<PAGE>
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-6252
CARTER DAY INDUSTRIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1884908
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 73rd Avenue N.E., Minneapolis, Minnesota 55432
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(612)571-1000
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
The number of shares outstanding of registrant's common stock, par value $.01,
at August 1, 1995 are: 19,279,589 voting shares and 668,594 non-voting
shares.
-1-
<PAGE>
INDEX
Part I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements Number
------
Consolidated Statements of Income-
Three and Six Months Ended September 30, 1995 and 1994 3
Consolidated Balance Sheets-September 30, 1995 and
March 31, 1995 4
Consolidated Statements of Cash Flows-
Six Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CARTER DAY INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
----------------- ---------------
1995 1994 1995 1994
------ ------ ------ -------
<S> <C> <C> <C> <C>
Revenues $4,220 $4,212 $8,499 $ 7,972
Cost of goods sold 2,520 2,587 5,130 4,875
------ ------ ------ ------
Gross Profit 1,700 1,625 3,369 3,097
Gross Margin 40.3% 38.6% 39.6% 38.8%
Selling and engineering 954 924 1,865 1,840
expenses
General and administrative 493 394 960 793
expenses
------- ------- ------- ------
Operating income 253 307 544 464
Interest income 8 2 14 4
Interest expense (53) (55) (111) (109)
Other income (expense), net (23) (4) (23) (28)
------- ------- ------- ------
Income before income taxes 185 250 424 331
Provision for income taxes 63 85 144 112
(Note 3)
------- ------- ------- ------
Income before Minority 122 165 280 219
Interest
Apportionment of Income to 42 5 73 7
Minority Interest
------- ------- ------ -------
Net income $ 80 $ 160 $ 207 $ 212
======= ======= ======= =======
Net income per common share $ - $ .01 $ .01 $ .01
(Note 4) ======= ======= ======= =======
Weighted average number of
common shares outstanding 19,948 19,948 19,948 19,948
in thousands) ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
CARTER DAY INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30 March 31
1995 1995
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 190 $ 223
Receivables:
Trade, less allowance for doubtful
accounts of $137 and $120 2,592 1,828
Inventories (Note 2) 2,300 2,395
Other current assets 162 326
-------- --------
Total current assets 5,244 4,772
Property, plant and equipment less
accumulated depreciation and amortization 688 678
of $3,063 and $2,943
Other assets 74 -
-------- --------
Total assets $ 6,006 $ 5,450
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Advances from secured lender $ 712 $ 702
Current portion of long-term debt 135 134
Trade accounts payable 676 556
Accrued and other current liabilities 1,318 1,304
-------- --------
Total current liabilities 2,841 2,696
Long-term debt 283 351
Other liabilities 174 114
Minority interest in consolidated 549 439
subsidiaries
-------- --------
Total liabilities 3,847 3,600
Shareholders' equity:
Series B preferred stock, no par value;
63,236 shares authorized, issued and
outstanding (liquidation value
$20,868) 190 190
Common stock; authorized
45,000,000 voting shares
and 1,000,000 non-voting shares at
$.01 par value; 19,279,589 shares
issued and outstanding, and 668,594
non-voting shares issued and 200 200
outstanding
Capital surplus 1,601 1,499
Retained earnings (deficit) subsequent
to March 31, 1989, date of quasi
reorganization (total deficit
eliminated $106,963) 168 (39)
-------- --------
Total shareholders' equity 2,159 1,850
-------- --------
Total liabilities and
shareholders' equity $ 6,006 $ 5,450
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
CARTER DAY INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended
September 30
-----------------
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 207 $ 212
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation and amortization 121 104
Imputed income taxes 102 109
Gain on disposal of machines & - (2)
equipment
Decrease (increase) in receivables (764) (694)
Decrease (increase) in inventories 95 150
Decrease (increase) in other assets 90 10
(Decrease) increase in accounts
payable and accrued liabilities 194 328
(Decrease) increase in minority 110 10
interest in consolidated subsidiaries
------ ------
Net cash flow provided (used)
by operating activities 155 227
------ ------
INVESTING ACTIVITIES
Capital expenditures (135) (177)
Proceeds from disposal of machines and 4 1
equipment ------ ------
Net cash flow provided (used) (131) (176)
by investing activities ------ ------
FINANCING ACTIVITIES
Net advances from (payments to) secured 10 (55)
lender
Payments on long-term debt (67) (64)
Proceeds from long-term debt financing - 120
------ ------
Net cash flow provided (used) by financing
activities (57) 1
------ ------
Net increase (decrease) in cash and cash (33) 52
equivalents
Beginning cash and cash equivalents 223 44
------ ------
Ending cash and cash equivalents $ 190 $ 96
====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements are unaudited and
include the accounts of Carter Day Industries, Inc. (the "Parent" company) and
its subsidiaries (collectively the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) have been made which are necessary to present fairly the financial
position of the Company in the accompanying interim consolidated financial
statements. Interim results are not necessarily indicative of the results for
the entire year.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, which is not required for interim reporting purposes, has been
condensed or omitted. The accompanying consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
March 31, 1995.
2. INVENTORIES
Inventories consisted of (dollars in thousands):
<TABLE>
<CAPTION>
September 30 March 31
1995 1995
------------ -----------
<S> <C> <C>
Raw material and component parts $ 1,200 $ 1,151
Work-in-process 192 208
Finished goods 908 1,036
---------- ----------
Total $ 2,300 $ 2,395
========== ==========
</TABLE>
3. LEASE COMMITMENTS
In October 1995, the Company extended the leases on its principal office and
manufacturing facilities through February 2006. The new lease expands space
in the Company's principal manufacturing facility, allowing the exit from a
satellite plant in July 1996, thereby consolidating all U.S. manufacturing
operations. Minimum annual rentals (excluding real estate taxes and certain
operating expenses) by fiscal year ending March 31 under leases with initial
lease terms greater than one year and in effect at October 31, 1995 are:
1996, $349,000; 1997, $380,000; 1998, $360,000; 1999, $388,000; 2000,
$388,000; and later years, $2,379,000; totaling $4,244,000.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
4. INCOME TAXES
$139,000 of the $144,000 provision for income taxes for the six months ended
September 30,1995, and all of the $112,000 provision for the six months ended
September 30, 1994, is imputed (not a direct obligation) and accompanied by a
corresponding credit to Capital Surplus and Minority Interest in Consolidated
Subsidiaries, in accordance with the accounting policies governing the
Company's 1989 quasi reorganization and the presence of available net
operating loss carryforwards. The interim period provision is based upon the
Company's estimate of the effective tax rate for the year.
5. PER SHARE DATA
Per share data was computed using the weighted average number of common shares
outstanding during the period.
6. CONTINGENCIES
About a decade ago the U.S. Environmental Protection Agency ("EPA") notified
the Parent Company it was a potentially responsible party ("PRP") to cleanup
two landfill sites known as Combe Fill North and Combe Fill South, located in
Morris County, New Jersey. On September 7, 1995 the EPA sent a letter to the
Parent Company and a number of other PRPs, officially demanding payment of
$17,147,000 for the cleanup of Combe Fill North.
The Parent Company has been advised by the U.S. Department of Justice that no
decision has been made as to whether or not to bring an enforcement action
against the Parent Company or any other PRP and that the statute of
limitations will preclude litigation on Combe Fill North if a suit is not
brought by December 4, 1995. On the other hand, the statute of limitations on
Combe Fill South is understood to run to October 1998.
If and when the EPA or the U.S. Department of Justice brings an action against
the Parent Company on Combe Fill North or Combe Fill South, the Parent Company
will seek a declaratory judgment that any and all obligations were discharged
pursuant to the Parent Company's Plan of Reorganization confirmed by the U.S.
Bankruptcy Court in December 1983.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Revenue for the quarter ended September 30, 1995 was $4,220,000, unchanged
from the comparable period of the previous year. The backlog of unfilled
orders was $1,989,000 as of September 30, 1995, versus $2,724,000 at September
30, 1994. The flattening of revenues and shrinking backlog is attributable to
a decline in export orders placed for agricultural processing equipment,
mitigated by increasing worldwide demand for plastics processing equipment.
Revenue for the six months ended September 30, 1995 was $8,499,000, up
$527,000 from the comparable period of the prior year. The year-to-date
improvement is attributable to a strong first quarter, again coming from
plastics processing equipment. The slight improvement in Gross Margin
reflects the product mix shift from agribusiness to plastics.
Operating income was $253,000 for the quarter ended September 30, 1995, down
from $307,000 of the second quarter of the prior year because of higher
administrative salary and benefits costs. Operating income for the six months
ended September 30, 1995 was $544,000 as compared to $464,000 for the six
months ended September 30, 1994. The year-to-date improvement in operating
income is due to the overall increase in volume, reduced by higher general and
administrative costs. At the current running rate, general and administrative
costs in the second half of Fiscal 1996 will be less than that of the prior
year.
Interest expense was essentially flat at $111,000 for the six months ended
September 30, 1995, compared to the six months ended September 30, 1994.
Apportionment of Income to Minority Interest increased in response to the
increase of minority ownership in the Company's principal operating
subsidiaries, from 3.00% to 19.97% in February 1995.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had working capital of $2,403,000, net
worth of $2,159,000, and $993,000 available for additional advances against its
assetbased line of credit. The Company has a $1,500,000 minimum borrowing
obligation under its line of credit. Excess cash is invested in a bank money
market fund.
Cash flow generated from operations was $155,000 for the six months ended
September 30, 1995, down from $227,000 for the comparable period of the prior
year because of a reduction in customer deposits.
In March 1996 the Company will begin consolidating its U.S. manufacturing
facilities. The cost of relocating from a satellite plant and restructuring
its now expanded and sole U.S. manufacturing site is estimated to be $200,000.
These costs will be incurred during March through July 1996 and funded from
operations and/or its existing asset-based line of credit.
-8-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
About a decade ago the U.S. Environmental Protection Agency ("EPA")
notified the Parent Company it was a potentially responsible party
("PRP") to cleanup two landfill sites known as Combe Fill North and
Combe Fill South, located in Morris County, New Jersey. On September
7, 1995 the EPA sent a letter to the Parent Company and a number of
other PRPs, officially demanding payment of $17,147,000 for the
cleanup of Combe Fill North.
The Parent Company has been advised by the U.S. Department of Justice
that no decision has been made as to whether or not to bring an
enforcement action against the Parent Company or any other PRP and
that the statute of limitations will preclude litigation on Combe Fill
North if a suit is not brought by December 4, 1995. On the other
hand, the statute of limitations on Combe Fill South is understood to
run to October 1998.
If and when the EPA or the U.S. Department of Justice brings an action
against the Parent Company on Combe Fill North or Combe Fill South,
the Parent Company will seek a declaratory judgment that any and all
obligations were discharged pursuant to the Parent Company's Plan of
Reorganization confirmed by the U.S. Bankruptcy Court in December
1983.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
At the Board of Directors meeting of the Parent Company held on
October 9, 1995, the Board discussed, and began consideration of,
several possible actions.
The Board discussed the possibility of deregistering the Parent
Company and its securities under the Securities Exchange Act of 1934
(the " `34 Act"). There has been no material trading activity in the
Parent Company's stock for a number of years, and there may not be any
benefit from being a public company which would justify the attendant
expenses. The small number of shareholders of the Parent Company will
allow it to deregister under the `34 Act without taking any steps to
reduce the number of its shareholders.
-9-
<PAGE>
Item 5. Other Information (Continued)
The Board also discussed a possible transaction under which the
Company's Chief Executive Officer (CEO) would be granted an option to
acquire a majority ownership interest in Carter Day Holding, Inc.
(CDH), the holding company for the Parent Company's operating
subsidiaries, bringing the CEO's interest therein from approximately
20% today to 51% upon exercise. The option price will likely be book
value at date of exercise and not be exercisable until April 1999,
or, if earlier, the break-up of the Lock-Up Agreement that presently
restricts transfers of the Parent company's shares. This would have
the benefits of encouraging retention of the CEO and potentially
allowing the Parent Company to monetize a significant portion of its
illiquid investment in CDH.
A special committee of the Board of Directors consisting of Messrs.
Cole and Berenblum was formed by the Board to review these proposals,
and to report back to the Board in January 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits
10.11 Amendments dated October 20, 1995 to the Office and
Research & Development Lease Agreements between Carter Day
International, Inc. (f/k/a Carter-Day Company) and Fridley
Business Center Partnership. Amendment dated October 20,
1995 to the Manufacturing Lease Agreement between Carter Day
International, Inc. (f/k/a Carter-Day Company) and James A.
Gray (successor to Fridley Business Center Partnership).
(b) Reports on Form 8-K
None.
-10-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARTER DAY INDUSTRIES, INC.
-----------------------------
Registrant
Date: November ___, 1995 /s/ Paul W. Ernst
-----------------------------
Paul W. Ernst
Director, President, Treasurer
and Chief Executive Officer
Date: November ___, 1995 /s/ Kent R. Turner
----------------------------
Kent R. Turner
Vice President, Controller
and Principal Accounting
Officer
-11-
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
- --------- ----------------------
<S> <C>
10.11 Amendments dated October 20, 1995 to Filed herewith electronically
the Office and Research & Development
Lease Agreements between Carter Day
International, Inc. (f/k/a Carter-Day
Company) and Fridley Business Center
Partnership. Amendment dated
October 20, 1995 to the Manufacturing
Lease Agreement between Carter Day
International, Inc. (f/k/a Carter-Day
Company) and James A. Gray (successor
to Fridley Business Center
Partnership).
27 Financial Data Schedule Filed herewith electronically
</TABLE>
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statements of Income found on page
3 and 4 of the Company's Form 10-Q for the year-to-date, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 190
<SECURITIES> 0
<RECEIVABLES> 2729
<ALLOWANCES> 137
<INVENTORY> 2300
<CURRENT-ASSETS> 5244
<PP&E> 3751
<DEPRECIATION> 3063
<TOTAL-ASSETS> 6006
<CURRENT-LIABILITIES> 2841
<BONDS> 283
<COMMON> 200
0
190
<OTHER-SE> 1769
<TOTAL-LIABILITY-AND-EQUITY> 6006
<SALES> 8499
<TOTAL-REVENUES> 8499
<CGS> 5130
<TOTAL-COSTS> 5130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 424
<INCOME-TAX> 144
<INCOME-CONTINUING> 207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
<PAGE>
SECOND AMENDMENT TO OFFICE LEASE AGREEMENT
THIS SECOND AMENDMENT TO OFFICE LEASE AGREEMENT is entered into effective
as of the 20th day of October, 1995, by and between Fridley Business Center
Partnership, a Minnesota general partnership ("Landlord") and Carter Day
International, Inc., f/k/a Carter-Day Company, a Minnesota corporation
("Tenant").
RECITALS
A. Landlord and Tenant are parties, in said respective capacities, to
that certain Office Lease Agreement dated June 1, 1991, as amended by
amendment dated June 15, 1993 (collectively, the "Lease") under which Tenant
is leasing from Landlord 12,001 net rentable square feet of space in the
building (the "Building") located at 500 73rd Avenue Northeast, Fridley,
Minnesota, 55432, all as more fully described in the Lease.
B. The Land (as that term is described in the Lease) has been replatted
and a portion of the Land has been sold. The parties wish to revise the Lease
to reflect the new legal description of the remaining Land.
C. The parties also wish to extend the Term of the Lease and modify the
Base Rent payable thereunder, all as more fully described below.
AGREEMENT
IN CONSIDERATION of the extension of the Lease as described herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follow:
1. Conflict of Terms. In the event of a conflict between the terms
of this Amendment and the terms of the Lease, the terms of this Amendment shall
govern.
2. Legal Description of Land. Exhibit B of the Lease is hereby
revised to reflect that the legal description of the Land is as follows:
Lot 2, Block 1, Northco Business Park 4th Addition,
Anoka County, Minnesota.
3. Extension of Term. Under the Lease, the Term of the Lease
expires on March 31, 1998. The parties hereby extend the Term of the Lease
for an additional seven (7) years and eleven (11) months (the "Extension Term").
The Extension Term shall commence April 1, 1998 and shall terminate
February 28, 2006.
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<PAGE>
4. Base Rent. From March 1, 1996 through the end of the initial
Term and during the Extension Term, Base Rent for the Leased Premises shall be
payable monthly in advance on the first day of each month as follows:
<TABLE>
<CAPTION>
Period Base Rent Base Rental
Per Square Payable
Foot Per Month
------------------- ---------- ----------
<S> <C> <C>
03/01/96 - 09/30/96 $5.78 $5,780.48
10/01/96 - 02/28/97 $5.78 $5,780.48
03/01/97 - 03/31/98 $5.78 $5,780.48
04/01/98 - 02/28/99 $6.25 $6,250.52
03/01/99 - 02/29/00 $6.25 $6,250.52
03/01/00 - 02/28/01 $6.25 $6,250.52
03/01/01 - 02/28/02 $6.25 $6,250.52
03/01/02 - 02/28/03 $6.25 $6,250.52
03/01/03 - 02/29/04 $6.25 $6,250.52
03/01/04 - 02/28/05 $6.75 $6,750.56
03/01/05 - 02/28/06 $6.75 $6,750.56
</TABLE>
5. Operating Costs. During the Extension Term, Tenant shall pay
Tenant's Proportionate Share of the Operating Costs for the Leased Premises in
accordance with the provisions of the Lease.
6. Option to Renew. Tenant shall have the right to further extend
the Term of this Lease for two (2) periods of five (5) years each as
hereinafter provided, each such five (5) year renewal period being sometimes
herein referred to as a "Renewal Term". The conditions to such renewals shall
be as follows:
(a) The Lease shall be in full force and effect and Tenant shall
not be in default in the performance of any of the terms, covenants
and conditions of the Lease, in respect to which notice of default
has been given and has not been or is not being remedied in the time
limits specified in the Lease; provided, however, that Landlord
shall have the right, at its sole discretion, to waive the non-
default condition;
(b) Such Renewal Term shall be on the same terms, covenants and
conditions as in this Lease; provided, however, the annual Base Rent
for such Renewal Term shall be the fair market Base Rental rate for
such space on the date such Renewal Term shall commence in relation
to comparable (in quality and location) space located
-14-
<PAGE>
in the relevant market area. The fair market Base Rent of the
Leased Premises shall be determined as of the date three hundred
sixty (360) days prior to commencement of the Renewal Term in
question. If Tenant has properly elected to renew the Term of this
Lease, and Landlord and Tenant fail to agree at least three hundred
thirty (330) days prior to commencement of the applicable Renewal
Term upon the fair market Base Rent of the Leased Premises, the
amount of the fair market Base Rent of the Leased Premises shall be
determined by arbitration in accordance with the provisions of
paragraph 7, below ("Arbitration"). The fair market Base Rent of
the Leased Premises shall be based upon Tenant's presently
contemplated use of the Leased Premises. In no event shall the Base
Rent of the Leased Premises for the Renewal Term in question be less
than the Base Rent payable by Tenant under the Term of this Lease
immediately prior to commencement of the applicable Renewal Term
(the " Minimum Renewal Rent"). If, however, the Fair Market Base
Rent determined in accordance with the provisions of paragraph 10,
below, is less than the Minimum Renewal Rent, Tenant shall have the
option to cancel its election to renew the Term; provided, however,
that Tenant's option to rescind its exercise of its option to renew
must be exercised, if at all, not later than three (3) business days
following Tenant's receipt of notice of the Fair Market Base Rent;
(c) Tenant shall exercise its right to a Renewal Term, if at all,
by notifying Landlord in writing of its election to exercise the
right to renew the Term of this Lease no later than three hundred
sixty (360) days prior to the date of commencement of the Renewal
Term in question. For a period of thirty (30) days following the
date of notice, the parties shall make a good faith effort to agree
upon the fair market Base Rent of the Leased Premises for such
Renewal Term. Any agreement reached by the parties with respect to
such fair market Base Rent of the Leased Premises for such Renewal
Term shall be expressed in writing and shall be executed by the
parties, and a copy delivered to each of the parties. In the event
that Landlord and Tenant fail to agree within said thirty (30) day
time period, the fair market Base Rent for the Leased Premises for
such Renewal Term shall be determined by Arbitration. The
arbitrators shall be directed to determine the fair market Base Rent
for the Leased Premises as above provided and shall be instructed to
make said appraisal independently, without consulting with each
other. Upon an established date at an established time, all three
(3) arbitrators shall simultaneously submit their determinations as
to fair market Base Rent, such determination to be submitted in
sealed envelopes and to be opened jointly by Landlord and Tenant.
The fair market Base Rent for the Renewal Term shall be determined
by averaging the two (2) arbitrators' fair market Base Rent
determinations which are closest in amount to each other (or if one
appraisal is less than one of the other appraisals and more than the
other appraisal by the same amount, all three appraisals shall be
averaged).
-15-
<PAGE>
7. Arbitration. Any disagreement, dispute or determination required
by or arising under the provisions of paragraph 6, above, requiring arbitration
shall be carried on and concluded in accordance with the provisions of
subparagraphs (a) and (b) hereof:
(a) In each case where it shall become necessary to resort to
arbitration, and the subject of the arbitration is to determine fair
market Base Rent, all arbitrators appointed by or on behalf of
either party or appointed pursuant to the provisions hereof shall be
MAI members of the American Institute of Real Estate Appraisers with
not less than ten (10) years of experience in the appraisal of
improved commercial and industrial real estate in the Minneapolis,
Minnesota metropolitan area and be devoting substantially all of
their time to professional appraisal work at the time of
appointment, and be in all respects impartial and disinterested. In
determining fair market Base Rent, the arbitrators shall consider
the condition of leasehold improvements in the Leased Premises
(other than removable trade fixtures) in comparison to leasehold
improvements in market comparables but shall not take into account
any market concessions (free rent, moving allowances, etc.) in
market comparables;
(b) The party desiring arbitration shall give written notice to
that effect to the other party, specifying in such notice the name,
address and professional qualifications of the person designated to
act as arbitrator on its behalf. Within twenty (20) days after
service of such notice, the other party shall give written notice to
the party desiring such arbitration specifying the name, address and
professional qualifications of the person designated to act as
arbitrator on its behalf. The two (2) arbitrators shall, within ten
(10) days thereafter, select a third arbitrator. The decision of
the arbitrators so chosen shall be given within a period of thirty
(30) days after the appointment of such third arbitrator. Each
party shall pay the fees and expenses of the arbitrator appointed by
or on behalf of such party and the fees and expenses of the third
arbitrator shall be borne equally by both parties. If the party
receiving a request for arbitration fails to appoint is arbitrator
within the time above specified, or if the two (2) arbitrators so
selected cannot agree on the selection of the third arbitrator
within the time above specified, then either party, on behalf of
both parties, may request such appointment of such second or third
arbitrator, as the case may be, by application to any Judge of the
District Court of the County of Hennepin, State of Minnesota, upon
ten (10) days prior written notice to the other party of such
intent. The arbitrators so selected shall have all rights and
powers conferred on them by the Uniform Arbitration Act of the state
in which the Leased Premises are situated, and except as otherwise
provided for herein, the arbitration proceedings shall be carried on
and governed by such Act.
8. Miscellaneous. The reference in Article 18, Section 1(e) of the
Lease to the lease of space at 504 73rd Avenue N.E. is hereby deleted and
shall be of no further force or effect.
-16-
<PAGE>
Article 14, Section 1 of the Lease is amended by adding the following
language: If Landlord does not initiate such repairs and restoration within a
reasonable time following a casualty or does not complete such repairs and
restoration with one hundred eighty (180) days thereafter, Tenant shall have
the right to terminate the Lease upon notice given within thirty days
following the expiration of such period, and thereafter, neither party shall
have any liability to the other with respect to matters which arose subsequent
to the casualty, other than the non-abated portion of Base Rent and Additional
Rent, if any. In addition, attached to this Agreement is an example of an
Estoppel, Subordination, Non-Disturbance, and Attornment Agreement which shall
be substituted for the form of Nondisturbance Agreement previously attached as
Exhibit G to the Lease. Landlord acknowledges that Tenant is a wholly-owned
subsidiary of Carter Day Holding, Inc., which in turn is jointly owned by
Carter Day Industries, Inc. and Paul W. Ernst. Any change in the ownership or
effective control of Carter Day Holding, Inc. as between the aforementioned
joint owners shall not be deemed an assignment requiring Landlord's consent.
9. No Further Modification of Lease. Except to the extent modified
herein, all other terms and provisions of the Lease shall remain in full force
and effect.
-17-
<PAGE>
IN WITNESS TO THE FOREGOING, the parties have set their hands effective
as of the day and year set forth above.
LANDLORD: FRIDLEY BUSINESS CENTER
PARTNERSHIP
By Northco Corporation, its general
partner
By /s/ Dennis Zylla
------------------------------------
Its Vice President
TENANT: CARTER DAY INTERNATIONAL,
INC., f/k/a CARTER-DAY COMPANY
By /s/ Paul W. Ernst
------------------------------------
Its President
-18-
<PAGE>
CONSENT OF GUARANTOR
The undersigned is the Guarantor of the above referenced Lease under a
Guaranty dated June 1, 1991. The undersigned hereby consents to the amendment
of the Lease, and agrees that its Guaranty shall be deemed to be remade as to
the Lease and the subject amendment, effective as of the effective date of
said amendment.
CARTER DAY INDUSTRIES, INC.
By /s/ Kent R. Turner
----------------------------------------
Its VP, Sec'y & Controller
Date: October 20, 1995
-19-
<PAGE>
Second Amendment
Estoppel, Subordination, Non-Disturbance
and Attornment Agreement
[Sample of an estoppel, subordination, non-disturbance and attornment
agreement. Four pages.]
-20-
<PAGE>
SECOND AMENDMENT TO RESEARCH & DEVELOPMENT LEASE AGREEMENT
THIS SECOND AMENDMENT TO RESEARCH & DEVELOPMENT LEASE AGREEMENT is
entered into effective as of the 20th day of October, 1995, by and between
Fridley Business Center Partnership, a Minnesota general partnership
("Landlord") and Carter Day International, Inc., f/k/a Carter-Day Company, a
Minnesota corporation ("Tenant").
RECITALS
A. Landlord and Tenant are parties, in said respective capacities, to
that certain Research & Development Lease Agreement dated June 1, 1991, as
amended by amendment dated June 15, 1993 (collectively, the "Lease") under
which Tenant is leasing from Landlord 8,630 net rentable square feet of space
in the building (the "Building") located at 502 73rd Avenue Northeast,
Fridley, Minnesota, 55432,1 all as more fully described in the Lease.
B. The Land (as that term is described in the Lease) has been replatted
and a portion of the Land has been sold. The parties wish to revise the Lease
to reflect the new legal description of the remaining Land.
C. The parties also wish to extend the Term of the Lease and modify the
Base Rent payable thereunder, all as more fully described below.
AGREEMENT
IN CONSIDERATION of the extension of the Lease as described herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follow:
1. Conflict of Terms. In the event of a conflict between the terms of
this Amendment and the terms of the Lease, the terms of this Amendment shall
govern.
2. Legal Description of Land. Exhibit B of the Lease is hereby revised
to reflect that the legal description of the Land is as follows:
Lot 2, Block 1, Northco Business Park 4th Addition,
Anoka County, Minnesota.
- -----------------------
1 Note: A formal application has been made to change the street address
of the building to 502 Northco Drive.
-21-
<PAGE>
3. Extension of Term. Under the Lease, the Term of the Lease expires
on March 31, 1998. The parties hereby extend the Term of the Lease for an
additional seven (7) years and eleven (11) months (the "Extension Term"). The
Extension Term shall commence April 1, 1998 and shall terminate February 28,
2006.
4. Base Rent. From March 1, 1996 through the end of the initial Term
and during the Extension Term, Base Rent for the Leased Premises shall be
payable monthly in advance on the first day of each month as follows:
<TABLE>
<CAPTION>
Period Base Rent Per Base Rental
Square Foot Payable
Per Month
------------------- ----------- ----------
<S> <C> <C>
03/01/96 - 09/30/96 $2.75 $1,977.71
10/01/96 - 02/28/97 $2.75 $1,977.71
03/01/97 - 03/31/98 $2.75 $1,977.71
04/01/98 - 02/28/99 $3.00 $2,157.50
03/01/99 - 02/29/00 $3.00 $2,157.50
03/01/00 - 02/28/01 $3.00 $2,157.50
03/01/01 - 02/28/02 $3.00 $2,157.50
03/01/02 - 02/28/03 $3.25 $2,337.29
03/01/03 - 02/29/04 $3.25 $2,337.29
03/01/04 - 02/28/05 $3.50 $2,517.08
03/01/05 - 02/28/06 $3.50 $2,517.08
</TABLE>
5. Operating Costs. During the Extension Term, Tenant shall pay
Tenant's Proportionate Share of the Operating Costs for the Leased Premises in
accordance with the provisions of the Lease.
6. Option to Renew. Tenant shall have the right to further extend the
Term of this Lease for two (2) periods of five (5) years each as hereinafter
provided, each such five (5) year renewal period being sometimes herein
referred to as a "Renewal Term". The conditions to such renewals shall be as
follows:
(a) The Lease shall be in full force and effect and Tenant shall
not be in default in the performance of any of the terms, covenants
and conditions of the Lease, in respect to which notice of default
has been given and has not been or is not being remedied in the time
limits specified in the Lease; provided, however, that Landlord
shall have the right, at its sole discretion, to waive the non-
default condition;
-22-
<PAGE>
(b) Such Renewal Term shall be on the same terms, covenants and
conditions as in this Lease; provided, however, the annual Base Rent
for such Renewal Term shall be the fair market Base Rental rate for
such space on the date such Renewal Term shall commence in relation
to comparable (in quality and location) space located in the
relevant market area. The fair market Base Rent of the Leased
Premises shall be determined as of the date three hundred sixty
(360) days prior to commencement of the Renewal Term in question.
If Tenant has properly elected to renew the Term of this Lease, and
Landlord and Tenant fail to agree at least three hundred thirty
(330) days prior to commencement of the applicable Renewal Term upon
the fair market Base Rent of the Leased Premises, the amount of the
fair market Base Rent of the Leased Premises shall be determined by
arbitration in accordance with the provisions of paragraph 7, below
("Arbitration"). The fair market Base Rent of the Leased Premises
shall be based upon Tenant's presently contemplated use of the
Leased Premises. In no event shall the Base Rent of the Leased
Premises for the Renewal Term in question be less than the Base Rent
payable by Tenant under the Term of this Lease immediately prior to
commencement of the applicable Renewal Term (the "Minimum Renewal
Rent"). If, however, the Fair Market Base Rent determined in
accordance with the provisions of paragraph 10, below, is less than
the Minimum Renewal Rent, Tenant shall have the option to cancel its
election to renew the Term; provided, however, that Tenant's option
to rescind its exercise of its option to renew must be exercised, if
at all, not later than three (3) business days following Tenant's
receipt of notice of the Fair Market Base Rent;
(c) Tenant shall exercise its right to a Renewal Term, if at all,
by notifying Landlord in writing of its election to exercise the
right to renew the Term of this Lease no later than three hundred
sixty (360) days prior to the date of commencement of the Renewal
Term in question. For a period of thirty (30) days following the
date of notice, the parties shall make a good faith effort to agree
upon the fair market Base Rent of the Leased Premises for such
Renewal Term. Any agreement reached by the parties with respect to
such fair market Base Rent of the Leased Premises for such Renewal
Term shall be expressed in writing and shall be executed by the
parties, and a copy delivered to each of the parties. In the event
that Landlord and Tenant fail to agree within said thirty (30) day
time period, the fair market Base Rent for the Leased Premises for
such Renewal Term shall be determined by Arbitration. The
arbitrators shall be directed to determine the fair market Base Rent
for the Leased Premises as above provided and shall be instructed to
make said appraisal independently, without consulting with each
other. Upon an established date at an established time, all three
(3) arbitrators shall simultaneously submit their determinations as
to fair market Base Rent, such determination to be submitted in
sealed envelopes and to be opened jointly by Landlord and Tenant.
The fair market Base Rent for the Renewal Term shall be determined
by averaging the two (2) arbitrators' fair market Base Rent
determinations which are closest in
-23-
<PAGE>
amount to each other (or if one appraisal is less than one of the
other appraisals and more than the other appraisal by the same
amount, all three appraisals shall be averaged).
7. Arbitration. Any disagreement, dispute or determination required by
or arising under the provisions of paragraph 6, above, ("Option to Renew")
requiring arbitration shall be carried on and concluded in accordance with the
provisions of subparagraphs (a) and (b) hereof:
(a) In each case where it shall become necessary to resort to
arbitration, and the subject of the arbitration is to determine fair
market Base Rent, all arbitrators appointed by or on behalf of
either party or appointed pursuant to the provisions hereof shall be
MAI members of the American Institute of Real Estate Appraisers with
not less than ten (10) years of experience in the appraisal of
improved commercial and industrial real estate in the Minneapolis,
Minnesota metropolitan area and be devoting substantially all of
their time to professional appraisal work at the time of
appointment, and be in all respects impartial and disinterested. In
determining fair market Base Rent, the arbitrators shall consider
the condition of leasehold improvements in the Leased Premises
(other than removable trade fixtures) in comparison to leasehold
improvements in market comparables but shall not take into account
any market concessions (free rent, moving allowances, etc.) in
market comparables;
(b) The party desiring arbitration shall give written notice to
that effect to the other party, specifying in such notice the name,
address and professional qualifications of the person designated to
act as arbitrator on its behalf. Within twenty (20) days after
service of such notice, the other party shall give written notice to
the party desiring such arbitration specifying the name, address and
professional qualifications of the person designated to act as
arbitrator on its behalf. The two (2) arbitrators shall, within ten
(10) days thereafter, select a third arbitrator. The decision of
the arbitrators so chosen shall be given within a period of thirty
(30) days after the appointment of such third arbitrator. Each
party shall pay the fees and expenses of the arbitrator appointed by
or on behalf of such party and the fees and expenses of the third
arbitrator shall be borne equally by both parties. If the party
receiving a request for arbitration fails to appoint is arbitrator
within the time above specified, or if the two (2) arbitrators so
selected cannot agree on the selection of the third arbitrator
within the time above specified, then either party, on behalf of
both parties, may request such appointment of such second or third
arbitrator, as the case may be, by application to any Judge of the
District Court of the County of Hennepin, State of Minnesota, upon
ten (10) days prior written notice to the other party of such
intent. The arbitrators so selected shall have all rights and
powers conferred on them by the Uniform Arbitration Act of the state
in which the Leased Premises are situated, and except as
-24-
<PAGE>
otherwise provided for herein, the arbitration proceedings shall be
carried on and governed by such Act.
8. Miscellaneous. The reference in Article 18, Section 1(e) of the
Lease to the lease of space at 504 73rd Avenue N.E. is hereby deleted and
shall be of no further force or effect. Article 14, Section 1 of the Lease is
amended by adding the following language: If Landlord does not initiate such
repairs and restoration within a reasonable time following a casualty or does
not complete such repairs and restoration with one hundred eighty (180) days
thereafter, Tenant shall have the right to terminate the Lease upon notice
given within thirty days following the expiration of such period, and
thereafter, neither party shall have any liability to the other with respect
to matters which arose subsequent to the casualty, other than the non-abated
portion of Base Rent and Additional Rent, if any. In addition, attached to
this Agreement is an example of an Estoppel, Subordination, Non-Disturbance,
and Attornment Agreement which shall be substituted for the form of
Nondisturbance Agreement previously attached as Exhibit F to the Lease.
Landlord acknowledges that Tenant is a wholly-owned subsidiary of Carter Day
Holding, Inc., which in turn is jointly owned by Carter Day Industries, Inc.
and Paul W. Ernst. Any change in the ownership or effective control of Carter
Day Holding, Inc. as between the aforementioned joint owners shall not be
deemed an assignment requiring Landlord's consent.
9. No Further Modification of Lease. Except to the extent modified
herein, all other terms and provisions of the Lease shall remain in full force
and effect.
IN WITNESS TO THE FOREGOING, the parties have set their hands effective
as of the day and year set forth above.
LANDLORD: FRIDLEY BUSINESS CENTER
PARTNERSHIP
By Northco Corporation, its general
partner
By /s/ Dennis Zylla
---------------------------------------
Its Vice President
-25-
<PAGE>
TENANT: CARTER DAY INTERNATIONAL,
INC., f/k/a CARTER-DAY COMPANY
By /s/ Paul W. Ernst
------------------------------------------
Its President
-26-
<PAGE>
CONSENT OF GUARANTOR
The undersigned is the Guarantor of the above referenced Lease under a
Guaranty dated June 1, 1991. The undersigned hereby consents to the amendment
of the Lease, and agrees that its Guaranty shall be deemed to be remade as to
the Lease and the subject amendment, effective as of the effective date of
said amendment.
CARTER DAY INDUSTRIES, INC.
By /s/ Kent R. Turner
-------------------------------------------
Its VP Sec'y & Controller
Date: October 20, 1995
-27-
<PAGE>
Second Amendment
Estoppel, Subordination, Non-Disturbance
and Attornment Agreement
[Sample of an estoppel, subordination, non-disturbance and attornment
agreement. Four pages.]
-28-
<PAGE>
SECOND AMENDMENT TO MANUFACTURING LEASE AGREEMENT
THIS SECOND AMENDMENT TO MANUFACTURING LEASE AGREEMENT is entered into
effective as of the 20th day of October, 1995, by and between James A. Gray,
an individual ("Landlord") and Carter Day International, Inc., f/k/a Carter-
Day Company, a Minnesota corporation ("Tenant").
RECITALS
A. Landlord, as successor to Fridley Business Center Partnership, a
Minnesota general partnership, and Tenant are parties, in said respective
capacities, to that certain Manufacturing Lease Agreement dated June 1, 1991,
as amended by amendment dated June 15, 1993 (collectively, the "Lease") under
which Tenant is leasing from Landlord 49,405 net rentable square feet of space
in the building (the "Building") located at 502 Northco Drive (formerly known
as 504 73rd Avenue North), Fridley, Minnesota, 55432, all as more fully
described in the Lease.2
B. The Land (as that term is described in the Lease) has been replatted
and a portion of the Land has been sold. The parties wish to revise the Lease
to reflect the new legal description of the remaining Land.
C. The parties also wish to modify the terms of the Lease to provide,
among other things, for the lease of additional space and an extension of the
Term of the Lease, all as more fully described below.
AGREEMENT
IN CONSIDERATION of the mutual covenants of the parties described herein
and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follow:
1. Conflict of Terms. In the event of a conflict between the terms of
this Amendment and the terms of the Lease, the terms of this Amendment shall
govern.
2. Legal Description of Land. Exhibit B of the Lease is hereby revised
to reflect that the legal description of the Land is as follows:
- -----------------------
1 Note: A formal application has been made to change the street address
of the Building to 504 Northco Drive.
-29-
<PAGE>
Lot 1, Block 1, Northco Business Park 5th Addition,
Anoka County, Minnesota.
3. Extension of Term. Under the Lease, the Term of the Lease expires
on March 31, 1998. The parties hereby extend the Term of the Lease for an
additional seven (7) years and eleven (11) months (the "Extension Term"). The
Extension Term shall commence April 1, 1998 and shall terminate February 28,
2006.
4. Lease of Additional Space. Landlord hereby leases to Tenant
approximately thirty-three thousand nine hundred fifty (33,950) additional
rentable square feet of space in the Building (as that term is defined in the
Lease) as shown by cross-hatching on the site plan attached as Exhibit A (the
"New Space"). Tenant acknowledges that portions of the New Space are
currently leased to Steinwall Incorporated (the "Steinwall Space") and Kwik
File, Inc. (the "Kwik File Space") pursuant to separate leases which will
terminate in the near future. Tenant shall receive possession of the
Steinwall Space and the Kwik File Space on March 1, 1996, and its obligation
to pay Base Rent and Additional Rent for the New Space shall begin on that
date; provided, however, that Kwik File shall be allowed to remain in the Kwik
File Space for the thirty (30) day period from March 1, 1996 to March 31,
1996, while Kwik File completes moving out of the Kwik File Space, but shall
conduct its activities in such a way as to minimize any interference with
Tenant's preparation of the New Space. Landlord shall take diligent action to
confirm that Kwik File is responsible, during such period, for any loss or
damage to its personal property, equipment, or goods in the Kwik File Space
unless such loss or damage is attributable to the gross negligence or
intentional, willful misconduct of Tenant. The lease term for the New Space
shall end co-terminously with the Extension Term, i.e. February 28, 2006 (the
"New Space Term"). The New Space shall also include the south restroom which
shall be used exclusively by Tenant. Tenant shall also be allotted thirty
(30) additional parking spaces for the Building in connection with its lease
of the New Space, bringing the total number of parking spaces allocated to
Tenant to one hundred (100).
The parties acknowledge that the exact area of the New Space is unknown.
Within ninety (90) days of signing this Amendment, Landlord and Tenant shall
have the Leased Premises and New Space measured from the outside of the
exterior walls to the center of the interior walls to determine the exact area
of said space. Promptly following the determination of the exact area of the
Leased Premises and New Space, Landlord shall calculate, based upon said
measurement, the Base Rent (based upon the Base Rent per square foot as set
forth in the Base Rent schedule set forth in paragraph 5, below), and Tenant's
Proportionate Share of Operating Expenses for the Building and Complex
pursuant to paragraphs 5 and 6, below, and shall appropriately adjust the Base
Rent payable per month and Operating Expenses. Landlord and Tenant agree to
execute a written statement confirming the exact area of the Leased Premises
and New Space, the Base Rent schedule, Tenant's Proportionate Share of
Operating Expenses and the adjustments to the Base Rent and Operating
Expenses, if any.
-30-
<PAGE>
Landlord shall deliver the New Space to Tenant in "broom clean"
condition. Landlord is not aware of any repairs or restorations for which
Landlord is responsible under the Lease presently required for the New Space.
If any required repairs or replacements come to Landlord's attention or
Landlord's agents' or vendors' attention prior to Tenant's occupancy, Landlord
will make the repair or restoration in an appropriate manner, with
reimbursement by Tenant for Tenant's proportionate share thereof to the extent
required by the terms of the Lease, as in effect prior to the second
amendment.
Landlord and Tenant acknowledge that nothing contained in this Agreement
shall be construed to limit or excuse the obligations of Landlord or Tenant
under Article 8 of the Lease, which obligations shall be deemed to remain in
full force and effect.
5. Base Rent. From March 1, 1996 through the end of the initial Term
and during the Extension Term, Base Rent for the Leased Premises and the New
Space shall be payable monthly in advance on the first day of each month as
follows, subject to the provisions of paragraph 4, above:
<TABLE>
<CAPTION>
Period Base Rent Per Base Rental
Square Foot Payable
Per Month
------------------- ----------- ----------
<S> <C> <C>
03/01/96 - 09/30/96 $2.75 $19,102.19
10/01/96 - 02/28/97 $3.00 $20,838.75
03/01/97 - 03/31/98 $3.00 $20,838.75
04/01/98 - 02/28/99 $3.25 $22,575.31
03/01/99 - 02/29/00 $3.25 $22,575.31
03/01/00 - 02/28/01 $3.25 $22,575.31
03/01/01 - 02/28/02 $3.25 $22,575.31
03/01/02 - 02/28/03 $3.50 $24,311.88
03/01/03 - 02/29/04 $3.50 $24,311.88
03/01/04 - 02/28/05 $3.75 $26,048.44
03/01/05 - 02/28/06 $3.75 $26,048.44
</TABLE>
Within three (3) days following the execution of this Amendment, Tenant will
prepay the Rent on the New Space due for the first twelve (12) months of the
Term applicable to the New Space (i.e. Ninety-Six Thousand Eight Hundred
Ninety-Eight and 97/100 Dollars ($96,898.97) which will be used by Landlord
for the leasehold improvements to be made pursuant to paragraph 9 of this
Amendment.
6. Obligation to Pay Rent. Tenant's obligation to pay Base Rent and
Additional Rent on the New Space shall commence on March 1, 1996. However, if
the improvements to be constructed by Landlord pursuant to Section 9, below,
are not substantially completed
-31-
<PAGE>
by March 1, 1996, with the exception of the south demising wall which is to be
completed by April 1, 1996, the Tenant's obligation to pay Base Rent and
Additional Rent on the New Space shall abate until such improvements are
substantially completed. Under no circumstances shall Tenant be obligated to
pay Base Rent or Additional Rent on the New Space until the occupant of the
Steinwall Space has vacated the Steinwall Space, or if Kwik File has not
vacated the Kwik File Space by March 31, 1996. In the event that the occupant
of the Steinwall Space has not vacated such space by February 1, 1996, or if
Kwik File has not vacated the Kwik File Space by March 31, 1996, Landlord
shall take prompt legal measures to terminate such occupancy.
7. Operating Costs. During the Extension Term and New Space Term,
Tenant shall pay Tenant's Proportionate Share of the Operating Costs for the
Building and the Complex in accordance with the provisions of the Lease;
provided, however, that Tenant's Proportionate Share shall be recalculated
following the measurement of the Leased Premises and New Space pursuant to
paragraph 4, above. Tenant's Proportionate Share of Operating Expenses for
the Building is presently estimated to be 44.69 percent. Tenant's
Proportionate Share of Operating Expenses for the Complex shall be
appropriately adjusted following measurement of the New Space pursuant to
paragraph 4, above.
8. Tenant's Leasehold Improvements. Pursuant to Article 9 of the
Lease, Tenant, at its sole cost, is hereby authorized to make the following
leasehold improvements to the Leased Premises:
(a) Add roof ventilators.
(b) Modify the floor to allow the installation of one (1) special
machine; provided, however, that Tenant shall restore the floor to
its original condition prior to vacating the Leased Premises and New
Space.
(c) Remove interior walls, as required.
(d) Add interior walls, as required.
9. Landlord's Leasehold Improvements. Landlord shall be responsible
for the cost and installation of the south demising wall to be added to the
New Space and the zoning of gas radiant heat in the New Space, if required.
The zoning of gas radiant heat in the New Space shall be completed by March 1,
1996, subject to delays reasonably beyond the control of Landlord, including
delays attributable to the acts or failures to timely act of Tenant.
Installation of the south demising wall shall be substantially completed by
Landlord by April 1, 1996, subject to delays reasonably beyond the control of
Landlord, including delays attributable to the acts or failures to timely act
of Tenant. In addition, Landlord shall provide for the separate metering, or
submetering, of the gas and electricity used by each of the tenants in the
Building by March 1, 1996 subject to delays reasonably beyond the control of
Landlord. Landlord shall deliver within three business days copy of a
contract to construct a drive-in asphalt ramp on the northeast
-32-
<PAGE>
corner of the Building with a sufficient weight bearing capacity for eighteen
thousand (18,000) pound-per-axle trucks in accordance with the design shown on
attached Exhibit B. Construction of this ramp shall be completed during
calendar year 1995 weather permitting so long as this Lease is fully executed
by Tenant not later than October 20, 1995. Landlord shall not remove or make
any changes to the make-up air unit in the Steinwall Space. Landlord shall
not remove the existing office in the Steinwall Space. Landlord shall cause
such facilities and equipment to be installed so that an additional eight
hundred (800) amps electric service, in accordance with the provisions of
attached Exhibit C, is available to the New Space by March 1, 1996 for
Tenant's use through the Lease Term, subject to delays beyond the reasonable
control of Landlord.
10. Option to Renew. Tenant shall have the right to further extend the
Term of this Lease for two (2) periods of five (5) years each as hereinafter
provided, each such five (5) year renewal period being sometimes herein
referred to as a "Renewal Term". The conditions to such renewals shall be as
follows:
(a) The Lease shall be in full force and effect and Tenant shall
not be in default in the performance of any of the terms, covenants
and conditions of the Lease, in respect to which notice of default
has been given and has not been or is not being remedied in the time
limits specified in the Lease; provided, however, that Landlord
shall have the right, at its sole discretion, to waive the non-
default condition;
(b) Such Renewal Term shall be on the same terms, covenants and
conditions as in this Lease; provided, however, the annual Base Rent
for such Renewal Term shall be the fair market Base Rental rate for
such space on the date such Renewal Term shall commence in relation
to comparable (in quality and location) space located in the
relevant market area. The fair market Base Rent of the Leased
Premises shall be determined as of the date three hundred sixty
(360) days prior to commencement of the Renewal Term in question.
If Tenant has properly elected to renew the Term of this Lease, and
Landlord and Tenant fail to agree at least three hundred thirty
(330) days prior to commencement of the applicable Renewal Term upon
the fair market Base Rent of the Leased Premises, the amount of the
fair market Base Rent of the Leased Premises shall be determined by
arbitration in accordance with the provisions of paragraph 10, below
("Arbitration"). The fair market Base Rent of the Leased Premises
shall be based upon Tenant's presently contemplated use of the
Leased Premises. In no event shall the Base Rent of the Leased
Premises for the Renewal Term in question be less than the Base Rent
payable by Tenant under the Term of this Lease immediately prior to
commencement of the applicable Renewal Term (the "Minimum Renewal
Rent"). If, however, the Fair Market Base Rent determined in
accordance with the provisions of paragraph 10, below, is less than
the Minimum Renewal Rent, Tenant shall have the option to cancel its
election to renew the Term; provided, however, that Tenant's option
to rescind its exercise of its option to renew must be
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exercised, if at all, not later than thirty (30) days following
Tenant's receipt of notice of the Fair Market Base Rent;
(c) Tenant shall exercise its right to a Renewal Term, if at all,
by notifying Landlord in writing of its election to exercise the
right to renew the Term of this Lease no later than three hundred
sixty (360) days prior to the date of commencement of the Renewal
Term in question. For a period of thirty (30) days following the
date of notice, the parties shall make a good faith effort to agree
upon the fair market Base Rent of the Leased Premises for such
Renewal Term. Any agreement reached by the parties with respect to
such fair market Base Rent of the Leased Premises for such Renewal
Term shall be expressed in writing and shall be executed by the
parties, and a copy delivered to each of the parties. In the event
that Landlord and Tenant fail to agree within said thirty (30) day
time period, the fair market Base Rent for the Leased Premises for
such Renewal Term shall be determined by Arbitration. The
arbitrators shall be directed to determine the fair market Base Rent
for the Leased Premises as above provided and shall be instructed to
make said appraisal independently, without consulting with each
other. Upon an established date at an established time, all three
(3) arbitrators shall simultaneously submit their determinations as
to fair market Base Rent, such determination to be submitted in
sealed envelopes and to be opened jointly by Landlord and Tenant.
The fair market Base Rent for the Renewal Term shall be determined
by averaging the two (2) arbitrators' fair market Base Rent
determinations which are closest in amount to each other (or if one
appraisal is less than one of the other appraisals and more than the
other appraisal by the same amount, all three appraisals shall be
averaged).
11. Arbitration. Any disagreement, dispute or determination required by
or arising under the provisions of paragraph 10, above, requiring arbitration
shall be carried on and concluded in accordance with the provisions of
subparagraphs (a) and (b) hereof:
(a) In each case where it shall become necessary to resort to
arbitration, and the subject of the arbitration is to determine fair
market Base Rent, all arbitrators appointed by or on behalf of
either party or appointed pursuant to the provisions hereof shall be
MAI members of the American Institute of Real Estate Appraisers with
not less than ten (10) years of experience in the appraisal of
improved commercial and industrial real estate in the Minneapolis,
Minnesota metropolitan area and be devoting substantially all of
their time to professional appraisal work at the time of
appointment, and be in all respects impartial and disinterested. In
determining fair market Base Rent, the arbitrators shall consider
the condition of leasehold improvements in the Leased Premises
(other than removable trade fixtures) in comparison to leasehold
improvements in market comparables but shall not take into account
any market concessions (free rent, moving allowances, etc.) in
market comparables;
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(b) The party desiring arbitration shall give written notice to
that effect to the other party, specifying in such notice the name,
address and professional qualifications of the person designated to
act as arbitrator on its behalf. Within twenty (20) days after
service of such notice, the other party shall give written notice to
the party desiring such arbitration specifying the name, address and
professional qualifications of the person designated to act as
arbitrator on its behalf. The two (2) arbitrators shall, within ten
(10) days thereafter, select a third arbitrator. The decision of
the arbitrators so chosen shall be given within a period of thirty
(30) days after the appointment of such third arbitrator. Each
party shall pay the fees and expenses of the arbitrator appointed by
or on behalf of such party and the fees and expenses of the third
arbitrator shall be borne equally by both parties. If the party
receiving a request for arbitration fails to appoint is arbitrator
within the time above specified, or if the two (2) arbitrators so
selected cannot agree on the selection of the third arbitrator
within the time above specified, then either party, on behalf of
both parties, may request such appointment of such second or third
arbitrator, as the case may be, by application to any Judge of the
District Court of the County of Hennepin, State of Minnesota, upon
ten (10) days prior written notice to the other party of such
intent. The arbitrators so selected shall have all rights and
powers conferred on them by the Uniform Arbitration Act of the state
in which the Leased Premises are situated, and except as otherwise
provided for herein, the arbitration proceedings shall be carried on
and governed by such Act.
12. Miscellaneous. Article 18, Section 1(e) of the Lease is hereby
deleted and shall be of no further force or effect. Article 14, Section 1 of
the Lease is amended by adding the following language: If Landlord does not
initiate such repairs and restoration within a reasonable time following a
casualty or does not complete such repairs and restoration with one hundred
eighty (180) days thereafter, Tenant shall have the right to terminate the
Lease upon notice given within thirty days following the expiration of such
period, and thereafter, neither party shall have any liability to the other
with respect to matters which arose subsequent to the casualty, other than the
non-abated portion of Base Rent and Additional Rent, if any. Article 25 of
the Lease presently refers, in Section 12 thereof, to an Exhibit F, which
lists removable trade fixtures, and to an Exhibit G, which is a Nondisturbance
Agreement. In fact, those references are reversed and Exhibit F is the
Nondisturbance Agreement, and Exhibit G is a list of removable trade fixtures.
The Lease is hereby modified accordingly. Landlord acknowledges that Tenant
is a wholly-owned subsidiary of Carter Day Holding, Inc., which in turn is
jointly owned by Carter Day Industries, Inc. and Paul W. Ernst. Any change in
the ownership or effective control of Carter Day Holding, Inc. as between the
aforementioned joint owners shall not be deemed an assignment requiring
Landlord's consent.
In addition, attached to this Agreement is an example of an Estoppel,
Subordination, Non-Disturbance, and Attornment Agreement which shall be
substituted for the above referenced form of Nondisturbance Agreement
previously attached as Exhibit F. Finally, with respect
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to Exhibit G, within ninety (90) days following the date that Tenant takes
occupancy of the New Space, Landlord and Tenant shall appropriately modify
Exhibit G to include any additional and/or different removable trade fixtures.
13. No Further Modification of Lease. Except to the extent modified
herein, all other terms and provisions of the Lease shall remain in full force
and effect.
IN WITNESS TO THE FOREGOING, the parties have set their hands effective
as of the day and year set forth above.
LANDLORD:
/s/ James A. Gray
-----------------------------------------
James A. Gray
TENANT: CARTER DAY INTERNATIONAL,
INC., f/k/a CARTER-DAY COMPANY
By /s/ Paul W. Ernst
-----------------------------------------
Its President
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CONSENT OF GUARANTOR
The undersigned is the Guarantor of the above referenced Lease under a
Guaranty dated June 1, 1991. The undersigned hereby consents to the amendment
of the Lease, and agrees that its Guaranty shall be deemed to be remade as to
the Lease and the subject amendment, effective as of the effective date of
said amendment.
CARTER DAY INDUSTRIES, INC.
By /s/ Kent R. Turner
------------------------------------------
Its VP, Sec'y & Controller
Date: October 20, 1995
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Second Amendment
Exhibit A
[Floor plan of building indicating rented space.]
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Second Amendment
Exhibit B
[Map showing location of ramp to be constructed.]
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Second Amendment
Exhibit C
[Quotation for electrical work indicating scope and location of work to be
performed. Two pages.]
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Second Amendment
Estoppel, Subordination, Non-Disturbance
and Attornment Agreement
[Sample of an estoppel, subordination, non-disturbance and attornment
agreement. Four pages.]
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