_______________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended January 31, 1996
Commission File Number 0-944
POSSIS MEDICAL, INC.
2905 Northwest Boulevard
Minneapolis, Minnesota 55441-2644
(612) 550-1010
A Minnesota Corporation IRS Employer ID No. 41-0783184
_________________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
The number of shares outstanding of the Registrant's Common Stock, $.40 par
value, as of March 8, 1996 was 11,996,049.
________________________________
<PAGE>
POSSIS MEDICAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets, January 31, 1996
and July 31, 1995.......................................... 3
Consolidated Statements of Operations for three
months and six months ended January 31, 1996 and 1995...... 4
Consolidated Statements of Cash Flows for
six months ended January 31, 1996 and 1995 ................ 5
Notes to Consolidated Financial Statements................. 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8-9
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security-Holders........ 10
ITEM 6. Exhibits and Reports on Form 8-K........................... 11-13
SIGNATURES.......................................................... 14
<PAGE>
<TABLE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 31, 1996 July 31, 1995
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................... $18,949,437 $ 5,450,057
Marketable securities................................................... 11,022,840 1,270,654
Receivables:
Trade (less allowances for doubtful accounts:
$13,337 and $27,019, respectively)............................... 170,300 14,976
Notes ............................................................... -- 123,918
Other................................................................ 106,132 204,297
Inventories:
Parts................................................................ 802,098 489,418
Work-in-progress..................................................... 593,258 427,495
Finished goods....................................................... 261,850 94,101
Prepaid expenses and other assets....................................... 206,934 191,535
Total current assets......................................... 32,112,849 8,266,451
PROPERTY:
Leasehold improvements.................................................. 176,346 175,556
Machinery and equipment................................................. 2,403,446 2,287,755
Assets-in-construction.................................................. 282,982 300,377
Total property............................................... 2,862,774 2,763,688
Less accumulated depreciation........................................ (1,477,994) (1,303,021)
Property - net............................................... 1,384,780 1,460,667
OTHER ASSETS:
Goodwill................................................................ 449,922 485,922
Notes receivable........................................................ -- 108,153
TOTAL ASSETS................................................................. $33,947,551 $10,321,193
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................................. $ 334,370 $ 159,365
Accrued salaries, wages, and commissions................................ 553,934 693,402
Current portion of long-term debt....................................... 86,693 82,925
Other liabilities....................................................... 632,596 484,597
Total current liabilities................................... 1,607,593 1,420,289
DEFERRED REVENUE............................................................. 167,067 132,912
LONG-TERM DEBT............................................................... 48,646 92,955
OTHER LIABILITIES............................................................ 27,380 27,380
SHAREHOLDERS' EQUITY:
Common stock - authorized, 20,000,000 shares of $.40
par value each; issued and outstanding,
11,972,867 shares and 9,970,031 shares, respectively................. 4,789,467 3,988,013
Additional paid-in capital.............................................. 40,310,500 14,201,925
Unearned compensation .................................................. (30,421) (50,387)
Unrealized gain on investments.......................................... 66,622 --
Retained deficit........................................................ (13,039,303) (9,491,894)
Total shareholders' equity.................................. 32,096,865 8,647,657
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $33,947,551 $10,321,193
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For Three Months Ended For Six Months Ended
Jan. 31, 1996 Jan. 31, 1995 Jan. 31, 1996 Jan. 31, 1995
<S> <C> <C> <C> <C>
REVENUES:
Medical product sales................................. $ 222,768 $ 44,587 $ 423,663 $ 66,259
Service revenue....................................... 13,500 -- 13,500 --
Net heart valve patent payments....................... -- 800,496 -- 1,600,992
Royalty payments relating to pacemaker
` leads business................................... -- 129,879 -- 256,299
Sales agreement revenue............................... -- 250,000 -- 250,000
Total revenues................................... 236,268 1,224,962 437,163 2,173,550
COST OF SALES AND OTHER EXPENSES:
Cost of medical products.............................. 1,205,583 820,690 2,254,969 1,584,860
Selling, general and administrative................... 540,216 553,052 1,098,539 1,057,556
Research and development.............................. 646,636 818,316 1,524,388 1,556,475
Interest.............................................. 3,617 3,384 8,606 13,552
Total cost of sales and other expenses........... 2,396,052 2,195,442 4,886,502 4,212,443
Operating loss............................................. (2,159,784) (970,480) (4,449,339) (2,038,893)
Interest income....................................... 436,053 105,861 624,159 174,869
Loss from continuing operations............................ (1,723,731) (864,619) (3,825,180) (1,864,024)
Income from discontinued operations-net.................... 209,701 79,791 277,771 157,659
Net loss................................................... $(1,514,030) $(784,828) $(3,547,409) $(1,706,365)
Weighted average number of common
shares outstanding.................................... 11,948,984 9,896,400 11,200,973 9,510,841
Earnings (loss) per common share:
Continuing operations................................ $(.15) $(.09) $(.35) $(.20)
Discontinued operations ............................. .02 .01 .03 .02
Net loss................................................... $(.13) $(.08) $(.32) $(.18)
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For Six Months Ended
Jan 31, 1996 Jan 31, 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................................................... $(3,547,409) $(1,706,365)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................................................... 195,101 175,401
Amortization of goodwill................................................... 36,000 36,000
Loss on asset disposal .................................................... 808 5,631
Stock compensation........................................................ 61,616 37,078
(Increase) decrease in receivables......................................... (410,182) 129,059
Increase in inventories.................................................... (646,192) (28,730)
(Increase) decrease in other assets........................................ (19,744) 68,185
Increase in trade accounts payable......................................... 175,005 58,441
Increase (decrease) in accrued and other current liabilities............... 42,685 (240,513)
Net cash used in operating activities........................................... (4,112,312) (1,465,813)
INVESTING ACTIVITIES:
Proceeds from discontinued operations........................................... 589,441 312,179
Additions to plant and equipment................................................ (121,913) (318,945)
Proceeds from the disposal of assets............................................ 1,892 2,728
Purchase of marketable securities............................................... (10,960,564) (4,831,029)
Proceeds from sale/maturity of marketable securities............................ 1,275,000 2,734,365
Net cash used in investing activities........................................... (9,216,144) (2,100,702)
FINANCING ACTIVITIES:
Repayment of long-term debt..................................................... (40,541) (545,242)
Proceeds from notes payable..................................................... -- 115,673
Proceeds from issuance of stock and exercise of options......................... 26,868,377 7,286,754
Net cash provided by financing activities....................................... 26,827,836 6,857,185
INCREASE IN CASH AND CASH EQUIVALENTS........................................... 13,499,380 3,290,670
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD..................................................................... 5,450,057 1,769,348
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ............................................................ $18,949,437 $5,060,018
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid................................................................... $ 8,606 $ 13,552
Inventory transferred to fixed assets........................................... 19,983 --
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
POSSIS MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The accompanying consolidated financial statements and notes
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's 1995 Annual Report.
2. INTERIM FINANCIAL STATEMENTS
Operating results for the three and six month periods ended January 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending July 31, 1996.
3. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Pursuant to the new standard, companies are encouraged, but are
not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, but would be required to disclose in a
note to the financial statements pro forma net income and, if presented,
earnings per share as if the Company had applied the new method of accounting.
Disclosure provisions are required to be adopted when the recognition and
measurement provisions are adopted, but no later than fiscal years beginning
after December 15, 1995. The Company has not yet determined if it will elect to
change to the fair value method, nor has it determined the effect the new
standard will have on net income and earnings per share should it elect to make
such a change.
4. HEART VALVE PATENT REVENUE
The Company received its heart valve patent payments from St. Jude Medical,
Inc. at six- month intervals, approximately 60 days following June 30 and
December 31. Management estimated and recorded the revenue monthly and adjusted
the estimate to actual upon receipt of the payment. In the third quarter of
fiscal 1995, the Company recorded the final payment from St. Jude.
5. COST OF MEDICAL PRODUCTS
Cost of medical products includes manufacturing start-up expense which
consists of excess labor and material costs, higher than normal levels of scrap
product and unabsorbed manufacturing overhead expenses associated with the
installation and start-up of new manufacturing processes.
6. EARNINGS (LOSS) PER SHARE
The Company's outstanding stock options and stock warrants were not
included in the computation of earnings per share since the impact would have
been anti-dilutive because of the net loss.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three and Six Month Periods Ended January 31, 1996 and 1995
Total revenues for the three and six month periods ended January 31, 1996
were $989,000 and $1,736,000, respectively, below the same periods in the
previous fiscal year. These same periods in fiscal 1995 included $930,000 and
$1,857,000, respectively, in heart valve patent payments and pacemaker leads
business royalties, both of which ended in the third quarter of last year. The
increase in product sales of $178,000 and $357,000 in the three and six month
periods, respectively, are primarily due to sales of the AngioJet Thrombectomy
System to key European medical opinion leaders for clinical use. The Company's
primary revenue source in the future will be sales of its three current
products: the AngioJet Thrombectomy System, the Perma-Flow Coronary Bypass
Graft and the Perma-Seal Dialysis Access Graft. International product sales are
expected to increase as these very unique products gain physician acceptance and
as foreign markets are developed. A 510(k) request for U.S. marketing clearance
of the AngioJet System for peripheral use is expected to be submitted to the
United States Food and Drug Administration (FDA) in March. The Company believes
that the AngioJet System for peripheral use will be cleared by the FDA for
United States marketing during calendar 1996, which should result in added
product sales revenue. There can be no assurance that Possis Medical will obtain
FDA approvals on a timely basis or at all.
Cost of medical products increased 47% and 42% in the three and six month
periods, respectively, over the same periods in the previous year. An increase
in manufacturing startup expense explains approximately $275,000 and $450,000,
respectively, of the increase. See Notes to Consolidated Financial Statements,
Note 5 in this Quarterly Report. The remaining increase results from increased
sales. The Company does not anticipate a reduction in manufacturing startup
expense until product sales grow allowing the Company to produce in sufficient
quantities to achieve manufacturing efficiencies.
Selling, general and administrative expense decreased by $13,000 in the
three month period while increasing by $41,000 in the six month period compared
to the same year-ago periods. Selling and marketing expenses are expected to
increase over the next six months and beyond as international markets are
further developed and as a domestic sales organization is established in
anticipation of the receipt of clearance to market the AngioJet System for
peripheral use in the United States.
Research and development expense in the three and six month periods ending
January 31, 1996, decreased by 21% and 2%, respectively, over the previous year.
Expense for the current quarter declined $172,000 primarily due to completion of
the Company's development programs to self-manufacture Perma-Flow Graft material
and to develop a thin wall Perma-Seal Dialysis Access Graft. Research and
development expense is expected to increase in the future as the pace of
clinical trials enrollment grows and as the Company invests in the development
of new products that leverage its existing technology base.
Interest income has grown significantly in the most recent three and six
month periods because more money has been invested as a result of the Company's
October 1995 stock offering that raised a net $27 million.
Income from discontinued operations - net has increased $130,000 in the
most recent three months compared to the same year-ago period due to an
acceleration of the payment of the remaining money owed the Company from the
previous sale of its Technical Services Division.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and marketable securities totaled $29,972,000 on
January 31, 1996 versus $6,721,000 on July 31, 1995. The increase is
attributable to a public stock offering completed in October 1995. After
expenses, the company recorded net proceeds of approximately $23,643,000 from
the sale of 1,750,000 shares of common stock. In November, the underwriter
exercised an over-allotment option on 221,258 shares, providing an additional
$3,015,000 to the Company.
With the elimination of royalty revenues and the related cash inflows, the
Company's cash usage in the first six months of fiscal 1996 is significantly
greater than for the same period in fiscal 1995. Possis expects its cash usage
for the next several quarters will increase to $800,000 to $1,000,000 per month
and thereafter will decline as international product sales increase and as U.S.
FDA marketing approvals are obtained resulting in the commencement of U.S.
sales. The Company believes that its existing cash reserves will be adequate to
fund the development and commercialization of its three current products.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements
relating to future events and financial performance, including the submission of
applications to the FDA, expense levels and future capital requirements, are
forward-looking statements that involve risks and uncertainties, including the
Company's ability to meet its timetable for FDA submissions, the review time at
the FDA which is out of the Company's control, changes in the Company's
marketing strategies, changes in manufacturing methods, the levels of sales of
the Company's products that can be achieved, and other risks detailed from time
to time in the Company's various Securities and Exchange Commission filings.
<PAGE>
Part II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The 1995 Annual Meeting of Shareholders of Possis Medical, Inc. was
held on December 6, 1995.
(b) By the following vote, management's nominees were elected as Directors
of the Corporation for one year or until their successors are elected and
qualified:
WITHHOLD
FOR AUTHORITY
Dodald C. Wegmiller 10,469,604 76,186
Joe A. Walters 10,467,664 78,126
Dean Belbas 10,485,280 60,510
Seymour J. Mansfield 10,468,231 77,559
Demetre M. Nicoloff, MD 10,486,044 59,746
Robert G. Dutcher 10,484,852 60,938
Ann M. Possis 10,458,617 87,173
(c) By a vote of 10,475,657 in the affirmative, 41,097 in the negative and
29,036 abstaining, ratified the appointment of Deloitte & Touche LLP as the
Company's certified public accountants.
(d) By a vote of 8,481,112 in the affirmative, 1,689,255 in the negative,
143,347 abstaining and 232,076 being counted as broker non-votes, the proposed
amendment to the Company's 1992 Stock Compensation Plan was ratified. The
amendment increased the shares added to the Plan annually from 1% to 2% of the
total number of shares outstanding and increased the maximum number of shares
which may be issued as Incentive Stock Options from 350,000 to 1,000,000.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Certain of the following exhibits are incorporated by
reference from prior filings. The form with which each exhibit was filed and the
date of filing are indicated on the following pages.
Exhibit Form Date Filed Description
3.1 10-K Fiscal Year Ended Articles of Incorporation as
July 31, 1994 amended and restated to date
3.2 S-2 Amendment No.1 Bylaws as amended and restated
August 9, 1994 to date
4.1 10-K Fiscal Year Ended Norwest Equipment Finance, Inc.
July 31, 1994 loan agreement, dated January 12, 1994
10.1 S-1 June 30, 1988 Agreement with St. Jude Medical, Inc.,
dated August 2, 1983
10.2 8-K February 14, 1994 Asset purchase agreement with
TC/American Monorail, Inc.,
dated January 28, 1994
10.3 S-2 July 1, 1994 Real estate purchase agreement
with TC/American Monorail, Inc.,
dated January 28, 1994
10.4 10-Q Quarter ended Asset purchase agreement with
January 31, 1994 Innovex, Inc., dated March 11, 1994
10.5 S-2 July 1, 1994 Lease agreement for corporate head-
quarters and manufacturing facility,
dated January 4, 1991
10.6 S-2 Amendment No.1 License agreement with Imperial
August 9, 1994 Chemical Industries Plc., dated
April 15, 1991
10.7 S-2 Amendment No.1 License agreement with the
August 9, 1994 University of Liverpool, dated
May 10, 1990
10.8 S-1 June 30, 1988 Form of Indemnification Agreement
with officers and directors of
Registrant
*10.9 S-8 February 7, 1990 1983 Incentive Stock Option Plan as
amended to date
*10.10 S-1 June 30, 1988 1985 Nonqualified Stock Option
Plan as amended to date
*10.11 10-K Fiscal year ended Form of incentive stock option
July 31, 1989 agreement for officers
*10.12 10-K Fiscal year ended Form of stock option agreement for
July 31, 1989 directors
*10.13 S-8 December 30, 1992 1992 Stock Compensation Plan
*10.14 10-K Fiscal year ended Form of restricted stock agreement
July 31, 1993 for officers (1992 Plan)
*10.15 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for officers (1992 Plan)
*10.16 10-K Fiscal year ended Form of incentive stock option
July 31, 1993 agreement for officers (1992 Plan)
*10.17 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1992 directors' fees
(1992 Plan)
*10.18 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1990 directors' fees
*10.19 10-K Fiscal year ended Form of nonqualified stock option
July 31, 1993 agreement for 1989 directors' fees
10.20 10-Q Quarter ended Supply & Distribution Agreement
January 31, 1995 with Bard Vascular Systems
Division, C.R.Bard, Inc.
10.21 S-2 Amendment No. 1 Underwriting Agreement entered into
August 9, 1994 between the Company and John G. Kinnard
and Company, Incorporated including Form
of Warrant to Representative dated
September 8, 1994
10.22 S-3 Amendment No. 2 Underwriting Agreement entered
September 29, 1995 into between the
Company, Dain Bosworth Incorporated and
John G. Kinnard and Company, Incorporated
dated October 2, 1995
10.23 10-Q Lease agreement for Corporate
headquarters and manufacturing
facility dated December 15, 1995.
* Indicates management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Possis Medical, Inc. filed no reports on Form 8-K during the quarter ended
January 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POSSIS MEDICAL, INC.
DATE: March 13, 1996 BY: /S/ Robert G. Dutcher
ROBERT G. DUTCHER
President and Chief Executive Officer
DATE: March 13, 1996 BY: /s/ Russel E. Carlson
RUSSEL E. CARLSON
Vice President of Finance
Chief Financial and Accounting Officer
POSSIS MEDICAL, INC.
EXHIBIT INDEX
Exhibit
Number Description
10.23 Lease agreement for Corporate headquarters and manufacturing
facility dated December 15, 1995.
<PAGE>
12.14.95
LEASE
9055 BUILDING, L.L.P.
(Landlord)
POSSIS MEDICAL INC.
(Tenant)
9055 Evergreen Boulevard, Coon Rapids, Minn
(Location)
Execution Date:
December 15, 1995
<PAGE>
Table of Contents
ARTICLE I.
BASIC LEASE PROVISIONS AND EXHIBITS .......................... 1
1.1. Basic Lease Provisions. ............................. 1
1.2. Exhibits. ........................................... 1
ARTICLE II.
DEFINITIONS ............................................ 2
2.1. Definitions. ........................................ 2
ARTICLE III.
TERM ............................................. 4
3.1. Initial Term. ........................................ 4
3.2. Extension Option. ................................... 4
ARTICLE IV.
MONETARY OBLIGATIONS .......................................... 5
4.1. Monthly Net Rent. .................................... 5
4.2. Operating Costs. ..................................... 5
4.3. Tax Costs. .......................................... 5
ARTICLE V.
CONSTRUCTION ............................................. 6
5.1. Plans. ............................................. 6
5.2 Access. ............................................. 6
5.3 Construction. ........................................ 7
5.4. Tenant Improvement Allowance. ........................ 7
ARTICLE VI.
USE; QUIET ENJOYMENT .......................................... 8
6.1. Use. ............................................ 8
6.2. Title. ............................................. 8
6.3. Quiet Enjoyment. ..................................... 8
<PAGE>
ARTICLE VII.
OPERATIONAL MATTERS ............................................ 9
7.1. Maintenance by Landlord. .............................. 9
7.2. Maintenance of the Premises by Tenant. ................ 9
7.3. Compliance with Laws. ................................. 10
7.4. Environmental. ........................................ 10
7.5. Signs. .............................................. 11
7.6. Alterations. .......................................... 11
7.7. Utilities. ............................................ 12
7.8. Entry by Landlord. .................................... 12
7.9. Communication Equipment. ............................. 12
7.10 Interruption of Business. ............................. 12
7.11 Reserve Account. ...................................... 12
ARTICLE VIII.
TRANSACTIONS .............................................. 13
8.1. Assignment and Subletting. ............................ 13
8.2. Subordination and Nondisturbance. ..................... 13
8.3. Estoppel Certificates. ................................ 13
ARTICLE IX.
RISK SHIFTING .............................................. 14
9.1. Indemnification. ...................................... 14
9.2. Liability Insurance. ................................... 14
9.3. Landlord's Property Insurance. ......................... 14
9.4. Tenant's Property Insurance. ........................... 15
9.5. Waiver of Insurable Claim. ............................ 15
ARTICLE X.
CASUALTY ........................................................ 16
10.1. Damage or Destruction. ................................. 16
ARTICLE XI.
EMINENT DOMAIN ............................................... 16
11.1. Eminent Domain. ........................................ 16
<PAGE>
ARTICLE XII.
DEFAULTS ........................................................ 17
12.1. Tenant Defaults. ...................................... 17
12.2. Landlord Defaults. ..................................... 18
ARTICLE XIII
PURCHASE OPTION ............................................... 18
13.1. Purchase Option. ....................................... 18
13.2 Purchase Price. ........................................ 18
13.3 Exercise. .............................................. 19
13.4 Closing. ............................................... 19
13.5 Title. .............................................. 19
13.6 Closing Conditions. .................................... 20
13.7 Closing Documents. ..................................... 21
13.8 Costs and Prorations. .................................. 21
ARTICLE XIV.
ADDITIONAL PROVISIONS ........................................... 22
14.1 Termination Right. ..................................... 22
14.2 Additional Land. ....................................... 22
14.3 Expansion of Building. ................................. 24
ARTICLE XV.
MISCELLANEOUS ............................................... 26
15.1. Waiver of Lease Provisions. ............................ 26
15.2. Surrender. ............................................. 27
15.3. Holding Over. .......................................... 27
15.4. Notices. ............................................... 27
15.5. Governing Law. ......................................... 27
15.6. Entire Agreement. ...................................... 28
15.7. Successors and Assigns. ................................ 28
15.8. Consent Not Unreasonably Withheld. ..................... 28
15.9. Short Form Lease. ..................................... 28
15.10. Attorneys' Fees......................................... 28
15.11. Security Deposit. ...................................... 28
<PAGE>
Exhibit A: Legal Description
Exhibit B: Site Diagram of the Premises
Exhibit C: Termination Fee Schedule
Exhibit D: Arbitration Procedures
Exhibit E: Signs
Exhibit F: Excess Land
Exhibit G: Expansion Space
<PAGE>
LEASE
ARTICLE I.
BASIC LEASE PROVISIONS AND EXHIBITS
THIS LEASE is entered into as of the 15th day of Decembe, 1995, between
9055 BUILDING, L.L.P., a Minnesota limited liability partnership ("Landlord"),
and POSSIS MEDICAL INC., a Minnesota corporation ("Tenant").
1.1. Basic Lease Provisions.
Address of Suite 290
Landlord: 299 Coon Rapids Blvd.
Coon Rapids, Minnesota 55433
Fax No. (612) 786-9320
Address of 2905 Northwest Blvd.
Tenant: Minneapolis, MN 55441-2614
Fax No. (612) 550-1020
Premises: The building (the "Building") shown on Exhibit B,
containing approximately 50,528 Rentable Square Feet
(consisting of 11,250 rentable square feet of office space
and 39,278 rentable square feet of warehouse space),
together with the land legally described on Exhibit A,
including the parking lot, driveways, sidewalks and
Landscaping.
Term: Approximately 10 years, as more precisely defined in
Section 2.1(dd).
Extension Options: Two options of 5 years each, as described in Section 3.2.
Annual Net
Rent: $241,674
1.2. Exhibits. The exhibits enumerated in the Table of Contents and
attached to this Lease are incorporated in this Lease by this reference.
-1-
<PAGE>
ARTICLE II.
DEFINITIONS
2.1. Definitions. In this Lease:
(a) Actual Operating Costs means the Operating Costs actually incurred
for a calendar year.
(b) "Annual Net Rent" means the amount set forth in the following schedule:
Annual Net Monthly Net
From and After: Until and including: Rent: Rent:
Rent Commencement The expiration of the $241,674.00 $20,139.50
Date Term
(c) Article means an article of this Lease.
(d) Basic Lease Provisions means those essential lease provisions
defined in Section 1.1.
(e) "Casualty" means a fire, explosion, tornado or other cause of damage
to or destruction of the Premises.
(f) City means the City of Coon Rapids, Minnesota, or other
governmental authority having jurisdiction over the matter in question.
(g) Contamination is defined in Section 7.5.
(h) Environmental Damages is defined in Section 7.5.
(i) Environmental Regulations is defined in Section 7.5.
(j) Extension Option means either of the two options to extend this Lease
for five years each, as described in Section 3.2.
(k) Extension Term means either of the two five-year periods for which
the Initial Term may be extended, as described in Section 3.2.
-2-
<PAGE>
(l) Excusable Delays means a delay occasioned by a strike, lockout, riot,
act of God, or any other cause or causes, whether similar or dissimilar to those
enumerated, beyond Landlord's reasonable control. When this Lease extends a
deadline by reason of an Excusable Delay, the deadline will be extended by a
period of time equal to the duration of the Excusable Delay, unless specified
otherwise.
(m) Fair Market Rent is defined on Exhibit D.
(n) Fair Market Value is defined in Exhibit D.
(o) Hazardous Substance is defined in Section 7.5.
(p) Initial Tenant Improvements is defined in Section 5.1.
(q) Initial Term means the Term without taking into account the exercise
of any Extension Option for any Extension Term.
(r) Interest Rate means the per annum reference rate, as publicly
announced from time to time by First Bank National Association (Minneapolis),
plus two percent (2%).
(s) [Intentionally Omitted]
(t) Laws is defined in Section 7.1.
(u) Monthly Net Rent means the Annual Net Rent divided by twelve.
(v) Operating Costs means all costs in connection with the operation,
maintenance and repair of the Premises, except those costs specifically made the
responsibility of Landlord pursuant to the terms of this Lease.
(w) Rent Commencement Date shall mean the date that is 90 days after the
date of this Lease, which Rent Commencement Date shall be extended on a day to
day basis for any delays caused by Landlord with respect to the construction of
the Initial Tenant Improvements.
(x) Rentable Square Foot means a unit of one square foot of a Rentable
Square Foot Area.
(y) Rentable Square Foot Area means that number of enclosed square feet
actually occupied or available for occupancy by Tenant.
-3-
<PAGE>
(z) Section means a section of this Lease.
(aa) Taking means acquisition by a public authority having the power of
eminent domain of all or part of the Premises by condemnation or conveyance in
lieu of condemnation.
(bb) Tax Costs means all real estate taxes, levies, charges, and
installments of assessments (including interest on deferred assessments)
assessed, levied or imposed on the Premises, excluding (i) special assessments
levied, pending or a lien as of the date of execution of this Lease, or (ii)
sewer, water or other utility hook-up or access charges or assessments. Nothing
contained herein shall require Tenant to pay any local, county, municipal, state
or federal income, franchise, corporate, estate, inheritance, succession,
capital levy, business or transfer tax of Landlord, provided that Tenant shall
be responsible for the payment of any local, county, municipal, state or federal
tax or charge directly imposed upon the rent or other charges payable by Tenant
under this Lease.
(cc) Tenant Improvement Allowance is defined in Section 5.4.
(dd) Term means the period beginning on the date of delivery of
possession of the Premises to Tenant and ending on the last day of the month in
which the tenth anniversary of the Rent Commencement Date occurs. If the Initial
Term is extended pursuant to Section 3.2, the Term will include any Extension
Term with respect to which an Extension Option has been exercised.
ARTICLE III.
TERM
3.1. Initial Term. Landlord leases the Premises to Tenant, and Tenant
leases the Premises from Landlord, for the Initial Term, under the terms and
conditions of this Lease.
3.2. Extension Option. Tenant has two Extension Options to extend the Term
for five years each, if Tenant notifies Landlord in writing at least nine months
prior to the expiration of the Term, as the same may have been previously
extended. Tenant may not exercise its second Extension Option for the second
Extension Term if it has not exercised its first Extension Option for the first
Extension Term. If Tenant exercises any of its Extension Options, this Lease
will be in full force and effect during the Term, as so extended, subject to all
of the terms and conditions of this Lease. Annual Net Rent for each Extension
Term shall be the Fair Market
-4-
<PAGE>
Rent. If, after 60 days of the exercise of an
Extension Option, Tenant and Landlord are unable to agree upon the Fair
Market Rent in writing, Tenant will exercise either of the following options:
Market Rent in writing, Tenant will exercise either of the following options:
(1) Rent in writing, Tenant will exercise either of the following options: (1)
Tenant may submit a determination of the Fair Market Rent of the Property to
Arbitration, by giving written notice of such submission to Landlord
("Arbitration Request"), or (2) Tenant may rescind Tenant's exercise of the
Extension Option by written notice to Landlord. If Tenant fails to exercise
either option (1) or (2) within 30 days after the expiration of the 60 day
negotiation period, Tenant will be deemed to have elected option (2) above.er
the expiration of the 60 day negotiation period, Tenant will be deemed to have
elected option (2) above.
ARTICLE IV.
MONETARY OBLIGATIONS
4.1. Monthly Net Rent. Tenant will pay the Monthly Net Rent to Landlord at
the Address of Landlord, or such other place as Landlord may designate, in
advance on the first day of each month during the Term, commencing on the Rent
Commencement Date, without demand, deduction or setoff, except as provided
otherwise in this Lease. If the Rent Commencement Date is a day other than the
first day of a month, the Monthly Net Rent for the first partial month will be
prorated on a per diem basis and paid on the Rent Commencement Date. All amounts
to be paid by Tenant to Landlord under this Lease will be deemed to be rent for
purposes of payment and collection. Tenant shall pay Landlord a late charge
equal to five percent (5%) of the amount past due for all Monthly Net Rent
payments not paid by the 5th business day of the month for which they are
payable.
4.2. Operating Costs. Tenant agrees to pay all Operating Costs attributable
to the Term.
4.3. Tax Costs. Tenant agrees to pay all Tax Costs payable during the Term
directly to Landlord on or before the date the Premises would be subject to
penalty for failure to timely pay the Tax Costs. Any partial periods at the
beginning or end of the Term will be prorated between Landlord and Tenant on a
per diem basis. Tenant will not be obligated to pay any special assessments
related to the initial development of the Premises. The payment of any special
assessments will be spread over the longest period possible. Tenant will be
entitled to a prompt refund of any tax refund attributable to the Term, even
after the expiration or termination of this Lease. Tenant will have the right to
contest the Tax Costs with the appropriate governmental authority. Landlord
warrants that the tax parcel covering the Premises contains no excess land being
held for future development. Landlord will promptly provide Tenant a copy of all
tax statements with respect to the Premises that Landlord receives from the
taxing authority.
-5-
<PAGE>
ARTICLE V.
CONSTRUCTION
5.1. Plans. Prior to constructing the initial tenant improvements (Initial
Tenant Improvements), Tenant shall submit to Landlord, for the written approval
of Landlord (such approval to be promptly given and not to be unreasonably
withheld or conditioned), Tenant's space plans for the layout and interior
design of the Premises to be improved. If the space plans are not approved (or
disapproved with written comments stating the specific matters to which Landlord
objects) within 10 days after the submission thereof by Tenant to Landlord, the
space plans shall be deemed approved. Tenant agrees that any changes to the
approved space plans which materially affect the design and layout of the
Premises shall be subject to the review and approval of Landlord. All such
changes shall be deemed approved if not disapproved with written comments
stating the specific matters to which Landlord objects within 10 days after
submission thereof to Landlord by Tenant. Upon approval of the space plans,
Tenant shall promptly cause detailed construction drawings, plans and
specifications for the Initial Tenant Improvements to be prepared and shall
submit them to Landlord for Landlord's written approval. Landlord agrees to
respond within 10 days of each submittal with approval or detailed comments on
Tenant's construction drawings, plans and specifications. Tenant shall refrain
from commencing construction with respect to the Initial Tenant Improvements or
any portion thereof until Landlord's written approval of the final detailed
construction drawings, plans and specifications (the Approved Plans) has been
obtained. If Tenant thereafter desires to make substantive changes to the
Approved Plans, such changes shall be submitted to Landlord for Landlord's
written approval. Landlord agrees to respond within 10 business days with
respect to approval or comments on substantive changes to the Approved Plans. No
substantive change to the Approved Plans shall be made unless and until
Landlord's approval has been given. Landlord agrees that it will not
unreasonably withhold, delay or condition its approval hereunder of drawings,
plans and specifications, or changes thereto. Landlord and Tenant shall use all
reasonable efforts to complete the Approved Plans by December 31, 1995.
5.2 Access. Prior to the Commencement Date and beginning as of the date of
this Lease, Tenant and persons designated by Tenant shall have unrestricted
access to the Premises, without obligation to pay rent or other charges
hereunder, for the purpose of designing space plans, constructing the Initial
Tenant Improvements, and installing Tenant's fixtures, furniture and equipment.
With respect to such occupancy, the insurance requirements of this Lease will be
effective and the indemnity provisions of Section 9.1 will apply.
-6-
<PAGE>
5.3 Construction. Tenant covenants that the construction of the Initial
Tenant Improvements shall be in accordance with the following provisions:
(a) General contractor services with respect to the Initial Tenant
Improvements shall be performed by a general contractor selected by Tenant and
approved by Landlord, which approval shall not be unreasonably delayed,
conditioned or withheld.
(b) The Initial Tenant Improvements must be completed in good and
workmanlike manner, consistent with the standards prevailing in the Building and
in compliance with all applicable codes, laws and regulations.
(c) Tenant shall be responsible for procuring all necessary permits and
authorizations related to the Initial Tenant Improvements from all applicable
governmental authorities with jurisdiction.
(d) To the extent the estimated cost of the tenant improvements
contemplated in the Approved Plans exceeds the Tenant Improvement Allowance,
Landlord may require Tenant to provide a letter of credit or other reasonable
security, in form and substance reasonably acceptable to Landlord and Tenant,
with respect to mechanic's lien claims arising out of Tenant's work.
5.4. Tenant Improvement Allowance. Landlord shall pay Tenant, in
immediately available funds and in accordance with the procedures specified
below, a Tenant Improvement Allowance in the amount of $283,333 (the Tenant
Improvement Allowance). Upon execution of this Lease, Landlord shall pay the
Tenant Improvement Allowance into a construction escrow account pursuant to an
escrow and disbursing agreement reasonably acceptable to Landlord and Tenant
providing for the periodic disbursement (not less than monthly), pursuant to
customary and reasonable construction escrow disbursing procedures, of the
Tenant Improvement Allowance as Tenant's construction in the Premises in
accordance with the Approved Plans progresses. Landlord shall pay the full
Tenant Improvement Allowance notwithstanding that Tenant's actual costs may be
greater or less than said amounts. If Landlord fails to pay Tenant any amounts
required to be paid under this Section 5.4 within 5 days after such payment is
due, Tenant may, in addition to any other rights and remedies available to
Tenant, set off such amounts (plus interest on such amounts from the date
payment on such amounts was due at the Interest Rate) against installments of
rent due under this Lease. Tenant shall be permitted to continue to set off
against succeeding installments of
-7-
<PAGE>
rent until the total amount of such costs and
interest have been set off against rent, and such set off shall be deemed to be
payment of rent under this Lease.
ARTICLE VI.
USE; QUIET ENJOYMENT
6.1. Use. Tenant may use and occupy the Premises for office, light
manufacturing, warehouse and/or distribution purposes, and uses incidental
thereto. Tenant shall not use the Premises for any unlawful use or purpose.
Landlord further warrants and represents that as of the date of this Lease the
Premises comply with all applicable laws, statutes, rules, regulations and
ordinances, and that the Premises will be properly zoned and permitted for use
of the Premises for office, light manufacturing, warehouse and distribution
purposes. The foregoing notwithstanding, Landlord makes no representations or
warranties regarding the compliance of the Premises with the Americans With
Disabilities Act of 1991 or other laws or regulations relating to accessibility
of facilities or properties for disabled, handicapped and/or physically
challenged persons.
6.2. Title. On or before the date thirty (30) days after the date hereof,
Landlord agrees to provide Tenant, at Tenant's sole expense (provided Tenant is
informed of the cost before the commitment is ordered and Tenant has the right
to decline coverage), with a commitment for an ALTA leasehold owner's policy of
title insurance committing to insure Tenant's interest in this Lease, subject
only to real estate taxes, the mortgage of the mortgagee from whom Tenant has
received a nondisturbance agreement and easements which do not interfere with
Tenant's intended use of the Premises. Landlord disclaims any lien (statutory or
otherwise) on any of Tenant's inventory or personal property or on any trade
fixtures paid for by Tenant.
6.3. Quiet Enjoyment. If Tenant pays the Monthly Net Rent and other charges
and performs all of Tenant's obligations under this Lease, Landlord promises
that Tenant may peaceably and quietly possess and enjoy the Premises under this
Lease.
-8-
<PAGE>
ARTICLE VII.
OPERATIONAL MATTERS
7.1. Maintenance by Landlord. Prior to delivering possession of the
Premises to Tenant, Landlord, at its sole expense, will cause the Premises to
comply with all laws, codes, ordinances, rules and regulations of governmental
authorities having jurisdiction with respect thereto (the "Laws"). Landlord, at
its sole expense, will be responsible for any noncompliance of the Premises with
the Laws existing at the time of delivery of the Premises to Tenant.
Notwithstanding the foregoing, Landlord's obligations with respect to compliance
with the Americans With Disabilities Act of 1991 or other Laws or regulations
relating to accessibility of facilities or properties for disabled, handicapped
and/or physically challenged persons shall be limited to correcting any
noncompliance of the structural portions of the Premises or the exterior
improvements thereto (such as sidewalks, entrances and parking areas), and then
(1) only to the extent such noncompliance does not arise out of Tenant's
specific use (for example, a use rendering the Premises a public accommodation)
of the Premises (as opposed to mere occupancy), Tenant's improvements or
Tenant's employees and (2) only to the extent such correction is required by a
governmental or quasi-governmental body having jurisdiction or by a final order
of any court having jurisdiction. Landlord, at its sole expense, will maintain
in good condition and repair (including replacement, if necessary) all
structural components of the Premises. Landlord, at its sole expense, shall
replace the roof and replace the pavement on the parking lot as necessary during
the Term and any renewals or extensions thereof. Landlord shall consult with
Tenant regarding the scheduling of Landlord's maintenance, repair and
replacement work so as to minimize disruption to Tenant's business. Tenant shall
be responsible for routine maintenance of the roof and parking lot.
7.2. Maintanence of the Premises by Tenant. Except as provided in Section
7.1, Tenant, at its sole expense, will keep the Premises, including the fixtures
and equipment and the heating, ventilating and air conditioning system, in as
good condition and repair as they were in the time possession of the Premises is
tendered to Tenant, as later imporved pursuant to the terms therof, except for
ordinary wear and tear of damage from Casualty. If Tenant fails to do so,
Landlord may, after ten (10) days notice (or a shorter time in the case of an
emergency) enter the Premises to perform the maintenance and repairs and charge
the costs to Tenant, which amount will be payable upon demand, together with
interest at the Interest Rate.
-9-
<PAGE>
7.3. Compliance with Laws. Tenant will, at its expense, promptly comply
with all laws, ordinances, rules, orders, regulations and other requirements of
governmental authorities now or subsequently pertaining to Tenant's particular
use (as opposed to mere occupancy) of the Premises.
7.4. Environmental. Landlord has supplied to Tenant a true and complete
copy of a current Phase I environmental assessment for the Premises (the
"Report"). Landlord has made arrangements so that Tenant may rely on the Report.
Landlord represents and warrants to Tenant that Landlord does not have and does
not know of any other environmental reports, studies or tests which have been
prepared or conducted with respect to the Premises, other than the Report and
the tests identified therein. Landlord represents and warrants that, except as
provided in the Report, to the best of Landlord's knowledge: (i) the Premises
are in compliance with all Environmental Regulations and (ii) no Hazardous
Substances have been stored, used or otherwise located on, in or under the
Premises. Landlord agrees to indemnify, defend and hold Tenant harmless against
any and all Environmental Damages incurred or to be incurred as a result of the
breach, by Landlord, of its representations. Tenant has had ample opportunity to
inspect the Premises and, except as expressly warranted by Landlord in this
paragraph, takes the Premises in their as is condition in regard to the matters
governed by this paragraph. Tenant agrees to indemnify, defend and hold Landlord
harmless against any and all Environmental Damages incurred or to be incurred as
a result of Tenant Contamination or failure by Tenant to comply with any
Environmental Regulations, including reasonable attorneys' fees. Tenant
Contamination means contamination at the Premises which is caused by or arises
out of any act, omission, neglect or fault of Tenant or its agents, employees,
contractors or invitees. Contamination means the uncontained or uncontrolled
presence of or release of Hazardous Substances into any environmental media
from, upon, within, below, into or on the Premises. Hazardous Substances means
any toxic or hazardous chemicals, wastes, materials or substances, including,
without limitation, lead, radon, asbestos, asbestos containing materials,
polychlorinated biphenyls, dioxin, urea-formaldehyde, nuclear fuel or waste,
radioactive materials, explosives, carcinogens, petroleum products, or any
pollutants or contaminants, as those terms are defined in any applicable
federal, state, local or other governmental law, statute, ordinance, code, rule
or regulation. Environmental Regulations means all laws, statutes, ordinances,
codes, rules and regulations relating to Hazardous Substances or the protection
of the environment. Environmental Damages means all claims, judgments, losses,
penalties, fines, liabilities, encumbrances, liens, costs and reasonable
expenses of investigation, defense or good faith settlement resulting from
violations of Environmental Regulations, and including, without limitation: (i)
damages for personal injury and injury to property or natural resources; (ii)
reasonable fees and disbursement of attorneys, consultants, contractors, experts
-10-
<PAGE>
and laboratories; (iii) costs of any cleanup, remediation, removal, response,
abatement, containment, closure, restoration or monitoring work required by any
Environmental Regulation and other costs reasonably necessary to restore full
economic use of the Premises; and (iv) third-party claims relating to the
immediately preceding subsections (i) - (iii). If Landlord performs any
remediation it will do so in such a manner as to have as little impact on
Tenant's business being conducted at the Premises as reasonably possible.
7.5 Signs. Subject only to applicable local ordinances, Landlord agrees
that Tenant may install such exterior signage as Tenant deems appropriate,
including, without limitation, monument signage and signage attached to the
Building. Tenant agrees that Landlord may install one exterior identifying sign
on the Building in the location, and conforming to the specification, shown on
Exhibit E hereto. If Tenant purchases the Premises as provided in this Lease,
Landlord agrees to promptly remove its sign and repair any damage caused to the
Building in connection therewith.
7.6 Alterations. Tenant will not make any alterations, additions or
improvements in or to the Premises without first obtaining the written consent
of Landlord, which consent will not be unreasonablay withheld or delayed.
Landlord may require, as a condition to such consent, reasonable security or
procedures to protect Landlord's interest in the Premises against liens arising
out of the performance of such alterations, additions or improvements. Tenant
will pay for any labor, services, materials, supplies or equipment furnished to
Tenant in or about the Premises, and will pay and discharge any mechanic's,
materialmen's or other lien against the Premises resulting from Tenant's failure
to make such payment, or will contest the lien and deposit with Landlord, or an
escrow agent or title insurance company, cash equal to 125% of the amount of the
lien, or otherwise post security sufficient to release the Premises from such
lien. If the lien is reduced to final judgment and all appeals are exhausted or
waived, Tenant will discharge the judgment and may use any cash deposited with
Landlord for such purpose, and Landlord will return all remaining cash deposited
by Tenant. Landlord may post notices of nonresponsibility on the Premises as
provided by law. Notwithstanding the foregoing, Tenant may make nonstructural
alterations or improvements in and to the Premises without Landlord's consent
with respect to any project costing less than $25,000 and which will not
adversely affect or impair any building systems.
-11-
<PAGE>
7.7. Utilities. Tenant agrees to pay for all public utilities rendered or
furnished to the Premises during the Term, including water, sewer, gas and
electricity. Landlord agrees and represents that, during the Term, the Premises
will at all times be connected to water, sewer, gas and electric lines. Landlord
will provide separate utility meters for all utilities serving the Premises.
7.8. Entry by Landlord. Landlord and its agents and contractors will have
the right to enter the Premises at reasonable times for inspecting or repairing
the Premises, upon not less than 24 hours' prior written notice (which notice
need not conform to the requirements for notice set out in the notice clause
(15.4) of this Lease) to Tenant, but Landlord will have no obligation to make
repairs, alterations or improvements except as expressly provided in this Lease.
If Tenant so requests with respect to any such entry, Landlord, its agents and
contractors shall be accompanied by an escort provided by Tenant (except in an
emergency). During the last 270 days of the Term, Landlord will have the right
to enter the Premises at reasonable times, subject to the same prior notice
requirements set forth in the preceding sentence, for the purpose of exhibiting
the Premises for leasing, provided such entry does not unreasonably interfere
with Tenant's use of the Premises.
7.9. Communication Equipment. Tenant will be entitled to place, at Tenant's
expense, a satellite dish or dishes and other communication equipment on the
roof of the building as needed for the conduct of Tenant's business. Tenant
agrees to comply with any screening requirements of the City and any reasonable
screening requirements of Landlord in connection with the installation of any
such communication equipment. Tenant shall cause such equipment to be installed
in a manner that will not cause any permanent damage to the roof of the
Building, shall be responsible for, shall indemnify landlord against, and shall
hold Landlord harmless with respect to, any leakage or other roof damage
resulting from such equipment, and shall promptly repair all damage and restore
the roof upon any removal of such equipment.from such equipment, and shall
promptly repair all damage and restore the roof upon any removal of such
equipment.
7.10 Interruption of Business. Notwithstanding any Excusable Delay, if an
interruption or impairment of utilities or services provided to the Premises
materially impairs Tenant's ability to conduct its business and Tenant closes
its business in the Premises by reason thereof and such impairment and closure
continues for three (3) consecutive days, beginning after the end of such 3-day
period, all rent will abate until such utilities or services are reasonably
restored to an extent to render the Premises tenantable. Landlord will use
reasonable efforts to cause such utilities or services to be restored as soon as
possible.
7.11 Reserve Account. Landlord agrees to maintain an improvements reserve
account and deposit therein $15,000 during each lease year. Landlord may
-12-
PAGAE>
use the
funds in said reserve account for purposes of paying for Landlord's maintenance
and repair obligations specified in Section 7.1 above. Landlord will notify
Tenant before expending any such funds. Upon request of Tenant from time to
time, Landlord will provide Tenant a statement of the balance in said reserve
account and an accounting of all expenditures made therefrom. If Tenant
exercises its Purchase Option, Landlord at closing shall transfer to Tenant all
sums then remaining in said reserve account.
ARTICLE VIII.
TRANSACTIONS
8.1. Assignment and Subletting. With Landlord's prior written consent,
which consent will not be unreasonably withheld or delayed, Tenant may assign or
sublet all or any part of the Premises for any permitted use at any time during
the Term. No consent will be required in connection with an assignment related
to the sale of all or substantially all of Tenant's business or a merger or
consolidation or an assignment to a parent, subsidiary or affiliate of Tenant.
No assignment or subletting will release Tenant of any of its obligations under
this Lease; provided, however, if the assignee has a tangible net worth of at
least $20,000,000 according to the assigne's most recent audited financial
statements, the assigning Tenant will be relieved of any liability under this
Lease accruing after the assignment of this Lease.
8.2. Subordination and Nondisturbance. At the request of any mortgagee or
ground lessor, this Lease will be subject and subordinate to any mortgage or
ground lease which may now or in the future encumber the Premises, and Tenant
will execute, acknowledge and deliver to Landlord any document requested by
Landlord to evidence the subordination. Any such future subordination by Tenant
will be subject to Tenant receiving a nondisturbance agreement from the party to
whom it is subordinating, which nondisturbance agreement will recognize the
rights of Tenant under this Lease so long as Tenant is not in default. Tenant's
obligations under this Lease are contingent upon Landlord obtaining a
nondisturbance agreement in Tenant's favor, reasonably acceptable to Tenant,
from Landlord's current mortgagees or ground lessor, if any.
8.3. Estoppel Certificates. Within 10 business days after written request
from either party, the other party will execute, acknowledge and deliver a
document furnished by the requesting party, which statement may be relied upon
by the requesting party and third parties, stating (a) that this Lease is
unmodified and in full force and effect (or if modified, that this Lease is in
full force and effect as modified and stating the modifications), (b) the dates
to which rent and other charges have been paid, (c) the current Monthly Net
Rent, (d) the dates on which the Term begins and ends, (e) the existence of any
unexpired Extension Options, (f) that
-13-
<PAGE>
Tenant has accepted the Premises and is in
possession, (g) that neither Landlord nor Tenant is in default under this Lease,
or specifying any such default, and (h) such other and further information as
may be reasonably
requested.
ARTICLE IX.
RISK SHIFTING
9.1. Indemnification. Tenant agrees to indemnify, defend, and hold harmless
Landlord and its officers, directors, shareholders, partners, employees and
agents from and against all third party claims of whatever nature arising out of
this Lease or Tenant's use and occupancy of the Premises except to the extent
arising from the gross negligent acts or willful misconduct of Landlord, or
Landlord's contractors, licensees, officers, partners, agents or employees,
including reasonable attorneys' fees. Landlord agrees to indemnify, defend, and
hold harmless Tenant and its officers, directors, shareholders, partners,
employees and agents from and against all third party claims of whatever nature
to the extent arising from the gross negligent acts or willful misconduct of
Landlord or Landlord's contractors, licensees, officers, partners, agents or
employees, including reasonable attorneys' fees.
9.2. Liability Insurance. Tenant agrees during the Term to maintain
adequate liability and other insurance with duly qualified, reputable insurers
authorized to do business in the state in which the Premises are located and,
upon request, to furnish Landlord with certificates of insurance properly
executed by Tenant's insurance companies evidencing the insurance policies in
effect, which certificates will agree to provide thirty (30) days' notice to
Landlord in the event of cancellation of such coverage. The minimum insurance
coverages to be maintained by Tenant will be as follows:
(a) Commercial general liability insurance, naming Landlord as an
additional insured, having a combined single limit of not less than $2,000,000.
(b) Workers' compensation insurance in accordance with the statutory
requirements of the state where the Premises are located.
9.3. Landlord's Property Insurance. Landlord agrees that it will keep the
Premises insured against loss or damage by those perils covered by the Insurance
Services Office Special Cause of Loss Form or with "all risks" coverage,
including, malicious mischief and vandalism, and boiler and machinery coverage,
in an amount sufficient to prevent Landlord from being a co-insurer under the
terms of the applicable policies, but in any event, in an amount not less than
one-hundred percent (100%) of the full replacement value of the Premises, as
determined from
-14-
<PAGE>
time to time. Such insurance shall include insurance against
interruption of rents with respect to the Premises. Such insurance will be
issued by financially responsible insurers duly authorized to do business in
Minnesota, having a rating of "A X" or better as set forth in the most current
issue of Best's Insurance Reports. Landlord agrees to competitively bid all its
insurance policies at least every other year. The insurance company will be
required to give Tenant not less than thirty (30) days' notice in the event of
cancellation, non-renewal or material alteration of such coverage. Landlord will
be deemed to be a self-insurer as to the deductible or any co-insurance
applicable to such insurance coverage and will pay any deductible or
co-insurance amount applicable in the event of loss or damage. Tenant agrees to
reimburse Landlord for the premiums paid by Landlord for the insurance referred
to in this Section 9.3, within 10 business days after receipt of a copy of the
invoice for such insurance. Upon execution of this Lease, Landlord shall provide
Tenant a certificate of insurance evidencing the coverages required hereunder,
and prior to the expiration of any such policies Landlord shall deliver renewal
certificates thereof to Tenant. Landlord shall also provide Tenant a copy of the
insurance policy. Promptly after any change in insurance coverages, in insurance
policy forms or in insurer, Landlord shall provide Tenant a copy of the changed
policy and/or related documents.
9.4. Tenant's Property Insurance. Tenant agrees to maintain, at its own
expense, insurance against loss or damage by those perils covered by the
Insurance Services Office Special Cause of Loss Form or with all risk coverage,
including malicious mischief and vandalism, on Tenant's personal property
(including Tenant's equipment and removable trade fixtures) located at the
Premises. Nothing contained in this Section 9.4 will be construed as creating
any liability or responsibility on the part of Landlord for the adequacy of
insurance coverage on Tenant's personal property. Tenant will be deemed to be a
self-insurer as to the deductible or any co-insurance applicable to such
insurance coverage and will pay any deductible or co-insurance amount applicable
in the event of loss or damage.
9.5. Waiver of Insurable Claims. Notwithstanding anything contained in this
Lease to the contrary, Landlord and Tenant release each other and the other's
agents and employees from any liability for loss or damage by fire or other
casualty coverable by the Insurance Services Office Special Cause of Loss Form
or a standard form of "all risks" insurance policy, whether or not the loss or
damage resulted from the negligence of the other, its agents or employees. Each
party will use reasonable efforts to obtain policies of insurance which provide
that this release will not adversely affect the rights of the insureds under the
policies. The releases in this Section 9.5 will be effective whether or not the
loss was actually covered by insurance.
-15-
<PAGE>
ARTICLE X.
CASUALTY
10.1. Damage or Destruction. If the Premises are damaged by Casualty, the
damage (excluding damage to Tenant's personal property) will be repaired by
Landlord at its expense to a condition as near as reasonably possible to the
condition prior to the Casualty. Landlord acknowledges that it is imperative to
Tenant that the Premises be restored as quickly as possible following a
Casualty; accordingly, Landlord will begin repairs as soon as reasonably
possible, but not later than the date that is 30 days after the date of the
Casualty and will use all reasonable efforts and diligence to promptly complete
the repairs and restore the Premises in as short a time as is reasonably
possible in light of the nature of the Casualty, but in no event later than, in
the case of a major Casualty, the date that is 270 days after the date of the
Casualty, subject to Excusable Delays. If Landlord fails to begin or complete
the repairs as required, Tenant may give Landlord notice to do so. If Landlord
has not begun the repairs or completed the repairs, as applicable, within 30
days after Tenant's notice, Tenant may terminate this Lease by written notice to
Landlord given within 30 days after expiration of the 30-day period. If this
Lease is terminated because of the
Casualty, rents and other payments will be prorated as of the later of the
date of such Casualty or the date when Tenant ceased doing business in the
Premises and will be proportionately refunded to Tenant or paid to Landlord, as
the case may be. During any period in which the Premises or any portion of the
Premises are made untenantable as a result of the Casualty (whether or not the
Premises themselves were damaged by the Casualty), all rent will be abated for
the period of time untenantable, plus thirty (30) days for Tenant to reopen all
of the Premises after the completion of Landlord's repairs, in proportion to the
Rentable Square Foot Area made untenantable as a result of the Casualty. In
addition, if the Casualty occurs less than two (2) years prior to the end of the
Term, as the same may have been extended, Tenant may terminate this Lease as of
the Casualty if the Premises may not reasonably be made tenantable within 90
days after the Casualty.Lease as of the Casualty if the Premises may not
reasonably be made tenantable within 90 days after the Casualty.
ARTICLE XI.
EMINENT DOMAIN
11.1. Eminent Domain. If there is a Taking of 25% or more of the Rentable
Square Feet of the building or the Premises, or 10% of the parking spaces on the
Premises, either party may terminate this Lease as of the date the public
authority takes possession, by written notice to the other party within 30 days
after the Taking. If this Lease is so terminated, any rents and other payments
will be prorated as of the termination and will be proportionately refunded to
Tenant, or paid to Landlord, as
-16-
<PAGE>
the case may be. All damages, awards and
payments for the Taking will belong to Landlord regardless of the basis upon
which they were made or awarded, except that Tenant will be entitled to any
amounts specifically awarded by the condemning authority to Tenant for
relocation, damage to Tenant's property or business loss. If this Lease is not
terminated as a result of the Taking, Landlord will restore the remainder of the
Premises to a condition as near as reasonably possible to the condition prior to
the Taking (excluding Tenant's personal property) and all rent will be abated
for the period of time the space is untenantable in proportion to the square
foot area untenantable.
ARTICLE XII.
DEFAULTS
12.1. Tenant Defaults. If (a) Tenant defaults in the payment of rent or
other amounts under this Lease and the default continues for 5 days after
written notice by Landlord to Tenant, (b) Tenant defaults in any other
obligation under this Lease and the default continues for 15 days after written
notice by Landlord to Tenant (unless such default is of a nature that cannot be
cured within such 15 day period, in which case Tenant will have such time to
cure the default as is reasonably necessary, provided Tenant commences to cure
such default within the original 30 day period and continues to diligently and
continuously pursue the cure thereof to completion), (c) any proceeding is begun
by or against Tenant to subject the assets of Tenant to any bankruptcy or
insolvency law or for an appointment of a receiver of Tenant or for any of
Tenant's assets and with respect to proceeding against Tenant is not discharged
within 60 days, or (d) Tenant makes a general assignment of Tenant's assets for
the benefit of creditors, then Landlord may, with or without terminating this
Lease, cure the default and charge Tenant all costs and expenses of doing so,
and Landlord also may, by process of law, re-enter the Premises, remove all
persons and property, and regain possession of the Premises, without waiver or
loss of any of Landlord's rights under this Lease, including Landlord's right to
payment of Monthly Net Rent. Landlord also may terminate this Lease as to all
future rights of Tenant. Landlord may elect to receive from Tenant, in lieu of
all future Monthly Net Rent, a lump sum equal to all Monthly Net Rent payable
from the date of default through what would have been the remainder of the Term,
minus the estimated rental value of the Premises for the same period. If
Landlord elects this remedy, the rental value will be based on Landlord's
estimates and assumptions, unless they are clearly shown to be erroneous, and
the Monthly Net Rent and rental value will be discounted to present value at an
assumed interest rate equal to the Interest Rate. Tenant waives any right of
restoration to possession of the Premises after re-entry, notice of termination,
or judgment for possession. If this Lease is terminated under this Section 12.1,
Tenant will indemnify Landlord against all loss of
-17-
<PAGE>
rents and other costs and
damages which Landlord may incur as a result of the termination for the
remainder of the Term, and against all related reasonable attorneys' fees,
brokerage fees and other expenses, including, without limitation, the cost of
preparing the Premises for re-letting. If Tenant defaults in any of its
obligations under this Lease, it will promptly reimburse Landlord for all costs
(including, without limitation, reasonable attorneys' fees) incurred by Landlord
in enforcing Tenant's obligations, whether or not this Lease is terminated and
whether or not suit is brought. No right or remedy will preclude any other right
or remedy, no right or remedy will be exclusive of or dependent upon any other
right or remedy, and any right or remedy may be exercised independently or in
combination.
12.2. Landlord Defaults. If Landlord fails or neglects to keep and perform
any of the covenants or agreements in this Lease on the part of Landlord to be
kept and performed, Tenant may notify Landlord thereof and if Landlord does not
cure such default within thirty (30) days (or such shorter period as may be
reasonable under the circumstances, in the event of an emergency) after the date
of receiving such notice (or if the default is of such a character as to require
more than thirty (30) days to cure, Landlord does not commence to cure such
default within thirty (30) days and proceed with the cure with reasonable
diligence), Tenant may, in addition to all other remedies now or hereafter
afforded or provided by law, perform such covenant or agreement for or on behalf
of Landlord or make good any such default, and any amount or amounts which
Tenant advances on Landlord's behalf will be repaid by Landlord to Tenant on
demand, together with interest thereon at the Interest Rate from the date of
such advance to the repayment thereof in full, and if Landlord does not repay
any such amount or amounts upon demand, Tenant may, without forfeiture of its
rights under this Lease, deduct the same, together with interest thereon as
provided above, from the next installment or installments of rent to accrue
under this Lease.
ARTICLE XIII
PURCHASE OPTION
13.1. Purchase Option. Tenant shall have the option to purchase the
Premises upon the terms and conditions set forth in this Article XIII (the
"Purchase Option").
13.2 Purchase Price. If Tenant exercises the Purchase Option, the purchase
price for the Premises shall be the Fair Market Value thereof determined
pursuant to the procedures described below, provided, however, that the Purchase
Price shall not be less than "Landlord's Cost" (defined below), and shall not be
greater than Landlord's Cost plus an amount equal to 5% of Landlord's Cost for
-18-
<PAGE>
each year (prorated for partial years) within the Term prior to Closing .
"Landlord's Cost" shall mean the sum of (1) the purchase price paid by Landlord
for the Premises, (2) the Tenant Improvement Allowance, (3) $70,200
(representing the stipulated holding costs [operating expense and mortgage
interest] of Landlord during Tenant's three-month rent-free build-out period),
(4) the Excess Land Cost (as defined in Section 14.2), if applicable, (5) the
Expansion Space Cost, (as defined in Section 14.3), if applicable, and (6) the
then unamortized value (based in all cases upon a stipulated useful life of 10
years) of the costs of other improvements or replacements to the Premises paid
for by Landlord that may be properly treated as a capital expenditure under
applicable federal income tax guidelines. If, after 30 days, Tenant and Landlord
are unable to agree upon the Fair Market Value in writing, Tenant will exercise
either of the following options: (1) Tenant may submit a determination of the
Fair Market Value of the Property to Arbitration, by giving written notice of
such submission to Landlord ("Arbitration Request"), or (2) Tenant may rescind
Tenant's exercise of the Option by written notice to Landlord. If Tenant fails
to exercise either option (1) or (2) within 30 days after the expiration of the
30 day negotiation period, Tenant will be deemed to have elected option (2)
above.
13.3 Exercise. The Purchase Option may be exercised by Tenant by giving
written notice of exercise not less than 120 days prior to the closing date
specified in said notice (the "Closing Date"). In no event shall the Closing
Date occur before the date that is the 5th anniversary of the Rent Commencement
Date.
13.4 Closing. Subject to the closing conditions specified below, the
closing ("Closing") of the purchase and sale of the Premises shall occur at
10:00 a.m. on the Closing Date specified in the exercise notice at the office of
the Title Company or such other time and place to which Landlord and Tenant may
agree.
13.5 Title. Landlord at its expense will, on or before the date that is 45
days after the date of Tenant's exercise of the Purchase Option, furnish to
Tenant a commitment ("Title Commitment") for an ALTA owner's policy of title
insurance on a standard form ALTA extended coverage form issued by a title
insurance company selected by Tenant (the "Title Company") committing to insure
marketable title in Tenant in the amount of the Purchase Price. The Title
Commitment shall show marketable title to the Property in Landlord, free and
clear of all liens, charges, encumbrances, and other exceptions (other than
arising through Tenant), shall insure the rights and easements appurtenant to or
benefitting the Premises, shall name Tenant as the party to be insured, shall
provide for extended coverage over the standard printed exceptions in the
general form of the title policy referred to above, shall include proper
searches covering bankruptcies and state and federal judgments and liens; shall
insure access to public roads, shall have attached thereto true, correct, and
legible copies of all documents referred to therein; and
-19-
<PAGE>
shall contain a
certificate of all taxes and special assessments delinquent, payable or pending
with respect to the Premises. Within 30 days after receiving the Title
Commitment, Tenant may make written objections ("Objections") to the form and/or
contents of the Title Commitment, provided that Tenant shall not object to liens
or encumbrances or matters of record created by Tenant. Landlord will have 45
days after receipt of the Objections to cure the Objections, during which period
the Closing will be postponed as necessary. Landlord shall use its best efforts
to correct any Objections. To the extent an Objection can be satisfied by the
payment of money, Tenant shall have the right to apply a portion of the cash
payable to Landlord at the Closing to satisfaction of such Objection and the
amount so applied shall reduce the amount of cash payable to Landlord at the
Closing. If the Objections are not cured within such 45 day period, Tenant will
have the option to:
(i) Terminate the purchase contemplated under this Purchase Option without
any liability to Landlord or
(ii) Withhold from the Purchase Price at Closing an amount which, in the
reasonable judgment of the Title Company, is sufficient to assure cure of the
Objections. Any amount so withheld will be placed in escrow with the Title
Company, pending such cure. If Landlord does not cure such Objections within 90
days after such escrow is established, Tenant may then cure such Objections and
charge the costs of such cure (including reasonable attorney's fees) against the
escrowed amount. If such escrow is established, the parties agree to execute and
deliver at Closing such documents as may be reasonably required by the Title
Company, and Landlord agrees to pay the charges of Title to create and
administer the escrow.
(iii) Waive the Objections and proceed to close. Landlord will furnish to
Tenant at Closing the title policy ("Title Policy") issued by the Title Company
pursuant to the Title Commitment, or a suitably marked up Title Commitment
initialed by the Title Company undertaking to issue such a title policy in the
form required by the Title Commitment as approved by Tenant.
13.6 Closing Conditions. If the Purchase Option is exercised, Tenant's
obligation to complete the purchase of the Premises will be subject to the
following conditions, all of which must be met to Tenant's satisfaction or
waived in writing by Tenant, at its sole discretion, before the Closing:
(1) Tenant and Tenant's lender, if any, are satisfied with the results of
any and all examinations of the Property, including environmental audits,
-20-
<PAGE>
conducted in connection with Tenant's contemplated acquisition of the Property.
(2) Tenant shall have obtained, on conditions satisfactory to Tenant,
financing for the acquisition of the Premises.
(3) Title shall have been made satisfactory to Tenant as provided herein.
(4) No Taking or Casualty shall have occurred.
If the conditions referred to above are not met to Tenant's satisfaction or
waived in writing by Tenant, at its sole discretion, on or before the Closing,
the Tenant may, if it chooses, rescind its exercise of the Purchase Option.
13.7 Closing Documents. At Closing Landlord shall execute and/or deliver to
Tenant the following (collectively, "Landlord's Closing Documents"):
(1) A Warranty Deed conveying the Premises to Tenant free and clear of all
encumbrances, except as to matters caused or created by Tenant.
(2) An Affidavit of Title by Landlord indicating that on the Closing Date
there are no outstanding, unsatisfied judgments, tax liens or bankruptcies
against or involving Landlord or, to Landlord's knowledge, the Premises; that
there has been no skill, labor or material furnished to the Premises at
Landlord's request for which payment has not been made or for which mechanics'
liens could be filed; and that there are no other unrecorded interests in the
Land, other than matters disclosed to and accepted or waived by Tenant pursuant
to the provisions of this Purchase Option.
(3) A non-foreign affidavit, properly executed and in recordable form,
containing such information as is required by IRC Section 1445(b)(2) and its
regulations.
(4) Any other documents as may be customary or as may be reasonably
requested by Tenant or Title Company in order to consummate the purchase and
sale on the terms and conditions herein set forth.
13.8 Costs and Prorations. Landlord and Tenant agree to the following
prorations and allocations of costs regarding the Closing pursuant to the
Purchase Option:
-21-
<PAGE>
(1) Tenant will pay the premium for the Title Policy. Landlord will pay the
fee charged by the Title Company for issuance of the Title Commitment, including
the costs of searches and updating. Landlord and Tenant shall each pay one-half
of any closing fee charged by the Title Company.
(2) Landlord shall pay all state deed, transfer, excise and documentary
taxes regarding the Warranty Deed to be delivered by Landlord.
(3) Real estate taxes payable in the year of Closing will be paid by the
party responsible for the same pursuant to the terms of this Lease.
(4) Landlord will pay the cost of recording all documents necessary to
place record title in the condition required hereunder. Tenant will pay the cost
of recording the warranty deed and all other documents.
ARTICLE XIV.
ADDITIONAL PROVISIONS
14.1 Termination Right. Upon giving of the Termination Notice described
herein and payment of the Termination Fee described herein, Tenant shall have
the right to terminate this Lease as of the last day of the month in which the
fifth anniversary of the Rent Commencement Date occurs (the "Initial Termination
Date"), and as of each annual anniversary of the Initial Termination Date. In
order to exercise the termination right, Tenant must give written notice of
termination not less than 9 months prior to the applicable termination date.
Upon the termination date, Tenant shall pay to Landlord the Termination Fee as
set forth on Exhibit C hereto.
14.2 Additional Land. At any time during the Term of this Lease (including
Extension Options, if opted), and upon waiver of the Termination Right set forth
in Paragraph 14.1, Tenant shall have the right to require Landlord to use its
best efforts to acquire the land described upon Exhibit F attached hereto and
made a part hereof (the "Land Option"), consisting of approximately one-half
(1/2) acre (the "Excess Land"). The Land Option shall be exercised by Tenant by
providing written notice to Landlord of the exercise of such option in
accordance with Section 15.4 hereof, and within said notice, Tenant shall set
forth the terms and conditions acceptable to Tenant upon which Landlord shall
use its best efforts to commence negotiations with the owner of the Excess Land,
including, but not limited to, purchase price, closing costs, financing
alternatives, closing date, etc. Within fifteen (15) days of receipt of notice,
-22-
<PAGE>
Landlord shall commence negotiations with the owner of the subject property, in
conjunction with a representative of Tenant.
At any time during the course of negotiations for the Excess Land, Tenant
shall have the right, but not the obligation, to withdraw its exercise of
option, should Tenant, in Tenant's sole discretion, determine that continuance
of the negotiations would not result in an acceptable closing of the purchase of
the Excess Land. In such event, Tenant shall reimburse Landlord for any
reasonable expenses actually incurred. Such withdrawal of Tenant's exercise of
this Land Option shall not prejudice Tenant's right to exercise this Land Option
again at a later date. Landlord shall not execute any purchase agreement
regarding the Excess Land unless Tenant has approved such purchase agreement in
writing or unless such purchase agreement is expressly contingent upon Tenant's
written approval thereof. In addition, Landlord shall not modify or waive any of
the terms, conditions or contingencies contained in such approved purchase
agreement without the express written consent of Tenant.
Notwithstanding any other term or conditions as contained within this
Section 14, in the event Landlord and the owner of the Excess Land are unable to
reach an agreement relative to purchase of the Excess Land within six (6) months
of the date of notice of Tenant's exercise of option, Tenant's Land Option shall
expire, and Landlord shall have no further obligation to negotiate for the
purchase of the Excess Land.
If Landlord is successful in the acquisition of the Excess Land in
accordance with the terms of the purchase agreement with respect thereto
approved by Tenant, the rent to be paid by Tenant shall be determined by taking
100% of the actual costs of acquisition of the Excess Land, plus reasonable and
directly applicable soft costs, i.e., subdivision fees, attorney fees, survey
and engineering costs, broker's fees, etc. (the "Excess Land Cost"), plus an
overhead fee of fifteen percent (15%) of the Excess Land Cost, and applying the
loan constant equal to the Interest Rate fixed as of the date of the acquisition
of the Excess Land amortized over a period of twenty-five (25) years.
Upon acquisition of the Excess Land, Landlord and Tenant shall enter into
an amendment to this Lease setting forth the commencement date relative to the
addition of the Excess Land to the definition of the Land, the increase of
monthly rental, and any other applicable terms and conditions. Upon adding the
Excess Land to the definition of the Land, the Term of this Lease shall be for a
period of not less than ten (10) years.
For example, should the Excess Land be acquired during the fourth year of
the initial Term, Tenant would have to exercise its first Extension Option so
that upon acquisition of the Excess Land, the Term of the Lease would be
-23-
<PAGE>
greater
than ten (10) years. If, after exercising the first or second Extension Option,
the Term of the Lease is less than ten (10) years, the Term shall be adjusted
within the amendment to provide for an ending date on the last day of the month
in which the tenth anniversary of the delivery of possession of the Excess Land
occurs.
14.3 Expansion of Building. At any time during the Term of this Lease
(including Extension Options, if opted), and upon waiver of the Termination
Right set forth in Paragraph 14.1, Tenant shall have the option to require
Landlord to expand the Building upon the Land (the "Expansion Option"), the
construction of which expansion shall be at Landlord's sole cost and expense
(the "Expansion Space"). Landlord's obligation to build the Expansion Space
shall be limited to building and delivering a completed building shell
(including heating, ventilation, air conditioning, electrical, plumbing and
other building systems, stairwells and elevators if applicable, and the
structural components). All costs for tenant improvements shall be the
responsibility of Tenant. The Expansion Space shall be located upon the Land in
a manner substantially as shown on the attached drawing identified as Exhibit G.
In the event that Tenant determines that it wishes to exercise its Expansion
Option herein, it shall so notify Landlord pursuant to the provisions of Section
15.4 hereof. Landlord shall promptly prepare for Tenant's approval preliminary
plans and specifications for the Expansion Space, the consent to which shall not
be unreasonably withheld. Construction shall commence not later than one (1)
month after final approval of the working drawings for the Expansion Space by
both Landlord and Tenant.
In the event that Tenant exercises its Expansion Option as set forth above,
the leasing arrangements for the Expansion Space as constructed shall be
according to the terms and conditions of this Lease and the Expansion Space
shall become a part of the Building hereunder, with all terms and conditions
hereof remaining the same, except for rent which, with regard to the original
Building, shall remain as provided in Paragraphs 3.2 and 4.1 of this Lease and,
with regard to the Expansion Space, shall be determined pursuant to the
provisions set forth
below.
Upon substantial completion of the Expansion Space, Landlord and Tenant
shall enter into an amendment to this Lease setting forth the commencement date
relative to the Expansion Space, monthly rental, and any other applicable terms
and conditions. Rent for the Expansion Space shall commence upon the earlier of
(1) the date Tenant occupies the Expansion Space for the conduct of its business
therein, or (2) the date that is 30 days following the date upon which Landlord
substantially completes Landlord's work as to the Expansion Space.
The rent to be paid for the Expansion Space constructed hereunder (if so
opted by Tenant) shall be determined by taking one hundred percent
-24-
<PAGE>
(100%) of the actual cost of construction of the Expansion Space (including
the cost of any modifications to the existing Premises required by the
Americans With Disabilities Act of 1991 or other laws or regulations relating
to accessibility of facilities or properties for disabled, handicapped
and/or physically challenged persons and expressly required because of the
construction of the Expansion Space), plus reasonable and directly
applicable soft costs, i.e, construction interest, construction permits,
engineering costs, third-party contractor's fees, overhead and profit, etc.
as certified by the architect selected for the project (the "Expansion Space
Cost"), plus a Landlord's fee equal to fifteen percent (15%) of the
Expansion Space Cost, and applying the loan constant equal to the Interest
Rate fixed as of the date of substantial completion of Landlord's work
regarding the Expansion Space amortized over a period of twenty-five (25)
years.
The Term governing the Expansion Space shall be coterminous with the Term
of this Lease (or Extension Options, if opted), and in no event shall the Term
of this Lease be less than ten (10) years. For example, should Tenant exercise
its Expansion Option during the fourth year of the initial Term, Tenant would
have to, simultaneously, exercise its first Extension Option so that, upon
exercise of the Expansion Option, the Term for the Lease is greater than ten
(10) years. If, after exercising the first or second Extension Option, the Term
of the Lease is less than ten (10) years, the Term shall be adjusted in the
amendment to provide for an ending date on the last day of the month in which
the tenth anniversary of the delivery of possession of the Expansion Space
occurs.
The foregoing notwithstanding, Landlord shall not commence construction of
the Expansion Space unless and until:
(1) Tenant shall have approved final plans and specifications with respect
thereto.
(2) Landlord and Tenant shall have agreed to an Expansion Space Cost cap,
fixing a guaranteed maximum Expansion Space Cost, subject only to
Tenant-approved change orders, for purposes of calculating the rental payable
with respect to the Expansion Space.
(3) Landlord and Tenant shall have agreed to a deadline for the substantial
completion of the Expansion Space, subject only to Tenant-caused delays or
Excusable Delays.
Landlord will perform all of the work required by the final plans and
specifications in a good and workerlike manner, using
-25-
<PAGE>
new and first-class materials, in accordance with all applicable building
and zoning codes and regulations and other applicable laws.
At or prior to the delivery of possession of the Expansion Space to Tenant,
Landlord will provide to Tenant a certificate of Landlord's architect certifying
completion of the Expansion Space pursuant to this Section (the "Architect's
Certificate") and a certificate of occupancy by the City of Coon Rapids for the
Expansion Space.
Tenant may submit to Landlord at any time and from time to time prior to
the date ninety (90) days after taking occupancy of the Expansion Space a
punchlist of uncompleted or defective items in the Expansion Space. Landlord
agrees to correct all such uncompleted or defective items, at Landlord's sole
expense, as soon as reasonably possible, but in no event more than thirty (30)
days after receipt of notice from Tenant. Notwithstanding the foregoing,
Landlord will, at Landlord's sole expense, correct any latent defect promptly
after Tenant notifies Landlord of any latent defect. Tenant will not be deemed
to waive any rights Tenant may have against Landlord under Landlord's
warranties, as provided below, by taking possession of the Expansion Space.
Landlord warrants all construction work related to the Expansion Space to be
free of defects in both design and construction. Tenant will have no obligation
to pay or reimburse Landlord for any costs related to any defect described in
the preceding sentence. Landlord agrees to diligently pursue any claims it may
have under any warranties or otherwise with respect to design or construction of
or labor or materials supplied to the Expansion Space. Landlord agrees to
provide Tenant with copies of all warranties and maintenance information from
manufacturers with respect to the components of the Expansion Space and all shop
drawings used in constructing the Expansion Space. Following completion of the
work, Landlord also agrees to provide Tenant with an "as built" set of plans and
specifications for the Expansion Space.
ARTICLE XV.
MISCELLANEOUS
15.1. Waiver of Lease Provisions. No waiver of any provision of this Lease
will be deemed a waiver of any other provision or a waiver of that same
provision on a subsequent occasion. The receipt of rent by Landlord with
knowledge of a default under this Lease by Tenant will not be deemed a waiver of
the default. Landlord will not be deemed to have waived any provision of this
Lease unless it is done by express written agreement of Landlord. Any payment by
-26-
<PAGE>
Tenant and acceptance by Landlord of a lesser amount than the full amount of all
rent then due will be applied to the earliest rent due. No endorsement or
statement on any check or letter for payment of rent or other amount will be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to its right to recover the balance of any rent or other
payment or to pursue any other remedy provided in this Lease.
15.2. Surrender. On expiration of the Term or sooner termination of this
Lease, Tenant will return possession of the Premises to Landlord, without notice
from Landlord, in good order and condition, except for ordinary wear and damage,
Casualty or conditions Tenant is not required to remedy under this Lease. Upon
such surrender, Tenant shall remove from the Premises all moveable personal
property of Tenant and shall be entitled to remove, at Tenant's option, all
other equipment, trade fixtures and other installations placed or installed in
the Premises by Tenant, including, without limitation, all trade fixtures and
equipment relating to Tenant's "clean rooms". Notwithstanding the foregoing,
upon surrender Tenant shall restore the Premises to a clean, orderly and
tenantable condition.
15.3. Holding Over. If Tenant remains in possession of the Premises after
expiration of the Term without a new lease, it may do so only with the consent
of Landlord, and any such holding over will be from month-to-month, subject to
all the same provisions of this Lease, except that the rental rate will be 125%
of the then Monthly Net Rent. The month-to-month occupancy may be terminated by
Landlord or Tenant on the last day of any month by at least 30 days prior
written notice to the other.
15.4. Notices. Any notice under this Lease will be in writing, and will be
sent by prepaid certified mail or reputable overnight courier or by facsimile
confirmed by certified mail or reputable overnight courier, addressed to Tenant
at the Address of Tenant, and to Landlord at the Address of Landlord, or to such
other address as is designated in a notice given under this Section 15.4, which
change of address will be effective 10 days after the giving of notice of such
change. A notice will be deemed given on the date of first attempted delivery
(if sent by certified mail or overnight courier) or upon completed facsimile
transmission to the proper fax number. Routine mailings by either party may be
sent by regular mail.
15.5. Governing Law. This Lease will be construed under and governed by the
laws of state of Minnesota. If any provision of this Lease is illegal or
unenforceable, it will be severable and all other provisions will remain in
force as though the severable provision had never been included.
-27-
<PAGE>
15.6. Entire Agreement. This Lease contains the entire agreement between
Landlord and Tenant regarding the Premises. This Lease may be modified only by
an agreement in writing signed by Landlord and Tenant. No surrender of the
Premises, or of the remainder of the Term, will be valid unless accepted by
Landlord in writing. This Lease was thoroughly negotiated by Landlord and Tenant
and no inference will be drawn based on which party drafted the original version
of this Lease.
15.7. Successors and Assigns. All provisions of this Lease will be binding
on and for the benefit of the successors and assigns of Landlord and Tenant,
except that no person or entity holding under or through Tenant in violation of
any provision of this Lease will have any right or interest in this Lease or the
Premises.
15.8. Consent Not Unreasonably Withheld. Landlord and Tenant agree that
whenever under this Lease provision is made for securing the consent or approval
of the other, such consent or approval will not be unreasonably withheld or
delayed. If either party believes the other has unreasonably withheld or delayed
its consent or approval, an action for declaratory judgment or specific
performance will be the sole right and remedy in any dispute as to whether the
other has breached such obligation.
15.9. Short Form Lease. Upon the request of either Landlord or Tenant,
Landlord and Tenant will enter into a Short Form Lease, in recordable form,
which will set forth the parties to this Lease, the Premises, the Initial Term
and the Extension Options, but will incorporate the balance of this Lease only
by reference. Either party, at its cost, may record such a Short Form Lease.
15.10. Attorneys' Fees. In any dispute between Landlord and Tenant, the
reasonable attorneys' fees of the prevailing party will be paid by the
non-prevailing party.
15.11. Security Deposit. Tenant shall deposit with Landlord on or before
the Rent Commencement Date, and shall maintain through the date that is the
fifth anniversary of the Rent Commencement Date, an irrevocable, assignable,
non-documentary standby letter of credit in form reasonably acceptable to
Landlord and issued by a financial institution reasonably acceptable to Landlord
in the amount of Twenty Thousand Dollars ($20,000), as security for the faithful
performance by Tenant of every term and condition of this Lease, it being
expressly understood and agreed that Tenant may not direct Landlord to apply
said security in payment of rent for any month during the Term. If there shall
be a breach or default by Tenant in respect of any term or condition of this
Lease, Landlord may draw upon all or any part of the letter of credit to perform
the same for the account of Tenant, or for any
-28-
<PAGE>
damages, whether such damages or
default accrue before or after summary proceedings or re-entry by Landlord.
Landlord shall not be required so to use, apply or retain the whole or any part
of said security nor shall the provisions herein contained limit the rights and
remedies of Landlord under this Lease. If Tenant shall fully and faithfully
comply with all of the provisions of this lease, then, upon the fifth
anniversary of the Rent Commencement Date, said security shall be returned to
Tenant. In the event of any sale, transfer or assignment of Landlord's interest
under this Lease, Landlord may transfer or assign said security to the
transferee, and Landlord thereupon shall be released from all liability with
respect to said security. Without affecting the non-documentary status of the
letter of credit and without involving the issuer of the letter of credit in any
matters affecting this Lease, Landlord shall not present a draft under the
letter of credit for payment unless (1) a default exists on the part of Tenant
beyond any applicable notice and cure period provided in this Lease or (2) the
letter is scheduled to expire before the time specified above for the return of
the security to Tenant, and at least 20 days before the expiration of the letter
of credit a renewal letter of credit shall not have been delivered to Landlord.
Tenant agrees to keep renewing the letter of credit until the time specified
above for the return of the security to Tenant, without any need on the part of
Landlord to give Tenant any notice that it is in default in supplying that
renewal, any provision of this Lease as to notice of default to Tenant to the
contrary notwithstanding. The issuer of the letter of credit has no interest in,
or concern with, this Lease or the performance under it by either party. The
issuer's sole obligation is to honor a sight draft timely drawn and presented.
Landlord and Tenant have executed this Lease to be effective as of the date
stated in the first paragraph of this Lease.
Landlord:
9055 BUILDING, L.L.P.
By /S/ Al Hamel
Its Partner
Tenant:
POSSIS MEDICAL INC.
By /S/ Robert J. Scott
Its Vice President of Manufacturing Operations
-29-
<PAGE>
EXHIBIT A
Legal Description
-30-
<PAGE>
EXHIBIT B
Site Diagram of the Premises
-31-
<PAGE>
EXHIBIT C
Termination Fee Schedule
-32-
<PAGE>
EXHIBIT D
Arbitration Procedures
The parties to this Lease will initially attempt to agree upon the
determination of Fair Market Value or Fair Market Rent, as the case may be. If
they have been unable to so agree within the period that they are required to
agree as to such matter under the Lease, if any, then either party may request
by written notice to the other party ("Arbitration Request") that the matter be
determined by an arbitration board consisting of three reputable real estate
appraisers or professionals who are recognized experts regarding the valuation
issues in question and regarding similar commercial properties in the north
suburban Minneapolis area. One arbitrator will be appointed by each party, and
each such arbitrator will have no material financial or other business interest
in common with the party selecting such arbitrator. If a party fails to appoint
an arbitrator and notify the other party of such appointment within 30 days
after the Arbitration Request is made, then the arbitrator that was appointed by
such other party within such 30-day period will be the sole arbitrator. If two
arbitrators are properly appointed and such first two arbitrators are unable to
agree on a third arbitrator within 30 days after the appointment of the second
arbitrator, then such third arbitrator will be appointed by the presiding judge
of the Court, or by any person to whom such presiding judge formally delegates
the matter, or, if such methods of appointment fail, by the American Arbitration
Association.
In the case of arbitration conducted by a sole arbitrator, such sole
arbitrator will render his or her determination of the Fair Market Value or Fair
Market Rent to the parties by the 60th day after the Arbitration Request was
made. If the arbitration is conducted by three arbitrators, each arbitrator will
submit his or her determination(s) of Fair Market Value or Fair Market Rent in a
sealed envelope by the 30th day following appointment of the last arbitrator,
and any determinations not submitted by such time shall be disregarded. In such
case, the parties will meet on such 30th day (or if it is not a business day, on
the first business day thereafter) at 11:00 a.m. at the office of Landlord, or
such other place as the parties may agree, and simultaneously deliver the
determinations. If the determinations of at least two of the arbitrators are
identical in amount, such amount will be deemed the decision of the arbitrators.
If the determination of the three arbitrators are different in amount, the
decision as to Fair Market Value or Fair Market Rent will be independently
determined as follows:
(a) If neither the highest nor lowest determination differs from the middle
determination by more than 10% of such middle determination, then the decision
will be deemed to be the average of the three determinations; and
-33-
<PAGE>
(b) If clause (a) does not apply, then the decision will be deemed to be
the average of the middle determination and the determination closest in amount
to such middle determination.
The decision of the arbitrators, determined as above set forth, will be
final and non-appealable. The fees and expenses of the arbitrator or arbitrators
will be shared equally by Landlord and Tenant. The costs of all counsel, experts
and other representatives that are retained by a party will be paid by
such party.
During the period of time that any arbitration is pending under this Lease,
the parties to this Lease will continue to comply with all those terms and
provisions that are not the subject of the arbitration.
"Fair Market Value" means the cash price that a seller of the subject
property, being willing but under no compulsion to sell the property, would
receive from a buyer of the subject property, being willing but under no
compulsion to buy the property, taking into consideration the condition of the
property, the then current conditions in the marketplace for comparable
transactions, and the impact of zoning and approval requirements of applicable
governmental authorities with jurisdiction.
"Fair Market Rent" means the then prevailing fair market rental rate for
the premises in question with respect to the time period in question, taking
into account all pertinent factors, including but not limited to the terms and
conditions of this Lease exclusive of the rental rate, the then existing
condition of the premises in question, the presence or absence of tenant
inducements and/or allowances typically provided in the relevant market area at
the time for comparable space in comparable buildings, and assuming the Landlord
to be a prudent person willing to lease, but being under no compulsion to do so,
and assuming the Tenant to be a prudent person willing to lease, but being under
no compulsion to do so.
-34-
<PAGE>
EXHIBIT E
Landlord's Sign
Landlord may install one exterior identifying sign on the upper southwest
corner of the Building consisting of 24 inch block lettering as follows: MMEC
III.
-35-
<PAGE>
EXHIBIT F
Excess Land
- -35-
<PAGE>
EXHIBIT G
Expansion Space
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 18,949,437
<SECURITIES> 11,022,840
<RECEIVABLES> 170,300
<ALLOWANCES> 13,337
<INVENTORY> 1,657,206
<CURRENT-ASSETS> 32,112,849
<PP&E> 2,862,774
<DEPRECIATION> 1,477,994
<TOTAL-ASSETS> 33,947,551
<CURRENT-LIABILITIES> 1,607,593
<BONDS> 0
0
0
<COMMON> 4,789,467
<OTHER-SE> 27,307,398
<TOTAL-LIABILITY-AND-EQUITY> 33,947,551
<SALES> 423,663
<TOTAL-REVENUES> 423,663
<CGS> 2,254,969
<TOTAL-COSTS> 2,254,969
<OTHER-EXPENSES> 2,622,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,606
<INCOME-PRETAX> (3,825,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,825,180)
<DISCONTINUED> 277,771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,547,409)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
