costs of collection, including reasonable attorneys' fees and legal expenses
incurred by the Bank if this Commercial Note is not paid as provided above. This
Commercial Note shall be governed by the substantive laws of the State of
Minnesota.
WAIVER OF PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person who
signs, guarantees or endorses this Commercial Note, to the extent allowed by
law, hereby waives presentment, demand for payment, notice of dishonor, protest,
and any notice relating to the acceleration of the maturity of this Commercial
Note.
ONTRACK DATA INTERNATIONAL, INC.
By: /s/ Thomas P. Skiba
------------------------------------
Thomas P. Skiba, VP and CFO
By: /s/ Michael W. Rogers
------------------------------------
Michael W. Rogers, CEO
EXHIBIT 10.14
[ONTRACK(R) LETTERHEAD]
February 9, 1999
Mr. Lee Lewis
5587 Bristol Lane
Minnetonka, MN 55343
Dear Lee:
On behalf of ONTRACK Data International, Inc. (ONTRACK), I would like to
congratulate you and extend this offer of employment for the President & Chief
Operating Officer position. Upon acceptance, your employment would commence on
February 11, 1999, and you would report to Mike Rogers, CEO. ONTRACK uses a
semi-monthly payroll schedule; payday is the 15th day and the last day of each
calendar month. Outlined below is your Total Compensation Package:
COMPENSATION PACKAGE:
================================================================================
COMPONENT* DETAILS
================================================================================
SALARY $12,500 per month
- --------------------------------------------------------------------------------
MEDICAL INSURANCE HealthPartners Choice Plan - HMO
80% of the premium paid by ONTRACK
- --------------------------------------------------------------------------------
DENTAL INSURANCE HealthPartners Choice Plan - HMO
50% of the premium paid by ONTRACK
- --------------------------------------------------------------------------------
TERM LIFE INSURANCE $50,000
100% of the premium paid by ONTRACK
- --------------------------------------------------------------------------------
ADDITIONAL LIFE INSURANCE Optional for Employee, Spouse, and Children
- --------------------------------------------------------------------------------
SHORT TERM DISABILITY Company pays 100% of premium
- --------------------------------------------------------------------------------
LONG TERM DISABILITY Company pays 100% of premium
- --------------------------------------------------------------------------------
CAFETERIA PLAN (TAX BENEFIT) Eligible the 1st of the month following 30 days
of employment; allows employees to use pre-tax
dollars for expenses not covered under
medical/dental plan
- --------------------------------------------------------------------------------
PROFIT SHARING Eligible after one year of service (Jan. 1 - Dec.
31)
Contribute up to 15% of annual salary
- --------------------------------------------------------------------------------
401K PLAN Eligible after 1 month of employment on the 1st
day the next quarter
Contribute up to 15% of annual salary - 6
investment options
- --------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE Eligible after 90 days of employment on the 1st
PLAN day of the next quarter
Ability to buy ONTRACK stock at a 15% discount
- --------------------------------------------------------------------------------
STOCK OPTIONS Stock options in the amount of 100,000 shares. The
grant price for these shares will be determined by
using the closing price of the first day of your
employment.
They will be subject to a three-year vesting
schedule.
- --------------------------------------------------------------------------------
HOLIDAYS Eight paid holidays a year
Personal time: 16 hours a year
- --------------------------------------------------------------------------------
VACATION 0-4 years: 160 hours | 10-20 years: 160 hours
5-10 years: 160 hours | 20-30 years: 200 hours
- --------------------------------------------------------------------------------
SICK LEAVE Pro-rated 1st year of employment
6 full days on January 1st of following year
- --------------------------------------------------------------------------------
TUITION REIMBURSEMENT Job related classes and/or seminars are
reimbursable, up to $3,000 per year, on a
pre-approved basis; A or B letter grade is
required. Eligibility at 6 months.
- --------------------------------------------------------------------------------
EMPLOYEE REFERRAL PROGRAM $750.00 for full-time employees
$250.00 for part-time, temporary, & contract
employees
- --------------------------------------------------------------------------------
ONTRACK OFFER LETTER
PAGE 1
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C> <C>
ADDITIONAL BENEFITS - Direct Deposit - Local Merchant Discounts
- Health Club membership discounts - Discount Movie Passes
- Membership Banking - Smoke Free Environment
- "Casual Dress" Fridays
- ------------------------------------------------------------------------------------
</TABLE>
ONTRACK is an at-will emmployer; this letter and/or attachments does not
guarantee employment for any length of time. This offer is contingent upon a
successful background check and a successful (negative) drug test. This drug
test must be taken within one week of the date of this offer letter. A condition
of employment is the signing of the enclosed Condifentiality Agreement and
Covenant Not to Compete form. This form and the original of this offer letter
must be signed, dated and returned before your first day of employment. Please
call should you have any questions regarding the drug test or this agreement.
On your first day, please bring information with you to complete the Employment
Eligibility Verification Form (I-9) (i.e. a passport or your driver's license
and social security card).
If this offer letter meets your approval, sign one copy of the letter and the
Agreement and return it to me before your first day of employment. This offer
letter is null and void if it is not signed and returned to ONTRACK within 30
days of the date of this letter. We look forward to working with you in meeting
mutual goals!
Sincerely,
/s/ Cindy Mustful
Cindy Mustful
Human Resources
Enclosures
I hereby accept this offer with the terms and conditions stated within, and any
other terms and conditions which ONTRACK may later lawfully impose from time to
time.
/s/ Lee Lewis 2/10/99
- ----------------------------------- -----------------------------------
Lee Lewis Date
* The above company compensation package/benefits are subject to change.
Enclosures: Confidentiality Agreement
ONTRACK OFFER LETTER
PAGE 2
EXHIBIT 10.15
AGREEMENT
between
ONTRACK Data International, Inc. and Roger D. Shober
This AGREEMENT, made effective as of September 21, 1998 ("Effective Date"),
between ONTRACK Data International, Inc., a Minnesota corporation (the
"Company"), a corporation having its principal office 6321 Bury Drive, Eden
Prairie, MN 55346, and Roger D. Shober ("Consultant/Officer").
RECITALS
WHEREAS, the Board of Directors of the Company ("Board") created the
combined office of President and Chief Operating Officer on August 27, 1998, and
appointed Roger D. Shober to said position, effective September 21, 1998; and
WHEREAS, the Company and Consultant/Officer desire to memorialize
certain understandings and agreements between them on the subject of
compensation for said appointment for the period provided in this Agreement, and
Consultant/Officer is willing to accept appointment as the acting President and
Chief Operating Officer Company for such period, upon the terms and conditions
hereinafter set forth; and
WHEREAS, Consultant/Officer has ratified and affirmed his
Confidentiality and Non-Competition obligations by re-executing the Company's
current Confidentiality Agreement and Covenant Not To Compete contemporaneous
with the execution of this Agreement; and
WHEREAS, the execution of this Agreement has been duly authorized by
the Board, and the terms of compensation contained herein have been approved by
the Compensation Committee of the Board (the "Committee").
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Appointment; Term. Consultant/Officer is appointed an officer of the Company,
effective September 21, 1998, with the title of President and Chief Operating
Officer (Acting), reporting to the Chief Executive Officer, on an at-will basis,
terminable by either party at any time. This appointment shall commence upon the
Effective Date and shall continue for a period of six (6) months, through March
21, 1999 (the "Term").
2. No Other Benefits. During the Term of this Agreement, Consultant/Officer
shall not be entitled to receive benefits of employment generally available to
other members of the Company's executive management. Consultant/Officer shall be
not be entitled to vacation. Consultant/Officer will not be eligible for
profit-sharing, or participation in any Executive Compensation Plans generally
available to full time executive officers/employees of the Company.
3. Reimbursement of Expenses. The Company will to pay all reasonable
out-of-pocket expenses related to commuting & all lodging and auto expenses for
time spent in Eden Prairie excluding personal meals, laundry and other personal
expenses (except where such expenses are directly attributable to Company
business matters). Business travel other than that described/covered above will
be reimbursed according to the then-current Company policy.
1
<PAGE>
4. Stock Options. Consultant/Officer shall be granted non-qualified options to
purchase shares of the Company's Common Stock on the effective date of this
Agreement (the "Grant Date"). The exercise price of the options shall be $7.125
per share, the published closing price of the Company's common stock on
September 21, 1998. Such options will entitle Consultant/Officer to purchase up
to 50,000 shares of the Company's Common Stock, are fully-vested, and are
exercisable at any time from and after the date of this Agreement (subject to
the Company's Insider Trading and Tipping Policy in effect from time to time),
will have a term of ten (10) years from the Grant Date, and will otherwise be
subject to the Company's current non-qualified stock option grant agreement (a
copy of which has been provided to Consultant/Officer).
5. Fees as a Director Waived. Consultant/Officer agrees to remain as a director
of the Company; provided, however, that during the period which
Consultant/Officer serves as an officer (acting), Consultant/Officer waives
normal outside director fees, but will have the ability to bill under this
contract for participation in Board meetings. Upon the termination of his duties
as an officer (acting), Consultant/Officer will be entitled to re-instatement of
all fees and other benefits applicable to outside directors generally so long as
he is a director of the Company.
6. Cash Compensation. Consultant/Officer's duties as an officer (acting) will be
compensated under his existing Consultation Agreement; provided, however, that
Consultant/Officer agrees to reduce his daily rate from $2,000 to the sum of
$1,200 per day for time spent in Eden Prairie, and to charge $150/hour for time
spent on Company business while on San Juan Island. No billing for domestic
travel to and from Eden Prairie and San Juan Island. International travel and
domestic business travel other than as described above will be compensable at
the daily/hourly rates, as applicable.
7. Flexible Schedule. The Company and Consultant/Officer agree that his work
schedule as an officer (acting) will be flexible, but will be approximately
every other week in Eden Prairie.
8. Duties. General duties shall include responsibility for all worldwide sales
and operations, subject to the ongoing discretion of the Chief Executive
Officer. During the Term, Consultant/Officer shall devote his best efforts and
all his business time, attention, skill and efforts to the business and affairs
of the Company and its affiliated companies, as such business affairs now exist
and as they may be hereafter changed or added to, under and pursuant to the
general direction of the Chief Executive Officer; provided, however, that
Consultant/Officer may serve, or continue to serve, on the boards of the
directors of and hold any other offices or positions in, companies or
organizations which will not present any conflict of interest with, or impair
Consultant/Officer's fiduciary obligations to, the Company or any of its
subsidiaries or affiliates or divisions, or materially affect the performance of
Consultant/Officer's duties pursuant to this Agreement. The services which are
to be rendered by Consultant/Officer hereunder are to be rendered in the State
of Minnesota, or in such other place or places in the United States or elsewhere
as may be determined from time to time by the CEO, but are to be rendered
primarily at the headquarters of the Company in the State of Minnesota.
9. Obligations of Consultant/Officer Regarding Confidentiality and
Non-Competition During and After Term of this Agreement. Consultant/Officer
affirms his confidentiality and non-competition obligations to the Company by
executing, contemporaneous with the execution of this Agreement, the Company's
current version of said agreement (provided, however, that Consultant/Officer
shall not be deemed an "employee" solely by reason of executing said
Confidentiality and Non-Competition Agreement), a copy of which is attached
hereto as Exhibit A and made a part hereof by reference.
2
<PAGE>
10. Termination. Either Consultant/Officer or Company may terminate this
Agreement at any time, with or without cause or reason, by providing written
notice of such termination to the other party.
11. Arbitration. Any controversy, dispute or claim between Company and
Consultant/Officer, including, but not limited to claims of race, age, gender,
religious or national origin discrimination under the Title VII of the Civil
Rights Act of 1964, as amended; the Age Discrimination in Employment Act of
1967, as amended; the Americans with Disabilities Act, as amended; any other
federal, state or local laws; and those involving the construction or
application of any of the terms, provisions or conditions of this Agreement or
otherwise arising out of or relating to this Agreement, shall be settled by
arbitration in accordance with the then current employment dispute resolution
rules of the American Arbitration Association, and judgment on the award
rendered by the arbitrator(s) may be rendered by any court having jurisdiction
thereof. The location of the arbitration shall be in Hennepin County, Minnesota.
12. Notice. For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company: ONTRACK Data International, Inc.
6321 Bury Drive
Eden Prairie, MN 55346
If to Consultant/Officer: Roger D. Shober
4825 Victoria Drive
Friday Harbor, WA 98250
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
13. Non-Waiver; Complete Agreement; Governing Law. No provisions of this
Agreement may be modified, waived or discharged except in writing signed by both
parties. No waiver by either party at any time of any breach by the other party
of, or compliance with, any condition or provision of this Agreement shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior to subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Minnesota.
14. Severability. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Consultant/Officer and the Company (pursuant to a resolution
of its Board adopted at a duly constituted meeting) have executed this
Agreement, effective as of the date first above written.
3
<PAGE>
ONTRACK Data International, Inc.
By:
------------------------------- -----------------------------------
John M. Bujan Consultant/Officer
Its:
------------------------------
General Counsel/Secretary
Dated: September 21, 1998 Dated: September 21, 1998
4
EXHIBIT 10.16
LEASE AGREEMENT
(Office)
INDEX
- -----
ss SECTION PAGE
- -- ------- ----
1. Summary of Terms and Certain Definitions....................... 1
2. Certain Definitions............................................ 2
3. Premises ...................................................... 2
4. Construction of the Base Building.............................. 3
5. Tenant Improvements; Tenant Allowance.......................... 7
6. Term........................................................... 9
7. Permitted Use.................................................. 10
8. Minimum Annual Rent ........................................... 10
9. Operation of Property; Payment of Expenses .................... 11
10. Compliance with Laws........................................... 17
11. Signs ......................................................... 19
12. Alterations and Fixtures ...................................... 21
13. Mechanics' Liens............................................... 22
14. Landlord's Right of Entry...................................... 22
15. Damage by Fire or Other Casualty............................... 23
16. Condemnation................................................... 24
17. Non-Abatement of Rent.......................................... 25
18. Indemnification................................................ 25
19. Waiver of Claims............................................... 25
20. Quiet Enjoyment; Warranty of Title............................. 26
21. Assignment and Subletting...................................... 26
22. Subordination.................................................. 27
23. Recording; Tenant's Certificate................................ 28
i
<PAGE>
24. Surrender; Abandoned Property.................................. 28
25. Curing Tenant's Defaults....................................... 29
26. Defaults - Remedies............................................ 29
27. Representations of Tenant...................................... 31
28. Liability of Landlord.......................................... 32
29. Interpretation; Definitions.................................... 32
30. Notices........................................................ 33
31. Option to Extend Term.......................................... 35
32. Expansion Option............................................... 37
33. Right of First Offer........................................... 40
34. Parking........................................................ 41
35. Antenna; Satellite Dish........................................ 41
36. Tenant's Option to Terminate................................... 42
37. Termination of Existing Lease.................................. 42
38. Standards; Curing Landlord's Defaults; Set-off................. 43
39. Hazardous Substances........................................... 43
40. Brokerage Fee.................................................. 44
ii
<PAGE>
THIS LEASE AGREEMENT is made by and between LIBERTY PROPERTY LIMITED
PARTNERSHIP, a Pennsylvania limited partnership ("LANDLORD"), with its address
at Suite 390, 330 Second Avenue South, Minneapolis, MN 55401, and ONTRACK DATA
INTERNATIONAL, INC., a corporation organized under the laws of Minnesota
("TENANT"), with its address at 6321 Bury Drive, Suites 13-21, Eden Prairie,
Minnesota 55436, and is dated as of the date on which this Lease has been fully
executed by Landlord and Tenant.
1. SUMMARY OF TERMS AND CERTAIN DEFINITIONS.
(a) "PREMISES": Approximate rentable square feet: 80,119 (See
Section 2)
(b) "BUILDING": Approximate rentable square feet: 80,119 (See
Section 2)
(c) "TERM": One Hundred Twenty (120) months plus any partial
(ss 5) month from the Commencement Date until the first
day of the first full calendar month during the
Term; See Section 6
(i) "COMMENCEMENT DATE": See Section 6
(ii) "EXPIRATION DATE": See Section 6
(d) MINIMUM RENT (ss 8) & OPERATING EXPENSES (ss 9)
(i) "MINIMUM ANNUAL RENT":
<TABLE>
<CAPTION>
Minimum Annual Minimum Annual
Lease Rent Per Rentable Lease Rent Per Rentable
Year Square Foot Annual Monthly Year Square Foot Annual Monthly
- ---- ----------------- ------ ------- ---- ----------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $9.950 $797,184.00 $66,432.00 6 $10.986 $880,187.28 $73,348.94
2 $10.149 $813,127.68 $67,760.64 7 $11.205 $897,733.44 $74,811.12
3 $10.352 $829,391.88 $69,115.99 8 $11.429 $915,680.04 $76,306.67
4 $10.559 $845,976.51 $70,498.04 9 $11.658 $934,027.32 $77,835.61
5 $10.770 $862,881.62 $71,906.80 10 $11.891 $952,695.00 $79,391.25
</TABLE>
(ii) ESTIMATED "ANNUAL OPERATING EXPENSES": $289,229.64
(Two Hundred Eighty-nine Thousand Two Hundred
Twenty-nine and 64/100 Dollars) estimated for
calendar year 1999 (based on $3.61 per rentable
square foot), payable in monthly installments of
$24,102.47 (Twenty-four Thousand One Hundred Two and
47/100 Dollars), subject to adjustment (ss 9(a))
(e) "PROPORTIONATE SHARE" (ss 9(a)): 100% (Ratio of approximate
rentable square feet in the Premises to approximate rentable
square feet in the Building)
(f) "USE" (ss 4): See Section 7
(g) CONTENTS: This Lease consists of the Index, pages 1 through 45
containing Sections 1 through 40 and the following, all of
which are attached hereto and made a part of this Lease:
<TABLE>
<S> <C>
Exhibits: "A" - Site Plan "A-1" - Legal Description
"B" - Commencement Certificate Form "C" - Building Rules
"D" - Cleaning Schedule "E" - Estoppel Certificate Form
"F-1" - Scope Drawings "F-2" - Architectural Standards
"F-3" - Minimum Shell Condition Requirements "G" - Exclusions from Operating Expenses
"H" - Substantial Completion Items "I" - Existing Title Encumbrances
"J" - Environmental Information
</TABLE>
2
<PAGE>
2. CERTAIN DEFINITIONS. In this Lease:
"BUILDING" means the building in which the Premises are located.
"LAND" means that portion of the land on which the Project is situated allocated
to the Building, Building parking, Building driveways, Building setbacks,
landscaping, signage and green space. That portion of the Project area included
in the "Land" shall generally be the area south of the line designated "Limit of
Building A Land" on the Site Plan. The Land shall not include (i) excess land in
the Project being held by Landlord for future development or otherwise not
properly attributable to the Building and its amenities as provided above and
(ii) the ponding area as identified and delineated on the Site Plan as the
"Excluded Pond Area." At the request of either party following substantial
completion of the Base Building and Site Improvements, Landlord and Tenant shall
enter into a written agreement stipulating as to the precise boundaries of the
Land, the square footage of the Land (exclusive of the pond area described
above) and the square footage of the land included in the tax parcel of which
the Land is then a part.
"PREMISES" means approximately 80,119 rentable square feet (subject to
confirmation as provided in Section 4(g) below), consisting of 100% of the
rentable square footage of the Building identified as Building A on the Site
Plan, which Building will be constructed by Landlord in accordance with the
terms and provisions of this Lease.
"PROJECT" means the Flying Cloud Corporate Campus, a business park consisting of
one or more buildings that may be developed by Landlord in accordance with the
Site Plan on a portion of the property legally described on attached EXHIBIT
AA-1".
"PROPERTY" means the Building and the Land.
"SITE PLAN" means the Site Plan attached to this Lease as EXHIBIT "A". Landlord
shall not make any alterations to the Site Plan materially and adversely
affecting Building A or the parking, access or other amenities serving Building
A, without Tenant's prior written consent.
"TENANT'S PROPORTIONATE SHARE" means the percentage obtained by dividing the
rentable square footage of the Premises (as the same may expand or contract
pursuant to the provisions of this Lease) by the rentable square footage of the
Building or Buildings in which the Premises are located. Tenant's initial
Proportionate Share is 100%.
3. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises, together with the nonexclusive right with Landlord and
other occupants of the Building to use all areas and facilities provided by
Landlord for the use of all tenants in the Property including any lobbies,
hallways, driveways, sidewalks and parking, loading and landscaped areas
3
<PAGE>
(the "COMMON AREAS"). So long as Tenant is leasing 100% of the rentable square
footage of the Building, Tenant shall have the exclusive use of those Common
Areas exclusively serving the Building, subject only to Landlord's rights of
access and use contemplated in this Lease. So long as Tenant is leasing at least
75% of the rentable square footage of the Building, Landlord will not make any
material alterations to the Common Areas without Tenant's consent, which consent
shall not be unreasonably withheld, conditioned or delayed.
4. CONSTRUCTION OF THE BASE BUILDING.
(a) LANDLORD'S CONSTRUCTION OBLIGATION. Landlord shall construct the
base building ("Base Building") and related site improvements, including, but
not limited to, grading, parking areas, access drives, sidewalks, monument signs
to be constructed by landlord under this Lease and landscaping (the "Site
Improvements") substantially in accordance with the "Approved Plans" (as defined
below) in accordance with the terms and conditions of this Section 4. All
construction shall be done at Landlord's expense in a good and workmanlike
manner, free of mechanic's liens that are not promptly discharged, and shall
comply in all material respects with all applicable laws codes, regulations,
rules and requirements of the governmental authorities having jurisdiction, as
applied, enforced and interpreted as of the date the building permit is issued,
including, but not limited to, all requirements of Title III of the ADA as
applicable to commercial facilities.
(b) PLAN APPROVAL PROCESS. Landlord and Tenant have approved the
following preliminary plans and specifications for the Base Building and Site
Improvements (the "Preliminary Plans"): (1) Scope Drawings listed on attached
EXHIBIT "F-1", Architectural Standards listed on attached EXHIBIT "F-2", and the
Minimum Shell Condition Requirements listed on attached EXHIBIT "F-3". To the
extent there is any conflict between the Scope Drawings or the Architectural
Standards and the Minimum Shell Condition Requirements, the Minimum Shell
Condition Requirements shall control. During the design process, Landlord and
Tenant will hold at least bi-weekly status meetings consisting of the respective
team managers and other appropriate personnel. Landlord will endeavor to provide
Tenant, on or before the date that is 60 days after the date of this Lease,
detailed plans and specifications for the construction of the Base Building and
Site Improvements (the "Construction Plans"). The Construction Plans shall be
consistent with the Preliminary Plans. Within 8 business days after its receipt
of the Construction Plans (or receipt of any modified Construction Plans as
provided below), Tenant shall notify Landlord of its approval or disapproval of
the Construction Plans (which approval shall not be unreasonably withheld), and
if Tenant disapproves the Construction Plans, the revisions that Tenant requires
in order to obtain such approval. It is agreed that Tenant will not object to
Construction Plans to the extent that they conform to the Preliminary Plans;
without limiting the foregoing, specifications included in the Construction
Plans shall be consistent with the high quality materials (taking into account
useful life, future operating costs and maintenance) contemplated in the
Preliminary Plans. As promptly as reasonably possible thereafter, but no later
than 30 days after Tenant's response, Landlord shall submit to Tenant modified
Construction Plans incorporating appropriate revisions. Tenant's approval of the
final Construction Plans shall be evidenced by the signature of Tenant's
authorized representative on the top of each sheet of the
4
<PAGE>
approved construction drawings and specifications. The approved construction
drawings and specifications are herein termed the "Approved Plans". If within
the time periods provided above Tenant fails to approve or disapprove any
submittal from Landlord to Tenant, said submittal shall be deemed approved. Once
approved by Tenant, Landlord will not change any of the Approved Plans without
Tenant's consent, which consent shall not be unreasonably withheld, conditioned
or delayed provided such change is not material to the design or quality of the
Base Building or Site Improvements; if such change is material to the design or
quality of the Base Building or Site Improvements, Tenant may withhold its
consent in Tenant's sole discretion.
(c) CONSTRUCTION DEADLINES; REMEDIES. Landlord shall cause the Base
Building and Site Improvements to be substantially completed in accordance with
the requirements of Section 4(a) above on or before MAY 1, 1999, subject only to
(1) any delay caused by Tenant ("Tenant Delay") or (2) any delay caused by Force
Majeure (as defined below).
If Landlord fails to so substantially complete the Base Building and
Site Improvements on or before MAY 1, 1999 (as the same may be extended as a
result of any Tenant Delay or delay caused by Force Majeure), then Tenant shall
receive, for the first 30 days of such delay, two (2) days of gross free rent
for each day of such delay, and after first 30 days of such delay, Tenant shall
receive three (3) days of gross free rent for each day of delay beyond the
initial 30-day delay. In addition, Tenant shall have the right to hold over in
Tenant's Existing Premises (as defined in Section 37 below), at the same rent
and on all of the same terms as provided in Tenant's Existing Lease (as defined
in Section 37 below), until the Commencement Date of this Lease. The foregoing
shall be Tenant's sole and exclusive remedies for any delay in the substantial
completion of the Base Building. During any "free rent" period described above,
Tenant shall be obligated to pay for all utilities used by Tenant.
For purposes of this Section "Force Majeure" delays shall mean the time
lost by Landlord or Landlord's contractors, subcontractors or suppliers due to
floods, fire, tornado, earthquake or other casualties or natural disasters, war
or national emergency, governmental restrictions and limitations or any cause
similar to the foregoing beyond the reasonable control of Landlord or Landlord's
contractors, subcontractors or suppliers, except that the term "Force Majeure"
delays shall expressly exclude delays due to snow, cold weather or similar
adverse weather conditions, strikes or other labor troubles or due to scarcity
or unavailability of fuel, labor or materials (unless directly related to one of
the expressly enumerated causes above).
For purposes of this Section 4, "substantial completion" shall be
deemed to have occurred as of the date Landlord provides Tenant a notice of
substantial completion enclosing: (1) a certificate of substantial completion
signed by Landlord's architect and certifying to Tenant that the Base Building
and Site Improvements have been completed in accordance with the Approved Plans
except for enumerated punch list items, and (2) a copy of a certificate of
occupancy (temporary or permanent) issued by the City of Eden Prairie for the
Base Building. The foregoing notwithstanding, substantial completion shall not
be deemed to occur unless the minimum requirements listed on attached EXHIBIT
"H" are satisfied. Completion of landscaping, monument
5
<PAGE>
signs, and completion of the final wearing course of the parking lot shall not
be deemed requirements of substantial completion, but Landlord shall
nevertheless complete such items following substantial completion with
reasonable diligence (but no later than July 1, 1999 unless Landlord and Tenant
otherwise agree) in accordance with the requirements of Section 4(a) above.
Moreover, clause (2) in the first sentence of this paragraph notwithstanding,
and provided that all other conditions of substantial completion set out in this
paragraph are satisfied, the Base Building and Site Improvements shall be deemed
substantially complete if Landlord has satisfied all conditions to obtaining a
certificate of occupancy as such conditions pertain to Landlord's construction
obligations, and the sole reason for a delay in the issuance of such a
certificate is unfinished Tenant improvements or fixturing.
Upon Landlord's delivery to Tenant of a proper notice of substantial
completion, Landlord and Tenant shall jointly perform an inspection of the Base
Building and identify any incomplete items or other elements of work not
materially conforming to the Approved Plans. The list resulting from such
inspection shall be deemed the "punch list." If Landlord has not completed the
punch list items within 45 days of substantial completion or within such
additional reasonable time as may be necessary provided Landlord is proceeding
with all due diligence to cause such punch list items to be corrected, then
Tenant may complete such punch list items and Landlord shall reimburse Tenant
for Tenant's cost of completion, plus an administrative fee of 10% of the cost
thereof.
(d) APPROVAL & CONSTRUCTION CONTINGENCIES. In the event Landlord has
not received all necessary governmental approvals for the development of the
site and the construction of the Base Building and Site Improvements and
commenced construction (meaning the commencement of construction of the Building
footings) of the Base Building on or before JANUARY 1, 1999, either Landlord or
Tenant may terminate this Lease by giving written notice of termination to the
other. Landlord shall use all reasonable efforts to obtain such approvals and
commence construction on or before January 1, 1999.
If either party so terminates the Lease, Tenant shall have the right to
remain in Tenant's Existing Premises (as defined in Section 37 below) pursuant
to Tenant's Existing Lease (as defined in Section 37 below) for any period up to
and including June 30, 2000, at the rental rate provided under the Existing
Lease, or, if such holdover continues beyond the scheduled expiration of the
Existing Lease, at the rental rate in effect at the time of such scheduled
expiration, without any "holdover" increase or premium. In such event, the
Existing Lease shall terminate at 11:59 p.m. on June 30, 2000, or such earlier
date as Tenant may state in a notice of termination given by Tenant to Landlord
at least 90 days prior to the stipulated termination date, which date shall be
the last day of a month.
If either party so terminates the Lease, Landlord shall reimburse
Tenant for the following costs: (i) the following actual out-of-pocket costs
incurred by Tenant in connection with the Premises or this Lease: costs of
architectural and engineering services, real estate consultant fees, project
management fees, telecommunications costs, planning costs, and (ii) reasonable
costs of
6
<PAGE>
construction within the Existing Premises (including leasehold improvements
[excluding trade fixtures and equipment] installed in the Existing Premises but
constructed or assembled off-site, such as millwork or specialty items) to
making the Existing Premises suitable for the holdover period.
(e) CHANGE ORDERS. If Tenant requests Landlord's approval of a change
order to modify any portion of Landlord's work from that shown on the Approved
Plans ("Change Order"), Landlord's approval of the Change Order will not be
unreasonably withheld provided the requested change does not result in a
material change in the quality or character of the Project. Landlord shall
respond to any such Tenant proposed Change Order with reasonable promptness
taking into consideration the complexity of the proposal. If Landlord approves a
requested Change Order, Landlord shall prepare and submit to Tenant a written
certification of the Change Order (the "Verification"), which shall state the
amount, if any, of the increase or decrease in the cost (which shall be the
actual costs or savings to Landlord) of Landlord's work as set forth in the
Approved Plans. The Verification will also state Landlord's reasonable estimate
of any delays in completion of Landlord's work expected to result from the
Change Order. Within five business days after Tenant's receipt of the
Verification, Tenant shall approve or reject the same in writing. If the
requested Change Order results in an increase in Landlord's cost or a delay in
the completion of Landlord's work, Tenant shall acknowledge in writing its
consent to the increase and/or delay and to the Change Order before Landlord
shall be obligated to do the work contemplated by the Change Order. If the
increase and/or delay is so approved by Tenant, 90% the amount of the increase
will be paid by Tenant to Landlord within 10 days after completion of the work
covered by the Change Order, with the balance to be paid upon final completion
of the Base Building; savings, if any, resulting from any particular Change
Order shall be netted against the total increases resulting from Change Orders.
If any Change Order requires an additional period of time for completion of
Landlord's Work, all completion deadlines relating to Landlord's construction
obligations will be extended by that same period of time, provided, if Tenant
approves a Change Order, Landlord will be bound by the time frames and amounts
set out in the Verification. Approved Change Orders shall be deemed to be a part
of the Approved Plans.
(f) PRE-COMPLETION TRANSFER OF LANDLORD'S INTEREST. Landlord shall not
sell, transfer or otherwise assign any interest in this Lease or in the Building
or Land prior to Substantial Completion of the Base Building without first
obtaining the written consent of Tenant. The foregoing shall not apply to a
transfer to any successor to the interest of Landlord by merger, a transfer to
any entity acquiring substantially all of the assets of Landlord, or a transfer
to any entity controlled by, controlling or under common control with Landlord
or Liberty Property Trust, all of which may proceed without Tenant's consent,
provided such transfer shall not release Landlord of its obligations hereunder.
(g) CERTIFICATION AS TO "AS BUILT" SQUARE FOOTAGE. Prior to the
Commencement Date, Landlord will cause Landlord's architect to determine the
actual rentable square footage of the Building as constructed, and to deliver to
Landlord and Tenant an appropriate certificate certifying to the as-built
rentable square footage. Such certificate will be conclusive unless objected to
by
7
<PAGE>
Landlord or Tenant by written notice to the other party given within 30 days
after receipt of the certificate. If the as-built rentable square footage is
greater than or less than the 80,119 stipulated in Section 1(b), the Minimum
Annual Rent shall be adjusted, as appropriate, based on the Minimum Annual Rent
Per Square Foot set forth in Section 1(d)(i). In such event, Landlord and Tenant
shall enter into an amendment of this Lease setting forth the as-built rentable
square footage of the Building and the adjusted schedule of Minimum Annual Rent.
Rentable square footage shall be measured in accordance with Building Owners and
Managers Association (BOMA) measurement standards for full floor tenants.
(h) LANDLORD'S CONSTRUCTION WARRANTY. Landlord warrants to Tenant for a
period commencing on the date of substantial completion of the Base Building and
Site Improvements and ending one year later that the Base Building and Site
Improvements will be free from improper or defective workmanship and materials.
Landlord further warrants to Tenant for a period commencing on the date of
substantial completion of the Base Building and Site Improvements and ending one
year later that there will be no material defect in the Base Building or Site
Improvements, or any portion thereof, caused by a failure to design the Base
Building or Site Improvements, or any portion thereof, in accordance with all
applicable codes, laws, ordinances, regulations and professional standards of
care in force and as interpreted as of the date of this Agreement.
5. TENANT IMPROVEMENTS; TENANT ALLOWANCE.
(a) BASE BUILDING STATUS; ACCESS FOR TENANT IMPROVEMENTS. On or about
the date (the "TENANT ACCESS DATE") that construction of the Base Building has
progressed to the point that Tenant and Tenant's Agents may proceed with the
construction of the Initial Tenant Improvements without any material
interference with or delay in the construction of the Initial Tenant
Improvements resulting from any uncompleted Landlord's work or the construction
activities of Landlord or Landlord's Agents that cannot be resolved by
reasonable mutual cooperation and sequencing of activities, Landlord shall so
notify Tenant. Landlord shall cause the Tenant Access Date to occur on or before
MARCH 1, 1998, subject to extension only for Tenant Delays or any delay
resulting from Force Majeure. From and after the Tenant Access Date, Tenant and
Tenant's Agents shall have continuous non-exclusive access to the Premises on
the terms described above, at Tenant's own risk, expense (except as expressly
provided herein) and responsibility, for the construction of the Initial Tenant
Improvements without material interference from Landlord or Landlord's Agents.
Tenant and Tenant's Agents will consult and cooperate with Landlord's general
contractor regarding the scheduling of Tenant's work so as to coordinate
Tenant's activities after the Tenant Access Date with any Base Building work
still being performed by Landlord's general contractor and to prevent any
interference on the part of Landlord's Agents with Tenant's work and on the part
of Tenant's Agents with Landlord's work. The foregoing notwithstanding, during
that portion of the pre-Commencement Date period starting with the date that is
60 days after the Tenant Access Date Tenant shall have exclusive access to the
Premises (other than access on the part of Landlord or its Agents to complete
punchlist items,
8
<PAGE>
conduct inspections, or complete any items of unfinished work provided such
access does not interfere with or delay Tenant's work).
In connection with such access prior to the Commencement Date, Tenant
shall abide by the terms and conditions of this Lease including carrying the
insurance specified by the Lease, as if the term of this Lease had already
commenced, except that Tenant shall have no obligation to pay the Minimum Annual
Rent, Annual Operating Expenses or utilities until the Commencement Date (as
defined below).
During such pre-Commencement Date access, Landlord shall provide
Tenant, without charge, utilities, heat, air conditioning (when reasonably
required by Tenant), general building security, and staging areas. Tenant shall
be responsible at its expense for all trash removal directly related to the
construction of the Initial Tenant Improvements or Tenant's furnishing and
equipping the Premises.
(b) TENANT IMPROVEMENTS. Landlord is responsible for completion of the
Base Building and Site Improvements in accordance with the Approved Plans on the
terms and conditions set forth in this Lease. All other improvements in and to
the Premises required by Tenant shall be completed by Tenant and its
contractor(s), at Tenant's sole expense (subject to reimbursement in the amount
of the Tenant Improvement Allowance as provided in this Section 5), in
accordance with plans and specifications approved in writing by Landlord, which
approval will not be unreasonably withheld, delayed or conditioned (the "Initial
Tenant Improvements"). Tenant shall comply with Sections 12 and 13 of this Lease
and the following conditions with respect to the Initial Tenant Improvements:
(i) Tenant shall obtain Landlord's approval of Tenant's
general contractor, which approval shall not be unreasonably withheld,
conditioned or delayed;
(ii) at least ten (10) days prior to commencement of
construction, Tenant shall deliver to Landlord a certificate of insurance for
each of Tenant's contractors evidencing adequate insurance coverage naming
Landlord as additional insured;
(iii) all construction shall be done in a good and workmanlike
manner and shall comply at the time of completion with all Laws and Requirements
(as defined in Section 10(a)). Tenant shall deliver to Landlord copies of all
certificates of occupancy, permits and licenses required to be issued by any
authority in connection with Tenant's construction.
(c) TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide Tenant a
tenant improvement allowance (the "Tenant Improvement Allowance") in an amount
equal to $4.50 per rentable square foot of the Premises toward Tenant's actual,
out-of-pocket costs incurred for design, architectural, engineering and other
fees (including consulting and project management fees) related to, and for the
hard costs of construction of, the Initial Tenant Improvements. The Tenant
Improvement Allowance shall be disbursed by Landlord in a manner consistent with
typical
9
<PAGE>
construction draw procedures; Tenant may submit draw requests not more
frequently than monthly, such requests to be accompanied by such reasonable and
customary documentation as Landlord may require, including lien waivers. Draws
may commence at any time after Lease execution, but may only be submitted for
expenses actually incurred by Tenant. If Landlord defaults in the payment of the
Tenant Improvement Allowance, and such default continues for 5 business days
after written notice of default given by Tenant to Landlord, Tenant may set off
amounts due and unpaid (together with interest at the rate provided in this
Lease) against the installment(s) of Minimum Annual Rent next due.
6. TERM.
(a) COMMENCEMENT DATE. This Lease, and the obligation to pay Minimum
Annual Rent and additional Rent hereunder (subject to any rent-free period as
provided under Section 4(c) above), shall commence on the date (the
"Commencement Date") that is the earlier to occur of:
(i) The Monday following Tenant's occupancy of substantially
all of the Premises for the purpose of conducting Tenant's business in and from
the Premises (Tenant plans to move into and occupy the Building in phases over
several weeks and the fact that Tenant occupies and opens for business in a
part, but less than substantially all, of the Premises shall not in itself
trigger Lease Commencement);
(ii) If Tenant uses a contractor other than Landlord's Base
Building general contractor for the construction of the Initial Tenant
Improvements, the later of (1) 120 days after the Tenant Access Date, or (2) 60
days after the substantial completion of the Base Building and Site
Improvements, it being the intent of the parties that if Tenant uses a
contractor other than Landlord's general contractor, Tenant shall have
nonexclusive and unrestricted (subject to the provisions of Section 5(a) above)
access to the Premises for the 60-day period from 120 days to 60 days prior to
the Commencement Date and exclusive access to the Premises (other than access on
the part of Landlord or its Agents to complete punchlist items, conduct
inspections, or complete any items of unfinished work provided such access does
not interfere with or delay Tenant's work) for the 60-days preceding the
Commencement Date.
(iii) If Tenant uses Landlord's general contractor for the
construction of the Initial Tenant Improvements, the later of (i) the first
Monday following the date that is 60 days after the date of substantial
completion of the Initial Tenant Improvements (exclusive of the installation of
the Tenant's equipment, furniture and personal property; this work is
contemplated to occur during the 60-day period following the substantial
completion of the Initial Tenant Improvements), or (ii) the date of substantial
completion by Landlord of the Base Building and Site Improvements. Tenant shall
use all reasonable diligence to cause substantial completion of the Initial
Tenant Improvements (exclusive of the installation of the Tenant's equipment,
furniture and personal property; this work is contemplated to occur during the
60-day period following the substantial completion of the Initial Tenant
Improvements) to occur within 60 days of the Tenant Access Date. Without
limiting the foregoing, If Tenant uses Landlord's general contractor for the
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construction of the Initial Tenant Improvements, Tenant shall contract with
Landlord's general contractor, and provide Landlord's general contractor with
construction plans and specifications, material selections and other appropriate
information sufficiently in advance of the Tenant Access Date so that such
general contractor can commence construction of the Initial Tenant Improvements
as of the Tenant Access Date and proceed with construction without delay
resulting from failure of Tenant to timely approve plans or select materials.
Tenant's construction contract shall obligate such general contractor to
substantially complete the Initial Tenant Improvements within 60 days of the
Tenant Access Date. If construction of the Initial Tenant Improvements is
delayed as a result of any such delay caused by Tenant, the Commencement Date
shall be the date this Lease would have commenced but for such delay.
The 60-day period for completion of the Initial Tenant Improvements
contemplated in subsections (ii) and (iii) above shall be extended for delay
resulting from Force Majeure events, applying to Tenant the same definition of
"Force Majeure" applicable to Landlord under Section 4(c) above.
(b) EXPIRATION DATE. The term of this Lease shall expire at 11:59 p.m.
on the last day of the tenth "lease year" (the "Expiration Date"). The first
"lease year" means the period of 12 consecutive full calendar months commencing
on the later of the following two dates (including for the first lease year any
partial month from such date until the first day of the first full calendar
month thereafter): (1) the Commencement Date or (2) the date any "rent free"
period afforded Tenant pursuant to Section 4(c) above expires. Each subsequent
"lease year" means each period of 12 full calendar months thereafter during the
Term. Subject to Section 36 (entitled "Tenant's Option to Terminate"), the
parties intend that Tenant pay rent for 120 full calendar months notwithstanding
any 'rent free" period afforded Tenant following the Commencement Date as a
result of construction delays.
(c) COMMENCEMENT CERTIFICATE. At Landlord's request, Tenant shall
confirm the Commencement Date and the Expiration Date by executing a lease
commencement certificate in the form attached as EXHIBIT "B".
7. PERMITTED USE. Tenant shall occupy and use the Premises for and only for
general office purposes and/or for any other lawful use permitted under
applicable zoning provided that such use is compatible with and appropriate for
a class A suburban office park in the Minneapolis/St. Paul metropolitan area.
Tenant will use the Premises in such a manner as is lawful, reputable and will
not create a nuisance or otherwise unreasonably interfere with any other
tenant's normal operations or the management of the Building. Tenant shall not
use or permit the use of any portion of the Common Areas for other than their
intended use.
8. MINIMUM ANNUAL RENT. Tenant agrees to pay to Landlord the Minimum Annual Rent
in equal monthly installments in the amount set forth in Section l(d) (as
increased at the beginning of each lease year as set forth in Section l(d)), in
advance, on the first day of each calendar month during the Term, without
notice, demand or setoff (except as expressly provided in this Lease), at
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Landlord's address designated at the beginning of this Lease unless Landlord
designates otherwise (Landlord shall not require Tenant to pay rent to an
address outside of the United States). If the Commencement Date falls on a day
other than the first day of a calendar month, the rent shall be apportioned pro
rata on a per diem basis for the period from the Commencement Date until the
first day of the following calendar month and shall be paid on or before the
Commencement Date.
9. OPERATION OF PROPERTY; PAYMENT OF EXPENSES.
(a) PAYMENT OF OPERATING EXPENSES. Tenant shall pay to Landlord the
Annual Operating Expenses in equal monthly installments in the amount set forth
in Section l(d) (prorated for any partial month), from the Commencement Date and
continuing throughout the Term on the first day of each calendar month during
the Term, as additional rent, without notice, demand or setoff (except as
expressly provided in this Lease). Landlord shall apply such payments to the
annual operating costs to Landlord of operating and maintaining the Property
during each calendar year of the Term, which costs may include by way of example
rather than limitation: insurance premiums, fees, Impositions, costs for
repairs, maintenance, service contracts, management and administrative fees
(management and administrative fees shall not exceed 3% of the total Minimum
Annual Rent and Operating Expenses payable by Tenant [excluding Impositions and
excluding utilities separately metered to Tenant], and shall be in the nature of
Avalue added A fee for which services such as accounting, bill-paying and senior
management [i.e. above the level of building manager] are provided),
governmental permits, overhead expenses, costs of furnishing water, sewer, gas,
fuel, electricity, other utility services, janitorial service, trash removal,
security services, landscaping and grounds maintenance, and the costs of any
other items attributable to operating or maintaining any or all of the Property
excluding any costs listed on attached EXHIBIT "G" and any costs which under
generally accepted accounting principles are capital expenditures; provided,
however, that annual operating costs shall include the annual amortization (over
an assumed useful life of fifteen years) of the costs (including financing
charges) of building improvements made by Landlord to the Property that are
required by any governmental authority or, to the extent of the actual reduction
in operating expenses, for the purpose of reducing operating expenses. The
amount of the Annual Operating Expenses set forth in Section 1(d) represents
Landlord's estimate of Tenant's share of the estimated operating costs during
the first calendar year of the Term on an annualized basis; from time to time
(but not more than quarterly) Landlord may adjust such estimated amount if the
estimated operating costs increase or decrease. Tenant's obligation to pay the
Annual Operating Expenses pursuant to this Section 7, and Landlord's obligation
to refund any overpayments, shall survive the expiration or termination of this
Lease. Landlord and Tenant shall, at the request of either party, consult with
each other regarding the level of services to be provided by Landlord and
standard of maintenance to be observed by Landlord with a view toward managing
and controlling Operating Expenses in a reasonable and prudent manner consistent
with the standards observed with respect to comparable class A suburban office
buildings in the Minneapolis/St. Paul metropolitan area. In no event shall
Landlord be obligated to reduce services or standards of maintenance below those
appropriate and necessary to maintain the Building and Site Improvements in good
condition and repair, consistent with the maintenance
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standards prevailing among comparable class A suburban office buildings in the
Minneapolis/St. Paul metropolitan area.
(i) COMPUTATION OF TENANT'S SHARE OF ANNUAL OPERATING COSTS.
After the end of each calendar year of the Term, Landlord shall compute Tenant's
share of the annual operating costs described above incurred during such
calendar year by (A) calculating an appropriate adjustment, using generally
accepted accounting principles, to avoid allocating to Tenant or to any other
tenant (as the case may be) those specific costs which Tenant or any other
tenant has agreed to pay, (B) subject to the provisions set forth below in this
subsection (i), calculating an appropriate adjustment, using generally accepted
accounting principles, to avoid allocating to any vacant space those specific
costs (limited to costs which may vary depending upon the occupancy level of the
Building) which were not incurred for such space; and (C) multiplying the
adjusted annual operating costs by Tenant's Proportionate Share. Any adjustment
or "gross up" pursuant to clause (B) shall be determined as follows: If the
Building is not at least ninety-five percent (95%) occupied by tenants during
all or any portion of a calendar year, or if during all or a portion of any
calendar year Landlord is not furnishing to any tenant or tenants any particular
service, the cost of which, if furnished by Landlord, would be included in
Operating Expenses, then Landlord may elect to make an adjustment for such year
of components of Operating Expenses and the amounts thereof which may vary
depending upon the occupancy level of the Building. Provided such amounts are
otherwise properly includable in Operating Expenses, any such adjustments shall
be deemed costs and expenses paid or incurred by Landlord and included in
Operating Expenses for such year, as if the Building had been ninety-five
percent (95%) occupied during the entire calendar year, Landlord had furnished
such service at its expense for the entire calendar year and Landlord had paid
or incurred such costs and expenses for such year.
(ii) RECONCILIATION. By April 30th of each year (and as soon
as practical after the expiration or termination of this Lease or at any time in
the event of a sale of the Property), Landlord shall provide Tenant with an
itemized statement of the actual amounts included in such annual operating costs
for the preceding calendar year or part thereof, together with a summary of the
manner in which any adjustments made pursuant to Section 9(a)(i) above were
computed. Landlord or Tenant shall pay to the other the amount of any deficiency
or overpayment then due from one to the other or, at Tenant's option, Landlord
shall credit Tenant's account for any overpayment. If Landlord has overestimated
annual operating costs for any calendar year by more than 5%, Landlord shall pay
or, at Tenant's option, credit to Tenant interest on the amounts over-collected
from Tenant at the rate set forth in Section 29 of this Lease.
If at any time during a calendar year Landlord materially increases or
decreases Landlord's estimate of Operating Expenses, Landlord shall, upon
request of Tenant, promptly provide Tenant a detailed written explanation of the
reason for the increase.
Tenant shall also be entitled at any reasonable time during regular
business hours, but no more than once in each calendar year, after giving to
Landlord at least five (5) business days prior
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written notice, to inspect in Landlord's business office all Landlord's records
necessary to satisfy itself that all charges have been correctly allocated to
Tenant, for any of the four (4) calendar years immediately preceding the year
during which such notice is given (throughout the Term Landlord's books relating
to Operating Expenses shall be maintained on a calendar year basis), and/or to
obtain an audit thereof by an independent certified public accountant (selected
by Tenant with Landlord's written consent, which shall not be withheld
unreasonably) to determine the accuracy of Landlord's certification of the
amount of additional rent charged Tenant. In no event shall Tenant be entitled
to audit the books for any calendar year more than once. If it is determined
that Tenant's liability for additional rent for any such calendar year is less
than the amount which Landlord previously certified to Tenant for such calendar
year, Landlord shall refund promptly to Tenant the amount of the additional rent
paid by Tenant for such calendar year which exceeds the amount for which Tenant
actually is liable, as determined following such audit, together with interest
on such amount at the rate set forth in Section 29 of this Lease. If it is
determined that Tenant's liability for additional rent for any such calendar
year is greater than the amount which Landlord previously certified to Tenant
for such calendar year, Tenant shall promptly pay to Landlord the amount of the
additional rent payable by Tenant for such calendar year which exceeds the
amount which Tenant had previously paid, as determined following such audit.
Tenant shall bear the total cost of any inspection or audit of Landlord's books
and records conducted by Tenant, except that if it is determined that Tenant's
liability for additional rent for such calendar year is less than ninety-seven
percent (97%) of that amount which Landlord previously certified to Tenant for
such calendar year, Landlord shall pay to Tenant the cost of such audit
(provided, however, that Landlord shall not be required to pay the cost of any
audit based on a contingency fee or percentage of the amount recovered for
Tenant).
(b) IMPOSITIONS. As used in this Lease the term "Impositions" refers to
all levies, taxes (including sales taxes and gross receipt taxes) and
installments of assessments (including interest thereon), which are applicable
to the Term, and which are imposed by any authority or under any law, ordinance
or regulation thereof, and the reasonable cost of contesting any of the
foregoing, upon or with respect to the Property or any part thereof, or any
improvements thereto. Except as provided below, Tenant shall pay to Landlord
with the monthly payment of Minimum Annual Rent any Imposition imposed directly
upon this Lease or the Rent (defined in Section 9(g)) or amounts payable by any
subtenants or other occupants of the Premises, or against Landlord because of
Landlord's estate or interest herein. Tenant's Proportionate Share of real
estate taxes and installments of special assessments payable therewith with
respect to the Property shall be paid by Tenant to Landlord on or before the
later of: (1) 15 days after Landlord furnishes Tenant a copy of the tax
statement received from the taxing authority, or (2) 20 calendar days prior to
the due date of the semi-annual installments of such real estate taxes and
special assessments. Notwithstanding any provision to the contrary in this
Lease, Tenant shall not be obligated to pay for any special assessments relating
to the acquisition, original construction or development (including any special
assessments or similar taxes levied as a condition of municipal approvals) of
the Building, Site Improvements or Project, or any special assessments levied or
pending as of the date of this Lease.
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Tenant acknowledges that the Property might not constitute a separate
and discrete tax parcel. In such event, Tenant shall pay Tenant's Proportionate
Share of the sum of the Land Tax Cost and the Building Tax Cost, as defined and
determined below. "Land Tax Cost" shall mean the total real estate taxes payable
in the year in question allocable to all of the land (exclusive of ponding areas
as provided below) included in the tax parcel of which the Land is a part (based
on the assessed value of all of the land [exclusive of buildings] included in
the tax parcel of which the Land is a part and shown on the applicable tax
statement), prorated to the Land on a strict land-area [exclusive of ponding
areas as provided below] square footage basis. "Building Tax Cost" shall mean
the total real estate taxes payable in the year in question allocable to all of
the buildings included in the tax parcel of which the Building is a part (based
on the total assessed value of the buildings [exclusive of land] included in
said tax parcel and shown on the applicable tax statement) multiplied by a
fraction, the numerator of which is the assessor's estimated value of the
Building, and the denominator of which is the assessor's estimated value of all
of the buildings included in the overall tax parcel. Landlord shall fully
disclose to Tenant the assessor's allocation of the total building portion of
the taxes among the various buildings included in the tax parcel, as and when
such information is provided to Landlord by the assessor. Installments of
special assessments, if any, properly includable in Operating Expenses shall be
apportioned and allocated between the Land and the remainder of the tax parcel
of which the Land is a part based on a strict land-area [exclusive of ponding
areas as provided below] square footage basis, provided, however, that no
special assessment exclusively benefitting a portion of the Project outside of
the Land shall be so allocated to the Land . For purposes of all land-area
calculations in this paragraph, the square footage (as determined in accordance
with the provisions under the definition of "Land" in Section 2 above) of any
ponding areas within the Land or Project shall be excluded from the land-area
square footages used.
Provided Tenant is then leasing not less than 50% of the Building,
Tenant shall have the independent right to contest, at its sole cost and
expense, the valuation of, and real estate taxes assessed against, the Property
for any period falling within the lease Term. Tenant shall provide Landlord
notice of any such contest and copy Landlord on all filings, settlement offers
and counter-offers, correspondence and other documents relating to such contest.
If Tenant is leasing less than 50% of the Building, Tenant shall not initiate
any proceeding to contest or dispute the amount of any real estate taxes or the
assessed value of the Property. However, at the written request of Tenant,
Landlord shall, unless Landlord has reasonable grounds for refusing, bring
proceedings to contest the validity or amount of any real estate taxes or
valuation. Tenant shall cooperate with Landlord with respect to such proceedings
to the extent reasonably necessary and shall pay Landlord Tenant's Proportionate
Share of all reasonable costs, fees and expenses incurred in connection with
such proceedings as additional rent promptly upon being billed.
Nothing herein contained shall be interpreted as requiring Tenant to
pay any income, excess profits, estate or gift, transfer or corporate capital
stock tax imposed or assessed upon Landlord, unless such tax or any similar tax
is levied or assessed in lieu of all or any part of any Imposition or an
increase in any Imposition.
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If it shall not be lawful for Tenant to reimburse Landlord for any of
the Impositions, the Minimum Annual Rent shall be increased by the amount of the
portion of such Imposition allocable to Tenant, unless prohibited by law.
(c) INSURANCE.
(i) PROPERTY. Landlord shall keep in effect insurance against
loss or damage to the Building or the Property by fire and such other casualties
as may be included within fire, extended coverage and special form insurance
covering the full replacement cost of the Building (but excluding coverage of
Tenant's personal property in, and any alterations [including, but not limited
to, the Initial Tenant Improvements] by Tenant to, the Premises as constituted
from time to time), and such other insurance as Landlord may reasonably deem
appropriate or as may be required from time-to-time by any mortgagee. Provided
Tenant is leasing the entire Building, at the request of Tenant Landlord will
consult with Tenant regarding the amount of any deductible, it being understood
that although a higher deductible will result in lower insurance costs passed
through to Tenant, Tenant will, if and only if Tenant is leasing the entire
Building, be responsible for payment of the deductible in the event of a loss.
The foregoing notwithstanding, Landlord shall not carry casualty insurance with
a deductible in excess of $10,000 ($25,000 in the case of flood and earthquake)
without Tenant's prior written consent. Tenant shall be responsible for insuring
the Initial Tenant Improvements, any other of Tenant's leasehold improvements in
the Premises (as constituted from time to time), and all trade fixtures,
equipment, furnishings and personal property of Tenant on or about the Premises
or Property. Landlord shall carry commercially reasonable builder's risk
insurance with respect to the construction of the Base Building and Site
Improvements.
(ii) TENANT'S LIABILITY INSURANCE. Tenant, at its own expense,
shall keep in effect comprehensive general public liability insurance with
respect to the Premises and the Property, including contractual liability
insurance, with such limits of liability for bodily injury (including death) and
property damage as reasonably may be required by Landlord from time-to-time, but
not less than a combined single limit of $1,000,000 per occurrence and a general
aggregate limit of not less than $2,000,000 (which aggregate limit shall apply
separately to each of Tenant's locations if more than the Premises); however,
such limits shall not limit the liability of Tenant hereunder. The policy of
comprehensive general public liability insurance also shall name Landlord and
Landlord's agent as insured parties with respect to the Premises, shall be
written on an "occurrence" basis and not on a "claims made" basis, shall provide
that it is primary (with respect to the acts or omissions of Tenant or Tenant's
Agents) with respect to any policies carried by Landlord and that any liability
coverage carried by Landlord shall be excess insurance, shall provide that it
shall not be cancelable or reduced without at least 30 days prior written notice
to Landlord and shall be issued in form reasonably satisfactory to Landlord. The
insurer shall be a responsible insurance carrier which is authorized to issue
such insurance and licensed to do business in the state in which the Property is
located and which has at all times during the Term a rating of no less than A
VII in the most current edition of BEST'S INSURANCE REPORTS. Tenant shall
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deliver to Landlord on or before the Commencement Date, and subsequently
renewals of, a certificate of insurance evidencing such coverage and the waiver
of subrogation described below.
(iii) LANDLORD'S LIABILITY INSURANCE. Landlord will maintain
comprehensive general public liability insurance with respect to the Property,
including contractual liability insurance, with such limits of liability for
bodily injury (including death) and property damage, equal to or greater than
the minimum limits for the liability insurance to be carried by Tenant under
this Section. The insurer shall be a responsible insurance carrier which is
authorized to issue such insurance and licensed to do business in the state in
which the Property is located and which has at all times during the Term a
rating of no less than A VII in the most current edition of BEST'S INSURANCE
REPORTS. At Tenant's request, Landlord will provide Tenant with a certificate or
certificates evidencing such insurance.
(iv) WAIVER OF SUBROGATION. Landlord and Tenant shall have
included in their respective property insurance policies waivers of their
respective insurers' right of subrogation against the other party.
(d) REPAIRS AND MAINTENANCE; COMMON AREAS; BUILDING MANAGEMENT.
(i) Tenant at its sole expense shall maintain the Premises in
a neat and orderly condition.
(ii) Landlord, shall make all necessary repairs (including,
but not limited to, repairing defects in the design or construction of the Base
Building or Site Improvements) to the Premises, the Common Areas and any other
improvements located on the Property. Landlord shall operate and manage the
Property and shall maintain all Common Areas and any paved areas appurtenant to
the Property in a clean and orderly condition. Tenant shall promptly notify
Landlord of any conditions known to Tenant that require repair. Landlord shall
maintain and repair the Property in a manner consistent with the standards
prevailing in comparable class A suburban office buildings in the
Minneapolis/St. Paul metropolitan area.
(iii) Notwithstanding anything herein to the contrary, repairs
and replacements to the Property including the Premises made necessary solely by
Tenant's particular or unique use or occupancy (as opposed to typical general
office use or occupancy), or alteration of, or Tenant s installation in or upon
the Property or by any act or omission of Tenant or its Agents shall be made at
the sole expense of Tenant to the extent not covered by any applicable insurance
proceeds paid to Landlord. Tenant shall not bear the expense of any repairs or
replacements to the Property arising out of or caused by Landlord's or any other
tenant's use, occupancy or alteration of, or by Landlord's or any other tenant's
installation in or upon, the Property or by any act or omission of Landlord or
any other tenant or Landlord's or any other tenant's Agents.
(e) UTILITIES. All utilities serving the Premises shall be separately
metered to the Premises (such metering to be installed at Landlord's expense)
and, to the extent permissible,
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directly billed to Tenant by the applicable utility company. Heating,
ventilation and air conditioning systems serving the Premises will be designed
and constructed by Landlord to be under Tenant's control and may be used on such
days and during such hours as Tenant may determine in its discretion. Provided
Landlord constructs the Premises in accordance with the mechanical and
electrical specifications included in the Approved Plans, Tenant shall not place
loads on any of the building systems in excess of the capacity for which they
were designed.
Tenant shall pay all separately metered utility charges as and when
billed to Tenant, without delinquency. Landlord shall not be responsible or
liable for any interruption in utility service not arising out of any act or
omission of Landlord, nor shall such interruption affect the continuation or
validity of this Lease. Landlord will make all reasonable efforts to cause
service to be restored as soon as possible after any interruption.
(f) JANITORIAL SERVICES. Landlord will provide Tenant with trash
removal and janitorial services pursuant to a cleaning schedule attached as
Exhibit "D". Tenant shall have the right to modify the services scheduled on
Exhibit "D" with Landlord's consent, which consent shall not be unreasonably
withheld, delayed or conditioned. Tenant may, by written notice to Landlord,
elect to provide, at its sole cost or expense, all or a portion of its own
janitorial services to the Premises, provided that Tenant at all times maintains
janitorial standards that are consistent with those prevailing in comparable
class A suburban office buildings.
(g) "RENT." The term "RENT" as used in this Lease means the Minimum
Annual Rent, Annual Operating Expenses and any other additional rent or sums
payable by Tenant to Landlord pursuant to this Lease, all of which shall be
deemed rent for purposes of Landlord's rights and remedies with respect thereto.
Tenant shall pay all Rent due to Landlord within 30 days after Tenant is billed,
unless otherwise provided in this Lease, and interest shall accrue on all sums
due but unpaid within such time at the rate provided in Section 29. All
scheduled monthly payments of Minimum Annual Rent and estimated Annual Operating
Expenses not paid when due shall bear interest from the due date at the rate
provided in Section 29.
10. COMPLIANCE WITH LAWS.
(a) LANDLORD'S OBLIGATIONS. Except as expressly provided in Section
10(b), Landlord shall be responsible for maintaining the Base Building,
including any restroom facilities and exterior areas constructed by Landlord as
part of Landlord's initial work, in compliance with all applicable laws,
ordinances, notices, orders, rules, regulations and requirements regulating the
Property during the Term (as the same may be amended, the "LAWS AND
REQUIREMENTS"). The foregoing shall not be construed to obligate Landlord to
comply with changes in Laws and Requirements unless and until the time
compliance is required under the applicable Laws and Requirements. Following the
initial construction of the Base Building, all capital expenditures made by
Landlord with respect to complying with Laws and Requirements may be amortized
over a stipulated useful life of fifteen years, and, notwithstanding any
provision in this Lease to the
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contrary, such annual amortization of such costs (including reasonable interest)
may be included in Operating Expenses.
(b) TENANT'S OBLIGATIONS. Tenant shall use and occupy the Premises and
Common Areas in compliance with all Laws and Requirements and the building rules
attached as Exhibit "C", as reasonably amended by Landlord from time to time,
(the "BUILDING RULES").
Moreover, Tenant shall bear the entire cost and expense of complying
with Laws and Requirements (i) relating to Tenant's unique or particular use or
occupancy of the Premises and which would not be applicable to Tenant if Tenant
were a typical general office user, (ii) relating to the Initial Tenant
Improvements or any alterations to the Premises made by or on behalf of Tenant,
(iii) relating to any property or equipment of Tenant placed or installed on the
Premises (other than standard office equipment), (iv) triggered by any
alterations (other than alterations performed by Landlord necessary to implement
any express expansion or contraction options provided Tenant in this Lease) to
the Premises made by or on behalf of Tenant (provided, however, that any
required update of Base Building elements to existing Laws and Requirements
applicable to office users and office buildings generally that may be triggered
by Tenant alterations shall be Landlord's obligation, subject to inclusion of
the costs thereof in Operating Expenses as provided in Section 10(a) above), or
(v) resulting from any act or omission of Tenant or any employees, agents,
contractors, licensees or invitees ("AGENTS") of Tenant.
(c) ACCESSIBILITY REGULATIONS. The parties acknowledge that the
Americans With Disabilities Act of 1990 (42 U.S.C. ' 1201 et seq.) and
regulations and guidelines promulgated thereunder, as all of the same may be
amended and supplemented from time to time (collectively referred to herein as
the "ADA") establish requirements under Title III of the ADA ('Title III")
pertaining to business operations, accessibility and barrier removal, and that
such requirements may be unclear and may or may not apply to the Premises and
the Building depending on, among other things: (1) whether Tenant's business
operations are deemed a "place of public accommodation" or a "commercial
facility," (2) whether compliance with such requirements is "readily achievable"
or "technically infeasible," and (3) whether a given alteration affects a
"primary function area" or triggers so-called "path of travel" requirements. The
parties acknowledge and agree that Tenant has been provided an opportunity to
review the plans and specifications for the construction of the Base Building
and Site Improvements from the perspective of Tenant's intended use and
occupancy, that Tenant will prepare and review the plans and specifications for
the Initial Tenant Improvements for Tenant's use and occupancy, and that Tenant
has independently determined that such plans and specifications are in
conformance with ADA Accessibility Guidelines ("ADAAG") and any other
requirements of the ADA, except that, notwithstanding the foregoing, Landlord,
and not Tenant, shall be responsible for causing the Base Building and Site
Improvements to be designed and constructed in compliance with Title III of the
ADA as applicable to commercial facilities. Tenant further acknowledges and
agrees that to the extent that Landlord prepared, reviewed or approved any of
those plans and specifications, such action shall in no event be deemed any
representation or warranty that the same comply with any requirements of the
ADA, except that Landlord warrants that the Base Building and Site
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Improvements will comply with the requirements of Title III of the ADA
applicable to commercial facilities as applied, enforced and interpreted as of
the date the building permit is issued. Notwithstanding anything to the contrary
in this Lease, the parties hereby agree to allocate responsibility for Title III
compliance as follows: (a) Landlord shall be responsible to construct and
maintain the Base Building and Site Improvements in compliance with Title III of
the ADA as applicable to commercial facilities, (b) Tenant shall be responsible
for all other Title III compliance and costs in connection with the Premises,
the Initial Tenant Improvements or any work performed or to be performed by or
on behalf of Tenant in the Premises under or in connection with this Lease
(other than alterations separately performed by Landlord or alterations
performed by Landlord necessary to implement any express expansion or
contraction options provided Tenant in this Lease), and (c) Landlord shall
perform, and Tenant shall be responsible for the cost of, any so-called Title
III "path of travel" requirements triggered solely by any construction
activities or alterations in the Premises by or on behalf of Tenant as
referenced in clause (b) above. Except as set forth above with respect to
Landlord's Title III obligations, Tenant shall be solely responsible for all
other requirements under the ADA relating to the Tenant or any affiliates or
persons or entities related to the Tenant (collectively, "Affiliates"),
operations of the Tenant or Affiliates, or the Premises, including, without
limitation, requirements under Title I of the ADA pertaining to Tenant's
employees. Nothing in this subsection (c) shall be construed to excuse or limit
Landlord's obligation pursuant to Section 4(a) of this Lease to construct the
Base Building and Site Improvements in accordance with all local building codes
as applied, enforced and interpreted as of the date the building permit is
pulled.
(d) ENVIRONMENTAL. Tenant shall comply, at its sole expense, with all
Laws and Requirements as set forth above, all manufacturers' instructions and
all requirements of insurers relating to the treatment, production, storage,
handling, transfer, processing, transporting, use, disposal and release of
hazardous substances, hazardous mixtures, chemicals, pollutants, petroleum
products, toxic or radioactive matter (the "RESTRICTED ACTIVITIES") by Tenant or
Tenant's Agents. Tenant shall deliver to Landlord copies of all Material Safety
Data Sheets or other written information, if any, prepared by manufacturers,
importers or suppliers of any chemical and all notices, filings, permits and any
other written communications, if any, from or to Tenant and any entity
regulating any Restricted Activities.
(e) NOTICE. If at any time during or after the Term, Landlord or Tenant
becomes aware of any inquiry, investigation or proceeding regarding the
Restricted Activities affecting or concerning the Property or activities
conducted thereon or becomes aware of any claims, actions or investigations
regarding the ADA affecting or concerning the Property, such party shall give
the other party written notice, within 5 days after first learning thereof,
providing all available information and copies of any notices.
11. SIGNS. Except for signs which are located wholly within the interior of the
Premises and not visible from the exterior of the Premises, no signs shall be
placed on the Property without the prior written consent of Landlord. All signs
installed by Tenant shall be maintained by Tenant in
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good condition and Tenant shall remove all such signs at the termination of this
Lease and shall repair any damage caused by such installation, existence or
removal.
The foregoing notwithstanding, and subject to the terms and conditions
below, Tenant shall have the right to procure, install and maintain, at Tenant's
sole cost and expense, the following identification signage (with Tenant's logo
type and colors) on or about the Building:
(a) Up to two signs on the top or exterior of the Building;
(b) Up to two monument signs to be located around the Building in the
area between the parking lot curb line and the Building, it being agreed that so
long as no other tenant in the Project shall construct signs between the street
and the outside edge of the parking lot curb (the "Park Perimeter"), Tenant's
monument signage shall not be placed in the Park Perimeter.
The design, size and location of all Tenant signage, other than the
exterior building signage described in subsection (a) above, shall be consistent
with Landlord's sign criteria set forth in the materials entitled "Identity/Sign
System Standards, Liberty Property Trust" ("Landlord's Sign Criteria"), a copy
of which has been provided to Tenant, and otherwise subject to Landlord's
approval, which approval shall not be unreasonably withheld, conditioned or
delayed. With respect to the permitted exterior Building signage contemplated in
subparagraph (a) above, Tenant shall have discretion regarding the size and
design of the signage subject to the following: (i) the signage must be
compatible with and appropriate to a single-tenant class A suburban office
building, as reasonably determined by Landlord based on the standards generally
prevailing with respect to such buildings, (ii) the signage must be designed and
installed in a manner that will not adversely affect any Building structures,
systems or amenities, as reasonably determined by Landlord and (iii) single
panel plastic backlit signs are prohibited. Upon the expiration or termination
of this Lease, Tenant shall remove the signage and shall repair any damage
occasioned by such removal.
Tenant shall cause all Tenant signage to comply with all applicable
laws and ordinances, provided that this provision shall not prevent Tenant from
seeking a variance or conditional use permit for any non-complying signage
approved by Landlord. Landlord will not oppose any such variance or conditional
use permit.
In addition, Landlord shall construct, at no cost to Tenant, one of
Landlord's typical monument signs in the Park Perimeter at each of two access
driveways to the Building. Tenant understands that such signage must conform to
Landlord's Sign Criteria (as defined above in this Section). If Tenant desires
any upgrade in the size or quality of Landlord's standard monument signage,
Tenant shall bear the entire expense of such upgrade. Landlord's name and
Tenant's name will be included on the monument signs described in this
paragraph.
If, pursuant to the exercise of the contraction rights provided in
Tenant's extension options or otherwise, Tenant at any time is leasing less than
100% of the rentable square footage of the
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Building, Landlord shall have a limited right to cause Tenant to reasonably
scale back its signage rights hereunder to a level approximately consistent with
the signage being afforded to comparable tenants in the Project, so as to afford
signage for other significant tenants or occupants of the Building appropriate
to the respective percentage of the Building occupied by Tenant and such other
tenants or occupants.
12. ALTERATIONS AND FIXTURES.
(a) Tenant shall have the right to install its trade fixtures in the
Premises, provided that no such installation or removal thereof shall materially
and adversely affect any structural portion of the Property or any utility
lines, communications lines, equipment or facilities in the Building serving any
tenant other than Tenant. At the expiration or termination of this Lease and at
the option of Landlord or Tenant, Tenant shall remove such installation(s) and,
in the event of such removal, Tenant shall repair any damage caused by such
installation or removal; if Tenant, with Landlord's written consent, elects not
to remove such installation(s) at the expiration or termination of this Lease,
all such installations shall remain on the Property and become the property of
Landlord without payment by Landlord.
(b) Tenant shall have the right to make the following alterations in
and to the Premises without Landlord's consent: nonstructural additions,
alterations or improvements (collectively, "alterations") which, taken as a
whole, (i) do not exceed $100,000, excluding the Initial Tenant Improvements,
(ii) do not materially and adversely affect the HVAC, mechanical, electrical,
plumbing or other Building systems and do not otherwise materially and adversely
impact the Building, and (iii) are appropriate to a class A suburban office
building devoted primarily to office uses. The foregoing notwithstanding, Tenant
shall not be required to obtain Landlord's consent with respect to normal
interior redecorating or refinishing, such as re-painting walls or replacing
wall coverings or floor coverings.
Tenant will not make alterations in or to the Premises or Property
other than those permitted under the preceding paragraph without first obtaining
the written consent of Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned. Tenant shall pay any reasonable out-of-pocket
costs incurred by Landlord to third parties for any required
architectural/engineering reviews, provided that Tenant shall not be required to
reimburse Landlord for such costs relating to Landlord's review of the plans and
specifications for the Initial Tenant Improvements.
In making any alterations (including alterations for which Landlord's
consent is not required), (i) Tenant shall deliver to Landlord the plans,
specifications and necessary permits, together with certificates evidencing that
Tenant's contractors and subcontractors have adequate insurance coverage naming
Landlord and Landlord's agent as additional insureds, at least 10 days prior to
commencement thereof, (ii) such alterations shall not impair the structural
strength of the Building or any other improvements or reduce the value of the
Property or materially and adversely affect any utility lines, communications
lines, equipment or facilities in the Building
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serving any tenant other than Tenant, (iii) Tenant shall comply with Section 13
and (iv) the occupants of the Building and of any adjoining property shall not
be unreasonably disturbed thereby.
All alterations to the Premises by Tenant shall be the property of
Tenant until the expiration or termination of this Lease; at that time all such
alterations shall remain on the Property and become the property of Landlord
without payment by Landlord unless Landlord gives written notice to Tenant to
remove the same, in which event Tenant will remove such alterations and repair
any resulting damage. The foregoing notwithstanding, Tenant shall not be
required to remove (i) the Initial Tenant Improvements, (ii) any alteration for
which Tenant has requested and received from Landlord prior to the performance
of the alteration, a written determination by Landlord that Landlord will not
require the removal of the alteration, and (iii) any alterations that are
compatible with and appropriate to a class A suburban office building devoted
primarily to office uses, provided, however, that Landlord nevertheless reserves
the right to require removal of structural alterations and alterations to
restroom areas. Landlord agrees to provide the written determination
contemplated under clause (ii) above on or before the date that is 10 business
days following the receipt by Landlord of Tenant's request together with plans
and specifications for the proposed alteration.
13. MECHANICS' LIENS. Tenant shall pay promptly any contractors and materialmen
who supply labor, work or materials to Tenant at the Property and shall take all
steps permitted by law in order to avoid the imposition of any mechanic's lien
upon all or any portion of the Property. Should any such lien or notice of lien
be filed for work performed for Tenant other than by Landlord, Tenant shall bond
against or discharge the same within 30 days after Tenant has notice that the
lien or claim is filed regardless of the validity of such lien or claim.
Landlord shall pay promptly any contractors and materialmen who supply
labor, work or materials to Landlord at the Property and shall take all steps
permitted by law in order to avoid the imposition of any mechanic's lien upon
all or any portion of the Property that could attach to or have priority over
Tenant's interest in the Property. Should any such lien or notice of lien be
filed for work performed for Landlord, Landlord shall bond against or discharge
the same within 30 days after Landlord has notice that the lien or claim is
filed regardless of the validity of such lien or claim.
Throughout this Lease the term "MECHANIC'S LIEN" is used to include any
lien, encumbrance or charge levied or imposed upon all or any portion of,
interest in or income from the Property on account of any mechanic's, laborer's,
materialman's or construction lien or arising out of any debt or liability to or
any claim of any contractor, mechanic, supplier, materialman or laborer and
shall include any mechanic's notice of intention to file a lien given to
Landlord or Tenant, any stop order given to Landlord or Tenant, any notice of
refusal to pay naming Landlord or Tenant and any injunctive or equitable action
brought by any person claiming to be entitled to any mechanic's lien.
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14. LANDLORD'S RIGHT OF ENTRY. Tenant shall permit Landlord and its Agents to
enter the Premises at all reasonable times following not less than 24 hours
notice (except in the event of an emergency), for the purpose of inspection,
maintenance or making repairs, alterations or additions (Landlord shall not make
any alterations or additions to the Building or Site Improvements that are not
contemplated under this Lease without first obtaining Tenant's written consent,
which consent shall not be unreasonably withheld, delayed or conditioned) as to
exhibit the Premises for the purpose of sale or mortgage and, during the last 9
months of the Term, to exhibit the Premises to any prospective tenant. The
requisite notice prior to entry contemplated above may be given by telephone or
other informal means. Except in the event of an emergency, Tenant shall have the
right to have an employee or representative of Tenant accompany Landlord and its
Agents to the extent necessary and appropriate to protect and limit access to
trade secrets or other confidential information of Tenant and Tenant's
customers. Moreover, Tenant shall be entitled to designate, by written notice to
Landlord, portions of the Premises as "Secured Areas" which Landlord may not
enter except in the presence of Tenant's authorized personnel or in emergencies
or following a default. If Tenant designates any area as a "Secured Area" or
"Secured Room" on plans submitted and approved by Landlord, such plans shall
constitute the written notice required pursuant to the preceding sentence. In an
emergency situation, Landlord, as well as the applicable emergency personnel,
shall have the right to access the Secured Areas by any means and using any
force as may be reasonable under the circumstances without liability to Tenant
of any kind therefor. Tenant may install locks and security devices therefor,
provided that Tenant shall, upon Landlord's request during normal business
hours, provide an authorized person to escort Landlord or its employees in
inspecting the Secured Areas and provided Tenant delivers to Landlord keys and
other information necessary to access such Secured Areas at the expiration or
earlier termination of the Lease Term. Tenant's installation of any such locks
and security devices shall be performed in accordance with Section 12 of this
Lease. Landlord will make reasonable efforts not to inconvenience Tenant or
interfere with Tenant's business in exercising the foregoing rights, but shall
not be liable for any loss of occupation or quiet enjoyment thereby occasioned.
15. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) If the Premises or Building and/or Site Improvements shall be
damaged or destroyed by fire or other casualty, Tenant promptly shall notify
Landlord and Landlord, subject to the conditions set forth in this Section,
shall repair such damage and restore the Premises, Building and/or Site
Improvements to substantially the same condition in which they were immediately
prior to such damage or destruction, but not including the repair, restoration
or replacement of the Initial Tenant Improvements or other fixtures or
alterations installed by Tenant. Landlord shall notify Tenant in writing, within
30 days after the date of the casualty, if Landlord anticipates that the
restoration will take more than 180 days from the date of the casualty to
complete; in such event, either Landlord or Tenant may terminate this Lease
effective as of the date of casualty by giving written notice to the other
within 10 days after Landlord's notice. Further, if a casualty occurs during the
last 12 months of the Term or any extension thereof, Landlord may cancel this
Lease unless Tenant has the right to extend the Term for at least 3 more years
and does so within 30 days after the date of the casualty.
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(b) Landlord shall maintain a 12 month rental coverage endorsement or
other comparable form of coverage as part of its fire, extended coverage and
special form insurance. Tenant will receive an abatement of its Minimum Annual
Rent and Annual Operating Expenses to the extent the Premises are rendered
untenantable.
16. CONDEMNATION.
(a) TERMINATION. If (i) all of the Premises are taken by a condemnation
or otherwise for any public or quasi-public use, (ii) any part of the Premises
or Property is so taken and the remainder thereof is insufficient for the
reasonable operation of Tenant's business or (iii) any of the Property is so
taken, and, in Landlord's opinion, it would be impractical or the condemnation
proceeds are insufficient to restore the remainder of the Premises or Property,
then this Lease shall terminate and all unaccrued obligations hereunder shall
cease as of the day before possession is taken by the condemnor.
(b) PARTIAL TAKING. If there is a condemnation and this Lease has not
been terminated pursuant to this Section, (i) Landlord shall restore the
Property and the improvements which are a part of the Premises to a condition
and size as nearly comparable as reasonably possible to the condition and size
thereof immediately prior to the date upon which the condemnor took possession
and (ii) the obligations of Landlord and Tenant shall be unaffected by such
condemnation except that there shall be an equitable abatement of the Minimum
Annual Rent according to the rental value of the Premises before and after the
date upon which the condemnor took possession and/or the date Landlord completes
such restoration.
(c) AWARD. In the event of a condemnation affecting Tenant, Tenant
shall have the right to make a separate claim against the condemnor for moving
expenses and business dislocation damages, and also for the value of any
leasehold improvements installed or constructed in the Premises by Tenant
(provided Tenant reimburses Landlord for the unamortized value [based on the
initial Lease Term], including interest, of any tenant improvements or tenant
improvement allowance provided by Landlord) to the extent Tenant's right to any
separate award would not be directly deducted from or would not indirectly
reduce the award made to Landlord for the taking of the Base Building, Site
Improvements and/or Land. Except as aforesaid and except as set forth in (d)
below, Tenant hereby assigns all claims against the condemnor to Landlord,
including, but not limited to, any claim for, the value of this Lease.
(d) TEMPORARY TAKING. If all or any part of the Property is subjected
to a taking for temporary use, this Lease shall continue in full force and
effect despite the taking and Tenant shall continue to comply with all of its
obligations pursuant to this Lease, except that Tenant's obligations relating to
use and maintenance of the Premises shall be suspended to the extent compliance
with this Lease is otherwise rendered impossible or impractical as a result of
the temporary taking. Any award arising from a temporary taking shall be
allocated between Landlord and Tenant in accordance with their respective
interests as determined within the taking proceeding.
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17. NON-ABATEMENT OF RENT. Except as otherwise expressly provided in this Lease,
there shall be no abatement or reduction of the Rent for any cause whatsoever,
and this Lease shall not terminate, and Tenant shall not be entitled to
surrender the Premises.
18. INDEMNIFICATION. Subject to Sections 9(c)(iv) and 19, Tenant will protect,
indemnify and hold harmless Landlord and its Agents from and against any and all
claims, actions, damages, liability and expense (including fees of attorneys,
investigators and experts) in connection with loss of life, personal injury or
damage to property in or about the Premises or arising out of the occupancy or
use of the Premises by Tenant or its Agents or occasioned wholly or in part by
any act or omission of Tenant or its Agents, whether prior to, during or after
the Term, except to the extent such loss, injury or damage was caused by the
negligence of Landlord or its Agents. In case any action or proceeding is
brought against Landlord and/or its Agents by reason of the foregoing, Tenant,
at its expense, shall resist and defend such action or proceeding, or cause the
same to be resisted and defended by counsel (reasonably acceptable to Landlord
and its Agents) designated by the insurer whose policy covers such occurrence or
by counsel designated by Tenant and approved by Landlord and its Agents.
Tenant's obligations pursuant to this Section shall survive the expiration or
termination of this Lease.
Subject to Sections 9(c)(iv) and 19, Landlord will protect, indemnify
and hold harmless Tenant and its Agents from and against any and all claims,
actions, damages, liability and expense (including fees of attorneys,
investigators and experts) in connection with loss of life, personal injury or
damage to property caused to any person in or about the Property occasioned
wholly or in part by the negligence of Landlord or its Agents, except to the
extent such loss, injury or damage was caused by the negligence of Tenant or its
Agents. In case any action or proceeding is brought against Tenant and/or its
Agents by reason of the foregoing, Landlord, at its expense, shall resist and
defend such action or proceeding, or cause the same to be resisted and defended
by counsel (reasonably acceptable to Tenant and its Agents) designated by the
insurer whose policy covers such occurrence or by counsel designated by Landlord
and approved by Tenant and its Agents. Landlord's obligations pursuant to this
Section shall survive the expiration or termination of this Lease.
19. WAIVER OF CLAIMS. Landlord and Tenant each hereby waives all claims for
recovery against the other for any loss or damage which may be inflicted upon
the property of such party even if such loss or damage shall be brought about by
the fault or negligence of the other party or its Agents; provided, however,
that such waivers by Landlord and Tenant shall be limited to loss or damage that
is covered by "special form of loss" or "all risk" property insurance or would
have been covered had such party maintained a "special form of loss" or "all
risk" form of property insurance with such endorsements and coverages as are
customarily maintained by, in the case of Landlord, prudent owners and operators
of real property, and in the case of Tenant, prudent business owners in the same
industry as Tenant. The waivers in this Section will be effective whether or not
the loss was actually covered by insurance. This waiver shall not operate to
relieve Tenant of its obligation to pay the amount of any reasonable
"deductible" in the event of any loss
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covered by Landlord's property insurance, unless the loss was caused by the
fault or negligence of Landlord.
20. QUIET ENJOYMENT; WARRANTY OF TITLE. Landlord covenants that Tenant, upon
performing all of its covenants, agreements and conditions of this Lease, shall,
on the terms and conditions of this Lease, have quiet and peaceful use and
possession of the Premises as against anyone claiming by or through Landlord or
asserting title paramount to Landlord's. Landlord warrants as of the date hereof
that Landlord is the fee owner of the Property, subject only to the encumbrances
listed on attached EXHIBIT "I".
21. ASSIGNMENT AND SUBLETTING.
(a) LIMITATION. Tenant shall have the right to freely assign this Lease
or sublet all or any part of the Premises to any person or entity at any time
provided that the nature of the tenancy is compatible with and appropriate for a
class A suburban office park in the Minneapolis/St. Paul metropolitan area.
Tenant may also freely assign this Lease, or sublet all or any part of the
Premises, to any entity controlling, controlled by or under common control with
Tenant or to any successor by merger to the interests of Tenant. Tenant shall
give Landlord prompt notice of any assignment or subletting.
Except as provided above, Tenant shall not sublet the Premises or
assign this Lease, voluntarily or by operation of law, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld. Any
transfer not in conformity with this Section 21 shall be void at the option of
Landlord, and Landlord may exercise any or all of its rights under Section 25. A
consent to one transfer shall not be deemed to be a consent to any subsequent
transfer. Prior to a contemplated assignment or subletting, Tenant may, but
shall be under no obligation to, request a written determination from Landlord
as to whether or not Landlord deems a proposed assignment or subletting
compatible with and appropriate for a class A suburban office park in the
Minneapolis/St. Paul metropolitan area. Such request shall be in writing, shall
include adequate detail as to the proposed assignee or subtenant and the nature
of its business, and shall include an express warning that if Landlord fails to
respond to such request within 10 business days, Landlord, pursuant to this
Lease, shall be deemed to have approved of the proposed assignment or
subletting. Landlord agrees to provide Landlord's determination within 10
business days of Tenant's request. If Landlord fails to provide its
determination within 10 business days of Tenant's written request (and provided
the request includes the warning notice described above), Landlord shall be
deemed to have approved the proposed assignment or subletting.
(b) CONDITIONS. Notwithstanding the above, the following shall apply to
any transfer, with or without Landlord's consent:
(i) Except as expressly provided below, no transfer shall
relieve Tenant of its obligation to pay the Rent and to perform all its other
obligations hereunder. The acceptance of Rent by Landlord from any person shall
not be deemed to be a waiver by Landlord of any
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provision of this Lease or to be a consent to any transfer. The foregoing
notwithstanding, in the event of a permitted assignment of this Lease by Tenant
to any successor by merger to the interests of Tenant or in the event of a
permitted assignment to a third party, Tenant shall be released from all
liability under this Lease with respect to matters and obligations arising from
and after the date of the assignment if, and only if, such assignee has a
tangible net worth at the time of the assignment equal to $47,000,000. Such
release must be in writing, and will be issued by Landlord upon receipt of
reasonable documentation from Tenant confirming the net worth of the assignee.
(ii) Any assignment shall be by a written instrument in form
and substance reasonably satisfactory to Landlord which shall (A) include an
assumption of liability by any transferee of all Tenant's obligations arising
from and after the date of the transfer and the transferee's ratification of and
agreement to be bound by all the provisions of this Lease, (B) afford Landlord
the right of direct action against the transferee pursuant to the same remedies
as are available hereunder to Landlord against Tenant and (C) be executed by
Landlord, Tenant and the transferee.
(iii) Except as provided below, in the event that the rent due
and payable by a subtenant under any such permitted sublease (or a combination
of the rent payable under such sublease plus any bonus or other consideration
therefor or incident thereto) exceeds the rent payable under this Lease, or if
with respect to a permitted assignment, permitted license, or other transfer by
Tenant permitted by Landlord or this Lease , the consideration payable to Tenant
by the assignee, licensee, or other transferee exceeds the rent payable under
this Lease, then Tenant shall be bound and obligated to pay Landlord 50% of such
excess rent and other excess consideration, after deduction of "Tenant's Costs"
from such excess rent and other excess consideration. "Tenant's Costs" mean (i)
Annual Minimum Rent and Operating Expenses paid by Tenant during any time the
Premises being assigned or sublet were vacant, (ii) reasonable leasing costs
incurred by Tenant in connection with such assignment or subletting, including
marketing costs, attorneys' fees, leasing commissions, and leasehold
improvements or allowances, and (iii) the unamortized value of all leasehold
improvements constructed by Tenant in the Premises so assigned or sublet. The
excess rent or other excess consideration so payable to Landlord shall be
remitted by Tenant to Landlord within ten (10) days following receipt thereof by
Tenant from such sublessee, assignee, licensee, or other transferee, as the case
may be. The foregoing notwithstanding, Tenant shall not be obligated to pay
Landlord the excess rent or other excess consideration described in this
subsection (i) if Tenant leases from Landlord other additional premises as a
replacement for the Premises so being assigned or sublet, or (ii) in the case of
an assignment or subletting by Tenant to any entity controlled by, under common
control with or controlling Tenant.
22. SUBORDINATION. This Lease shall be subordinate to any first mortgage or
other primary encumbrance now or hereafter affecting the Premises. Although the
subordination is self-operative, within 10 days after written request, Tenant
shall execute and deliver any further commercially reasonable and customary
instruments of attornment and nondisturbance that may be desired by any such
mortgagee ("mortgagee" for purposes of this Section meaning the holder of any
first mortgage or other primary encumbrance, whether or not such encumbrance is
a mortgage)
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or Landlord. The foregoing notwithstanding, (i) so long as Tenant is not in
default under this Lease, this Lease shall remain in full force and effect and
the mortgagee and any purchaser at a foreclosure sale thereof shall not disturb
Tenant's possession (including expansion options) hereunder, and (ii) the
mortgagee or purchaser at a foreclosure sale shall be bound to recognize all of
the terms and conditions of this Lease and the rights of the Tenant hereunder.
However, any mortgagee may at any time subordinate its mortgage to this Lease,
without Tenant's consent, by giving written notice to Tenant, and thereupon this
Lease shall be deemed prior to such mortgage without regard to their respective
dates of execution and delivery.
23. RECORDING; TENANT'S CERTIFICATE.
(a) All parties will, upon the request of any other party, execute a
short form lease ("Memorandum of Lease"), in a form suitable for recording. Such
Memorandum of Lease will be dated as of the date of this Lease and will disclose
the parties, the Term of this Lease, a description of the Premises and such
other terms and conditions as the parties agree upon. The party requesting the
execution of such Memorandum will bear all costs of the Memorandum, including
any recording fees. All parties will, following any termination of this Lease
and upon the written request of any other party, execute a document setting
forth the date of termination, in a form suitable for recording. Failure of a
party to execute such a document will not affect the termination, and in such
event the party requesting the document may execute and file an affidavit
setting forth the date of termination. The party requesting the execution of a
document setting forth the date of termination will bear all costs thereof,
including any recording fees.
(b) Within 10 days after Landlord's written request from time to time:
(i) Tenant shall execute, acknowledge and deliver to Landlord
a written statement certifying the Commencement Date and Expiration Date of this
Lease, that this Lease is in full force and effect and has not been modified and
otherwise as set forth in the form of estoppel certificate attached as EXHIBIT
"E" or with such modifications as may be reasonably necessary to reflect
accurately the stated facts and/or such other certifications as may be
reasonably requested by a mortgagee or purchaser.
(ii) Tenant shall furnish to Landlord, Landlord's mortgagee,
prospective mortgagee or purchaser reasonably requested financial information.
Tenant shall be excused from this requirement during any period Tenant is a
public company whose stock is traded on a national exchange.
24. SURRENDER; ABANDONED PROPERTY.
(a) Subject to the terms of Sections 12, 15 and 16, at the expiration
or termination of this Lease, Tenant promptly shall yield up in the same
condition, order and repair in which they are required to be kept throughout the
Term, the Premises and all improvements thereto, and all fixtures and equipment
servicing the Building, ordinary wear and tear excepted.
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(b) Upon or prior to the expiration or termination of this Lease,
Tenant shall remove any of Tenant's personal property from the Property. Any
such personal property remaining thereafter shall be deemed conclusively to have
been abandoned, and Landlord, at Tenant's expense, may remove, store, sell or
otherwise dispose of such property in such manner as Landlord may see fit and/or
Landlord may retain such property as its property. If any part thereof shall be
sold, then Landlord may receive and retain the proceeds of such sale and apply
the same, at its option, against the expenses of the sale, the cost of moving
and storage and any Rent due under this Lease.
(c) If Tenant, or any person claiming through Tenant, shall continue to
occupy the Premises after the expiration or termination of this Lease or any
renewal thereof, such occupancy shall be deemed to be under a month-to-month
tenancy under the same terms and conditions set forth in this Lease, except that
the monthly installment of the Minimum Annual Rent during such continued
occupancy shall be 150% of the amount applicable to the last month of the Term.
Anything to the contrary notwithstanding, any holding over by Tenant without
Landlord's prior written consent shall constitute a default hereunder and shall
be subject to all the remedies available to Landlord.
25. CURING TENANT'S DEFAULTS. If Tenant shall be in default in the performance
of any of its obligations hereunder, Landlord, without any obligation to do so,
in addition to any other rights it may have in law or equity, may elect to cure
such default on behalf of Tenant after written notice (except in the case of
emergency) to Tenant. Tenant shall reimburse Landlord upon demand for any sums
paid or costs incurred by Landlord in curing such default, including interest
thereon from the respective dates of Landlord's incurring such costs, which sums
and costs together with interest shall be deemed additional rent.
26. DEFAULTS - REMEDIES.
(a) TENANT DEFAULTS. It shall be an event of default by Tenant:
(i) If Tenant does not pay in full when due any and all Rent;
(ii) If Tenant fails to observe and perform or otherwise
breaches any other provision of this Lease;
(iii) [Intentionally Deleted]
(iv) If Tenant becomes insolvent or bankrupt in any sense or
makes a general assignment for the benefit of creditors or offers a settlement
to such creditors, or if a petition in bankruptcy or for reorganization or for
an arrangement with creditors under any federal or state law is filed by or
against Tenant, or a bill in equity or other proceeding for the appointment of a
receiver for any of Tenant's assets is commenced; provided, however, that any
proceeding brought by anyone other than Landlord or Tenant under any bankruptcy,
insolvency, receivership or similar
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law shall not constitute a default until such proceeding has continued unstayed
for more than 60 consecutive days.
(b) REMEDIES. Then, and in any such event, Landlord shall have the
following rights:
(i) To charge a late payment fee equal to the greater of $100
or 2% of any amount owed to Landlord pursuant to this Lease which is not paid
within 5 business days after the due date.
(ii) To enter and repossess the Premises, by breaking open
locked doors if necessary, and remove all persons and all or any property
therefrom, by action at law or otherwise, without being liable for prosecution
or damages therefor, and Landlord may, at Landlord's option, make alterations
and repairs in order to relet the Premises and relet all or any part(s) of the
Premises for Tenant's account. Tenant agrees to pay to Landlord on demand any
deficiency that may arise by reason of such reletting. In the event of reletting
without termination of this Lease, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach.
(iii) To accelerate the whole or any part of the Rent for the
balance of the Term, and declare the same to be immediately due and payable.
(iv) To terminate this Lease and the Term without any right on
the part of Tenant to save the forfeiture by payment of any sum due or by other
performance of any condition, term or covenant broken.
(c) GRACE PERIOD. Notwithstanding anything hereinabove stated, neither
party will exercise any available right because of any default of the other,
except those remedies contained in subsection (b)(i) of this Section, unless
such party shall have first given written notice of default to the defaulting
party, and the defaulting party shall have failed to cure the default within 5
business days of such notice in the case of monetary defaults or in the case of
Tenant's failure to take any action with respect to which a time period for
performance is specifically enumerated in this Lease, or within 30 days of such
notice in the case of other nonmonetary defaults; provided, however, that:
(i) No such notice shall be required in the event of any
default enumerated in subsection (a) (iv) of this Section.
(ii) Landlord shall not be required to give notice of default
more than 2 times during any 12-month period; thereafter in such 12-month period
Landlord may declare a default and exercise its remedies without notice, except
that, notwithstanding the foregoing, Landlord will not exercise its remedies
under subsection (b)(iii) [acceleration] unless Landlord first gives Tenant
written notice of such default.
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(iii) If the default consists of something other than the
failure to pay money which cannot reasonably be cured within 30 days, neither
party will exercise any right if the defaulting party begins to cure the default
within the 30 days and continues actively and diligently in good faith to
completely cure said default.
(iv) Landlord and Tenant agree that any notice given by the
other party pursuant to this Section which is served in compliance with Section
30 shall be adequate notice for the purpose of the noticing party's exercise of
any available remedies.
(d) NON-WAIVER; NON-EXCLUSIVE. No waiver by Landlord or Tenant of any
breach by the other shall be a waiver of any subsequent breach, nor shall any
forbearance by Landlord or Tenant to seek a remedy for any breach by the other
be a waiver by Landlord or Tenant of any rights and remedies with respect to
such or any subsequent breach. Efforts by Landlord or Tenant to mitigate the
damages caused by the other's default shall not constitute a waiver of
Landlord's or Tenant's right to recover damages hereunder. Unless this Lease
expressly so provides to the contrary, no right or remedy herein conferred upon
or reserved to Landlord or Tenant is intended to be exclusive of any other right
or remedy provided herein or by law, but each shall be cumulative and in
addition to every other right or remedy given herein or now or hereafter
existing at law or in equity. No payment by Tenant or Landlord or receipt or
acceptance by Landlord or Tenant of a lesser amount than the total amount due
Landlord or Tenant, as the case may be, under this Lease shall be deemed to be
other than on account, nor shall any endorsement or statement on any check or
payment be deemed an accord and satisfaction, and Landlord or Tenant, as the
case may be, may accept such check or payment without prejudice to such party's
right to recover the balance of the amount due, or such party's right to pursue
any other available remedy.
(e) COSTS AND ATTORNEYS' FEES. If either party commences an action
against the other party arising out of or in connection with this Lease, the
prevailing party shall be entitled to have and recover from the losing party
attorneys' fees, costs of suit, investigation expenses and discovery costs,
including costs of appeal.
27. REPRESENTATIONS OF TENANT. Tenant represents to Landlord and agrees that:
(a) The word "TENANT" as used herein includes the Tenant named above as
well as its successors and assigns, each of which shall be under the same
obligations and liabilities and each of which shall have the same rights,
privileges and powers as it would have possessed had it originally signed this
Lease as Tenant.
(b) If Tenant is a corporation, partnership or any other form of
business association or entity, Tenant is duly formed and in good standing, and
has full corporate or partnership power and authority, as the case may be, to
enter into this Lease and has taken all corporate or partnership action, as the
case may be, necessary to carry out the transaction contemplated herein, so that
when executed, this Lease constitutes a valid and binding obligation enforceable
in accordance with its
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terms. Tenant shall provide Landlord with corporate resolutions or other proof
in a form acceptable to Landlord, authorizing the execution of this Lease at the
time of such execution.
28. LIABILITY OF LANDLORD. The word "LANDLORD" as used herein includes the
Landlord named above as well as its successors and assigns, each of which shall
have the same rights, remedies, powers, authorities and privileges as it would
have had it originally signed this Lease as Landlord. Any such person or entity,
whether or not named herein, shall have no liability hereunder after it ceases
to hold title to the Premises except for obligations already accrued (and, as to
any unapplied portion of Tenant's Security Deposit, Landlord shall be relieved
of all liability therefor upon transfer of such portion to its successor in
interest) and Tenant shall look solely to Landlord's successor in interest for
the performance of the covenants and obligations of the Landlord hereunder which
thereafter shall accrue. Neither Landlord (from and after the Commencement Date)
nor any principal of Landlord nor any owner of the Property, whether disclosed
or undisclosed, shall have any personal liability with respect to any of the
provisions of this Lease or the Premises, and if Landlord is in breach or
default with respect to Landlord's obligations under this Lease or otherwise
(other than defaults occurring prior to the Commencement Date and relating to
Landlord's construction and completion obligations hereunder), Tenant shall look
solely to the equity of Landlord in the Property and to any rents, income or
proceeds from the Property for the satisfaction of Tenant's claims.
Notwithstanding the foregoing, no mortgagee or ground lessor succeeding to the
interest of Landlord hereunder (either in terms of ownership or possessory
rights) shall be (a) liable for any previous act or omission of a prior landlord
(but shall be subject to any rental offsets relating to acts or omissions of a
prior landlord) or (b) bound by any amendment of this Lease made without its
written consent and made after Tenant shall have been notified of the existence
of such mortgage or ground lease, or by payment by Tenant of Minimum Annual Rent
in advance in excess of one monthly installment.
29. INTERPRETATION; DEFINITIONS.
(a) CAPTIONS. The captions in this Lease are for convenience only and
are not a part of this Lease and do not in any way define, limit, describe or
amplify the terms and provisions of this Lease or the scope or intent thereof.
(b) ENTIRE AGREEMENT. This Lease represents the entire agreement
between the parties hereto and there are no collateral or oral agreements or
understandings between Landlord and Tenant with respect to the Premises or the
Property. No rights, easements or licenses are acquired in the Property or any
land adjacent to the Property by Tenant by implication or otherwise except as
expressly set forth in the provisions of this Lease. This Lease shall not be
modified in any manner except by an instrument in writing executed by the
parties. The masculine (or neuter) pronoun and the singular number shall include
the masculine, feminine and neuter genders and the singular and plural number.
The word "including" followed by any specific item(s) is deemed to refer to
examples rather than to be words of limitation. Both parties having participated
fully and equally in the negotiation and preparation of this Lease, this Lease
shall not be more strictly construed, nor any ambiguities in this Lease
resolved, against either Landlord or Tenant.
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(c) COVENANTS. Except as otherwise expressly provided herein, each
covenant, agreement, obligation, term, condition or other provision herein
contained shall be deemed and construed as a separate and independent covenant
of the party bound by, undertaking or making the same, not dependent on any
other provision of this Lease unless otherwise expressly provided. All of the
terms and conditions set forth in this Lease shall apply throughout the Term
unless otherwise expressly set forth herein.
(d) INTEREST. Wherever interest is required to be paid hereunder, such
interest shall be at the 'prime rate" plus two percent (2%). "Prime rate" herein
means the rate of interest per annum from time to time published in The Wall
Street Journal (or comparable financial publication if The Wall Street Journal
ceases to be published or ceases to publish a prime rate) as the "High Prime
Rate", or the "Prime Rate" if only one "Prime Rate" is published, as the same
may fluctuate from time to time.
(e) SEVERABILITY; GOVERNING LAW. If any provisions of this Lease shall
be declared unenforceable in any respect, such unenforceability shall not affect
any other provision of this Lease, and each such provision shall be deemed to be
modified, if possible, in such a manner as to render it enforceable and to
preserve to the extent possible the intent of the parties as set forth herein.
This Lease shall be construed and enforced in accordance with the laws of the
state in which the Property is located.
(f) "MORTGAGE" AND "MORTGAGEE." The word "mortgage" as used herein
includes any lien or encumbrance on the Premises or the Property or on any part
of or interest in or appurtenance to any of the foregoing, including without
limitation any ground rent or ground lease if Landlord's interest is or becomes
a leasehold estate. The word "mortgagee" as used herein includes the holder of
any mortgage, including any ground lessor if Landlord's interest is or becomes a
leasehold estate. Wherever any right is given to a mortgagee, that right may be
exercised on behalf of such mortgagee by any representative or servicing agent
of such mortgagee.
(g) "PERSON." The word "person" is used herein to include a natural
person, a partnership, a corporation, an association and any other form of
business association or entity.
30. NOTICES. Any notices or election required or permitted to be given or served
by any party hereto upon any other shall be deemed given or served in accordance
with the provisions of this Agreement if said notice or election is to the
parties, with copies, at the addresses listed below, by one of the following
methods: (a) delivered personally; (b) sent by certified or registered mail,
return receipt requested, postage prepaid; (c) sent by reputable overnight
delivery service designated for next business day delivery, with delivery charge
prepaid; or (d) sent by facsimile transmission provided a copy of the notice is
simultaneously sent by method (a), (b) or (c) above. Communications personally
delivered will be deemed received upon delivery, communications sent by
certified mail will be deemed received two (2) business days following the date
of the postmark, communications sent by overnight delivery will be deemed
received on the next business day and communications sent by facsimile will be
deemed received on the day sent if sent
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on a business day before 3:00 P.M. All other communications sent by facsimile
will be deemed received on the first business day after they are sent.
Communications addressed to the parties shall be sent as follows:
If intended for Tenant:
ONTRACK Data International, Inc.
6321 Bury Drive, Suites 13-21
Eden Prairie, Minnesota 55346
Attn: Thomas Skiba
Facsimile No.: 612/949-4083
and to:
ONTRACK Data International, Inc.
6321 Bury Drive, Suites 13-21
Eden Prairie, Minnesota 55346
Attn: John Bujan
Facsimile No.: 612/949-4083
with a copy to:
Joseph J. Christensen
Snelling, Christensen & Laue, P.A.
Suite 400
5101 Vernon Avenue South
Minneapolis, MN 55436
Facsimile No.: 612/927-5427
If intended for Landlord:
Liberty Property Limited Partnership
330 Second Avenue South, Suite 390
Minneapolis, Minnesota 55401
Attn: John S. Gattuso
Facsimile No.: 612/375-8958
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with a copy to:
Dorsey & Whitney
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attn: Jeff Benson
Facsimile No.: 612/340-2644
Any party hereto may change its address for the service of notice hereunder by
giving written notice of said change to the other party hereunder in the manner
specified above. By notice to the other, either party may require that copies of
notices be given to any mortgagee or other party designated by Landlord or
Tenant. The giving of notice by a party's attorneys, representatives and agents
under this Section shall be deemed to be the acts of such party; however, the
foregoing provisions governing the date on which a notice is deemed to have been
received shall mean and refer to the date on which a party to this Lease, and
not its counsel or other recipient to which a copy of the notice may be sent, is
deemed to have received the notice.
31. OPTION TO EXTEND TERM. Provided that at the time of such notice of exercise
and at the time of the commencement of the applicable extension term, there
exists no monetary default (beyond any applicable notice and cure period in this
Lease) and no default described in Section 26(a)(iv), Tenant shall have the
right and option, exercisable by giving Landlord prior written notice thereof at
least nine (9) months in advance of the applicable Expiration Date, to extend
the Term (for all or a portion of the PremisesBas described in subsection (d)
below) for up to three (3) additional consecutive periods of thirty-six (36)
months each, the first such extended term or any subsequent extended term to
begin on the Expiration Date of the initial Term or the Expiration Date of any
previous extended term, as the case may be. Such extension shall be under the
same terms and conditions as provided in this Lease except as follows:
(a) all references to the Term in this Lease shall be deemed to mean
the Term as extended pursuant to this Section;
(b) there shall be no further options to extend the Term except as
expressly provided herein;
(c) Minimum Annual Rent for each Lease Year of the extension terms
shall be as follows:
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First Extension:
Lease Year Annual Minimum Rent
---------- Per Rentable Sq. Ft.
--------------------
11 $12.129
12 $12.371
13 $12.619
Second Extension:
Lease Year Annual Minimum Rent
---------- Per Rentable Sq. Ft.
--------------------
14 $12.871
15 $13.129
16 $13.391
Third Extension:
Lease Year Annual Minimum Rent
---------- Per Rentable Sq. Ft.
--------------------
17 $13.659
18 $13.932
19 $14.211
(d) With respect to any extension option, Tenant may elect to extend
this Lease, on the terms and conditions stated above, for all or less than all
of the Premises then being leased by Tenant under this Lease. If Tenant desires
to extend this Lease for less than the entire Premises then being leased by
Tenant, Tenant shall include in its extension notice a detailed description of
the space in which Tenant is extending. In no event shall Tenant extend with
respect to less than 20,000 rentable square feet, and in no event shall Tenant
leave Landlord with less than 20,000 rentable square feet within the Building.
Moreover, any portion of the Premises that Tenant so surrenders to Landlord in
connection with an extension as to less than all of the Premises must be (1)
Leasable Space (as that term is defined below) and (2) must be surrendered to
Landlord in the condition required under this Lease with respect to surrender of
space at the expiration or termination of this Lease. If Tenant so extends for
less than all of the then Premises, Tenant and Landlord shall each pay one-half
of the cost of constructing any demising wall between the space surrendered and
the Premises retained by Tenant.
"Leasable Space" as used in this Lease means space that is located, configured
and sized in such a manner that, in Landlord's reasonable judgment, such space
has appropriate access to entrances
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and restroom facilities, is useable for general office purposes and is
marketable to a general office user.
(e) if Tenant should exercise the extension option(s), at the request
of either party Landlord and Tenant shall execute and deliver an amendment to
the Lease documenting the terms, covenants and conditions applicable to the
extension term, as provided herein.
32. EXPANSION OPTION. Landlord presently intends, but shall have no obligation
other than as expressly provided in this Section with respect to Building B, to
develop at least three additional buildings in the Project, identified as
Buildings B (consisting of buildings B-1 and B-2), C and D, substantially as
shown on the Site Plan. Landlord hereby grants Tenant the right and option to
lease all or a portion of Building B on the terms and conditions provided in
this Section. Landlord agrees that it shall construct Building B, if at all,
after the construction of the Premises (Building A), Building C and Building D,
unless the earlier construction of Building B is requested by Tenant pursuant to
the exercise of its expansion option provided in this Section. Following the
construction of Buildings A, C and D, Landlord may construct all or a portion of
Building B at any time (Landlord agrees that if only a portion of Building B is
so constructed, Landlord will construct Building B-2 before constructing
Building B-1), and shall have no obligation to wait for Tenant to exercise its
expansion option with respect thereto. If Landlord constructs or proposes to
construct all or a portion of Building B absent Tenant's exercise of its
expansion rights hereunder, such portion of Building B to be so constructed
shall nevertheless be subject to Tenant's right of first offer set forth in
Section 33 below. If Landlord constructs only a portion of Building B prior to
Tenant's exercise, if any, of its expansion rights, Tenant's expansion option
under this Section 32 shall continue with respect to the remainder (i.e.
unconstructed portion) of Building B.
Tenant shall have the option at any time to cause Landlord to construct
Building B, and lease the "Building B Expansion Space" to Tenant, if all of the
following conditions are met:
(a) There is not then existing any monetary default (beyond any
applicable notice and cure period in this Lease) or default described in Section
26(a)(iv);
(b) Tenant is then leasing all or substantially all of Building A,
Tenant is not planning to vacate, assign or sublet any of the space in Building
A at the time Tenant expands into Building B.
(c) Tenant delivers to Landlord written notice exercising its right to
Lease the Building B Expansion Space, which notice shall specify the rentable
square footage in Building B that Tenant is committing to Lease. Said notice
shall not specify less than 25,000 rentable square feet. Moreover, said notice
shall not specify more than 50,000 rentable square feet unless Tenant, in such
notice, elects to expand into all of Building B. Landlord presently contemplates
that Building B will contain approximately 80,000 rentable square feet. If
Landlord decides to increase the size of Building B in excess of 80,000 rentable
square feet, the 50,000 ceiling noted above shall be increased by the amount of
such excess. In no event, however, shall Landlord be required to
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construct more than the actual rentable square footage committed to by Tenant in
Tenant's notice of exercise.
If Tenant timely exercises the Building B Expansion Space option as
provided above, Landlord and Tenant shall enter into a lease of the Building B
Expansion Space containing the following terms:
(a) Landlord will be obligated to construct the Building B base
building and related site improvements, including parking areas and driveways,
within 9 months of the date such lease is entered into by Landlord and Tenant,
subject only to delays outside of the reasonable control of Landlord. Building B
shall be of a type and quality comparable to Building A so as to keep the
relative cost (adjusted for changes in the costs of labor and materials) per
rentable square foot of Building B comparable to that of Building A.
(b) The term of the lease for the Building B Expansion Space shall not
be less than five (5) years, commencing upon the substantial completion of
Landlord's construction of the Building B Expansion Space. If less than 5 years
remains on the Term of this Lease (including any extension options exercised by
Tenant as of the commencement date of the lease for the Building B Expansion
Space), then the Term of this Lease (Section 36 [Tenant's Option to Terminate]
notwithstanding) shall be extended so that this Lease shall be co-terminus with
the term of the lease for the Building B Expansion Space. If the Term is so
extended, any unexercised and unexpired options to extend the Term under Section
31 shall be pushed out so that the full extension term, if exercised, would
commence as of the expiration of the Term or extended Term, as the case may be,
as extended pursuant to this subsection (b). If such extension term, as pushed
back, goes beyond lease year 19, Minimum Annual Rent for subsequent lease years
shall continue to increase at 2% per annum. For example, if Tenant entered into
a five-year lease for the Building B Expansion Space commencing at the beginning
of year eight of the ten-year initial Term of this Lease, the Term of this Lease
would be extended through year twelve, and the first three-year extension term
would commence, if exercised, at the beginning of year thirteen (and the
scheduled rental rates under Section 31 for years 13 through 15 would apply to
the first extension term).
(c) The Annual Minimum Rent for the first lease year shall be an amount
equal to the product of (i) the "Expansion Building Costs" (as defined below),
multiplied by (ii) the "Finance Rate" (as defined below), appropriately
apportioned to the Building B Expansion Space based on Tenant's Proportionate
Share if the Building B Expansion Space does not include 100% of the building
constructed. The Annual Minimum Rent for each lease year subsequent to the first
lease year shall be an amount equal to 102% of the scheduled Annual Minimum Rent
for the immediately preceding lease year.
"Expansion Building Costs" means all of the out-of-pocket costs
incurred by Landlord with respect to the acquisition and construction of
Building B and related site improvements, including the cost of purchasing the
land appropriately allocated to Building B and the Building B site improvements
(which allocation shall be consistent with the manner in which the Land was
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allocated to Building A), Landlord's actual cost of carry of such land,
including real estate taxes, from the time of its acquisition through the
substantial completion of Landlord's construction, title and recording fees,
legal fees, architectural and engineering fees, all government fees and utility
connection charges, construction costs and expenses, including costs of
constructing landscaping, required parking and access drives and related site
improvements, signage, brokerage fees, a development fee equal to 2% of such
costs (exclusive of real estate taxes and construction interest), construction
interest at 8.75% and a construction contingency not to exceed 2%. Expansion
Building Costs will not include any costs or expenses relating to defaults by
Landlord, claims or penalties arising from Landlord's intentional wrongdoing ,
negligent acts or omissions or violations of law, or costs of grading,
utilities, site work or other improvements not related to Building B and its
related site improvements or otherwise primarily benefitting another parcel or
building.
Prior to entering into a lease for the Building B Expansion Space,
Landlord and Tenant shall have agreed upon a budget of the Expansion Building
Costs, based on plans and specifications for the Expansion Building approved by
Landlord and Tenant. If Landlord and Tenant are unable to agree upon such
budget, Landlord shall not be obligated to construct the Building B Expansion
Space and neither Landlord nor Tenant shall have any obligation to enter into
such lease.
The foregoing notwithstanding, the cost of any leasehold improvements
constructed by landlord in and to the Building B Expansion Space and the cost of
any brokerage fees payable with respect to the lease of the Building B Expansion
Space may be amortized on a straight line basis, without interest, over the term
of the lease for the Building B Expansion Space, and in such case the annual
amortized cost shall be added to the Minimum Annual Rent, provided, however,
that the total expenses that may be so amortized shall not exceed an amount
which will result in annual amortized costs in excess of $1.60 per rentable
square foot.
The "Finance Rate" shall be a number determined by adding 350 basis
points to the actual yield, on the date of Tenant's notice of exercise, from
U.S. Treasury Notes or Bonds having a term equal to the term of the lease for
the Building B Expansion Space, provided, however, that if the Finance Rate as
determined above would yield a result of less than 10%, the Finance Rate shall
be the lower of (i) 10% or, (ii) 400 basis points above the actual yield, on the
date of Tenant's notice of exercise, from US Treasury Notes or Bonds having a
term equal to the term of the lease for the Building B Expansion Space.
(d) The lease for the Building B Expansion Space will otherwise be on
the substantially the same basic terms and conditions as provided in this Lease,
except that, unless otherwise agreed upon in writing by Landlord and Tenant, (1)
there will be no rent concessions, inducements, allowances or similar provisions
applicable to the Building B Expansion Space, and (2) there shall be no
extension, renewal, offer, expansion or similar rights.
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The rights of Tenant under this section shall not be severed from the
Lease or separately sold, assigned or transferred, and will expire according to
the terms of this section, or upon the termination of the Lease, whichever
occurs first.
33. RIGHT OF FIRST OFFER. In the event any space in the Building or, if and when
constructed or proposed to be constructed, in any other buildings in the
Project, becomes available for lease at any time during the Term of this Lease,
Landlord shall give Tenant written notice of the availability of such space for
lease (the "Offer Space"). Tenant shall have the right, at its option, to lease
all or a portion (subject to the conditions set out below) of such Offer Space
provided (a) Tenant delivers to Landlord written notice exercising its right to
lease such Offer Space within 15 business days of receipt of Landlord's notice
of availability of such Offer Space, (b) Tenant is not in default in any
material respect under this Lease at the time Tenant exercises its right to
lease such Offer Space and at the time Tenant is to take possession of such
Offer Space, (c) if Tenant exercises its right to lease less than all of the
Offer Space, then (i)Tenant shall take at least 10,000 rentable square feet,
(ii) the remainder of the Offer Space not taken by Tenant shall not be less than
5,000 rentable square feet, and (iii) the remainder of the Offer Space not taken
by Tenant must be "Leasable Space" (as defined in Section 31(d) above) . If
Tenant fails to exercise timely its right to lease such Offer Space with respect
to a particular notice of availability given by Landlord, Landlord shall be free
to lease such Offer Space to such person or entity, and on such terms and
conditions, as Landlord may choose (provided, however, if Landlord has not
leased all such Offer Space on or before the date that is six months from the
date such Offer Space was first offered to Tenant, Landlord shall re-offer the
remaining Offer Space to Tenant on the terms and conditions of this Section). If
Tenant elects to exercise its right to lease such Offer Space, the terms,
conditions and covenants applicable to such Offer Space shall be as set forth in
this Lease, except that the Offer Space shall be delivered to Tenant in an "as
is" condition and the Minimum Annual Rent regarding such space shall be as
follows: (1) if the Offer Space is previously unoccupied space, the Annual
Minimum Rent shall be determined pursuant to the formula provided in Subsection
32(c) above, and (2) if the Offer space is previously occupied space, the
Minimum Annual Rent shall be Minimum Annual Rent that was scheduled to be paid
(without addition of any amounts due to any default, failure, wrongful act or
omission of such tenant) by the prior tenant of such Offer Space during the last
full month in which such tenant paid or was to pay full Minimum Annual Rent
during the term of the applicable lease, and such Minimum Annual Rent shall
increase 2% per annum commencing at the end of the first lease year of such
Offer Space. The commencement date for the lease covering such space shall be
the date following the exercise of such option on which such space is first made
available to Tenant. If Tenant exercises its right to lease such space, Landlord
and Tenant shall execute and deliver an appropriate amendment to this Lease
regarding the lease of such space. The rights of Tenant under this section shall
not be severed from the Lease or separately sold, assigned or transferred, and
will expire according to the terms of this section, or upon the termination of
the Lease, whichever occurs first.
Any provision to the contrary in this Section notwithstanding, with respect to
Buildings B and C, the right of first offer granted Tenant under this Section
shall be prior to the rights of any other present or future tenant of the
Project, and, with respect to any buildings constructed in the Project
41
<PAGE>
other than Buildings B and C, the right of first offer granted Tenant under this
Section shall be subject and subordinate to any expansion options, rights of
first offer, rights of first refusal and the like that Landlord may now or in
the future grant to any other present or future tenant of the Project.
34. PARKING. Landlord shall provide, and Tenant shall be entitled to the use of,
five (5) parking spaces for each 1,000 rentable square feet of the Premises.
Such parking shall be nonexclusive, undesignated and unreserved parking provided
as part of the Building's common area parking facilities, provided, however,
that so long as Tenant is leasing 100% of the Building, Tenant shall have the
right, at its expense, to sign all or any portion of the parking allocated to
the Building to limit it to Tenant's employees, visitors and business invitees.
Landlord shall not allocate any of the parking provided to Tenant under this
Section to any other building in the Project or to any other tenant of the
Project. If Tenant is leasing less than 100% of the Building, Landlord will
afford Tenant such rights to exclusive or designated parking as are consistent
with those afforded to comparable tenants in the Project.
35. ANTENNA; SATELLITE DISH. Tenant shall have the right to install, maintain
and repair, for Tenant's own use, communications antennae, satellite dishes
and/or similar communications equipment (such antennae, dishes and all related
equipment is herein collectively termed the "Antenna") on the roof of the
Building under and subject to the following conditions:
(a) Tenant shall comply with all Laws and Requirements, including,
without limitation, any applicable Federal Communication Commission rules,
regulations and guidelines.
(b) Tenant shall obtain Landlord's prior approval of the location of
the Antenna on the Property and of the specifications for the Antenna and the
installation thereof, which approval will not be unreasonably withheld,
conditioned or delayed. Tenant agrees to consult with Landlord's roofing
contractor prior to installation and strictly to comply with the roofing
contractor's reasonable recommendations and requirements. Tenant shall pay all
reasonable out-of-pocket costs incurred by Landlord to a third party in
connection with the Antenna including without limitation all architectural,
engineering and contractors' fees. Landlord agrees that it will not seek
independent architectural or engineering review provided Tenant uses an
architect and/or engineer approved in advance by Landlord. At least 3 business
days prior to installation, Tenant shall notify Landlord of the date and time of
the installation.
(c) Tenant shall maintain the Antenna in a safe, good and orderly
condition. The installation, maintenance, repair and removal of the Antenna
shall be performed at Tenant's sole expense in a manner which will not impair
the integrity of, damage or adversely affect the warranty applicable to, the
roof or any other portion of the Property.
(d) Tenant's indemnification of Landlord pursuant to Section 18 of this
Lease also applies to the Antenna and Tenant's use of any portion of the
Property therefor. Without limiting the foregoing, Tenant solely shall be
responsible for any damages or injury caused by or in any
42
<PAGE>
way relating to the Antenna, including, but not limited to, damage or injury
caused by reason of the Antenna collapsing or being blown from the roof or any
other portion of the Property.
(e) The Antenna shall remain the property of Tenant, and upon the
expiration or earlier termination of this Lease or of Tenant's rights under this
Section, Tenant shall remove the Antenna, shall repair, at Tenant's expense, any
damage resulting from such removal, and shall restore the Building to its
condition existing prior to the installation of the Antenna, normal wear and
tear and casualty excepted. Without limiting the foregoing, Tenant shall repair
all damage and mounting holes so as to leave the roof weatherproof. Landlord
shall have the right to have its roofing contractor supervise the removal of any
such equipment affixed to the roof, at Tenant's expense, but which charges shall
not exceed a reasonable amount for such services.
(f) The Antenna shall be for the personal use of Tenant, and the rights
of Tenant under this section shall not be severed from the Lease or separately
sold, assigned or transferred.
36. TENANT'S OPTION TO TERMINATE. Tenant shall have the right and option,
exercisable by giving Landlord a minimum of nine (9) months prior written notice
thereof, to terminate this Lease effective as of the expiration of the sixth
lease year and by paying Landlord on the effective date of termination a sum
equal to (i) the total rentable square feet of the Premises, multiplied by (ii)
$4.86. Tenant shall pay all Rent under the Lease and abide by all of the terms
and conditions of the Lease through and including such early termination date.
37. TERMINATION OF EXISTING LEASE. Tenant is currently leasing the following
premises (the "Existing Premises") from Landlord:
(a) Suite 150, 5610 Rowland Pond, Minnetonka, Minnesota consisting
of approximately 6,970 rentable square feet;
(b) Approximately 40,898 rentable square feet in the Westwood IV
Building, 6321 Bury Drive, Eden Prairie, Minnesota;
pursuant to the following leases (whether one or more, the "Existing Lease"):
(a) Lease dated December 11, 1997 by and between Landlord and
Tenant (Rowland Pond premises), as extended by letter
agreement dated April 15, 1998;
(b) Lease dated November 2, 1988 between Lyndale Associates, as
the original landlord, and Ontrack Computer Systems, Inc., as
tenant, as amended, and as extended by letter agreement dated
April 15, 1998.
Upon the Commencement Date of this Lease, the Existing Lease shall terminate. At
the request of either party, Landlord and Tenant shall enter into an agreement
stipulating as to the termination date of the Existing Lease.
43
<PAGE>
38. STANDARDS; CURING LANDLORD'S DEFAULTS; SET-OFF . If (i) Landlord shall be in
default of any of its maintenance and repair obligations under the Lease or
shall fail to provide any of the services to be provided by Landlord under this
Lease, and (ii) such default interferes with Tenant's use and occupancy of the
Premises for the conduct of Tenant's business therein, and (iii) Tenant gives
Landlord written notice specifying the nature of the default, and (iv) Landlord
fails to cure such default within 10 business days (or within a period of 72
hours if an emergency or shorter reasonable period if Landlord fails to timely
remove snow) after Landlord receives Tenant's notice (or within such reasonable
additional time as may be necessary to cure such default provided Landlord
commences such cure within said period and thereafter diligently prosecutes such
cure to completion), then Tenant may, without any obligation to do so, cure such
default on behalf of Landlord. Landlord shall reimburse Tenant within 30 days of
demand for any out-of-pocket sums paid or costs incurred by Tenant in curing
such default, together with an administrative fee equal to 10% of such costs,
plus interest at the rate specified in Section 29 and reasonable attorneys fees,
if any (collectively, "Tenant's Cost of Cure"), which demand shall be
accompanied by invoices or other reasonable documentation evidencing amounts
incurred by Tenant. If Landlord fails to reimburse Tenant within said 30-day
period, Tenant shall have the right to set-off Tenant's Cost of Cure against the
monthly installments of Minimum Annual Rent next due under the Lease, until
Tenant shall have recovered in full Tenant's Cost of Cure, provided, however, in
no event, except as provided in the following sentence, shall Tenant be entitled
to set-off in any month more than 15% of the scheduled installment of Minimum
Annual Rent for such month. The preceding sentence notwithstanding, during the
last 12 months of the Term (including any extension option exercised by Tenant),
Tenant may offset against Minimum Annual Rent such amount as necessary for
Tenant to recover in full Tenant's Cost of Cure prior to the expiration of this
Lease. To the extent Tenant's Cost of Cure include items properly includable in
Operating Expenses, Landlord may include such amounts reimbursed by Landlord or
set off by Tenant in Operating Expenses, but only to the extent of the amount
the repair or service would have cost Landlord had Landlord or its vendor
performed it. Landlord's reimbursement obligations under this Section shall
survive the expiration or termination of this Lease.
39. HAZARDOUS SUBSTANCES. The term "Hazardous Substances", as used in this
Section, means pollutants, contaminants, toxic or hazardous wastes or any other
substances, the removal of which is required or the use of which is restricted,
prohibited or penalized by an "Environmental Law", which term means any federal,
state or local law or ordinance relating to pollution or the protection of the
environment.
Landlord agrees to indemnify and hold Tenant harmless from any and all claims,
causes of action, damages, penalties and costs (including attorneys' fees,
consultant fees and related expenses) (collectively, "claims") which may be
asserted against or incurred by Tenant resulting from: (a) the presence of any
Hazardous Substance on or in the Project as of the date hereof or caused or
permitted by Landlord or Landlord's Agents (without being caused or permitted by
Tenant) after the date hereof; or (b) any violation or alleged violation of any
Environmental Law existing as of the date hereof or caused or permitted by
Landlord or Landlord's Agents (without being caused or permitted by Tenant)
after the date hereof. Anything to the contrary in this Lease
44
<PAGE>
notwithstanding, Landlord shall have no obligation to indemnify Tenant with
respect to any claim by third parties (including, but not limited to employees
of Tenant) relating to any substances that are not legally deemed Hazardous
Substances under applicable Environmental Laws as enacted and interpreted as of
the date hereof. Landlord shall, however, be obligated at Landlord's expense, to
comply with any requirements of any Environmental Laws relating to the removal,
management or other treatment of any substances which, although not legally
deemed a Hazardous Substance under Environmental Laws as enacted and interpreted
as of the date hereof, are determined to be a Hazardous Substance in the future
as a result of new or changed Environmental Laws.
Landlord represents and warrants to Tenant that all environmental
reports and studies relating to the Property which are in the possession of or
known to Landlord as of the date of this Lease are listed on attached EXHIBIT
"J". Landlord represents and warrants to Tenant that, except as disclosed in the
information listed on Exhibit J, Landlord has no knowledge of the presence of
Hazardous Substances on or in the Project or of any violations or alleged
violations of Environmental Laws with respect to the Project. References to
Landlord's knowledge in this paragraph mean the actual knowledge as of the date
hereof of John S. Gattuso, Senior Vice President of Liberty Property Trust.
40. BROKERAGE FEE. Landlord shall pay a brokerage fee of $3.00 per rentable
square foot of the initial Premises to The Keewaydin Group, Inc. ("Keewaydin").
Such fee shall be payable one half upon Lease execution and one half upon
commencement of Minimum Annual Rent. The fee payable upon execution shall relate
to the square footage stated in Section 1(a) and the fee shall be adjusted
either up or down based on actual square footage of the Building as constructed.
In addition, the Landlord shall pay Keewaydin a brokerage fee of $3.00 per
rentable square foot (this rate applies to leases of three years or more; for
leases of less than three years, the commission will be reduced pro rata, e.g.
the commission for a 2-year lease would be $2.00 per square foot) for all space
committed to, or taken by, Tenant within the first six lease years following
Tenant's initial occupancy (provided that Tenant has not notified Landlord in
writing that it has retained an unrelated real estate agent to represent it in
connection with such renewal and further provided that Landlord is not obligated
to and does not pay a fee to such unrelated real estate agent. No fee shall be
payable with respect to space taken after the sixth lease year or upon
extensions of the Term of the Lease unless a separate agreement is reached at
that time. Keewaydin may assign any rights to collect brokerage fees to Tenant.
Tenant shall be permitted to pay any past due brokerage commissions to Keewaydin
and offset any such payments against the monthly installments of Minimum Annual
Rent next due under the Lease, until Tenant shall have recovered in full any
past due brokerage commissions so paid by Tenant. Within 10 business days of
Landlord's request, Tenant shall deliver to Landlord a written statement signed
by Tenant and Keewaydin certifying that there are no brokerage commissions
payable hereunder by Landlord that are due and unpaid, or, if that is not the
case, certifying to amounts due and unpaid.
45
<PAGE>
IN WITNESS WHEREOF, and in consideration of the mutual entry into this
Lease and for other good and valuable consideration, and intending to be legally
bound, Landlord and Tenant have executed this Lease.
LANDLORD:
Date signed: , 1998 LIBERTY PROPERTY LIMITED
----------------- PARTNERSHIP
By: Liberty Property Trust, Sole General
Partner
By:
--------------------------------
John Gattuso, Senior Vice
President
TENANT:
Date signed: , 1998 ONTRACK DATA INTERNATIONAL, INC.
-----------------
By:
------------------------------------
Its:
-------------------------------
46
<PAGE>
EXHIBIT A
[SITE PLAN - Flying Cloud corporate campus]
<PAGE>
EXHIBIT A-1
LEGAL DESCRIPTION
Outlot C, Staring Lake Clubs Courts and Villages, and that part of the vacated
Public Street (former Columbine Road Extension) as dedicated in the plat of
Research Farm 2nd Addition, lying Easterly of the following described line:
Commencing at the Northwest corner of Outlot C, Staring Lake Clubs
Courts and Villages, according to the record plat thereof; thence
Southerly 148.22 feet along the West line of said Outlot C having a
radius of 952.73 feet and a central angle of 8 degrees 54 minutes 49
seconds to the East line of said Public Street and the point of
beginning of said line to be described; thence Southerly 11.78 feet
along the Southerly extension of said West lien having a central angle
of 0 degrees 42 minutes 31 seconds to a point of compound curvature;
thence Southerly 120.71 feet along a 533.58 foot radius curve having a
central angle of 12 degrees 57 minutes 41 seconds to the intersection
with a line drawn parallel with and distant 35 feet Easterly from the
centerline of Columbine Road as dedicated in said plat of Staring Lake;
thence Southerly 80.27 feet along said parallel line having a radius of
946.73 feet and a central angle of 4 degrees 51 minutes 29 seconds to
the South line of said Public Street and there terminating. The
following portion being registered property:
That part of Outlot C, Staring Lake Clubs Courts and Villages,
lying Northerly of the center line of the former County Road
No. 2 as delineated in the plat of Research Farm Addition, and
that part of the Public Street (Columbine Road Extension) as
dedicated in the plat of Research Farm 2nd Addition, lying
Easterly of the following described line:
Commencing at the Northwest corner of Outlot C,
Staring Lake Clubs Courts and Villages, according to
the record plat thereof; thence Southerly 148.22 feet
along the West line of said Outlot C having a radius
of 952.73 feet and a central angle of 8 degrees 54
minutes 49 seconds to the East line of said Public
Street and the point of beginning of said line to be
described; thence Southerly 11.78 feet along the
Southerly extension of said West line having a
central angle of 0 degrees 42 minutes 31 seconds to a
point of compound curvature; thence Southerly 120.71
feet along a 533.58 foot radius curve having a
central angle of 12 degrees 57 minutes 41 seconds to
the intersection with a line drawn parallel with and
distant 35 feet Easterly from the centerline of
Columbine Road as dedicated in said plat of Staring
Lake; thence Southerly 80.27 feet along said parallel
line having a radius of 946.73 feet and a central
angle of 4 degrees 51 minutes 29 seconds to the South
line of said Public Street and there terminating.
Hennepin County, Minnesota
<PAGE>
EXHIBIT "B"
LEASE COMMENCEMENT CERTIFICATE
The undersigned, as duly authorized officers and/or representatives of
LIBERTY PROPERTY LIMITED PARTNERSHIP ("Landlord") and __________ ("Tenant"),
hereby agree as follows with respect to the Lease Agreement (the "Lease")
between them for premises located at ____________________ (the "Premises"):
1. DATE OF LEASE: __________, 19__
2. COMMENCEMENT DATE: __________, 19__
3. RENT COMMENCEMENT DATE: __________, 19__ [based on period of
gross free rent, if any, contemplated in Section 4(c) of the
Lease]
4. EXPIRATION DATE: __________, 19__
5. Rent and operating expenses due on or before the Commencement
Date (or Rent Commencement Date, as applicable) for the period
from the Commencement Date until the first day of the next
calendar month (Not applicable if the Commencement Date is the
first day of the calendar month):
APPORTIONED MINIMUM RENT: $_______________
APPORTIONED OPERATING EXPENSES: $_______________
TOTAL: $_______________
Thereafter regular monthly payments due in the following
amounts until adjusted in accordance with the Lease:
MONTHLY RENT INSTALLMENT: $_______________
MONTHLY OPERATING PAYMENT: $_______________
TOTAL MONTHLY PAYMENT: $_______________
5. Tenant certifies that, as of the date hereof, (a) the Lease is
in full force and effect and has not been amended, (b) Tenant
has no offsets or defenses against any provision of the Lease
except as set forth on Schedule A attached, if any and (c)
Landlord has substantially completed any improvements to be
performed by Landlord in accordance with the Lease, excepting
the Punch List items set forth on Schedule B attached hereto
and initialed by Landlord and Tenant, if any.
B-1
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant, intending to be legally bound,
have executed this Certificate as of __________, 19__.
LANDLORD:
LIBERTY PROPERTY LIMITED
PARTNERSHIP
By: Liberty Property Trust, Sole General
Partner
By:
--------------------------------
Name:
Title:
TENANT:
Witness/Attest:
----------------------------------------
By:
- ---------------------------------- ------------------------------------
Name:
Title:
B-2
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
SINGLE STORY BUILDING
1. Except for the placement of appropriate trash containers, Tenant
shall not block or obstruct any entries, passages, doors, loading docks of the
Building, or place, empty or throw any rubbish, letter, trash or material of any
nature into such areas, or permit such areas to be used at any time except for
ingress or egress of Tenant.
2. Except as otherwise contemplated or permitted under the Lease,
Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus or carry on any mechanical operation or bring into the
Premises any inflammable fluids or explosives without written permission of
Landlord.
3. Tenant shall not use the Premises for housing, lodging or
residential purposes or for the cooking or preparation of food (other than in
employee break rooms, coffee stations and similar kitchenette areas for Tenant's
employees) without written permission of Landlord.
4. Subject to the express provisions of this Lease regarding Landlord's
access to the Premises, including the provisions relating to Tenant's "Secure
Areas," Landlord may at all times keep a pass key to the Premises and Tenant
shall provide any keys required to be provided to the fire department or other
governmental authority. All keys shall be delivered to Landlord promptly upon
termination of this Lease. The term "keys" in this paragraph shall include
access cards, access codes and the like.
5. Tenant shall not permit the operation of any musical or
sound-producing instruments or device which may be heard outside the Premises,
or which may emanate electrical waves or x-rays or other emissions which will
impair radio or television broadcasting or reception from or in the Building, or
be hazardous to health, well-being or condition of persons or property.
6. All plate and other glass now in the Premises or building which is
broken through cause attributable to Tenant, customers, visitors or invitees
shall be replaced by and at expense of Tenant under the direction of Landlord.
7. Tenant shall give Landlord prompt notice of all accidents to or
defects in air conditioning equipment, plumbing, lighting electric facilities or
any part of appurtenance of the Premises.
8. The plumbing facilities shall not be used for any other purpose than
that for which they are constructed, and no foreign substance of any kind shall
be thrown therein, and the
<PAGE>
expense of any breakage, stoppage or damage resulting from a violation of this
provision shall be borne by Tenant, who shall have caused it.
9. Except as otherwise contemplated or permitted under the Lease, no
signs showcases or other articles shall be put in front of or affixed to any
part of the exterior of the Building, without prior written consent of Landlord.
10. The access of Tenant, its vendors or invitees to the roof shall be
coordinated through Landlord so that Landlord will be informed of, and may
monitor if it chooses, the persons gaining access to the roof and the activities
conducted thereon.
11. If the Premises shall become infested with vermin, roaches, or
other undesirable creatures, Tenant will promptly notify Landlord and Landlord
shall cause the Premises to be professionally treated.
12. Except as otherwise contemplated or permitted under the Lease,
Tenant shall not install any antenna or aerial wires, radio or television
equipment or any other type of equipment outside of the Building without
Landlord's prior approval in writing and upon such terms and conditions as may
be specified by Landlord in each and every instance.
13. Tenant shall not make or permit any use of the Premises or the
Building which, directly or indirectly, is forbidden by law, ordinance or
governmental or municipal regulation, code or order to which may be disreputable
or dangerous to life, limb or property.
14. No outside storage of any material, pallets, trailers, disabled
vehicles, etc., will be permitted including but not limited to trash, except in
approved containers. Tenant shall ensure that all trash is properly contained to
avoid from being blown about the property.
15. Tenant shall not allow a fire or bankruptcy sale or any auction to
be held on the Premises, or allow the Premises to be used for the storage of
merchandise held for sale to the general public.
16. Canvassing, soliciting, distribution of hand-bills or any other
written material peddling in the Building and the complex are prohibited, and
each Tenant shall cooperate to prevent the same.
17. Except as otherwise contemplated or permitted under the Lease,
Tenant, its employees and invitees, agree not to park in those stalls designated
for a restricted use, i.e., handicapped parking, visitor parking or parking
designated for a specific tenant other than Tenant.
18. Tenant shall not possess any weapons, explosives, combustibles or
other hazardous devices in or about the Building and/or Premises, without the
prior written approval of
C-2
<PAGE>
Landlord. The foregoing notwithstanding, Tenant may maintain armed security in
or about the Premises in cases of emergency, disaster, failure of Tenant's
security systems or other reasonable circumstances; Tenant shall give Landlord
notice of the presence of armed security, which notice shall be given, except in
the case of an emergency, prior to the deployment of armed security.
19. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
20. Except as otherwise contemplated or permitted under the Lease,
skylights, windows, doors and transoms, shall not be covered or obstructed by
Tenant, and Tenant shall not install any window covering which would affect the
exterior appearance of the Building, except as approved in writing by Landlord.
Should the Landlord establish a building standard window treatment, Tenant shall
not remove or change such window treatment without Landlord's prior written
consent.
21. Any low voltage writing added in the Premises and the Building to
serve Tenant's telephone, computer, security monitoring, etc., requirements,
shall be installed in accordance with the local, state and federal codes and
ordinances and clearly identified.
22. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any Lease on premises in the complex. In
the event of any conflict between these Rules and Regulations and the terms and
conditions of the Lease, the terms and conditions of the Lease shall control.
23. Landlord reserves the right to rescind, suspend or modify any rules
or regulations and to make such other rules and regulations as, in Landlord's
reasonable judgment, may from time to time be needed for the safety, care,
maintenance, operation and cleanliness of the Property. Notice of any action by
landlord referred to in this paragraph, given to Tenant, shall have the same
force and effect as if originally made a part of the foregoing lease. New rules
or regulations will not, however, be unreasonably inconsistent with the proper
and rightful enjoyment of the Premises by Tenant under the lease. No
modification to or amendment of these Rules and Regulations shall be deemed an
amendment or modification of the terms of the Lease.
C-3
<PAGE>
EXHIBIT D
CLEANING AND JANITOR SERVICES
Landlord shall furnish cleaning and janitor services to the Project as described
below:
DAILY:
* Sweep, dry mop or vacuum, as appropriate, all floor areas;
remove material such as gum and tar which has adhered to the
floor.
* Empty waste baskets and containers; remove all trash from the
Leased Premises.
* Dust all horizontal surfaces with treated dust cloth,
including furniture, files, equipment, that can be reached
without a ladder.
* Damp wipe all telephones, including dials and crevices.
* Spot wash to remove smudges, marks and fingerprints from such
areas as walls, equipment, doors, partitions and light
switches within reach.
* Wash water fountains, chalkboards, cafeteria tables and
chairs.
* Damp mop all non-resilient floors such as concrete, terrazzo
and ceramic tile. Damp mop floors using detergent
disinfectant.
* Clean freight and passenger elevator cabs and landing doors.
* Clean mirrors, soap dispensers, shelves, wash basins, exposed
plumbing, dispenser and disposal container exteriors, using
detergent disinfectant and water. Damp wipe all ledges, toilet
stalls and toilet doors.
* Clean toilets and urinals with detergent disinfectant,
beginning with seats and working down. Pour one ounce of bowl
cleaner into urinal after cleaning and do not flush.
* Furnish and refill all soap, toilet, sanitary napkin and towel
dispensers.
* Clean all baseboards.
* Remove all litter from parking area and grounds.
<PAGE>
WEEKLY:
* Spot clean carpet stains.
* Wash glass in building directory, entrance doors and frames
and show windows, both sides.
* Spot wash interior partition glass and door glass to remove
smudge marks.
* Sweep all stair areas.
* Brush all fabric covered chairs with a lint brush.
* Vacuum edges and corners.
MONTHLY:
* Scrub and recondition resilient floor areas using buffable
non-slip type floor finish.
* Clean all area roof drains.
* Wash all interior glass, both sides.
* Wash all stairwell landings and treads.
QUARTERLY:
* High dust all horizontal and vertical surfaces not reached in
nightly cleaning, such as pipes, light fixtures, door frames,
picture frames and other wall hangings.
* Wash all ceramic tile walls in restroom by hand.
* Vacuum or dust all books in place.
* Wash and polish vertical terrazzo or marble surfaces.
* Damp wash diffusers, vents, grills, and other such items,
including surrounding wall or ceiling areas that are spoiled.
* Vacuum all ceiling and wall air supply and exhaust diffusers
or grills.
D-2
<PAGE>
SEMI-ANNUALLY:
* Dust all storage areas, including shelves and contents, such
as supply and stock closets, and damp mop floor areas.
* Strip and refinish all resilient floor areas using buffable
non-slip floor finish.
* Shampoo all carpeted areas.
* Wash building perimeter glass, outside only.
ANNUALLY:
* Wash light fixtures, including reflectors, globes, diffusers
and trim.
* Wash walls in corridors, lounges, classrooms, demonstration
areas, cafeterias and washrooms.
* Clean all vertical surfaces not attended to during nightly,
weekly, quarterly, or semi-annual cleaning.
* Wash building perimeter glass, inside only.
D-3
<PAGE>
EXHIBIT "E"
TENANT ESTOPPEL CERTIFICATE
Please refer to the documents described in Schedule I hereto, (the
"Lease Documents") including the "Lease" therein described; all defined terms in
this Certificate shall have the same meanings as set forth in the Lease unless
otherwise expressly set forth herein. The undersigned Tenant hereby certifies
that it is the tenant under the Lease. Tenant hereby further acknowledges that
it has been advised that the Lease may be collaterally assigned in connection
with a proposed financing secured by the Property and/or may be assigned in
connection with a sale of the Property and certifies both to Landlord and to any
and all prospective mortgagees and purchasers of the Property, including any
trustee on behalf of any holders of notes or other similar instruments, any
holders from time to time of such notes or other instruments, and their
respective successors and assigns (the "Mortgagees") that as of the date hereof:
1. The information set forth in attached Schedule 1 is true and
correct.
2. Tenant is in occupancy of the Premises and the Lease is in full
force and effect, and, except by such writings as are identified on Schedule 1,
has not been modified, assigned, supplemented or amended since its original
execution, nor are there any other agreements between Landlord and Tenant
concerning the Premises, whether oral or written.
3. All conditions and agreements under the Lease to be satisfied or
performed by Landlord have been satisfied and performed, except matters, if any,
listed on Part N of Schedule 1.
4. Tenant is not in default under the Lease Documents, Tenant has not
received any notice of default under the Lease Documents, and, to Tenant's
knowledge, there are no events which have occurred that, with the giving of
notice and/or the passage of time, would result in a default by Tenant under the
Lease Documents.
5. Tenant has not paid any Rent due under the Lease more than 30 days
in advance of the date due under the Lease and Tenant has no rights of setoff,
counterclaim, concession or other rights of diminution of any Rent due and
payable under the Lease except as set forth in Schedule 1.
6. To Tenant's knowledge and except matters, if any, listed on Part N
of Schedule 1, there are no uncured defaults on the part of Landlord under the
Lease Documents, Tenant has not sent any notice of default under the Lease
Documents to Landlord, and there are no events which have occurred that, with
the giving of notice and/or the passage of time, would result in a default by
Landlord thereunder, and that at the present time Tenant has no claim against
Landlord under the Lease Documents.
7. Except as expressly set forth in Part G of Schedule 1, there are no
provisions for any, and Tenant has no, options with respect to the Premises or
all or any portion of the Property.
E-1
<PAGE>
8. Except as set forth on Part M of Schedule 1, no action, voluntary or
involuntary, is pending against Tenant under federal or state bankruptcy or
insolvency law.
9. The undersigned has the authority to execute and deliver this
Certificate on behalf of Tenant and acknowledges that all Mortgagees will rely
upon this Certificate in purchasing the Property or extending credit to Landlord
or its successors in interest.
10. This Certificate shall be binding upon the successors, assigns and
representatives of Tenant and any party claiming through or under Tenant and
shall inure to the benefit of all Mortgagees.
IN WITNESS WHEREOF, Tenant has executed this Certificate this ____ day
of __________, 19__.
----------------------------------------
Name of Tenant
By:
------------------------------------
Title:
---------------------------------
E-2
<PAGE>
SCHEDULE 1 TO TENANT ESTOPPEL CERTIFICATE
Lease Documents, Lease Terms and Current Status
A. Date of Lease:
B. Parties:
1. Landlord:
2. Tenant d/b/a:
C. Premises known as:
D. Modifications, Assignments, Supplements or Amendments to Lease:
E. Commencement Date:
F. Expiration of Current Term:
G. Options:
H. Security Deposit Paid to Landlord: $
I. Current Fixed Minimum Rent (Annualized): $
J. Current Additional Rent (and if applicable, Percentage
Rent)(Annualized): $
K. Current Total Rent: $
L. Square Feet Demised:
M. Tenant's Bankruptcy or other Insolvency Actions:
N. Landlord Defaults & Unperformed Landlord Obligations:
E-3
<PAGE>
EXHIBIT F-1
[Scope Drawings]
<PAGE>
EXHIBIT F-2
ARCHITECTURAL STANDARDS
FOR
ONTRACK DATA INTERNATIONAL, INC.
1. Site Preparation
Mass excavate top soil, organic and soft natural soils to underlying
lean clays or sandy lean clays; stockpile suitable from on-site
material, supplemented with imported granular material; mass excavation
and controlled backfill to bring entire building area to elevation
100.00' (assumed finish floor elevation 101.00'); to be approved by
soils engineer.
2. Earthwork
Excavate to footing depths on controlled backfill; after footings are
poured and foundation walls are laid, backfill with approved material;
rough grade site to subgrade elevations for lawns and paving; after
paving and other site improvements are in place, spread stockpiled
topsoil and fine grade to finish elevations.
3. Paving and Surfacing
(a) Bituminous paving: 7-ton asphaltic concrete paving for all
driveways and 5-ton construction for staff parking lot.
(b) Concrete paving: 4-inch thick light broom finished concrete
sidewalks; 6 by 12 inches light broom finished concrete curb
and gutter at building side of all bituminous pavement.
4. Site Improvements
(a) Irrigation System: Automated underground lawn irrigation
system for lawns and plantings adjacent to building.
5. Landscaping
(a) Topsoil preparation: Rake and drag topsoil provided under
earthwork.
(b) Lawns and grasses: Cultured sod in lawn areas adjacent to
building and at boulevards and between street and entrance
drive.
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<PAGE>
(c) Trees and shrubs: A sum to be allowed for trees and shrubs;
quantity and species to be determined in final design.
(d) Maintenance: Building owner responsibility.
6. Foundations
(a) Footings (type): Reinforced concrete spread footings;
continuous below frost level at exterior walls and pad type
below mechanical depth for interior columns.
(b) Foundation walls (type and material): Reinforced cast in place
concrete or masonry.
(c) Slabs-on-grade: Welded wire fabric reinforced concrete stabs,
thickened at edges.
7. Exterior Walls
(a) Materials:
(1) Brick veneer with minimum 6 inch by 16 ga. Structural
"C" stud backup cavity wall construction consisting
of 2 inch airspace, 2 inches extruded polystyrene
(minimum R-value = 10) and 1/2" Dens-Glas Gold
sheathing with Tyvek building wrap, or equal.
Interior face of exterior metal stud walls to receive
6 mill poly vapor barrier and drywall to be taped,
floated, sanded and ready to receive final ONTRACK
finishes.
(2) Thermally broken aluminum framed window walls,
U-values listed below.
8. Parapets
(a) Provide integral parapet consistent with the design and makeup
of the exterior wall materials to screen from view all
mechanical equipment.
(b) All roof-top mechanical units shall be screened from view.
Screening may be adjacent to units or may be integral with the
parapet. Screening shall be subject to the reasonable approval
of ONTRACK and shall meet all appropriate codes.
9. Exterior Doors and Frames
(a) Heavy duty aluminum entrance and frames; glazed with 1/4 inch
clear tempered float glass; frames thermally improved; finish:
standard anodized colors to be selected. ONTRACK shall have
the right to select custom colors and shall be responsible for
the incremental cost of such custom colors.
F-2-2
<PAGE>
(b) Hollow metal service doors and frames: Insulated flush hollow
metal doors; thermally broken hollow metal frames: finish:
enamel.
10. Windows and Curtainwalls
(a) Windows: Thermal break continuous aluminum fixed strip
windows: 1 inch insulating glass with high efficiency low-E
metallic coating; finish: standard anodized colors to be
selected. ONTRACK shall have the right to select custom colors
and shall be responsible for the incremental cost of such
custom colors. U-values not to exceed 0.36 glass, 0.68 frame;
condensation resistance factor (CRF) not less than 50.
(b) Curtainwalls: Pre-glazed thermally broken system; Wausau or
approved equal; inserts for entrance doors; one inch clear
insulating glass; U-value not to exceed 0.36 glass, 0.68
frame; CRF not less than 55 glass, 73 frame.
11. Roof/Ceiling Assemblies
(a) Roof coverings: Single ply 45 mil EPDM rubber membrane,
loose-laid/ballasted.
(b) Insulating: Tapered polyisocyanurate foam 2-1/2 inch minimum
thickness, minimum R=20, taper for backslopes and crickets.
(c) Roof deck: Metal roof decking on open web steel joists.
(d) Roof drainage: Provide roof and roof overflow drains, overflow
scuppers are not acceptable.
F-2-3
<PAGE>
EXHIBIT F-3
MINIMUM SHELL CONDITION REQUIREMENTS
FOR
ONTRACK DATA INTERNATIONAL, INC.
ALL PROPOSALS SHALL, IN ADDITION TO THE ALLOWANCES PROVIDED, INCLUDE THE
FOLLOWING MINIMUM "SHELL CONDITION" IMPROVEMENTS:
1. Floor Finishes
Concrete stab cleaned and leveled to 1/4" tolerance within a 10'0" x
10'0" given area (tolerances are not cumulative, elevator sills are to
be established elevation 0'0") (FL20). Areas leveled subsequent to
initial pouring of slab to be sealed after setting. Finished surfaces
to be ready to receive carpet, ceramic tile, resilient tile, wood
parquet or stone flooring without additional preparation other than
cleaning.
2. Floor Loading
Floor loads shall be per applicable codes and base building standards
throughout but not less than 50 pounds per square foot dead load plus
20 pounds per square foot for partitions. All areas within the core
perimeter should accommodate 150 pounds per square foot of dead load
and the area immediately adjacent to the core perimeter should
accommodate 100 pounds per square foot dead load.
3. Wall, Column and Perimeter Bulkhead Construction
All perimeter walls, core walls, freestanding and engaged columns and
perimeter top and bottom bulkheads to be furred, drywalled, taped,
floated, sanded, and ready to receive final ONTRACK finishes.
4. Other Perimeter Finishes
Building perimeters shall be fully finished with respect to insulation,
waterproofing, caulking, glazing and metal finishing, including all
required glass replacement (in the event of defects or cracked or
broken panes), glass cleaning on interior and exterior, metal touch up
and cleaning and any other actions required to render the perimeters to
a
F-3-1
<PAGE>
tenant-ready condition. Building standard window coverings (1"
mini-blinds) shall be provided and installed by Landlord just before
occupancy.
5. Other Core Finishes
The following shall be required to be completed and installed at
agreeable locations at Landlord's cost:
(a) Women's and men's restrooms. It is anticipated that complete
restrooms shall be located at 3 locations within the premises.
Restrooms should be designed to provide flexibility in
distribution of stalls between men's and women's, and at a
minimum shall provide code required stalls plus 1 for men and
women at each of three restroom locations. Accessible
restrooms shall be provided at each of the three restroom
locations.
(b) Janitor closets;
(c) Electrical closets with service and distribution panelboards
and transformers 480/277V, 120/208V, (See Paragraph 9 below);
(d) Core walls, columns and perimeter bulkhead completed with
finished drywall ready for paint;
(e) Three water coolers shall be provided;
(f) Fire sprinklers as required by code, based on ONTRACK's plans;
(g) Exit signs as required per code, based on ONTRACK's plans;
(h) If the building contains more than one floor, Landlord shall
provide a passenger elevator lobby complete in all respects
including finishes to be reviewed and approved by ONTRACK;
(i) Core corridor doors shall be primed and ready to receive
ONTRACK's finish;
(j) Closures and appropriate looking devices for all exit,
stairwell, and electrical/telephone doors, and closures on
women's/mens toilets. All exterior doors and all stairwell
doors shall have locking and unlocking devices controlled by
Landlord's building management system. Landlord shall, upon
request from ONTRACK and at ONTRACK's cost, also provide an
electronic card access security system as approved by ONTRACK
on all exterior doors. In such event the cost shall not exceed
$10,000.
F-3-2
<PAGE>
(k) All ceiling space shall be sufficiently clear of all pipes,
ductwork, etc., to provide for a minimum finished ceiling
height of eleven (11) feet. All base building systems shall be
coordinated such that the intersection of the building
structural system, medium pressure ductwork, the fire
protection system and the base building light fixture will all
fit within the ceiling cavity. Indicated heights shall include
room to place conventional florescent light fixtures at any
(and every) place on the floor;
(l) All pipe sleeves in beams and walls shall be packed airtight
and complete;
(m) Domestic cold water, valved and capped at four locations
within the premises;
(n) Landlord shall provide for all Fire and Life Safety
requirements per City and State codes, including installation
of all required annunciators, strobes and other warning
devices;
(o) All code required general exhaust requirements shall be
provided;
(p) A Certificate of Occupancy shall be obtained by Landlord.
6. Sprinkler System
Sprinkler piping shall be provided to include main runs with crosses to
achieve a 15' x 15' grid for future extensions and locations of branch
piping, drops and heads. Landlord shall provide as many semi-recessed
sprinkler heads as necessary to meet code (presuming ordinary hazard)
to be located, at Landlord's expense, in the suspended acoustical tiles
per OiNTRACK's final space plans, provided that, on average, no more
than 25% of each floor shall be enclosed offices or conference rooms.
Sprinkler heads shall be centered in the ceiling tiles. Landlord shall
provide for concealed heads in 10% of the space and provide a unit
price for adds and deducts on a single unit basis for more or less
concealed heads.
7. Ceilings
Completed and laser-leveled grid suspension system capable of receiving
2'0" x 2'0" exposed t-bar acoustic tile insulation. Ceiling tile must
be 2' x 2' lay-in tegular edge regressed, noncombustible mineral,
foil-backed, fissured, acoustical tile, with a minimum thickness of
3/4", an NRC rating of .55 to .65, an STC rating of 35 to 39, and a
light reflectance rating of LRI. Alternative lay-in ceiling systems
shall be considered provided they meet the above standards. If ONTRACK
accepts Second Look II tiles, it will receive a credit of $.40 per
square foot for all areas in which such tile is used.
F-3-3
<PAGE>
8. Light Fixtures
(a) Landlord shall provide 2' x 4' parabolic light fixtures with a
minimum louver depth of 3 inches, electronic ballasts and 10'
plug-in pigtails (manufactured wiring system). Light fixtures
shall be 2 x 4 - 3 lamp fixtures. Fixtures shall be provided
at a rate of one per 80 rentable square feet. Two tube
fixtures will not be acceptable. Bulbs shall be T-8 (FO32/830)
energy saving lamps, or an energy efficient alternative
approved by ONTRACK. Provide units cost for adds and deducts
of lighting fixtures.
(b) The light fixture louver shall create a low level of ceiling
brightness and comply with the requirements of ANSI/IES RP-1
1993.
(c) Fixtures shall be provided in a quantity sufficient to achieve
a minimum of 50 foot candles of maintained light at the
desktop in all areas although it is understood that the
standard recited above will require more fixtures. The higher
standard of the two will be met. Landlord shall provide
electrical distribution from panel boards to junction boxes in
the ceiling to accommodate plug-in pigtails (manufactured
wiring system).
9. Electrical Distribution and Service
As part of the Base Building or shelf condition work, Landlord shall
provide an electrical distribution and service system as follows:
(a) All power shall be provided to ONTRACK's initial space by a
dedicated, separately metered switchboard with surge
suppression.
(b) Basic electrical service of 480/277 volts, 3 phase, 4 wire, 60
cycles through a grounded switchboard suitable for such
service. The electrical service conductor and switchboard
shall be oversized 20% to anticipate possible growth in future
requirements. Switchboard devices shall be selectively
coordinated with a ground fault protection system.
(c) Distribution voltages shall be 480/277 volts, 3 phase, 4 wire
for fluorescent lighting and motors 1/2 horsepower and larger;
and 120/208 volts, 4 wire, 3 phase for receptacle circuits,
small motors and incandescent lighting. Landlord shall provide
all required transformers and an enclosed pad area where the
transformers are located adjacent to the building.
(d) The electrical service shall be sized to provide a minimum of
eight (8) watts per rentable square foot for ONTRACK's
lighting and receptacles in all areas (other than ONTRACK's
clean room where additional power may be required),
F-3-4
<PAGE>
excluding HVAC equipment, special systems, miscellaneous
electrical loads and elevator equipment requirements. All of
ONTRACK's power shall be separately metered.
(e) Power which serves HVAC equipment, special systems,
miscellaneous electrical loads and electrical equipment must
be a separate distribution riser which is not part of the
lighting and receptacle bus duct.
(f) Distribution shall be to one electrical room for approximately
each 15,000 square feet of rentable area. Each electrical room
shall be connected to each other electrical room by suitable
ducts or conduit. Each electrical room must be provided with
an exhaust system.
(g) Circuit breaker panelboards shall be located in each
electrical room (at least one per 40,000 rentable square feet)
to serve electrical loads and the portion of the leased
premises on the floor as follows:
(1) Provide one 480/277 volt panelboard in each
electrical room. Each panelboard shall have 100 amp
main breaker and provision for at least 42 one pole
bolt on breakers. Panelboard shall include at least
one 20 amp circuit breaker per 500 square feet of
usable space (exclusive of the 20% growth
requirement).
(2) In each electrical room provide one 480/277 volt
lighting panelboard, one 75 KVA - K13 dry type
transformer, with 200% neutral. Provide wall space
for one additional 50 KVA transformer and one
additional 120/208 volt panelboard. Each panelboard
shall have a 225 amp main breaker and provisions for
42 one pole bolt-on breakers. Panelboards shall
include at least one 20 amp circuit breaker per 250
square feet of usable space. Each panel shall have
its own main breaker. Panels shall be electronic
grade with metal oxide varistors. Each 120/208 panel
shall be equipped with a 200% neutral, ground and
isolated ground bus.
(3) Panelboards and cabinets shall contain space for 20%
additional circuit breakers for future requirements.
(h) Landlord shall provide, at no cost to ONTRACK, adequate space
in the building or exterior pad space for ONTRACK's 250 KW
diesel generator. Provide empty conduit system to electrical
closets for separate standby power system. Landlord shall
provide an interior room with 24 hour cooling for ONTRACK's 75
KVA UPS system. Landlord shall also provide appropriate fuel
storage system. Landlord shall also provide space to
accommodate sound attenuation, and shall provide large
openings to the outside for air requirement. ONTRACK has not
yet
F-3-5
<PAGE>
decided whether or not a full UPS and back-up power system
will be required. Liberty shall, however, design the building
to provide a connection from the backup power location to
ONTRACK's electrical closets.
(i) If required to maintain utility billing power factor of 0.90,
Landlord shall provide power factor correction capacitors
appropriately sized. Capacitors shall be non- PCB filled
complete units with current limiting indicating fuses and
dust-tight enclosures.
(j) The entire electrical system and equipment shall be grounded
in accordance with the National Electrical Code. In addition,
ground counterpoise shall be a 350 MCM ground conductor
installed around the perimeter of the building and connected
to building steel. ONTRACK's switchboard shall be connected to
this ground and a 350 MCM riser run through each ONTRACK
electrical and telephone and data room. Provide in each
electrical, telephone and data room a 1/4" x 2" x 24" ground
bus connected to the 350 MCM ground riser.
(k) Provide a masters label lightening protection system on the
building.
10. Heating, Ventilation and Air-Conditioning ("HVAC")
Landlord shall cause its mechanical and electrical engineers to prepare
the plans for the HVAC distribution system for the leased premises,
which plans shall be subject to the review and approval of ONTRACK and
shall meet the following criteria:
(a) The system shall include the following features:
(1) Outside air economizer, enthalpy-controlled, capable
of 100% outside air.
(3) Minimum outside air provision shall be based on ASHRE
Standard 62-89 (Ventilation for Acceptable Indoor Air
Quality).
(3) Humidification is not required.
(b) The system, including exhaust fans, shall be designed to
conform to ONTRACK's plans and to operate so that sound
transmission levels do not exceed NC40. Landlord shall be
required to take appropriate corrective measures to eliminate
any disturbing noise or vibration of any mechanical equipment
or system furnished and installed by Landlord.
(c) The system shall be designed with roof-top units that will
provide a minimum of one ton of cooling for each 300 rentable
square feet of space in the Premises. Landlord shall provide
one VAV box for each 1500 rentable square feet of
F-3-6
<PAGE>
building area. In addition, all conference rooms shall be
separately zoned and all building corners shall be separately
zoned if they contain a private office, and an additional VAV
box shall be added for each such conference room or corner
office.
(d) The system shall be able to efficiently and economically
accommodate 24 hour per day cooling in the company's lab and
clean room facilities. All roof top units shall be high
efficiency with a minimum EER of 12. If roof top units are not
available with an EER of 12, Liberty shall provide such units
with the highest EER rating available provided they shall have
a minimum EER of 9.
(e) The design of the air-conditioning system shall take into
account the following occupancy schedule:
General Offices - One person per 150 usable square feet and
two personal computers per person, assuming each personal
computer generates 850 BTU's.
Meeting and Conference Rooms - One person per 15 usable square
feet.
(f) The occupancy schedule of particular areas shown on ONTRACK's
plans may vary between one person per 50 usable square feel
and one person per 200 usable square feet, provided that the
entire floor division of the leased premises does not assume
more than one person per 150 usable square feet and that such
variances are reasonably distributed. The heating, ventilating
and air-conditioning system shall meet the following design
conditions, at the stated outside design conditions:
(1) Summer - Outdoor conditions 92(degree) Fahrenheit dry
bulb, 75(degree) Fahrenheit wet bulb (2-1/2%
coincidence); indoor conditions 75(degree) Fahrenheit
dry bulb, 50% relative humidity maximum.
(2) Winter - Outdoor conditions minus 19(degree)
Fahrenheit dry bulb; 72(degree) Fahrenheit dry bulb,
inside.
(3) Regardless of the design standards, Landlord shall
(to the extent that it controls the system) operate
the HVAC system to achieve a space temperature of
72(degree) Fahrenheit dry bulb inside whenever
possible.
(4) The air handling unit and distribution system shall
be sized adequately to accommodate all external and
internal heat gains resulting from base building
mechanical systems, from people load and from heat
generated by lighting and miscellaneous equipment
power including up to 4.8 watts per square foot of
lighting and miscellaneous equipment load.
F-3-7
<PAGE>
(g) All interior areas shall be suitably zoned, with independent
zone controls.
(h) Supply outlets and equipment shall be selected for minimum
drafts and noiseless air distribution.
(i) The type and size of the diffusers shall be determined by
Landlord's engineer after consultation with ONTRACK's
architect or engineer.
(j) All supply and/or return ducts shall be equipped with fusible
link dampers as prescribed by applicable laws, if any.
(k) ONTRACK intends to have lunch rooms, clean-rooms, meeting
rooms and conference rooms. The building shall provide
separate heating and cooling zones for each such room. The
heating and cooling of each room will be controlled by a
separate thermostat.
(l) Exhaust fans shall be exhausted to the return air plenum.
Exhaust fans for conference rooms shall be located away from
the conference room to avoid noise levels above those
specified in Section 12 below. Electrical closets shall be
equipped with exhaust fans.
(m) Air filtration shall be provided at each unit by two sets of
particulate filters, one pre-filter set of 30% efficient
filters and one final filter set of at least 65% efficiency.
(n) A direct digital control system (energy management system)
shall be provided with the features listed below as a minimum:
(1) Provide run time status of HVAC equipment.
(2) Control each zone to maintain set-point temperature.
The set-point temperatures shall be adjustable
remotely.
(3) Provide alarms indicating equipment failure, zone
high/low temperatures, etc.
(4) Provide cooling during winter months for ONTRACK HVAC
equipment in computer room, telephone switch rooms,
network and communications closets.
11. Telephone and Data
(a) ONTRACK will construct telephone and data rooms within or
adjacent to the
F-3-8
<PAGE>
building core as part of its tenant improvement package.
(b) Liberty shall provide one dedicated 300 square foot Main Point
of Presence (MPOP) room for ONTRACK's telephone and data
service entry into the building. This room shall be used
exclusively by ONTRACK.
(c) Liberty shall also construct one dedicated Alternate Point of
Presence (APOP) room for alternate telephone and data service
entry into the building.
(d) Liberty shall provide one non-exclusive fiber optic hub room
for telephone and data service into the building. The MPOP,
APOP and fiber rooms are not alternates, all will be required.
(e) Landlord shall provide dedicated empty conduits from the
outside of the building near available services to ONTRACK's
MPOP, APOP and fiber hub rooms. Secure empty conduits must be
provided from the MPOP and APOP to each of the ONTRACK
telephone and data rooms within its space and to its expansion
space. Landlord must provide such conduits to serve two
locations on each floor of the building occupied by ONTRACK
and conduits must be provided between each of the two
locations.
(f) Landlord shall provide an adequately sized empty conduit
between the MPOP and the APOP.
12. Acoustical Attenuation Acoustical attenuation shall be designed within
walls separating elevators, toilet rooms, fan rooms, and switchgear
from occupied ONTRACK spaces and five specified rooms within ONTRACK's
space. The system design criteria for ambient noise level in the
ONTRACK's space, when unoccupied, shall meet NC40 standards when all
building systems are operating and standard floor and ceiling finishes
are installed.
13. Loading Dock A single loading dock most be provided. Such loading dock
must be enclosed and equipped with dock leveler, seals and lights.
F-3-9
<PAGE>
EXHIBIT G
EXCLUSIONS FROM OPERATING EXPENSES
FOR
ONTRACK DATA INTERNATIONAL, INC.
1. Original Construction
All costs incurred in connection with or directly related to the
original construction (as distinguished from operation, repair, and
maintenance) of the Project.
2. Initial Development
Legal and other fees, leasing commissions, advertising expenses and
other costs incurred in connection with acquisition of the land, or the
original development or original leasing of the Project.
3. Costs Caused by Construction
Any expenses incurred during construction of the Site Improvements or
Building or any improvements therein in excess of those that would be
expended if construction were completed and the building were fully
occupied.
4. Equipment and Systems Leasing
The costs of renting or leasing anything other than items, the purchase
price of which could be included in Operating Expenses hereunder.
5. Hazardous Substances
All costs related to the removal of substances or materials from the
Building, Site Improvements or the Project which are presently, or at
any time in the future may be, deemed hazardous.
6. Compliance with Laws
The cost of changes to the Building or Site Improvements in compliance
with any laws, statutes, ordinances, rules, or directives, except as
otherwise expressly permitted under the Lease, including Sections 9(a)
(entitled "Payment of Operating Expenses") and 10 of the Lease
(entitled, "Compliance with Laws").
G-1
<PAGE>
7. Employee Limitation
All costs for any employees above the rank of building manager and
reasonable allocation of the costs of all employees at or below the
rank of building manager whose duties include work on other buildings
or projects or on activities the costs of which are otherwise excluded
from operating costs.
8. Management and Accounting Services
Other than a specifically agreed upon management fee, all costs and
expenses associated with management and accounting services for the
Project including but not limited to all expenses of a centralized
office, the wages, salaries, bonuses, and benefits of all management
personnel, costs of preparation and handling of accounts receivable and
accounts payable, and the payment of any rent, operating expenses, or
taxes for an on-site management office.
9. Capital Costs
The costs (or any amortization thereof) of any alteration, addition,
change, replacement, improvement, repair, or other item which are
properly capitalized under either generally accepted accounting
principles or under federal income tax accounting principle, except as
otherwise expressly permitted under the Lease, including Sections 9(a)
(entitled "Payment of Operating Expenses") and 10 of the Lease
(entitled, "Compliance with Laws").
10. Depreciation
Any charge for depreciation or amortization of any of the improvements,
except as otherwise expressly permitted under the Lease, including
Sections 9(a) (entitled "Payment of Operating Expenses") and 10 of the
Lease (entitled, "Compliance with Laws").
11. Ground Leases and Easements
Any charges for ground leases or other underlying leases, easements, or
any other similar or dissimilar use fees or other costs related to the
use of the land.
12. Financing Costs
Financing and refinancing costs, interest on debt or amortization
payments on any mortgage or mortgages.
G-2
<PAGE>
13. Correcting Defects
Costs of correcting defects in the design or construction of the Base
Building or Site Improvements, the major Base Building systems or the
material used in the construction of the Base Building or Site
Improvements (including latent defects in the Base Building or Site
Improvements or the inadequacy of design of the Base Building or Site
Improvements) or in the Base Building equipment or appurtenances
thereto.
14. Damage by Other Tenants
The cost of any repair to remedy damage caused by or resulting from the
negligence of any other tenants in the Project, including their agents,
servants, employees, or invitees, together with the costs and expenses
incurred by Landlord in attempting to recover such costs.
15. Leasing Costs
All costs related to any leasing or releasing of the Project. In the
event the building management company is responsible for leasing or
re-leasing of the Building a reasonably allocable share of the
management fee shall be therefore excluded.
16. Improvements to Rentable Areas
Costs incurred in renovating or otherwise improving or decorating or
redecorating space (including painting, carpet shampooing, drapery
cleaning and wall washing) for tenants or other occupants in the
Building or vacant rentable space in the Building or costs related
thereto and costs incurred by Landlord, whether or not reimbursed to
Landlord, by other tenants in connection with maintenance or repair of
above-shell condition improvements.
17. Bad Debts or Rent Loss
A bad debt loss, rent loss or reserves for bad debts or rent loss,
provided, however, the cost of purchasing rent loss insurance to cover
losses occasioned by a casualty shall not be excluded.
18. Affiliates - Excessive Payments
Any item of cost, including a building management fee, which represents
an amount paid to an affiliate of Landlord or an affiliate of any
partner or shareholder of Landlord, or to the building management
company or an affiliate of the building management company, to the
extent the same is in excess of the lowest reasonable cost of said item
or service in an arms length transaction. For the purposes hereof
"affiliate" shall include subsidiaries of Landlord or any person or
entity that directly or indirectly through one or more intermediaries
controls or is controlled by or is under common control with Landlord
or the building management company.
G-3
<PAGE>
19. Bad Faith Payments - Kickbacks
Costs or expenses incurred by Landlord which represent amounts spent by
Landlord or its agents in bad faith and an amount equal to any costs
which represent any payments received by Landlord or the building
manager, or the employees or officers of either, from suppliers of
goods or services as kick-backs, finders fees, expediting fees, or
other similar and dissimilar fees.
20. Operation of Landlord's Business; Preservation of Asset
Any and all costs (including legal fees and costs of lawsuits)
associated with the operation of the business of the entity which
constitutes Landlord or preservation of the Landlord's interest in the
Building; excluded items shall specifically include, but shall not be
limited to, 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 with any mortgagee, costs of selling, syndication,
financing, mortgaging or hypothecating any of the Landlord's interest
in the Project, costs of any disputes between Landlord and its
employees (if any), costs of disputes between Landlord and managers of
the project, costs of collecting rent or other charges, and costs of
disputes between Landlord and tenants within the project including,
without limitation, the Tenant.
21. Tenant Specific Costs
All costs and expenses arising solely out of the specific needs or
character of a particular tenant or such tenant's officers, employees,
agents or customers, whether or not Landlord recovers such costs from
such tenant. And, any increased costs resulting from Landlord
permitting third parties to use the common elements of the Project for
income producing activities.
22. Disproportionate Costs; Excess Services
All costs and expenses resulting from the delivery to other tenants of
services, utilities, or the use of Building facilities or other
benefits which are either greater in quantity or higher in quality than
those delivered to Tenant regardless of whether or not the cost of such
services is recovered by Landlord.
23. Excess HVAC
Landlord's costs of excess electricity, incremental heating,
ventilation or air conditioning and other services sold or provided to
tenants which are greater than those provided to Tenant whether or not
Landlord is entitled to be reimbursed by such tenants.
G-4
<PAGE>
24. Landlord's Negligence
Any expense incurred as a result of the negligence of Landlord, its
agents, servants, or employees or arising out of Landlord's negligent
failure to manage the Project consistently with the standards required
by the Lease.
25. Insurance on Above Standard Tenant Improvements
Any cost or expense for insurance against loss due to damage or
destruction resulting from fire or an extended coverage risk to
improvements within rentable areas in the Project if, and to the
extent, the improvements are not paid for by Landlord.
26. Reimbursed Costs
Any items not otherwise excluded to the extent Landlord is reimbursed
therefore by insurance or otherwise compensated, including direct
reimbursement by any tenant, less the out-of-pocket cost of collection.
27. Interest and Penalties
All interest or penalties incurred as a result of Landlord's failure to
pay any costs or taxes as the same shall become due.
28. Duplicate Charges
Any costs which would duplicate other costs theretofore included in
Operating Expenses.
29. Rent Insurance
The cost of rent insurance which insures against rent loss for a period
in excess of 24 months.
G-5
<PAGE>
EXHIBIT H
LIBERTY/ONTRACK LEASE
LIST OF MINIMUM ELEMENTS REQUIRED
FOR "SUBSTANTIAL COMPLETION" OF THE
BASE BUILDING AND SITE IMPROVEMENTS
MINIMUM ELEMENTS:
1. All parking areas must be completed including lighting,
traffic control signs, curbing and first lift of black top.
2. All exterior walkways between building and curb, entrances,
exits, driveways and loading docks must be finished and
functional.
3. All exterior surfaces of the building shall be fully completed
(except only minor punch list items) and shall be completely
weather tight in accordance with the Approved Plans.
4. All Building doors, windows, locks and other points of ingress
and egress shall be lockable and all locks (other than Tenant
installed security systems) shall be completed, functional and
under the control of Tenant.
5. All base building mechanical systems serving any portion of
the Building shall be completed and fully functioning as
designed (except only minor punch list items not materially
affecting functionality), including, without limitation,
sprinklers, plumbing, electrical and HVAC systems.
6. All interior portions of Building entries and exits, all rest
room facilities and other elements which would be common
elements if the Building were occupied on a multi-tenant basis
shall be complete and functional (except only minor punch list
items not materially affecting functionality).
The foregoing list does not, and is not intended to, define "substantial
completion"; pursuant to Article 4 of the Lease, "substantial completion" shall
not be deemed to have occurred until the foregoing minimum elements are
satisfied and Landlord has obtained the requisite architect's certificate and
certificate of occupancy required under the fourth paragraph of Section 4(c) of
the Lease.
H-1
<PAGE>
EXHIBIT I
EXISTING TITLE ENCUMBRANCES
1. Real estate taxes for and payable in the year 1998, first half paid, second
half due October 15, 1998.
2. Drainage and utility easement(s) as shown on the recorded plat of
Staring Lake Clubs Courts and Villages and Research Farm 2nd Addition.
3. Resolution dated November 5, 1996, filed of record December 30, 1996,
as Document Nos. 2773427 (T) and 6669002 (A).
4. Rights of Access as contained in Deed Document No. 2733662.
5. Notice of Lis Pendens for highway purposes as contained in Document No.
1993044.
6. Drainage and utility easements as retained in Vacation, Document Nos.
5741642 and 2149455.
Note: The following items do not affect the Property, but do however appear on
the Certificate of Title for the Property; Landlord has no obligation to cause
these items to be removed from the Certificate of Title:
Easement dated August 7, 1996, filed of record August 13, 1996, as
Document No. 2733665 (T).
Easement contained in Book 1545 Deed page 162 and Book 126
Miscellaneous page 160.
I-1
<PAGE>
EXHIBIT J
ENVIRONMENTAL INFORMATION
1. Svoboda Ecological Resources Wetlands Delineation Report dated December
5, 1995.
2. Phase I Environmental Site Assessments issued by American Engineering
testing dated December 15, 1996.
3. Report of Geotechnical Exploration and Review dated December 20, 1995.
4. Phase I Environmental Site Assessment issued by Northern Environmental
dated July 22, 1996.
5. Limited Subsurface Investigation Report, issued by Northern
Environmental dated August 2, 1996.
6. Revised Limited Subsurface Investigation Report, issued by Northern
Environmental dated August 5, 1996.
7. U.S. Department of Agriculture Wetlands Determination Review Memorandum
dated August 5, 1996.
8. Minnesota Pollution Control Agency Approval of Response Action Plan,
dated November 22, 1996.
9. Minnesota Department of Agriculture Approval of Agricultural Chemical
Incident Remedial Investigation dated November 26, 1996.
J-1
<PAGE>
FIRST AMENDMENT TO LEASE
This Amendment ("Agreement") is made as of the _____ day of
January, 1999 by and between LIBERTY PROPERTY LIMITED PARTNERSHIP, a
Pennsylvania limited partnership ("Landlord"), and ONTRACK DATA INTERNATIONAL,
INC., a corporation organized under the laws of Minnesota ("Tenant").
BACKGROUND:
A. Landlord and Tenant are parties to that certain Lease dated as of
September 21, 1998, for certain premises to be constructed by Landlord in the
Flying Cloud Corporate Campus, Eden Prairie, Minnesota.
B. Tenant has requested and Landlord has agreed, subject to the terms
and conditions set forth below, to reduce the size of the Premises to be
initially constructed by Landlord.
C. Landlord and Tenant desire to amend the Lease to reduce the rentable
area of the Premises and modify certain other provisions of the Lease, all as
provided below.
AMENDMENT:
Now therefore, for good and valuable consideration, the
receipt and legal sufficiency of which the parties acknowledge, the parties
agree as follows:
1. PREMISES. The rentable area of the Premises is hereby reduced from
80,119 rentable square feet to 62,200 rentable square feet. All references in
the Lease to the Premises containing 80,119 rentable square feet are hereby
amended to read 62,200 rentable square feet.
2. SITE PLAN. The Site Plan attached to the Lease as EXHIBIT "A" is
hereby replaced with the Site Plan attached hereto as ATTACHMENT 1. All
references in the Lease to Exhibit "A" or to the Site Plan shall mean the Site
Plan attached hereto as Attachment 1.
3. SCOPE DRAWINGS. The Scope Drawings attached to the Lease as EXHIBIT
"F-1" are hereby replaced with the Scope Drawings attached hereto as ATTACHMENT
2. All references in the Lease to Exhibit "F-1" or to the Scope Drawings shall
mean the Scope Drawings attached hereto as Attachment 2.
4. MINIMUM ANNUAL RENT AND ESTIMATED ANNUAL OPERATING EXPENSES. Section
1(d) of the Lease is hereby amended and restated in its entirety as follows:
<PAGE>
"d. MINIMUM RENT (ss 8) & OPERATING EXPENSES (ss 9)
(i) "MINIMUM ANNUAL RENT":
<TABLE>
<CAPTION>
Minimum Annual Minimum Annual
Lease Rent Per Rentable Lease Rent Per Rentable
Year Square Foot Annual Monthly Year Square Foot Annual Monthly
- ---- ------------------ ------ ------- ---- ----------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $11.450 $712,190.04 $59,349.17 6 $12.642 $786,332.40 $65,527.70
2 $11.679 726,433.80 60,536.15 7 $12.895 802,068.96 66,839.08
3 $11.913 740,988.60 61,749.05 8 $13.152 818,054.40 68,171.20
4 $12.151 755,792.16 62,982.68 9 $13.415 834,413.04 69,534.42
5 $12.394 770,906.79 64,242.23 10 $13.684 851,144.76 70,928.73
</TABLE>
(ii) ESTIMATED "ANNUAL OPERATING EXPENSES": $224,541.96
(Two Hundred Twenty-four Thousand Five Hundred
Forty-one and 96/100 Dollars) estimated for calendar
year 1999 (based on $3.61 per rentable square foot),
payable in monthly installments of $18,711.83
(Eighteen Thousand Seven Hundred Eleven and 83/100
Dollars), subject to adjustment (ss 9(a))"
5. PARKING. Consistent with the provisions of Section 34 of the Lease
(entitled "Parking"), Landlord will provide five (5) parking spaces for each
1,000 rentable square feet of the Premises, for a total of 311 spaces based on
the reduced size of the Premises. Landlord will preserve the ability to expand
the parking area in order to maintain the 5 spaces per 1,000 square foot ratio
in the event Tenant exercises its expansion option provided for in SECTION 9
below.
6. CONSTRUCTION DEADLINES; REMEDIES.
6.1 The date of substantial completion of the Base Buildings and
Site Improvements (see the first paragraph of Section 4(c) of
the Lease) shall be JUNE 1, 1999, not May 1, 1999.
6.2 Any provision of the Lease to the contrary notwithstanding, no
penalty shall be incurred by Landlord in the event Landlord
fails to achieve substantial completion by June 1, 1999.
Accordingly, the second paragraph of SECTION 4(c) of the Lease
is hereby amended and restated in its entirety as follows:
"If Landlord fails to so substantially complete the
Base Building and Site Improvements on or before JUNE
1, 1999 (as the same may be extended as a result of
any Tenant Delay or delay caused by Force Majeure or
any other reason outside of Landlord's control), then
Tenant shall have the right to hold over in Tenant's
Existing Premises (as defined in Section 37 below),
at the same rent and on all of the same terms as
provided in Tenant's Existing Lease (as defined in
Section 37 below), until the Commencement Date of
this Lease. The foregoing shall be Tenant's sole and
exclusive remedy for any delay in the substantial
completion of the Base Building."
2
<PAGE>
7. APPROVAL AND CONSTRUCTION CONTINGENCIES. SECTION 4(d) of the Lease
(entitled "Approval & Construction Contingencies") is hereby deleted in its
entirety.
8. TENANT ACCESS DATE. The Tenant Access Date (as defined in SECTION
5(a) of the Lease) is hereby extended to APRIL 1, 1999.
9. EXPANSION OPTION. Tenant shall have the option at any time during
the Term to cause Landlord to expand the original Premises (Building A) to
approximately 80,000 rentable square feet and lease the expansion space (the
"Building A Expansion Space") to Tenant, subject to all of the terms and
conditions of this Section 9.
A. The following are the conditions precedent to Tenant's right to
exercise its Building A Expansion Option:
(i) Tenant must deliver to Landlord written notice exercising its right
to Lease the Building A Expansion Space;
(ii) Tenant, at the time of such notice, must not be in monetary
default (beyond any applicable notice and cure period in this Lease) or default
described in Section 26(a)(iv); and
(iii) Tenant, at the time of such notice, must be leasing all or
substantially all of Building A, and Tenant must not be planning to vacate,
assign or sublet any of the space in Building A at the time Tenant expands into
the Building A Expansion Space.
B. If Tenant properly exercises the Building A Expansion Option as
provided above, Landlord and Tenant shall enter into a lease or amendment to
this Lease with respect to the Building A Expansion Space containing the
following terms:
(i) Landlord will be obligated to construct the Building A Expansion
Space and requisite parking and other related site improvements, if any, within
9 months of the date such lease or amendment to lease is entered into by
Landlord and Tenant, subject only to delays outside of the reasonable control of
Landlord. The design, exterior materials and quality of the Building A Expansion
Space shall be consistent with the remainder of the Building A base building so
as to keep the relative cost (adjusted for changes in the costs of labor and
materials) per rentable square foot of the Building A Expansion Space comparable
to that of the remainder of Building A.
(ii) The term of the lease for the Building A Expansion Space shall
commence upon the substantial completion of Landlord's construction of the
Building A Expansion Space (the "Building A Expansion Space Commencement Date"),
and shall expire upon the expiration or termination of the Term of this Lease;
provided, however, that if less than 5 years remains on the Term of this Lease
(including any extension options exercised by Tenant as of the Building A
Expansion Space Commencement Date), then the Term of this Lease (Section 36
[Tenant's
3
<PAGE>
Option to Terminate] notwithstanding) shall be extended so that this Lease and
the lease of the Building A Expansion Space shall expire on the fifth
anniversary of the Building A Expansion Space Commencement Date or such other
date as to which Landlord and Tenant may mutually agree. If the Term is so
extended, any unexercised and unexpired options to extend the Term under Section
31 of the Lease shall be pushed out so that the full extension term, if
exercised, would commence as of the expiration of the Term or extended Term, as
the case may be, as extended pursuant to this subsection (b). If such extension
term, as pushed back, goes beyond lease year 19, Minimum Annual Rent for
subsequent lease years shall continue to increase at 2% per annum. For example,
if Tenant entered into a five-year lease for the Building A Expansion Space
commencing at the beginning of year eight of the ten-year initial Term of this
Lease, the Term of this Lease would be extended through year twelve, and the
first three-year extension term would commence, if exercised, at the beginning
of year thirteen (and the scheduled rental rates per rentable square foot under
Section 31 for years 13 through 15 would apply to the first extension term with
respect to the original Premises).
(iii) The Annual Minimum Rent for the Building A Expansion Space for
the first lease year shall be an amount equal to the product of (i) the
"Building A Expansion Costs" (as defined below), multiplied by (ii) the "Finance
Rate" (as defined below). The Annual Minimum Rent for the Building A Expansion
Space for each lease year subsequent to the first lease year shall be an amount
equal to 102% of the scheduled Annual Minimum Rent for the immediately preceding
lease year.
"Building A Expansion Costs" means all of the out-of-pocket costs
incurred by Landlord with respect to the construction of the Building A
Expansion Space and related site improvements, including, but not limited to,
architectural and engineering fees, all government fees and utility connection
charges, construction costs and expenses, including costs of constructing
landscaping, required parking and related site improvements, if any, signage,
brokerage fees, a development fee equal to 2% of such costs (exclusive of
construction interest), construction interest at 8.75% and a construction
contingency not to exceed 2%. Building A Expansion Costs will not include any
costs or expenses relating to land acquisition, defaults by Landlord, claims or
penalties arising from Landlord's intentional wrongdoing , negligent acts or
omissions or violations of law, or costs of grading, utilities, site work or
other improvements not related to Building A and its related site improvements
or otherwise primarily benefitting another parcel or building.
The "Finance Rate" shall be the greater of (i) a number determined by
adding 350 basis points to the actual yield, on the date of Tenant's notice of
exercise, from U.S. Treasury Notes or Bonds having a term equal to the term of
the lease for the Building A Expansion Space, or (ii) 10% per annum.
Prior to entering into a lease for the Building A Expansion Space,
Landlord and Tenant shall have agreed upon a budget of the Building A Expansion
Costs, based on plans and specifications for the Building A Expansion Space
approved by Landlord and Tenant. If
4
<PAGE>
Landlord and Tenant are unable to agree upon such budget, Landlord shall not be
obligated to construct the Building A Expansion Space and neither Landlord nor
Tenant shall have any obligation to enter into such lease or lease amendment for
the Building A Expansion Space. Except as expressly provided herein or otherwise
clearly inapplicable, any such lease for the Building A Expansion Space shall be
on the same terms and conditions as the original Lease.
10. BROKERAGE FEE. The brokerage fee payable by Landlord to the
Keeywaydin Group, Inc., pursuant to Section 40 of the Lease regarding the
initial Premises shall remain at the same square foot rate set forth in Section
40 (i.e. $3.00 per rentable square foot), but shall be calculated based on the
reduced square footage of the Premises.
11. LEASE IN FULL FORCE. Except as expressly amended by this Agreement,
all of the terms and conditions the Lease remain unmodified and continue in full
force and effect. All capitalized terms used herein and not separately defined
herein shall bear the meaning assigned to them in the Lease.
The parties have executed this First Amendment as of the date stated in
the opening paragraph of this Amendment.
LANDLORD:
Date signed: , 1999 LIBERTY PROPERTY LIMITED
----------------- PARTNERSHIP
By: Liberty Property Trust, Sole General
Partner
By:
--------------------------------
John Gattuso, Senior Vice
President
TENANT:
Date signed: , 1999 ONTRACK DATA INTERNATIONAL, INC.
-----------------
By:
------------------------------------
Its:
-------------------------------
5
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Jurisdiction
Name of Direct Subsidiaries of Organization
- --------------------------- ---------------
Ontrack Data Recovery, Inc. Minnesota
Name of Indirect Subsidiaries
- -----------------------------
(Subsidiaries of Ontrack Data Recovery, Inc.)
Ontrack Data Recovery GmbH Republic of Germany
Ontrack Data Recovery Europe, Ltd. United Kingdom
Ontrack France Sarl France
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 3, 1999, accompanying the consolidated
financial statements included in the Annual Report of ONTRACK Data
International, Inc. on Form 10-K for the year ended December 31, 1998. We hereby
consent to the incorporation by reference of said report in the Registration
Statement of ONTRACK Data International, Inc. on Form S-8 (File No. 333-18969).
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
March 24, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-18969) of ONTRACK Data International, Inc. of our
report dated February 4, 1998 appearing on page F-3 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
March 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,724
<SECURITIES> 18,872
<RECEIVABLES> 4,242
<ALLOWANCES> 483
<INVENTORY> 89
<CURRENT-ASSETS> 39,583
<PP&E> 11,932
<DEPRECIATION> 7,913
<TOTAL-ASSETS> 46,449
<CURRENT-LIABILITIES> 3,669
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 42,683
<TOTAL-LIABILITY-AND-EQUITY> 46,449
<SALES> 6,636
<TOTAL-REVENUES> 35,841
<CGS> 1,265
<TOTAL-COSTS> 7,329
<OTHER-EXPENSES> 22,531
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,504
<INCOME-TAX> 2,306
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,198
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
</TABLE>
