SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13
of
The Securities Exchange Act of 1934
For the fiscal year Commission File
ended March 31, 1998 Number: 0-8505
NORTHWEST TELEPRODUCTIONS, INC.
(Name of Small Business Issuer in its Charter)
Minnesota 41-0641789
(State of incorporation) (I.R.S. Employer
Identification Number)
4000 West 77th Street
Minneapolis, Minnesota 55435
(Address of principal executive offices) (Zip code)
Telephone Number: 612-835-6450
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 .
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended March 31, 1998 were
$11,192,233.
The aggregate market value of the Common Stock held by shareholders other
than officers, directors or holders of more than 5% of the outstanding stock of
the registrant as of June 29, 1998 was approximately $991,434 (based upon the
closing sale price of the registrant's Common Stock on such date).
<PAGE>
Shares of $.01 par value Common Stock outstanding at June 29, 1998:
1,356,425
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended March 31, 1998 are incorporated by reference into Part II.
2. Portions of the Registrant's definitive Proxy Statement for the Registrant's
1998 Annual Meeting of Shareholders are incorporated by reference into Part III.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
Introduction
Northwest Teleproductions, Inc. and its subsidiaries, Southwest
Teleproductions, Inc. and Northwest Teleproductions/Chicago, Inc., are referred
to herein as the "Registrant" unless the context indicates otherwise.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business.
Northwest Teleproductions, Inc. (the "Registrant"), a Minnesota
corporation, was incorporated in 1945 and began its current business operations
in 1970. Since it began operations, the Registrant has been in the videotape
production business and, in fiscal 1981, added film production as an alternative
to videotape recording.
Each year since fiscal 1986, the Registrant has derived a significant
portion of its revenue from government twelve-month requirement contracts and
renewals. In August 1993, the Registrant was awarded a new contract by the
Government for the same requirements with four consecutive one-year renewal
options on the part of the Government, the fourth of which has been exercised by
the Government. The Company is in its final contract year of a five year
contract with the Defense Department. This final contract year provides for
production work through June of 1999. The Defense Department contract is
currently in the renewal process for another five-year period. The DOD placed
the contract up for competitive bidding. Accordingly, we have presented a
proposal to DOD for renewal of another five-year term. The DOD has indicted that
the contract will be awarded in August 1998. See "Narrative Description of
Business -- Dependence on One or a Few Customers."
The Registrant has significant business operations involved in the
development and creation of programming for the cable and network television
markets. The Registrant currently has seven shows in production.
Narrative Description of Business.
Principal Products and Services. The Registrant is engaged in the videotape
and film production business. The Registrant produces advertising commercials,
industrial, governmental and educational programs, programming for cable
broadcast, and fee-for-service electronic retailing (infomercials). The
Registrant offers services in all phases of production including production
planning (pre-production phase), recording (production phase), editing
(post-production phase) and duplication. The Registrant has four studios with a
total stage area of approximately 11,000 square feet and operates thirteen
post-production facilities to provide editing services. In fiscal 1998 the
Registrant closed its downtown Minneapolis facilities. The assets associated
with that facility were sold and the proceeds used to pay down long term debt.
In addition to studio recording facilities, the Registrant has portable
recording units used for location production.
<PAGE>
Markets and Distribution. The Registrant sells its services as a producer
of commercials to advertising agencies and advertisers, and to other users of
production services for various kinds of educational and broadcast programs.
Such advertising agencies, advertisers and other users are located throughout
the United States although a majority of those purchasing the Registrant's
services are located in the north central and south central portions of the
United States. The Registrant presently uses six salespersons in its marketing
efforts. The Registrant sells programming and creative content services to the
broadcast networks and cable television operators throughout the country.
Status of New Products or Services. None.
Competition. Numerous videotape and film production companies located
throughout the United States compete directly with the Registrant in the area of
both commercial and industrial production. Many of these companies are larger
than the Registrant in terms of sales, assets and resources.
Competition in the videotape and film production industry is based
primarily on creative ability, quality and timeliness of service at competitive
prices. Location of a company's production facilities and location of the client
involved are also factors in competition since the cost of transporting
equipment and crews can often affect a company's ability to compete. Location is
not an important factor to the network and cable industry clients, who are
accustomed to purchasing the best product wherever it may be. The Registrant has
production facilities in Minneapolis, Minnesota; Dallas, Texas; and Chicago,
Illinois. The Registrant has closed one of its production studios in Chicago as
part of a cost cutting program. The Registrant has access to many of the
additional production studios in Chicago in order to service its clients.
Although there are many production companies in the geographical areas in which
the Registrant is located, the major and much larger production companies
generally are located on either the west or east coasts of the United States.
Sources and Availability of Raw Materials. There are many available sources
of supply for raw materials needed for the Registrant's operations.
Dependence on One or a Few Customers. Since fiscal 1986, a significant
portion of the Registrant's revenue has been derived from twelve-month
requirement contracts and renewals awarded to the Registrant by the U.S.
Department of Defense for the production of radio and television spot
announcements meeting the requirements of the Armed Forces Information
Service/Armed Forces Radio and Television Service. The original contract,
awarded in October 1984, provided for four consecutive one-year renewal options
by the Department of Defense, all of which were exercised by the Government. The
subsequent contract, awarded to the Registrant in January, 1990, covered the
Department's same requirements and provided for three one-year renewal options
by the Department of Defense, all of which were exercised by the Government. In
August 1993, the Registrant was awarded a new contract by the Department of
Defense for the Department's same requirements. The contract provides for four
consecutive one-year renewal options by the Department of Defense after the
initial year of the contract. The initial year and the first renewal year of the
contract each amounted to revenues of $2,600,000. The second renewal year
amounted to $2,250,000 of revenues. The third year renewal amounted to
$2,300,000 of revenues. The fourth renewal year is estimated at $2,500,000.
<PAGE>
In fiscal 1998, 1997 and 1996, government contract revenue accounted for
18%, 20% and 22% respectively, of total revenue. The loss, therefore, of
business from the Government could have a material adverse effect on the
Registrant.
Patents, Trademarks, Etc. The Registrant claims common law trademark rights
in its name, Northwest Teleproductions, and its subsidiaries' names. The
Registrant has no other patents, trademarks, copyrights, licenses, franchises or
concessions that it considers material.
Government Approvals. Other than approval by the U.S. Department of Defense
of the television spot announcements produced for it, the Registrant is not
required to obtain government approval of its products or services.
Effect of Governmental Regulations. The Registrant does not believe that
any existing or proposed governmental regulations will have a material effect
upon its business.
Research and Development. During each of the last two fiscal years the
Registrant expended an insignificant amount of funds on research activities
relating to the development of new products or services, or the improvement of
existing products or services, and had no employees who devoted full time to
research and development activities.
Effect of Environmental Regulation. To the extent management can determine
at this time, there are no federal, state or local provisions regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment, compliance with which by the Registrant has had
or is expected to have a material effect upon the capital expenditures, earnings
and competitive position of the Registrant.
Employees. At June 30, 1998 the Registrant employed approximately 74
persons, all of which were employed full time.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
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The Registrant's principal properties are as follows:
Location General Description Manner of Ownership
4455 West 77th Street 20,000 square feet; office Leased with lease expiring June 30, 2001.
Minneapolis, Minnesota and production facility. Option to renew for one 5 year period. See Notes
4 and 8 to Consolidated Financial Statements.
4000 West 76th Street 13,000 square feet; office Leased with lease expiring June 30, 2001.
Minneapolis, Minnesota and production facility. Option to renew for one 5 year period. See Notes
4 and 8 to Consolidated Financial Statements
2649 Tarna Drive 14,000 square feet; office Direct fee ownership subject to mortgage. See
Dallas, Texas and production facility. Note 2 to Consolidated Financial Statements.
142 E. Ontario Street 7,500 square feet; office Leased with lease expiring April, 2002. Option
Chicago, Illinois and production facility. to renew for one additional five-year term.
81 South Ninth Street 5,000 square feet; office Leased with lease expiring October 31, 2001.
Minneapolis, Minnesota and production facility.
</TABLE>
On June 24, 1998, the Company closed a three-year sale-leaseback transaction
involving the two parcels of land and buildings located at 4000 West 76th Street
and 4455 West 77th Street. After a three-year period, the Company has the option
of renewing the lease for an additional five years. The monthly rental expense
for the first three years will be as follows: $16,615 in year 1, $17,030 in year
2 and $17,456 in year 3.
On June 24, 1998, the Company entered into a sale-leaseback transaction of two
buildings with Lindue, LLC, a Minnesota limited liability corporation owned by a
member of the Company's Board of Directors. Proceeds from the sale-leaseback
were $1.6 million, of which $112,000 in accrued interest and a $20,000 security
deposit were held in escrow by the landlord. (See Note 7 for additional
details.)
The Registrant believes its properties to be in good condition and adequate
for its present and foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's shareholders during
the fourth quarter of the Registrant's 1998 fiscal year.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information required by Item 5 is incorporated herein by reference
to the section labeled "Financial Review -- Market Prices" which appears in the
Registrant's 1998 Annual Report to Shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information required by Item 6 is incorporated by reference to the
section labeled "Management's Discussion and Analysis" which appears in the
Registrant's 1998 Annual Report to Shareholders.
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7 is incorporated by reference to the
Consolidated Financial Statements, Notes thereto and Independent Auditors'
Report thereon which appear in the Registrant's 1998 Annual Report to
Shareholders.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The names and ages of the executive officers of the Registrant and their
positions and offices presently held are as follows:
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Name of Age Present Position(s) Business Experience
Executive Officer with Registrant
Phillip A. Staden 41 President and Chief President and CEO of Registrant since October 20,
Executive Officer 1997. Vice-President of the Registrant from November
1996 to October 1997. Controller of the Registrant
from April 1991 to November 3, 1996.
David S. Johnson 55 Vice President Vice-President of Registrant since October 20, 1997.
Manager of The Government Services Division of the
Registrant since December 1993. Has been employed by
the Registrant since January 1986.
Nancy Reid 49 Vice-President Vice President of Registrant since October 20, 1997.
Sales and Marketing Currently General Manager of the Registrant's Chicago
subsidiary. Prior to joining the Registrant, she was
Sales and Marketing manager of Editel, Inc., a nationally
recognized post-production facility.
</TABLE>
There are no family relationships among any of the Registrant's directors or
executive officers.
The information required by Item 9 relating to directors is incorporated
herein by reference to the section labeled "Election of Directors" and the
information relating to compliance with Section 16 (a) is incorporated herein by
reference to the section labeled "Section 16 (a) Beneficial Ownership Reporting
Compliance", which sections appear in the Registrant's definitive Proxy
Statement filed pursuant to Regulation 14A not later than 120 days after the
close of the Registrant's 1998 fiscal year end in connection with the
Registrant's 1998 annual meeting of shareholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference to
the Section labeled "Executive Compensation" which appears in the Registrant's
definitive Proxy Statement for its 1998 annual meeting of shareholders.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference to
the sections labeled "Principal Shareholders" and "Management Shareholdings"
which appear in the Registrant's definitive Proxy Statement for its 1998 annual
meeting of shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated herein by reference to
the section labeled "Election of Directors" which appears in the Registrant's
definitive Proxy Statement for its 1998 annual meeting of shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on page following signatures.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last fiscal quarter of the
Registrant's 1998 fiscal year.
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTHWEST TELEPRODUCTIONS, INC.
(the "Registrant")
By: /s/ Phillip A. Staden
Date: June 29, 1998 Phillip A. Staden, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints JOHN C.
McGRATH and PHILLIP A. STADEN his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-KSB and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
<PAGE>
Signature Title Date
President, CEO and Director
/s/ Phillip A. Staden (principal executive officer) June 29, 1998
Phillip A. Staden
Chairman of the Board
________________________________ and Director June 29, 1998
John C. McGrath
________________________________ Director June 29,1998
James S. Fish
________________________________ Director June 29,1997
C. Dale Haworth
________________________________ Director June 29, 1998
Steven Lose
________________________________ Director June 29, 1998
John G. Lindell
________________________________ Director June 29, 1998
Ronald V. Kelly
________________________________ Director June 29, 1998
Gerald W. Simonson
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
NORTHWEST TELEPRODUCTIONS, INC.
(Commission File Number: 0-8505)
E X H I B I T I N D E X
For
Form 10-KSB for 1998 fiscal year
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Exhibit
3 Registrant's Articles of Incorporation and Bylaws
3.1 Registrant's Restated Articles of Incorporation, as amended to date--incorporated by reference
to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1987*
3.2 Registrant's Restated Bylaws, as amended to date--incorporated by reference to Exhibit 6(b) to
the Registrant's Registration Statement on Form S-14, Reg. No. 2-55647*
10 Registrant's Material Contracts
10.1** Employment Agreement, dated November 2, 1996, between the Registrant and John C.
McGrath--incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended December 31, 1996. *
10.2** Deferred Compensation Agreement, dated November 2, 1996, between the Registrant and John C.
McGrath--incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended December 31, 1996. *
10.3** Incentive Stock Option Agreement, dated November 2, 1996, between the Registrant and John C.
McGrath - incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1996. *
10.4 Lease, dated January 31, 1994, covering facility at 142 East Ontario Street, Chicago,
Illinois--incorporated by reference to Exhibit 10.3 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1994*
<PAGE>
10.5 Lease, dated June 17, 1991, covering facilities at 81 South Ninth Street, Minneapolis,
Minnesota--incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1991*
10.6 Requirements Contract, dated August 27, 1993, between the Registrant and the Department of
Defense--incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1994*
10.7** 1993 Stock Option Plan and form of option agreements--incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1993*
10.8 Twelfth Amendment to Credit Agreement and Second Amendment to Replacement First Term Note, dated
August 25, 1995, between the Registrant and Norwest Bank Minnesota, National Association
(the "Bank") - incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1995*
10.9 Credit Agreement, dated July 24, 1996, between the Registrant and the Bank -
incorporated by reference to Exhibit 10.1 to the Registrant's quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996*
10.10 Agreement and Release, dated April 10, 1996, between the Registrant and Robert C. Mitchell
incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1996*
10.11 Form and amounts of 10-1/2% Subordinated Notes issued by the Registrant to certain of its
directors - incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996*
10.12 Form and amounts of Warrants to Purchase Common Stock issued by the Registrant to certain
directors in connection with issuance of Subordinated Notes - incorporated by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996*
10.13 10-1/2% Subordinated Note in the principal amount of $150,000 dated February 10, 1997, issued
by the Registrant to John G. Lindell. (Incorporated by reference to Exhibit 10.13 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.14 Warrant to Purchase 60,000 shares of Common Stock at $2.50 per share, dated February 10, 1997,
issued by the Registrant to John G. Lindell. (Incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.15 Loan and Security Agreement, dated April 24, 1997, between the Registrant and NationsCredit
Commercial Funding Division ("NationsCredit") (Incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.16 Guaranty, dated April 24, 1997, by the Registrant of certain obligations of Northwest
Teleproductions/Chicago, Inc. ("NW Chicago") and Southwest Teleproductions, Inc. ("Southwest")
(Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1997.*)
10.17 Loan and Security Agreement, dated April 24, 1997, between NW Chicago and NationsCredit
(Incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1997.*)
<PAGE>
10.18 Guaranty, dated April 24, 1997, by NW Chicago of certain obligations of the Registrant and
Southwest (Incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1997.*)
10.19 Loan and Security Agreement, dated April 24, 1997, between Southwest and NationsCredit
(Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1997.*)
10.20 Guaranty, dated April 24, 1997, by Southwest of certain obligation of the Registrant and NW
Chicago (Incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1997.*)
10.21 Security Agreement, dated April 24, 1997, between Northwest Teleproductions/ Kansas City, Inc.
("NW Kansas City") and NationsCredit (Incorporated by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.22 Guaranty, dated April 24, 1997, by NW Kansas City of certain obligations of the Registrant,
NW Chicago and Southwest (Incorporated by reference to Exhibit 10.22 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.23 First Amendment dated June 4, 1997, to Loan and Security Agreement dated April 24, 1997,
between the Registrant and NationsCredit. (Incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.24** Description of Officers' Incentive Compensation Agreement (Incorporated by reference to Exhibit
10.24 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.25 Real Property Mortgage, dated April 24, 1997, between the Registrant and NationsCredit
covering Registrant's property in Minneapolis, Minnesota (Incorporated by reference to Exhibit
10.25 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997.*)
10.26** Employment Agreement, dated May 11, 1998, between the Registrant and Phillip A. Staden.
10.27 Real Estate Purchase Agreement, dated June 24, 1998, between the Registrant and Lindue, LLC
10.28 Lease Agreement, dated June 24, 1998, between the Registrant and Lindue, LLC relating to property
at 4000 West 76th Street, Minneapolis, Minnesota.
10.29 Lease Agreement, dated June 24, 1998, between the Registrant and Lindue, LLC relating to property
at 4455 West 76th street, Minneapolis, Minnesota
11 Statement Regarding Computation of Per Share Earnings. The required information is included
in Note 1 of Notes to Consolidated Financial Statements
13 Annual Report to Shareholders. The portions of the Registrant's 1998 Annual Report to
Shareholders that are incorporated in this Form 10-KSB by reference
<PAGE>
21 Subsidiaries of the Registrant
Name State of Incorporation
Southwest Teleproductions, Inc. Texas
Northwest Teleproductions/Kansas City, Inc. Minnesota
Northwest Teleproductions/Chicago, Inc. Minnesota
23 Consent. Consent of Deloitte & Touche LLP
24 Power of Attorney. Powers of Attorney from directors of the Registrant are included as part
of the "Signatures" page of this Form 10-KSB
27 Financial Data Schedule (filed in electronic format only)
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*Incorporated by reference to a previously filed report of document, SEC File
No. 0-8505 unless otherwise indicated.
**Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-KSB
EMPLOYMENT AGREEMENT
EFFECTIVE DATE: May 11, 1998
PARTIES: Northwest Teleproductions, Inc. ("Northwest")
4000 W. 76th Street
Edina, Minnesota 55435
Phillip A. Staden ("Executive")
4000 W. 76th Street
Edina, Minnesota 55435
RECITALS:
A. The following recitals shall be considered a part of this Agreement
and explain the general nature and purposes of Northwest's business and
Executive's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
For purposes of this Agreement, "Northwest" includes Northwest Teleproductions,
Inc. and its affiliates.
B. Northwest is engaged in the specialized and highly competitive
business of production of videotape and film television programs for broadcast
and cable, corporate communications, advertising and commercial programs and
creative production services such as sound, special effects, animation, graphics
resources, and post production services.
C. Northwest, through its research, creativity and experience, has
developed and acquired valuable Confidential Information (as hereinafter
defined), including valuable trade secrets.
D. Northwest has disclosed and will continue to disclose the valuable
Confidential Information to Executive during his employment, and Executive will
otherwise be exposed to, come in contact with, help create, and be required to
use such Confidential Information.
E. Executive desires to enter into this Agreement for employment with
Northwest in which he may contribute to and receive Confidential Information,
and acknowledges that Northwest will suffer irreparable harm if Executive, after
developing, obtaining or becoming familiar with any Confidential Information,
makes any unauthorized disclosure or communication of any Confidential
Information to any third party or uses any Confidential Information in
competition with Northwest while employed or after the termination of his
employment.
<PAGE>
F. Executive recognizes, agrees and understands that execution of this
Agreement is an express condition of his employment and promotion by Northwest.
G. The parties desire to set forth their understanding and agreements
with respect to the terms of Executive's employment by Northwest.
THEREFORE, in consideration of the employment and promotion of
Executive by Northwest and the compensation and benefits herein described or
made available later to Executive by Northwest, Executive and Northwest agree as
follows:
AGREEMENTS:
ARTICLE 1.
DEFINITIONS
1.01 Confidential Information. For the purposes of this Agreement,
"Confidential Information" means any information relating to Northwest or its
business not generally known to the public or proprietary to Northwest and
includes, without limitation, trade secrets, inventions, and information
pertaining to research, development, methods, processes, techniques,
engineering, purchasing, marketing, selling, accounting, licensing, copyrights
and pending copyrights, business systems, business techniques, customer lists,
prospective or potential customer lists, price lists, business strategies and
plans. For example, and without limiting the foregoing, Confidential Information
may be contained in Northwest's marketing plans or proposals, customer lists,
prospective or potential customer list, the particular needs and requirements of
customers, the particular needs and requirements of prospective or potential
customers, and the identity of customers or prospective or potential customers.
Information relating to Northwest or its business shall be treated as
Confidential Information irrespective of its source and any information which is
identified as being "confidential" or "trade secret" shall be presumed to be
Confidential Information.
<PAGE>
ARTICLE 2.
EMPLOYMENT, COMPENSATION AND BENEFITS
2.01 Term of Employment. Northwest hereby agrees to employ Executive as
its President and Chief Executive Officer for a term commencing as of the date
Executive signs this Agreement and continuing to October 26, 1998 ("Initial
Term") unless earlier terminated pursuant to Article 5 hereof. Thereafter, this
Agreement shall renew annually, for one year periods, beginning October 27, 1998
unless either party terminates pursuant to Article 5 hereof or gives written
notice of the intent not to renew the Agreement. At any time beginning 90 days
before the termination of the Initial Term or, in the case of a renewal term,
the termination of any subsequent one-year renewal term, Executive may request
in writing that the Board inform him if it intends to renew Executive's
Employment Agreement and the Board shall provide within ten days of receipt of
such request a written response informing Executive whether it intends to renew
Executive's Employment Agreement.
2.02 Duties and Supervision. During Executive's employment by
Northwest, Executive agrees to devote his full-time best efforts to the business
and affairs of Northwest, and agrees to perform such services and duties as may,
from time to time, be assigned to him by the Board of Directors of Northwest.
Executive shall be held fully accountable for the results of Northwest. During
the term of Executive's employment with Northwest, Executive will not perform
services for any other person, firm or corporation, as an employee, agent,
independent contractor, or in any other capacity, without the express consent of
the Board of Directors of Northwest. Executive agrees to comply in every respect
with the general standards and policies of Northwest in effect from time to
time, all of which Northwest reserves the right to change in its sole
discretion.
2.03 Compensation. Northwest shall pay to Executive, or provide for
payment or delivery of, the following compensation and consideration for
services rendered by Executive:
2.03.1 Base Salary. During the term of the Agreement,
Northwest shall pay Executive an annual base salary of
One Hundred Fifty Thousand Dollars ($150,000), or such
other amount as decided by the Board of Directors of
Northwest but in no event shall the rate of such annual
Base Salary be less than $150,000 ("Base Salary").
Executive's compensation shall be subject to
withholding and other appropriate deductions, payable
in accordance with Northwest's normal payroll practices
in effect from time to time.
2.03.2 Bonus. For the fiscal year beginning 4/01/97 and each
fiscal year thereafter, Executive shall be eligible to
earn a Management Incentive Bonus for such fiscal year,
provided Executive is a Northwest employee on the last
day of such fiscal year. The Management Incentive Bonus
shall be based upon 5% of the pre-tax earnings for the
fiscal year in excess of 8% of shareholder equity at
the beginning of the fiscal year, up to a maximum of
50% of Executive's Base Salary with a minimum of Ten
Thousand Dollars ($10,000.00).
The Management Incentive Bonus earned by Executive
for any fiscal year shall be determined and earned
upon completion of Northwest's annual audit by its
independent certified public accountants.
<PAGE>
2.03.3 Long Term Incentive. Northwest previously granted
Executive, on November 4, 1996, an incentive stock
option for 15,000 shares pursuant to the 1993 Northwest
Teleproductions, Inc. Stock Option Plan ("Plan"),
vesting to the extent of one-third of the total number
of shares each year beginning on the anniversary of the
date of grant. Northwest will take those steps
necessary to have its Board of Directors or a committee
of the Board grant Executive, on a date selected by the
Board but no later than the end of the current fiscal
quarter, an incentive stock option for an additional
35,000 shares pursuant to the Plan, vesting to the
extent of one-third of the total number of shares each
year beginning on the first anniversary of the date of
grant, and exercisable for a five-year term. The per
share exercise price shall equal the fair market value
(as defined in the Plan) of Northwest's common stock on
the date of grant. Executive and Northwest shall
execute a separate Incentive Stock Agreement setting
forth all other terms and conditions of the incentive
stock option.
2.03.4 Office. Executive understands that this position
offices out of Minneapolis and Executive shall work at
Northwest's Minneapolis headquarters as necessary to
perform the duties of his job. Northwest agrees to
reimburse Executive for travel between its Chicago and
Minneapolis offices and lodging during Executive's
working time at its Minneapolis offices. Executive
shall be responsible for meals.
2.04 Other Executive Benefits. Northwest agrees to provide the following
benefits to Executive.
2.04.1 Vacation. Executive shall be entitled to paid
vacation according to Northwest's employee handbook as
it exists from time to time, but shall receive not less
than four (4) weeks of paid vacation during each twelve
(12) month period of employment.
2.04.2 Expenses. Northwest shall reimburse Executive for all
documented reasonable and necessary out-of-pocket
expenses incurred in connection with performance of his
duties and obligations to Northwest hereunder.
2.04.3 Other Benefits. Northwest shall provide to Executive
participation in any other employee benefit programs
made available to employees generally from time to time
as established in the exclusive discretion of
Northwest's Board of Directors or authorized delegates
of the Board of Directors. Such benefits may include,
but are not limited to health insurance, dental
insurance, life insurance, paid holidays and
participation in qualified retirements plans. Northwest
retains the sole discretion to amend, modify, or
discontinue any and all benefit plans.
ARTICLE 3.
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
3.01 Scope. The definition of "Confidential Information" as set forth
in Article 1, Paragraph 1.01, is not intended to be exhaustive. From time to
time during the term of his employment, Executive may gain access to or help
create other information concerning Northwest's business of commercial value to
Northwest, which information shall be included in the definition under Article
1, Paragraph 1.01, above, even though not specifically listed in that Paragraph.
The definition of Confidential Information and the provisions of this Article 3
apply to any form in which the subject information, trade secrets, or data may
appear, whether written, oral, or any other form of recording or storage.
<PAGE>
3.02 Confidentiality. Executive promises and agrees that the
Confidential Information, including trade secrets and/or data, will be held in
the strictest confidence and will never, without prior written consent of
Northwest, be (directly or indirectly) disclosed, assigned, transferred,
conveyed, communicated to or used for his own or another's benefit or (directly
or indirectly) disclosed, assigned, transferred, conveyed, communicated to, or
used by him, a competitor of Northwest or any other person or entity, including
but not limited to, the press, other professionals, corporations, partnerships
or the public, at any time during his employment with Northwest or at any time
after his termination of employment with Northwest, regardless of the reason for
Executive's termination, whether voluntary or involuntary. Executive further
promises and agrees that he will develop and enforce such policies and
procedures as are necessary to protect Northwest's Confidential Information and
will faithfully implement and abide by any and all policies and procedures which
may be established by Northwest to insure the confidentiality of the
Confidential Information, including but not limited to, rules, polices,
practices or procedures:
3.02.1 (a) Limiting access to authorized personnel;
3.02.2 (b) Limiting copying of any writing, data or recording;
3.02.3 (c) Requiring storage of property, documents or
data in secure facilities provided by Northwest
and limiting safe or vault lock combinations or
keys to authorized personnel; and/or
3.02.4 (d) Requiring check out and return of property,
documents, or data, and implementing such other
procedures promulgated by Northwest from time to
time.
3.03 Return of Information. Upon termination of the employer-employee
relationship, whether voluntary or involuntary, Executive will return to
Northwest any and all written or otherwise recorded form of all Confidential
Information (and any copies thereof) in his possession, custody or control, as
defined in Article 1, Paragraph 1.01, including, but not limited to notebooks,
software, memoranda, specifications, customer lists, prospective or potential
customer lists, or price lists, and will take with him, upon leaving Northwest's
place of business or employment with Northwest, no such information, property,
or reproduction thereof in any form which may have been entrusted to or obtained
by him during the course of his employment or to which he had access,
possession, custody or control. Upon termination of employment, whether
voluntary or involuntary, Executive will deliver to Northwest all Confidential
Information in recorded form in his property, devices, parts, mock-ups and
finished or unfinished product, machinery, or equipment in his possession,
custody or control.
Executive shall also deliver, upon his termination, whether voluntary or
involuntary, all records, software, drawings, blueprints, notes, notebooks,
memoranda, specifications and documents or data in any form, which contain
Confidential Information.
<PAGE>
3.04 Copyrights. Executive acknowledges that any computer software,
program or other work of authorship prepared by Executive for Northwest's
benefit or at Executive's request shall be considered a "work made for hire"
under U.S. copyright laws. To the extent that any such work of authorship cannot
be considered a "work made for hire," Executive agrees to assign and hereby does
assign all right, title and interest in and to such work to Northwest.
3.05 Invention. "Invention" means any invention, discovery,
improvement, or idea, whether patentable or copyrightable or not, and whether or
not shown or described in writing or reduced to practice.
3.06 Disclosure and Assignment. Executive shall promptly and fully
disclose in writing to Northwest, and will hold in trust for Northwest's sole
right and benefit, any Invention that Executive, during the period of employment
and for one year thereafter, makes, conceives, or reduces to practice or cause
to be made, conceived, or reduced to practice, either alone or in conjunction
with others, that:
a. Relates to any subject matter pertaining to
Executive's employment;
b. Relates to or is directly or indirectly connected
with Northwest's business, products, processes, or
Northwest's Confidential Information; or
c. Involves the use of any of Northwest's time,
material, or facility.
Executive will keep accurate, complete, and timely records for such Inventions,
which records shall be Northwest's property and shall not be removed from
Northwest's premises. Executive hereby assigns to Northwest all of his right,
title, and interest in and to all such Inventions and, upon Northwest's request,
Executive shall execute, verify, and deliver to Northwest such documents,
including without limitation, assignments and patent applications, and shall
perform such other acts, including, without limitation, appearing as a witness
in any action brought in connection with this Agreement that are necessary to
enable Northwest to obtain the sole right, title, and benefit to all such
Inventions.
3.07 Notice of Excluded Inventions. Executive further agrees, and is
hereby notified, that the above agreement to assign Inventions to Northwest does
not apply to any Invention for which no equipment, supplies, facility, or
Northwest Confidential Information was used, which was developed entirely on
Executive's own time, and
a. Which does not relate:
(i) Directly to Northwest's business; or
(ii) To Northwest's actual or demonstrably
anticipated research or development; or
<PAGE>
b. Which does not result from any work performed by
Executive for Northwest.
ARTICLE 4.
COVENANT NOT TO COMPETE
4.01 Actions Prohibited. At no time during Executive's employment or
for a period of one (1) year immediately following the termination of
Executive's employment (whether voluntary or involuntary), will Executive:
4.01.1 Acting on behalf of himself, another business or
competitor, call upon or communicate with or attempt to
call upon or communicate with any
(a) Northwest customer (which shall include but not be
limited to any AFRTS customer for purposes of this
Article 4), and
(b) potential customer that, at the time of Executive's
termination, Northwest has provided, or is in the
process of providing, a proposal or bid (hereinafter
"potential Northwest customer") about whom Executive
obtained Confidential Information or with whom
Executive (or other employees of Northwest under
Executive's supervision) had contact during the twelve
(12) months prior to Executive's termination, for the
purpose (either directly or indirectly) of soliciting,
selling or buying any services, merchandise or products
sold or purchased by Northwest; and
4.01.2 In any way, directly or indirectly, acting on behalf of
himself, another business or competitor, provide services
which are similar to or compete with any services provided
by Northwest, to any actual or potential Northwest
customer about whom Executive obtained Confidential
Information or with whom Executive (or other employees of
Northwest under Executive's supervision) had contact
during the twelve (12) months immediately prior to
Executive's termination; and
<PAGE>
4.01.3 In any way, directly or indirectly, render any services,
advice or counsel on or related to any AFRTS contract or
actual or potential Northwest customer, as an owner,
employee, partner, representative, agent, independent
contractor, consultant, or in any other capacity, for any
party or on Executive's own behalf if the rendering of
such services, advise or counsel involves, may involve,
requires, or is likely to result in the use of disclosure
by Executive of any Confidential Information; and
4.01.4 Acting on Executive's own behalf or on behalf of another
business or competitor, solicit or hire any person
employed by Northwest at any time during the twelve (12)
months prior to Executive's termination.
ARTICLE 5.
TERMINATION OF EMPLOYMENT
5.01 Notwithstanding anything to the contrary elsewhere in this
Agreement, Executive's employment shall terminate, whether during the Initial
Term or any subsequent renewal term:
5.01.1 Upon mutual written agreement of the parties.
5.01.2 Upon the death of Executive.
5.01.3 Upon the physical or mental disability of Executive
to such an extent that he is generally unable to,
with or without reasonable accommodation, perform the
essential functions of his job and usual and
customary duties and such inability continues for a
period of two (2) months or more.
5.01.4 Upon written notice to Executive by Northwest in the
event of Executive's final nonappealable conviction
of or entry of a plea of guilty or nolo contendere to
any felony or the final nonappealable entry of any
civil judgment against him in connection with any
allegation against him of (a) fraud or
misrepresentation relating to Northwest or its
business, or (b) embezzlement.
5.01.5 Upon written notice to Executive by Northwest in the
event of Executive's willful and repeated misconduct
in not following the reasonable directions of the
Board of Directors or willful failure to perform his
duties if Executive does not correct such misconduct
or failure within a period of ten (10) days after
written notice thereof from Northwest specifying the
nature of such misconduct or failure and demanding
that it be cured.
<PAGE>
5.01.6 Upon Executive's making a material false statement to
the Board of Directors or in matters relating to
Northwest's business, as determined by a majority
vote of the Board of Directors, excluding Executive.
5.01.7 Upon 60 days written notice by Executive without cause.
5.01.8 Upon 60 days written notice by Northwest without cause.
5.02 Decision and Waiver. Any determination by Northwest to terminate
Executive's employment with Northwest as outlined above must be made by a
majority decision of the Board of Directors. Nonexercise by Northwest of its
right to terminate Executive's employment pursuant to the subsections above
shall not constitute a waiver by Northwest of its right to terminate Executive's
employment pursuant to such subsections.
5.03 Continuing Payments. If Executive's employment is (1) terminated
during the Initial Term or any subsequent renewal term pursuant to Paragraph
5.01.1, 5.01.2, 5.01.3, 5.01.4, 5.01.5, 5.01.6 or 5.01.7; or (2) not renewed
after the end of the Initial Term or any subsequent renewal term for any of the
reasons described in Paragraph 5.01.1, 5.01.2, 5.01.3, 5.01.4, 5.01.5, 5.01.6,
or 5.01.7, then upon such termination or nonrenewal Northwest shall have no
further obligation or liability to Executive whatsoever, except for accrued
benefits and any compensation actually earned through Executive's last day of
employment. If Executive's employment is terminated pursuant to paragraph 5.01.8
during the Initial Term or any subsequent renewal term, then Northwest's only
liability or obligation to Executive shall be for: (A) accrued benefits and any
compensation actually earned through Executive's last day of employment; (B)
Executive's Base Salary, at regular intervals, for the unexpired portion of the
Initial Term or, if during a renewal term, the unexpired portion of such renewal
term; (C) the greater of (i) six months' Executive Base Salary, or (ii) one
week's Executive's Base Salary for each full year Executive has been employed by
Northwest; and (D) payment of Executive's COBRA premium payments for continued
coverage under Northwest's group health plan for a period of 12 months
immediately following termination of Executive's employment with Northwest,
provided Executive elects to continue such coverage. If Executive's employment
is not renewed by Northwest for any reason other than a reason described in
Paragraph 5.01.1, 5.01.2, 5.01.3, 5.01.4, 5.01.5, or 5.01.6 after the end of the
Initial Term or any subsequent renewal term, then Northwest's only liability
shall be: (A) Executive's accrued benefits and any compensation actually earned
through Executive's last day of employment; (B) the greater of (i) six months'
Executive's Base Salary, or (ii) one week's Executive's Base Salary for each
full year Executive has been employed by Northwest; and (C) payment of
Executive's COBRA premium payments for continued coverage under Northwest's
group health plan for a period of 12 months immediately following termination of
Executive's employment with Northwest, provided Executive elects to continue
such coverage. Any and all payments under this Paragraph 5.03 or 5.04 shall be
payable in a lump sum or at regular payroll intervals in Northwest's discretion,
shall be subject to required withholding and deductions, and shall be contingent
upon Executive's abiding by the restrictions contained in Articles 3 and 4 of
this Agreement.
<PAGE>
5.04 Change of Control. If, within one year of a "change of control" as
that term is defined in paragraph 5.05, Executive's employment is (1)
terminated, either during the Initial Term or any subsequent renewal term,
pursuant to Paragraph 5.01.8, (2) not renewed without cause by Executive, or (3)
not renewed by Northwest for any reason other than a reason described in
paragraph 5.01.1, 5.01.2, 5.01.3, 5.01.4, 5.01.5, or 5.01.6 after the end of the
Initial Term or any subsequent renewal term, then this Paragraph 5.04, instead
of Paragraph 5.03, shall govern which payments, if any, are due Executive, and
Northwest's only liability or obligation to Executive shall be: (A) for accrued
benefits and any compensation actually earned through Executive's last day of
employment; (B) in the case of a termination pursuant to Paragraph 5.01.8,
Executive's Base Salary, at regular intervals, for the unexpired portion of the
term; (C) the greater of (i) six months' Executive's Base Salary or (ii) an
amount equal to one week's Executive's Base Salary for each full year Executive
has been employed by Northwest; and (D) payment of Executive's portion of
Executive's COBRA premium payments for continued coverage under Northwest's
group health plan for a period of 12 months immediately following Executive's
termination of employment with Northwest, provided Executive elects to continue
such coverage. Executive's rights, if any, to acceleration of vesting of any
stock options granted Executive shall be governed by the separate stock option
agreements. Provided, however, that Executive shall not be entitled to receive
any payments under this Paragraph 5.04 or any other agreement with Northwest
which would, with respect to Executive, constitute a "parachute payment" for
purposes of Internal Revenue Code Section 280G. In the event any payments under
this Paragraph 5.04 or any other agreement with Northwest would, with respect to
Executive, constitute a "parachute payment," Executive shall have the right to
designate those payments to Executive, whether under this Agreement and/or any
other agreement with Northwest, which should be eliminated so that Executive
will not receive a "parachute payment."
5.05 Definition of Change of Control. For purposes of this
Agreement, "change of control" shall mean:
(a) A merger or consolidation to which Northwest is a
party if the individuals and entities who were
shareholders of Northwest immediately prior to the
effective date of such merger or consolidation have,
immediately following the effective date of such
merger or consolidation, beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of less than fifty percent (50%) of the
total combined voting power of all classes of
securities issued by the surviving corporation for
the election of directors of the surviving
corporation;
(b) The direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of securities of Northwest representing,
in the aggregate, fifty-one percent (51%) or more of
the total combined voting power of all classes of
Northwest's then issued and outstanding securities by
any person or entity or by a group of associated
persons or entities acting by concert;
<PAGE>
(c) The sale of substantially all of the properties and
assets of Northwest to any person or entity which is
not a wholly-owned subsidiary of Northwest;
(d) The shareholders of Northwest approve any plan or
proposal for the liquidation of Northwest; or
(e) A change in the composition of the Board at any time
during any consecutive twenty-four (24) month period
such that the "Continuing Directors" cease for any
reason to constitute at least a sixty percent (60%)
majority of the Board. For purposes of this event,
"Continuing Directors" means those members of the
Board who either:
(1 were directors at the beginning of such
consecutive twenty-four (24) month period; or
(2) were elected by, or on the nomination or
recommendation of, at least a two-thirds
(2/3) majority of the then-existing Board of
Directors.
For purposes of this paragraph 5.05(e), the
"Continuing Directors" shall not include John Lindell
and James Fish, and the departure (for whatever
reason) and/or replacement of John Lindell and/or
James Fish shall not be taken into account when
determining whether the required change in the
composition of the Board of the Company has occurred.
5.06 Mitigation. If Executive is entitled to continuing payments
pursuant to Paragraph 5.03 or 5.04, Executive shall not be obligated to seek
other employment to receive such payments and such payments shall not be reduced
by any income from other sources received by Executive.
ARTICLE 6.
MISCELLANEOUS
6.01 Remedies. The parties acknowledge that Northwest will suffer
irreparable harm if Executive breaches Article 3 and/or 4 of this Agreement,
either during or after its term. Accordingly, Northwest shall be entitled, in
addition to any other right and remedy it may have, at law or equity, to
injunctive relief, without the posting of a bond or other security, enjoining or
restraining Executive from any violation of this Agreement, and Executive hereby
consents to Northwest's right to the issuance of such injunction. If Northwest
institutes and prevails in any such action against Executive to enforce Article
3 and/or 4 of this Agreement, alone or in conjunction with any third party or
parties to enforce any terms or provisions of this Agreement, Executive shall
pay Northwest its reasonable attorneys' fees incurred in instituting and
maintaining such action and all costs and expenses incurred in connection
therewith.
<PAGE>
6.02 Severability. The parties agree that, in the event that a court of
competent jurisdiction determines that any of the provisions of this Agreement
are unreasonable, it may limit such provisions to the extent it deems
reasonable, without declaring the provision or this Agreement invalid in its
entirety. This provision shall not be construed as an admission by Northwest,
but is only included to provide Northwest with the maximum possible protection
for its business, Confidential Information, trade secrets and data.
6.03 Modification. This Agreement supersedes any and all oral and
written negotiations, agreements and understandings, if any, between the parties
relating to the subject matter of this Agreement. The parties agree that this
Agreement sets forth the entire understanding and agreement between the parties
and is the complete and exclusive statement of the terms and conditions thereof,
that there are no other written or oral agreements in regard to the subject
matter of this Agreement, except that Executive agrees to comply with
Northwest's general standards and policies as they exist from time to time. This
Agreement shall not be changed or modified except by a written document signed
by the parties hereto.
6.04 Successors. This Agreement is personal to Executive and
Executive may not assign or transfer any part of the rights or duties or any
compensation due to him hereunder, to any other person. This Agreement may be
assigned by Northwest.
6.05 Waiver. The waiver by Northwest of the breach or nonperformance of
any provisions of this Agreement by Executive shall not operate or be construed
as a waiver of any future breach or nonperformance under any provisions of this
Agreement.
6.06 Survival. Executive and Northwest agree that the provisions of
this Agreement that expressly extend beyond the termination of Executive's
employment, particularly Articles 3 and 4, shall continue in full force and
effect after termination of this Agreement or Executive's employment.
6.07 Governing Law. This Agreement shall be governed according to the\
laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties have executed this Agreement in the
manner appropriate to each on the date indicated.
NORTHWEST TELEPRODUCTIONS, INC.
Dated:____________________ By____________________________
Its_________________________
Subscribed and sworn to before me
this ____ day of __________, 1998.
__________________________________
Notary Public
Dated:___________________ ______________________________
PHILLIP A. STADEN
Subscribed and sworn to before me
this _____day of _________, 1998.
_________________________________
Notary Public
REAL ESTATE PURCHASE AGREEMENT
This Real Estate Purchase Agreement ("this Agreement") is made and entered into
this 24th day of June, 1998, by and between NORTHWEST TELEPRODUCTIONS, INC., a
Minnesota corporation ("Seller"), and LINDUE, LLC, a Minnesota limited liability
company ("Purchaser"). The Seller and Purchaser are hereinafter referred to as
"Party" or, collectively, "Parties."
Seller is the fee owner of real property consisting of two parcels of land and
two buildings located at 4000 West 76th Street ("76th Street Property") and 4455
West 77th Street ("77th Street Property"), respectively, Edina, Hennepin County,
Minnesota, together with all buildings and improvements constructed on said land
and all easements, covenants and rights benefitting or appurtenant to the said
land or improvements (collectively, "Real Property"). The legal descriptions of
the Real Property are set forth in Exhibit A attached to this Agreement.
Purchaser desires to purchase and Seller desires to sell the Real Property and
the other property and interests described in Section 1 of this Agreement. The
Real Property and the items of property described in Sections 1(b) through 1(g),
collectively, are referred to as "Real Property".
In consideration of and in reliance upon the terms, covenants and conditions of
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Sale of Property. Seller will sell to Purchaser and Purchaser will purchase
from Seller all of Seller's right, title and interest in and to the Real
Property described as follows:
(a) The Real Property;
(b) All personal property located in or about the Real
Property owned by Seller and used in the maintenance or
operation of the Real Property, including without limitation
those items described in Exhibit B attached hereto
("Personal Property").
(c) Seller's interest in the service and maintenance
contracts, equipment leases and other contracts relating to
the Real Property and the Personal Property described in
Exhibit C attached hereto ("Contracts").
(d) Seller's interests in the permits and licenses described
in Exhibit D attached hereto ("Permits").
(e) Seller's interests in all warranties and guaranties
given to, assigned to or benefitting Seller or the Real
Property or the Personal Property relating to the
acquisition, construction, design, use, operation,
management or maintenance of the Real Property and the
Personal Property, if any ("Warranties").
(f) All originals and copies of the as-built blueprints,
plans and specifications relating to the Real Property and
the Personal Property in Seller's possession, if any
("Plans").
<PAGE>
(g) All records of Seller relating to the Real Property and
the Personal Property and the ownership, operation and
management of the Real Property, including without
limitation current real estate tax statements and special
assessment notices; insurance policies; and records of
maintenance, repairs, services and capital improvements to
the Real Property to the extent such materials are within
Seller's possession or control (the "Records"); provided,
however, that Seller may retain such copies of the Records
as may be appropriate in order to satisfy its legal
obligations.
Seller will deliver to Purchaser true and correct copies of all Contracts,
Permits, Warranties, Plans and Records for Purchaser's review, as soon as
reasonably possible after both Parties shall have signed this Agreement.
2. Purchase Price and Manner of Payment. The purchase price ("Purchase Price")
to be paid by Purchaser to Seller for the Real Property will be One Million Six
Hundred Thousand and no/100 Dollars ($1,600,000). The Purchase Price will be
allocated $700,000 to the 76th Street Property and $900,000 to the 77th Street
Property.
Purchaser will pay the Purchase Price as follows:
(a) Upon execution of this Agreement, Purchaser will pay Ten
Thousand Dollars ($10,000) earnest money ("Earnest Money")
to Commercial Partners Title, LLC, 330 Second Avenue South,
Suite 820, Minneapolis, Minnesota 55401 ("Closing Agent"),
to be deposited into an interest bearing trust account of
Closing Agent, and to be paid by Closing Agent to Seller at
the Closing. The interest from such trust account will be
paid to Purchaser.
(b) At the Closing, Purchaser will pay to Seller the One
Million Five Hundred Ninety Thousand Dollars ($1,590,000)
balance of the Purchase Price, less the sum of any and all
the following amounts:
(i) The total payments necessary to pay in full that
debt and to satisfy that Mortgage on the Real
Property, described in Section 4D below, including
principal, interest and all costs to prepay and
satisfy the Mortgage and to record such satisfaction;
(ii) The total payments necessary to pay, or
reimburse Purchaser for, any taxes or assessments to
be paid by Seller pursuant to Section 6, below, and
any fees, costs or expenses incurred pursuant to
Sections 7, 7A or 7B, below;
<PAGE>
(iii) The amount equal to the projected costs of roof
repair as reserve for roof repair on the office
buildings located on the 76th Street Property and the
77th Street Property, all as set forth in Section 7;
(iv) Any amount to be paid by Seller pursuant to the
provisions of that Agreement On Use of Proceeds
referred to in subsection 8(b), below;
(v) Any amount due Lessor as of the Date of Closing,
pursuant to the terms of either of those real estate
Leases described in Section 8(a) below, including
without limitation Tax Costs and Operation Costs;
(vi) This Section 2(b)(vi) intentionally left blank;
and
(vii) Any other fees, costs and expenses which this
Agreement specifically provides will be paid by
Seller, including, without limitation, those charges,
fees and expenses to be paid or reimbursed by Seller
pursuant to the provisions of Section 7(c), below.
3. Survey; Phase I; Access.
3A. Survey As soon as reasonably possible after the date of this
Agreement, Seller will at its cost and expense furnish to Purchaser a survey of
the Real Property ("Survey"), certified to Closing Agent and Chicago Title
Insurance Company ("Chicago Title"), prepared by a Registered Land Surveyor
properly licensed to practice in Minnesota and reasonably acceptable to
Purchaser. The Survey will be prepared so as to allow Chicago Title to issue an
owner's policy of title insurance with regard to the Real Property without any
exception for incomplete or inadequate survey and will show the Real Property
and the location of all boundaries, improvements to and encroachments on the
Real Property, and any and all easements affecting the Real Property, including
but not limited to any encumbrances identified in the Title Commitment.
3B. Phase I Environmental Report. As soon as reasonably possible after
the date of this Agreement, Seller will at its cost and expense furnish to
Purchaser a Phase I Environmental Report to be prepared relating to the Real
Property by an environmental consultant reasonably acceptable to Purchaser.
3C. Access. Seller will allow Purchaser and Purchaser's agents access
to the Real Property at all reasonable times for Purchaser's investigating and
testing the premises.
<PAGE>
4. Evidence of Title; Examination of Title; Objections; Remedies. Seller will at
its cost and expense cause the following documents to be delivered to Purchaser:
(a) Title Insurance Commitment. A commitment ("Title Commitment") for
an ALTA Owner's Policy (10-17-92) of Title Insurance ("Title Policy"),
insuring title to the Real Property. It shall be a condition to
Purchaser's obligation to close that Chicago Title agree to delete the
so called standard exceptions, provide for extended coverage risks and
include special endorsements for zoning, contiguity, appurtenant
easements and such other customary matters as Purchaser may reasonably
request, issued by Chicago Title. The Title Commitment will state
Chicago Title's commitment to insure marketable fee title in
Purchaser. Purchaser will pay the premium for the Title Policy.
(b) Encumbrances. A copy of every document referenced as an exception
to the title of the Real Property as described in the Title
Commitment.
4A. Objections. Within twenty (20) days after the date of receipt of
the Title Commitment (or within 20 days after the date of execution of this
Agreement if Purchaser shall have received the Title Commitment prior to said
date), Purchaser may make objections to the form or content thereof, such
objections to be made in writing or deemed waived. If Purchaser makes such
written objections, Seller will be allowed sixty (60) days to cure them. Seller
will use its best efforts to cure such objections and will not withhold its
consent to any reasonable request from Chicago Title to allow Chicago Title to
issue the Policy for Title Insurance contemplated hereby. Closing and the
payments hereunder required will be postponed pending curing of the objections,
but upon curing of all such objections and within ten (10) days after notice
thereof, the Parties will perform this Agreement according to its terms.
4B. Remedies. If the Title Commitment is not acceptable to Purchaser
and is not made so within sixty (60) days from the date of written
objections thereto as provided above, Purchaser may:
(a) Declare this Agreement null and void, and, in such event,
receive a refund of all Earnest Money paid hereunder and interest
thereon; or
(b) Complete the Closing and withhold from the Purchase Price at
Closing an amount which, in the mutual judgment of Closing Agent,
Seller and Purchaser, is sufficient to ensure correction of title
and satisfaction of any liens and encumbrances, pending
correction of title; or
(c) Waive any defect in title and complete the Closing.
4C. Purchaser's Right To Correct. If the objections to the Title
Commitment are not corrected within ninety (90) days after Closing pursuant to
the terms of Section 4B(b), above, Purchaser may thereafter correct any of said
defects in title and retain an amount to reimburse Purchaser for all costs in
connection therewith, including without limitation reasonable attorneys' fees.
<PAGE>
4D. Satisfaction of Mortgage. Without limiting any provision of this
Agreement, Seller will pay the total amount necessary (including without
limitation fees and penalties, if any) to pay in full that debt and to satisfy
that certain Mortgage on the Real Property ("Mortgage") dated June 4, 1997,
filed June 5, 1997, as Document No. 2816029, executed by Northwest
Teleproductions, Inc., a Minnesota corporation, in favor of NationsCredit
Commercial Corporation, through its NationsCredit Commercial Funding Division,
to secure $2,560,000, including principal, interest and all costs to prepay and
satisfy the Mortgage and to record such satisfaction.
5. Representations and Warranties.
5A. Seller's Representations and Warranties. Seller represents and
warrants to Purchaser the following as a material inducement to enter into this
Agreement:
(a) Organization and Standing of Seller. Seller (i) is a corporation,
duly organized, validly existing and in good standing under the laws
of the State of Minnesota and (ii) has the corporate power and
authority necessary to own its assets and carry on its business as now
conducted by Seller.
(b) Execution, Delivery, Performance and Binding Effect. The
execution, delivery and performance of this Agreement and all other
agreements and documents executed and delivered by Seller in
connection with this Agreement ("Seller's Related Agreements") and the
consummation by Seller of the transactions contemplated by this
Agreement and Seller's Related Agreements have been duly authorized by
all necessary corporate action, including by Seller's board of
directors. Seller has power and authority to enter into and perform
its obligations under this Agreement and each of the Seller's Related
Agreements. Delivery and performance by Seller of this Agreement and
Seller's Related Agreements will not conflict with, violate any
provision of, result in the breach of, or constitute a default under
(i) Seller's articles or certificate of incorporation or bylaws, (ii)
any federal or state law, rule or regulation, (iii) any order,
judgment, injunction or other action of any court, or (iv) any
contract or agreement, including without limitation any security
agreement or credit or loan agreement, by which Seller is bound. This
Agreement and the Seller's Related Agreements constitute legal, valid
and binding obligations of Seller enforceable against it in accordance
with their respective terms.
<PAGE>
(c) Consents. Seller's execution, delivery and performance of this
Agreement and the Seller's Related Agreements do not require the
consent, approval or authorization of any person not a Party to this
Agreement.
(d) Encumbrances. Seller shall not take any voluntary action, after
the date of this Agreement, that will affect the status of title to
the Property in a materially adverse way. It shall be a condition for
the benefit of Purchaser that on the date of the Closing, Seller will
own the Real Property free and clear of all liens, charges and
encumbrances other than any encumbrances that are specifically
described in Exhibit E attached hereto and by this reference are
permitted by the Purchaser.
(e) Legal Proceedings. To the best of Seller's actual knowledge (i)
Seller has received no notice of any action, litigation or other legal
proceeding pending against the Seller which materially affects the
Real Property or use of the Real Property or any portion thereof, and
(ii) no action, litigation, or other legal proceeding is pending or
threatened against the Real Property or any part thereof.
(f) Outstanding Contracts. As of the Closing, Seller will have caused
no contracts to be in effect in connection with the Real Property or
any part thereof except those set forth in Exhibit C and any other
contracts that may be terminated without cost to Purchaser on thirty
(30) days' notice.
(g) Rights of Others to Purchase. Seller has not entered into any
other contracts for the sale of the Real Property or any portion
thereof, and as of the Closing there will be no first rights of
refusal or other rights to purchase the Real Property except those
which are subject to the rights of Purchaser.
(h) FIRPTA. Seller is not a "foreign person," "foreign corporation,"
"foreign trust" or "foreign estate" as those terms are used in Section
1445 of the Internal Revenue Code.
<PAGE>
(i) Environmental Laws. To the best of Seller's actual knowledge, (i)
no toxic or hazardous substances or wastes, chemicals, pollutants or
contaminants (including without limitation asbestos, 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. ss.ss.9601-9657, as
amended) (collectively and individually, "Toxic or Hazardous
Substances") have been generated, treated, stored, released or
disposed of, or otherwise placed, deposited in or located on the Real
Property except in accordance with applicable law; (ii) No Toxic or
Hazardous Substances have been used in construction or maintenance of
the improvements that are part of the Real Property; (iii) no activity
has been undertaken on the Real Property that would cause, or
contribute to cause (i) the Real Property to become a treatment,
storage or disposal facility within the meaning of, or to be in
violation of, the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. ss.6901, et seq, or any similar state law or local
ordinance, (ii) a release or threatened release of Toxic or Hazardous
Substances from the Real Property within the meaning of, or any other
violation of , CERCLA, or any similar state law or local ordinance, or
(iii) 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. ss.1251, et seq, or the
Clean Air Act, 42 U.S.C. ss.7401, et seq, or any similar state law or
local ordinance; (iv) there are no substances or conditions in or on
the Real Property 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 environmental regulatory
requirements, including without limitation the Minnesota Environmental
Response and Liability Act, Minn. Stat. 115B ("MERLA") and the
Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. 115C; and
(v) there have been noabove ground or underground tanks located in or
about the Real Property except such tanks, if any, that have been duly
registered with all appropriate regulatory and governmental bodies and
are otherwise in compliance with applicable federal, state and local
statutes, regulations, ordinances and other regulatory requirements.
(j) Use of Property. To the best of Seller's actual knowledge, the
Real Property is usable for its current uses without violating any
federal, state, local or other governmental building, zoning, health,
safety, platting, subdivision or other law, ordinance or regulation or
any applicable private restriction, and it shall be a condition to
Purchaser's obligation to close that the current uses not violate such
laws, ordinances, regulations or restrictions.
<PAGE>
5B. Purchaser's Representations and Warranties. Purchaser represents
and warrants to Seller the following as a material inducement to enter into this
Agreement:
(a) Organization and Standing of Purchaser. Purchaser
is a limited liability company, duly organized, validly
existing and in good standing under the laws of the State of
Minnesota.
(b) Execution, Delivery, Performance and Binding
Effect. The execution, delivery and performance of this
Agreement and all other agreements and documents executed and
delivered by Purchaser in connection with this Agreement
("Purchaser's Related Agreements") and the consummation by
Purchaser of the transactions contemplated by this Agreement
and the Purchaser's Related Agreements have been duly
authorized by all necessary company action, including by
Purchaser's board of governors. Purchaser has power and
authority to enter into and perform its obligations under this
Agreement and each of the Purchaser's Related Agreements.
Delivery and performance by Purchaser of this Agreement and
Purchaser's Related Agreements will not conflict with, violate
any provision of, result in the breach of, or constitute a
default under (i) Purchaser's articles of organization or any
member voting agreement or member control agreement, (ii) any
federal or state law, rule or regulation, (iii) any order,
judgment, injunction or other action of any court, or (iv) any
contract or agreement, including without limitation any
security agreement or credit or loan agreement, by which
Purchaser is bound. This Agreement and the Purchaser's Related
Agreements constitute legal, valid and binding obligations of
Purchaser enforceable against it in accordance with their
respective terms.
(c) Consents. Purchaser's execution, delivery and
performance of this Agreement and the Purchaser's Related
Agreements do not require the consent, approval or
authorization of any person not a Party to this Agreement.
5C. Representations and Warranties As of Closing.
Seller shall disclose to Purchaser at or prior to closing if
any representation made by Seller herein becomes untrue. It
shall be a condition to Purchaser's obligation to close that
all representations, warranties, obligations and covenants
made by Seller in this Agreement be true as of the Closing.
<PAGE>
6. Real Estate Taxes and Special Assessments. The parties are entering into two
leases (the "Leases") under which Purchaser will lease the Real Property to
Seller. Under the Leases Seller, in the capacity of Tenant, is responsible for
paying all real estate taxes, and installments of special assessments payable
therewith. The provisions regarding payment of such impositions is hereby
incorporated herein by reference, and no pro-ration of such impositions shall be
required at Closing. If, at Closing, there exist unpaid taxes for prior years,
Closing Agent shall cause such taxes to be paid out of the proceeds of closing.
7. Costs and Prorations; Roof Repair. Except as specifically provided otherwise
in this Agreement, Seller and Purchaser will allocate and pay the following
costs in connection with this Agreement and the sale and purchase transaction
which is the subject of this Agreement.
(a) Seller will pay the fees and expenses of the
Closing and the Closing Agent, including without limitation
fees related to the trust account described in Section 2(a),
above, and Closing Agent's services pursuant to said trust
account.
(b) Seller will pay all state or local transfer or
deed tax in connection with the Deed. Purchaser will pay
recording charges for recording the Deed.
(c) Seller will pay previous charges owing to
Peterson Real Estate, Inc. for consulting fees relating to the
Real Property, in the amount of Nine Thousand Five Hundred
Dollars ($9,500). In addition, Seller will pay or reimburse
Purchaser for all consulting, legal, accounting, title
insurance and other fees or expenses which are incurred by
Purchaser directly in connection with this Agreement, the
Leases, or to the transactions which are the subject of any of
them, up to an aggregate total amount of Thirty Thousand
Dollars ($30,000). Except as set forth above in this Section
7(c), each Party will pay all of its respective attorneys'
fees in connection with the negotiation and preparation of
this Agreement and Closing; provided, however, that in the
event of default hereunder, the defaulting Party will pay all
reasonable attorneys' fees and costs incurred by the
non-defaulting Party in connection with the enforcement of the
rights and remedies of the non-defaulting Party;
(d) Seller will pay the costs of roof repair to the
extent set forth in Section 7C, below.
<PAGE>
7A. If, and to the extent, any cost or fee will be payable by Seller
under this Agreement, Purchaser will have the right, upon five (5) days' written
notice to Seller, to pay such amount for the account of Seller and deduct the
amount thereof from the funds due Seller at the Closing.
7B. If Purchaser pays any expenses or incurs any costs which would be
reimbursable by Seller at Closing, and if the Parties do not complete the
Closing by that date set forth in Section 9, below, or by a mutually agreeable
date subsequent to that date, Seller will reimburse Purchaser for said expenses
or costs within ten (10) days following that date.
7C. Roof Repair. The Parties acknowledge that the roofs on the
buildings which comprise part of the Real Property require repair or
replacement. Promptly upon execution of this Agreement, the Parties will engage
a mutually acceptable roofing consultant, roofing contractor or other
knowledgeable person to examine those roofs and to advise the Parties the extent
and projected costs to repair or replace in a manner reasonably acceptable to
Purchaser. Purchaser will withhold an amount equal to said projected costs from
the Purchase Price and will proceed with such repair or replacement of the roofs
promptly following the Closing. If the sum of the fees and expenses of the said
consultant, contractor or other person plus Purchaser's direct, out of pocket
costs of such repair or replacement (the "Total Cost") is less than the said
projected costs, Purchaser will pay the difference to Seller within thirty (30)
days after receiving the final statement or statements for such costs. If the
Total Cost is more than the said projected costs, Seller will pay the difference
to Purchaser within thirty (30) days after receiving a copy of said final
statement or statements. Seller may at its expense audit Purchaser's records
relating to such costs; such audit will be conducted within sixty (60) days
after Seller receives a final statement of Purchaser's costs, and Seller will
conduct it during normal business hours at Purchaser's place of business or
other location in Hennepin County, Minnesota, determined by Purchaser. Purchaser
presently estimates that the Total Cost will be approximately Two Hundred Thirty
Thousand Dollars ($230,000).
8. Conditional Agreement. Unless waived by Purchaser in writing, or by failure
to object in writing within the applicable times set forth herein, Purchaser's
obligation to complete the purchase which is the subject of this Agreement will
be subject to and conditional upon each of the following:
(a) Leases. Seller and Purchaser shall have reached agreement on the
business and legal terms and entered into leases for the 76th Street
Property and the 77th Street Property, respectively ("Lease" or
"Leases"). Unless the Parties agree on the terms of the Leases,
neither party will be obligated to close the transaction which is the
subject of this Agreement.
(b) Use of Proceeds. Seller shall have executed that Agreement On Use
of Proceeds attached to this Agreement as Exhibit F. Unless both
Parties execute that Agreement, they will not close the purchase which
is the subject of this Agreement.
<PAGE>
(c) No Conflict of Interest. The material facts as to this Agreement
and the transaction which is the subject of this Agreement and as to
John G. Lindell's interests as a director of Seller and as a member of
Purchaser shall have been fully disclosed or known to Seller's
shareholders or board of directors and the shareholders or directors,
respectively, shall have approved, authorized or ratified said
transaction, so that neither this Agreement nor the said transaction
is made void or voidable by Lindell's being a party, pursuant to the
provisions of Minnesota Corporation Act Section 302A.255, subd. 1; and
Seller shall have delivered to Purchaser a copy, certified by the
chief executive officer of Seller, of the shareholders' or the
directors' action acknowledging their knowledge of Lindell's interests
and approving, authorizing or ratifying this Agreement and the said
transaction.
(d) Satisfaction of Mortgage. The Seller shall have delivered to
Purchaser documentation of satisfaction of the Mortgage described in
Section 4D, above, in such form as required by Chicago Title to issue
the Title Policy described in Section 4(a), above.
(e) Financial Plans. The Board of Directors of Seller shall have
completed, reviewed and formally approved an operating plan and
financial forecasts for Seller for the fiscal year ending March 31,
1999; and Seller shall have delivered to Purchaser copies of said plan
and forecasts.
(f) Representations and Warranties. The representations and warranties
of Seller contained in this Agreement must be true on the Closing Date
as if made on the Closing Date and Seller shall have delivered to
Purchaser at Closing a certificate dated the Closing Date, signed by
an authorized representative of Seller, certifying that such
representations and warranties are true as of the Closing Date
("Representations Certificate").
(g) Performance By Seller. Seller shall have performed all of the
obligations required to be performed by Seller under this Agreement,
as and when required by this Agreement.
(h) Title. Title shall have been found acceptable, be made acceptable,
or the title objection waived in accordance with the requirements and
terms of Section 4, above.
(i) Environmental Report. Purchaser shall have approved, in
Purchaser's reasonable discretion, the Phase I Environmental Report
described in Section 3B, above.
(j) Testing. Purchaser shall have determined, in Purchaser's
reasonable discretion, that it is satisfied with the results of any
testing which it may have caused to be conducted relating to the
matters disclosed by the Phase I Environmental Report.
<PAGE>
(k) Document Review. Purchaser shall have determined, in Purchaser's
reasonable discretion, that it is satisfied with its review and
analysis of the Contracts, Permits, Warranties, Plans and Records
described in Section 1, above.
(l) No Adverse Action. There shall not exist any lawsuit or other
proceeding challenging the transaction which is the subject of this
Agreement, or which might adversely affect the right of Purchaser to
own, operate, lease or use the Real Property after the Closing Date,
nor shall any such action or proceeding have been threatened.
(m) Other Conditions. The other conditions to Purchaser's obligation
to close set out elsewhere in this Agreement shall have been satisfied
or waived by Purchaser on or before the Closing. By the act of
Closing, Purchaser shall be deemed to have found all conditions to
closing in favor of Purchaser to have been satisfied or waived;
provided, however, that nothing contained in this Section 8(m) shall
be deemed to waive or terminate any representations or warranties made
in this Agreement by Seller.
9. Closing. The closing of the purchase and sale transaction which is the
subject of this Agreement ("Closing") will take place at the Closing Agent's
offices on or before June 25, 1998, except that said date will be delayed for
any of the periods for correcting title as set forth in Sections 4A, 4B or 4C,
above. Notwithstanding anything to the contrary set forth in the preceding
sentence or elsewhere in this Agreement, if the Closing does not take place on
or prior to June 24, 1998, this Agreement will terminate.
9A. At the Closing, Seller will deliver to Purchaser possession of the
Real Property and keys to all locks in the buildings thereon and will execute
and deliver to Purchaser, or cause to be delivered to Purchaser, the following:
(a) A Warranty Deed ("Deed") in the form set forth in
Exhibit G attached to this Agreement, conveying the Real
Property to Purchaser, free and clear of all liens, charges
and encumbrances other than those encumbrances permitted
pursuant to Section 5A(d) above;
(b) A Warranty Bill of Sale, in form reasonably
satisfactory to Purchaser, conveying the Personal Property,
if any, to Purchaser, free and clear of all encumbrances;
(c) An Assignment of the Contracts, Permits and
Warranties described in Section 1, above, conveying such
Contracts, Permits and Warranties, if any, with warranties,
free and clear of all encumbrances, and with the consent of
all parties having a right to consent to such assignment;
(d) The Plans and Records described in Section 1,
above, if any;
<PAGE>
(e) The executed Leases Described in Section 8(a),
above, and all security deposits and prepaid rents under the
Leases;
(f) An affidavit that on the Closing Date there are no
outstanding, unsatisfied judgments, tax liens or
bankruptcies against or involving Seller;
(g) A FIRPTA affidavit duly executed by Seller
confirming that Seller is not a "foreign entity";
(h) All owner's duplicate certificates of title for the
Real Property;
(i) Copies of all blueprints, plans, specifications,
manuals, warranties and guarantees relating to the Real
Property, if any, to the extent such items are in Seller's
possession or control;
(j) A Certificate of the Secretary of State of
Minnesota that Seller is in good standing in said State as
of a date not earlier than five (5) business days prior to
the Closing Date;
(k) The Representations Certificate described in
Section 8(f), above;
(l) Evidence reasonably satisfactory to Purchaser that
this Agreement and all Seller's Related Agreements have been
validly authorized, executed and delivered and each is
enforceable in accordance with its terms.
9B. At the Closing, Purchaser will pay to Seller the Purchase
Price in accordance with Section 2, above, and will deliver to Seller the
following:
(a) A Certificate of the Secretary of State of Minnesota
that Purchaser is in good standing in said State as of a
date not earlier than five (5) business days prior to the
Closing Date;
(b) An opinion of Purchaser's counsel that this Agreement
and all Purchaser's Related Agreements have been validly
authorized, executed and delivered and each is enforceable
in accordance with its terms.
<PAGE>
10. Damage, Destruction and Eminent Domain.
(a) If, prior to closing, the Real Property or any part
thereof shall be damaged or destroyed by any cause,
Purchaser will have the right, by giving notice to Seller
within thirty (30) days following actual notice of the
occurrence of such damage or destruction, to terminate this
Agreement, in which case this Agreement will become null and
void. If Purchaser elects to proceed and to consummate the
purchase which is the subject of this Agreement, despite
such damage or destruction, there will be no reduction in or
abatement of the Purchase Price, and Seller will assign to
Purchaser all of Seller's right, title and interest in and
to all insurance proceeds resulting, or to result, from said
damage or destruction.
(b) If, prior to closing, the Real Property or any part
thereof shall be taken by, or is under threat of taking by,
eminent domain, Purchaser will have the right, within thirty
(30) days of receipt by Purchaser of Seller's written notice
to Purchaser of such eminent domain proceeding or threat
thereof, to terminate this Agreement, in which case this
Agreement will become null and void. If Purchaser elects to
proceed and to consummate the purchase which is the subject
of this Agreement despite said taking, there will be no
reduction in or abatement of the Purchase Price, and Seller
will assign to Purchaser all Seller's right, title and
interest in and to any award made, or to be made, in the
eminent domain proceedings, and Purchaser will have the
option of representing the interests of the landowner in
said proceedings.
11. This Section 11 has been intentionally left blank.
12. Assignment. Purchaser will have the right to assign its interest under this
Agreement to any related person or entity without first obtaining the consent of
Seller; provided that Purchaser prior to the assignment or contemporaneously
therewith gives Seller notice thereof, a copy of the assignment document, and
the name and address of the assignee for notice purposes. Any such assignment by
Purchaser will not affect Purchaser's obligations under the terms of this
Agreement.
13. Survival. All of the terms, covenants, conditions, representations,
warranties and agreements contained in this Agreement will survive the Closing
and will continue in full force and effect and be enforceable after the Closing.
14. Notice. Any notice required or permitted to be given to either Party will be
deemed given (a) when personally delivered to or served upon the Party, or (b)
on the date of delivery shown on the receipt if deposited in the U.S. certified
mail, postage prepaid, return receipt requested, properly addressed as set forth
below, or (c) on the date of delivery shown on the receipt if sent by reputable
overnight courier, properly addressed as set forth below:
<PAGE>
If to Seller: NORTHWEST TELEPRODUCTIONS, INC.
4000 West 76th Street
Edina, Minnesota 55435
Attention: Chief Financial Officer
If to Purchaser: LINDUE, LLC
c/o Pierson & Pierson
Attorneys at Law
1055 East Wayzata Boulevard
Suite 203
Wayzata, Minnesota 55391
Seller or Purchaser may change its address for the service of notice hereunder
by providing ten (10) days' prior written notice of said change to the other
Party, in the manner above specified.
15. Captions. The section headings or captions appearing in this Agreement are
for convenience only, are not a part of this Agreement and are not to be
considered in interpreting this Agreement.
(a) Other than the Leases set forth above in Section 8(a) and any
other agreement or agreements specifically authorized or provided for
by the terms of this Agreement, this Agreement constitutes the entire
and complete agreement between the Parties and supersedes any prior
oral or written agreements between the Parties with respect to the
Real Property, the Personal Property, the Real Property or any
transaction or transactions referred to in this Agreement.
(b) There are no verbal understandings or agreements which in any way
change the terms, covenants and conditions herein set forth. No
amendment, revision or modification of this Agreement and no waiver of
any of its terms or conditions will be effective unless it is in
writing and signed by the Parties and notarized.
17. Binding Effect. All covenants, agreements, warranties and provisions of this
Agreement will be binding upon and inure to the benefit of the Parties and their
respective successors and permitted assigns. When used herein, the singular will
include the plural, the plural will include the singular, and the use of one
gender will include all other genders, as and when the context so requires.
18. Controlling Law. This Agreement has been made and entered into under the
laws of the State of Minnesota, and said laws will control the interpretation of
this Agreement.
<PAGE>
19. Remedies. If Purchaser shall default in its obligations hereunder, the sole
remedy available to Seller will be to terminate this Agreement, and upon such
termination Seller will retain the Earnest Money as liquidated damages, and
neither Party will have any further rights or obligations hereunder. Except as
specifically set forth otherwise in this Agreement, Purchaser will not be liable
for specific performance or damages. If Seller shall default in Seller's
obligations hereunder, the sole remedies available to Purchaser will be (i) to
terminate this Agreement by written notice to Seller, and upon such termination
to obtain the Earnest Money, plus interest, from Seller, in which event neither
party will have any further rights or obligations hereunder, or (ii) to seek
specific performance of this Agreement.
20. Severability. If any provision of this Agreement, or any application
thereof, will be invalid or unenforceable, the remainder of this Agreement and
any other application of such provision will not be affected thereby and will
not be rendered invalid or unenforceable.
21. Time of Essence. Time is of the essence of this Agreement.
The Parties have caused this Agreement to be executed on this and the following
page.
SELLER: PURCHASER:
NORTHWEST TELEPRODUCTIONS, INC. LINDUE, LLC
By:_____________________________ By:_________________________________
Its: President Its:________________________________
WITNESSED: WITNESSED:
______________________________ ____________________________________
______________________________ ____________________________________
<PAGE>
EXHIBIT A
Legal Description
TractR, Registered Land Survey No. 1218, Files of Registrar
of Titles, County of Hennepin, Minnesota
Lot 1, Block 1, Edina Office Center 2nd Addition, according
to the plat thereof on file or of record in the office of
the Registrar of Titles, Hennepin County, Minnesota
<PAGE>
EXHIBIT B
Personal Property
None
<PAGE>
EXHIBIT C
Contracts
None
<PAGE>
EXHIBIT D
Permits F
None
LEASE AGREEMENT
4000 West 76th Street
THIS LEASE AGREEMENT ("Lease") is made and entered into this 24th day
of June, 1998, by and between LINDUE, LLC, a Minnesota limited liability company
("Lessor") and NORTHWEST TELEPRODUCTIONS, INC., a Minnesota corporation
("Tenant"). Lessor and Tenant may be referred to as "Party" or "Parties" in this
Lease.
In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions and covenants set
forth herein, Lessor and Tenant agree as follows:
1. LEASE OF PREMISES. Lessor hereby leases and demises to Tenant, and Tenant
hereby takes from Lessor, on an absolutely net basis as herein provided, certain
premises ("the Leased Premises") situated within Hennepin County, Minnesota,
consisting of the land, building or buildings, and improvements described in
Exhibit A attached to this Lease, including without limitation the entire
building ( "Building") located at 4000 West 76th Street, Edina, Minnesota. For
all purposes of this Lease, the Building shall be deemed to contain Twelve
Thousand Five Hundred (12,500) rentable square feet.
2. LEASE TERM; EXTENSION; EARLY TERMINATION.
(a) Initial Term. This Lease shall be for a term ("the Lease Term") of
3 years, 6 days, commencing on the 24th day of June, 1998 ("the Commencement
Date") and terminating at 12:00 P.M. on June 30, 2001, unless (i) extended as
provided in subsection (b) of this Section 2, in which case the Lease Term shall
include the period during which such extension is effective, or (ii) terminated
as provided in this Lease, in which case the Lease Term shall terminate upon the
date of such termination unless specifically provided otherwise in this Lease.
(b) Extension. Provided that there exist no uncured default under this
Lease, this Lease shall automatically extend for an additional sixty (60)
months, through and including June 30, 2006, upon the same terms and conditions
and at the Base Rent rates set forth in Exhibit B attached to this Lease;
provided, however, if Tenant gives Lessor written notice of its election to have
the Lease Term expire at the end of the initial Lease Term on or before December
31, 2000 the Lease Term shall not be so extended. If no such notice is given and
the Lease Term is extended, all references to the Lease Term shall then be
deemed to include the period ending June 30, 2006.
<PAGE>
(c) Early Termination. Provided that Tenant Cures all defaults on or
before the effective date of termination, either at the time of giving the
notice specified below or as of the effective date of early termination, Tenant
shall have the right, at its sole election, to terminate this Lease effective on
or prior to July 1, 1999. In order to exercise this right of early termination
of this Lease, Tenant must give Lessor written notice of its election to do so
no later than October 1, 1998. Prior to the effective date of such early
termination, Tenant shall pay to Lessor a termination fee of Fifty Thousand
Dollars ($50,000). Upon timely election and notice by Tenant, and payment by
Tenant of the termination fee, the Lease Term shall terminate as of the
effective date of such early termination as set forth in said notice.
3. CONDITION OF PREMISES; ACCEPTANCE OF THE LEASED PREMISES. Tenant acknowledges
that Lessor has made no representations or warranties, express or implied, with
respect to the Leased Premises. Tenant requires no leasehold improvements. By
occupying the Leased Premises, Tenant shall be deemed to have accepted the
Leased Premises "AS IS" and "WITH ALL FAULTS," except for (i) defects for which,
and to the extent to which, Lessor has the benefit of any surviving warranty,
and (ii) necessary roof repairs as described in that Real Estate Purchase
Agreement between the Parties, dated June 24, 1998.
4. RENT. Rent for the Leased Premises ("Rent") shall consist of Base Rent as
described in Section 5 hereof, Tax Costs as described in Section 6 hereof,
Operating Costs as described in Section 7 hereof, Additional Rent as described
in Section 8 hereof, and any and all other amounts to be paid by Tenant to
Lessor pursuant to this Lease.
5. BASE RENT. (a) Tenant shall pay to Lessor during the Lease Term a yearly rent
("Base Rent") in monthly installments thereof ("Monthly Base Rent") as set forth
on Exhibit B attached hereto, payable in advance on the first day of each month
during the Lease Term in lawful money of the United States, without any
deduction, offset, counterclaim or reduction whatsoever, at the office of
______________________________________ or at such other place as Lessor shall
designate in writing.
(b) In the event the Lease Term commences on a day other than the first day
of a month, or terminates on a day other than the last day of a month, or both,
Rent payable during such first or last month (including any adjustments to Rent
made in accordance with this Lease) shall be adjusted pro rata on the basis of a
30-day month.
<PAGE>
6. TAX COSTS. (a) With each monthly installment payment of Monthly Base Rent
during the period commencing the Commencement Date and extending through March
31, 1999, Tenant will pay the Tax Costs set forth in Exhibit B attached to this
Lease. Thereafter, in each calendar year or portion thereof during the Lease
Term or any extensions or renewals thereof, Tenant shall pay to Lessor, in
addition to Base Rent, the total general real estate taxes and installments of
special assessments ("Tax Costs") due and payable with respect to the Leased
Premises in such year. Such payment by Tenant shall be paid at the same time and
in the same manner as Monthly Base Rent in equal monthly installments estimated
by Lessor to equal one twelfth (1/12) of Tax Costs due and payable in any such
year. At Landlord's election, Landlord may reasonably revise the estimate of Tax
Costs and adjust the monthly installments of said estimated amount to be paid by
Tenant with its monthly installments of Base Rent. Prior to March 1 of each
calendar year, or as soon as is practicable thereafter, Lessor shall furnish
Tenant with an estimate of Tax Costs for the then current calendar year. Within
ten (10) days after Lessor furnishes Tenant with such estimate, Tenant shall pay
to Lessor, as an additional payment, the total amount by which the estimated Tax
Costs for any months of the calendar year exceeds the total amount of Tax Costs
that Tenant shall have paid for those months. If such amount is less than the
payments made by Tenant for such monthly periods, Tenant may deduct the
difference from the next monthly installment payment.
(b) After expiration of each calendar year during the Lease Term or any
extension or renewal thereof, through and including the calendar year in which
the Lease Term or any extension or renewal thereof expires, Lessor shall furnish
Tenant with a statement of actual Tax Costs for the immediately preceding
calendar year. If actual Tax Costs differ from estimated Tax Costs, within ten
(10) days after Lessor has furnished such statement to Tenant, Tenant shall pay
to Lessor any shortage for the immediately preceding calendar year, or Lessor
shall refund to Tenant any overage for the immediately preceding calendar year,
as the case may be.
(c) If the first or last day of the Lease Term occurs on a day other than
the first or last day, respectively, of a calendar year, then Tenant's
obligation under this Section 6 shall be prorated based on a 365-day calendar
year.
(d) Lessor's reasonable determination of estimated Tax Costs shall be
binding upon Tenant.
(e) Lessor shall have the exclusive right to challenge or litigate against
any taxing authority regarding taxes levied or imposed on the Leased Premises or
any portion thereof, appraisals or valuations of the Leased Premises or any
portion thereof, or any other aspect of or procedure for determining taxes or
similar charges. If Lessor does not initiate proceedings to challenge, protest,
abate, and/or reduce any real estate taxes payable during the Lease Term, after
thirty (30) days' written notice to Lessor, Tenant may initiate such
proceedings. Notwithstanding any such action by Tenant, Tenant shall remain
liable for and shall timely pay Tax Costs as provided in this Lease, subject to
revision of Tax Costs due to increase, reduction or refund of real estate taxes
as a result of such action. Should Tax Costs for a prior year be partially
refunded following a challenge by Lessor or Tenant, the refund shall accrue to
the party who paid the tax that was the subject of the refund.
<PAGE>
(f) Tenant's failure to pay any amounts due under this Section 6 when due
shall be a default in the payment of Base Rent.
7. OPERATING COSTS. (a) The term "Operating Costs" shall mean all costs and
expenses of every kind and nature which Lessor incurs, pays or becomes obligated
to pay in owning, managing (including reasonable management contracts and fees,
if any), insuring, operating and maintaining the Leased Premises and every part
thereof exclusive of depreciation, interest or payments of any principal on any
mortgage or other encumbrance; provided, however, that Operating Costs shall not
include costs not normally passed through to tenants of similar buildings in the
Twin Cities metropolitan area, such as Lessor's overhead, costs of expanding or
marketing the Building, or charges for which Lessor will be separately
reimbursed, such as through insurance proceeds. Without limiting the generality
of the foregoing and without implying or creating any obligations of Lessor
which are not specifically set forth in this Lease, Operating Costs shall
include amortization of capital expenditures that produce a reduction in energy
or other Operating Costs, over the expected useful life of the item together
with interest at the rate of twelve percent (12%) per annum on the unamortized
balance.
(b) With each monthly installment payment of Monthly Base Rent during the
period commencing the Commencement Date and extending through March 31, 1999,
Tenant will pay the Operating Costs set forth in Exhibit B attached to this
Lease. Thereafter, in each calendar year or portion thereof during the Lease
Term or any extensions or renewals thereof, Tenant shall pay to Lessor, in
addition to Base Rent, the total Operating Costs for the Leased Premises in such
year. Such payment by Tenant shall be paid at the same time and in the same
manner as Monthly Base Rent in equal monthly installments estimated by Lessor to
equal one twelfth (1/12) of Operating Costs due and payable in any such year.
Prior to March 1 of each calendar year, or as soon as is practicable thereafter,
Lessor shall furnish Tenant with an estimate of Operating Costs for the then
current calendar year. Within ten (10) days after Lessor furnishes Tenant with
such estimate, Tenant shall pay to Lessor, as an additional payment, the total
amount, if any, by which the estimated Operating Costs for any months of the
calendar year exceeds the total amount of Operating Costs that Tenant shall have
paid for those months.
(c) Within sixty (60) days after expiration of each calendar year during
the Lease Term or any extension or renewal thereof, through and including the
calendar year in which the Lease Term or any extension or renewal thereof
expires, Lessor shall furnish Tenant with a statement of actual Operating Costs
for the immediately preceding calendar year. If actual Operating Costs differ
from estimated Operating Costs, within ten (10) days after Lessor has furnished
such statement to Tenant, Tenant shall pay to Lessor any shortage for the
immediately preceding calendar year, or Lessor shall refund to Tenant any
overage for the immediately preceding calendar year, as the case may be.
(d) If the first or last day of the Lease Term occurs on a day other than
the first or last day, respectively, of a calendar year, then Tenant's
obligation under this Section 7 shall be prorated based on a 365 day calendar
year.
<PAGE>
(e) Lessor's reasonable determination of estimated Operating Costs shall be
binding upon Tenant.
(f) Tenant's failure to pay any amounts due under this Section 7 when due
shall be a default in the payment of Base Rent.
(g) Upon reasonable prior written notice to Lessor, Tenant at its sole
expense may audit and review Lessor's records substantiating and evidencing
Operating Costs. Notice of Tenant's intention to audit such records of Lessor
must be given within one hundred twenty (120) days following receipt by Tenant
of Lessor's statement of actual Operating Costs for the immediately preceding
calendar year, and the audit must be completed not later than one hundred eighty
(180) days following such receipt by Tenant. If Tenant's audit discloses a
discrepancy in Lessor's calculation of Operating Costs, the Parties will make an
appropriate adjustment to Tenant's obligation.
8. ADDITIONAL RENT. Wherever it is provided in this Lease that Tenant is
required to make a payment to Lessor or to pay utilities or other sums of money
to third parties, such payment shall be deemed Additional Rent; and all remedies
applicable to the nonpayment or late payment of Rent shall be applicable to
Additional Rent.
Tenant's obligation to pay Additional Rent commences on the Commencement Date.
9. SECURITY DEPOSIT. Tenant has deposited with Lessor the amount of Twenty
Thousand Dollars ($20,000) as a security deposit ("the Security Deposit") to be
held by Lessor as security for the faithful performance by Tenant of (i) all the
terms, covenants and conditions of this Lease and (ii) those of that Lease
Agreement between the Parties, dated the same date as this Lease, for Leased
Premises located at 4455 West 77th Street, Edina, Minnesota, to be met, kept and
performed by Tenant during the Lease Term. The Security Deposit shall be
maintained in a separate account (which may include the security deposit for the
Leased Premises located at 4455 West 77th Street, and Tenant shall be entitled
to interest thereon at passbook rates. If Tenant defaults with respect to any
provision of this Lease, including, but not limited to the provisions relating
to the payment of Rent, Lessor may but shall not be required to use, apply or
retain all or any part of said security deposit for the payment of any Rent or
any other sum in default, or for the payment of any amount which Lessor may
spend or become obligated to spend by reason of Tenant's default, or to
compensate Lessor for any other loss or damage which Lessor may suffer by reason
of Tenant's default. If any portion of the Security Deposit is so used or
applied, Tenant shall, within five (5) days after written demand therefor,
deposit cash with Lessor in an amount sufficient to restore said security
deposit to its original amount, and Tenant's failure to do so shall be a
material breach of this Lease. If Tenant shall fully and faithfully perform
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or, at Lessor's option, to the
assignee of Tenant's interest hereunder) at the expiration of the Lease Term. In
the event Lessor assigns its interest in this Lease, Lessor shall transfer the
Security Deposit to Lessor's successor in interest.
<PAGE>
10. This Section 10 left blank intentionally
11. USE. Tenant shall occupy and use the Leased Premises for general office
purposes and for other activities for which Tenant has used the Leased Premises
prior to this Lease, and for no other purpose. Notwithstanding anything to the
contrary in the preceding sentence, Tenant shall not use or allow the use of the
Leased Premises for retail, warehousing or manufacturing purposes or for any
purpose which constitutes a nuisance, is illegal or offensive, is termed extra
hazardous by insurance companies, or may make void or voidable any insurance on
the Leased Premises or increase the premiums therefor.
12. SECURITY. Tenant shall provide such security services for the Buildings and
the Leased Premises as Lessor may reasonably require.
13. MAINTENANCE, REPAIRS AND SERVICES BY LESSOR. Without creating or assuming
any obligation or liability not specifically provided for in this Lease, Lessor
may in its sole discretion perform any maintenance, make any repairs and furnish
any services which Tenant fails timely to perform, make or furnish, and all
reasonable costs and expenses of any such maintenance and repairs shall be added
to the Operating Costs defined in Section 7(a) of this Lease.
14. MAINTENANCE AND REPAIRS BY TENANT. Tenant shall at its sole cost and expense
maintain and repair, and replace as necessary, all of the Leased Premises
(including without limitation: the roof, foundation and exterior walls of the
Building; the air conditioning, heating, plumbing, electrical and other
utilities systems; the parking lot, walk, driveway or driveways; and the
landscaping) in good order and repair and in a safe and tenantable condition,
reasonable wear and tear excepted. Without limiting the previous sentence,
Tenant shall keep the whole of the Leased Premises in a clean, sanitary, and
safe condition and shall be responsible for all trash, snow and ice removal for
the Leased Premises. Tenant shall not commit deteriorating waste on the Leased
Premises or allow deteriorating waste to be committed by any of Tenant's agents,
employees, licensees, subtenants, invitees or contractors., and will at the
expiration of the Lease Term or other termination of this Lease surrender the
same to Lessor in the same order and condition as they were in at the
commencement of the Lease Term, reasonable wear and tear and insured casualty
excepted.
<PAGE>
Tenant may make any repair or replacement required or permitted to be
performed by Tenant under any provision of this Lease without the prior approval
of Lessor so long as the repairs are not "material." Any structural repair or
any repair which affects any utility system shall be considered a "material"
repair and shall require the prior, written approval of Lessor before any such
work is performed; provided, however, that no such approval shall be required in
an emergency as long as Tenant makes a reasonable effort to contact Lessor
beforehand. In addition, no material repair shall be commenced until plans and
specifications therefor shall have been submitted to and approved by Lessor. Any
approval required by this Section 14 shall be deemed to have been given if
Lessor does not respond within fifteen (15) business days after its receipt of
Tenant's proposed plans and specifications, if any, and request for approval.
After approval, the work shall be commenced promptly, performed in accordance
with the approved plans and specifications, and continued diligently to
completion.
15. ALTERATIONS; MECHANIC'S LIENS. (a) Tenant shall not make any alterations of
or additions to the Leased Premises without the prior written consent of Lessor,
except that Tenant may make alterations within the Building without such prior
consent so long as the alterations are not "material." Any alteration that
increases the weight load on the roof of the Building, any structural
alteration, any alteration which affects any utility system, or any physical
addition shall be considered a "material" alteration. All alterations or
physical additions shall be performed in a good and workmanlike manner in
accordance with all applicable legal requirements, insurance requirements, and
free of all liens, and if material, pursuant to plans and specifications
approved by Lessor and other reasonable conditions which Lessor shall impose on
such work and on the contractors to be used for such work. Any approval required
by this Section 15 shall be deemed to have been given if Lessor does not respond
within fifteen (15) days after its receipt of Tenant's proposed plans and
specifications, if any, and request for approval. After approval, the work shall
be commenced promptly, performed in accordance with the approved plans and
specifications, and continued diligently to completion. If Lessor disapproves
Tenant's plans, Lessor shall explain with reasonable specificity its reasons for
disapproval, and the changes, if any, that would cause Lessor to approve the
plans.
(b) At the termination of this Lease, Tenant shall, if Lessor so elects,
remove all alterations and additions erected by Tenant and restore the Leased
Premises to their original condition; otherwise, such improvements shall be
delivered up to Lessor with the Leased Premises.
<PAGE>
(c) If any mechanic's, materialman's or similar lien is filed against the
Leased Premises or any part of them as a result of any work or act of Tenant,
its contractors or agents, Tenant shall (i) cause the lien to be discharged
within fifteen (15) days after the filing of the lien, or (ii), within such 15
days, file a bond, letter of credit or other security reasonably acceptable to
Lessor sufficient to indemnify Lessor and the Leased Premises from and against
such lien, and Tenant shall diligently contest such lien. If Tenant shall fail
to cause the discharge of the lien, or to provide such security, or to contest
such lien diligently, Lessor may, but shall not be obligated to, after five (5)
days' notice to Tenant, bond or pay the lien for the account of Tenant without
inquiring into the validity thereof. In such event, the Tenant shall, within
fifteen (15) days after receipt of demand therefor from Lessor, reimburse Lessor
the amount so paid or the costs and expenses of such bond. Upon completion of
any repair, alteration or other work performed by Tenant or its agents and
contractors to the Leased Premises, Tenant shall provide Lessor with copies of
lien waivers from each contractor, agent or vendor who performed work or
supplied materials relative to such work.
16. SIGNS. Tenant may retain such sign or signs that are on or within the Leased
Premises on the Commencement Date and that identify Tenant, and Tenant may
install similar signs subject to Lessor's prior written approval. Lessor may
also install and maintain a sign or signs on and within the Leased Premises. All
signs installed by either Party shall comply with all applicable laws and
ordinances.
17. ACCESS BY LESSOR. (a) Lessor, its agents and representatives shall have the
right to enter and inspect the Leased Premises and any portion of them at any
time for any of the following purposes: (i) inspecting the Leased Premises; (ii)
showing the Leased Premises to prospective purchasers, mortgagees or lessees;
and (iii) platting or surveying the Leased Premises. Lessor shall endeavor to
give Tenant reasonable prior notice when possible. During the period that is
twelve (12) months prior to the end of the Lease Term, Lessor and its agents and
representatives shall have the right to erect on the Leased Premises a suitable
sign indicating that the Leased Premises are available. Any such entry by Lessor
shall not be deemed an eviction or a disturbance of Tenant's possession of the
Leased Premises, or render Lessor liable to Tenant for damages, or relieve
Tenant from performance of Tenant's obligations under this Lease. The right of
entry reserved shall not impose any obligation on Lessor to clean, maintain,
repair or change the Leased Premises.
(b) Lessor, its agents and representatives may at any time in case of
emergency enter the Leased Premises and do such acts as Lessor may deem proper
in order to protect the Leased Premises or any occupants of the Leased Premises.
<PAGE>
(c) Lessor shall hold keys to all locks in the Leased Premises, and all
such keys shall remain the property of Lessor. No additional locks shall be
allowed on any door of the Leased Premises without Lessor's prior written
permission, and Tenant shall not make or permit to be made any duplicate keys,
except those furnished by Lessor. Upon termination of this Lease, Tenant shall
promptly surrender to Lessor all keys for the Leased Premises and the Building
and give to Lessor the combination of all locks for safes, safe cabinets and
vault doors, if any, remaining on the Leased Premises. Any and all costs
resulting from the loss or duplication of any key by Tenant or Tenant's
employees or invitees, including but not limited to the cost of changing locks
on and making keys for the Leased Premises or the Building, shall be paid by
Tenant. The term "key" as used herein shall include any electronic access card
necessary for access to the Building.
18. UTILITIES AND SERVICES. Without limiting any provisions of Section 14 or any
other provisions of this Lease, Tenant shall be responsible at its sole cost and
expense for obtaining and furnishing all gas, water, electricity and any other
utilities and all services (hereinafter in this Section 18 sometimes referred to
collectively as "utilities and services") for the Leased Premises, and Tenant
shall pay directly to the providers of the utilities and services any and all
charges for them. Without limiting the previous sentence in any way:
(a) Delivery. Tenant shall at its sole cost and expense maintain, repair
and replace (i) any utility systems and facilities (including without limitation
pipes, plumbing, conduits and wiring) for delivering any utilities to the Leased
Premises and (ii) any apparatuses and devices (including without limitation air
conditioners, furnaces and boilers, and electrical lamps, bulbs, starters and
ballasts) related to furnishing such facilities;
(b) Elevators. Tenant shall be responsible at its sole cost and expense for
maintaining, repairing and replacing any elevator or elevators in or on the
Leased Premises;
(c ) Telephones. Tenant shall be responsible at its sole cost and expense
for installation, maintenance, repair and replacement of all telephones and
related wiring in the Leased Premises, and the removal of the same (other than
wiring);
(d) Temporary Interruption of Services. (i) Lessor shall not be liable to
Tenant, its agents, employees, representatives, customers or invitees for any
inconvenience, loss or damage or for any injury to any person or property caused
by or resulting from any breakdowns or from any temporary failure or lack of
utilities or services, and Tenant shall indemnify Lessor and hold Lessor
harmless from any claim or damage because of such inconvenience, loss, damage or
injury; and (ii) no variation, interruption or failure of such utilities or
services incident to the making of repairs, alterations or improvements or due
to breakdowns or any temporary failure or lack of such services shall be deemed
an eviction of Tenant or relieve Tenant from any of Tenant's obligations
hereunder;
<PAGE>
(e) Janitorial. Tenant shall furnish janitor service for the Building and
shall keep the Building in a clean, sanitary, and safe condition;
(f) Lessor Approval of Repairs and Replacements. Tenant shall comply with
the provisions of Section 14 relating to material repairs or replacements in
making any repair or replacement required by this Section 18; and
(g) General. Without limiting the scope of the definition of Operating
Costs set forth in Section 7(a) of this Lease, any expenses incurred by Lessor
pursuant to this Section 18 shall be deemed Operating Costs.
19. SUBLETTING AND ASSIGNMENT. Tenant shall not sublease the whole or any part
of the Leased Premises without the prior written consent of Lessor, which
consent may be given or withheld in Lessor's reasonable discretion. Tenant shall
not, voluntarily or by operation of law, assign, mortgage, pledge or otherwise
transfer this Lease without the prior written consent of Lessor, which consent
may be given or withheld in Lessor's sole and absolute discretion. Any
transaction or series of transactions (including without limitation any
dissolution, merger, consolidation or other reorganization of Tenant or any
issuance, sale, gift, transfer or redemption of any capital stock of Tenant,
whether voluntary, involuntary or by operation of law, or any combination of any
of the foregoing transactions) resulting in the transfer of control of Tenant,
shall be deemed to be an assignment of this Lease by Tenant
To request any prior written consent of Lessor required by this Section 19,
Tenant shall submit to Lessor: the request in writing; a proposed sublease or
assignment; financial and banking information regarding the proposed sublessee
or assignee; references regarding the proposed sublessee or assignee; and such
further information as Lessor might reasonably require. Within fifteen (15) days
following Lessor's receipt of all such required submissions, Lessor shall notify
Tenant in writing whether Lessor consents to the proposed sublease or
assignment. Failure by Lessor to notify within said fifteen (15) day period
shall be deemed consent by Lessor.
<PAGE>
20. FIRE AND OTHER CASUALTY. If the Building or a substantial part thereof is
damaged or destroyed by fire or other casualty, Lessor shall have the option,
exercisable in Lessor's sole and absolute discretion by giving written notice to
Tenant within ninety (90) days after such damage or destruction, to terminate
this Lease within thirty (30) days from the date said notice is given to Tenant.
If a portion of the Building is damaged by fire or other casualty and this Lease
is not terminated pursuant to the preceding sentence, Lessor shall, at its
expense, restore the Building, exclusive of any improvements or other changes
made to the Building by Tenant, to as near the condition which existed
immediately prior to such damage or destruction as reasonably practicable, and
all Rent shall abate during such period of time as the Building is untenantable
in the proportion that the untenantable portion of the Building bears to the
entire Building. Lessor shall not be responsible to the Tenant for, and Tenant
shall make no claim against Lessor for, any damage to or theft or destruction of
any personal property, furniture, equipment, improvements or other changes made
by Tenant in, on or about the Building, except for any such damage or
destruction that is the direct result of any reckless or intentional act or
omission of Lessor or its employees. Lessor shall endeavor to advise Tenant of
Lessor's decision regarding restoration as early as possible after Lessor makes
that decision.
21. INSURANCE; WAIVER OF SUBROGATION.
(a) Casualty Insurance; Risk of Loss. Throughout the Lease Term, Tenant
shall at its own cost and expense provide and maintain an extended coverage
casualty insurance policy on all Tenant's fixtures, equipment, machinery,
improvements, furniture and personal property (including without limitation any
property of others held by, leased by, or in the possession of Tenant) in the
amount of full replacement cost thereof, including without limitation coverage
against sprinkler and water damage. Upon execution of this Lease, Tenant shall
provide Lessor a copy of said policy or a certificate evidencing such insurance
coverage.
All property of any kind which may be on or at the Leased Premises shall be
at the sole and absolute risk of Tenant or those claiming through or under
Tenant. Tenant hereby releases Lessor from any and all liability or
responsibility to Tenant or anyone claiming through or under Tenant by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage casualties required to be covered by the insurance
required to be provided and maintained hereunder.
(b) Liability Insurance. Throughout the Lease Term, Tenant shall at its own
cost and expense provide and maintain a comprehensive policy of liability
insurance with respect to the Leased Premises. The Liability insurance policy
shall name Lessor, any mortgagee of the Leased Premises, Lessor's management
company, if any, and any designee of Lessor as additional insureds. The policy
shall be written by an insurer acceptable to Lessor in the amounts of not less
than One Million Dollars ($1,000,000) for personal or bodily injuries sustained
by any one person, Two Million Dollars ($2,000,000) for personal or bodily
injuries sustained in any one occurrence, and One Hundred Thousand Dollars
($100,000.00) for property damage. (A portion of such coverage may be provided
by an umbrella policy maintained by Tenant. Upon execution of this Lease, Tenant
shall provide Lessor a copy of said policy or a certificate evidencing such
insurance coverage.
<PAGE>
(c) Blanket Insurance Policy. Any insurance required to be maintained by
Tenant under this Lease may be maintained under a "blanket" policy covering the
Leased Premises and other facilities and locations of Tenant. If Tenant does
include the Leased Premises under such a blanket policy and Tenant delivers to
Lessor a certificate rather than a copy of the insurance policy, Tenant shall
also deliver such other information as Lessor may reasonably require in order
for it to determine the exact coverage provided.
(d) Cancellation; Failure to Renew; Material Change. Each insurance policy
required to be carried under this Section 21 shall provide (and any certificate
evidencing any insurance coverage shall certify) that, unless Lessor shall be
given twenty (20) days' written notice, (i) the insurance policy shall not be
canceled and shall continue in full force and effect, (ii) the insurance carrier
shall not fail to renew the insurance policy for any reason, and (iii) no
material change shall be made in the insurance policy. The term "insurance
policy" shall include without limitation any extensions or renewals of an
insurance policy.
22. INDEMNITY. Tenant shall indemnify, hold harmless and defend Lessor from and
hold Lessor harmless against all liabilities, damages, claims, fines, penalties,
costs and other expenses, including all reasonable attorney's fees, which may be
imposed upon, incurred by, or asserted against Lessor by reason of any bodily
injury, personal injury, death or property damage occurring in, on or about the
Leased Premises or occurring by reason of (a) any negligence of Tenant, its
successors, assigns or subtenants or its or their employees, agents,
contractors, licenses or invitees, (b) any failure of Tenant to comply with any
requirement of any governmental authority applicable to Tenant's use and
occupancy of the Leased Premises, (c) any litigation commenced by or against
Tenant to which Lessor is made a party without any fault on the part of Lessor,
and (d) any failure by Tenant to perform or comply with any covenant or
agreement of Tenant set forth in this Lease, except to the extent such injury,
death or property damage shall be the direct result of the negligent or
intentional act or omission of Lessor or its employees, agents or contractors.
<PAGE>
23. EMINENT DOMAIN. If the entire Leased Premises or the Building is taken by
eminent domain, this Lease shall automatically terminate as of the date of
taking. If a portion of the Leased Premises or the Building is taken by eminent
domain, Lessor shall have the right to terminate this Lease by giving written
notice thereof to Tenant within ninety (90) days after the date of taking. If a
portion of the Leased Premises or the Building is taken by eminent domain and
this Lease is not terminated by Lessor pursuant to the immediately preceding
sentence, Lessor shall, at its expense, restore the Leased Premises or the
Building, exclusive of any improvements or other changes made to the Leased
Premises by Tenant, to as near the condition which existed immediately prior to
the date of taking as reasonably possible, and Rent shall abate during such
period of time as the Leased Premises or the Building is untenantable, in the
proportion that the untenantable portion of the Leased Premises or the Building
bears to the entire Leased Premises or the Building. All damages awarded for a
taking under the power of eminent domain, whether for the whole or a part of the
Leased Premises, shall belong to, and be the property of Lessor, whether such
damages shall be awarded as compensation for diminution in value to the
leasehold estate hereby created or to the fee of the Leased Premises; provided,
however, that Lessor shall not be entitled to any separate award made to Tenant
for loss of business or the fair value of and/or cost of removal of stock and
fixtures. The term "eminent domain" shall include the exercise of any similar
governmental power and any purchase or other acquisition in lieu of
condemnation.
24. HOLDING OVER. Should Tenant or any of its successors in interest hold over
the Leased Premises or any part thereof after the expiration of the Lease Term,
such holding over, at the sole election of Lessor, shall constitute and be
construed as a tenancy from month to month only. The inclusion of the preceding
sentence shall not be construed as Lessor's permission to hold over. Base Rent
during any such holdover period shall be two (2) times Base Rent paid by Tenant
at the expiration of the Lease Term.
25. QUIET ENJOYMENT. Lessor covenants that if Tenant pays Rent (including
without limitation all charges which are included in Rent pursuant to this
Lease), performs all its obligations required by this Lease, and observes all
the other provisions of this Lease, Tenant shall peaceably and quietly enjoy the
Leased Premises in accordance with the terms of this Lease without any
interruption or disturbance from Lessor. Lessor shall not be responsible or
liable for the actions of third parties.
26. EVENTS OF DEFAULT. Each of the following shall constitute an "Event of
Default" by Tenant under this Lease:
(a) The failure by Tenant to pay any installment of Rent, or any
part of Rent (including without limitation any charge to be
paid by Tenant under this Lease), when due and for a period of
five (5) days after Lessor makes written demand therefor;
<PAGE>
(b) The insolvency of Tenant, any transfer by Tenant in fraud of
creditors, or any assignment by Tenant for the benefit of
creditors;
(c) The filing of a petition by Tenant (or failure to dismiss such
a petition within thirty (30) days following filing of it by a
third person) under any Section or chapter of the United
States Bankruptcy Code, as amended, or under any similar law
or statute of the United States or any state thereof, seeking
relief from Tenant's creditors, or the adjudication thereunder
that Tenant is bankrupt or insolvent;
(d) The appointment of a receiver or trustee for all or
substantially all of the assets of Tenant;
(e) Tenant vacates or abandons the Premises.
(f) Tenant's causing or suffering a lien to be filed against the
Leased Premises or any part thereof and failure to obtain
dismissal of such lien within fifteen (15) days after filing;
(g) Tenant's failure timely to take any action or provide to
Lessor any report, statement, forecast or plan required by
this Lease, including without limitation the provisions of
Section 32 of this Lease;
(h) The failure by Tenant to comply with any other term, provision
or covenant of this Lease and to cure such failure within ten
(10) days after notice from Lessor; provided, however, that if
a default is not reasonably susceptible of being cured within
a ten (10) day period, Tenant shall be given reasonable
additional time to effect a cure so long as Tenant promptly
commences action to effect a cure and thereafter diligently
proceeds to cure the default as quickly as reasonably
possible.
Upon the occurrence of any Event of Default, whether known or unknown to Lessor
and whether or not Lessor shall have given notice to Tenant regarding any remedy
available to Lessor, Tenant shall be deemed "in Default" under this Lease.
27. REMEDIES. (a) Upon the occurrence of any Event of Default, Lessor at its
option and in addition to all other rights and remedies available to Lessor by
law or by other provisions hereof, may, upon written notice to Tenant:
(i) terminate this Lease and all of Lessor's and Tenant's rights
and obligations hereunder except as provided in subsection
(b), below; or
(ii) declare this Lease forfeited but not terminated; and
<PAGE>
(iii) in connection with either such termination or such forfeiture,
reenter the Leased Premises, in accordance with applicable
law, using such reasonable force as may be necessary to remove
all persons and property therefrom, and Lessor shall not be
liable for damages by reason of such reentry or forfeiture.
(b) In the event of any termination pursuant to subsection (a)(i) or any
forfeiture pursuant to subsection (a)(ii) of this Section 27, or any other
termination or forfeiture, Tenant shall indemnify Lessor against and pay to
Lessor any and all loss of rents and other damages which Lessor may incur by
reason of such termination or forfeiture, including without limitation:
(i) unpaid installments of Rent or other unpaid amounts to Lessor which
were due as of the termination or forfeiture described above, including
interest and late payment fees, payable immediately;
(ii) Rent and other amounts to Lessor falling due pursuant to
provisions of this Lease for the balance of the Lease Term following
such termination or forfeiture, during which the Leased Premises remain
vacant, including interest, which amounts shall be payable as they
become due under this Lease (for purposes of this subsection (b)(ii),
the Lease Term will not terminate upon such termination or forfeiture
of the Lease);
(iii) all reasonable, actual expenses incurred in releasing the Leased
Premises, including without limitation costs for leasing commissions,
remodeling, and restoring and repairing the Leased Premises and putting
them in rentable condition, which shall be payable as they are incurred
by Lessor;
(iv) all reasonable attorneys' fees and expenses incurred by reason of
Tenant's default or in connection with exercising any remedy hereunder;
(v) (while the Leased Premises are subject to any new lease or leases
made pursuant to this Section 27), the amount by which the monthly
installments payable under such new lease or leases is less than the
monthly installment for all charges that would have been payable
pursuant to this Lease, which deficiencies shall be payable monthly.
(c) All rights and remedies of Lessor set forth herein shall be cumulative
and not exclusive of each other.
<PAGE>
28. LATE CHARGE. In the event Tenant fails to pay any Rent within five (5) days
after due, Tenant shall pay to Lessor a late charge in the amount of $250.00.
Lessor shall waive such late charge once in any twelve (12) month period so long
as the required payment is made not later than fifteen (15) days of the date the
same was due. The provision for such late charge shall be in addition to all of
Lessor's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Lessor's remedies in any manner.
In addition to such late charge, any and all Rent not paid within ten (10) days
after due shall bear interest at the rate of twelve percent (12%) per annum or
the highest rate permitted by law, whichever is less, from the date due until
paid.
29. SUBORDINATION AND ATTORNMENT. At Lessor's election, the rights of Tenant
under this Lease shall be and are subject and subordinate to any ground lease or
underlying lease now or hereafter in force against the Leased Premises or the
Building, and to any mortgage or mortgages now or hereafter in force against
such leases or the Leased Premises, and to all advances made or hereafter to be
made upon the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof, provided such ground
lessor, underlying lessor or mortgagee agrees to recognize this Lease and not
disturb Tenant's possession so long as Tenant is not in default beyond any
applicable cure period. At the option of any mortgagee or any lessor under any
ground lease or underlying lease, Tenant shall attorn to such mortgagee or
lessor in the event of a mortgage foreclosure or deed in lieu thereof or
termination by such lessor. No further instrument of subordination or attornment
shall be required. Notwithstanding the foregoing, in confirmation of such
subordination or attornment, within fifteen (15) days after a written request
therefor, Tenant shall execute such further instruments as may be requested by
Lessor or any mortgagee or lessor. Any failure to do so shall be an Event of
Default pursuant to Section 26(h) hereof. Tenant hereby irrevocably appoints
Lessor as attorney-in-fact for Tenant with full power and authority to execute
and deliver in the name of Tenant any such instrument or instruments.
30. NOTICE. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered, whether actually received or not, on
the third (3rd) day of mail delivery following deposit of it in the United
States mail, postage prepaid, certified or registered mail, addressed to a Party
at the relevant address set forth below, or at such other address as such Party
shall have previously designated in written notice delivered in accordance with
this Section 30:
<PAGE>
If to Lessor: If to Tenant:
LINDUE, LLC Northwest Teleproductions, Inc.
c/o Pierson & Pierson 4400 West 76th Street
Attorneys at Law Edina, Minnesota 55435
1055 East Wayzata Boulevard Attention: Chief Financial Officer
Suite 203
Wayzata, Minnesota 55391
With a copy to:
Peterson Real Estate, Inc.
9640 Xylon Avenue South
Bloomington, Minnesota 55438
Any notice or document required or permitted to be delivered hereunder also
shall be deemed to be delivered if and when delivered personally to either Party
at the above relevant address.
31. RULES AND REGULATIONS. Tenant shall observe such reasonable rules and
regulations which from time to time may be promulgated by Lessor in writing to
the Tenant for the general safety, comfort and convenience of Lessor, Tenant or
the Leased Premises.
32. FINANCIAL REPORTS. (a) Operating Plan; Financial Forecast. For each fiscal
year of Tenant that begins subsequent to March 31, 1999, the Board of Directors
of Tenant shall approve and deliver to Lessor an Operating Plan and Financial
Forecast of Tenant no later than thirty (30) days prior to the beginning of such
fiscal year.
(b) Monthly Financial Statements. Tenant shall provide to Lessor monthly
financial statements, forecasts (including without limitation reports of any
substantive changes to forecasts) and plans of Tenant at least as frequently and
timely as such are provided to the Board of Directors of Tenant.
(c) Attendance at Meetings. Lessor may at its sole discretion designate a
representative of Lessor to attend Tenant's Board of Directors meetings at which
any financial reports of Tenant shall be presented; Tenant shall give Lessor
notice of any such meetings at the same time it gives such notice to its
Directors.
33. This Section 33 left blank intentionally
<PAGE>
34. BROKERAGE FEES. Each Party represents and warrants that it has dealt with no
broker, agent or other person in connection with this Lease, and each Party
shall indemnify, hold harmless and defend the other Party from and against any
claim or claims by any broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with the indemnifying Party
with regard to this Lease.
35. This Section 35 left blank intentionally
36. This Section 36 left blank intentionally
37. MISCELLANEOUS TAXES. (a) Tenant shall pay prior to delinquency all taxes
assessed against or levied upon its occupancy of the Leased Premises or upon the
fixtures, furnishings, equipment or personal property of Tenant located in the
Leased Premises, and when possible Tenant shall cause said fixtures,
furnishings, equipment and personal property to be assessed and billed
separately from the property of Lessor. In the event any or all of Tenant's
fixtures, furnishings, equipment and personal property, or Tenant's occupancy of
the Leased Premises, shall be assessed and taxed with the property of Lessor,
Tenant shall pay to Lessor that portion of such taxes applicable to Tenant's
fixtures, furnishings, equipment or personal property, or occupancy of the
Leased Premises.
(b) If, under the laws of the United States or any state thereof or any
political subdivision in which the Leased Premises are situated, a tax or excise
on rents or other tax, however described, is levied or assessed against Lessor
or the Rent or any portion thereof, in addition to, in lieu of, or as a
substitute in whole or in part for taxes and assessments commonly known as real
estate taxes, then Tenant shall pay and discharge such tax or excise to the
extent of the amount thereof which is lawfully assessed or imposed upon Lessor
and which was so assessed or imposed as a direct result of the rental accruing
under this Lease.
38. ESTOPPEL CERTIFICATE. Tenant shall, within ten (10) days after request by
Lessor, deliver to Lessor or Lessor's designee (including, without limitation,
any prospective purchaser of the Leased Premises, or the present or any future
holder of any mortgages or deeds of trust or ground or underlying leases on the
Leased Premises) an estoppel certificate stating that this Lease is in full
force and effect, the date to which rent and other charges have been paid, the
unexpired term of this Lease, whether Lessor is in default hereunder, and the
nature of any such default, and such other matters pertaining to this Lease as
may be requested by Lessor.
<PAGE>
39. WAIVER. Any failure of Lessor to insist upon strict performance of any term,
covenant or condition of this Lease, or to exercise any option herein contained
shall not be construed as a waiver or a relinquishment for the future of that or
any other term, covenant, condition or option, but the same shall continue and
remain in full force and effect. The receipt by Lessor of Rent with or without
knowledge of a breach in any terms, covenants or conditions of this Lease to be
kept or performed by Tenant shall not be deemed a waiver of such breach, and
Lessor shall not be deemed to have waived any provision of this Lease unless
expressed in writing and signed by Lessor.
40. SURRENDER. On the last day of the Lease Term or on the sooner termination
thereof, Tenant shall peaceably surrender the Leased Premises in good condition
and repair consistent with Tenant's duty to make repairs as provided in Section
14 hereof. On or before the last day of the Lease Term or on the sooner
termination thereof, Tenant shall at its expense remove all of Tenant's personal
property from the Leased Premises, and any property not removed shall be deemed
abandoned. Subject to the provisions of Section 15(b) of this Lease, all
alterations, additions and fixtures, which have been made or installed upon the
Leased Premises by either Lessor or Tenant shall remain as Lessor's property and
shall be surrendered with the Leased Premises as a part thereof. Tenant shall
surrender all keys in accordance with the provisions of subsection 17(c) of this
Lease.
41. MISCELLANEOUS.
(a) Successors and Assigns. The terms, provisions, covenants and conditions
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon the Parties hereto and their respective legal representatives, successors
and permitted assigns, except as otherwise herein expressly provided.
(b) Interpretation. If any provision of this Lease is or becomes invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to persons or circumstances other than those to which it is invalid or
unenforceable, shall not be affected thereby; and each provision of this Lease
shall be valid and be enforced to the fullest extent permitted by law.
(c) No agency. This Lease does not create the relationship of principal and
agent or of partnership or of joint venture or of any association between Lessor
and Tenant, the sole relationship between Lessor and Tenant being that of lessor
and lessee.
(d) Governing Law. This Lease shall be governed by and construed according
to the laws of the State of Minnesota.
(e) Titles. The section and subsection captions, headings or titles
appearing in this Lease are for convenience only and do not in any manner
define, limit, construe or describe any of the provisions of this Lease.
<PAGE>
(f) Complete Agreement. This Lease shall supersede all negotiations or
other communications written or verbal regarding the terms and conditions of the
relationship between Lessor and Tenant created hereby, and there are no written
or oral agreements between Lessor and Tenant relating to the subject matter of
this Lease other than those expressed herein.
(g) Amendment. This Lease cannot be modified or amended except by an
agreement in writing signed by Lessor and Tenant.
(h) Exhibits. The Exhibits referred to in this Lease and attached hereto
are part of this Lease to the same extent and in the same manner as if the
provisions thereof were actually embodied in this Lease.
(i) Authority. Lessor warrants that it is a duly organized limited
liability company of the State of Minnesota, that its board of governors has
duly authorized execution of this Lease and performance of the obligations of
Lessor thereunder, and that nothing in this Lease is prohibited by or will cause
any breach or default in any loan agreement or other agreement or understanding
with any lender of Lessor. Tenant warrants that it is a duly incorporated
corporation of the State of Minnesota, that its board of directors has duly
authorized execution of this Lease and performance of the obligations of Tenant
thereunder, and that nothing in this Lease is prohibited by or will cause any
breach or default in any loan agreement or other agreement or understanding with
any lender of Tenant.
43. ENVIRONMENTAL. Tenant shall not, and shall not permit its employees, agents
or invitees to, use any portion of the Leased Premises for the purpose of
generating, transporting, storing, treating, releasing or disposing of any
pollutant, toxic or hazardous waste or substance, or any other material the
release or disposal of which is now or hereafter regulated by any local, state
or federal law, regulation, ordinance or code related to pollution or
environmental contamination. Tenant and its successors, assigns and sublessees,
if any, shall indemnify, hold harmless and defend Lessor and its successors and
assigns from and against any claim or damage of any person or entity in any way
arising out of or resulting from any breach of the provisions of this Section
43. Notwithstanding the foregoing, Lessor agrees that the prohibitions in this
paragraph shall not apply to substances used by Tenant in the operation of its
business so long as Tenant stores, uses and disposes of such substances in
accordance with applicable law.
IN WITNESS WHEREOF, Lessor and Tenant have executed this Lease
Agreement on the date first above written.
LESSOR: TENANT:
LINDUE, LLC NORTHWEST TELEPRODUCTIONS, INC.
By:____________________________ By:____________________________
Its:___________________________ Its:___________________________
<PAGE>
EXHIBIT A
The Premises
The building and improvements located upon the land legally described as
follows:
Legal Description
Lot 1, Block 1, Edina Office Center 2nd Addition, according to
the plat thereof on file or of record in the office of the
Registrar of Titles, Hennepin County, Minnesota
<PAGE>
EXHIBIT B
Schedule of Base Rent
4000 WEST 76TH STREET
BASE RENT
$ Per
Year Sq. Ft.
1st Year $6390.50 / mo.
Through 3/99 6.135 $76,686 annual
2 $6550.00 / mo.
6.288 $78,600 annual
3 $6,713.75 / mo.
6.445 $80,565 annual
4 $6,881.58 / mo.
6.606 $82,579 annual
5 $7,053.58 / mo.
6.771 $84,643 annual
6 $7,229.92 / mo.
6.941 $86,759 annual
7 $7,410.67 / mo.
7.114 $88,928 annual
8 $7,596.00 / mo.
7.292 $91,152 annual
TAX COSTS
First year $6,000 / mo.
(Total 4000 W. 76th Street
and 4455 W. 77th Street Leases)
OPERATING COSTS
First year $1,100 / mo.
(Total 4000 W. 76th Street
and 4455 W. 77th Street Leases)
<PAGE>
EXHIBIT C
Operating Cost Exceptions
Operating Cost Exclusions. Notwithstanding anything to the contrary in the
definition of "Operating Costs" as set forth in Section 7of the Lease, Operating
Costs shall be defined so as to exclude the following:
(a) Costs incurred by Landlord for repairs, replacements and/or restoration
to or of the Building or Common Areas to the extent that Landlord is
reimbursed by insurance or condemnation proceeds or by warrantors or other
third persons;
(b) Attorneys' fees and other costs and expenses incurred in connection
with negotiations or disputes with prospective tenants of the Building;
(c) Costs that must be capitalized by Landlord for federal income tax
purposes shall be deemed to be Operating Costs under the Lease only if said
costs (i) are amortized over the useful life of the improvement (as
estimated in good faith by Landlord); (ii) reduce Operating Expenses, (iii)
are incurred in order to comply with the requirements of Landlord's
insurance carrier, (iv) are incurred in order to comply with any law, rule,
regulation or order of any governmental authority, or (v) are incurred to
extend the life of or otherwise maintain or replace a component of any
improvements on the Land. Notwithstanding the provisions of clause (i) of
this subparagraph, if Landlord would not have had to incur the cost in
question but for Tenant's use of the Premises (to the extent that such use
is different from ordinary office use), Landlord may amortize the cost in
question over the balance of the term of this Lease.
(d) Interest, on debt or amortization on any mortgage or mortgages
encumbering the Building except to the extent expressly provided for in the
Lease;
(e) Landlord's general overhead;
(f) Advertising and promotional expenditures;
(g) Repairs or replacements covered by warranties or guaranties to the
extent of service or payment thereunder;
(h) Damage and repairs necessitated by the negligence or willful misconduct
of Landlord or Landlord's employees, contractors or agents;
(i) Any charges that would result in Landlord collecting in excess of one
hundred percent (100%) of all Operating Expenses; and
LEASE AGREEMENT
4455 West 77th Street
THIS LEASE AGREEMENT ("Lease") is made and entered into this 24th day of
June, 1998, by and between LINDUE, LLC, a Minnesota limited liability company
("Lessor") and NORTHWEST TELEPRODUCTIONS, INC., a Minnesota corporation
("Tenant"). Lessor and Tenant may be referred to as "Party" or "Parties" in this
Lease.
In consideration of the obligation of Tenant to pay rent as herein
provided, and in consideration of the other terms, provisions and covenants set
forth herein, Lessor and Tenant agree as follows:
1. LEASE OF PREMISES. Lessor hereby leases and demises to Tenant, and Tenant
hereby takes from Lessor, on an absolutely net basis as herein provided, certain
premises ("the Leased Premises") situated within Hennepin County, Minnesota,
consisting of the land, building or buildings, and improvements described in
Exhibit A attached to this Lease, including without limitation the entire
building ( "Building") located at 4455 West 77th Street, Edina, Minnesota. For
all purposes of this Lease, the Building shall be deemed to contain Twenty
Thousand (20,000) rentable square feet.
2. LEASE TERM; EXTENSION.
(a) Initial Term. This Lease shall be for a term ("the Lease Term") of 3
years, 6 days, commencing on the 24th day of June, 1998 ("the Commencement
Date") and terminating at 12:00 P.M. on June 30, 2001, unless (i) extended as
provided in subsection (b) of this Section 2, in which case the Lease Term shall
include the period during which such extension is effective, or (ii) terminated
as provided in this Lease, in which case the Lease Term shall terminate upon the
date of such termination unless specifically provided otherwise in this Lease.
(b) Extension. Provided that there exist no uncured default under this
Lease, this Lease shall automatically extend for an additional sixty (60)
months, through and including June 30, 2006, upon the same terms and conditions
and at the Base Rent rates set forth in Exhibit B attached to this Lease;
provided, however, if Tenant gives Lessor written notice of its election to have
the Lease Term expire at the end of the initial Lease Term on or before December
31, 2000 the Lease Term shall not be so extended. If no such notice is given and
the Lease Term is extended, all references to the Lease Term shall then be
deemed to include the period ending June 30, 2006.
<PAGE>
3. CONDITION OF PREMISES; ACCEPTANCE OF THE LEASED PREMISES. Tenant acknowledges
that Lessor has made no representations or warranties, express or implied, with
respect to the Leased Premises. Tenant requires no leasehold improvements. By
occupying the Leased Premises, Tenant shall be deemed to have accepted the
Leased Premises "AS IS" and "WITH ALL FAULTS," except for (i) defects for which,
and to the extent to which, Lessor has the benefit of any surviving warranty,
and (ii) necessary roof repairs as described in that Real Estate Purchase
Agreement between the Parties, dated June 24, 1998.
4. RENT. Rent for the Leased Premises ("Rent") shall consist of Base Rent as
described in Section 5 hereof, Tax Costs as described in Section 6 hereof,
Operating Costs as described in Section 7 hereof, Additional Rent as described
in Section 8 hereof, and any and all other amounts to be paid by Tenant to
Lessor pursuant to this Lease.
5. BASE RENT. (a) Tenant shall pay to Lessor during the Lease Term a yearly rent
("Base Rent") in monthly installments thereof ("Monthly Base Rent") as set forth
on Exhibit B attached hereto, payable in advance on the first day of each month
during the Lease Term in lawful money of the United States, without any
deduction, offset, counterclaim or reduction whatsoever, at the office of
______________________________________ or at such other place as Lessor shall
designate in writing.
(b) In the event the Lease Term commences on a day other than the first day
of a month, or terminates on a day other than the last day of a month, or both,
Rent payable during such first or last month (including any adjustments to Rent
made in accordance with this Lease) shall be adjusted pro rata on the basis of a
30-day month.
6. TAX COSTS. (a) With each monthly installment payment of Monthly Base Rent
during the period commencing the Commencement Date and extending through March
31, 1999, Tenant will pay the Tax Costs set forth in Exhibit B attached to this
Lease. Thereafter, in each calendar year or portion thereof during the Lease
Term or any extensions or renewals thereof, Tenant shall pay to Lessor, in
addition to Base Rent, the total general real estate taxes and installments of
special assessments ("Tax Costs") due and payable with respect to the Leased
Premises in such year. Such payment by Tenant shall be paid at the same time and
in the same manner as Monthly Base Rent in equal monthly installments estimated
by Lessor to equal one twelfth (1/12) of Tax Costs due and payable in any such
year. At Landlord's election, Landlord may reasonably revise the estimate of Tax
Costs and adjust the monthly installments of said estimated amount to be paid by
Tenant with its monthly installments of Base Rent. Prior to March 1 of each
calendar year, or as soon as is practicable thereafter, Lessor shall furnish
Tenant with an estimate of Tax Costs for the then current calendar year. Within
ten (10) days after Lessor furnishes Tenant with such estimate, Tenant shall pay
to Lessor, as an additional payment, the total amount by which the estimated Tax
Costs for any months of the calendar year exceeds the total amount of Tax Costs
that Tenant shall have paid for those months. If such amount is less than the
payments made by Tenant for such monthly periods, Tenant may deduct the
difference from the next monthly installment payment.
<PAGE>
(b) After expiration of each calendar year during the Lease Term or any
extension or renewal thereof, through and including the calendar year in which
the Lease Term or any extension or renewal thereof expires, Lessor shall furnish
Tenant with a statement of actual Tax Costs for the immediately preceding
calendar year. If actual Tax Costs differ from estimated Tax Costs, within ten
(10) days after Lessor has furnished such statement to Tenant, Tenant shall pay
to Lessor any shortage for the immediately preceding calendar year, or Lessor
shall refund to Tenant any overage for the immediately preceding calendar year,
as the case may be.
(c) If the first or last day of the Lease Term occurs on a day other than
the first or last day, respectively, of a calendar year, then Tenant's
obligation under this Section 6 shall be prorated based on a 365-day calendar
year.
(d) Lessor's reasonable determination of estimated Tax Costs shall be
binding upon Tenant.
(e) Lessor shall have the exclusive right to challenge or litigate against
any taxing authority regarding taxes levied or imposed on the Leased Premises or
any portion thereof, appraisals or valuations of the Leased Premises or any
portion thereof, or any other aspect of or procedure for determining taxes or
similar charges. If Lessor does not initiate proceedings to challenge, protest,
abate, and/or reduce any real estate taxes payable during the Lease Term, after
thirty (30) days' written notice to Lessor, Tenant may initiate such
proceedings. Notwithstanding any such action by Tenant, Tenant shall remain
liable for and shall timely pay Tax Costs as provided in this Lease, subject to
revision of Tax Costs due to increase, reduction or refund of real estate taxes
as a result of such action. Should Tax Costs for a prior year be partially
refunded following a challenge by Lessor or Tenant, the refund shall accrue to
the party who paid the tax that was the subject of the refund.
(f) Tenant's failure to pay any amounts due under this Section 6 when due
shall be a default in the payment of Base Rent.
7. OPERATING COSTS. (a) The term "Operating Costs" shall mean all costs and
expenses of every kind and nature which Lessor incurs, pays or becomes obligated
to pay in owning, managing (including reasonable management contracts and fees,
if any), insuring, operating and maintaining the Leased Premises and every part
thereof exclusive of depreciation, interest or payments of any principal on any
mortgage or other encumbrance; provided, however, that Operating Costs shall not
include the costs described on attached Exhibit C. Without limiting the
generality of the foregoing and without implying or creating any obligations of
Lessor which are not specifically set forth in this Lease, Operating Costs shall
include amortization of capital expenditures that produce a reduction in energy
or other Operating Costs, over the expected useful life of the item together
with interest at the rate of twelve percent (12%) per annum on the unamortized
balance.
<PAGE>
(b) With each monthly installment payment of Monthly Base Rent during the
period commencing the Commencement Date and extending through March 31, 1999,
Tenant will pay the Operating Costs set forth in Exhibit B attached to this
Lease. Thereafter, in each calendar year or portion thereof during the Lease
Term or any extensions or renewals thereof, Tenant shall pay to Lessor, in
addition to Base Rent, the total Operating Costs for the Leased Premises in such
year. Such payment by Tenant shall be paid at the same time and in the same
manner as Monthly Base Rent in equal monthly installments estimated by Lessor to
equal one twelfth (1/12) of Operating Costs due and payable in any such year.
Prior to March 1 of each calendar year, or as soon as is practicable thereafter,
Lessor shall furnish Tenant with an estimate of Operating Costs for the then
current calendar year. Within ten (10) days after Lessor furnishes Tenant with
such estimate, Tenant shall pay to Lessor, as an additional payment, the total
amount, if any, by which the estimated Operating Costs for any months of the
calendar year exceeds the total amount of Operating Costs that Tenant shall have
paid for those months.
(c) Within sixty (60) days after expiration of each calendar year during
the Lease Term or any extension or renewal thereof, through and including the
calendar year in which the Lease Term or any extension or renewal thereof
expires, Lessor shall furnish Tenant with a statement of actual Operating Costs
for the immediately preceding calendar year. If actual Operating Costs differ
from estimated Operating Costs, within ten (10) days after Lessor has furnished
such statement to Tenant, Tenant shall pay to Lessor any shortage for the
immediately preceding calendar year, or Lessor shall refund to Tenant any
overage for the immediately preceding calendar year, as the case may be.
(d) If the first or last day of the Lease Term occurs on a day other than
the first or last day, respectively, of a calendar year, then Tenant's
obligation under this Section 7 shall be prorated based on a 365 day calendar
year.
(e) Lessor's reasonable determination of estimated Operating Costs shall be
binding upon Tenant.
(f) Tenant's failure to pay any amounts due under this Section 7 when due
shall be a default in the payment of Base Rent.
(g) Upon reasonable prior written notice to Lessor, Tenant at its sole
expense may audit and review Lessor's records substantiating and evidencing
Operating Costs. Notice of Tenant's intention to audit such records of Lessor
must be given within one hundred twenty (120) days following receipt by Tenant
of Lessor's statement of actual Operating Costs for the immediately preceding
calendar year, and the audit must be completed not later than one hundred eighty
(180) days following such receipt by Tenant. If Tenant's audit discloses a
discrepancy in Lessor's calculation of Operating Costs, the Parties will make an
appropriate adjustment to Tenant's obligation.
<PAGE>
8. ADDITIONAL RENT. Wherever it is provided in this Lease that Tenant is
required to make a payment to Lessor or to pay utilities or other sums of money
to third parties, such payment shall be deemed Additional Rent; and all remedies
applicable to the nonpayment or late payment of Rent shall be applicable to
Additional Rent.
Tenant's obligation to pay Additional Rent commences on the Commencement Date.
9. SECURITY DEPOSIT. Tenant has deposited with Lessor the amount of Twenty
Thousand Dollars ($20,000) as a security deposit ("the Security Deposit") to be
held by Lessor as security for the faithful performance by Tenant of (i) all the
terms, covenants and conditions of this Lease and (ii) those of that Lease
Agreement between the Parties, dated the same date as this Lease, for Leased
Premises located at 4600 West 76th Street, Edina, Minnesota, to be met, kept and
performed by Tenant during the Lease Term. The Security Deposit shall be
maintained in a separate account (which may include the security deposit for the
Leased Premises located at 4600 West 76th Street, and Tenant shall be entitled
to interest thereon at passbook rates. If Tenant defaults with respect to any
provision of this Lease, including, but not limited to the provisions relating
to the payment of Rent, Lessor may but shall not be required to use, apply or
retain all or any part of said security deposit for the payment of any Rent or
any other sum in default, or for the payment of any amount which Lessor may
spend or become obligated to spend by reason of Tenant's default, or to
compensate Lessor for any other loss or damage which Lessor may suffer by reason
of Tenant's default. If any portion of the Security Deposit is so used or
applied, Tenant shall, within five (5) days after written demand therefor,
deposit cash with Lessor in an amount sufficient to restore said security
deposit to its original amount, and Tenant's failure to do so shall be a
material breach of this Lease. If Tenant shall fully and faithfully perform
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or, at Lessor's option, to the
assignee of Tenant's interest hereunder) at the expiration of the Lease Term. In
the event Lessor assigns its interest in this Lease, Lessor shall transfer the
Security Deposit to Lessor's successor in interest.
10. This Section 10 left blank intentionally
11. USE. Tenant shall occupy and use the Leased Premises for general office
purposes and for other activities for which Tenant has used the Leased Premises
prior to this Lease, and for no other purpose. Notwithstanding anything to the
contrary in the preceding sentence, Tenant shall not use or allow the use of the
Leased Premises for retail, warehousing or manufacturing purposes or for any
purpose which constitutes a nuisance, is illegal or offensive, is termed extra
hazardous by insurance companies, or may make void or voidable any insurance on
the Leased Premises or increase the premiums therefor.
12. SECURITY. Tenant shall provide such security services for the Buildings and
the Leased Premises as Lessor may reasonably require.
<PAGE>
13. MAINTENANCE, REPAIRS AND SERVICES BY LESSOR. Without creating or assuming
any obligation or liability not specifically provided for in this Lease, Lessor
may in its sole discretion perform any maintenance, make any repairs and furnish
any services which Tenant fails timely to perform, make or furnish, and all
reasonable costs and expenses of any such maintenance and repairs shall be added
to the Operating Costs defined in Section 7(a) of this Lease.
14. MAINTENANCE AND REPAIRS BY TENANT. Tenant shall at its sole cost and expense
maintain and repair, and replace as necessary, all of the Leased Premises
(including without limitation: the roof, foundation and exterior walls of the
Building; the air conditioning, heating, plumbing, electrical and other
utilities systems; the parking lot, walk, driveway or driveways; and the
landscaping) in good order and repair and in a safe and tenantable condition,
reasonable wear and tear excepted. Without limiting the previous sentence,
Tenant shall keep the whole of the Leased Premises in a clean, sanitary, and
safe condition and shall be responsible for all trash, snow and ice removal for
the Leased Premises. Tenant shall not commit deteriorating waste on the Leased
Premises or allow deteriorating waste to be committed by any of Tenant's agents,
employees, licensees, subtenants, invitees or contractors., and will at the
expiration of the Lease Term or other termination of this Lease surrender the
same to Lessor in the same order and condition as they were in at the
commencement of the Lease Term, reasonable wear and tear and insured casualty
excepted.
Tenant may make any repair or replacement required or permitted to be
performed by Tenant under any provision of this Lease without the prior approval
of Lessor so long as the repairs are not "material." Any structural repair or
any repair which affects any utility system shall be considered a "material"
repair and shall require the prior, written approval of Lessor before any such
work is performed; provided, however, that no such approval shall be required in
an emergency as long as Tenant makes a reasonable effort to contact Lessor
beforehand. In addition, no material repair shall be commenced until plans and
specifications therefor shall have been submitted to and approved by Lessor. Any
approval required by this Section 14 shall be deemed to have been given if
Lessor does not respond within fifteen (15) business days after its receipt of
Tenant's proposed plans and specifications, if any, and request for approval.
After approval, the work shall be commenced promptly, performed in accordance
with the approved plans and specifications, and continued diligently to
completion.
<PAGE>
15. ALTERATIONS; MECHANIC'S LIENS. (a) Tenant shall not make any alterations of
or additions to the Leased Premises without the prior written consent of Lessor,
except that Tenant may make alterations within the Building without such prior
consent so long as the alterations are not "material." Any alteration that
increases the weight loan on the roof of the Building, any structural
alteration, any alteration which affects any utility system, or any physical
addition shall be considered a "material" alteration. All alterations or
physical additions shall be performed in a good and workmanlike manner in
accordance with all applicable legal requirements, insurance requirements, and
free of all liens, and if material, pursuant to plans and specifications
approved by Lessor and other reasonable conditions which Lessor shall impose on
such work and on the contractors to be used for such work. Any approval required
by this Section 15 shall be deemed to have been given if Lessor does not respond
within fifteen (15) days after its receipt of Tenant's proposed plans and
specifications, if any, and request for approval. After approval, the work shall
be commenced promptly, performed in accordance with the approved plans and
specifications, and continued diligently to completion. If Lessor disapproves
Tenant's plans, Lessor shall explain with reasonable specificity its reasons for
disapproval, and the changes, if any, that would cause Lessor to approve the
plans.
(b) At the termination of this Lease, Tenant shall, if Lessor so elects,
remove all alterations and additions erected by Tenant and restore the Leased
Premises to their original condition; otherwise, such improvements shall be
delivered up to Lessor with the Leased Premises.
(c) If any mechanic's, materialman's or similar lien is filed against the
Leased Premises or any part of them as a result of any work or act of Tenant,
its contractors or agents, Tenant shall (i) cause the lien to be discharged
within fifteen (15) days after the filing of the lien, or (ii), within such 15
days, file a bond, letter of credit or other security reasonably acceptable to
Lessor sufficient to indemnify Lessor and the Leased Premises from and against
such lien, and Tenant shall diligently contest such lien. If Tenant shall fail
to cause the discharge of the lien, or to provide such security, or to contest
such lien diligently, Lessor may, but shall not be obligated to, after five (5)
days' notice to Tenant, bond or pay the lien for the account of Tenant without
inquiring into the validity thereof. In such event, the Tenant shall, within
fifteen (15) days after receipt of demand therefor from Lessor, reimburse Lessor
the amount so paid or the costs and expenses of such bond. Upon completion of
any repair, alteration or other work performed by Tenant or its agents and
contractors to the Leased Premises, Tenant shall provide Lessor with copies of
lien waivers from each contractor, agent or vendor who performed work or
supplied materials relative to such work.
16. SIGNS. Tenant may retain such sign or signs that are on or within the Leased
Premises on the Commencement Date and that identify Tenant, and Tenant may
install similar signs subject to Lessor's prior written approval. Lessor may
also install and maintain a sign or signs on and within the Leased Premises. All
signs installed by either Party shall comply with all applicable laws and
ordinances.
<PAGE>
17. ACCESS BY LESSOR. (a) Lessor, its agents and representatives shall have the
right to enter and inspect the Leased Premises and any portion of them at any
time for any of the following purposes: (i) inspecting the Leased Premises; (ii)
showing the Leased Premises to prospective purchasers, mortgagees or lessees;
and (iii) platting or surveying the Leased Premises. Lessor shall endeavor to
give Tenant reasonable prior notice when possible. During the period that is
twelve (12) months prior to the end of the Lease Term, Lessor and its agents and
representatives shall have the right to erect on the Leased Premises a suitable
sign indicating that the Leased Premises are available. Any such entry by Lessor
shall not be deemed an eviction or a disturbance of Tenant's possession of the
Leased Premises, or render Lessor liable to Tenant for damages, or relieve
Tenant from performance of Tenant's obligations under this Lease. The right of
entry reserved shall not impose any obligation on Lessor to clean, maintain,
repair or change the Leased Premises.
(b) Lessor, its agents and representatives may at any time in case of
emergency enter the Leased Premises and do such acts as Lessor may deem proper
in order to protect the Leased Premises or any occupants of the Leased Premises.
(c) Lessor shall hold keys to all locks in the Leased Premises, and all
such keys shall remain the property of Lessor. No additional locks shall be
allowed on any door of the Leased Premises without Lessor's prior written
permission, and Tenant shall not make or permit to be made any duplicate keys,
except those furnished by Lessor. Upon termination of this Lease, Tenant shall
promptly surrender to Lessor all keys for the Leased Premises and the Building
and give to Lessor the combination of all locks for safes, safe cabinets and
vault doors, if any, remaining on the Leased Premises. Any and all costs
resulting from the loss or duplication of any key by Tenant or Tenant's
employees or invitees, including but not limited to the cost of changing locks
on and making keys for the Leased Premises or the Building, shall be paid by
Tenant. The term "key" as used herein shall include any electronic access card
necessary for access to the Building.
18. UTILITIES AND SERVICES. Without limiting any provisions of Section 14 or any
other provisions of this Lease, Tenant shall be responsible at its sole cost and
expense for obtaining and furnishing all gas, water, electricity and any other
utilities and all services (hereinafter in this Section 18 sometimes referred to
collectively as "utilities and services") for the Leased Premises, and Tenant
shall pay directly to the providers of the utilities and services any and all
charges for them. Without limiting the previous sentence in any way:
(a) Delivery. Tenant shall at its sole cost and expense maintain, repair
and replace (i) any utility systems and facilities (including without limitation
pipes, plumbing, conduits and wiring) for delivering any utilities to the Leased
Premises and (ii) any apparatuses and devices (including without limitation air
conditioners, furnaces and boilers, and electrical lamps, bulbs, starters and
ballasts) related to furnishing such facilities;
(b) Elevators. Tenant shall be responsible at its sole cost and expense for
maintaining, repairing and replacing any elevator or elevators in or on the
Leased Premises;
<PAGE>
(c) Telephones. Tenant shall be responsible at its sole cost and expense
for installation, maintenance, repair and replacement of all telephones and
related wiring in the Leased Premises, and the removal of the same (other than
wiring);
(d) Temporary Interruption of Services. (i) Lessor shall not be liable to
Tenant, its agents, employees, representatives, customers or invitees for any
inconvenience, loss or damage or for any injury to any person or property caused
by or resulting from any breakdowns or from any temporary failure or lack of
utilities or services, and Tenant shall indemnify Lessor and hold Lessor
harmless from any claim or damage because of such inconvenience, loss, damage or
injury; and (ii) no variation, interruption or failure of such utilities or
services incident to the making of repairs, alterations or improvements or due
to breakdowns or any temporary failure or lack of such services shall be deemed
an eviction of Tenant or relieve Tenant from any of Tenant's obligations
hereunder;
(e) Janitorial. Tenant shall furnish janitor service for the Building and
shall keep the Building in a clean, sanitary, and safe condition;
(f) Lessor Approval of Repairs and Replacements. Tenant shall comply with
the provisions of Section 14 relating to material repairs or replacements in
making any repair or replacement required by this Section 18; and
(g) General. Without limiting the scope of the definition of Operating
Costs set forth in Section 7(a) of this Lease, any expenses incurred by Lessor
pursuant to this Section 18 shall be deemed Operating Costs.
19. SUBLETTING AND ASSIGNMENT. Tenant shall not sublease the whole or any part
of the Leased Premises without the prior written consent of Lessor, which
consent may be given or withheld in Lessor's reasonable discretion. Tenant shall
not, voluntarily or by operation of law, assign, mortgage, pledge or otherwise
transfer this Lease without the prior written consent of Lessor, which consent
may be given or withheld in Lessor's sole and absolute discretion. Any
transaction or series of transactions (including without limitation any
dissolution, merger, consolidation or other reorganization of Tenant or any
issuance, sale, gift, transfer or redemption of any capital stock of Tenant,
whether voluntary, involuntary or by operation of law, or any combination of any
of the foregoing transactions) resulting in the transfer of control of Tenant,
shall be deemed to be an assignment of this Lease by Tenant
To request any prior written consent of Lessor required by this Section 19,
Tenant shall submit to Lessor: the request in writing; a proposed sublease or
assignment; financial and banking information regarding the proposed sublessee
or assignee; references regarding the proposed sublessee or assignee; and such
further information as Lessor might reasonably require. Within fifteen (15) days
following Lessor's receipt of all such required submissions, Lessor shall notify
Tenant in writing whether Lessor consents to the proposed sublease or
assignment. Failure by Lessor to notify within said fifteen (15) day period
shall be deemed consent by Lessor.
<PAGE>
20. FIRE AND OTHER CASUALTY. If the Building or a substantial part thereof is
damaged or destroyed by fire or other casualty, Lessor shall have the option,
exercisable in Lessor's sole and absolute discretion by giving written notice to
Tenant within ninety (90) days after such damage or destruction, to terminate
this Lease within thirty (30) days from the date said notice is given to Tenant.
If a portion of the Building is damaged by fire or other casualty and this Lease
is not terminated pursuant to the preceding sentence, Lessor shall, at its
expense, restore the Building, exclusive of any improvements or other changes
made to the Building by Tenant, to as near the condition which existed
immediately prior to such damage or destruction as reasonably practicable, and
all Rent shall abate during such period of time as the Building is untenantable
in the proportion that the untenantable portion of the Building bears to the
entire Building. Lessor shall not be responsible to the Tenant for, and Tenant
shall make no claim against Lessor for, any damage to or theft or destruction of
any personal property, furniture, equipment, improvements or other changes made
by Tenant in, on or about the Building, except for any such damage or
destruction that is the direct result of any reckless or intentional act or
omission of Lessor or its employees. Lessor shall endeavor to advise Tenant of
Lessor's decision regarding restoration as early as possible after Lessor makes
that decision.
21. INSURANCE; WAIVER OF SUBROGATION.
(a) Casualty Insurance; Risk of Loss. Throughout the Lease Term, Tenant
shall at its own cost and expense provide and maintain an extended coverage
casualty insurance policy on all Tenant's fixtures, equipment, machinery,
improvements, furniture and personal property (including without limitation any
property of others held by, leased by, or in the possession of Tenant) in the
amount of full replacement cost thereof, including without limitation coverage
against sprinkler and water damage. Upon execution of this Lease, Tenant shall
provide Lessor a copy of said policy or a certificate evidencing such insurance
coverage.
All property of any kind which may be on or at the Leased Premises shall be
at the sole and absolute risk of Tenant or those claiming through or under
Tenant. Tenant hereby releases Lessor from any and all liability or
responsibility to Tenant or anyone claiming through or under Tenant by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage casualties required to be covered by the insurance
required to be provided and maintained hereunder.
(b) Liability Insurance. Throughout the Lease Term, Tenant shall at its own
cost and expense provide and maintain a comprehensive policy of liability
insurance with respect to the Leased Premises. The Liability insurance policy
shall name Lessor, any mortgagee of the Leased Premises, Lessor's management
company, if any, and any designee of Lessor as additional insureds. The policy
shall be written by an insurer acceptable to Lessor in the amounts of not less
than One Million Dollars ($1,000,000) for personal or bodily injuries sustained
by any one person, Two Million Dollars ($2,000,000) for personal or bodily
injuries sustained in any one occurrence, and One Hundred Thousand Dollars
($100,000.00) for property damage. (A portion of such coverage may be provided
by an umbrella policy maintained by Tenant. Upon execution of this Lease, Tenant
shall provide Lessor a copy of said policy or a certificate evidencing such
insurance coverage.
<PAGE>
(c) Blanket Insurance Policy. Any insurance required to be maintained by
Tenant under this Lease may be maintained under a "blanket" policy covering the
Leased Premises and other facilities and locations of Tenant. If Tenant does
include the Leased Premises under such a blanket policy and Tenant delivers to
Lessor a certificate rather than a copy of the insurance policy, Tenant shall
also deliver such other information as Lessor may reasonably require in order
for it to determine the exact coverage provided.
(d) Cancellation; Failure to Renew; Material Change. Each insurance policy
required to be carried under this Section 21 shall provide (and any certificate
evidencing any insurance coverage shall certify) that, unless Lessor shall be
given twenty (20) days' written notice, (i) the insurance policy shall not be
canceled and shall continue in full force and effect, (ii) the insurance carrier
shall not fail to renew the insurance policy for any reason, and (iii) no
material change shall be made in the insurance policy. The term "insurance
policy" shall include without limitation any extensions or renewals of an
insurance policy.
22. INDEMNITY. Tenant shall indemnify, hold harmless and defend Lessor from and
hold Lessor harmless against all liabilities, damages, claims, fines, penalties,
costs and other expenses, including all reasonable attorney's fees, which may be
imposed upon, incurred by, or asserted against Lessor by reason of any bodily
injury, personal injury, death or property damage occurring in, on or about the
Leased Premises or occurring by reason of (a) any negligence of Tenant, its
successors, assigns or subtenants or its or their employees, agents,
contractors, licenses or invitees, (b) any failure of Tenant to comply with any
requirement of any governmental authority applicable to Tenant's use and
occupancy of the Leased Premises, (c) any litigation commenced by or against
Tenant to which Lessor is made a party without any fault on the part of Lessor,
and (d) any failure by Tenant to perform or comply with any covenant or
agreement of Tenant set forth in this Lease, except to the extent such injury,
death or property damage shall be the direct result of the negligent or
intentional act or omission of Lessor or its employees, agents or contractors.
23. EMINENT DOMAIN. If the entire Leased Premises or the Building is taken by
eminent domain, this Lease shall automatically terminate as of the date of
taking. If a portion of the Leased Premises or the Building is taken by eminent
domain, Lessor shall have the right to terminate this Lease by giving written
notice thereof to Tenant within ninety (90) days after the date of taking. If a
portion of the Leased Premises or the Building is taken by eminent domain and
this Lease is not terminated by Lessor pursuant to the immediately preceding
sentence, Lessor shall, at its expense, restore the Leased Premises or the
Building, exclusive of any improvements or other changes made to the Leased
Premises by Tenant, to as near the condition which existed immediately prior to
the date of taking as reasonably possible, and Rent shall abate during such
period of time as the Leased Premises or the Building is untenantable, in the
proportion that the untenantable portion of the Leased Premises or the Building
bears to the entire Leased Premises or the Building. All damages awarded for a
taking under the power of eminent domain, whether for the whole or a part of the
Leased Premises, shall belong to, and be the property of Lessor, whether such
damages shall be awarded as compensation for diminution in value to the
leasehold estate hereby created or to the fee of the Leased Premises; provided,
however, that Lessor shall not be entitled to any separate award made to Tenant
for loss of business or the fair value of and/or cost of removal of stock and
fixtures. The term "eminent domain" shall include the exercise of any similar
governmental power and any purchase or other acquisition in lieu of
condemnation.
<PAGE>
24. HOLDING OVER. Should Tenant or any of its successors in interest hold over
the Leased Premises or any part thereof after the expiration of the Lease Term,
such holding over, at the sole election of Lessor, shall constitute and be
construed as a tenancy from month to month only. The inclusion of the preceding
sentence shall not be construed as Lessor's permission to hold over. Base Rent
during any such holdover period shall be two (2) times Base Rent paid by Tenant
at the expiration of the Lease Term.
25. QUIET ENJOYMENT. Lessor covenants that if Tenant pays Rent (including
without limitation all charges which are included in Rent pursuant to this
Lease), performs all its obligations required by this Lease, and observes all
the other provisions of this Lease, Tenant shall peaceably and quietly enjoy the
Leased Premises in accordance with the terms of this Lease without any
interruption or disturbance from Lessor. Lessor shall not be responsible or
liable for the actions of third parties.
26. EVENTS OF DEFAULT. Each of the following shall constitute an "Event of
Default" by Tenant under this Lease:
(a) The failure by Tenant to pay any installment of Rent, or any part of
Rent (including without limitation any charge to be paid by Tenant under this
Lease), when due and for a period of five (5) days after Lessor makes written
demand therefor;
(b) The insolvency of Tenant, any transfer by Tenant in fraud of creditors,
or any assignment by Tenant for the benefit of creditors;
(c) The filing of a petition by Tenant (or failure to dismiss such a
petition within thirty (30) days following filing of it by a third person) under
any Section or chapter of the United States Bankruptcy Code, as amended, or
under any similar law or statute of the United States or any state thereof,
seeking relief from Tenant's creditors, or the adjudication thereunder that
Tenant is bankrupt or insolvent;
(d) The appointment of a receiver or trustee for all or substantially all
of the assets of Tenant;
(e) Tenant vacates or abandons the Premises.
(f) Tenant's causing or suffering a lien to be filed against the Leased
Premises or any part thereof and failure to obtain dismissal of such lien within
fifteen (15) days after filing;
(g) Tenant's failure timely to take any action or provide to Lessor any
report, statement, forecast or plan required by this Lease, including without
limitation the provisions of Section 32 of this Lease;
<PAGE>
(h) The failure by Tenant to comply with any other term, provision or
covenant of this Lease and to cure such failure within ten (10) days after
notice from Lessor; provided, however, that if a default is not reasonably
susceptible of being cured within a ten (10) day period, Tenant shall be given
reasonable additional time to effect a cure so long as Tenant promptly commences
action to effect a cure and thereafter diligently proceeds to cure the default
as quickly as reasonably possible.
Upon the occurrence of any Event of Default, whether known or unknown to Lessor
and whether or not Lessor shall have given notice to Tenant regarding any remedy
available to Lessor, Tenant shall be deemed "in Default" under this Lease.
27. REMEDIES. (a) Upon the occurrence of any Event of Default, Lessor at its
option and in addition to all other rights and remedies available to Lessor by
law or by other provisions hereof, may, upon written notice to Tenant:
(i) terminate this Lease and all of Lessor's and Tenant's rights and
obligations hereunder except as provided in subsection (b),
below; or
(ii) declare this Lease forfeited but not terminated; and
(iii) in connection with either such termination or such forfeiture,
reenter the Leased Premises, in accordance with applicable
law, using such reasonable force as may be necessary to remove
all persons and property therefrom, and Lessor shall not be
liable for damages by reason of such reentry or forfeiture.
(b) In the event of any termination pursuant to subsection (a)(i) or any
forfeiture pursuant to subsection (a)(ii) of this Section 27, or any other
termination or forfeiture, Tenant shall indemnify Lessor against and pay to
Lessor any and all loss of rents and other damages which Lessor may incur by
reason of such termination or forfeiture, including without limitation:
(i) unpaid installments of Rent or other unpaid amounts to Lessor
which were due as of the termination or forfeiture described
above, including interest and late payment fees, payable
immediately;
(ii) Rent and other amounts to Lessor falling due pursuant to
provisions of this Lease for the balance of the Lease Term
following such termination or forfeiture, during which the Leased
Premises remain vacant, including interest, which amounts shall
be payable as they become due under this Lease (for purposes of
this subsection (b)(ii), the Lease Term will not terminate upon
such termination or forfeiture of the Lease);
(iii) all reasonable, actual expenses incurred in releasing the Leased
Premises, including without limitation costs for leasing
commissions, remodeling, and restoring and repairing the Leased
Premises and putting them in rentable condition, which shall be
payable as they are incurred by Lessor;
<PAGE>
(iv) all reasonable attorneys' fees and expenses incurred by reason of
Tenant's default or in connection with exercising any remedy
hereunder;
(v) (while the Leased Premises are subject to any new lease or leases
made pursuant to this Section 27), the amount by which the
monthly installments payable under such new lease or leases is
less than the monthly installment for all charges that would have
been payable pursuant to this Lease, which deficiencies shall be
payable monthly.
(c) All rights and remedies of Lessor set forth herein shall be cumulative
and not exclusive of each other.
28. LATE CHARGE. In the event Tenant fails to pay any Rent within five (5) days
after due, Tenant shall pay to Lessor a late charge in the amount of $250.00.
Lessor shall waive such late charge once in any twelve (12) month period so long
as the required payment is made not later than fifteen (15) days of the date the
same was due. The provision for such late charge shall be in addition to all of
Lessor's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Lessor's remedies in any manner.
In addition to such late charge, any and all Rent not paid within ten (10) days
after due shall bear interest at the rate of twelve percent (12%) per annum or
the highest rate permitted by law, whichever is less, from the date due until
paid.
29. SUBORDINATION AND ATTORNMENT. At Lessor's election, the rights of Tenant
under this Lease shall be and are subject and subordinate to any ground lease or
underlying lease now or hereafter in force against the Leased Premises or the
Building, and to any mortgage or mortgages now or hereafter in force against
such leases or the Leased Premises, and to all advances made or hereafter to be
made upon the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof, provided such ground
lessor, underlying lessor or mortgagee agrees to recognize this Lease and not
disturb Tenant's possession so long as Tenant is not in default beyond any
applicable cure period. At the option of any mortgagee or any lessor under any
ground lease or underlying lease, Tenant shall attorn to such mortgagee or
lessor in the event of a mortgage foreclosure or deed in lieu thereof or
termination by such lessor. No further instrument of subordination or attornment
shall be required. Notwithstanding the foregoing, in confirmation of such
subordination or attornment, within fifteen (15) days after a written request
therefor, Tenant shall execute such further instruments as may be requested by
Lessor or any mortgagee or lessor. Any failure to do so shall be an Event of
Default pursuant to Section 26(h) hereof. Tenant hereby irrevocably appoints
Lessor as attorney-in-fact for Tenant with full power and authority to execute
and deliver in the name of Tenant any such instrument or instruments.
30. NOTICE. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered, whether actually received or not, on
the third (3rd) day of mail delivery following deposit of it in the United
States mail, postage prepaid, certified or registered mail, addressed to a Party
at the relevant address set forth below, or at such other address as such Party
shall have previously designated in written notice delivered in accordance with
this Section 30:
<PAGE>
If to Lessor: If to Tenant:
LINDUE, LLC Northwest Teleproductions, Inc.
c/o Pierson & Pierson 4400 West 76th Street
Attorneys at Law Edina, Minnesota 55435
1055 East Wayzata Boulevard Attention: Chief Financial Officer
Suite 203
Wayzata, Minnesota 55391
With a copy to:
Peterson Real Estate, Inc.
9640 Xylon Avenue South
Bloomington, Minnesota 55438
Any notice or document required or permitted to be delivered hereunder also
shall be deemed to be delivered if and when delivered personally to either Party
at the above relevant address.
31. RULES AND REGULATIONS. Tenant shall observe such reasonable rules and
regulations which from time to time may be promulgated by Lessor in writing to
the Tenant for the general safety, comfort and convenience of Lessor, Tenant or
the Leased Premises.
32. FINANCIAL REPORTS. (a) Operating Plan; Financial Forecast. For each fiscal
year of Tenant that begins subsequent to March 31, 1999, the Board of Directors
of Tenant shall approve and deliver to Lessor an Operating Plan and Financial
Forecast of Tenant no later than thirty (30) days prior to the beginning of such
fiscal year.
(b) Monthly Financial Statements. Tenant shall provide to Lessor monthly
financial statements, forecasts (including without limitation reports of any
substantive changes to forecasts) and plans of Tenant at least as frequently and
timely as such are provided to the Board of Directors of Tenant.
(c) Attendance at Meetings. Lessor may at its sole discretion designate a
representative of Lessor to attend Tenant's Board of Directors meetings at which
any financial reports of Tenant shall be presented; Tenant shall give Lessor
notice of any such meetings at the same time it gives such notice to its
Directors.
33. This Section 33 left blank intentionally
34. BROKERAGE FEES. Each Party represents and warrants that it has dealt with no
broker, agent or other person in connection with this Lease, and each Party
shall indemnify, hold harmless and defend the other Party from and against any
claim or claims by any broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with the indemnifying Party
with regard to this Lease.
<PAGE>
35. This Section 35 left blank intentionally
36. This Section 36 left blank intentionally
37. MISCELLANEOUS TAXES. (a) Tenant shall pay prior to delinquency all taxes
assessed against or levied upon its occupancy of the Leased Premises or upon the
fixtures, furnishings, equipment or personal property of Tenant located in the
Leased Premises, and when possible Tenant shall cause said fixtures,
furnishings, equipment and personal property to be assessed and billed
separately from the property of Lessor. In the event any or all of Tenant's
fixtures, furnishings, equipment and personal property, or Tenant's occupancy of
the Leased Premises, shall be assessed and taxed with the property of Lessor,
Tenant shall pay to Lessor that portion of such taxes applicable to Tenant's
fixtures, furnishings, equipment or personal property, or occupancy of the
Leased Premises.
(b) If, under the laws of the United States or any state thereof or any
political subdivision in which the Leased Premises are situated, a tax or excise
on rents or other tax, however described, is levied or assessed against Lessor
or the Rent or any portion thereof, in addition to, in lieu of, or as a
substitute in whole or in part for taxes and assessments commonly known as real
estate taxes, then Tenant shall pay and discharge such tax or excise to the
extent of the amount thereof which is lawfully assessed or imposed upon Lessor
and which was so assessed or imposed as a direct result of the rental accruing
under this Lease.
38. ESTOPPEL CERTIFICATE. Tenant shall, within ten (10) days after request by
Lessor, deliver to Lessor or Lessor's designee (including, without limitation,
any prospective purchaser of the Leased Premises, or the present or any future
holder of any mortgages or deeds of trust or ground or underlying leases on the
Leased Premises) an estoppel certificate stating that this Lease is in full
force and effect, the date to which rent and other charges have been paid, the
unexpired term of this Lease, whether Lessor is in default hereunder, and the
nature of any such default, and such other matters pertaining to this Lease as
may be requested by Lessor.
39. WAIVER. Any failure of Lessor to insist upon strict performance of any term,
covenant or condition of this Lease, or to exercise any option herein contained
shall not be construed as a waiver or a relinquishment for the future of that or
any other term, covenant, condition or option, but the same shall continue and
remain in full force and effect. The receipt by Lessor of Rent with or without
knowledge of a breach in any terms, covenants or conditions of this Lease to be
kept or performed by Tenant shall not be deemed a waiver of such breach, and
Lessor shall not be deemed to have waived any provision of this Lease unless
expressed in writing and signed by Lessor.
<PAGE>
40. SURRENDER. On the last day of the Lease Term or on the sooner termination
thereof, Tenant shall peaceably surrender the Leased Premises in good condition
and repair consistent with Tenant's duty to make repairs as provided in Section
14 hereof. On or before the last day of the Lease Term or on the sooner
termination thereof, Tenant shall at its expense remove all of Tenant's personal
property from the Leased Premises, and any property not removed shall be deemed
abandoned. Subject to the provisions of Section 15(b) of this Lease, all
alterations, additions and fixtures, which have been made or installed upon the
Leased Premises by either Lessor or Tenant shall remain as Lessor's property and
shall be surrendered with the Leased Premises as a part thereof. Tenant shall
surrender all keys in accordance with the provisions of subsection 17(c) of this
Lease.
41. MISCELLANEOUS.
(a) Successors and Assigns. The terms, provisions, covenants and conditions
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon the Parties hereto and their respective legal representatives, successors
and permitted assigns, except as otherwise herein expressly provided.
(b) Interpretation. If any provision of this Lease is or becomes invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to persons or circumstances other than those to which it is invalid or
unenforceable, shall not be affected thereby; and each provision of this Lease
shall be valid and be enforced to the fullest extent permitted by law.
(c) No agency. This Lease does not create the relationship of principal and
agent or of partnership or of joint venture or of any association between Lessor
and Tenant, the sole relationship between Lessor and Tenant being that of lessor
and lessee.
(d) Governing Law. This Lease shall be governed by and construed according
to the laws of the State of Minnesota.
(e) Titles. The section and subsection captions, headings or titles
appearing in this Lease are for convenience only and do not in any manner
define, limit, construe or describe any of the provisions of this Lease.
(f) Complete Agreement. This Lease shall supersede all negotiations or
other communications written or verbal regarding the terms and conditions of the
relationship between Lessor and Tenant created hereby, and there are no written
or oral agreements between Lessor and Tenant relating to the subject matter of
this Lease other than those expressed herein.
(g) Amendment. This Lease cannot be modified or amended except by an
agreement in writing signed by Lessor and Tenant.
(h) Exhibits. The Exhibits referred to in this Lease and attached hereto
are part of this Lease to the same extent and in the same manner as if the
provisions thereof were actually embodied in this Lease.
<PAGE>
(i) Authority. Lessor warrants that it is a duly organized limited
liability company of the State of Minnesota, that its board of governors has
duly authorized execution of this Lease and performance of the obligations of
Lessor thereunder, and that nothing in this Lease is prohibited by or will cause
any breach or default in any loan agreement or other agreement or understanding
with any lender of Lessor. Tenant warrants that it is a duly incorporated
corporation of the State of Minnesota, that its board of directors has duly
authorized execution of this Lease and performance of the obligations of Tenant
thereunder, and that nothing in this Lease is prohibited by or will cause any
breach or default in any loan agreement or other agreement or understanding with
any lender of Tenant.
43. ENVIRONMENTAL. Tenant shall not, and shall not permit its employees, agents
or invitees to, use any portion of the Leased Premises for the purpose of
generating, transporting, storing, treating, releasing or disposing of any
pollutant, toxic or hazardous waste or substance, or any other material the
release or disposal of which is now or hereafter regulated by any local, state
or federal law, regulation, ordinance or code related to pollution or
environmental contamination. Tenant and its successors, assigns and sublessees,
if any, shall indemnify, hold harmless and defend Lessor and its successors and
assigns from and against any claim or damage of any person or entity in any way
arising out of or resulting from any breach of the provisions of this Section
43. Notwithstanding the foregoing, Lessor agrees that the prohibitions in this
paragraph shall not apply to substances used by Tenant in the operation of its
business so long as Tenant stores, uses and disposes of such substances in
accordance with applicable law.
IN WITNESS WHEREOF, Lessor and Tenant have executed this Lease Agreement on
the date first above written.
LESSOR: TENANT:
LINDUE, LLC NORTHWEST TELEPRODUCTIONS, INC.
By:_____________________________ By:____________________________________
Its:____________________________ Its:___________________________________
<PAGE>
EXHIBIT A
The Premises
The building and improvements located upon the land legally described as
follows:
Legal Description Tract R, Registered Land Survey No. 1218, Files
of Registrar of Titles, County of Hennepin, Minnesota
<PAGE>
EXHIBIT B
Schedule of Base Rent
4455 WEST 77TH STREET
BASE RENT
$ Per
Year Sq. Ft.
1st Year $10,224.33 / mo.
Through 3/99 6.135 $122,692 annual
2 $10,480.00 / mo.
6.288 $125,760 annual
3 $10,741.92 / mo.
6.445 $128,903 annual
4 $11,010.50 / mo.
6.606 $132,126 annual
5 $11,285.75 / mo.
6.771 $135,429 annual
6 $11,567.92 / mo.
6.941 $138,815 annual
7 $11,857.17 / mo.
7.114 $142,286 annual
8 $12,153.50 / mo.
7.292 $145,842 annual
TAX COSTS
First year $6,000 / mo.
(Total 4455 W. 77th Street
and 4000 W. 76th Street Leases)
OPERATING COSTS
First year $1,100 / mo.
(Total 4455 W. 77th Street
and 4000 W. 76th Street Leases)
<PAGE>
EXHIBIT C
Operating Cost Exceptions
Operating Cost Exclusions. Notwithstanding anything to the contrary in the
definition of "Operating Costs" as set forth in Section 7of the Lease, Operating
Costs shall be defined so as to exclude the following:
(a) Costs incurred by Landlord for repairs, replacements and/or
restoration to or of the Building or Common Areas to the extent that
Landlord is reimbursed by insurance or condemnation proceeds or by
warrantors or other third persons;
(b) Attorneys' fees and other costs and expenses incurred in
connection with negotiations or disputes with prospective tenants of
the Building;
(c) Costs that must be capitalized by Landlord for federal income tax
purposes shall be deemed to be Operating Costs under the Lease only if
said costs (i) are amortized over the useful life of the improvement
(as estimated in good faith by Landlord); (ii) reduce Operating
Expenses, (iii) are incurred in order to comply with the requirements
of Landlord's insurance carrier, (iv) are incurred in order to comply
with any law, rule, regulation or order of any governmental authority,
or (v) are incurred to extend the life of or otherwise maintain or
replace a component of any improvements on the Land. Notwithstanding
the provisions of clause (i) of this subparagraph, if Landlord would
not have had to incur the cost in question but for Tenant's use of the
Premises (to the extent that such use is different from ordinary
office use), Landlord may amortize the cost in question over the
balance of the term of this Lease.
(d) Interest, on debt or amortization on any mortgage or mortgages
encumbering the Building except to the extent expressly provided for
in the Lease;
(e) Landlord's general overhead;
(f) Advertising and promotional expenditures;
(g) Repairs or replacements covered by warranties or guaranties to the
extent of service or payment thereunder;
(h) Damage and repairs necessitated by the negligence or willful
misconduct of Landlord or Landlord's employees, contractors or agents;
(i) Any charges that would result in Landlord collecting in excess of
one hundred percent (100%) of all Operating Expenses; and
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations:
Sales for the year ended March 31, 1998 of $11,192,233, compare to sales of
$11,852,758 in 1997 and $12,509,041 in fiscal 1996. The 5.6% decrease in overall
sales from fiscal 1997 to fiscal 1998 reflects a decrease in Department of
Defense (DOD) contract production compounded by a more significant decline in
customary noncontract sales. Part of the decline in sales volume was attributed
to the Company's decision to close its downtown Minneapolis postproduction
facility. The overall decline was offset by an increase in production of
television programs for broadcast. The 5% decrease in overall sales from fiscal
1996 to fiscal 1997 reflects a decrease in DOD contract production compounded by
a more significant decline in customary noncontract sales. The overall decline
was offset by an increase in production of television programs for broadcast.
The Company's estimated production orders at March 31, 1998 are $7,600,000.
Included in this amount are DOD production orders estimated at $2,800,000 and
show production for cable broadcast estimated at $4,800,000. The production
orders at March 31, 1997 were estimated to be $6,000,000, including DOD
production estimated at $2,250,000 and production for cable broadcast estimated
at $3,750,000. Production orders at March 31, 1996 were estimated to be
$4,000,000, including DOD production estimated at $2,200,000 and show production
for cable broadcast estimated at $1,775,000.
In contrast to the difficulties we have experienced in our traditional
production business we have accomplished growth in our programming group. In
order to continue the momentum that has been established, resources will
continue to be allocated to accelerate the creation, sale, and production of
programming for the broadcast market. Management considers this an area of
importance and growth. It is Management's belief that providers of quality
programming will be in demand as the outlets for broadcasting continue to
expand.
For the years ended March 31, 1998, 1997, and 1996, DOD contract sales equaled
18.5%, 20%, and 22%, respectively, of total sales.
Department of Defense production in fiscal 1998 consisted of completion of the
balance of the contract requirements for the third year of the potential
five-year agreement. Additionally, the Company completed 80% of the fourth
year's requirements and commenced creative development and scripting for the
fifth-year requirements. The Company is in its final contract year of a
five-year contract with the DOD. This final contract year provides for
production work through June 1999. The DOD contract is currently in the renewal
process for another five-year period. The DOD placed the contract for
competitive bidding. Accordingly, we have presented a proposal to the DOD for
renewal of another five-year term. The DOD has indicated that the contract will
be awarded in August 1998.
Cost of products and services sold, as a percentage of sales, equaled 93%, 97%,
and 86% for the years ended March 31, 1998, 1997, and 1996, respectively. The
decrease in the cost of sales percentage in fiscal 1998 is the result of
reductions in fixed overhead. Affecting the increase in the cost of sales
percentage in fiscal 1997 were one-time expenses including writing off lease
deposits, capitalized consultants' fees, capitalized costs associated with
proprietary programming and infomercials, and the write-down of obsolete
inventory. The total for these items and other one-time expenses in fiscal 1997
was $544,500 and added 4.6 % to the cost of sales percentage. The cost of sales
percentage in fiscal 1997, excluding these items, was 92.5%.
<PAGE>
Selling, general, and administrative expenses for the years ended March 31,
1998, 1997, and 1996 totaled $2,133,749, $1,855,691, and $2,707,709,
respectively. Expenses for fiscal 1998 increased $278,058 or 15.0% from fiscal
1997. Reasons for the increase include:
Increase in compensation related expenses to the hiring of a CEO. In 1997
the Company incurred CEO compensation for five months. In 1998 the Company
incurred CEO pay for eight months.
Amortization of costs incurred to refinance the Company's financial
institution debt (Note 2).
Increase in banking fees associated with the new credit agreement with
NationsCredit.
An increase in the bad debt reserve of $92,500 related to a former Chicago
customer.
Operating results for fiscal 1998 include severance and other charges of
$38,000.
Interest expense of $560,276, $489,953, and $487,770 for the fiscal years ended
March 31, 1998, 1997 and 1996, respectively, reflect increases in borrowing in
fiscal 1998, 1997 and 1996, along with rate increases on the variable rate debt
over the past three years. For the fiscal year ended March 31, 1998, the
increase in interest expense is attributable to an increase in borrowing and in
the cost of borrowing (Note 2).
The tax benefit for fiscal 1998 reflects refunds received during 1998 for items,
such as goodwill impairment, where the ultimate collectibility was uncertain and
therefore no deferred tax asset was previously recorded. The 33% tax benefit
rate in fiscal 1997 reflects the valuation allowance of $97,000 estimated during
1997. The 19% tax benefit rate in fiscal 1996 reflects the substantial amount of
nondeductible costs and expenses included in fiscal 1996 operations. Management
has recorded a valuation allowance on the deferred tax assets to reflect the
amount management believes will be ultimately collected.
This section contains a number of forward-looking statements, all of which are
based on current expectations. Actual results may vary. Looking forward to
fiscal 1999, the Company is continuing to make reductions in its fixed overhead.
Effective May 1, 1998 the Company disposed of excess lease space in Chicago.
Cash Savings are estimated at approximately $112,000 per year. The Company is
currently in negotiations to sub-lease its remaining space in downtown
Minneapolis. If completed, this could save the Company approximately $50,000 of
cash during the current fiscal year and $95,000 each year after through October
2001. Interest expense savings of approximately $115,000 are expected as a
result of debt reduction associated with the sale of equipment from the
Company's downtown Minneapolis operation and the sale and subsequent leaseback
of the Company's Edina, Minnesota buildings (Notes 7 and 8). Although the
Company is placing focus on reducing overhead, growth in sales is the key goal
going forward. We currently have in production six shows for broadcast
television. Coupled with our AFRTS contract we have an estimated $7,600,000 in
sales orders which represents an increase of 27% in production orders over prior
year. Our most significant weakness has been in the area of noncontract work.
Noncontract work includes the corporate, industrial, and agency markets. These
are the markets we will aggressively pursue moving into the new fiscal year. In
Minneapolis, management believes the expansion of our sales staff and the
addition of creative personnel will help us to regain lost ground.
<PAGE>
Liquidity and Capital Requirements:
The net loss of $1,354,249 in fiscal 1998 reduced stockholders' equity from
$2,560,965 at March 31, 1997 to $1,206,716 at March 31, 1998. The impact of the
net loss of $1,455,823 in fiscal 1997, which included one-time charges of
$727,750, reduced stockholders' equity from $4,016,788 at March 31, 1996 to
$2,560,965 at March 31, 1997.
On April 24, 1997, the Company entered into a credit agreement with
NationsCredit. The credit agreement has a three-year term and consists of an
$8,500,000 revolving credit facility. The agreement includes a term note of
$3,750,000 to be repaid in monthly installments over three years. The payment is
based on a five-year amortization with the balance due at the end of the
three-year period. The Company used the proceeds of the term loan to pay off and
cancel its indebtedness to Norwest Bank (Note 2). Additional borrowings against
the line of credit in April 1997 were utilized to pay off accounts payable and
other current obligations. The Company's new term debt agreement provides a
reduced principal payment and a longer amortization period than its prior term
debt agreement. The Company's new revolving line of credit added flexibility and
allows for increased borrowings against available collateral. These changes had
a significant impact on the Company's availability under the line of credit.
Additionally, NationsCredit provided $700,000 of mortgage financing, as part of
the $8,500,000 credit facility, in June 1997. The mortgage is collateralized by
the Company's real estate located in Edina, Minnesota. The proceeds were used to
further reduce accounts payable and other current liabilities.
In June 1998 the Company sold its Edina, Minnesota buildings in a sale and
leaseback transaction. The Company will use the proceeds to pay down debt, pay
off accounts payables, and fund facility improvements. See the sections on Cash
Generation and Deployment and Related Party Transaction for further information.
Management believes the actions taken during 1998 will enable the Company to
fulfill its obligations in the normal course of business through 1999.
Cash Generation and Deployment:
In 1998, $83,408 of cash was generated from operating activities compared with
$1,253,417 in 1997 and $1,246,963 in 1996. The decrease in 1998 compared to 1997
and 1996 is the result of the changes in working capital. The Company utilized
cash to pay down payables that had been accumulating. Compared to fiscal 1997,
which had a net payable increase of $426,030 from fiscal 1996, fiscal 1998 had a
decrease in payables of $631,337. In fiscal 1997 the Company had an increase in
client deposits of $652,963. In fiscal 1998 the Company utilized $247,880 of
those deposits. Capital expenditures for property, plant, and equipment were
$561,702 in 1998, compared with $391,831 in 1997 and $1,208,523 in 1996. The
1998 depreciation charges were $1,595,523. The lower level of capital
expenditures over the past two years is the result of the significant upgrade of
plant and production equipment started in 1996 and as a result in a change in
the business mix toward production of shows. The increase over 1997 relates to
the implementation of a new financial accounting and production software system.
Management continues to invest in and upgrade equipment at levels believed to be
necessary.
During the year, the Company closed its Minneapolis Post and Transfer facility.
$815,627 of cash was generated from the sale of assets. The proceeds were used
to pay down long-term debt.
<PAGE>
Subsequent to the year-end the Company sold and subsequently leased back its
facilities in Minneapolis. This transaction generated cash proceeds of
$1,600,000. The proceeds were utilized as follows:
Pay off mortgage $ 560,000
Pay down term debt 275,000
Reduce payables and other liabilities 450,000
Reserve for building improvements 260,000
Payment of fees and security deposits 55,000
After the closing, the Company will have paid down its term debt to $1,876,000
as of June 24, 1998. The Company's financial institution has agreed to modify
the term loan payment. The principal part of the payment will change from
$62,500 per month to an estimated $41,200.
Additionally, the Company's borrowings decreased by $703,915 over 1997 and cash
balances decreased $202,562 during fiscal 1998.
New Accounting Standards:
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share,
which is effective for financial statements for both interim and annual periods
ending after December 15, 1997. The statement requires the disclosure of basic
and diluted earnings per share on the face of the income statement. All prior
year earnings per share have been restated in accordance with the provisions of
SFAS No. 128. The new calculations of basic and diluted earnings per share do
not differ materially from the earnings per share the Company has historically
disclosed. For additional information, see Note 1 to the financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which will become effective for the Company beginning April 1, 1998. SFAS No.
130 requires the disclosure of comprehensive income and its components in the
general purpose financial statements. The provisions of SFAS No. 130 are not
expected to have a material effect on the results of operations or financial
position of the Company.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which will be effective for the Company
beginning April 1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company has concluded the
current reportable segments are consistent with the "management approach"
methodology outlined in SFAS No. 131.
Year-2000 Compliance:
Computer programs which were written using two digits (rather than four) to
define the applicable year may recognize a date using "00" as the year 1900
rather than the year 2000, a result commonly referred to as the "Year 2000"
problem. This could result in a system failure or miscalculations. The Company
is currently in the process of replacing its Legacy System with a new system
that is year-2000 compliant.
Based on its evaluation to date, management currently believes that costs to
address the Year 2000 problem will not have a material impact on the operations,
cash flows or financial condition of the Company and its subsidiaries, taken as
a whole, in future periods.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW
Year Ended March 31
---------------------------------------
1998 1997 1996
HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net sales $11,192,233 $11,852,758 $12,509,041
Net loss (1,354,249) (1,455,823) (2,415,977)
Basic and dilutive loss per share (1.00) (1.07) (1.73)
Stockholders' equity 1,206,716 2,560,965 4,016,788
Stockholders' equity per share .89 1.89 2.96
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter Ended
June 30 September 30 December 31 March 31
QUARTERLY OPERATING RESULTS
Year Ended March 31, 1998:
Net sales $ 2,886,840 $ 3,212,531 $ 3,022,712 $ 2,070,150
Gross profit 104,794 269,339 405,997 45,637
Net loss (475,829) (384,046) (156,184) (338,190)
Basic and dilutive loss per share (0.35) (0.28) (0.12) (0.25)
Year Ended March 31, 1997:
Net sales $ 2,580,515 $ 3,469,747 $ 3,040,479 $ 2,762,017
Gross profit (loss) 122,067 759,605 (255,820) (291,771)
Net (loss) earnings (410,745) 188,536 (152,250) (1,081,364)
Basic and dilutive (loss) earnings per share (0.30) 0.14 (0.11) (0.80)
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31
1998 1997
---------------------- --------------------
High Low High Low
MARKET PRICES
<S> <C> <C> <C> <C>
Quarter Ended:
June 30 $ 4.00 $ 2.13 $ 2.88 $ 1.38
September 30 4.00 2.38 2.25 1.38
December 31 3.25 1.13 4.50 2.00
March 31 1.50 1.00 3.50 2.50
</TABLE>
The Company's common stock is currently traded on the over-the-counter market
and is quoted on the National Association of Securities Dealers, Inc. OTC
Bulletin Board under the symbol NWTL. Current published quotations for the
Company's Common Stock reflect the inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Prior to April 3, 1998, the Company's stock was traded on the Nasdaq National
Market. The table above sets forth the high and low closing sales prices as
reported by Nasdaq during the last two fiscal years.
The Company has not paid dividends since fiscal 1991.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Net sales $ 11,192,233 $ 11,852,758 $ 12,509,041 $ 13,203,986 $ 13,773,311
Costs and expenses:
Costs of products and services
sold 10,366,466 11,518,677 10,733,791 9,888,482 9,882,291
Selling, general, and
administrative 2,133,749 1,855,691 2,707,709 2,542,140 2,533,800
Goodwill impairment charge 1,060,330
Cost of litigation and settlement 100,000 281,852
Severance and other charges 38,000 161,834 443,000
Interest 560,276 489,953 487,770 379,736 339,647
------------- -------------- ------------- ------------- --------------
13,098,491 14,026,155 15,532,600 13,092,210 12,755,738
------------- -------------- ------------- ------------- --------------
(1,906,258) (2,173,397) (3,023,559) 111,776 1,017,573
Gain on sale of assets 416,235
Other income 13,774 10,574 58,582 44,567 53,935
------------- -------------- ------------- ------------- --------------
(Loss) earnings before taxes (1,476,249) (2,162,823) (2,964,977) 156,343 1,071,508
Income (tax benefit)/taxes (122,000) (707,000) (549,000) 105,000 418,000
------------- -------------- ------------- ------------- --------------
Net (loss) earnings $ (1,354,249) $ (1,455,823) $ (2,415,977) $ 51,343 $ 653,508
============= ============== ============= ============= ==============
BASIC NET (LOSS) EARNINGS
PER SHARE $ (1.00) $ (1.07) $ (1.73) $ .03 $ .40
DILUTED NET (LOSS)
EARNINGS PER SHARE (1.00) (1.07) (1.73) .03 .40
NET EARNINGS (LOSS) % TO
BEGINNING EQUITY 52.9% (36.2)% (35.4)% .8% 10.2%
BALANCE SHEET DATA
Total assets $ 7,407,750 $ 9,834,218 $ 11,065,349 $ 13,512,782 $ 13,534,230
Property, plant, and equipment, net 3,309,840 5,901,116 7,457,534 8,390,182 7,946,275
Stockholders' equity 1,206,716 2,560,965 4,016,788 6,832,712 6,831,893
Shares outstanding 1,356,425 1,356,425 1,356,425 1,554,525 1,574,525
Equity per share .89 1.89 2.96 4.35 4.34
Term obligations:
Current portion 1,679,282 851,610 3,844,659 1,806,914 1,629,441
Long-term portion 2,188,747 2,479,466 107,751 2,202,436 2,659,350
------------- -------------- ------------- ------------- --------------
Total term obligations 3,868,029 3,331,076 3,952,410 4,009,350 4,288,791
Term obligations % to equity 321% 130% 98% 59% 63%
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Northwest Teleproductions, Inc. and
Subsidiaries
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Northwest
Teleproductions, Inc. and subsidiaries (the Company) as of March 31, 1998 and
1997 and the related consolidated statements of operations, cash flows, and
stockholders' equity for each of the three years in the period ended March 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
March 31, 1998 and 1997 and the consolidated results of operations and cash
flows for each of the three years in the period ended March 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche, LLP
Minneapolis, Minnesota
June 10, 1998, except for the sale/leaseback disclosures in Notes 1, 2, 7, and
8, as to which the date is June 24, 1998
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 330,055 $ 532,617
Restricted cash 1,825 435,662
Trade accounts receivable, less doubtful accounts of $137,842 and
$120,622, respectively (Notes 1 and 2) 1,850,187 1,957,833
Inventory (Note 1) 155,892 196,238
Refundable income taxes (Note 3) 16,886 367,000
Deferred income taxes (Note 3) 64,000
Other assets 49,783 75,512
Land and building held for sale (Notes 1 and 8) 1,158,063
---------- ----------
Total current assets 3,562,691 3,628,862
PROPERTY, PLANT, AND EQUIPMENT (Note 1):
Land 72,500 447,500
Buildings and improvements 831,431 2,855,561
Leasehold improvements 359,641 359,641
Machinery and equipment 19,299,785 21,965,186
---------- ----------
20,563,357 25,627,888
Less accumulated depreciation 17,253,517 19,726,772
---------- ----------
3,309,840 5,901,116
Other assets 535,219 304,240
---------- ----------
$7,407,750 $9,834,218
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 423,284 $1,127,199
Accounts payable 826,860 1,072,820
Commissions, salaries, and withholding 359,086 510,488
Miscellaneous accounts payable and accrued expenses 296,633 179,793
Customer deposits 405,083 652,963
Other liabilities 22,059 334,914
Payments due within one year on long-term debt
and capital leases (Notes 2 and 4) 1,679,282 851,610
---------- ----------
Total current liabilities 4,012,287 4,729,787
DEFERRED INCOME TAXES (Note 3) 64,000
LONG-TERM DEBT AND CAPITAL LEASES, less payments
due within one year (Notes 2 and 4) 2,188,747 2,479,466
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (Notes 2 and 5):
Preferred stock, 2,500,000 shares authorized, none issued
Common stock, par value $.01 per share; authorized 10,000,000
shares, 1,356,425 issued and outstanding 13,564 13,564
Additional paid-in capital 577,123 577,123
Retained earnings 616,029 1,970,278
---------- ----------
1,206,716 2,560,965
---------- ----------
$7,407,750 $9,834,218
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NET SALES $ 11,192,233 $ 11,852,758 $ 12,509,041
COSTS AND EXPENSES:
Costs of products and services sold 10,366,466 11,518,677 10,733,791
Selling, general, and administrative (Note 4) 2,133,749 1,855,691 2,707,709
Goodwill impairment charge (Note 1) 1,060,330
Cost of litigation and settlement 100,000
Severance and other charges (Note 4) 38,000 161,834 443,000
Interest 560,276 489,953 487,770
--------------- ------------- --------------
13,098,491 14,026,155 15,532,600
--------------- ------------- --------------
(1,906,258) (2,173,397) (3,023,559)
GAIN ON SALE OF ASSETS 416,235
OTHER INCOME 13,774 10,574 58,582
--------------- ------------- --------------
LOSS BEFORE INCOME TAX BENEFIT (1,476,249) (2,162,823) (2,964,977)
INCOME TAX BENEFIT (122,000) (707,000) (549,000)
---------------- -------------- --------------
NET LOSS $ (1,354,249) $ (1,455,823) $ (2,415,977)
================ =============== ==============
BASIC AND DILUTIVE LOSS PER SHARE (Note 1) $ (1.00) $ (1.07) $ (1.73)
================ =============== ==============
WEIGHTED AVERAGE NUMBER OF BASIC AND
DILUTED COMMON SHARES OUTSTANDING 1,356,425 1,356,425 1,394,155
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Number of Additional
Shares Paid-in Retained
Issued Amount Capital Earnings
<S> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1995 1,554,525 $ 15,545 $ 680,596 $ 6,136,571
Stock repurchased (198,100) (1,981) (103,473) (294,493)
Net loss (2,415,977)
-------------- --------- ----------- --------------
BALANCES AT MARCH 31, 1996 1,356,425 13,564 577,123 3,426,101
Net loss (1,455,823
-------------- --------- ----------- --------------
BALANCES AT MARCH 31, 1997 1,356,425 13,564 577,123 1,970,278
Net loss (1,354,249
-------------- --------- ----------- --------------
BALANCES AT MARCH 31, 1998 1,356,425 $ 13,564 $ 577,123 $ 616,029
============== ========= =========== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,354,249) $ (1,455,823) $ (2,415,977)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,595,523 1,948,249 2,141,221
Gain on sale of assets (416,235)
Goodwill impairment charge 1,060,330
Proprietary programming impairment charge 187,911
Severance and other charges 38,000 161,834 443,000
Amortization of goodwill, organizational costs, capitalized
refinanced costs, and noncompetition agreements 108,096 55,895
Deferred rent 37,554 (188,738) (226,044)
Decrease in deferred income taxes (340,000) (398,000)
Changes in assets and liabilities:
Decrease (increase) in restricted cash 433,837 (435,662)
Decrease in trade accounts receivable 107,646 197,532 508,221
Decrease (increase) in inventory 40,346 17,867 (1,219)
Decrease (increase) in refundable income taxes 350,114 (38,518)
Decrease in other assets 22,033 119,786 70,102
(Decrease) increase in accounts payable and other liabilities (631,377) 426,030 9,434
(Decrease) increase in customer deposits (247,880) 652,963
--------------- -------------
Net cash provided by operating activities 83,408 1,253,431 1,246,963
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment additions (561,702) (391,831) (1,208,573)
Proceeds on sale of assets 815,627
Investment in proprietary programming (187,911)
Payments received on note receivable 175,964 124,342
--------------- ------------- --------------
Net cash provided by (used in) investing activities 253,925 (215,867) (1,272,142)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in line of credit (703,915) 97,199 230,000
Long-term borrowing 4,816,350 681,445 1,890,000
Payments on long-term borrowing (4,279,397) (1,302,779) (1,946,944)
Stock repurchases (399,947)
Financing lost (372,933)
--------------- -------------- --------------
Net cash used in financing activities (539,895) (524,135) (226,891)
--------------- -------------- --------------
(DECREASE) INCREASE IN CASH (202,562) 513,429 (252,070)
CASH AT BEGINNING OF YEAR 532,617 19,188 271,258
--------------- ------------- --------------
CASH AT END OF YEAR $ 330,055 $ 532,617 $ 19,188
=============== ============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION Cash payments made for:
Income taxes (received) paid $ (469,000) $ (328,482) $ 85,000
=============== ============= ==============
Interest $ 508,000 $ 451,000 $ 480,000
=============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1997, AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Northwest Teleproductions, Inc. and subsidiaries
(the Company) is a full-service videotape and film production company
providing a full range of creative, production, and postproduction service
to clientele throughout the United States.
Basis of Presentation - The Company's financial statements for the year
ended March 31, 1998 reflect a net loss of $1,354,249 and a decrease in
stockholders' equity from $2,560,965 at March 31, 1997 to $1,206,716 at
March 31, 1998.
The results of operations for fiscal 1998 included the following one-time
charges:
o Accrued rent expense of $74,500 associated with the closing of the
Company's downtown Minneapolis facility
o Additions of $92,500 to the bad debt reserve in Chicago
o Severance pay of $38,000
Continuing with a process started in February 1997, management of the
Company has acted on a cost-cutting program that included the following
actions:
o Continued reduction of payroll related expenses. At March 31, 1998
the Company's head count was 72, compared to March 31, 1997 of 105.
o The Company has terminated a portion of its lease arrangement at its
142 East Ontario facility in Chicago. This space was used mainly for
administrative purposes. This termination is effective May 1, 1998.
Expected savings for fiscal 1998 is $121,000.
o Reduction in interest expense of $161,000 related to the reduction
in its term debt following the sale of assets (Note 8).
Cash savings from expenditures accrued in prior years and paid during
fiscal year end 1998 include the following items which will not reoccur in
fiscal year end 1999:
Severance pay to the Company's previous CEO,
whose term expired on April 1, 1996 $ 172,500
Severance related paid to other employees 118,000
A reduction in the monthly principal payments on the Company's term debt
obligations from $62,500 to $41,200 will provide an estimated $191,700 of
cash benefit (Note 8).
The Company has firm production orders for $7,600,000 for fiscal year end
1999.
On April 24, 1997, the Company and NationsCredit entered into a credit
agreement which consists of a $8,500,000 revolving credit facility with a
three-year term expiring in April 2000. Of the $8,500,000 in availability,
$3,750,000 is structured as a term loan, amortized over five years, due in
monthly installments of $62,500, ($41,200, as amended), plus interest over
a three-year period with the balance due April 2000.
<PAGE>
In June 1998 the Company sold its Edina, Minnesota buildings in a sale and
leaseback transaction. This transaction generated cash proceeds of
$1,600,000. The proceeds were utilized as follows:
Pay off mortgage $ 560,000
Pay down term debt 275,000
Reduce payables and other liabilities 450,000
Reserve for building improvements 260,000
Payment of fees and security deposits 55,000
After the closing, the Company will have paid down its term debt to
$1,876,000 as of June 24, 1998. The Company's financial institution has
agreed to modify the term loan payment. The principal part of the payment
will change from $62,500 per month to an estimated $41,200.
In the opinion of management, the aforementioned actions will enable the
Company to fulfill its obligations in the normal course through fiscal
1999.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, after
elimination of intercompany balances and transactions.
Inventory - Inventory consists of videotapes, tape reels, tape cassettes,
electronic components, and other supplies used in recording of film,
videotape production, and equipment maintenance and is stated at the lower
of cost (first-in, first-out) or market.
Depreciation - Depreciation on buildings, improvements, machinery, and
equipment is computed using the straight-line basis over their estimated
useful lives. Assets under capital leases and leasehold improvements are
amortized on a straight-line basis over their estimated useful lives.
Buildings and improvements 15 - 30 years
Leasehold improvements 2 - 15 years
Machinery and equipment 5 - 10 years
The Company is depreciating machinery and equipment using accelerated
methods for income tax purposes.
Goodwill - Goodwill was being amortized over a 25-year life using the
straight-line method. At March 31, 1996, the Company recognized a goodwill
impairment charge of $1,060,330. The amount of the impairment charge was
based on estimates of future cash flows from the Company's Chicago
subsidiary compared to the carrying value of the goodwill. This analysis
has resulted in full impairment of previously recorded goodwill.
<PAGE>
Earnings/(Loss) Per Common Share - In fiscal 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share. SFAS No. 128 requires the disclosure of basic and diluted earnings
per share (EPS). Basic EPS is calculated using income available to common
shareowners divided by the weighted average of common shares outstanding
during the year. Diluted EPS is similar to Basic EPS except that the
weighted average of common shares outstanding is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares, such as options, had been issued. The
treasury stock method is used to calculate dilutive shares which reduces
the gross number of dilutive shares by the number of shares purchasable
from the proceeds of the options assumed to be exercised. All prior year
earnings per share have been restated in accordance with the provisions of
SFAS No. 128. Adoption of SFAS No. 128 did not have a material effect on
the Company's historically disclosed earnings per share. The dilutive
effect of the 225,000 warrants and stock options were not included in the
1996, 1997, and 1998 computation of dilutive earnings/loss per share
because to do so would have been antidilutive for the periods presented.
Revenue Recognition and Trade Accounts Receivable - Beginning in 1986, the
Company commenced performance on major government contracts which are
performed over extended periods of time and are based on fixed prices.
Sales and profits on these contracts are recorded under the
percentage-of-completion method of accounting. During the years ended March
31, 1998, 1997, and 1996, sales under these contracts accounted for 18%,
20%, and 22%, respectively, of total sales. Included in accounts receivable
at March 31, 1998, 1997, and 1996 are $273,000, $482,000, and $659,000 of
billings under government contracts and $292,000, $119,000, and $197,000,
respectively, of unbilled sales from government contracts.
Proprietary Programming and Infomercials - During fiscal 1996, the Company
began producing proprietary programming for future sale to the broadcast
industry and began producing infomercials during fiscal 1997. During fiscal
1997, the Company recognized an impairment charge of $361,000. The amount
of the impairment charge was based on estimates of future cash flows
attributed to the Company's proprietary programming and infomercials
compared to the carrying value of these assets. This analysis resulted in
full impairment of both proprietary programming and infomercials.
Restricted Cash - Restricted cash consists of customer payments received on
contracts to be utilized for preproduction costs.
Estimated Fair Value - The estimated fair value of cash, trade accounts
receivable, accounts payable, notes payable, and long-term debt
approximates their carrying value due to the relatively short-term nature
of the instruments and/or due to the short-term floating interest rates on
the borrowing and/or due to interest rates approximating rates currently
available to the Company. The estimated fair value of notes receivable
approximates the net carrying value, as management believes the respective
interest rates are commensurate with the credit, interest rates, and
prepayment risks involved.
Management Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those amounts.
<PAGE>
Stock-Based Compensation - Effective April 1, 1996, the Company adopted
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123
requires expanded disclosures of stock-based compensation arrangements with
employees and encourages, but does not require, compensation cost to be
measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply Accounting
Principles Board (APB) Opinion No. 25, which recognizes compensation cost
for employee awards based on the intrinsic value of the equity instrument
awarded. The Company continues to apply APB Opinion No. 25 with regard to
measurement of compensation cost.
2. FINANCING
At March 31, 1998, the Company had a line of credit with a bank which is
secured by the Company's accounts receivable. Maximum borrowings under the
credit agreement were determined by an accounts receivable borrowing base
calculation or $4,000,000, whichever was less. Outstanding amounts bear
interest at prime plus 2.25% (10.75% at March 31, 1998). At March 31, 1998
there was a balance outstanding of $423,284 on the line of credit and the
borrowing limit was $524,000.
<TABLE>
<CAPTION>
March 31
---------------------------
1998 1997
<S> <C> <C>
Term note payable in monthly installments of principal plus interest at
prime plus 2.25% (10.75% at
March 31, 1998) (see below) $ 2,248,239 $ 2,565,000
First mortgage note payable in monthly installments of
$11,667 including interest at prime plus 2.25% (10.75% at
March 31, 1998) through June 2003 594,997 107,611
Subordinated notes convertible to common shares,
one-third payable annually beginning July 31, 1998.
Interest payable annually beginning July 31, 1997 at 10.5% 562,500 562,500
Capital lease obligations (Note 4) 462,293 95,965
------------- --------------
3,868,029 3,331,076
Less payments due within one year 1,679,282 851,610
------------- --------------
$ 2,188,747 $ 2,479,466
============= ==============
</TABLE>
The subordinated notes issued are detached and convertible to 225,000
shares of common stock at $2.50 per share.
On April 24, 1997, the Company and NationsCredit entered into a credit
agreement which consists of a $8,500,000 revolving credit facility with a
three-year term expiring in April 2000 which includes a $3,750,000 term
note that is to be repaid in 36 monthly installments, based on a five-year
amortization, with the balance due April 2000. Interest on loans
outstanding under the credit agreement is based on prime plus 2.25% (10.75%
at March 31, 1998). The agreement includes certain nonfinancial covenants.
Proceeds from the new credit agreement were used to pay off the line of
credit and the term note payable outstanding at March 31, 1997.
On June 27, 1997, the Company obtained mortgage financings on its two
facilities in Edina, Minnesota. The Company borrowed $700,000 using the
facilities as collateral. The mortgage financing has an interest rate of
prime plus 2.25% and is amortized over 60 months with a three-year term
resulting in a monthly principal payment of $11,667.
The payments due within one year include $560,000 of the First mortgage
note payable and $275,000 of the Term note payable. These amounts will be
paid within the next year as a result of the sale-leaseback transaction and
are therefore classified as current. See Note 8 for additional details.
<PAGE>
Aggregate maturities of long-term debt calculated under the terms of the
new credit agreement and amounts paid in connection with the sale-leaseback
disclosed in Note 8, exclusive of capital lease obligations, for the years
ending March 31 are as follows:
1999 $ 1,532,497
2000 937,500
2001 935,739
--------------
$ 3,405,736
==============
3. INCOME TAXES
The provision (benefit) for income taxes for the years ended March 31
consists of:
1998 1997 1996
Currently refundable:
Federal $ (100,000) $ (341,000) $ (140,000)
State (22,000) (26,000) (11,000)
------------ ------------ ------------
(122,000) (367,000) (151,000)
Deferred (340,000) (398,000)
------------ ------------ ------------
$ (122,000) $ (707,000) $ (549,000)
============ ============ ============
Reconciliations between the income tax provisions computed at the federal
statutory rate and the income tax provisions recorded are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income tax benefit at statutory rates (35%) $ (516,000) $ (755,000) $ (1,038,000)
State income tax less applicable federal
benefit (33,000) (101,000) (80,000)
Valuation allowance 957,000 97,000
Nondeductible expenses 4,000 20,000 494,000
Contract termination loss (478,000)
Franchise tax refunds (50,000)
Other (6,000) 32,000 75,000
------------ ------------ --------------
$ (122,000) $ (707,000) $ (549,000)
============ ============ ==============
</TABLE>
During the year ended March 31, 1998, the Company increased the valuation
allowance by $957,000 for a total valuation allowance of $1,054,000 on the
deferred tax assets, reducing the total to an amount that management
believes will ultimately be realized.
<PAGE>
Temporary differences that give rise to the net deferred tax assets and
liabilities at March 31 are as follows:
1998 1997
Net current deferred tax assets:
Severance and other $ 10,000 $ 72,000
Allowance for doubtful accounts 65,000 52,000
Vacation accrual 65,000 67,000
Real estate tax accrual (6,000) (21,000)
Profit on unbilled government contracts (22,000) (6,000)
Prepaid items (3,000)
------------ ------------
112,000 161,000
Less valuation allowance 112,000 97,000
------------ ------------
$ - $ 64,000
============ ============
Net noncurrent deferred tax assets:
Depreciation $ (538,000) $ (728,000)
Severance and other 13,000 12,000
Alternative minimum tax credit
and NOL carryforwards 1,467,000 652,000
------------ ------------
942,000 (64,000)
Less valuation allowance 942,000
------------ ------------
$ - $ (64,000)
============ ============
4. COMMITMENTS
Capital Leases - Included in machinery and equipment at March 31, 1998 and
1997 is $634,283 and $118,945 of equipment under capital lease. The
accumulated amortization at March 31, 1998 and 1997 for these assets is
$171,773 and $23,789, respectively.
Amortization of capital leases for the years ended March 31, 1998, 1997,
and 1996 included in the consolidated statements of operations was
$147,984, $28,789, and $243,048, respectively.
Minimum future payments, exclusive of the lease under the sale-leaseback,
for capital leases in effect at March 31, 1998 are as follows:
1999 $ 205,032
2000 171,366
2001 88,656
2002 79,531
2003 49,149
-----------
593,734
Less portion representing interest 131,441
-----------
$ 462,293
===========
Operating Leases - The Company leases facilities in Minneapolis and Chicago
under operating leases.
<PAGE>
The Downtown Minneapolis facility is leased under the terms of a ten-year
lease which commenced in October 1991 and provides for monthly rental of
$4,133. During fiscal year 1998, the Company elected to vacate the facility
and accrued $74,500 in costs associated with the remaining lease term less
estimated sublease rental.
The Chicago facility has one operating lease:
o Under the terms of a noncancelable lease commencing September 1993 and
expiring in April 2002, monthly rental of $15,010 is required during
the initial 44 months of the lease decreasing to $3,129 per month for
the balance of the lease. The Company has recorded rent expense on a
straight-line basis recognizing deferred rent for the difference
between cash payments and recorded expense. The lease has a five-year
renewal option. In April 1998, the Company amended this lease for 50%
of the square footage which decreased the payments to $1,565.
o Under the terms of a lease dated February 24, 1997 and running through
December 1997, minimum monthly rental of $11,500 is required. However,
either party may terminate this lease by giving the other party
written notice 45 days prior to termination. The Company gave such
notice and this lease terminated July 18, 1997.
All leases provide for additional rental based on shared operating
expenses.
Minimum future payments for operating leases including the lease payments
associated with the sale and lease back of the Company's Edina, Minnesota
facility (Note 8) at March 31, 1998 are as follows:
Net
Deferred Operating
Cash Rent Lease
Rents Expense Expense
Year Ending March 31:
1999 $ 219,719 $ 60,180 $ 279,899
2000 223,139 60,180 283,319
2001 228,248 60,180 288,428
2002 18,780 60,180 78,960
2003 3,129 5,015 8,144
----------- ----------- -----------
$ 693,015 $ 245,735 $ 938,750
=========== =========== ===========
The Company also rents various types of production equipment. Total rental
expenses for facilities and equipment were $217,000, $390,000, and $393,000
for the years ended March 31, 1998, 1997, and 1996, respectively.
Employment Agreement and Severance Charges - The Company had an employment
agreement with its former President through May 1998. The agreement
provided for annual base salary plus increases as determined by the Board
of Directors. The agreement also contained noncompete provisions which
required the continued payment, under certain circumstances, of the annual
base salary. The former President resigned effective April 1, 1996. As part
of a severance agreement, he will be compensated as per the agreement
receiving his annual base salary of $172,000 through May 8, 1998. The
present value of these future payments, $323,000, has been expensed as
severance charges in fiscal 1996.
<PAGE>
In addition to the $323,000 severance agreement, the Company recorded
additional expense applicable to actual and estimated consulting services,
legal services, and other severance compensation of $38,000 and $161,834
for the years ended March 31, 1998 and 1997, respectively.
Legal Proceedings - The Company was a defendant in an action relating to
the sale of the business and certain assets of its Kansas City subsidiary.
This action was settled on November 20, 1995. The Company, without
admitting liability, paid the plaintiffs $10,000 in settlement of the
litigation.
5. COMMON STOCK AND STOCK OPTIONS
In June 1993, the Company adopted an Incentive Stock Option Plan providing
for the issuance of 80,000 shares of the Company's common stock at not less
than fair market value at the date of grant. During fiscal 1997, the number
of shares the Board is authorized to issue was increased to 200,000.
In 1997, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation. As permitted by SFAS No. 123, the Company has elected to
continue following the guidance of APB 25 for measurement and recognition
of stock-based transactions with employees (see Note 1). No compensation
cost has been recognized for the awards made in the form of stock options.
If compensation cost had been determined based on the fair value at the
dates for awards under those plans, consistent with the method provided in
SFAS No. 123, the Company's net loss and loss per share would have been
reduced to the pro forma amounts indicated:
1998 1997
Net (loss):
As reported $ (1,354,249) $ (1,455,823)
Pro forma (1,368,537) (1,476,548)
(Loss) per share:
As reported (1.00) (1.07)
Pro forma (1.01) (1.09)
Stock Options - All stock option grants are reviewed and approved by the
Compensation Committee of the Board of Directors or by the Board of
Directors. Stock options are granted by the Board of Directors or
Compensation Committee at the fair market value of the Company's common
stock on the date of the grant. The Board determines when the options will
be exercisable. Options to purchase 6,000 shares at a price of $3.00 per
share were granted during fiscal 1996 and became exercisable on the date of
grant. During fiscal year 1997, options to purchase 65,000 shares at $2 per
share were granted (vesting ratably over three years beginning November 4,
1997), options to purchase 4,000 shares at $2 per share were granted which
become exercisable November 4, 1997, and options to purchase 10,000 shares
at $2 per share were granted which became exercisable April 1, 1997. During
fiscal year 1998, options to purchase 90,000 shares at $1.25 were granted
(vesting ratably over three years beginning February 5, 1998) and options
to purchase 4,000 shares at $1.25 per share were granted on February 5,
1998 and became exercisable on the date of grant.
<PAGE>
A summary of the status of the stock options as of March 31, 1998 and 1997
and changes during the years ended on those dates are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Weighted
Average
Exercise
Stock Options Shares Price
Year ended March 31, 1996 - granted and outstanding 6,000 $ 3.00
Year ended March 31, 1997 - granted 79,000 2.00
---------
Options outstanding at March 31, 1997 85,000 2.07
=========
Options exercisable at March 31, 1997 6,000 3.00
=========
Year ended March 31, 1997 - granted and outstanding 85,000 2.07
Year ended March 31, 1998 - granted 94,000 1.25
Year ended March 31, 1998 - forfeited (50,000) 2.00
---------
Options outstanding at March 31, 1998 129,000 1.50
=========
Options exercisable at March 31, 1998 29,000 2.10
=========
</TABLE>
The weighted average fair value of each option grant during the years ended
March 31, 1998 and 1997 is estimated as $.90 and $1.14, respectively, on
the date of grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions are used in the Black-Scholes model
for grants in 1998 and 1997, respectively; dividend yield of 0% for both
years, expected volatility of 79.7% and 52.0%, risk-free interest rates of
10.75% for both years, and expected lives of three to five years.
The following tables summarize information about stock options outstanding
at March 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Shares Shares
Outstanding Weighted Exercisable Weighted
at Remaining Average at Average
March 31, Contractual Exercise March 31, Exercise
Exercise Price 1998 Life Price 1998 Price
<S> <C> <C> <C> <C> <C> <C>
$1.25 94,000 4.4 $1.25 4,000 $1.25
2.00 29,000 .5 2.00 19,000 2.00
3.00 6,000 4.8 3.00 6,000 3.00
</TABLE>
<PAGE>
6. EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan as set forth under Section
401(k) of the Internal Revenue Code covering substantially all of its
employees. Under this plan, the Company contributes to the plan an amount
equal to 50% of an employee's contribution up to a maximum Company
contribution of 2.50% of an employee's covered compensation. The cost of
these contributions was approximately $78,000, $84,000, and $83,000 for the
years ended March 31, 1998, 1997, and 1996, respectively.
7. RELATED PARTY TRANSACTIONS
On October 1, 1997, the Company executed two promissory notes totaling
$412,000 with a member of the Board of Directors, as an advance against two
income tax refunds receivable (Minnesota and Illinois). The notes were
paid, with interest, per the terms of the notes, when the refunds were
received.
On June 24, 1998, the Company entered into a sale-leaseback transaction of
two buildings with Lindue, LLC, a Minnesota limited liability corporation
owned by a member of the Company's Board of Directors. Proceeds from the
sale-leaseback were $1.6 million, of which $112,000 in accrued interest and
a $20,000 security deposit were held in escrow by the landlord. (See Note 8
for additional details.)
8. SUBSEQUENT EVENT
On June 24, 1998, the Company closed a three-year sale-leaseback
transaction involving the two parcels of land and buildings located at 4000
West 76th Street and 4455 West 77th Street. After a three-year period, the
Company has the option of renewing the lease for an additional five years.
The monthly rental expense for the first three years will be as follows:
$16,615 in year 1, $17,030 in year 2 and $17,456 in year 3.
The land and buildings were sold for $1.6 million in cash. The proceeds
from sale were used as follows:
Pay off mortgage $ 560,000
Pay down term debt 275,000
Reserve for building improvements 260,000
Reduce payable and other liabilities 450,000
Payment of fees and security deposits 55,000
--------------
Total $ 1,600,000
==============
The transaction will be accounted for as an operating lease, wherein the
property and related mortgage will no longer remain on the Company's books,
and of which no additional depreciation will be taken as described in Note
1.
Included in the above amounts paid from the proceeds of the transaction
were $112,000 in accrued interest and a $20,000 security deposit.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
Northwest Teleproductions, Inc. on Form S-8 (File No. 33-69036) of our report
dated June 10, 1998, except for the sale/leaseback disclosures in Notes 1, 2, 7,
and 8, as to which the date is June 24, 1998, appearing in this Annual Report on
Form 10-KSB of Northwest Teleproductions, Inc. and subsidiaries for the year
ended March 31, 1998.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR TEH FISCAL YEAR ENDED 3/31/98 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 073048
<NAME> Northwest Teleproductions, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 331,880
<SECURITIES> 0
<RECEIVABLES> 1,988,029
<ALLOWANCES> 137,842
<INVENTORY> 155,892
<CURRENT-ASSETS> 3,562,691
<PP&E> 20,563,357
<DEPRECIATION> 17,253,517
<TOTAL-ASSETS> 7,407,750
<CURRENT-LIABILITIES> 4,012,287
<BONDS> 2,188,747
0
0
<COMMON> 13,564
<OTHER-SE> 1,193,152
<TOTAL-LIABILITY-AND-EQUITY> 7,407,750
<SALES> 11,192,233
<TOTAL-REVENUES> 11,192,233
<CGS> 10,366,466
<TOTAL-COSTS> 10,366,466
<OTHER-EXPENSES> 2,171,749
<LOSS-PROVISION> 131,270
<INTEREST-EXPENSE> 560,276
<INCOME-PRETAX> (1,476,249)
<INCOME-TAX> (122,000)
<INCOME-CONTINUING> (1,354,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,354,249)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
</TABLE>
