<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission file number 0-1424
ADC TELECOMMUNICATIONS, INC.
_____________________________________________
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0743912
- -------------------------------------- -------------------------
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 WEST 78TH STREET, MINNEAPOLIS, MN 55435
-----------------------------------------------
(Address of principal executive offices) (zip code)
(612) 938-8080
---------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
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
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.20 par value: 56,162,748 shares as of May 15, 1995
<PAGE>
PART I.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 37,135 $ 49,512
Accounts receivable 82,564 75,348
Inventories 83,333 64,203
Prepaid income taxes and other assets 10,743 10,305
---------- ----------
Total current assets 213,775 199,368
PROPERTY AND EQUIPMENT, net 71,266 66,132
OTHER ASSETS, principally goodwill 68,256 69,184
---------- ----------
$ 353,297 $ 334,684
---------- ----------
---------- ----------
</TABLE>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 410 $ 400
Accounts payable 22,706 22,132
Accrued liabilities 41,270 44,821
---------- ----------
Total current liabilities 64,386 67,353
DEFERRED INCOME TAXES 1,974 2,163
LONG-TERM DEBT, less current maturities above -- 410
---------- ----------
Total liabilities 66,360 69,926
STOCKHOLDERS' INVESTMENT
(56,146 and 27,888 shares outstanding) 286,937 264,758
---------- ----------
$ 353,297 $ 334,684
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED FOR THE SIX MONTHS ENDED
APRIL 30, APRIL 30,
--------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 140,342 $ 113,573 $ 262,116 $ 204,749
COST OF PRODUCT SOLD 71,303 56,160 133,705 101,407
----------- ----------- ----------- -----------
GROSS PROFIT 69,039 57,413 128,411 103,342
----------- ----------- ----------- -----------
Gross profit percentage 49.2% 50.6% 49.0% 50.5%
----------- ----------- ----------- -----------
EXPENSES:
Development and product engineering 15,937 12,247 29,146 23,250
Selling and administration 32,638 27,888 62,401 51,767
Goodwill amortization 782 783 1,566 1,567
Personnel reduction 3,914 -- 3,914 --
----------- ----------- ----------- -----------
Total expenses 53,271 40,918 97,027 76,584
----------- ----------- ----------- -----------
OPERATING INCOME 15,768 16,495 31,384 26,758
OTHER INCOME (EXPENSE), NET:
Interest 547 164 1,203 297
Other (80) (651) -- (421)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 16,235 16,008 32,587 26,634
PROVISION FOR INCOME TAXES 5,846 5,923 11,732 9,854
----------- ----------- ----------- -----------
NET INCOME BEFORE EXTRAORDINARY ITEM 10,389 10,085 20,855 16,780
EXTRAORDINARY ITEM, NET OF TAXES -- -- -- (1,450)
----------- ----------- ----------- -----------
NET INCOME $ 10,389 $ 10,085 $ 20,855 $ 15,330
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
AVERAGE COMMON SHARES OUTSTANDING 56,094 55,568 55,974 55,520
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER SHARE BEFORE
EXTRAORDINARY ITEM $ 0.18 $ 0.18 $ 0.37 $ 0.30
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER SHARE $ 0.18 $ 0.18 $ 0.37 $ 0.27
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
ORDERS $ 144,999 $ 108,796 $ 269,679 $ 205,891
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS ENDED APRIL 30
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 20,855 $ 15,330
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and amortization 11,567 11,213
Reduction in deferred compensation 271 543
Decrease in deferred income taxes (189) (1,332)
Other 115 --
Changes in assets and liabilities
Accounts receivable (6,516) (2,718)
Inventories (18,142) (7,734)
Prepaid income taxes and other assets (283) 814
Accounts payable 482 514
Accrued liabilities (4,855) 5,562
---------- ----------
Total cash from operating activities 3,305 22,192
---------- ----------
INVESTMENT ACTIVITIES:
Acquisition payments (4,676) (7,087)
Property and equipment additions, net (12,108) (10,261)
Long-term investments (1,000) 0
---------- ----------
Total cash used for investment activities (17,784) (17,348)
---------- ----------
FINANCING ACTIVITIES:
Decrease in long-term debt (400) (300)
Common stock issued 2,504 896
---------- ----------
Total cash from financing activities 2,104 596
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2) --
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,377) 5,440
CASH AND CASH EQUIVALENTS, beginning of period 49,512 16,324
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 37,135 $ 21,764
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
2ND 1ST 4TH 3RD
QUARTER QUARTER QUARTER QUARTER
1995 1995 1994 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 140,342 $ 121,774 $ 128,298 $ 115,688
COST OF PRODUCT SOLD 71,303 62,402 62,695 57,346
---------- ---------- ---------- ----------
GROSS PROFIT 69,039 59,372 65,603 58,342
---------- ---------- ---------- ----------
Gross profit percentage 49.2% 48.8% 51.1% 50.4%
---------- ---------- ---------- ----------
EXPENSES:
Development and product engineering 15,937 13,209 13,200 12,515
Selling and administration 32,638 29,763 31,607 27,434
Goodwill amortization 782 784 784 784
Personnel reduction 3,914 -- -- --
---------- ---------- ---------- ----------
Total expenses 53,271 43,756 45,591 40,733
---------- ---------- ---------- ----------
OPERATING INCOME 15,768 15,616 20,012 17,609
OTHER INCOME(EXPENSE), NET:
Interest 547 656 543 318
Other (80) 80 (324) (471)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 16,235 16,352 20,231 17,456
PROVISION FOR INCOME TAXES 5,846 5,886 7,487 6,459
---------- ---------- ---------- ----------
NET INCOME $ 10,389 $ 10,466 $ 12,744 $ 10,997
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
AVERAGE COMMON SHARES
OUTSTANDING 56,094 55,849 55,740 55,658
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE $ 0.18 $ 0.19 $ 0.23 $ 0.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
ORDERS $ 144,999 $ 124,680 $ 137,170 $ 119,160
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See note 2 to the consolidated financial statements
5
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note 1 ACCOUNTING POLICIES: The information furnished in this report is
unaudited but reflects all adjustments which are necessary, in the
opinion of management, for a fair statement of the results for the
interim periods. The operating results for the six months ended
April 30, 1995 are not necessarily indicative of the operating
results to be expected for the full fiscal year. These statements
should be read in conjunction with the Company's most recent Annual
Report on Form 10-K.
Note 2 ORDERS: Orders reported for each period reflect purchase orders
received during such period for which shipment has been scheduled
within one year. Substantially all of the Company's products are
shipped within the period that the related orders are received. As
a result, orders correspond generally to net sales for the specified
period and are not necessarily indicative of future results.
Note 3 STOCK DIVIDEND: On January 24, 1995 the Company declared a two-for-
one stock split effected in the form of a 100% stock dividend paid
February 28, 1995 to stockholders of record as of February 15, 1995.
The share and per share information in the accompanying financial
statements (except balance sheet data) have been adjusted to reflect
the effect of the stock dividends.
Note 4 INVENTORIES: Inventories include material, labor and overhead and
are stated at the lower of first-in, first-out cost or market.
Inventories at April 30, 1995 and October 31, 1994 consisted of (in
thousands):
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Purchased materials and
manufactured products $75,471 $57,031
Work-in-process 7,862 7,172
--------- ---------
$83,333 $64,203
--------- ---------
--------- ---------
</TABLE>
Note 5 EXTRAORDINARY ITEM: The building that serves as headquarters for
Fibermux Corporation, a wholly-owned subsidiary of the Company,
suffered damage as a result of the earthquake that struck Los
Angeles on January 17, 1994. The facility sustained damages of
$2,300,000 (net of the related $850,000 tax benefit). All
operations resumed by February 8, 1994.
6
<PAGE>
Note 6 PERSONNEL REDUCTION: During the quarter ended April 30, 1995,
the Company initiated a realignment of its Kentrox and Fibermux
subsidiaries into one business unit. The Company recorded a charge
of $3,914,000 in conjunction with the realignment, primarily related
to reductions in personnel. The realignment terminated
approximately 110 Fibermux employees primarily in sales and
administration and engineering. Substantially all termination
benefits are expected to be paid by October 31, 1995.
Note 7 FOREIGN CURRENCY TRANSLATION: The functional currency for the
majority of the Company's foreign operations is the applicable local
currency. The translation to U.S. dollars is performed for balance
sheet accounts using exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average
exchange rate during the period. The gains or losses resulting from
such translation are included in stockholders' investment. Prior to
1995, the Company's primary functional currency was the U.S. dollar.
The functional currency changed as a result of substantial changes
in the Company's foreign operations.
Note 8 NEW ACCOUNTING PRONOUNCEMENTS: A new accounting standard,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, requires impairment losses on long-
lived assets to be recognized when an asset's book value exceeds its
expected future cash flows (undiscounted). The Company anticipates
adopting this standard on November 1, 1996 and does not expect that
adoption will have a material impact on the financial position or
results of operations of the Company.
Note 9 SUBSEQUENT EVENT: On May 19, 1995, the Company filed a registration
statement relating to a proposed public offering of approximately
5.5 million shares of its common stock. The net proceeds of the
offering will be used for general corporate purposes, including
working capital, capital expenditures and possible acquisitions or
strategic alliances.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company offers a broad range of products to address key areas of the
telecommunications network infrastructure. To meet its customers' needs, the
Company offers equipment, services and integrated solutions within the following
general functional product groups: transmission, enterprise networking and
broadband connectivity. The Company's transmission products are sold primarily
to public network providers in the United States and internationally. The
Company's enterprise networking products are sold primarily to private voice,
data and video network providers around the world. The Company's broadband
connectivity products are sold to both public and private network providers.
Historically, the Company's principal product offerings have generally
consisted of copper-based and fiber-based products designed to address the needs
of its customers for transmission, enterprise networking and connectivity on
traditional telephony networks. With the growth of multimedia applications and
the associated development of enhanced voice, data and video services, the
Company's more recent product offerings and research and development efforts
have increasingly focused on emerging technologies and applications relating to
the broadband telecommunications equipment market. The market for broadband
telecommunications equipment is evolving and rapidly changing. There can be no
assurance that the Company's new or enhanced products will meet with market
acceptance or be profitable.
The Company's operating results may fluctuate significantly from quarter to
quarter due to several factors. The Company's expense levels are based in part
on expectations of future revenues. If revenue levels in a particular period
do not meet expectations, operating results will be adversely affected. In
addition, the Company's results of operations are subject to seasonal factors.
The Company historically has experienced a stronger demand for its products in
the fourth fiscal quarter, primarily as a result of customer budget cycles and
Company year-end incentives, and has experienced a weaker demand for its
products in the first fiscal quarter, primarily as a result of the number of
holidays in late November, December and early January and a general industry
slowdown during that period.
8
<PAGE>
RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the quarters and six months ended April 30, 1995 and 1994 and the
percentage changes in these income and expense items between periods are
contained in the following table:
<TABLE>
<CAPTION>
Percentage Change
Percentage of Net Sales Between Periods
------------------------------------ --------------------
Quarters Ended Six Months Ended Quarters Six Months
April 30, April 30, Ended Ended
---------------- ---------------- --------------------
1995 1994 1995 1994 April 30, April 30,
------ ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 100.0% 23.6% 28.0%
COST OF PRODUCT SOLD (50.8) (49.4) (51.0) (49.5) 27.0 31.8
-------- -------- -------- --------
GROSS PROFIT 49.2 50.6 49.0 50.5 20.2 24.3
EXPENSES:
Development and
product engineering (11.3) (10.8) (11.1) (11.3) 30.1 25.4
Selling and administration (23.3) (24.6) (23.8) (25.3) 17.0 20.5
Goodwill amortization (0.6) (0.7) (0.6) (0.8) - -
Personnel reduction (2.8) - (1.5) - - -
-------- -------- -------- --------
OPERATING INCOME 11.2 14.5 12.0 13.1 (4.4) 17.3
OTHER INCOME
(EXPENSE), NET:
Interest 0.4 0.2 0.5 0.1 233.5 305.1
Other - (0.6) - (0.2) - -
-------- -------- -------- --------
INCOME BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM 11.6 14.1 12.5 13.0 1.4 22.4
PROVISION FOR
INCOME TAXES (4.2) (5.2) (4.5) (4.8) (1.3) 19.1
-------- -------- -------- --------
NET INCOME BEFORE
EXTRAORDINARY ITEM 7.4 8.9 8.0 8.2 3.0 24.3
EXTRAORDINARY ITEM,
NET OF TAXES - - - (0.7) - -
-------- -------- -------- --------
NET INCOME 7.4% 8.9% 8.0% 7.5% 3.0 36.0
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
9
<PAGE>
NET SALES: The following table sets forth the Company's net sales for the
quarters and six-month periods ended April 30, 1995 and 1994 for each of the
Company's functional product groups described above:
<TABLE>
<CAPTION>
Quarters Ended April 30, Six Months Ended April 30,
--------------------------------------- --------------------------------------
1995 1994 1995 1994
------------------- ----------------- ----------------- -------------------
PRODUCT GROUP Net Sales % Net Sales % Net Sales % Net Sales %
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRANSMISSION $ 39,334 28.0% $ 25,236 22.2% $ 74,751 28.5% $ 45,762 22.3%
ENTERPRISE
NETWORKING 30,965 22.1 32,162 28.3 62,112 23.7 55,196 27.0
BROADBAND
CONNECTIVITY 70,043 49.9 56,175 49.5 125,253 47.8 103,791 50.7
-------- ----- --------- ----- --------- ----- -------- -----
TOTAL $140,342 100.0% $ 113,573 100.0% $ 262,116 100.0% $204,749 100.0%
-------- ----- --------- ----- --------- ----- -------- -----
-------- ----- --------- ----- --------- ----- -------- -----
</TABLE>
Net sales for the six months ended April 30, 1995 were $262.1 million, a
28.0% increase over $204.7 million of net sales for the six months ended April
30, 1994. This increase was primarily the result of a 63.3% increase in net
sales of transmission products, predominantly fiber optic systems sold to public
telecommunications network providers. Net sales of fiber optic products
represented 39.7% and 33.5% of total net sales for the six months ended April
30, 1995 and 1994, respectively.
In the six months ended April 30, 1995, net sales of broadband connectivity
products increased 20.7% over the six months ended April 30, 1994, reflecting
the Company's success in selling these products into new global broadband market
applications. The Company believes that future sales of broadband connectivity
products will continue to account for a substantial portion of the Company's
revenues, although net sales of these products may continue to decline as a
percentage of total net sales primarily due to the ongoing evolution of
technologies in the telecommunications marketplace.
Net sales of enterprise networking products for the six months ended April
30, 1995 increased 12.5% over the six months ended April 30, 1994. This
increase reflects significant growth in net sales of access equipment, which was
partially offset by a decrease in net sales of Local Area Network ("LAN")
equipment. Recognizing changes in the competitive environment for LAN
equipment, the Company has realigned its Kentrox Industries Inc. ("Kentrox") and
Fibermux Corporation ("Fibermux") subsidiaries, which market primarily
enterprise networking products, into one business unit to better address the
industry trend toward integration of LAN and Wide Area Network ("WAN")
technologies and products.
Net sales for the three months ended April 30, 1995 were $140.3 million, a
23.6% increase over $113.6 million of net sales for the three months ended April
30, 1994. This increase
10
<PAGE>
primarily reflects the trends in net sales for the six months ended April 30,
1995 discussed above. Net sales of transmission products, predominantly fiber
optic systems sold to public telecommunications network providers, increased
55.9% in the quarter. Net sales of fiber optic products represented 38.8% and
34.5% of total net sales for the quarters ended April 30, 1995 and 1994,
respectively.
In the three months ended April 30, 1995, net sales of broadband
connectivity products increased 24.7% over the three months ended April 30,
1994, reflecting the Company's success in selling these products into new global
broadband market applications.
Net sales of enterprise networking products for the three months ended
April 30, 1995 decreased 3.7% over the three months ended April 30, 1994,
reflecting significant growth in net sales of access equipment, offset by a
decrease in net sales of Local Area Network ("LAN") equipment. This quarterly
decrease would have been a 10.0% increase in revenues from such products had it
not been for the 1994 Los Angeles earthquake which caused $4.0 million of
product shipments to shift from first quarter 1994 to second quarter 1994.
Also, had it not been for this shift in enterprise networking net sales between
quarters, total net sales for the three months ended April 30, 1995 would have
reflected a 28.0% increase over second quarter 1994.
GROSS PROFIT: The gross profit percentage was 49.0% of net sales for the
six months ended April 30, 1995 compared to a gross profit percentage of 50.5%
for the six months ended April 30, 1994. The decline in gross profit percentage
was primarily the result of a change in product sales mix toward sales of newer,
lower margin products which address emerging broadband applications. The
Company's future gross profit percentage will continue to be affected by product
mix, the timing of new product introductions and manufacturing volume, among
other factors.
In the three months ended April 30, 1995, the gross profit percentage was
49.2% compared to a gross profit percentage of 50.6% for the three months ended
April 30, 1994. This decrease primarily reflects the trend in gross margin for
the six months ended April 30, 1995 discussed above.
OPERATING EXPENSES: Operating expenses were $97.0 million for the six
months ended April 30, 1995, an increase of 26.7% over $76.6 million of
operating expenses for the six months ended April 30, 1994. Operating expenses
represented 37.0% of net sales for the six months ended April 30, 1995 compared
to 37.4% of net sales for the six months ended April 30, 1994. The increase in
absolute dollars of operating expenses from period to period was due primarily
to the expanded operations associated with higher revenue levels, and a charge
of $3.9 million related
11
<PAGE>
primarily to a personnel reduction at Fibermux resulting from the realignment of
the Company's Kentrox and Fibermux subsidiaries. This charge increased operating
expenses as a percentage of net sales by 1.5% for the six months ended April 30,
1995. All other operating expense categories decreased as a percentage of net
sales in the six months ended April 30, 1995, reflecting the Company's operating
leverage as net sales increased.
Development and product engineering expenses were $29.1 million for the six
months ended April 30, 1995, an increase of 25.4% over $23.3 million for the six
months ended April 30, 1994, reflecting substantial product development efforts
in each of the Company's three functional product groups. Selling and
administration expenses were $62.4 million for the six months ended April 30,
1995, an increase of 20.5% over $51.8 million of such expenses for the six
months ended April 30, 1994, primarily as a result of selling activities
associated with new product introductions and additional personnel costs related
to expanded operations.
The Company believes that, given the rapidly changing technological and
competitive environment in the telecommunications equipment industry, continued
commitment to product development efforts will be required for the Company to
remain competitive. Accordingly, the Company intends to continue to allocate
substantial resources to product development for each of its three functional
product groups. However, the Company recognizes the need to balance the cost of
product development with expense control.
Operating expenses were $53.3 million for the three months ended April 30,
1995, an increase of 30.2% over $40.9 million of operating expenses for the
three months ended April 30, 1994. Operating expenses represented 38.0% of net
sales for the three months ended April 30, 1995 compared to 36.1% of net sales
for the three months ended April 30, 1994. Similar to the six-month trends, the
increase in absolute dollars of operating expenses from period to period was due
primarily to the expanded operations associated with higher revenue levels, and
the second quarter 1995 charge of $3.9 million related primarily to a personnel
reduction at Fibermux resulting from the realignment of the Company's Kentrox
and Fibermux subsidiaries. The charge increased operating expenses as a
percentage of net sales by 2.8% for the three months ended April 30, 1995.
Development and product engineering expenses were $15.9 million for the
three months ended April 30, 1995, an increase of 30.1% over $12.2 million for
the three months ended April 30, 1994, primarily reflecting the six-month trends
discussed above. Selling and administration expenses were $32.6 million for the
three months ended April 30, 1995, an increase of 17.0% over $27.9 million of
such expenses for the three months ended April 30, 1994, also primarily as a
result of the six-month trends discussed above.
12
<PAGE>
OTHER INCOME (EXPENSE), NET: For the six-month and three-month periods
ended April 30, 1995 and 1994, net interest income represents interest income on
cash balances. See "Liquidity and Capital Resources" below for a discussion of
cash levels.
INCOME TAXES: The Company's effective income tax rate was 36.0% for both
the six-month and three-month periods ended April 30, 1995 and 37.0% for both
the six-month and three-month periods ended April 30, 1994. These rates reflect
the $1.6 million of non-deductible goodwill amortization included in operating
expenses in each of the six-month periods ($.8 million in each of the three-
month periods) and the beneficial impact of tax credits.
EXTRAORDINARY ITEM: An extraordinary charge of $1.5 million (or $.03 per
share), net of income taxes, was recorded in the six-month period ended April
30, 1994, representing expenses relating to the clean up and repair of damage to
the Fibermux facility resulting from an earthquake in January 1994.
NET INCOME: Reflecting all of the matters discussed above, net income was
$20.9 million (or $.37 per share) for the six months ended April 30, 1995, an
increase of 36.0% over $15.3 million (or $.27 per share) for the six months
ended April 30, 1994, and was $10.4 million (or $.18 per share) for the three
months ended April 30, 1995, an increase of 3.0% over $10.1 million (or $.18 per
share) for the three months ended April 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in commercial
paper with maturities of less than 90 days, decreased $12.4 million during the
six months ended April 30, 1995 and increased $5.4 million during the six months
ended April 30, 1994. The major elements of the 1995 decrease were net income
before depreciation, totaling $32.4 million, offset by property and equipment
additions of $12.1 million, acquisition payments of $4.7 million, and the $24.7
million increase in inventory and receivable levels (reflecting an acquisition
completed in 1995, as well as growth in business). In the six months ended
April 30, 1994, the major elements of the increase were net income before
depreciation, totaling $26.5 million, partially offset by property and equipment
additions of $10.3 million and acquisition payments of $7.1 million.
13
<PAGE>
The Company may borrow up to $40.0 million under revolving credit
agreements. Borrowings under these agreements bear interest at floating short-
term market rates, may be repaid at any time without penalty and may be
converted to term loans bearing interest principally at the prime rate, payable
in annual installments through December 2000. At April 30, 1995, the entire
$40.0 million of borrowings under these agreements was available to the Company,
and it had no long-term debt outstanding.
On May 19, 1995, the Company filed a registration statement with the
Securities and Exchange Commission for a public offering by the Company of 5.5
million shares of its common stock. Management believes that the net proceeds
from this potential offering, cash generated from operating activities,
borrowings available under revolving credit agreements and cash balances will be
adequate to fund the Company's anticipated capital and operating requirements
through 1996. However, there is no assurance that the proposed public offering
will be completed and the Company may find it necessary to seek additional
sources of financing to support its capital needs, for additional working
capital, potential investments or acquisitions or otherwise. Total property and
equipment additions for 1995 are expected to be approximately $30 million.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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.
TEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
4-a Specimen certificate for shares of Common Stock of ADC
Telecommunications, Inc. (Incorporated by reference to
Exhibit 4-a to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1989).
4-b Restated Articles of Incorporation of ADC
Telecommunications, Inc., as amended to date. (Incorporated
by reference to Exhibit 4(b) of the Company's Registration
Statement on Form 8-A dated March 11, 1994, for the
Company's 1994 Employee Stock Purchase Plan).
4-c Composite Restated Bylaws of ADC Telecommunications, Inc.,
as amended to date (Incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1989).
4-d Amended and Restated Rights Agreement, amended and restated
as of August 16, 1989, between ADC Telecommunications, Inc.
and Norwest Bank Minnesota, N.A., as Rights Agent
(Incorporated by reference to Exhibit 1 to Amendment No. 1
on Form 8 dated August 16, 1989, to the Company's
Registration Statement on Form 8-A dated September 23,
1986).
10-a Sublease between Seagate Technology, Inc., as Landlord, and
ADC Telecommunications, Inc., as Tenant, dated as of
February 21, 1995.
27-a Financial Data Schedule
b. Reports on Form 8-K
None.
15
<PAGE>
SIGNATURES
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.
ADC TELECOMMUNICATIONS, INC.
BY: /s/Robert E. Switz
----------------------------------
Robert E. Switz
Vice President, Chief Financial Officer
and Secretary
(Principal Financial Officer,
Duly Authorized Officer)
Dated: May 26, 1995
16
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1995
Exhibit
Number Description Page
- ------- ----------- ----
4-a Specimen certificate for shares of Common Stock of N/A
ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 4-a to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 31, 1989).
4-b Restated Articles of Incorporation of ADC N/A
Telecommunications, Inc., as amended to date.
(Incorporated by reference to Exhibit 4(b) of the
Company's Registration Statement on Form S-8 dated
March 11, 1994, for the Company's 1994 Employee
Stock Purchase Plan).
4-c Composite Restated Bylaws of ADC Telecommunications, N/A
Inc., as amended to date (Incorporated by reference
to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1989).
4-d Amended and Restated Rights Agreement, amended and N/A
restated as of August 16, 1989 between ADC
Telecommunications, Inc. and Norwest Bank Minnesota,
N.A., as Rights Agent (Incorporated by reference to
Exhibit 1 to Amendment No. 1 on Form 8 dated August
16, 1989, to the Company's Registration Statement on
Form 8-A dated September 23, 1986).
10-a Sublease between Seagate Technology, Inc., as
Landlord, and ADC Telecommunications, Inc., as
Tenant, dated as of February 21, 1995.
27-a Financial Data Schedule
<PAGE>
Exhibit 10-a
SUBLEASE
between
SEAGATE TECHNOLOGY, INC., as Landlord
and
ADC TELECOMMUNICATIONS, INC., as Tenant
Dated as of February 21, 1995
<PAGE>
TABLE OF CONTENTS
No. Description Page
- --- ----------- ----
1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3 Determination of Rentable Area . . . . . . . . . . . . . . . . . 5
4 Parking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Common Area Operating Costs. . . . . . . . . . . . . . . . . . . 7
7 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9 Care of Buildings and Parking Area . . . . . . . . . . . . . . . 8
10 Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . 9
11 Environmental Laws; Compliance with Laws . . . . . . . . . . . . 9
12 Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
13 Utilities and Services for Phase 1 Premises. . . . . . . . . . . 12
14 Entry by Landlord. . . . . . . . . . . . . . . . . . . . . . . . 14
15 Master Lease . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16 Estoppel Certificates. . . . . . . . . . . . . . . . . . . . . . 14
17 Assumption of Risks. . . . . . . . . . . . . . . . . . . . . . . 15
18 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 15
19 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
20 Waiver of Insurable Claims . . . . . . . . . . . . . . . . . . . 17
21 Assignment and Subletting. . . . . . . . . . . . . . . . . . . . 17
22 Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . 18
23 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . 19
24 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
25 Waiver of Lease Provisions . . . . . . . . . . . . . . . . . . . 23
26 Return of Possession to Landlord . . . . . . . . . . . . . . . . 24
27 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . 24
28 Building Name and Identification . . . . . . . . . . . . . . . . 24
29 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
30 Memorandum of Lease; Recordable Termination. . . . . . . . . . . 25
31 Broker's Commission. . . . . . . . . . . . . . . . . . . . . . . 26
32 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 26
33 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 26
34 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 26
35 Meaning of "Other Tenants" . . . . . . . . . . . . . . . . . . . 26
36 Option to Purchase . . . . . . . . . . . . . . . . . . . . . . . 27
37 Communications Conduits. . . . . . . . . . . . . . . . . . . . . 27
38 No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
39 Tenant's Contingency . . . . . . . . . . . . . . . . . . . . . . 27
<PAGE>
TABLE OF EXHIBITS
A. Phase 1 Premises
B. Arbitration Procedures
<PAGE>
SUBLEASE
This Sublease (referred to below as the "Lease") is entered into as of
February 21, 1995, between SEAGATE TECHNOLOGY, INC., a Delaware corporation
("Landlord"), and ADC TELECOMMUNICATIONS, INC., a Minnesota corporation
("Tenant").
1. DEFINITIONS. In this Lease:
"Arbitration" means an arbitration conducted in accordance with the
arbitration procedures set forth on EXHIBIT B attached to this Lease.
"Buildings" means the 12501 Building and the 12701 Building
collectively. The 12701 Building includes the Link Space, the Loading
Dock and the Emergency Generator for purposes of this Lease.
"Casualty" means a fire, explosion, tornado, or other cause of damage
to or destruction of the Building.
"Commencement Date" means March 1, 1995.
"Emergency Generator" means the emergency lighting generator servicing
the Buildings and located in the 12701 Building.
"Excusable Delays" means any unforeseeable delays due to strikes or
other labor disturbance, civil disturbance, future order of any
government, court or regulatory body claiming jurisdiction,
unavailability of materials or labor through commercially reasonable
sources, fire or any other cause beyond the reasonable control of the
party by whom performance is required and its contractors and other
representatives, other than a delay caused by a lack of funds. An
Excusable Delay will be deemed to exist only if the party required to
perform notifies the other party of the delay not later than 10 days
after the occurrence of the event that gives rise to the delay and
will be deemed to continue only so long as such party exercises due
diligence to remove or overcome it, except that a party will not be
required to settle a strike or other labor dispute when it does not
wish to do so.
"Event of Default" is defined in Section 24 of this Lease.
"Insurance Costs" means the costs of premiums paid by Landlord for the
casualty insurance regarding the Buildings (exclusive of Tenant
Improvements and Tenant's trade fixtures, furniture, equipment and
<PAGE>
personal property) that Landlord is required to maintain pursuant to
this Lease.
"Land" means Lot 2, Block 1, Minnetonka Corporate Center, according to
the recorded plat thereof, Hennepin County, Minnesota.
"Lease" means this Lease, all Exhibits attached to this Lease, and all
properly executed amendments, modifications and supplements to this
Lease.
"Link Space" means the space identified as the Link Space in the 12501
Lease.
"Loading Dock" means the loading dock serving both Buildings, as
identified in the 12501 Lease.
"Master Lease" means that certain Lease Agreement dated as of July 29.
1985, between Minnesota UTF, II, as Lessor, and Control Data
Corporation, as Lessee, covering the Buildings and the Land, and all
amendments and modifications thereto, copies of which Lease Agreement
and all documents amending or modifying such Lease Agreement are
attached to the 12501 Lease.
"Monthly Base Rent" means the sum of $70,331.90.
"Monthly Rent" means, from and including the Commencement Date through
July 30, 1995, the Phase 1 Monthly Gross Rent, and, from and including
August 1, 1995, the Monthly Base Rent.
"Normal Business Hours" means 8:00 a.m. to 6:00 p.m. Monday through
Friday and 8:00 a.m. to 1:00 p.m. on Saturdays, but excluding Sundays
and New Years Day, Memorial Day, Fourth of July, Labor Day,
Thanksgiving Day and Christmas Day.
"Parking Area" means the portion of the Land now or hereafter used for
parking purposes
"Phase 1 Premises" means the 7,100 Rentable Square Foot portion of the
Building identified on attached Exhibit A.
"Phase 1 Monthly Gross Rent" means monthly gross rent for the Phase 1
Premises in the amount of $5,916.67.
"Premises" means the following :
2
<PAGE>
(1) The 12701 Building, including the Phase 1 Premises and the roof
of the 12701 Building;
(2) The portions of the Parking Area as to which Tenant does not
already have exclusive parking rights pursuant to the 12501 Lease
and reasonable nonexclusive vehicular and pedestrian access to
such portions of the Parking Area and the remainder of the
Premises; and
(3) Nonexclusive use of the 12501 Chiller.
"Reference Rate" means the annual "Prime Rate" of Chase Manhattan
Bank, or the successor of such a rate, or if Chase Manhattan Bank no
longer determines such a rate or successor rate, then the reference or
prime rate, successor rate or similar rate determined by a similar
banking or financial institution reasonably selected by Landlord.
"Rent" means Monthly Rent, Tenant's Share of Insurance Costs and Tax
Costs and all other charges and costs payable by Tenant under this
Lease.
"Rentable Area" means (a) as to the 12701 Building, 108,901 square
feet; and (b) as to any other space as to which a determination of the
Rentable Area must be made, the number of square feet contained within
the area bounded by the exterior walls and the center of the interior
demising walls of the space being measured, multiplied by a factor of
1.15. The figure set forth in subsection (a) is a stipulated figure
and is not subject to adjustment based on actual measurements.
"Section" means a section of this Lease.
"Taking" means acquisition by a public authority having the power of
eminent domain of all or part of the Building by condemnation or
conveyance in lieu of condemnation.
"Tax Costs" means all real estate taxes, levies, charges, and
installments of assessments (including interest on deferred
assessments) assessed, levied or imposed on the Land, the Buildings
and the Parking Area.
3
<PAGE>
"Tenant Improvements" means leasehold improvements (but not including
Tenant's trade fixtures, furniture, equipment and personal property)
made by Tenant to the Premises.
"Tenant's Profit" means the amount by which the monthly payment
received by Tenant during the relevant period exceeds the total of
(1) the Rent that Tenant is obligated to pay Lessor under the
provisions of this Lease for the space covered by the assignment or
sublease as to such period, and (2) all reasonable out-of-pocket costs
and expenses incurred by Tenant regarding the assignment or sublease
of such space that are allocable under generally accepted accounting
principles to such period, including, without limitation, legal fees,
leasing commissions, costs of tenant improvements, assumptions of
lease obligations and other tenant incentives.
"Tenant's Share" means 50%.
"Term" means, as to the Phase 1 Premises only, the period beginning on
the Commencement Date and ending on July 31, 1995, and, as to the
entire Premises, the period commencing on August 1, 1995 and ending on
July 30, 2000.
"Untenantable" means that the space in question is in such a condition
that Tenant is unable to conduct business in such space in a normal
fashion without unreasonable inconvenience.
"12501 Building" means the office building at 12501 Whitewater Drive,
Minnetonka, Minnesota, which office building is on the Land.
"12501 Lease" means the Sublease between Landlord and Tenant dated
as of October 31, 1990 regarding the 12501 Building and other
premises.
"12501 Chiller" means the chiller and the related distribution system
situated in the 12501 Building on the date of this Lease.
"12701 Building" means the office building at 12701 Whitewater Drive,
Minnetonka, Minnesota, which office building is on the Land.
"12701 Chiller" means the chiller and the related distribution system
situated in the 12701 Building on the date of this Lease.
4
<PAGE>
2. PREMISES.
Landlord subleases the Premises to Tenant, and Tenant subleases the Premises
from Landlord, for the Term, under the terms and conditions of this Lease.
Tenant accepts the Premises in "as-is" condition, except as otherwise provided
in this Lease.
3. DETERMINATION OF RENTABLE AREA.
The Rentable Area of all areas as to which a Rentable Area determination is
required after the date of this Lease and is not otherwise stipulated to under
the terms of this Lease will be determined in accordance with this Lease by a
licensed architect or engineer selected by Landlord, who will deliver to
Landlord and Tenant an appropriate certificate prior to the date such
determination becomes necessary under this Lease. Each such certificate will be
conclusive unless objected to by Landlord or Tenant by written notice to the
other party given within 10 days after receipt of the certificate. If, within
30 days after delivery of such objection, Landlord and Tenant cannot agree,
either party may submit the matter to Arbitration; provided, however, that
notwithstanding the existence of any such objection notice or Arbitration, until
such objection or Arbitration is resolved, Rent will be determined on the basis
of such certificate, and, upon such resolution, Landlord and Tenant will make
appropriate cash adjustments between them.
4. PARKING.
Tenant (and its employees, invitees and subtenants) will have the exclusive
right under this Lease, at no additional cost, to use, on and after August 1,
1995, all of the portions of the Parking Area not already leased by Tenant under
the 12501 Lease.
5. RENT.
(a) MONTHLY RENT. Tenant will pay the Monthly Rent to Landlord at such place
in the United States as Landlord may designate by at least 10 days' prior
written notice to Tenant, in advance on the Commencement Date and on the first
day of each month thereafter during the Term, without demand, deduction or
setoff, except as otherwise expressly provided in this Lease; provided, however,
that the first installment of Monthly Base Rent (for the month of August, 1995)
will be prepaid by Tenant upon execution and delivery of this Lease by Tenant.
(b) INSURANCE COSTS AND TAX COSTS. Landlord will pay all Insurance Costs and
Tax Costs when they first become due and payable. Tenant will reimburse Landlord
for Tenant's Share of such costs (prorated on a daily basis to reflect the
portion of the Term occurring during the period to which such costs apply and to
reflect any
5
<PAGE>
adjustments to Tenant's Share made during the applicable period) within 10 days
after Tenant's receipt of Landlord's written request for such reimbursement,
which written request will be accompanied by copies of the paid receipts for
such costs; provided, however, that if the 12501 Building and the 12701 Building
become a part of separate tax parcels pursuant to that certain Tax Division
Agreement dated as of the date of this Lease between ADC Telecommunications,
Inc., I. Reiss & Son, Seagate Technology, Inc., The Prudential Insurance Company
of America and Security Pacific National Bank, Tenant will reimburse Landlord
for all Tax Costs attributable to the 12701 Building tax parcel, rather than for
Tenant's Share of all Tax Costs. Tenant will have the exclusive right to appeal
and contest Taxes as to the Premises under this Lease and as to the Premises
under the 12501 Lease, the expenses of which appeals and contests will be paid
by Tenant. If Landlord chooses to obtain casualty insurance pursuant to a
"blanket" policy that also includes other properties, Insurance Costs will be
deemed to be the reasonable allocation of the insurance premiums for such policy
to the Buildings (exclusive of Tenant Improvements and Tenant's trade fixtures,
furniture, equipment and personal property), as reasonably established by
Landlord's insurer, except as otherwise stated in this subsection (b) below.
Landlord agrees to give Tenant written notice of the coverages provided for in
Landlord's insurance policy and such allocated amount of the premium. If Tenant
disagrees with such allocated amount, Tenant may, within 20 days after receipt
of such notice, obtain three bids for independent casualty insurance policies
with coverages comparable to those set forth in Landlord's notice. If the
average premium in such bids is lower than the premium so allocated by
Landlord's insurer, Tenant will provide copies of the bids to Landlord and
Insurance Costs will be determined based upon such average, rather than upon
such allocation.
(c) OTHER CHARGES.
If any taxes, special assessments, fees or other charges are imposed against
Landlord by any governmental unit or agency with respect to rentals under this
Lease (as opposed to the net income of Landlord), Tenant will pay those amounts
to Landlord on the later of (a) the date that they are due or (b) the date 30
days after Landlord makes written request for payment to Tenant. Tenant will be
entitled to a refund of such taxes paid by Tenant as and when such refunds are
received by Landlord.
(d) LATE PAYMENTS.
Any Rent which is not paid within 10 days after notice of such default is given
by Landlord to Tenant will bear interest from the date due to the date paid at
an annual rate equal to the Reference Rate, plus 2 percentage points per annum,
or the maximum rate of interest permitted by law, whichever is less, and the
interest will
6
<PAGE>
be paid to Landlord on demand; provided, however, that Landlord shall have no
obligation to deliver more than one such notice during each calendar year of the
Term, so that following delivery by Landlord of one such notice during a
calendar year, such interest will apply with respect to Tenant's failure to pay
a required payment within 10 days after any subsequent due date during such
calendar year, regardless of Tenant's receipt of a default notice from Landlord.
All amounts to be paid by Tenant to Landlord under this Lease will be deemed to
be additional rent for purposes of payment and collection. If Tenant is late in
the payment of Monthly Rent on three consecutive due dates, Tenant will
thereafter make all payments of Monthly Rent to Landlord by wire transfer of
funds.
6. COMMON AREA OPERATING COSTS. So long as this Lease is in effect, Tenant
waives the payment by Landlord of Landlord's Share of the Monthly Common Area
Operating Costs pursuant to subsection 6(a) of the 12501 Lease incurred by
Tenant as to the period on and after August 1, 1995.
7. POSSESSION.
If Tenant pays the Rent and performs all of Tenant's obligations under this
Lease, Landlord promises that Tenant will peaceably and quietly possess and
enjoy the Premises under this Lease, subject only to the Permitted Exceptions
listed on Schedule A of the Master Lease. Landlord agrees to use its best
efforts (including, if necessary, bringing legal action against the current
tenant, Fingerhut Corporation) to deliver possession of the entire Premises to
Tenant on or before August 1, 1995. Rent shall be abated as to all of the
Premises, except for the Phase 1 Premises, until such possession of the entire
Premises is delivered to Tenant. If Landlord is unable to deliver possession of
the entire Premises to Tenant on or before November 1, 1995, then Tenant may
terminate this Lease by giving written notice of such termination to Landlord on
or before the date that such possession is delivered to Tenant and, in such
event, Landlord shall promptly refund to Tenant any prepaid Monthly Rent and any
other sums (including Tax Costs and Insurance Costs) prepaid by Tenant under
this Lease. Notwithstanding the foregoing provisions of this Section 7, if
Tenant notifies Landlord that Tenant has entered into a sublease with Fingerhut
Corporation allowing Fingerhut Corporation to retain possession of all or any
part of the Premises on or after August 1, 1995 (Tenant being under no
obligation to enter into such a sublease), then Landlord shall not be
responsible for causing Fingerhut Corporation to relinquish possession of the
Premises as provided above.
7
<PAGE>
8. USE.
Tenant may use the Premises for any lawful purpose. Tenant will not commit or
permit any act or omission that results in the violation of any law,
governmental regulation, or insurance policy of Landlord relating to the
Buildings, or which will increase the insurance rates on the Buildings (unless
Tenant elects to pay such increase). Tenant will not permit any conduct or
condition that may unduly disturb or endanger other occupants of the Buildings.
9. CARE OF BUILDINGS AND PARKING AREA.
(a) LANDLORD'S OBLIGATIONS.
Prior to August 1, 1995, Landlord will maintain and repair the 12701 Building
(including the Emergency Generator and the 12701 Chiller) (except for the Phase
1 Premises) in a manner generally consistent with the maintenance and repair of
Class B buildings in the Minnetonka/Eden Prairie, Minnesota area. Prior to
August 1, 1995, Landlord and its other tenants will pay for all utilities
consumed at the 12701 Building.
If Landlord fails to so perform after receiving from Tenant reasonable notice
and a reasonable period within which to cure such default (except that, in an
emergency, Tenant need not provide such notice or period to cure), Tenant may
perform Landlord's obligations and charge the costs to Landlord (plus interest
on such charges from the date the charges are incurred by Tenant, at the rate
set forth in Section 5(d) of this Lease).
(b) TENANT'S OBLIGATIONS.
On and after the Commencement Date through and including July 31, 1995, Tenant
will maintain and repair the Phase 1 Premises. On and after August 1, 1995,
Tenant will maintain and repair the entire 12701 Building (including the
Emergency Generator, which will be made available at all times for use by the
12501 Building for emergency lighting purposes, and the 12701 Chiller, which
will be made available for use by the 12501 Building as a backup chiller if and
to the extent that the chilled water produced by the 12701 Chiller is not
required for use by the 12701 Building) in a manner generally consistent with
the maintenance and repair of Class B buildings in the Minnetonka/Eden Prairie,
Minnesota area, reasonable wear and tear excepted. On and after August 1,
1995, Tenant will pay for all utilities consumed at the 12701 Building.
8
<PAGE>
10. RULES AND REGULATIONS.
The Tenant under the 12501 Lease and the Tenant under this Lease will, prior to
the Commencement Date, agree upon reasonable written rules and regulations
governing the use of the Loading Dock, Parking Area and common areas of the
Buildings. The rules and regulations for the Loading Dock will assure that users
of the Loading Dock coordinate their use in such a way that both doors are
available to all users, that the Loading Dock is used for loading and unloading
only and that there is no storing of trucks, vehicles, goods or other property
at the Loading Dock.
11. ENVIRONMENTAL LAWS; COMPLIANCE WITH LAWS.
(a) ENVIRONMENTAL LAWS.
(i) Landlord warrants to Tenant that no toxic or hazardous substances or
wastes, pollutants or contaminants, including, without limitation,
asbestos, radon, urea formaldehyde, the group of organic compounds
known as polychlorinated biphenyls, petroleum products including
gasoline, fuel oil, crude oil and various constituents of such
products, and any hazardous substance as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Section 9601-9657, as amended ("Hazardous
Substances"), have been generated, treated, stored, released or
disposed of, or otherwise placed, deposited in or located on the
Buildings or the Land, nor has any activity been undertaken on the
Buildings or the Land that would cause or contribute to (A) the
Buildings or the Land to become a treatment, storage or disposal
facility within the meaning of, or otherwise bring the Buildings or
the Land within the ambit of, the Resource Conservation and Recovery
Act of 1976 ("RCRA"), 42 U.S.C. Section 6901 et seq., or any similar
state law or local ordinance, (B) a release or threatened release of
Hazardous Substances from the Buildings or the Land within the meaning
of, or otherwise bring the Buildings or the Land within the ambit of,
CERCLA, or any similar state law or local ordinance, or (C) the
discharge of pollutants or effluents into any water source or system,
the dredging or filling of any waters or the discharge into the air of
any emissions, that would require a permit under the Federal Water
Pollution Control Act, 33 U.S.C. Section 1251 ET SEQ., or the Clean
Air Act, 42 U.S.C. Section 7401 ET SEQ., or any similar state law or
local ordinance. There are no substances or conditions in or on the
Buildings or the Land that may support a claim or cause of action
under RCRA, CERCLA or any other federal, state or local environmental
statutes, regulations, ordinances or other
9
<PAGE>
environmental regulatory requirements, including without limitation,
the Minnesota Environmental Response and Liability Act, Minn. Stat.
115B and the Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat.
ll5C. No above ground or underground tanks, are located in or about
the Buildings or the Land, or have been located under, in or about the
Buildings or the Land and have subsequently been removed or filled.
(ii) Landlord and Tenant agree that they will not, under any circumstances,
cause or permit any Hazardous Substance to be used, generated,
handled, possessed, stored or disposed of on or within the Buildings
or in, upon or under the Land, or any part or parts thereof, except
for Hazardous Substances ordinarily used, generated, handled,
possessed, stored or disposed of in connection with office operations
and building and common area maintenance if they are so used,
generated, handled, possessed, stored or disposed of in conformance
with all applicable laws and regulations ("Permitted Hazardous
Substances").
(iii) In the event that, and for so long as, there exists any danger or harm
to the employees or invitees of Tenant arising from Hazardous
Substances that have not been generated by Tenant or its subtenants,
agents or employees, as determined by public authorities, Tenant may
vacate the Premises or any affected portion of the Premises and all
Rent due under this Lease will abate from the date of such vacation,
in proportion to the space vacated, until the danger or harm is
removed. If Landlord cannot remove such danger or harm to the
satisfaction of the public authorities within 180 days of a vacation
of the Premises by Tenant pursuant to this subsection, Tenant may,
within 30 days after the expiration of such 180 day period, terminate
this Lease by written notice to Landlord given at any time prior to
such removal.
(iv) Landlord will indemnify, defend and hold Tenant and its agents,
employees, successors and assigns free and harmless from any claims,
damages, losses or liabilities arising from or in connection with any
breach of the warranties, representations or covenants set forth in
this Section, whether such claims, damages, losses or liabilities
arise during or after the Term of this Lease, except for claims,
damages, losses or liabilities arising from Hazardous Substances
brought into the Buildings or the Land by Tenant or its employees or
invitees (as to which Tenant will indemnify, defend and hold Landlord
harmless). Landlord's and Tenant's obligations under this subsection
to indemnify and hold each other harmless will survive the expiration
or
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earlier termination of this Lease. (The foregoing agreements are
intended to constitute indemnity agreements within the meaning of
Section 9607(e)(1) of the Comprehensive Environmental Response,
Compensation and Liability Act Of 1980 (42 USC 9607(e)(1)), but
nothing in that Act will be deemed to vitiate or limit, either
directly or indirectly, the obligations of the parties under this
Lease).
(b) COMPLIANCE WITH LAWS.
Subject to the provisions of Section 11(a) above, Tenant will, at its expense,
promptly comply with all laws, ordinances, rules, orders, regulations,
directives and other requirements of governmental authorities ("Governmental
Requirements") now or subsequently pertaining to its use of the 12701 Building.
Subject to the provisions of Section 11(a) above, prior to August 1, 1995,
Landlord will, at its expense, comply with all other Governmental Requirements
pertaining to the Buildings and the Land, the expenses of which compliance by
Landlord will be 12701 Operating Costs under the 12501 Lease only to the extent
permitted under the 12501 Lease. Tenant will pay any taxes or other charges by
any governmental authority on Tenant's property or trade fixtures in the 12701
Building.
12. ALTERATIONS.
Tenant may, at its expense, make additions to and alterations of the Premises,
provided that (a) the fair market value of the Buildings as a whole shall not be
lessened thereby, (b) such work shall be expeditiously completed in a good and
workmanlike manner and in compliance with all applicable legal requirements and
the requirements of all insurance policies maintained by Landlord with respect
to the Buildings and (c) no structural alterations shall be made or demolitions
conducted in connection therewith (i) having an estimated cost of completion in
excess of $200,000 unless Tenant shall have first notified Landlord in writing
thereof and (ii) having an estimated cost of completion in excess of $500,000
unless Tenant shall have first furnished Landlord with surety bonds or other
security reasonably acceptable to Landlord. All such additions and alterations
shall, without consideration, be and remain part of the realty and the property
of Landlord, except to the extent that they constitute "Severable Property"
under the Master Lease (which Severable Property will be removed by Tenant on or
before the last day of the Term). Tenant will promptly pay and discharge any
mechanic's, materialmen's or other lien against the Buildings or the Land
resulting from Tenant's failure to make such payment, or will contest the lien.
Tenant will immediately notify Landlord of any claim of lien or other action of
which it has knowledge which relates to any improvements in the Premises made by
Tenant or at its direction. If a lien is claimed, Tenant shall either cause it
to be removed or contested within 10 days after
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notice from Landlord to do so. If Tenant fails to remove or contest the lien
within the 10-day period, Landlord may take such action as it deems necessary to
remove the lien, and the entire cost to Landlord in removing the lien will
immediately be due and payable by Tenant to Landlord. If Tenant contests the
lien, it will do so at its expense and will indemnify Landlord against any
claim, loss, demand and legal expense relating to any labor or material
furnished to the Premises at the request or direction of Tenant. If Tenant
elects to contest the lien, it must promptly notify Landlord and Landlord may
elect by written notice to Tenant to require Tenant to either (a) post a bond or
a letter of credit for the benefit of Landlord, the form and issuer of which
bond or letter of credit will be subject to the reasonable approval of Landlord
and the amount of which bond or letter of credit will equal not less than 150%
of the amount of the lien, or (b) provide Landlord with such other reasonable
assurances or security as may be required by Landlord, in its sole discretion,
to protect Landlord against the loss of any interest in the Land or Buildings.
If the lien is reduced to final judgment, Tenant will discharge the judgment.
Landlord may post notices of nonresponsibility on the Premises as provided by
law.
13. UTILITIES AND SERVICES FOR PHASE 1 PREMISES.
On and after the Commencement Date through July 31, 1995, the following
utilities and services will be provided by Landlord to the Phase 1 Premises, at
Landlord's sole expense and without reimbursement by Tenant:
(a) HVAC
Landlord will cause to be supplied to the Phase 1 Premises heat, ventilation and
air conditioning ("HVAC") during Normal Business Hours, subject to the Minnesota
Energy Code and other applicable governmental laws, rules and regulations, to
maintain comfortable conditions consistent with those of similar buildings in
the Minnetonka/Eden Prairie, Minnesota area.
HVAC to the Phase 1 Premises during hours other than Normal Business Hours will
be provided, at Tenant's request and expense, at Landlord's actual direct cost,
without mark-up, which will be based on Landlord's average energy rate for the
12701 Building and average hourly labor rate, if any.
Landlord will continue to engage a qualified contractor or qualified service
personnel to maintain a preventative maintenance program for the 12701 Building
HVAC systems and the 12701 Building electrical distribution system network.
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(b) ELECTRICITY.
Landlord will cause to be supplied electrical system capacity to the Phase 1
Premises for connected load of 5 watts per square foot for general office
lighting and for miscellaneous power and general office equipment. Tenant will
pay for its use of electricity in excess of that used by typical office tenants
in the Minnetonka/Eden Prairie, Minnesota area, based upon Landlord's actual
cost, without mark-up. Excess usage will be determined, when necessary, by
submeters, which will be installed by Landlord at Landlord's expense if Tenant's
electrical use is materially in excess of such standard. Tenant will use its
best efforts to conserve energy usage in the Phase 1 Premises prior to August 1,
1995, consistent with Tenant's use of the Phase 1 Premises.
(c) WATER AND SEWER.
Landlord will cause hot and cold water and sewer service to be supplied to the
Phase 1 Premises for ordinary laboratory, drinking, lavatory, toilet and
kitchen/cafeteria purposes, and for other uses typical of a tenant of a Class B
office building. Tenant will pay for its use of water that is in excess of that
used by typical office tenants in the Minnetonka/Eden Prairie, Minnesota area,
based upon Landlord's actual cost, without mark-up. Excess usage will be
determined, when necessary, by submeters, which will be installed by Landlord at
Landlord's sole expense, if Tenant's use is in excess of such standard. Tenant
will use its best efforts to conserve water usage, consistent with Tenant's use
of the Premises.
(d) SECURITY.
Landlord will provide building security for the 12701 Building in a manner
consistent with that provided by Class B office buildings in the Minnetonka/Eden
Prairie, Minnesota area. Such security will be coordinated on a reasonable
basis with Tenant's own security force.
(e) ACCESS.
Landlord will provide Tenant with access to the Phase 1 Premises, 24 hours per
day, 365 days per year, except when access is prohibited by law.
(f) INTERRUPTIONS.
Landlord will not be liable for any loss or damage resulting from any temporary
interruption of the above utilities and services due to repairs, alterations or
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improvements, or any variation, interruption or failure of these services,
whether or not caused by Landlord's negligence. Landlord will use reasonable
efforts to notify Tenant in advance of any temporary interruption of service.
14. ENTRY BY LANDLORD.
Landlord and its agents will have the right to enter the Premises at reasonable
times, upon reasonable advance notice (except in case of an emergency), but only
with an escort provided by Tenant (if Tenant so requires), (a) at any time
during the Term for inspecting, cleaning, maintaining and repairing the
Premises, or for exhibiting the Premises to insurance carriers and (b) during
the last 6 months of the Term, or at any time after a Tenant default and the
running of the applicable grace period, for exhibiting the Premises to
prospective tenants.
15. MASTER LEASE.
Unless otherwise agreed to in writing by Tenant, this Lease will be subordinate
only to the Master Lease. Landlord warrants and represents to Tenant that
Landlord is the owner of all of the rights of the tenant under the Master Lease
and that the Master Lease consists solely of the documents attached as Exhibit F
to the 12501 Lease and has not otherwise been amended or modified and that the
copies of such documents attached as Exhibit F to the 12501 Lease are true and
complete copies of such documents. Landlord agrees that it will perform all of
its obligations under the Master Lease so that there will be no default
thereunder. Landlord will indemnify, defend and hold Tenant and its agents,
employees, successors and assigns free and harmless from any claims, damages,
losses or liabilities (including attorneys fees) arising from or in connection
with any breach of such warranties and representations. Landlord agrees that
it will not modify the Master Lease during the Term without the prior written
consent of Tenant, which may be withheld by Tenant in Tenant's sole discretion
(and will be deemed given if not given or withheld within 10 days after the date
that Tenant receives Landlord's request), nor will Landlord terminate the Master
Lease during the Term.
16. ESTOPPEL CERTIFICATES.
Within 10 days after written request from Landlord, Tenant will execute,
acknowledge and deliver to Landlord a document furnished by Landlord, which may
be relied upon by Landlord and its prime lessor and any prospective purchaser,
mortgagee or ground lessor of the Buildings and/or the Land, stating (a) that
this Lease is unmodified and in full force and effect (or if modified, that the
Lease is in full force and effect as modified and stating the modifications),
(b) the dates to which rent and other charges have been paid, (c) the current
Monthly Rent (and the
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components thereof), (d) the dates on which the Term begins and ends, (e) that
Tenant has accepted the Premises and is in possession, (f) that, to the
knowledge of Tenant, Landlord is not in default under this Lease, or specifying
any such default, and including such other information as the prospective
purchaser, mortgagee or ground lessor may reasonably require. Tenant will not
be obligated to make any inaccurate statements in such document.
17. ASSUMPTION OF RISKS.
Tenant assumes all risk of loss or damage of Tenant's property within the
Premises, including any loss or damage caused by water leakage, fire, windstorm,
explosion, theft or other cause. Landlord will not be liable to Tenant, or
those claiming through Tenant, for injury, death or property damage arising from
the activities of Tenant. Tenant will not be liable to Landlord, or those
claiming through Landlord, for injury, death or property damage arising from the
activities of Landlord or Landlord's tenants or others under the control of
Landlord.
18. INDEMNIFICATION.
Tenant will indemnify Landlord against all claims, demands and actions, and all
related costs and expenses (including attorneys' fees) for injury, death,
disability or illness of any person arising from the activities of Tenant.
19. INSURANCE.
Tenant will, on and after the Commencement Date, maintain commercial general
liability insurance covering injury, death, disability or illness of any person,
or damage to property, arising from the activities of Tenant for limits of at
least $5,000,000 single limit coverage or such greater amounts as are from time
to time carried by comparable tenants in comparable buildings in the
Minnetonka/Eden Prairie, Minnesota area. Tenant will, on and after the
Commencement Date, maintain fire and all risk insurance for the Tenant
Improvements in an amount sufficient to prevent any party from becoming a co-
insurer of any loss regarding the Tenant Improvements, but in any event in
amount not less than 100% of the actual replacement value of the Tenant
Improvements, with a deductible amount not greater than $25,000. Tenant or its
contractors will, during any period of construction of Tenant Improvements,
maintain builder's risk insurance on a completed value, non-reporting basis for
the total cost of such Tenant Improvements, and workers compensation insurance
as required by applicable law. Tenant's insurance will be written by companies
having an A.M. Best Company rating of A+VII or better (or if an insurer is not
rated by A.M. Best Company, then the insurer must have a financial standing
comparable to that of Industrial Risk Insurance as of the date of
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this Lease). Tenant's liability insurance will name the landlord under the
Master Lease, its first mortgagee and Landlord as additional insureds and
Tenant's casualty and builder's risk insurance will name such parties as loss
payees. Such insurance shall otherwise comply with the terms of the Master Lease
applicable to such insurance, except that the payment and use of the proceeds of
such insurance shall, to the extent that the Master Lease and this Lease are
inconsistent, be governed by the terms of this Lease. Any insurance required to
be maintained by Tenant under this Lease may be provided under "blanket"
policies, provided that the property required to be insured is specified
therein. Tenant will deliver to the landlord under the Master Lease, its first
mortgagee and Landlord insurance certificates by the insurers showing these
coverages to be in effect. The insurance will provide that the landlord under
the Master Lease, its first mortgagee and Landlord will be notified in writing
30 days prior to cancellation of, or failure to renew, the insurance.
Landlord will maintain commercial general liability insurance covering injury,
death, disability or illness of any person, or damage to property, arising from
the activities of Landlord or Landlord's tenants or others under the control of
Landlord, with liability limits equal to or greater than the minimum limits for
the liability insurance to be carried by Tenant under this Section and otherwise
complying with the terms of the Master Lease. Landlord will also maintain fire
and all risk insurance for the Buildings (exclusive of Tenant Improvements and
Tenant's trade fixtures, furniture, equipment and personal property) in an
amount sufficient to prevent any party from becoming a co-insurer of any loss
regarding the Buildings (exclusive of Tenant Improvements and Tenant's trade
fixtures, furniture, equipment and personal property), but in any event not less
than 100% of the actual replacement value of the Buildings (exclusive of Tenant
Improvements and Tenant's trade fixtures, furniture, equipment and personal
property), and otherwise complying with the terms of the Master Lease, except
that the payment and use of the proceeds of such insurance proceeds shall, to
the extent that the Master Lease and this Lease are inconsistent, be governed by
the terms of this Lease. Landlord's insurance will be written by Industrial
Risk Insurance or by companies having an A.M. Best Company rating of A+VII or
better (or if an insurer is not rated by A.M. Best Company, then the insurer
must have a financial standing comparable to that of Industrial Risk Insurance
as of the date of this Lease). Landlord's liability insurance will name the
landlord under the Master Lease, its first mortgagee and Tenant as additional
insureds and Landlord's casualty insurance will name such parties as loss
payees. Any insurance required to be maintained by Landlord under this Lease
may be provided under "blanket" policies, provided that the property to be
insured is specified therein. Landlord will have no obligation to insure the
Tenant Improvements or Tenant's trade fixtures, furniture, equipment or personal
property. Landlord will deliver to the landlord under the Master Lease, its
first mortgagee and Tenant certificates by the insurers showing these coverages
to be in
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effect. The insurance will provide that the landlord under the Master Lease,
its mortgagee and Tenant will be notified in writing 30 days prior to
cancellation of, or failure to renew, the insurance.
20. WAIVER OF INSURABLE CLAIMS.
Landlord and Tenant release each other from any liability for loss or damage by
fire or other casualty coverable by a standard form of "all risk" property
insurance policy, whether or not the loss or damage resulted from the negligence
of the other, its agents or employees. Each party will use reasonable efforts
to obtain policies of insurance which provide that this release will not
adversely affect the rights of the insureds under the policies.
21. ASSIGNMENT AND SUBLETTING.
Tenant may assign this Lease or sublet all or any part of the Premises to any
entity or person controlling, controlled by or under common control with Tenant,
in which case Tenant will notify Landlord in writing of such assignment or
sublease within 10 days before such assignment or sublease is completed.
"Control," for purposes of the immediately preceding sentence, will be deemed to
mean ownership of more than 50% of the beneficial interest or more than 50% of
the voting control of the entity in question. Tenant may not assign this Lease
or sublet all or any part of the Premises to any other party without the written
consent of Landlord, which will not be unreasonably withheld and will be deemed
to have been given if not given or withheld within 10 days after Tenant's
written request for such consent is given to Landlord; provided, however, that
Tenant will, within 10 days after each payment is received by Tenant from the
assignee or sublessee, pay to Landlord the Tenant's Profit from such payment up
to a maximum amount ("Landlord's Maximum") which, when added to the Monthly Rent
payable under this Lease and under the 12501 Lease as to the relevant period and
to all other payments to Landlord of Tenant's Profit under this Lease and under
the 12501 Lease as to the relevant period, provides Landlord, as to the period
covered by such assignment/sublease payment, with a Monthly Basic Rent equal to
$7.87 per year per rentable square foot for all of the Rentable Area contained
in the Premises under this Lease and under the 12501 Lease (as such Rentable
Areas are stipulated to in this Lease and the 12501 Lease). Tenant will be
entitled to retain all of Tenant's Profit in excess of Landlord's Maximum as to
the relevant period of any assignment/sublease payment. Furthermore,
notwithstanding the foregoing provisions of this Section 21, Tenant will be
entitled to retain all of Tenant's Profit as to any sublease by Tenant to the
existing tenant of the Premises, Fingerhut Corporation, allowing Fingerhut
Corporation to retain possession of all or part of the Premises.
Notwithstanding any one or more assignments of this Lease or subletting of the
Premises, (i) ADC
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Telecommunications, Inc. ("ADC") shall remain liable under this Lease and all of
the terms and provisions hereof, including, without limitation, the obligations
to pay Rent pursuant to this Lease, and all obligations which survive
termination of this Lease, (ii) notwithstanding the continuing liability of ADC
hereunder, Landlord may deal exclusively with Tenant or any sublessee from time
to time, and no notice to, consent of or other action shall be required with
respect to ADC, and (iii) no action, omission, forbearance, amendment,
agreement, occurrence or thing which, but for this provision, would release or
discharge ADC from any liability or obligation imposed by this Lease shall
effect such a release or discharge. If, after assignment of this Lease by ADC,
Landlord and Tenant amend this Lease, ADC shall not be liable under any
amendment to this Lease to the extent it imposes any obligation or liability
beyond those imposed by this Lease at the time of the assignment by ADC. If,
after any assignment of this Lease, this Lease is terminated or Tenant is
dispossessed pursuant to the default and termination provisions of this Lease,
ADC shall remain liable for all obligations under this Lease (except to the
extent above provided with respect to the amendment) following its termination
or the dispossession of Tenant, or both. If this Lease is rejected or any
rental or other obligation hereunder is discharged or reduced in any bankruptcy
or insolvency proceedings involving any Tenant other than ADC, then,
notwithstanding such rejection, discharge or reduction, ADC shall be obligated
under this Lease to the same extent as it would have been liable if this Lease
had been in effect until the date of such rejection, discharge or reduction, and
had, on that date, been terminated in accordance with Section 24(a) of this
Lease.
22. DAMAGE OR DESTRUCTION.
If the 12701 Building or the Parking Area are or is damaged by Casualty,
Landlord will, within 30 days after the date of the Casualty, notify Tenant of
Landlord's reasonable determination as to the date ("Estimated Repair Date") by
which the damage (excluding damage to the Tenant Improvements and to Tenant's
trade fixtures, equipment, furniture and personal property) can be repaired. If
Landlord's notice states that such repair cannot be accomplished on or before
the date 180 days after the date of such Casualty or if the Casualty occurred
within the last 12 months of the Term in effect on the date of the Casualty,
then Tenant may terminate this Lease by giving written notice to the other party
within 30 days after such Landlord's notice is given. If the Casualty occurs
during the last 12 months of the Term, and the damage to the 12701 Building
includes 50% or more of the 12701 Building, Landlord may terminate this Lease by
written notice given to Tenant within 30 days after the date of the Casualty.
Landlord will also have the right to terminate this Lease by written notice
given to Tenant within 30 days after the Casualty if the damage will cost more
than $50,000 to repair and was caused by a peril that was not insurable under a
standard "all-risk" casualty insurance policy, unless Tenant, by written
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notice given to Landlord within 20 days after such notice is given to Tenant by
Landlord, elects to pay for the cost of repairing such uninsurable damage.
If this Lease is not so terminated, Landlord shall, at its expense, commence all
necessary repairs (excluding repair of the Tenant Improvement and of Tenant's
trade fixtures, equipment, furniture and personal property) and shall diligently
proceed to complete the same subject only to Excusable Delays. If Landlord
shall fail to commence all necessary repairs or shall not use its best efforts
to diligently complete such repairs, then Tenant may give Landlord notice to do
so. If Landlord shall not, within thirty days after Tenant's notice, commence
repair or proceed to use best efforts to diligently complete such repairs, then
in either case within 30 days after Tenant's notice, Tenant may terminate this
Lease by written notice to Landlord within 15 days after expiration of such 30
day period. Tenant shall have the right to terminate this Lease if such repairs
shall not be completed on or before the date 6 months after the Estimated Repair
Date, by giving written notice of such termination to Landlord within 30 days
after the expiration of such period. Such right to terminate may be exercised
only by Tenant giving written notice of termination to Landlord prior to
substantial completion of the repairs by Landlord.
If this Lease is terminated under this Section 22, Rent will be prorated (a) as
of the date of the relevant termination as to the portion of the 12701 Building
that is not Untenantable and (b) as of the date of the Casualty as to the
Untenantable portion of the 12701 Building, all in proportion to the Rentable
Areas attributable to such portions. During any period in which any portion of
the 12701 Building is rendered Untenantable by the Casualty, the Rent will be
abated for the period of Untenantability (plus a period of 60 days or the number
of days required for Tenant to equip, furnish and move into such portion of the
Premises, whichever is less) in proportion to the amount of space which is
Untenantable.
23. EMINENT DOMAIN.
If there is a Taking of all or a substantial part of the 12701 Building or of
15% or more of the parking spaces designated for Tenant's exclusive use under
this Lease, Tenant may terminate this Lease by giving written notice to Landlord
within 30 days after a final determination under applicable laws that the Taking
will occur, effective as of (a) the date the public authority takes possession
or (b) the date 90 days after the date of the giving of notice of termination by
Landlord or Tenant, whichever is later. If this Lease is so terminated, any
rents and other payments will be prorated as of the effective date of
termination and will be proportionately refunded to Tenant, or paid to Landlord,
as the case may be. If Tenant terminates this Lease, all damages, awards and
payments for the Taking will belong to Landlord irrespective of the basis upon
which they were made or awarded, except that Tenant
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will be entitled to any amounts specifically awarded for Tenant's trade
fixtures, furniture, equipment or personal property or recovery for the cost of
improvements made solely by Tenant exclusive of any contribution or loan by
Landlord or as a relocation payment or allowance. If Tenant does not terminate
this Lease, Tenant will also be entitled to an award for the value of its
leasehold estate. If this Lease is not terminated as a result of the Taking,
Landlord will restore the remainder of the Premises to a condition as near as
reasonably possible to the condition prior to the Taking (excluding restoration
of the Tenant Improvements and of Tenant's trade fixtures, furniture, equipment
or personal property) and Rent will be abated (1) as to the portion of the 12701
Building included in the Taking, for the remainder of the Term, and (2) as to
any other portion of the 12701 Building rendered Untenantable by the Taking, for
the period of Untenantability (plus a period of 60 days or the number of days
required for Tenant to equip, furnish and move into such portion of the
Premises, whichever is less) in proportion to the amount of space which is
Untenantable.
24. DEFAULTS.
(a) TENANT DEFAULTS.
An Event of Default ("Event of Default") shall exist under this Lease if (a)
Tenant fails to pay rent or other amounts under this Lease and such failure
continues for 10 days after written notice by Landlord to Tenant, (b) Tenant
fails to perform any other obligation under this Lease and Tenant fails to
commence to cure such failure within 30 days after written notice by Landlord to
Tenant or to thereafter diligently and continuously pursue such cure, (c) any
proceeding is begun by or against Tenant to subject the assets of Tenant to any
bankruptcy or insolvency law or for an appointment of a receiver of Tenant or of
any of Tenant's assets and is not dismissed within 60 days, as to voluntary
proceedings, or 120 days, as to involuntary proceedings, or (d) Tenant makes a
general assignment of Tenant's assets for the benefit of creditors. Landlord
may, with or without terminating this Lease, cure the default and charge Tenant
all costs of doing so, plus interest on such costs from the date(s) incurred at
an annual rate equal to the Reference Rate, plus 2 percentage points per annum,
or the maximum rate of interest permitted by law, whichever is less.
If any Event of Default occurs, Lessor or Lessor's agent or servant may
terminate this Lease without notice and, with or without such termination, may
re-enter the Premises and remove all or any property therefrom, either by
summary dispossess proceedings or by any suitable action or proceeding
authorized by law, without being liable to indictment, prosecution or damage
therefor and repossess and enjoy the Premises, together with all Tenant
Improvements, without such re-entry and
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repossession working a forfeiture or waiver of the Rent to be paid and the
covenants to be performed by Tenant during the full term of this Lease.
(i) At any time, or from time to time after any such repossession,
Landlord may relet the Premises, or any portion thereof, in the name of Landlord
or otherwise, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the term of this
Lease) and on such conditions (which may include concessions or free rent) as
Landlord, in its sole discretion, may determine and may collect and receive the
rents therefor, provided such terms of reletting shall be negotiated in an arms-
length transaction. Landlord shall in no way be responsible or liable for any
failure to relet the Premises, or any part thereof, or for any failure to
collect any rent due upon any such reletting. Tenant shall pay upon demand all
reasonable brokerage commissions, legal fees, alteration costs and expenses of
alteration and preparing the premises for occupancy, tenant improvement
allowances and inducements, and all other costs reasonably incurred by Landlord
in reletting the Premises or portions thereof, whether the term of the reletting
is longer or shorter than what the remaining Term would have been in the absence
of termination.
(ii) No such termination or retaking of possession shall relieve Tenant of
its liabilities and obligations under this subsection (ii) and such liabilities
and obligations shall survive any such termination or retaking. In the event of
any such termination or retaking, whether or not the Premises, or any portion
thereof, shall have been relet, Tenant shall pay to Landlord a sum equal to the
Rent required to be paid by Tenant, up to the time of such retaking of
possession by Landlord, and thereafter Tenant, until the end of the Term shall
be liable to Landlord for, and shall pay to Landlord, as and for agreed current
damages for Tenant's default:
(A) The equivalent of the amount of the Rent which would be payable for
the remainder of the term of this Lease by Tenant, less
(B) The net proceeds of any reletting effected pursuant to the provisions
of subsection (i) above after deducting all of Landlord's, reasonable
expenses (to the extent not previously collected from Tenant) in
connection with such reletting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, reasonable
attorney's fees, alteration costs, and expenses of preparation of the
Premises, or any portion thereof, for such reletting.
Tenant shall pay such current damages in the amount determined in accordance
with the terms of this subsection (ii), as set forth in a written statement
thereof from
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Landlord to Tenant (hereinafter called the "Deficiency"), to Landlord in monthly
installments on the days on which the Monthly Rent would have been payable under
this Lease if this Lease were still in effect, and Landlord shall be entitled to
recover from Tenant each monthly installment of the Deficiency as the same shall
arise.
(iii) At anytime after any such termination or retaking of possession,
whether or not Landlord shall have collected any monthly Deficiencies as set
forth in subsection (ii) above, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, as and for damages for
Tenant's default, an amount equal to the excess, if any, of the then present
worth of the aggregate of the Rent to be paid by Tenant hereunder for the
remainder of the Term over the then present worth of the then aggregate fair and
reasonable fair market rent of the Premises (including all operating expenses
and other charges) for the same period. In the computation of present worth, a
discount at a rate equal to the Reference Rate shall be employed. If the
Premises, or any portion thereof, shall be relet by Landlord for the unexpired
Term in accordance with subsection (i) above, or any part thereof, before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable fair market rent for the part or the whole of the Premises so relet
during the term of the reletting. Nothing contained in this subsection (iii)
or contained in subsection (ii) above shall limit or prejudice the right of
Landlord to prove and obtain, as damages by reason of such expiration or
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to or
less than the amount of the difference referred to above. If Landlord elects to
proceed pursuant to this subsection (iii), damages collected pursuant to this
subsection shall be in lieu of damages which would thereafter accrue under
subsection (ii) above, but not in lieu of any other amounts to which Landlord is
entitled pursuant to this Section 24 (a).
(iv) No failure by Landlord or by Tenant to insist upon the performance of
any of the terms of this Lease or to exercise any right or remedy consequent
upon a breach thereof, and no acceptance by Landlord of full or partial Rent
from Tenant or any third party during the continuance of any such breach, shall
constitute a waiver of any such breach or of any of the terms of this Lease
unless Tenant shall have cured the same prior to Landlord's exercise of such
rights or remedies and notification to Tenant of such exercise. None of the
terms of this Lease to be kept, observed or performed by Landlord or by Tenant,
and no breach thereof, shall be waived, altered or modified except by a written
instrument executed by Landlord and/or by Tenant, as the case may be.
22
<PAGE>
(b) LANDLORD DEFAULTS.
If Landlord fails to pay when due any rent under the Master Lease or any Tax
Costs or Insurance Costs, Tenant may perform Landlord's obligations and charge
the costs to Landlord (plus interest on such charges from the date the charges
are incurred by Tenant, at the rate set forth in Section 5(d) of this Lease).
If Landlord fails to reimburse Tenant for any amounts so requested by Tenant
under this Section within 10 days after Tenant's written request (which request
will include reasonable evidence of the amounts paid by Tenant), Tenant may set
off such amounts against installments of Rent due under this Lease. Tenant
shall be permitted to continue to set off against succeeding installments of
Rent until the total amount of such costs and interest have been set off against
Rent, and such set off shall be deemed to be payment of Rent under this Lease.
If Landlord fails to perform any other obligation under this Lease after
receiving from Tenant reasonable notice and a reasonable period within which to
cure such default (except that, in an emergency, Tenant need not provide such
notice or period to cure), Tenant may perform Landlord's obligations and charge
the costs to Landlord (plus interest on such charges from the date the charges
are incurred by Landlord, at the rate set forth in Section 5(d) of this Lease).
If the Master Lease is rejected in any bankruptcy or insolvency proceeding as to
the landlord under the Master Lease, Tenant will have the right to terminate
this Lease by written notice given to Landlord within 30 days after Tenant
receives written notice of such rejection from Landlord or otherwise. If Tenant
does not so elect to terminate, Landlord shall take all such actions as are
necessary to remain in possession of the premises covered by the Master Lease
for the balance of the Term pursuant to Section 365 (h)(1) of the Bankruptcy
Code or any successor statute. If this Lease is rejected in any bankruptcy or
insolvency proceeding as to Landlord, Tenant will have the benefit of all rights
provided to Tenant by the Bankruptcy Code, including the rights set forth in
Sections 365 (h)(1) and (h)(2) of the Bankruptcy Code.
25. WAIVER OF LEASE PROVISIONS.
No waiver of any provision of this Lease will be deemed a waiver of any other
provision, and waiver of a right or remedy in one instance will not preclude
enforcement of that same right or remedy in the future. The receipt of rent by
Landlord with knowledge of a default under this Lease by Tenant will not be
deemed a waiver of the default. Landlord will not be deemed to have waived any
provision of this Lease unless it is done by express written agreement by
Landlord.
23
<PAGE>
Any payment by Tenant and acceptance by Landlord of a lesser amount than the
full amount of all Rent then due will be applied to the earliest Rent due. No
endorsement or statement on any check or letter for payment of rent or other
amount will be deemed an accord and satisfaction, and Landlord may accept such
check or payment without prejudice to its right to recover the balance of any
rent or other payment or to pursue any other remedy provided in this Lease.
26. RETURN OF POSSESSION TO LANDLORD.
On expiration of the Term or sooner termination of this Lease, Tenant will
return possession of the Premises to Landlord, without notice from Landlord, in
good order and condition, except for ordinary wear and tear, and except for
damage, destruction or conditions Tenant is not required to remedy under this
Lease. Tenant will not be obligated to remove any Tenant Improvements.
Landlord will arrange with Tenant for a joint inspection of the Premises
immediately prior to the end of the Term and Tenant will cooperate with Landlord
in conducting such joint inspection. If Tenant does not return possession of the
Premises to Landlord, Tenant will pay Landlord all resulting damages Landlord
may suffer and will indemnify Landlord against all claims made by any new tenant
of all or any part of the Premises. Tenant will give Landlord all keys for the
Premises and will inform Landlord of combinations on any locks and safes on the
Premises. Any property left in the Premises after expiration or termination of
this Lease will be deemed abandoned by Tenant and will be the property of
Landlord to dispose of as Landlord chooses. Tenant represents and warrants to
Landlord that any such abandoned property will be free and clear of liens and
encumbrances.
27. HOLDING OVER.
If Tenant remains in possession of the Premises after expiration of the Term
without a new lease, any such holding over will be at will, but upon the
applicable provisions of the Master Lease.
28. BUILDING NAME AND IDENTIFICATION.
(a) BUILDING NAME.
Landlord will have the right to identify and refer to the 12701 Building only by
its street address or by a name designated by Tenant by written notice to
Landlord.
24
<PAGE>
(b) SIGNAGE.
Tenant may place its signs at reasonable locations on the Land and in the 12701
Building and Landlord will not restrict the number, placement, sizing or
coloring of any of Tenant's signs; provided, however, that Tenant must comply
with the covenants, conditions and restrictions applicable to the Land and the
Buildings on the date of this Lease and with all requirements of the City of
Minnetonka.
29. NOTICES.
Any notice under this Lease must be in writing, and must be sent by prepaid
certified mail, or by facsimile or by reputable overnight courier, addressed to
Tenant at 4900 West 78th Street, Minneapolis, Minnesota 55435 (Attn: Director
of Corporate Facilities), and to Landlord at 920 Disc Drive, Scotts Valley,
California 95066 (Attn: Corporate Real Estate), or to such other address as is
designated in a notice given under this Section. A notice will be deemed given
on the date of actual receipt or one day after the deposit in the mail,
whichever is earlier. Statements of Insurance Costs and Tax Costs and other
routine mailings need not be sent by certified mail.
30. MEMORANDUM OF LEASE; RECORDABLE TERMINATION.
Either party will, upon the written request of the other party, execute a short
form lease ("Memorandum of Lease") regarding this 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 the Lease, descriptions of the
Premises, Tenant's expansion and first refusal rights and such other terms and
conditions as the parties agree upon. The party requesting the execution of
such Memorandum of Lease will bear all costs of the Memorandum of Lease,
including any recording fees. Upon the execution of a pertinent amendment to
this Lease and the written request of either party, the parties will execute a
corresponding amendment to the Memorandum of Lease, with the party requesting
the execution of such amendment bearing all costs of the amendment, including
any recording fees. Either party will, following any termination of this Lease
and upon the written request of the other party, execute a document setting
forth the date of such 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
such document will bear all costs thereof, including any recording fees.
25
<PAGE>
31. BROKER'S COMMISSION.
Landlord and Tenant represent and warrant to each other that they have dealt
with no brokers, finders or the like in connection with this Lease, except for
The Shelard Group, Inc./Oncor International and Towle Real Estate Company (whose
commissions, if any, will be paid by Landlord in accordance with the agreements
between Landlord and such parties), and agree to indemnify each other and to
hold each other harmless against all other claims, damages, costs or expenses of
or for any other such fees or commissions resulting from their actions or
agreements regarding the execution or performance of this Lease, and will pay
all costs of defending any action or lawsuit brought to recover any such fees or
commissions incurred by the other party, including reasonable attorney's fees.
32. GOVERNING LAW.
This Lease will be construed under and governed by the laws of Minnesota. If
any provision of this Lease is illegal or unenforceable, it will be severable
and all other provisions will remain in force as though the severable provision
had never been included.
33. ENTIRE AGREEMENT.
This Lease contains the entire agreement between Landlord and Tenant regarding
the Premises. Tenant agrees that it has not relied on any statement,
representation or warranty of any person except as set out in this Lease. This
Lease may be modified only by an agreement in writing signed by Landlord and
Tenant. No surrender of the Premises, or of the remainder of the Term, will be
valid unless accepted by Landlord in writing.
34. SUCCESSORS AND ASSIGNS.
All provisions of this Lease will be binding on and for the benefit of the
successors and assigns of Landlord and Tenant, except that no person or entity
holding under or through Tenant in violation of any provision of this Lease will
have any right or interest in this Lease or the Premises.
35. MEANING OF "OTHER TENANTS".
For purposes of this Lease, the term "other tenants" includes Landlord, to the
extent that Landlord occupies the Buildings.
26
<PAGE>
Landlord and Tenant have executed this Sublease to be effective as of the date
stated in the first paragraph of this Sublease.
36. OPTION TO PURCHASE.
Landlord hereby assigns to Tenant Landlord's options to purchase the Premises
(as such term is defined and used in the Master Lease) pursuant to Article III
of the Master Lease; provided, however, that such assignment shall, upon
Landlord's election by written notice to Tenant, become null and void if Tenant
is in default under this Lease beyond the applicable cure period(s). Landlord
agrees to promptly execute and deliver all such documents as Tenant may
reasonably require in order to effectuate such assignment and the exercise and
closing of any such option to purchase. Tenant will pay all of Landlord's
costs, including attorney fees, in connection with the exercise and closing of
the above option to purchase.
37. COMMUNICATIONS CONDUITS.
Landlord and Tenant acknowledge that there are communications conduits in the
12701 Building and adjoining property that serve the 12501 Building and the
buildings known as 5900 and 5950 Clearwater Drive, Minnetonka, Minnesota ("Other
Buildings"). Tenant is a tenant in the Other Buildings. Landlord agrees that
Tenant may use such communications conduits during the Term of this Lease, on a
nonexclusive basis, to serve its communications cabling needs as to the 12501
Building and the Other Buildings.
38. NO MERGER. Except as provided in this Section 39, there shall be no merger
of this Lease or the leasehold estate created by this Lease with any other
estate or interest in the Premises by reason of the fact that the same person,
firm, corporation or other entity may acquire, hold or own directly or
indirectly (a) this Lease or the leasehold interest created by this Lease or any
interest therein and (b) any such other estate or interest in the Premises or
any portion thereof. No such merger shall occur unless and until all persons,
firms, corporations or other entities having an interest (including a security
interest) in (i) this Lease or the leasehold estate created hereby and (ii) any
such other estate or interest in the Premises, or any portion thereof, shall
join in a written instrument expressly effecting such merger and shall duly
record the same.
39. TENANT'S CONTINGENCY. Tenant's obligations under this Lease are contingent
upon approval of this Lease by Tenant's Board of Directors on or before the
Commencement Date. If Tenant does not notify Landlord in writing on or before
the Commencement Date regarding the failure of this contingency, this
contingency will be deemed to have been waived by Tenant. If this Lease is
terminated as a result of Tenant's contingency under this Section 39, all
payments made by Tenant
27
<PAGE>
to Landlord under or in connection with this Lease will be promptly refunded by
Landlord to Tenant.
Landlord:
SEAGATE TECHNOLOGY, INC., a
Delaware corporation
By /s/ R. A. Kundtz
------------------------------------
Its Sr. Vice President-Administration
Tenant:
ADC TELECOMMUNICATIONS,
a Minnesota corporation
By /s/ Robert E. Switz
------------------------------------
Its Vice President and CFO
28
<PAGE>
EXHIBIT A
Phase 1 Premises
E-29
<PAGE>
EXHIBIT B
Arbitration Procedures
The parties to this Lease will initially attempt to agree upon the
matter in question. If they have been unable to so agree within the period that
they are required to agree as to such matter under the Lease, if any, then
either party may request by written notice to the other party ("Arbitration
Request") that the matter be determined by an arbitration board consisting of
three reputable real estate professionals who are recognized experts regarding
office/warehouse leases in the Minnetonka/ Eden Prairie area. One arbitrator
will be appointed by each party, and each such arbitrator will have no material
financial or other business interest in common with the party selecting such
arbitrator. If a party fails to appoint an arbitrator and notify the other
party of such appointment within 30 days after the Arbitration Request is made,
then the arbitrator that was appointed by such other party within such 30 day
period will be the sole arbitrator. If two arbitrators are properly appointed
and such first two arbitrators are unable to agree on a third arbitrator within
thirty (30) days after the appointment of the second arbitrator, then such third
arbitrator will be appointed by the presiding judge of the Hennepin County
District Court, or by any person to whom such presiding judge formally delegates
the matter, or, if such methods of appointment fail, by the American Arbitration
Association.
The decision of the sole arbitrator or the decision of any two of the
three arbitrators will control, and such decision will be made and delivered to
Landlord and Tenant by such arbitrator or arbitrators not later than the date 60
days after the Arbitration Request was made (in the case of an arbitration
conducted by a sole arbitrator) or the 30th day following the appointment of the
last arbitrator (in the case of an arbitration conducted by three arbitrators).
The arbitration will be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association.
The decision of the arbitrators, determined as above set forth, will
be final and non-appealable. The fees and expenses of the arbitrator or
arbitrators will be shared equally by Landlord and Tenant. The costs of all
counsel, experts and other representatives that are retained by a party will be
paid by such party.
During the period of time that any arbitration is pending under this
Lease, the parties to this Lease will continue to comply with all those terms
and provisions that are not the subject of the arbitration.
E-30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for ADC Telecommunications, Inc. and Subsidiaries, for the
six month period ended April 30, 1995, 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> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<CASH> 37,135
<SECURITIES> 0
<RECEIVABLES> 82,564<F1>
<ALLOWANCES> 3,203
<INVENTORY> 83,333<F2>
<CURRENT-ASSETS> 213,775
<PP&E> 175,442
<DEPRECIATION> (104,176)
<TOTAL-ASSETS> 353,297
<CURRENT-LIABILITIES> 64,386
<BONDS> 0
<COMMON> 11,229
0
0
<OTHER-SE> 275,708
<TOTAL-LIABILITY-AND-EQUITY> 353,297
<SALES> 262,116
<TOTAL-REVENUES> 262,116
<CGS> 133,705
<TOTAL-COSTS> 133,705
<OTHER-EXPENSES> 97,027
<LOSS-PROVISION> 365
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> 32,587
<INCOME-TAX> 11,732
<INCOME-CONTINUING> 20,855
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,855
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
<FN>
<F1>Amount is net of allowance for bad debts and returns and allowances.
<F2>Amount is net of obsolescence reserves.
</FN>
</TABLE>
