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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended: JUNE 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT.
Commission File Number: 0-25602
TECH SQUARED INC.
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1591872
(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)
5198 WEST 76TH STREET
EDINA, MINNESOTA 55439
(Address of principal executive offices)
(612) 832-5622
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
Companywas required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
As of June 30, 1996, 10,374,870 shares of Common Stock, no par value,
of the Company were outstanding.
Transitional Small Business Disclosure Format (Check One): Yes ; No X
-- --
<PAGE>
TECH SQUARED, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statements of Financial Position at June 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Operations (unaudited) for the three
months and six months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
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 10
SIGNATURES 11
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
TECH SQUARED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- --------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $489,442 $867,370
Available-for-sale securities 1,222,500 1,200,000
Accounts receivable, net of allowance
for doubtful receivables of $343,000
and $381,000 respectively 2,631,427 2,306,096
Inventories 1,981,306 3,519,368
Prepaids and other current assets 228,107 461,227
----------- -------------
TOTAL CURRENT ASSETS 6,552,782 8,354,061
Available-for-sale securities 747,448 -
Property and equipment, net 423,132 444,603
Receivable from officer/stockholder 196,817 205,800
Mining assets - 600,000
Patents and organization costs, net 133,374 134,790
----------- ------------
$8,053,553 $9,739,254
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit $352,545 $595,000
Accounts payable 3,829,584 4,927,618
Accrued compensation and benefits 150,845 142,846
Accrued expenses 589,195 509,375
Dividend payable 777,287 500,000
----------- ------------
TOTAL CURRENT LIABILITIES 5,699,456 6,674,839
Dividend payable - 392,707
Minority interest 200,671 248,211
Redeemable preferred stock, 12% cumulative
convertible, $1 par value; 1,000,000 shares
authorized; 160,000 and 185,000 shares 162,500 185,000
issued and outstanding, respectively
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock: no par value; 25,000,000 shares
authorized 10,374,870 issued and outstanding - -
Additional paid-in capital 3,786,955 3,702,066
Retained earnings (deficit) (1,818,529) (1,463,569)
Unrealized gain on available-for-sale securities 22,500 -
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 1,990,926 2,238,497
----------- ------------
$8,053,553 $9,739,254
----------- ------------
----------- ------------
</TABLE>
Note: The consolidated statement of financial position at December 31, 1995 has
been derived from the audited financial statements at that date.
See accompanying notes to consolidated financial statements.
3
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TECH SQUARED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Month Ended
-------------------------- -------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $8,631,713 $12,609,507 $17,259,669 $25,076,893
Cost of sales 7,743,412 11,425,425 15,358,521 22,489,258
------------ ----------- ------------ -----------
GROSS PROFIT 888,301 1,184,082 1,901,148 2,587,635
Selling & marketing expenses 581,080 521,838 1,214,086 1,167,273
General & administrative expenses 506,990 661,786 1,003,338 1,282,549
Research & development expenses 46,948 27,655 87,548 55,310
------------ ----------- ------------ -----------
Total Operating Expenses 1,135,018 1,211,279 2,304,972 2,505,132
------------ ----------- ------------ -----------
OPERATING PROFIT (LOSS) (246,717) (27,197) (403,824) 82,503
Interest expense, net (1,124) (69,085) (4,084) (128,119)
Dividend Income 5,400 - 5,400 -
------------ ----------- ------------ -----------
PROFIT (LOSS) BEFORE MINORITY
INTEREST IN LOSSES (242,441) (96,282) (402,508) (45,616)
Minority interest in losses 31,454 13,448 47,541 26,896
------------ ----------- ------------ -----------
NET INCOME (LOSS) BEFORE INCOME TAXES ($210,987) ($82,834) ($354,967) ($18,720)
Tax benefit of change to taxable status - $192,500 - $192,500
Income tax benefit - $22,460 - $22,460
------------ ----------- ------------ -----------
NET INCOME (LOSS) ($210,987) $132,126 ($354,967) $196,240
Pro forma income tax provision - (2,411) - ($31,911)
------------ ----------- ------------ -----------
PRO FORMA NET INCOME (LOSS) ($210,987) $129,715 ($354,967) $164,329
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Pro forma net income (loss) per
common share ($0.02) $0.02 ($0.03) $0.02
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Weighted average shares outstanding 10,374,870 8,197,809 10,374,870 7,614,765
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TECH SQUARED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss) ($354,967) $196,240
Non-cash items included in loss:
Depreciation and amortization 98,142 129,430
Minority interest in Digital River (47,541) (26,896)
Changes In Operating Assets And Liabilities:
Accounts receivable, net (325,331) (1,036,891)
Inventories 1,538,062 (363,620)
Income taxes - (214,960)
Prepaid and other current assets 233,120 26,931
Accounts payable (1,141,722) 182,411
Other current liabilities 87,819 284,246
------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 87,582 (823,109)
Cash Flows From Investing Activities:
Purchases of property and equipment (75,255) (37,690)
Increase in patents and organization costs - (28,751)
Change in officer/stockholder receivable 8,983 -
------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (66,272) (66,441)
Cash Flows From Financing Activities:
Dividends paid (115,420) (560)
Preferred stock redemption (22,500) -
Net borrowings (payments) on line of credit (242,455) 1,400,000
Expenses incurred on issuance of common stock (18,863) -
------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (399,238) 1,399,440
------------ -----------
NET INCREASE(DECREASE) IN CASH (377,928) 509,890
Cash At Beginning Of Period 867,370 619,884
------------ -----------
CASH AT END OF PERIOD $489,442 $1,129,774
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TECH SQUARED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE 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-QSB 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. Operating results for
the three and sixth month periods ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. 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 on Form 10-KSB.
Certain amounts in the financial statements of prior periods have been
reclassified to conform to the presentation used for the three and six month
periods ended June 30, 1996.
NOTE 2 - INVENTORIES
The Company's inventories consist primarily of goods held for resale and are
stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
NOTE 3 - AVAILABLE-FOR-SALE SECURITIES
The trading markets for the Company's available-for-sale securities are
highly volatile and may be limited, and there can be no assurance that the
ultimate dollar value realized for these investments will be equal to or in
excess of the value at which they are currently recorded .
NOTE 4 - LEASE
In May 1996 the Company executed a new lease on its existing facilities. The
new agreement has a 38 month term and includes certain contraction and
expansion provisions. Future minimum lease payments, including estimated
common area maintenance are as follows:
YEAR ENDING DECEMBER 31,
- ------------------------
1996 $87,000
1997 189,000
1998 207,000
1999 105,000
NOTE 5 - REVOLVING LINE OF CREDIT
As of June 30, 1996 the Company was in violation of the operating results
covenant in its line of credit agreement with Norwest Bank Minnesota, NA
("Norwest"). Subsequently, the Company and Norwest agreed verbally to
certain amendments to the existing line of credit, including an increase in
the interest rate by 1%, a minimum quarterly interest expense of $10,000, a
fee of $5,000, and certain other modifications including waiving the
defaults, and re-setting the covenants for the remainder of the term. The
verbal agreement is subject to final bank approval, and execution of a
definitive amendment to the credit agreement. Borrowings under the agreement
continue to be secured by substantially all the Company's assets, and are
personally guaranteed up to $500,000 by the Company's President.
6
<PAGE>
TECH SQUARED, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company sells computer and peripheral products, mainly in the Macintosh
market, through direct marketing channels, to mass merchants, and to value
added resellers. On May 9, 1995, MacUSA merged with the Jaguar Group, Ltd.
(Jaguar). The merger was accounted for as a "reverse acquisition" under the
purchase method in which MacUSA was deemed to have acquired Jaguar, though
Jaguar continued as the surviving legal entity. The consolidated financial
statements do not reflect the historical operating results of Jaguar prior to
the merger because its historical results are not considered meaningful.
Following the merger, Jaguar changed its name to Tech Squared Inc.
The Consolidated financial statements include the accounts of Tech Squared
Inc., its wholly owned subsidiaries, and Digital River, Inc. ( "Digital
River"), which the Company controls through its bargain purchase option to
acquire 60% of the outstanding common stock. Digital River is a development
stage company in the process of perfecting multiple patent applications
involving computer data media security whereby digital data can be restricted
by a security lock and can be subsequently decoded releasing the data for use.
For the three months ended June 30, 1996 the Company recorded a net loss of
($211,000) or ($0.02) per share compared to a pro forma net income of
$130,000 or $0.02 per share in the second quarter of 1995. For the sixth
months ended June 30, 1996 the Company recorded a net loss of ($355,000) or
($0.03) per share, compared to a pro forma net income of $164,000 or
$0.02 per share for the comparable period of 1995. At June 30, 1996 the
Company had cash of $489,000 of which $372,000 was in Digital River and
available only to fund the operations of Digital River. Availability under
the Company's discretionary revolving line of credit totaled $2.1 million as
of June 30, 1996.
RESULTS OF OPERATIONS
NET SALES
Net sales for the Company's second quarter ended June 30, 1996 totaled
$8,632,000 compared to $12,610,000 for the corresponding period of 1995.
The decrease in sales of 31.6 % is due to an overall slowdown in the demand
for Macintosh related products and a significant decline in sales to the
Company's distribution and mass merchant customers. Net sales for the first
six months of 1996 totaled $17,260,000 compared to $25,077,000 for the same
period in 1995. In both the second quarter and the six month period the
Company experienced significant declines in sales of storage devices
including hard drives, optical drives, and removable storage drives. In the
fourth quarter of 1995 the Company decided to de-emphasize sales into the
mass merchant channel and stopped shipping product under the PLI brand name
acquired in the second quarter of 1995. Sales from these two areas in 1995
were approximately $2,800,000 and $5,300,000 in the second quarter and six
month periods ended June 30, 1995, respectively. The decline in sales from
the Company's distribution, mass merchant, and PLI customers was somewhat
offset by an increase in sales to the Company's DTP Direct catalog customers
of approximately 5% compared to 1995.
GROSS PROFIT
Gross profit for the quarter ended June 30, 1996 was $888,000 or 10.3% of net
sales compared to $1,184,000 or 9.4 % of net sales for the comparable
period of 1995. Gross profit for the six month period ended June 30, 1996
was $1,901,000 or 11.0 % of net sales compared to $2,588,000 or 10.3% of
net sales for the same period in 1995. Gross profit as a percentage of net
sales increased in 1996 due to the significant reduction in sales to the mass
merchant channel and under the PLI brand name which have historically carried
lower gross margins than the Company's direct sales. Gross margin
percentage in the second quarter of 1996 declined from 11.7% of sales in the
first quarter of 1996 due to competitive pressures and more aggressive
pricing by the Company in the current quarter. The Company expects ongoing
competitive pressure on gross margins in 1996.
7
<PAGE>
SELLING AND MARKETING EXPENSES
Selling and marketing expenses totaled $581,000 or 6.7% of sales during the
quarter ended June 30, 1996 compared to $522,000 or 4.1% of sales during the
corresponding period of 1995. For the six month period ending June 30, 1996
selling and marketing expenses were $1,214,000 compared to $1,167,000 for the
same period in 1995. As a percentage of sales, selling and marketing
expenses for the first six months of 1996 increased to 7.0% of net sales from
4.7% of net sales for the same six month period in 1995. The increase as a
percent of sales is due in part to an increase in personnel for the DTP sales
force, causing commissions to rise to 2.2% of sales for the second quarter
of 1996 compared to 1.2% for the second quarter of 1995. Commissions for
the six month period ended June 30, 1996 were 2.3% of sales compared to 1.2%
of sales for the same period in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the second quarter ended June 30,
1996 were $507,000 compared to $662,000 for the comparable period of 1995.
For the six month period ended June 30, 1996 general and administrative
expenses were $1,000,000 compared to $1,300,000 for the same period in 1995.
The decrease is primarily due to the voluntary salary elimination by the
president of the Company and an overall reduction in variable expenses
associated with sales. The reduction in general overhead was offset in part
by an increase in costs associated with being a public company.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are all incurred by the Company's Digital
River Inc. subsidiary. Research and development expenses were $47,000 and
$88,000 in the second quarter and six months ended June 30, 1996 compared
to $28,000 and $55,000 in the same periods of 1995. The increase reflects
the increase in personnel and in costs associated with ongoing development
activities by Digital River .
NET INTEREST EXPENSE
Net interest expense for the second quarter ended June 30, 1996 was $1,000
compared to $69,000 for the same period in 1995. Interest expense for the
six month period ended June 30, 1996 was $4,000 compared to $128,000 for the
same period in 1995. The decrease in interest expense is due to a
significant decrease in the average outstanding balance on the Company's line
of credit.
DIVIDEND INCOME
The Company recorded $5,400 of dividend income in the second quarter from its
investment in CAM Designs Inc.
INCOME TAXES
In the second quarter of 1996 the Company recorded no income tax provision
due to the Company's inability to currently record net operating loss benefit
carry forwards for financial reporting purposes. In the second quarter of
1995 the company recorded an income tax benefit of $215,000 including
$193,000 due to the change in taxable status from an S Corporation as a
result of the merger with Jaguar.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity at June 30, 1996 , consisted of
liquid funds, a revolving line of credit agreement with Norwest Bank
Minnesota, NA ("Norwest"), and vendor trade credit lines.
As of June 30, 1996 the Company had working capital of $853,000. This
working capital has been reduced by a dividend declared but not yet paid in
the amount of $777,000 which is subordinated to the Company's indebtedness
under a line of credit with Norwest pursuant to the terms of a Credit and
8
<PAGE>
Security Agreement dated January 3, 1996. Pursuant to a related debt
subordination agreement with Norwest, the Company is only allowed to pay
$200,000 in 1996 of which $146,000 has been paid through July 31, 1996, and
certain other amounts in the event of additional cash influxes into the
Company.
Borrowings under the $4,000,000 line of credit with Norwest are payable on
demand, limited by eligible percentages of accounts receivable, inventory
and certain investments, and bear interest at the prime rate plus 1%. The
agreement requires the Company to maintain certain covenants including a
minimum net worth, current ratio, debt to equity ratio, and certain operating
results. As of June 30, 1996 the Company was in violation of its operating
results covenant. Subsequently, the Company and Norwest agreed verbally to
certain amendments to the existing line of credit, including an increase in
the interest rate by 1%, a minimum quarterly interest expense of $10,000, a
fee of $5,000, and certain other modifications including waiving the
defaults, and re-setting the covenants for the remainder of the term. The
verbal agreement is subject to final bank approval, and execution of a
definitive amendment to the credit agreement. Borrowings under the agreement
are secured by substantially all the Company's assets, and are personally
guaranteed up to $500,000 by the Company's President.
Inventories decreased from $3,519,000, as of December 31, 1995 to $1,981,000
as of June 30,1996. This decrease resulted primarily from reduction of
inventories related to a significant purchase in October 1995 and from
improved inventory management. Capital expenditures totaled $55,000 in the
second quarter of 1996 compared to $11,000 for the second quarter of 1995.
For the six month period ended June 30, 1996 capital expenditures were
approximately $75,000 compared to $38,000 for the same period in 1995.
The Company believes that funds generated from management of receivable and
inventory levels, advances under its discretionary line of credit, further
expansion of lines with trade creditors, the cash on hand and potential
proceeds from the sale of its investments, will be sufficient to fund its
operations through the end of 1996. However, maintaining an adequate level
of working capital through the end of 1996 and thereafter depends in part on
the success of the Company's sales and marketing efforts, the Company's
ability to control operating expenses, and the Company's ability to maintain
its relationships with its bank and its suppliers. Furthermore, funding of
the Company's operations in future periods may require additional investments
in the Company in the form of equity or debt. There can be no assurance that
the Company will achieve desired levels of sales or profitability , or that
future capital infusions will be available.
The Company expects that the working capital requirement of its Digital River
Inc. subsidiary will exceed the available cash resources currently in the
subsidiary. The Company plans to address the need for additional capital by
raising additional funds in the form of either equity or debt. There can be
no assurance that such additional funding will be available, or if available
that it will be available at terms favorable to existing shareholders in
Digital River, Inc. or the Company.
DIGITAL RIVER, INC.
The Company's Digital River subsidiary recorded a loss of $79,000 in the
second quarter of 1996 compared to $34,000 in the second quarter of 1995.
The increase in the loss reflects the increase in personnel and in costs
associated with ongoing development activities.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 6, 1996 the Company convened the annual meeting of its
shareholders. The shareholders elected Joel Ronning and James Kramer to
serve as directors for a one year term expiring at the annual meeting of
shareholders in 1997 or until their successors are otherwise duly elected and
qualified (7,895,890 votes in favor and 4,401 withhold authority). The
shareholders also approved the following matters as indicated: (i) Tech
Squared Inc. 1995 Employee Stock Option Plan (7,287,646 votes in favor,
13,398 votes against, and 2,288 votes abstaining); (ii) Tech Squared Inc.
1995 Non-Employee Director Stock Option Plan (7,283,476 votes in favor,
13,958 votes against, and 5,898 votes abstaining) ; Arthur Andersen LLP as
independent auditors of the company for the year ending December 31, 1996
(7,897,933 votes in favor, 1,485 votes against, and 873 votes abstaining).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Lease Agreement Between Churchill Winston Limited
Partnership Landlord and Tech Squared Inc. Tenant,
dated May 1, 1996.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECH SQUARED, INC.
August 9, 1996 /s/ Joel Ronning
------------------------------------
Joel Ronning
President (as principal executive and
operating officer and principal financial
and accounting officer)
11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INDEX DESCRIPTION PAGE NUMBER.
<S> <C> <C>
10.1 Lease Agreement Between Churchill Winston Limited
Partnership Landlord and Tech Squared Inc. Tenant,
dated May 1, 1996. 13
27.1 Financial Data Schedule 51
</TABLE>
12
<PAGE>
LEASE AGREEMENT
BETWEEN
CHURCHILL WINSTON LIMITED PARTNERSHIP
LANDLORD
AND
TECH SQUARED, INC.
TENANT
<PAGE>
TABLE OF CONTENTS
SECTION 1 BASIC PROVISIONS. . . . . . . . . . . . . . . . . . . . . . -1-
1.1 Landlord. . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.2 Tenant. . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.3 Tenant's Address. . . . . . . . . . . . . . . . . . . . . . -1-
1.4 Lease Execution Date. . . . . . . . . . . . . . . . . . . . -1-
1.5 Building. . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.6 Building Rentable Area. . . . . . . . . . . . . . . . . . . -1-
1.7 Premises. . . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.8 Premises Rentable Area. . . . . . . . . . . . . . . . . . . -1-
1.9 Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . -1-
1.10 Lease Commencement Date . . . . . . . . . . . . . . . . . . -1-
1.11 Lease Termination Date. . . . . . . . . . . . . . . . . . . -1-
1.12 Base Rent Schedule. . . . . . . . . . . . . . . . . . . . . -2-
1.13 Initial Estimated Operating Costs . . . . . . . . . . . . . -2-
1.14 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . -2-
1.15 Security Deposit. . . . . . . . . . . . . . . . . . . . . . -2-
1.16 Address for Notice to Landlord. . . . . . . . . . . . . . . -2-
1.17 Address for Notice to Tenant. . . . . . . . . . . . . . . . -2-
1.18 Real Estate Broker(s) Due Commission. . . . . . . . . . . . -2-
SECTION 2 REAL PROPERTY, BUILDING AND PREMISES. . . . . . . . . . . . -3-
2.1 Definition of Real Property . . . . . . . . . . . . . . . . -3-
2.2 Definition of Building. . . . . . . . . . . . . . . . . . . -3-
2.3 Definition of Premises. . . . . . . . . . . . . . . . . . . -3-
2.4 Determination of Premises . . . . . . . . . . . . . . . . . -3-
SECTION 3 TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
3.1 Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 4 RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
4.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . -3-
4.2 Additional Rent . . . . . . . . . . . . . . . . . . . . . . -3-
4.3 Rent Proration. . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 5 COMMON AREA . . . . . . . . . . . . . . . . . . . . . . . . -4-
5.1 Definition of Common Area . . . . . . . . . . . . . . . . . -4-
5.2 Use and Control of Common Area. . . . . . . . . . . . . . . -4-
5.3 Operation and Maintenance of Common Area. . . . . . . . . . -4-
SECTION 6 OPERATING COSTS . . . . . . . . . . . . . . . . . . . . . . -4-
6.1 Definition of Operating Costs . . . . . . . . . . . . . . . -4-
6.2 Estimated Operating Costs . . . . . . . . . . . . . . . . . -6-
6.3 Definition of Tenant's Proportionate Share. . . . . . . . . -6-
6.4 Payment of Tenant's Proportionate Share . . . . . . . . . . -6-
6.5 Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . -6-
-i-
<PAGE>
SECTION 7 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
7.1 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . -6-
7.2 No Representation or Warranty . . . . . . . . . . . . . . . -6-
7.3 Abandonment . . . . . . . . . . . . . . . . . . . . . . . . -7-
SECTION 8 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . -8-
8.1 Tenant to Pay . . . . . . . . . . . . . . . . . . . . . . . -8-
8.2 Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . -8-
8.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
8.4 Energy Conservation . . . . . . . . . . . . . . . . . . . . -8-
SECTION 9 SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
9.1 Consent and Maintenance . . . . . . . . . . . . . . . . . . -8-
SECTION 10 ACCEPTANCE OF PREMISES, REPAIR AND MAINTENANCE. . . . . . . -9-
10.1 Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . -9-
10.2 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . -9-
10.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . -9-
10.4 Waiver of Claims. . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 11 ALTERATIONS AND ADDITIONS . . . . . . . . . . . . . . . . .-10-
11.1 Landlord's Consent Required . . . . . . . . . . . . . . . .-10-
11.2 Indemnification for Liens . . . . . . . . . . . . . . . . .-10-
11.3 Inspection and Notice of Non-Responsibility . . . . . . . .-10-
11.4 Tenant's Additional Obligations . . . . . . . . . . . . . .-10-
SECTION 12 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . .-11-
12.1 Landlord's Consent. . . . . . . . . . . . . . . . . . . . .-11-
12.2 Landlord's Rights . . . . . . . . . . . . . . . . . . . . .-11-
SECTION 13 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . .-11-
13.1 Tenant's Insurance. . . . . . . . . . . . . . . . . . . . .-11-
13.2 Form of Insurance . . . . . . . . . . . . . . . . . . . . .-12-
13.3 Tenant's Actions. . . . . . . . . . . . . . . . . . . . . .-12-
SECTION 14 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . .-13-
14.1 Determination to Rebuild. . . . . . . . . . . . . . . . . .-13-
14.2 Landlord's Restoration. . . . . . . . . . . . . . . . . . .-13-
14.3 Tenant's Right to Terminate Lease . . . . . . . . . . . . .-13-
14.4 Rent Abatement. . . . . . . . . . . . . . . . . . . . . . .-13-
14.5 Tenant's Restoration. . . . . . . . . . . . . . . . . . . .-13-
14.6 Liability for Damage. . . . . . . . . . . . . . . . . . . .-13-
14.7 Termination of Lease. . . . . . . . . . . . . . . . . . . .-14-
SECTION 15 WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . .-14-
15.1 Waiver of Subrogation. . . . . . . . . . . . . . . . . . .-14-
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<PAGE>
SECTION 16 CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . .-14-
16.1 Total or Partial Condemnation . . . . . . . . . . . . . . . .-14-
16.2 Condemnation Awards . . . . . . . . . . . . . . . . . . . . .-14-
SECTION 17 COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . .-14-
17.1 Tenant's Compliance . . . . . . . . . . . . . . . . . . . . .-14-
17.2 Disability Access Laws. . . . . . . . . . . . . . . . . . . .-15-
SECTION 18 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . .-15-
18.1 Tenant's Occupancy. . . . . . . . . . . . . . . . . . . . . .-15-
18.2 No Representations or Warranties. . . . . . . . . . . . . . .-15-
SECTION 19 SURRENDER OF THE PREMISES . . . . . . . . . . . . . . . . . .-15-
19.1 Tenant's Obligations. . . . . . . . . . . . . . . . . . . . .-15-
19.2 Landlord's Requirements . . . . . . . . . . . . . . . . . . .-16-
SECTION 20 SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . .-16-
20.1 Tenant's Deposit. . . . . . . . . . . . . . . . . . . . . . .-16-
SECTION 21 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . .-16-
21.1 Events of Default . . . . . . . . . . . . . . . . . . . . . .-16-
21.2 Landlord's Remedies . . . . . . . . . . . . . . . . . . . . .-17-
21.3 Landlord's Rights Cumulative. . . . . . . . . . . . . . . . .-19-
21.4 No Waiver of Rights or Remedies . . . . . . . . . . . . . . .-19-
SECTION 22 LATE PAYMENT CHARGES. . . . . . . . . . . . . . . . . . . . .-19-
22.1 Tenant's Liability. . . . . . . . . . . . . . . . . . . . . .-19-
SECTION 23 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . .-20-
23.1 Manner of Notice. . . . . . . . . . . . . . . . . . . . . . .-20-
23.2 Notice to Landlord's Lender . . . . . . . . . . . . . . . . .-20-
SECTION 24 BANKRUPTCY OR INSOLVENCY. . . . . . . . . . . . . . . . . . .-20-
24.1 Chapter 7 of the Bankruptcy Code. . . . . . . . . . . . . . .-20-
24.2 Chapters 11 and 13 of the Bankruptcy Code . . . . . . . . . .-21-
24.3 Assumption of Lease . . . . . . . . . . . . . . . . . . . . .-22-
24.4 Assignment of Lease . . . . . . . . . . . . . . . . . . . . .-22-
24.5 Reasonable Use and Occupancy Charges. . . . . . . . . . . . .-22-
24.6 Landlord's Consent. . . . . . . . . . . . . . . . . . . . . .-22-
24.7 State Law . . . . . . . . . . . . . . . . . . . . . . . . . .-22-
SECTION 25 ESTOPPEL CERTIFICATE AND SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT. . . . . . . . . . .-23-
25.1 Estoppel Certificate. . . . . . . . . . . . . . . . . . . . .-23-
25.2 Subordination, Non-Disturbance and Attornment Agreement . . .-23-
25.3 Tenant's Default. . . . . . . . . . . . . . . . . . . . . . .-23-
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<PAGE>
SECTION 26 HAZARDOUS MATERIAL. . . . . . . . . . . . . . . . . . . . . .-24-
26.1 Tenant's Obligations. . . . . . . . . . . . . . . . . . . . .-24-
26.2 Definition of Hazardous Material. . . . . . . . . . . . . . .-24-
26.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . .-24-
SECTION 27 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . .-25-
27.1 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . .-25-
27.2 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . .-25-
27.3 Governing Law and Jurisdiction. . . . . . . . . . . . . . . .-25-
27.4 Holding Over. . . . . . . . . . . . . . . . . . . . . . . . .-25-
27.5 No Joint Venture. . . . . . . . . . . . . . . . . . . . . . .-25-
27.6 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . .-25-
27.7 Time is of the Essence. . . . . . . . . . . . . . . . . . . .-25-
27.8 Adjustment of Rentable Area . . . . . . . . . . . . . . . . .-25-
27.9 Landlord's Access . . . . . . . . . . . . . . . . . . . . . .-25-
27.10 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
27.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . .-26-
27.12 Payment and Receipt of Money. . . . . . . . . . . . . . . . .-26-
27.13 Landlord Not Liable . . . . . . . . . . . . . . . . . . . . .-26-
27.14 Non-Recourse. . . . . . . . . . . . . . . . . . . . . . . . .-26-
27.15 Each Covenant Essential . . . . . . . . . . . . . . . . . . .-26-
27.16 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .-27-
27.17 Joint and Several Liability . . . . . . . . . . . . . . . . .-27-
27.18 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
27.19 No Reservation or Option. . . . . . . . . . . . . . . . . . .-27-
27.20 Construction of Lease . . . . . . . . . . . . . . . . . . . .-27-
27.21 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . .-27-
27.22 Rent Related to Value . . . . . . . . . . . . . . . . . . . .-27-
27.23 Brokerage Commission. . . . . . . . . . . . . . . . . . . . .-27-
27.24 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . .-27-
27.25 Authorized Signatures . . . . . . . . . . . . . . . . . . . .-27-
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<PAGE>
LEASE AGREEMENT
SECTION 1
BASIC PROVISIONS
The Landlord, in consideration of the rent herein agreed to be paid by the
Tenant and the other conditions, agreements and stipulations by the Tenant
herein expressed and agreed to be kept and performed by the Tenant, does hereby
demise and lease unto the Tenant the Premises. The following provisions are an
integral part of this Lease.
1.1 LANDLORD. CHURCHILL WINSTON LIMITED PARTNERSHIP
----------------------------------------
----------------------------------------
1.2 TENANT. TECH SQUARED, INC.
----------------------------------------
a MINNESOTA CORPORATION
----------------------------------------
(entity)
under the laws of MINNESOTA
----------------------------------------
1.3 TENANT'S ADDRESS. 5198 WEST 76TH STREET
----------------------------------------
EDINA, MN 55439
----------------------------------------
----------------------------------------
1.4 LEASE EXECUTION DATE. ----------------------------------------
1.5 BUILDING. Name, if any:
----------------------------------------
Address: 5150-5198 WEST 76TH STREET
----------------------------------------
EDINA, MN 55439
----------------------------------------
1.6 BUILDING RENTABLE AREA. Approximately 138,467 square feet
-------
1.7 PREMISES. Suite, if any:
----------------------------------------
Address: 5198 WEST 76TH STREET
----------------------------------------
EDINA, MN 55439
----------------------------------------
1.8 PREMISES RENTABLE AREA.
Office Area 1st Floor:Approximately 4,651 square feet
-----
Mezzanine Office: Approximately 5,102 square feet
-----
Warehouse Area 1st: Approximately 19,948 square feet
------
Whs Mezzanine Area: Approximately 1,586 square feet
-----
Total Area: Approximately 31,287 square feet
------
1.9 LEASE TERM. THREE (3) years
---------
TWO (2) months
-------
1.10 LEASE COMMENCEMENT DATE. MAY 1, 1996
-----------------
1.11 LEASE TERMINATION DATE. JUNE 30, 1999
-----------------
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<PAGE>
1.12 BASE RENT SCHEDULE.
ANNUAL
BASE
SQUARE RATE PER ANNUAL BASE MONTHLY
DATES FOOTAGE SQ. FOOT RENT BASE RENT
5/1/96 - 6/30/96 31,287 $ -0- $ -0- $ -0- *
- ---------------- ------ -------- ----------- -----------
7/1/96 - 6/30/97 31,287 $3.29 $102,934.23 $8,577.85
- ---------------- ------ -------- ----------- -----------
7/1/97 - 6/30/98 31,287 $4.29 $134,221.23 $11,185.10
- ---------------- ------ -------- ----------- -----------
7/1/98 - 6/30/99 31,287 $4.49 $140,478.63 $11,706.55
- ---------------- ------ -------- ----------- -----------
- ---------------- ------ -------- ----------- -----------
*TENANT WILL PAY OPERATING EXPENSES ONLY FOR THE PERIOD 5/1/96-6/30/96
1.13 INITIAL ESTIMATED OPERATING COSTS. Initial Estimated Operating Cost
$2.24 per square foot
-----
1.14 PERMITTED USE. Tenant's use shall be limited to
SALES, SERVICE AND WAREHOUSING OF
-------------------------------------
COMPUTER PRODUCTS OR ANY RELATED
-------------------------------------
BUSINESSES. ADDITIONALLY ANY OTHER
-------------------------------------
BUSINESS USE WITH LANDLORD'S CONSENT
-------------------------------------
(the "Permitted Use").
1.15 SECURITY DEPOSIT. $7,000.00
-------------------------------------
1.16 ADDRESS FOR NOTICE TO LANDLORD. WINSTON CHURCHILL LIMITED PARTNERSHIP
-------------------------------------
c/o R. L. Johnson Company
701 Decatur Avenue North
Suite 107
Golden Valley, MN 55427
With a copy to: Leslie H. Novak, Esq.
Mackall, Crounse & Moore
1400 AT&T Tower
901 Marquette Avenue
Minneapolis, MN 55402-2859
1.17 ADDRESS FOR NOTICE TO TENANT. SAME AS SECTION 1.3
-------------------------------------
(if different than address in Section 1.3)
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
1.18 REAL ESTATE BROKER(S) DUE COMMISSION. Individual Name:NONE
-------------------------------------
Company Name:NONE
-------------------------------------
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<PAGE>
SECTION 2
REAL PROPERTY, BUILDING AND PREMISES
2.1 DEFINITION OF REAL PROPERTY. The Real Property consists of the land
legally described on Exhibit "A" attached hereto and made a part hereof, and all
improvements thereon including the Building and the Common Area.
2.2 DEFINITION OF BUILDING. The Building is a structure located upon the Real
Property containing the approximate square footage provided in Section 1.6.
2.3 DEFINITION OF PREMISES. The Premises are a portion of the Building which
is outlined in red on the floor plan attached hereto as Exhibit "B" and made a
part hereof containing the approximate square footage provided in Section 1.8.
2.4 DETERMINATION OF PREMISES. The actual square footage of the Premises and
the Building shall be determined by Landlord measuring the space from the
outside surface of permanent outer walls and from the centerline of interior
demising walls with no deduction by reason of stairs, interior partitions or
other interior construction or equipment.
SECTION 3
TERM
3.1 LEASE TERM. The term of this Lease shall be as provided in Sections 1.9,
1.10 and 1.11. Notwithstanding the foregoing, in the event Tenant's initial
occupancy of the Premises is delayed because of damage to the Premises caused by
fire, acts of God, acts of war, or any other calamity, for which the Landlord is
not responsible or any other event not under the reasonable control of the
Landlord, the term of this Lease as stated above shall be extended for a period
equal to the amount of time lost by reason of any such cause, but in any event
not beyond six (6) months from the commencement date.
SECTION 4
RENT
4.1 BASE RENT. Tenant shall pay to Landlord without demand, diminution,
deduction, or set-off, at the Landlord's address listed in Section 1.16 or at
such other place as Landlord may from time to time designate in writing, an
annual base rent as provided in Section 1.12, payable in advance in successive
equal monthly installments as provided in Section 1.12, each on the first day of
each month during the entire term hereof.
4.2 ADDITIONAL RENT. The Tenant shall also pay, without demand, diminution,
deduction, or set-off, as additional rent, such other sums of money as shall
become due and payable by Tenant to Landlord under this Lease, including without
limitation, Tenant's Proportionate Share of Operating Costs as provided in
Section 6.
4.3 RENT PRORATION. If the term of this Lease as heretofore established,
commences on other than the first day of a month or terminates on other than the
last day of a month, then all the rent and additional rent provided for in this
Section for such month or months shall be prorated and the installment or
installments of rent shall be paid by Tenant in advance.
-3-
<PAGE>
SECTION 5
COMMON AREA
5.1 DEFINITION OF COMMON AREA. Common Area shall mean the entire area
designated from time to time by Landlord for common use or benefit of the
occupants of the Building, including, but not by way of limitation, any and all
portions of the Building not available for lease to tenants; the Real Property;
the floors; the heating, ventilating and air conditioning; parking lots;
landscaped and vacant areas; passages for trucks and automobiles; areaways;
roads; sidewalks; curbs; corridors; and facilities such as washrooms, drinking
fountains, toilets, stairs, ramps, elevators and escalators, if any.
5.2 USE AND CONTROL OF COMMON AREA. Subject to rules and regulations that may
be created by Landlord from time to time, the Common Area is hereby made
available to Tenant and its employees, agents, customers and invitees for their
reasonable, nonexclusive use in common with other Tenants, their employees,
agents, customers, invitees and Landlord. Landlord shall have the exclusive
right to control the Common Area; to change the size location level and
arrangement of the Common Area; to enter into, modify and terminate easements
and other agreements pertaining to the use and maintenance of the Common Area;
to close all or any portion of the Common Area to such extent as, in the opinion
of Landlord's counsel, may be necessary to prevent a dedication thereof or the
accrual of any rights to any person or to the public therein; to close
temporarily any or all portions of the Common Area; and to do and perform such
other acts in and to said areas and improvements as in the exercise of good
business judgement, as Landlord shall determine to be reasonable or necessary.
LANDLORD'S CHANGES TO THE COMMON AREA WILL NOT HAVE A SUBSTANTIAL MATERIAL
ADVERSE EFFECT ON TENANT'S USE AND OCCUPANCY OF THE PREMISES.
5.3 OPERATION AND MAINTENANCE OF COMMON AREA. Landlord shall operate and
maintain the Common Area or shall cause the same to be operated and maintained
in manner deemed by Landlord reasonable and appropriate, and in a first class
manner.
SECTION 6
OPERATING COSTS
6.1 DEFINITION OF OPERATING COSTS. Operating Costs shall consist of all costs
and expenses of the Building and the Common Area and such additional facilities
in subsequent years as may be determined by the Landlord to be necessary to the
Building, which costs and expenses shall be determined in accordance with
generally accepted accounting principles, which shall be consistently applied
(with accruals appropriate to Landlord's business); and shall include without
limitation all ordinary, necessary and reasonable costs and expenses (but not
costs which are separately billed to and paid by tenants) of every kind and
nature which Landlord shall pay or become obligated to pay (excluding principal
and interest payments to the holder of any mortgage on the Building) because of
or in connection with the ownership and operating of the Building and the Common
Area, such as the following:
A. Wages, salaries and related expenses of all employees engaged in the
operation, maintenance and security of the Building, but excluding
executive compensation.
B. All supplies and materials used in the operation and maintenance of
the Building.
-4-
<PAGE>
C. Management costs, maintenance and service agreements for the Building
and the equipment therein, including without limitation, window
cleaning, mechanical maintenance, snow removal, janitorial services,
and lawn and landscaping maintenance.
D. Accounting costs, including the costs of audits by certified public
accountants.
E. Cost of all insurance including, but not limited to fire, casualty,
liability applicable to the Building and Landlord's personal property
used in connection with the Building.
F. Cost of all repairs, replacements, reserves for replacements, and
general maintenance, (including, but not limited to, compliance with
environmental laws) (excluding repairs and general maintenance paid
for by proceeds of insurance or by Tenant and other third parties, and
alterations attributable to tenants of the Building other than
Tenant), EXCLUDING AREAS (IF ANY) IDENTIFIED IN THE PHASE I
ENVIRONMENTAL REPORT DATED APRIL 4, 1996, WHICH TENANT WILL NOT BE
RESPONSIBLE FOR.
G. All charges for sewer and water at the Building and Common Area and
other utility charges for Common Area.
H. All real estate taxes and installments of special assessments, service
payments in lieu of taxes, excises, levies, fees or charges, general
and special, ordinary and extraordinary, unforeseen as well as
foreseen of any kind which are assessed, levied, charged, confirmed,
or imposed by any public authority upon the Building and the Real
Property, its operations or the rent provided for in this Lease. If
at any time during the term of this Lease, under the laws of the State
of Minnesota, or of any political subdivision thereof, in which the
Real Property is situated, a tax or excise on rents, or other tax
however described, is levied or assessed by the State of Minnesota, or
by any such political subdivision, against Landlord on account of the
base rent or additional rent accruing under this Lease, as a
substitute in whole or in part for real estate taxes on the Real
Property or any part thereof, such tax or excise on rents shall, to
the extent of the amount thereof which is lawfully assessed or imposed
as a direct result of Landlord's ownership of the Real Property or of
this Lease, be deemed to be a real estate tax or assessment levied or
assessed against the Real Property for the purposes of this Section
6.1.H. However, nothing contained in this Lease shall require Tenant
to pay any income, excess profits, franchise, or similar tax payable
by Landlord on account of the rent accruing under this Lease. All
costs and expenses incurred by Landlord during negotiations for or
contests of the amount of taxes or assessments shall be included in
real estate taxes and special assessments. It is agreed that Tenant
will be responsible for ad valorem taxes on its personal property and
on the value of leasehold improvements to the extent that same exceeds
standard building allowances, but shall not be responsible for
Landlord's State or Federal Income Tax.
I. Amortization of capital improvements made to the Building and Common
Area before or after the commencement date of the Lease, which capital
improvements shall be amortized over the useful life of the capital
improvements.
-5-
<PAGE>
6.2 ESTIMATED OPERATING COSTS. Landlord has prepared an estimate of the
Operating Costs for the calendar year of the operation of the Building,
(hereinafter referred to as "Estimated Operating Costs"), all of which Operating
Costs shall be initially paid by Landlord. The Estimated Operating Costs for
the year in which the Lease is executed is as listed in Section 1.13.
6.3 DEFINITION OF TENANT'S PROPORTIONATE SHARE. Tenant's Proportionate
Share shall be a fraction the numerator of which shall be the PREMISES
RENTABLE AREA (EXCLUDING MEZZANINE ADDED TO TENANT'S PREMISES AFTER THE
INITIAL CONSTRUCTION OF THE BUILDING) and the denominator of which shall be
the BUILDING RENTABLE AREA AS DEFINED IN SECTION 1.6.
6.4 PAYMENT OF TENANT'S PROPORTIONATE SHARE. Tenant's Proportionate Share of
the Estimated Costs for each calendar year shall be paid as additional rent
without demand, deduction, diminution, or set-off in monthly installments on the
first day of each calendar month, in advance, in an amount estimated by Landlord
from time to time. If the term of this Lease commences or terminates (other
than by reason of Tenant's default) during the calendar year, Tenant's
obligation for Tenant's Proportionate Share of Estimated Costs shall be prorated
based on the term of the Lease contained within the calendar year. Within
ninety (90) days after the end of each calendar year, Landlord shall furnish
Tenant with a statement of the actual amount of Tenant's Proportionate Share of
the Operating Costs for such period. In the event the total of Tenant's monthly
installments paid for any calendar year does not equal Tenant's Proportionate
Share as shown on such statement, then upon receipt of such annual statement,
Tenant shall promptly pay Landlord as additional rent any deficiency or Landlord
shall issue to Tenant a credit invoice for such excess (except at the end of the
term of this Lease in which case Landlord shall promptly pay Tenant such
excess), as the case may be.
6.5 ADJUSTMENT. Notwithstanding any other provision herein to the contrary,
it is agreed that in the event the Building is not fully occupied during any
partial or full calendar year, an adjustment shall be made in computing the
Operating Costs for such year so that the Operating Costs shall be computed
for such year as though the Building has been fully occupied during such
year. Landlord shall bear Operating Costs relating to non-occupied but
rentable space. NOT WITHSTANDING ANYTHING HEREIN TO THE CONTRARY TENANT'S
OPERATING COSTS SHALL NOT INCREASE MORE THAN TEN PERCENT (10%) OVER THE
PREVIOUS YEAR, EXCLUDING REAL ESTATE TAXES AND SNOW REMOVAL.
SECTION 7
USE
7.1 PERMITTED USE. The Premises shall be used only for the use permitted in
Section 1.14 and for no other use whatsoever. Tenant shall not suffer, use or
permit the use of the Premises or any portion thereof for any purpose other than
the permitted use unless the prior written consent of the Landlord is first
obtained. Tenant shall not use or permit the use of the Premises or any portion
thereof in violation of any law, ordinance or regulation applicable thereto nor
in a manner constituting a nuisance of any kind.
7.2 NO REPRESENTATION OR WARRANTY. Landlord's authorization of Tenant's use as
provided for herein is not, and shall not be deemed, a warranty or
representation by Landlord that Tenant's authorized use is permitted under city,
county, state, or federal laws, or any regulation promulgated by any agency or
quasi-political entity of any city, county, state, or federal government.
Tenant shall have the sole obligation and responsibility to confirm that the use
-6-
<PAGE>
authorized by the Landlord is permitted under all laws and regulations. In
addition, in the event Tenant is permitted to (i) make any improvement or
alteration within the Premises, or (ii) to expand or contract the Premises, or
(iii) to sublease or assign the Premises to a new tenant or subtenant, as the
case may be, or (iv) the authorized use by any Tenant or any permitted assignee
or subtenant (including Tenant herein) of the Premises changes, or (v) the
internal designation of square footage within the Premises is changed with
respect to the amount of such space utilized for office, warehouse, storage,
manufacturing, or the like, all as provided herein, then, with respect to any of
the aforelisted matters (i through v), Landlord makes no warranty or
representation that they conform or will conform with all laws, codes, and
regulations of any city, county, state, or the federal government, or any
political subdivision thereof that has jurisdiction with respect thereto. It
shall be the sole responsibility and obligation of the Tenant or permitted
assignee or subtenant of Tenant, to have any and all plans and specifications
and change of use or designation of the square footage within the Premises
approved by the appropriate governmental authorities, and to obtain all
necessary licenses, permits, certificates of occupancy, or the like with respect
to such alteration, improvement, expansion of the Premises, contraction of the
Premises, change of use, and/or change of designation of square footage of the
space within the Premises. AS OF THE DATE THIS LEASE WAS SIGNED, LANDLORD IS
NOT AWARE THAT TENANT IS NOT IN COMPLIANCE WITH ANY ITEMS DISCUSSED IN THIS
SECTION 7.2. LANDLORD WARRANTS THAT AS OF THE DATE THE LEASE WAS SIGNED THE
PROPERTY IS IN COMPLIANCE WITH ZONING.
7.3 ABANDONMENT. Tenant shall not abandon or leave vacant the Premises or
permit, license, or allow the Premises to be occupied by any other party. As
used herein, "abandonment" or "leaving vacant" shall mean the Premises are
left unattended and/or is not open for business (except for the permitted
exceptions set forth in (i) hereafter) for a period of thirty (30)
consecutive calendar days. Tenant warrants and agrees (i) that it shall
prevent the Premises from being used in any way which will injure the
reputation of the Real Property, the reputation of Landlord, or from being
used in any way which may be a nuisance, annoyance, inconvenience, or damage
to other tenants or occupants of the properties which adjoin the Premises,
whether or not owned and controlled by Landlord, including, without limiting
the generality of the foregoing, vibration, noise, or odors from its business
operation, playing of any musical instrument, radio, or television, or use of
a microphone, loudspeaker, electrical equipment, or other equipment which may
be heard outside of the Premises, or the allowing the accumulation of refuse
or garbage which would attract vermin, insects, and/or produce noxious or
unpleasant odors; and (ii) that it shall forthwith report to Landlord in
writing any investigation, complaint, or redtag, either from a neighbor, or
governmental body or political subdivision thereof, in which the Premises is
situated. In the event Tenant has abandoned or allowed the Premises to be
vacant, Landlord may, at its sole discretion, take all necessary or prudent
acts to secure the Premises, in order to avoid the insurance contract then in
effect from being vitiated by reason of the Premises being vacant or to
minimize the insurance coverage by reason of such abandonment or allowing the
Premises to be vacant including, without limiting the generality of the
foregoing, changing the locks, boarding up windows, obtaining additional
insurance, hiring security guards or services, allowing occupancy of the
Premises during business hours to a nonpaying occupant and not as a tenant,
or any such other act which Landlord deems prudent in the then circumstances.
Any such costs incurred by Landlord by reason of such breach shall be deemed
additional rent and subject Tenant to the remedies of Landlord set forth in
Section 21 of this Lease hereafter. Tenant fully releases and discharges
Landlord from any and all claims and liabilities arising by reason of
Landlord undertaking one or more of the above-referenced actions. IF
LANDLORD INSTALLS A NON-PAYING OCCUPANT, THEN THE LEASE WILL BE IMMEDIATELY
TERMINATED.
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SECTION 8
UTILITIES
8.1 TENANT TO PAY. Commencing on the day Tenant takes possession of the
Premises, Tenant shall pay promptly, as and when due, all charges for
electricity, gas, telephone, water, sewer service, trash removal, and all other
services or utilities including any extraordinary amount of sewer and water
which are used, rendered or supplied to or upon the Premises throughout the term
of this Lease, including but not limited to all such costs or charges incurred
to provide heat, ventilation and air conditioning to the Premises; and Tenant
shall indemnify Landlord and save it harmless of and from any cost, liability,
charge or expense with respect thereto. THE UTILITIES PAYABLE PURSUANT TO THIS
SECTION SPECIFICALLY EXCLUDE ANY AMOUNTS INCLUDED AS OPERATING COSTS FOR COMMON
AREAS. In the event Tenant shall not pay said utilities when due, Landlord may,
but shall not be required to, pay said utilities on behalf of Tenant, and in
that event, Tenant shall promptly reimburse Landlord therefore upon demand and
said advance shall be deemed to be an additional rent payment required of
Tenant.
8.2 CAPACITY. Tenant hereby acknowledges the limits of the design standard of
the electrical service to be furnished to the Premises and if additional
capacity or wiring is required by Tenant's intended use, Landlord, after first
approving the same, shall permit Tenant to install such additional capacity or
wiring at Tenant's expense in a manner consistent with Section 11.
8.3 DAMAGES. Landlord shall not be liable in damages or otherwise if the
furnishing by any supplier of any utility service or other service to the
Premises shall be interrupted or impaired by fire, accident, riot, strike, act
of God, the making of necessary repairs or improvements or by any causes beyond
Landlord's control.
8.4 ENERGY CONSERVATION. Should it become necessary because of directives of
public authorities to reduce energy consumption within the Premises, Tenant will
reduce its energy consumption in accordance with reasonable, uniform and non-
discriminatory standards established by public authorities.
SECTION 9
SIGNS
9.1 CONSENT AND MAINTENANCE. OTHER THAN AS CURRENTLY EXISTING Tenant shall not
place or cause to be placed or maintained on any exterior door, wall or window
of the Premises or the Building any advertising matter or other thing of any
kind and shall not place or maintain any decoration, lettering or advertising
matter on the glass of any window or door of the Premises or any hanging sign
without Landlord's prior written consent, WHICH CONSENT WILL NOT BE UNREASONABLY
WITHHELD. Tenant further agrees to maintain any such sign, awning, canopy,
decoration, lettering, advertising matter or other thing, as may be approved, in
good condition and repair at all times. Any sign proposed to be used by Tenant
shall comply with the requirements of the municipality in which the Building is
located and the requirements of Landlord as contained in Landlord's Sign
Criteria attached hereto as "Exhibit C" and made a part hereof, as if fully set
forth herein.
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SECTION 10
ACCEPTANCE OF PREMISES, REPAIR AND MAINTENANCE
10.1 ACCEPTANCE. Tenant acknowledges that it has caused the Premises to be
inspected in order to ascertain the quality and the condition thereof, and that
no representations, either expressed or implied, have been made regarding the
quality or condition thereof. Tenant does hereby accept the demise of the
Premises in its "as is" condition, and relies solely on its inspection of the
Premises with respect thereto. Except as may be specified on Exhibit "D"
attached hereto and made a part hereof, as if fully set forth herein, Landlord
shall not be required to make any alterations, additions, improvements, or
repairs to the Premises.
10.2 MAINTENANCE. Tenant, at its sole cost and expense, shall keep and maintain
the Premises and all equipment and improvements thereon, and every part thereof
specifically including, but not limited to, the interior walls and floors in
good repair and in a clean, safe, wholesome, insurable and tenantable condition
and in conformity with the regulations of any governmental authority and in
conformity with the standards established, from time to time, by the National
Fire Protection Association. Tenant shall comply with all health and police and
fire and other regulations, in all respects and at all times. Tenant shall not
allow refuse, garbage or debris to accumulate or be stored outside of or
adjacent to the Premises whether on top of dumpsters, or other containers or
not.
10.3 INDEMNIFICATION. Except as set forth within this Lease, Tenant agrees to
indemnify, defend and save Landlord, or its partners, agents, officers,
employees, representatives, contractors, licensees and managing agent (if any),
harmless against and from any and all claims, loss, damage and expense by or on
behalf of any person or persons, firm or firms, corporation or corporations,
arising from any act, omission or negligence on the part of Tenant or Tenant's
agents, contractors, servants, employees or licensees, or arising from any
accident, injury or physical damage to the extent caused by Tenant or Tenant's
agents, representatives, contractors, servants, licensees, invitees, and
employees to any person, firm or corporation occurring during the term of this
Lease or any renewal thereof, in or about the Premises or the Common Area, and
from and against all costs, expenses, liabilities, and reasonable counsel fees,
incurred in or about any such claim or action or proceeding brought thereon; and
in case any action or proceeding be brought against Landlord or its partners,
agents, officers, employees, representatives, contractors, licensees or managing
agent (if any) by reason of any such claim, Tenant, upon notice of such
proceeding, shall defend Landlord by counsel reasonably satisfactory to
Landlord. The scope of the indemnification provided for hereunder shall not
include claims, loss, damage or expense to the extent they arise from the gross
negligence or willful misconduct of Landlord or its partners, officers,
employees, representatives or agents, contractors or licensees. LANDLORD AGREES
TO INDEMNIFY, DEFEND AND HOLD HARMLESS TENANT AND ITS' PARTNERS, OFFICERS AND
EMPLOYEES FROM AND AGAINST ANY CLAIM, LOSS OR EXPENSE ARISING OUT OF INJURY,
DEATH OR PROPERTY LOSS, OR DAMAGE OCCURRING IN THE COMMON AREA, EXCEPT TO THE
EXTENT CAUSED BY THE NEGLIGENT ACT OR INTENTIONAL MISCONDUCT OF TENANT OR ITS'
PARTNERS, OFFICERS OR EMPLOYEES.
10.4 WAIVER OF CLAIMS. Except as otherwise provided herein, or to the extent
not expressly prohibited by law, Tenant waives all claims against Landlord, its
partners, agents, officers, employees, representatives, contractors, licensees
and servants for loss or damage to property, loss of business or losses under
worker's compensation laws and benefits which Tenant sustains during the term of
this Lease and which resulted directly or indirectly from any existing or future
condition, defect, matter or thing in, on or about the Premises; from any
equipment or
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appurtenances becoming out of repair; from any accident; or from any act or
omission of any person or entity including, but not limited to Landlord or
any other permitted Tenant of the Premises. This Section 10.4 shall apply
especially, but not exclusively, to damage caused by the flooding of
basements or other subsurface areas; by refrigerators, sprinkling devices,
air conditioning apparatus, water, snow, frost, steam, excessive heat or
cold, falling plaster, broken glass, sewage, gas, odors or noise; or the
bursting or leaking of pipes or plumbing fixtures. Landlord shall not be
liable for damage to or theft, misappropriation or loss or any property in
the Premises belonging to Tenant, its agents, employees, invitees or any
property located in, on or about the Premises regardless of who owns such
property, and Tenant agrees to release, defend and hold Landlord, its
partners, officers, agents, employees, servants and managing agent (if any)
harmless and indemnify them against claims and liability for injuries to such
property.
SECTION 11
ALTERATIONS AND ADDITIONS
11.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not make any alterations,
additions, repairs or improvements to the Premises without, in each such
instance, first obtaining Landlord's written consent WHICH SHALL NOT BE
REASONABLY WITHHELD. Any such alteration, addition, repair or improvement by
Tenant consented to by Landlord shall be performed by Tenant in a good
workmanlike manner, at Tenant's sole cost and expense, and in accordance with
all laws and regulations of applicable governing bodies. Any such alterations,
additions, repairs and improvements including fixtures which are permanently
affixed to the Building shall remain upon, be surrendered to Landlord, and
become the property of Landlord without disturbance or injury upon expiration of
the term of this Lease, or sooner termination of this Lease as provided herein,
unless Landlord requires BY WRITTEN NOTICE AT THE TIME OF CONSENT, specific
items thereof to be removed by Tenant at Tenant's sole expense in which event
Tenant shall do so prior to the expiration or sooner termination of the term of
this Lease at its expense, and shall repair any damage caused thereby. Tenant
shall restore the Premises to its original condition at the commencement of this
Lease or such better condition as the Premises may have been put during the term
of this Lease as provided in Section 19 hereof. TENANT WILL HAVE THE RIGHT TO
PROCEED WITH SEPARATE AND UNRELATED ALTERATIONS (EXCLUDING ELECTRICAL) TO THE
INTERIOR/NON-STRUCTURAL PREMISES, NOT TO EXCEED $1,500.00 PER ALTERATION, OR AN
AGGREGATE AMOUNT NOT TO EXCEED $4,500 PER YEAR. LANDLORD MUST BE NOTIFIED, BUT
CONSENT IS NOT REQUIRED. HOWEVER, LANDLORD WILL HAVE THE RIGHT TO STOP THE
ALTERATION IF IN LANDLORD'S SOLE DISCRETION FEELS IT IS NOT IN THE BEST INTEREST
OF THE BUILDING.
11.2 INDEMNIFICATION FOR LIENS. Tenant shall indemnify and save Landlord
harmless from and against any lien or claim of lien attached to or upon the
Premises or any part thereof by reason of any act or omission on the part of
Tenant.
11.3 INSPECTION AND NOTICE OF NON-RESPONSIBILITY. Landlord or Landlord's agents
shall at all reasonable times have the right to enter upon the Premises for the
purpose of inspecting the same, and for the purpose of posting or keeping posted
notices of non-responsibility or any or all forms of notice reasonably necessary
or proper to protect Landlord or the Premises against mechanics or materialmen's
liens, or charges, or other liens or charges which might or could arise out of
the use of the Premises by Tenant, or the construction of the improvements or
the making of alterations or repairs to the Premises.
11.4 TENANT'S ADDITIONAL OBLIGATIONS. Tenant shall also provide such notice
of non-liability of Landlord to any and all contractors, subcontractors and
materialmen. Tenant shall pay all costs for work done or caused to be done
by Tenant in the Premises, the Building, and the Real
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Property, which could result in any lien or encumbrance on Landlord's
interest in the Premises, the Building, and the Real Property, or any part
thereof, and shall keep the title to the Premises, the Building, and the Real
Property, and every part thereof, free and clear of any lien or encumbrance
in respect to such work. Tenant shall defend, indemnify and hold Landlord,
its partners, agents, officers, representatives, contractors, licensees,
employees and managing agent (if any) harmless against any claim, loss, cost,
demand and legal or other expense associated with the assertion of any such
lien. Tenant shall immediately notify Landlord of any claim of lien or other
action of which it has, or reasonably should have, knowledge and which
affects the title to the Premises, the Building, and the Real Estate, or any
part thereof, and shall cause the same to be removed within thirty (30) days
(or such additional time as Landlord may consent to in writing), failing
which Landlord may take such action as Landlord deems necessary to remove the
same and the entire cost thereof shall be immediately due and payable by
Tenant to Landlord.
SECTION 12
ASSIGNMENT AND SUBLETTING
12.1 LANDLORD'S CONSENT. Tenant shall not (i) sell, assign (a sale of
substantially all of the assets of Tenant SHALL CONSTITUTE AN ASSIGNMENT, BUT or
a change in control of Tenant shall not constitute an assignment), mortgage,
pledge, hypothecate or in any manner transfer this Lease or any estate or
interest thereunder; or (ii) sublet the Premises or any part or parts thereof;
without prior written consent of the Landlord in each instance, which consent
shall not be unreasonably withheld or delayed. Any permitted assignment,
transfer, or subletting shall not relieve or release Tenant from its obligations
under this Lease. In the event Landlord consents to a sublease of the Premises
any profit in connection with said sublease shall be shared equally between
Landlord and Tenant.
12.2 LANDLORD'S RIGHTS. Landlord's right to assign this Lease or sell or convey
the Premises are and shall remain unqualified. Upon any said assignment, sale
or conveyance, Landlord shall thereupon be entirely freed, relieved and
released, of all obligations of the Landlord hereunder and shall not be subject
to any liability resulting from any act or omission or event occurring after
said assignment, sale or conveyance. No assignee, purchaser or mortgagee of
Landlord shall be obligated hereunder for any of Landlord's duties or
obligations prior to the effective date of the assignment, purchase, completion
of foreclosure of mortgage or acceptance of a deed in lieu of foreclosure of
mortgage.
SECTION 13
INSURANCE
13.1 TENANT'S INSURANCE. Tenant, at its sole expense, shall provide and keep in
full force and effect during the full term hereof, and during such other times
as Tenant occupies the Premises or any part thereof, for the benefit of Landlord
and Landlord's mortgagee, if any, as their interest may appear (the Landlord and
Landlord's mortgagee to be named as additional insureds thereon) the following
insurance coverages:
A. All Risk Property Insurance, including coverage for fire, extended
coverage, vandalism, malicious mischief and sprinkler leakage to
Tenant's contents and all leasehold improvements to the Premises
whether initially paid for by Landlord or Tenant in an amount not less
than replacement cost.
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B. Comprehensive General Liability insurance with a minimum limit of
liability of $2,000,000.00 combined single limit covering the Premises
and adjoining sidewalks, streets and alleys.
C. Worker's Compensation insurance affording statutory coverage and
containing statutory limits of liability as may be required by
Minnesota's Workers Compensation or other similar statutes.
D. Plate glass insurance, if applicable.
E. Boiler insurance, if applicable.
13.2 FORM OF INSURANCE. All insurance policies required hereunder shall (i) be
in form and content satisfactory to Landlord, (ii) be placed with companies with
a general policyholder's rating of not less than Class A as rated in the most
current BEST'S INSURANCE REPORTS, satisfactory to Landlord and qualified to do
business in the State of Minnesota, (iii) provide for at least thirty (30) days
prior written notice to Landlord before cancellation, modification or amendment
and (iv) provide that the proceeds thereof and Landlord's and Landlord's
Mortgagee's, (if any) interests therein shall not be affected or subject to
cancellation by reason of any act or omission of Tenant. The insurance required
hereby may be maintained by means of a policy or policies of blanket insurance
so long as the provisions of this Section 13 are fully satisfied. Two copies of
all policies of insurance and certificates thereof, stating the premiums have
been paid in full or other evidence satisfactory to Landlord that the premiums
have been paid in full shall be delivered to Landlord.
13.3 TENANT'S ACTIONS. Tenant will not do, omit to do, or suffer to be done
or keep or suffer to be kept, anything in, upon or about the Premises or the
Building which will violate the provisions of Landlord's policies insuring
against loss or damage by fire or other hazards (including, but not limited
to, public liability), which will adversely affect Landlord's fire or
liability insurance premium rating or which will prevent Landlord from
procuring such policies with companies acceptable to Landlord, provided
Tenant is first given notice of the requirements of such policies. If
anything done, omitted to be done or suffered to be done by Tenant, or kept
or suffered by Tenant to be kept in, upon or about the Premises shall cause,
by itself or in combination with other circumstances existing at the
Building, the premium rate of fire or other insurance on the Premises or
other property of the Building with companies acceptable to Landlord to be
increased beyond the established rate from time to time fixed by the
appropriate underwriters with regard to the use of the Premises for the
purposes permitted under this Lease or to such other property in the Building
for the user or uses made thereof, Tenant will pay the amount of such
increase or, in the event that other circumstances existing at the Building
shall have contributed to such increase, such equitable portion of such
increase as may be reasonably determined by Landlord, as additional rent upon
Landlord's demand, and will thereafter pay the amount of such increase, as
the same may vary from time to time, with respect to every premium relating
to coverage of the Premises during a period falling within the Term until
such increase is
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eliminated. In addition, if applicable, Landlord may, at its option, rectify
the condition existing on the Premises which caused or was a contributing
cause of the increased premium rate, in the event that the Tenant should fail
to do so, and may charge the cost of such action to Tenant as additional
rent, payable on demand. In determining whether increased premiums are the
result of Tenant's use of the Premises, a schedule, issued by the
organization making the insurance rate on the Premises, showing the various
components of such rate, shall be conclusive evidence of the several items
and charges which make up the fire and/or liability insurance rate on the
Premises.
SECTION 14
DAMAGE OR DESTRUCTION
14.1 DETERMINATION TO REBUILD. In the event the Premises or the Building are
damaged or destroyed by fire, or other casualty (hereinafter referred to as the
"Damage"), Landlord, shall have thirty (30) days from the date of the Damage to
decide to rebuild or terminate this Lease. In the event Landlord decides to
terminate this Lease, Landlord shall provide written notice to Tenant within
said thirty (30) day period. Landlord shall have an additional sixty (60) days
from the expiration of the first thirty (30) day period to obtain all necessary
permits and approvals from the appropriate governmental authorities in order to
commence reconstruction, provided Landlord has not terminated this Lease during
the first thirty (30) day period. If Landlord is unable to obtain all
governmental permits and approvals, then Landlord may terminate this Lease upon
written notice to Tenant.
14.2 LANDLORD'S RESTORATION. In the event that Landlord has not terminated this
Lease during the first thirty (30) day period after the Damage or the ensuing
sixty (60) day period after the first thirty (30) day period, Landlord shall
commence to repair, reconstruct, and restore the Damage to substantially the
same condition in which it was immediately prior to the happening thereof and
prosecute the same diligently to completion.
14.3 TENANT'S RIGHT TO TERMINATE LEASE. In the event that construction has
not been completed within ONE FIFTY (150) days of the Damage, Tenant shall be
entitled to terminate this Lease upon THIRTY (30) days notice after the
expiration of ONE FIFTY (150) days from the date of Damage. Provided,
however, should the Premises be substantially completed within said THIRTY
(30) day notice period, then Tenant's notice of termination of the Lease
shall be null and void.
14.4 TENANT'S RIGHT TO TERMINATE LEASE DURING LAST 12 MONTHS OF LEASE TERM.
Notwithstanding the terms of Section 14.3 above, in the event that Damage to the
Premises or to the Building occurs during the last twelve (12) months of the
term of this Lease that materially affects Tenant's conduct of business at the
Premises and construction has not been completed within forty-five (45) days of
the Damage, Tenant shall be entitled to terminate this Lease upon thirty (30)
days after the expiration of forty-five (45) days from the date of Damage.
Provided, however, should the Premises or the Building be substantially
completed within said thirty (30) day notice period, then Tenant's notice of
termination of the Lease shall be null and void.
14.5 RENT ABATEMENT. If the Premises are rendered partially or totally
untenantable as a result of the Damage, then to the extent the Premises are
rendered untenantable, the rent shall be proportionally abated until Landlord
has completed the repair, reconstruction, or restoration.
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14.6 TENANT'S RESTORATION. In the event Landlord elects to repair, reconstruct,
or restore the Damage, Tenant agrees to repair or replace any Damage to Tenant's
leasehold improvements, its merchandise, trade fixtures, furnishings, operating
equipment, and personal property, including wall coverings, carpeting, and
drapes, as soon as possible after the occurrence of the Damage to at least a
condition equal to that prior to the Damage.
14.7 LIABILITY FOR DAMAGE. In no event shall Landlord be liable for
interruption to the business of Tenant or for damage to or repair,
reconstruction, or restoration of any items belonging to Tenant or any other
items within the Premises or Common Area.
14.8 TERMINATION OF LEASE. Upon any termination of this Lease under this
Section 14, the rent imposed under this Lease shall be adjusted as of the date
of such termination and the parties shall be released thereby without further
obligation to the other party, except for items which have been previously
accrued and are then unpaid, and except for obligations which are designated as
surviving such termination by Landlord, if any.
SECTION 15
WAIVER OF SUBROGATION
15.1 WAIVER OF SUBROGATION. Landlord and Tenant agree that in the event the
Premises, the Building or the fixtures contained thereon are damaged or
destroyed by an insured casualty, the rights, if any, of each party against the
other with respect to such damage or destruction whether caused by negligent act
or omission, or otherwise, to the extent that such damage or destruction is
recovered from the insurer of policies of insurance, are waived.
SECTION 16
CONDEMNATION
16.1 TOTAL OR PARTIAL CONDEMNATION. In the event of a condemnation (which shall
in this Section whenever appearing be defined to include a taking for public or
quasi-public use or a voluntary deed executed by the Landlord in lieu thereof)
of all or a substantial part of the Real Property or the Building, this Lease
and Tenant's rights to possession of the Premises shall terminate as of, and
rent shall be paid to, the date title is vested in the condemnor. In the event
of condemnation of less than all or a substantial part of the Real Property or
the Building, this Lease shall continue as to the part not so taken and the
annual rent to Landlord by Tenant shall be reduced prorata for the area of the
Premises so taken. If the condemnation does not include a portion of the
Premises, the annual rent to be paid to Landlord by Tenant shall not be reduced.
IF THE CONDEMNATION OF ANY PART OF THE PREMISES OR ANY PART OF THE COMMON AREAS
SUBSTANTIALLY AND MATERIALLY IMPAIRS TENANT'S USE OF THE PREMISES, AS REASONABLY
DETERMINED BY LANDLORD, TENANT SHALL BE ENTITLED TO TERMINATE THE LEASE BY
PROVIDING WRITTEN NOTICE TO LANDLORD. SUCH TERMINATION SHALL BE EFFECTIVE AS OF
THE DATE OF THE SAID IMPAIRMENT.
16.2 CONDEMNATION AWARDS. Any and all awards or voluntary compensation paid in
lieu thereof shall be the sole property of Landlord, whether resulting from the
diminution of the value of the leasehold estate or otherwise, and Tenant shall
have no right to or interest in any portion thereof, unless a specific award is
made to Tenant for its relocation costs or moving expenses.
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SECTION 17
COMPLIANCE WITH LAW
17.1 TENANT'S COMPLIANCE. Tenant shall not use or occupy the Premises or permit
the use or occupancy of the Premises nor do or permit anything to be done in or
upon the Premises in any manner which will in any way violate any certificate of
occupancy affecting Premises or make void, voidable or make more expensive any
insurance then in force with respect thereto or which will make it impossible to
obtain fire or other insurance or which will cause or be likely to cause
structural damage to the Building or any part thereof situate upon the Premises
nor which will constitute a public or private nuisance and shall not use or
occupy the Premises or permit the use or occupancy of the Premises in any manner
which will violate any present or future law, ordinance, statute or regulation
of any governmental authority, including but not limited to, the Minnesota Clean
Indoor Air Act.
17.2 DISABILITY ACCESS LAWS. Tenant hereby covenants and agrees with
Landlord that Tenant shall at all times during the term of this Lease, comply
with any and all governmental regulation of the Premises regarding access of
disabled persons, including without limitation, Titles III and V of the
Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 ET SEQ. or
any other similar federal, state or local laws or ordinances and the
regulations promulgated thereunder (collectively "Disability Access Laws").
Landlord shall not be liable for any failure by Tenant to comply with the
Disability Access Laws with respect to the Premises during the term hereof
and Tenant hereby expressly releases Landlord, its partners, officers,
agents, contractors, licensees, employees, agents, affiliates and managing
agent (if any) and agrees to indemnify and hold Landlord, its partners,
officers, agents, contractors, licensees, employees, agents, affiliates and
managing agent (if any) harmless from and against any and all claims and
demands for loss or damage, including claims for discriminations, personal
injury, monetary damage or injunctive relief arising out of or in connection
with any failure or alleged failure of the Premises to comply with the
Disability Access Laws, and including reasonable attorneys' and other
professional or consultants' fees, paid or incurred by Landlord, its
partners, employees, agents, affiliates and managing agent (if any) in
connection with the defense of any such claims including, but not limited to,
all costs for research regarding settlement or other preventive measures
which Landlord, its partners, employees, agents, affiliates and managing
agent (if any) may take prior to the filing of such action or to attempt to
prevent the filing of such an action. HOWEVER, IN THE EVENT THE ENTIRE
BUILDING IS FORCED TO COMPLY AND THEREBY CAUSES TENANT TO COMPLY, THEN THIS
WILL BE THE LANDLORD'S OBLIGATION TO REMEDY. IF BY ACTIONS OF THE TENANT,
TENANT IS FORCED TO COMPLY, THEN IT WILL BE TENANT'S OBLIGATION TO REMEDY.
LANDLORD SHALL BE RESPONSIBLE FOR 50% OF THE FIRST $10,000 OF COSTS THAT THE
TENANT INCURS PURSUANT TO THIS SECTION, IF ANY.
SECTION 18
QUIET ENJOYMENT
18.1 TENANT'S OCCUPANCY. Tenant, upon payment of the rent herein reserved and
upon performance of all of the terms, covenants and conditions of this Lease by
it to be kept and performed, shall at all times during the term hereof,
peaceably and quietly enjoy the Premises without any disturbance from Landlord
or from any other person claiming through Landlord.
18.2 NO REPRESENTATIONS OR WARRANTIES. With respect to this Lease, (i) neither
Landlord nor any agent or employee of Landlord has made any representations or
promises with respect to the Premises, except as herein expressly set forth, and
no right, privileges, easements or licenses are acquired by Tenant except as
herein expressly set forth; and (ii) wherever in this Lease any term,
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covenant or condition is required to be kept or performed by Landlord,
Landlord shall be deemed to have kept and performed such term, covenant and
condition, notwithstanding any act or omission of Landlord, if such act or
omission is pursuant to any governmental regulation, requirement, directive
or request.
SECTION 19
SURRENDER OF THE PREMISES
19.1 TENANT'S OBLIGATIONS. Upon expiration or sooner termination of the term
hereof, Tenant shall surrender the Premises to Landlord, in good condition and
repair, and in at least as good condition and repair as it was at the
commencement of this Lease, or such better condition as the Premises may have
been put during the term of this Lease, and not less than the condition which
Tenant is required to maintain under Section 10 hereof, reasonable wear and
tear, condemnation and insured casualty excepted. Tenant's obligations
hereunder shall include, but not be limited to, leaving the Premises broom
clean; restoring electrical service; elimination of holes in walls; repairing
damages to loading dock areas; and removal of alterations, additions, and
improvements if required by Landlord as provided in Section 11 hereof;
compliance with Section 26 hereof; and bringing the Premises to a tenantable
condition; all as reasonably required by Landlord.
19.2 LANDLORD'S REQUIREMENTS. Landlord shall inspect the Premises prior to or
upon expiration or sooner termination of this Lease and provide Tenant with
Landlord's reasonable requirements for Tenant's compliance with Sections 10, 11,
and 19 of this Lease. If Tenant does not comply with Landlord's reasonable
requirements by the expiration or sooner termination of this Lease, then
Landlord shall, at Tenant's expense, make the repairs and restorations required
and Tenant shall pay Landlord for such repairs and restorations within five (5)
days of Landlord's invoice or explanation of charges.
SECTION 20
SECURITY DEPOSIT
20.1 TENANT'S DEPOSIT. Tenant has deposited with Landlord the sum as provided
in Section 1.15. Said sum shall be held by Landlord as security for the
faithful performance by Tenant of all of the terms, covenants and conditions of
this Lease to be kept and performed by Tenant during the term hereof. If Tenant
defaults with respect to any provisions of the Lease, Landlord may (but shall
not be required to) use, apply or retain all or any part of this security
deposit for the payment of any rent or any other sum in default, or for the
payment of any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default or to compensate Landlord for any other loss
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said deposit is so used or applied, Tenant shall immediately deposit
cash with Landlord in an amount sufficient to restore the security deposit to
its original amount and Tenant's failure to do so shall be a material breach of
this Lease. Landlord shall not be required to keep this security deposit
separate from its general funds, and Tenant shall not be entitled to interest on
such deposit. If Tenant shall fully and faithfully perform every provision of
this Lease to be performed by it, the security deposit or any balance thereof
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interests hereunder) at the expiration of the Lease term.
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SECTION 21
DEFAULT
21.1 EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an "Event of Default:"
A. If Tenant should either (i) fail to make due and punctual payment of
rent, additional rent, or any other sum due Landlord under this Lease;
or (ii) vacate or abandon all or any part of the Premises as defined
in Section 7.3.
B. If Tenant shall fail in the punctual performance of or compliance with
any of the obligations, covenants, conditions or agreements contained
in this Lease by Tenant to be kept or performed other than those
referred to in Section 21.1.A. above, which default continues for a
period of ten (10) days after written notice thereof; provided,
however, if any such default is not susceptible of being cured within
said ten (10) day period, the time permitted to Tenant to cure such
default shall be extended for so long as shall be reasonably necessary
to cure the same so long as Tenant commences promptly and proceeds
diligently to cure the default and provided, further, that such period
of time shall not be so extended if such extension, in Landlord's sole
judgement, shall jeopardize the interest of Landlord in this Lease or
pursuant to a mortgage, now or hereafter encumbering the Premises or
so as to subject Landlord or Tenant to any civil or criminal
liabilities.
C. If, at any time during the term hereof, proceedings in bankruptcy
shall be instituted by Tenant by the filing of a voluntary petition in
bankruptcy or if Tenant shall take any benefit under the Bankruptcy
Act or any other insolvency of debtor release statute, either state or
federal, or if Tenant shall make a general assignment for the benefit
of creditors or if a receiver shall be appointed for the property of
Tenant, and provided Tenant within sixty (60) days thereafter shall
have failed to cause such receivership to be vacated, or if an
involuntary petition under any provision or section of the Bankruptcy
Act is filed against Tenant and provided Tenant within sixty (60) days
thereafter shall have failed to cause said involuntary petition to be
dismissed and set aside.
21.2 LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default, Landlord,
at any time thereafter and without limiting Landlord in the exercise of any
other right or remedy it may have on account of such default and without any
further notice or demand, may:
A. notify Tenant, in writing, that this Lease shall terminate as of the
earliest day which the law permits or on any later date specified in
such notice. Tenant's right to possession of the Premises shall
cease as of the date set forth in Landlord's notice of termination.
Neither the passage of time after the occurrence of an Event of
Default nor Landlord's exercise of any other remedy with regard to
such Event of Default shall limit Landlord's rights under this
Section 21.2.A. and no notice from Landlord under this
Section 21.2.A. or under a forcible or unlawful entry and detainer
statute or similar law will constitute an election by Landlord to
terminate this Lease unless such notice specifically so states.
Landlord reserves the right following any reentry to or reletting of
the Premises to exercise its right to terminate this Lease by giving
Tenant such
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written notice, in which event this Lease will terminate as specified
in such notice;
B. with or without terminating this Lease and without demand or notice
to Tenant, re-enter and take possession of the Premises using such
procedures as may, from time to time, be provided by law to expel
Tenant and those claiming through or under Tenant, and to remove the
property of either or both. Landlord's exercise of Landlord's rights
under this Section 21.2.B. shall not subject the Landlord to
liability for conversion or trespass and shall not affect Landlord's
right to recover arrearage of Rent payable under this Lease or any
amounts due as a result of any preceding breach of covenants or
conditions. No reentry or taking possession of the Premises by
Landlord will be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention is
given to Tenant;
C. should Landlord elect to reenter as provided in Section 21.2.B. or
should Landlord take possession pursuant to legal proceedings or
otherwise Landlord may, but shall not be required to, from time to
time, without terminating this Lease, relet the Premises in
Landlord's or Tenant's name, but for the account of Tenant, for such
term or terms (which may be greater or less than the period which
would otherwise have constituted the balance of the Term) and on such
conditions and upon such other terms (which may include concessions
of free rent and alteration and repair of the Premises) as Landlord,
in its sole discretion, may determine, and Landlord may collect and
receive any rent resulting from such reletting. Landlord will have
no obligation to relet the Premises and will in no way be responsible
or liable for any failure to relet the Premises or any part of the
Premises, or for any failure to collect any rent due upon such
reletting;
D. with or without terminating this Lease and without demand or notice
to Tenant, to cure any Event of Default and charge Tenant for the
cost of effecting such cure, including, without limitation (a) an
amount equal to 15% of the cost incurred by Landlord to effect such
cure to cover the administrative costs of effecting the cure; (b)
attorneys' fees; and (c) interest on the amount so advanced at the
rate set forth in Section 22. Notwithstanding the above, Landlord
will have no obligation to cure any such Event of Default of Tenant;
E. with or without terminating this Lease, recover from Tenant an amount
equal to the rent and additional rent owing for the balance of the
term, WHICH BALANCE WILL BE DISCOUNTED TO PRESENT VALUE USING A
TWELVE PERCENT (12%) DISCOUNT RATE, plus the amount of any past due
rent and PAST DUE additional rent, less the net proceeds, if any, of
any reletting of the Premises by Landlord. All of Landlord's
expenses in connection with such reletting, including, but without
limitation, all repossession costs, brokerage, alteration and repair
costs and expenses of preparation for such reletting shall be
deducted from the proceeds of any reletting in determining the net
proceeds of such reletting. If, in connection with any reletting,
the new lease term extends beyond the existing term, a fair
apportionment of the rent received from such reletting and the
expenses incurred in connection with such reletting as provided in
this Section 21.2.E. will be made in determining the net proceeds
from such reletting, and any rent
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concessions will be equally apportioned over the term of the new
lease. Landlord may recover the amount due from Tenant under this
Section 21.2.E. monthly, on the day on which the Base Rent would
have been payable under this Lease; or if Landlord so chooses, on
a less frequent basis;
F. elect to terminate the Lease and recover from Tenant as liquidated
damages and not as a penalty, an aggregate rent which, at the time of
such termination of this Lease, represents the (a) full amount of any
past due rent and additional rent, and (b) the amount by which the
rent and additional rent that would have accrued for the balance of
the term of this Lease exceeds the fair market rental value of the
Premises for the same period with such amount discounted to present
value at the lesser of four percent (4%) or the discount rate of the
Federal Reserve System on the date of the Event of Default.
21.3 LANDLORD'S RIGHTS CUMULATIVE. The foregoing rights of Landlord shall be
cumulative to all other rights and remedies now or hereafter provided by law or
by the terms of this Lease. Landlord shall be entitled to collect from Tenant
its costs, expenses, and fees including, but not limited to, its attorneys' fees
for all actions taken by Landlord because of Tenant's breach of this Lease. In
addition, the maintenance of any action or proceeding to recover the possession
or repossession of the Premises or any installment or installments of rent,
additional rent, or any other obligation which may be due or become due from
Tenant to Landlord shall not preclude Landlord from thereafter instituting and
maintaining subsequent acts or proceedings whether the recovery of possession or
repossession of the Premises or of any subsequent installment of rent,
additional rent, or of any other obligations which may be due or become due from
Tenant to Landlord under any of the provisions hereof. Suit or suits for the
recovery of such deficiency or damage may be brought by Landlord from time to
time at the election of Landlord and nothing herein shall be deemed to require
Landlord to await the date whereon this Lease or the demised term would have
expired by limitation had there been no such default by Tenant.
21.4 NO WAIVER OF RIGHTS OR REMEDIES. The subsequent acceptance by Landlord of
rent or other sums required hereunder shall not be deemed a waiver of any
preceding breach of any obligation hereunder by Tenant other than the failure to
pay the particular rent or other sum so accepted and the waiver of any breach of
any covenant or condition by Landlord herein shall not constitute a waiver of
any other breach regardless of knowledge thereof. The exercise of any right,
option or privilege hereunder by Landlord shall not exclude Landlord from
exercising any and all other rights, privileges and options hereunder, and
Landlord's failure to exercise any right, option or privilege hereunder shall
not be deemed a waiver of such right, option or privilege, nor shall it relieve
Tenant of Tenant's obligations to perform each and every covenant and condition
on Tenant's part to be performed hereunder, nor from damages or other remedy for
failure to perform or meet the obligations of this Lease.
SECTION 22
LATE PAYMENT CHARGES
22.1 TENANT'S LIABILITY. If Tenant should fail to pay any installment of
rent, additional rent, or other charge on the day when the same shall become
due and payable hereunder, and continues in default for a period of five (5)
days, the Tenant shall pay to the Landlord a late payment charge of Two
Hundred Fifty and No/100 Dollars ($250.00), or FOUR percent (4%) of the rent
payment due, whichever is greater, together with interest on the unpaid rent
installment or other charge at the maximum rate permitted by law or the rate
of eighteen percent (18%) per
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annum, calculated from the date the rent installment or other charge was due,
whichever is less. Tenant shall pay such late charges and interest at the
time the rent installment or other charge is paid. However, acceptance by
the Landlord of a late rent installment or other charge without the late
charge due shall not be interpreted as a waiver of the rights to such late
charge by Landlord, either as to that installment or other charge, or as to
any installments or other charges which become due in the future. Further,
failure by Tenant to pay such late charges and interest on unpaid
installments or other charges shall be considered to be a default under this
Lease. The rights, options, powers and remedies of the Landlord under this
Section 22 shall be cumulative and in addition to any other rights given to
Landlord by law or under the terms of this Lease. TWO TIMES DURING EACH LEASE
YEAR TENANT WILL BE GRANTED A "LATE PAYMENT CHARGE" WAIVER, IN WHICH THE LATE
FEE WILL BE WAIVED FOR A PERIOD OF FIVE (5) DAYS AFTER LANDLORD'S WRITTEN
NOTICE TO TENANT AT WHICH IT WILL BE REINSTATED. THE INTENT OF THIS IS TO
MAKE ALLOWANCE FOR THE RENT CHECK GETTING LOST OR ANY SIMILAR OCCURRENCE.
THIS ADDITIONAL WORDING ONLY ADDRESSES THE FORGIVENESS OF A LATE FEE, NOT AN
EXTENSION OF THE RENT DUE DATE.
SECTION 23
NOTICES
23.1 MANNER OF NOTICE. Any notice or demand to be given to or served upon
either Landlord or Tenant in connection with this Lease, shall be deemed to have
been sufficiently given or served for all purpose if it is personally served or
if it is sent certified mail, return receipt requested, postage prepaid, to the
Landlord and Tenant at the addresses provided in Sections 1.16 and 1.17. Either
party may change the place to which notice is to be sent by sending a written
notice thereof to the other in the same manner hereinabove provided.
23.2 NOTICE TO LANDLORD'S LENDER. Tenant agrees to give to Landlord's lender by
certified mail, return receipt requested, postage prepaid, a copy of any notice
of default served upon Landlord. Tenant further agrees that if Landlord shall
have failed to cure such default within the time provided for in the Lease, the
lender, if it elects to cure such default, shall have an additional thirty (30)
days within which to cure such default or if such default cannot be cured within
that time, then such additional time as may be necessary if within such thirty
(30) days, Landlord's lender has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, necessary to affect such cure), in
which event the lease shall not be terminated while such remedies are being so
diligently pursued. Landlord's lender, as the term is used herein, shall be
deemed to include any purchaser at a foreclosure sale and any purchaser
acquiring title through mortgage foreclosure proceedings. In the event that
Landlord's lender or any other party shall succeed to the interest of Landlord
under this lease, or otherwise becomes entitled to and takes possession of the
Real Property, Landlord's lender or any such other party, or any subsequent
owner, shall not be liable for any act or omission of any prior landlord
(including Landlord).
SECTION 24
BANKRUPTCY OR INSOLVENCY
24.1 CHAPTER 7 OF THE BANKRUPTCY CODE. In the event Tenant shall become a
Debtor under Chapter 7 of the Bankruptcy Code, and such proceeding is neither
dismissed nor stayed within 60 days, and the Trustee or Tenant shall elect to
assume this Lease for the purpose of assigning this Lease or otherwise, such
election and assignment may only be made if all of the terms and conditions
of Sections 24.2 and 24.4, hereof, are satisfied. If such Trustee shall fail
to elect or assume this Lease within 60 days after filing of the Petition,
this Lease shall be deemed to have
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been rejected. Landlord shall be thereupon immediately entitled to
possession of the Premises without further obligation to Tenant or Trustee,
and this Lease shall be cancelled, but Landlord's right to be compensated for
damages in such liquidation proceeding shall survive.
24.2 CHAPTERS 11 AND 13 OF THE BANKRUPTCY CODE. In the event a Petition for
reorganization or adjustment of debts is filed by Tenant under Chapters 11 or 13
of the Bankruptcy Code, or a proceeding is filed under Chapter 7 of the
Bankruptcy Code and is transferred to Chapters 11 or 13, the Trustee Tenant, as
Debtor-In-Possession, must elect to assume this Lease within 60 days from the
date of the filing of the Petition under Chapters 11 or 13, or the Trustee or
Debtor-In-Possession shall be deemed to have rejected this Lease. If Tenant is
in default under Section 21 of this Lease, then no election by the Trustee or
Debtor-In-Possession to assume this Lease, whether under Chapters 7, 11, or 13,
shall be effective unless each of the following conditions, which Landlord and
Tenant acknowledge are commercially reasonable in the context of a bankruptcy
proceeding of Tenant, has been satisfied, and Landlord has so acknowledged in
writing:
A. Landlord has not terminated this Lease pursuant to the provisions
established herein prior to the filing of the Petition.
B. The Trustee or the Debtor-In-Possession has cured, or has provided
Landlord adequate assurance (as defined below) that within the times
provided in Section 21, the Trustee or the Debtor-In-Possession will
cure all defaults under this Lease;
C. The Trustee or the Debtor-In-Possession has compensated Landlord (or
has provided to Landlord adequate assurance, as defined below, that
within 30 days from the date of assumption Landlord will be
compensated) for any pecuniary loss incurred by Landlord arising from
the default of Tenant, the Trustee, or the Debtor-In-Possession as
recited in Landlord's written statement of pecuniary loss sent to the
Trustee or Debtor-In-Possession.
D. The Trustee or the Debtor-In-Possession has provided Landlord with
"adequate assurance" of the future performance of each of Tenant's,
Trustee's or Debtor-In-Possession's obligations under this Lease;
provided, however, that:
(1) The Trustee or Debtor-In-Possession shall also deposit with
Landlord, as security for the timely payment of rent and
additional rent, an amount equal to three months of the rent and
additional rent and other sums or charges which are payable under
this Lease at the time;
(2) The obligations imposed upon the Trustee or Debtor-In-Possession
shall continue with respect to Tenant or Transferee of the Lease
after the completion of bankruptcy proceedings.
E. For purposes of this Section 24, Landlord and Tenant acknowledge
that, in the context of a bankruptcy proceeding of Tenant, at a
minimum, "adequate assurance" shall mean:
(1) The Trustee or the Debtor-In-Possession has and will continue to
have sufficient unencumbered assets after the payment of all
secured obligations
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and administrative expenses to assure Landlord that Trustee or
Debtor-In-Possession will have sufficient funds to fulfill the
obligations of Tenant under this Lease; and
(2) The Bankruptcy Court shall have entered an Order segregating
sufficient cash payable to Landlord and/or Trustee, or Debtor-In-
Possession shall have granted a valid and perfected lien and
security interest and/or mortgage in property of Tenant, Trustee
or Debtor-In-Possession to cure the monetary and/or non-monetary
defaults under this Lease within the time periods set forth
above.
24.3 ASSUMPTION OF LEASE. In the event this Lease is assumed by a Trustee
appointed for Tenant or by Tenant as Debtor-In-Possession under the provisions
of Section 24, hereof, and thereafter Tenant is liquidated or files a subsequent
Petition for reorganization or adjustment of debts under Chapters 11 or 13 of
the Bankruptcy Code, then, and in either of such events, if Tenant is in default
under Section 21 of this Lease, Landlord may, at its option, terminate this
Lease and all rights of Tenant hereunder, by giving Tenant written notice of its
election to so terminate, by no later than 30 days after the occurrence of
either of such events.
24.4 ASSIGNMENT OF LEASE. If the Trustee or Debtor-In-Possession has assumed
this Lease pursuant to the terms and conditions of Section 24 herein, for the
purpose of assigning (or elects to assign) Tenant's interest under this Lease,
or the estate created thereby, to any other person, if Tenant is in default
under Section 21 of this Lease, such interest or estate may be so assigned only
if Landlord shall acknowledge in writing that the intended assignee has provided
"adequate assurance of future performance," as defined in this Section 24.4, of
all of the terms, covenants, and conditions of this Lease to be performed by
Tenant. For purposes of this Section 24.4, Landlord and Tenant acknowledge
that, in the context of a bankruptcy proceeding of Tenant, at a minimum,
"adequate assurance of future performance" shall mean that each of the following
conditions has been satisfied, and Landlord has so acknowledged in writing:
A. the assignee has submitted a current financial statement audited by a
Certified Public Accountant which shows a net worth and working
capital in amounts determined to be sufficient by Landlord to assure
the future performance by such assignee of Tenant's obligations under
this Lease;
B. the assignee, if requested by Landlord, shall have obtained
guarantees in form and substance satisfactory to Landlord from one or
more persons who satisfy Landlord's reasonable requirements of
credit-worthiness; and
C. the assignee has submitted in writing evidence, satisfactory to
Landlord, of substantial successful business experience in the use
and operation of facilities such as required to be operated under
this Lease.
24.5 REASONABLE USE AND OCCUPANCY CHARGES. When, pursuant to the Bankruptcy
Code, the Trustee or Debtor-In-Possession shall be obligated to pay reasonable
use and occupancy charges for the use of the Premises or any portion thereof,
such charges shall not be less than the rent (as defined in this Lease) and
other monetary obligations of Tenant accruing under this Lease as Additional
Rent.
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24.6 LANDLORD'S CONSENT. Neither Tenant's interest in the Lease nor any estate
of Tenant hereby created shall pass to any trustee, receiver, assignee for the
benefit of creditors, or any other person or entity, or otherwise by operation
of any law under the bankruptcy, insolvency or other similar laws of any state
having jurisdiction of the person or property of Tenant (hereinafter referred to
as the "state law"), unless Landlord shall consent to such transfer in writing.
No acceptance by Landlord of rent and additional rent, or any other payments
from any such trustee, receiver, assignee, person or other entity shall be
deemed to have waived, nor shall it waive, the need to obtain Landlord's consent
of, Landlord's right to terminate this Lease for any transfer of Tenant's
interest under this Lease, without such consent.
P\36 STATE LAW. In the event the estate of Tenant created hereby shall be
taken in execution or by other process of law, or if Tenant shall be
adjudicated insolvent pursuant to the provisions of any present or future
insolvency law under any state law, or if a Receiver of Trustee of the
property of Tenant or any guarantor shall be appointed under state law by
reason of Tenant's insolvency or inability to pay its debts as they become
due and otherwise, and if Tenant is otherwise in default under the Lease, or
if any assignment shall be made of Tenant's general property for the benefit
of creditors under state law, then and in such event, Landlord may, at its
option, terminate this Lease and all rights of Tenant hereunder by giving
Tenant written notice of the election to so terminate within sixty (60) days
after the occurrence of such event.
SECTION 25
ESTOPPEL CERTIFICATE AND SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
25.1 ESTOPPEL CERTIFICATE. Tenant agrees, from time to time and within ten
(10) days written notice, to execute, acknowledge and deliver an estoppel
certificate prepared by Landlord certifying that (a) this Lease is in full
force and effect subject only to such modifications (if any) as may be set
forth therein, (b) that Tenant is in possession of the Premises and paying
rent and additional rent as provided in this Lease, (c) the date (if any) to
which rent is paid in advance, (d) that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord hereunder, or specifying such
defaults if any are claimed, and (e) any other statements relating to this
Lease which may be required by Landlord, or required by Landlord's lender,
mortgagee or any prospective transferee or assignee, or which are contained
in such forms prepared by Landlord's lender, mortgagee, or any prospective
transferee or assignee, which do not affect the economic provisions of this
Lease or the use of the Premises by Tenant or the term of this Lease. Any
such statement may be relied upon by any prospective transferee, assignee or
mortgagee. If Tenant fails to deliver such statement, Tenant shall be deemed
to have acknowledged that this Lease is in full force and effect without
modification, except as may be represented by Landlord, and that there are no
uncured defaults in Landlord's performance and that there are no prepaid
rents. Tenant hereby irrevocably appoints Landlord as attorney-in-fact to
execute, acknowledge and deliver such documents as are contemplated in this
Section 25 if Tenant shall fail and refuse to do so within ten (10) days of
receipt of Landlord's written request therefor and upon delivery of a copy of
such writing to Tenant the facts set forth therein shall be conclusively
deemed to be true.
25.2 SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT. Tenant agrees
that this Lease shall be subordinate to any mortgage that may now exist or
hereafter be placed upon the Real Property and to any and all advances to be
made thereunder and to the interests thereon, and all renewals, replacements
and extensions thereof, provided that the mortgagee named in said mortgages
shall agree to recognize the lease of Tenant in the event of foreclosure if
Tenant
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is not in default. In the event any mortgagee elects to have this Lease
prior to the lien of its mortgage, then, and in such event, upon such
mortgagee notifying Tenant to that effect, this Lease shall be deemed prior
in lien to said mortgage whether this Lease is dated prior to or subsequent
to the date of said mortgage. Tenant agrees, from time to time and within ten
(10) days written notice, to execute, acknowledge and deliver a
subordination, non-disturbance and attornment agreement in the form required
by Landlord, or required by Landlord's lender or mortgagee.
25.3 TENANT'S DEFAULT. Tenant's failure to execute and deliver an estoppel
certificate and/or a subordination, non-disturbance and attornment agreement as
provided herein shall constitute an Event of Default and Landlord shall have the
right to exercise any and all remedies as provided in this Lease and/or as
provided by law, including, but not limited to, the right to recover damages
caused by Tenant's failure to provide such estoppel certificate and/or
subordination, non-disturbance and attornment agreement.
SECTION 26
HAZARDOUS MATERIAL
26.1 LANDLORD'S AND TENANT'S OBLIGATIONS. NEITHER LANDLORD NOR Tenant shall
not use, or permit the use of the Premises, Building or Real Property for the
use, storage or disposal of any Hazardous Material as hereinafter defined,
except for immaterial quantities used in LANDLORD OR Tenant's business
operation. if Tenant shall provide written notification to Landlord OF
TENANT'S USE OF SUCH HAZARDOUS MATERIAL and provides evidence REASONABLY
satisfactory to Landlord that Tenant is in full compliance with all
applicable laws relating to the Hazardous Material.
26.2 DEFINITION OF HAZARDOUS MATERIAL. Hazardous Material as used in this
Lease means any hazardous or toxic substance, material, waste or similar term
which is regulated by local authorities, the State of Minnesota or the
federal government, including, but not limited to, any material, substance,
waste or similar term which is:
A. defined as a Hazardous Material under the laws of the State of
Minnesota, as amended from time to time;
B. defined as a hazardous substance under Section 311 of the Federal
Water Pollution Control Act (33 U.S.C. 1317) as amended from time to
time;
C. defined as a hazardous waste under Section 1004 of the Federal
Resource Conservation and Recovery Act (42 U.S.C. 6901 et. seq.) as
amended from time to time;
D. defined as a hazardous waste substance under Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act,
(42 U.S.C. 9601 et. seq.) as amended from time to time;
E. defined as a hazardous waste or toxic substance, waste, material or
similar term in any rules and regulations, as amended from time to
time, which are adopted by any administrative agency including, but
not limited to the Environmental Protection Agency, the Occupational
Safety and Health Administration, and any such similar state or local
agency having jurisdiction over the Premises whether or not such
rules and regulations have the force of law; or
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F. defined as a hazardous or toxic waste, substance, material or similar
term in any statute, regulation, rule or law enacted or adopted at
any time before or after the date of this Lease by local authorities,
the State of Minnesota, or the federal government.
26.3 LANDLORD REPRESENTS AND WARRANTS TO THE BEST OF ITS KNOWLEDGE THAT IT DOES
NOT KNOW OF AND HAS NOT RECEIVED ANY NOTICE OF ANY VIOLATION REGARDING ANY
HAZARDOUS MATERIAL LAWS AT THE PREMISES, BUILDING OR REAL PROPERTY.
26. INDEMNIFICATION. LANDLORD AND Tenant shall EACH indemnify and defend
THE OTHER and hold it harmless from and against any loss, damage or cost or
expense, including reasonable attorney's fees, which may result from any
breach or claimed breach of the foregoing. This Section shall survive the
termination of this Lease.
SECTION P6
MISCELLANEOUS
27.1 HEADINGS. The section and subsection headings herein are inserted only
for convenience and reference and shall in no way define, limit or describe
the scope or intent of any provisions of this Lease. As used herein and
where necessary, the singular imports the plural and vice versa, and
masculine, feminine and neuter pronouns and expressions are interchangeable.
27.2 BINDING EFFECT. Subject to Section 12, the covenants and agreements
herein contained shall bind and shall inure to the benefit of the Landlord
and Tenant, their respective heirs, administrators, legal representatives,
successors and assigns.
27.3 GOVERNING LAW AND JURISDICTION. This Lease shall be governed by,
construed and enforced in accordance with the laws of the State of Minnesota.
Any dispute between Landlord and Tenant concerning this Lease shall be heard
and decided by the District Court for the State of Minnesota, Fourth
Division, in and for Hennepin County, Minnesota. The parties hereto do
hereby subject themselves to the jurisdiction of said court.
27.4 HOLDING OVER. If Tenant shall hold over the Premises or any part
thereof after the expiration or termination of the term hereof such holding
over shall be construed only to be a tenancy at sufferance subject to all of
the covenants, conditions and obligations hereof, except that the rent shall
be ONE-AND-ONE-HALF twice the amount set forth in Section 4.1 hereof prorated
on a daily basis for each day that Tenant remains in possession. Tenant
shall indemnify Landlord against any and all claims, losses, and liabilities
for damages resulting from Tenant's failure to timely surrender possession,
including, without limitation, any claims made by any succeeding Tenant.
Nothing herein shall be construed to give Tenant any rights to hold over and
to continue in possession of the Premises after the expiration or termination
of the term hereof.
27.5 NO JOINT VENTURE. The relationship of the parties hereto is that of
Landlord and Tenant and it is expressly understood and agreed that Landlord
is not in any way or for any purpose a partner of Tenant or a joint venturer
with Tenant in the conduct of Tenant's business or otherwise.
27.6 ENTIRE AGREEMENT. This Lease, Addendum, if any, and any Exhibits or
Schedules related thereto embodies the entire agreement between the parties,
supersedes all prior agreements and understandings and may not be changed
verbally but only by an agreement in writing and signed
-25-
<PAGE>
by the party against whom enforcement or any waiver, change, modification or
discharge is sought.
27.7 TIME IS OF THE ESSENCE. Time is of the essence of this Lease and of each
and every of the provisions herein contained.
27.8 ADJUSTMENT OF RENTABLE AREA. Landlord shall have the right to increase or
decrease the rentable area of the Building not to exceed a ten percent (10%)
increase or decrease.
27.9 LANDLORD'S ACCESS. Tenant agrees to permit Landlord, or its agents or
representatives to enter into and upon any part of the Premises at all suitable
hours to inspect the same, to clean it, to make such repairs, alterations or
additions that are required under the terms hereof if not made by Tenant, or to
exhibit the Premises to prospective lessees, purchasers or others, or for such
other reasonable purposes as Landlord may deem necessary or desirable. Tenant
shall not be entitled to any abatement or reduction of rent, Operating Costs, or
any other sums payable by Tenant under this Lease by reason of any such entry.
Landlord shall, whenever possible (except in an emergency), consult with or give
reasonable notice to Tenant prior to such entry, but no such entry shall
constitute an eviction. In such event, Tenant waives any breach or default of
the covenant of quiet enjoyment set forth in Section 18.
27.10 WAIVER. One or more waivers of any covenant, term or condition of this
Lease by one party shall not be construed by the other party as a waiver of
subsequent breach of same covenant, term of condition. The failure or delay
on the part of the other party to enforce or exercise at any time any of the
provisions, rights or remedies of this Lease shall in no way be construed to
be a waiver thereof nor in any way effect the validity of this Lease or any
part thereof or the right of the party to thereafter enforce each and every
such provision, right or remedy.
27.11 SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall not affect or impair the validity or enforceability of any other
provision.
27.12 PAYMENT AND RECEIPT OF MONEY. No payment by Tenant or receipt by
Landlord of a lesser amount than the base rent or additional rent due shall
be deemed to be other than on account of the earliest installment thereof
then due nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction.
Landlord may apply any money received in any manner it determines in it sole
discretion. Landlord may accept such check or payment without prejudice to
Landlord's right to any additional amount due hereunder or pursuant to any
other remedy in this Lease provided.
27.13 LANDLORD NOT LIABLE. Save for its gross negligence, Landlord shall not
be responsible or liable to Tenant for any loss or damage that may be
occasioned by or through the acts or omissions of persons occupying adjoining
premises or any part of the premises adjacent to or connected with the
Premises or any part of the Building or any persons transacting any business
in the Building or present in the Building for any other purpose or for any
loss or damage resulting to Tenant or its property from burst, stopping or
leaking water, sewer, sprinkler or steam pipes or plumbing fixtures or from
any failure of or defect in any electric line, circuit or facility.
27.14 NON-RECOURSE. Notwithstanding anything to the contrary contained in
this Lease, in the event of any default or breach by Landlord with respect to
any of the terms, covenants and
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<PAGE>
conditions of this Lease to be observed, honored or performed by Landlord,
Tenant shall look solely to the estate and property of Landlord in the
Building owned by Landlord (OR THE PROCEEDS FROM A SALE, CONDEMNATION, OR
INSURANCE) for the collection of any judgment (or any other judicial
procedures requiring the payment of money by Landlord) and no other property
or assets of Landlord shall be subject to levy, execution, or other
procedures for satisfaction of Tenant's remedies.
27.15 EACH COVENANT ESSENTIAL. Each covenant and agreement on the part of
one party is understood and agreed to constitute an essential part of the
consideration for each covenant and agreement on the part of the other party.
27.16 COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument.
27.17 JOINT AND SEVERAL LIABILITY. If the Lease is executed by more than one
person (or entity) then each party so executing shall be jointly and
severally liable for all amounts, or other performance, under and pursuant to
this Lease.
27.18 SURVIVAL. Where the context of a term or condition within this Lease
creates an obligation or liability, or both, by its terms or reasonable
interpretation of Tenant to Landlord that would, or could, continue or arise
after the expiration or termination, or both, of this Lease then those terms
or conditions shall survive expiration or termination, or both, of this Lease
and may be enforceable by Landlord against Tenant pursuant to the terms
thereof. Sections of this Lease which are covered by this Section 27.18
include, but are limited to, sections regarding the payment of money,
sections regarding indemnification, and Sections 4, 6, 8, 10, 11, 13, 19, 21,
22, 26 and 27.24.
27.19 NO RESERVATION OR OPTION. The submission of this Lease for examination
does not constitute a reservation of, or option for, the Premises, and this
Lease becomes effective only upon execution and delivery thereof by Landlord
and Tenant.
27.20 CONSTRUCTION OF LEASE. This Lease has been negotiated at arms length
between Landlord and Tenant with both Landlord and Tenant having consulted
with legal counsel or had the opportunity to consult with legal counsel;
therefore in the event of any ambiguity of any provision of this Lease or any
dispute concerning the meaning of any provision of this Lease, this Lease
shall not be construed against the party that drafted this Lease.
27.21 WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive trial by jury
for all matters which may arise under this Lease.
27.22 RENT RELATED TO VALUE. Landlord and Tenant agree that the rent and
additional rent provided for in this Lease are related to the value of the
property on the Lease.
27.23 BROKERAGE COMMISSION. Tenant AND LANDLORD represents and warrants that
it has not engaged a broker or representative for whom a commission or fee is
payable except as provided in Section 1.18. Any commission or fee due to a
broker or representative retained by EITHER PARTY other than as provided in
Section 1.18 shall be paid by THE PARTY ENGAGING THE BROKER. Tenant AND
LANDLORD hereby agrees to indemnify EACH OTHER and hold EACH OTHER harmless
from any such brokerage commission or fee for any broker or representative
not provided for in Section 1.18.
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<PAGE>
27.24 ATTORNEYS' FEES. Landlord AND TENANT (WHICHEVER IS THE PREVAILING
PARTY IN AN ACTION) shall be entitled to collect and shall be liable to EACH
OTHER for costs, expenses, and fees, including, but not limited to attorneys'
fees in the event EITHER PARTY retains attorneys to represent THEM in the
enforcement of rights and remedies under this Lease, whether litigation is
commenced or not. This provision shall survive the expiration or termination
of this Lease. PAYMENT OF THE PREVAILING PARTY'S ATTORNEY FEES WILL BE
RECIPROCAL, EXCEPT IN THE EVENT OF AN UNLAWFUL DETAINER ACTION. IN THE EVENT
OF SUCH AN ACTION, AND EXPENSES, LANDLORD SHALL BE ENTITLED TO COLLECT AND
TENANT SHALL BE LIABLE TO LANDLORD FOR LANDLORD'S COSTS, EXPENSES AND FEES,
INCLUDING, BUT NOT LIMITED TO ATTORNEY'S FEES IN THE EVENT LANDLORD RETAINS
ATTORNEYS TO REPRESENT LANDLORD IN THE ENFORCEMENT OF LANDLORD'S RIGHTS AND
REMEDIES UNDER THIS LEASE, WHETHER LITIGATION IS COMMENCED OR NOT.
27.25 AUTHORIZED SIGNATURES. The undersigned persons who sign this Lease on
behalf of and as representatives of Tenant are hereby representing and
warranting that they are duly authorized by Tenant to sign this Lease and
that this Lease is the valid and binding obligation of Tenant.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
LANDLORD:
CHURCHILL WINSTON LIMITED PARTNERSHIP
--------------------------------------------------
By Churchill Management Co.
d/b/a R. L. Johnson Company
Its Managing Agent
By:
--------------------------------------------------
Its:
--------------------------------------------------
TENANT:
TECH SQUARED, INC.
--------------------------------------------------
By:
--------------------------------------------------
Typed or Printed Name of Person Signing
Its:
--------------------------------------------------
By:
--------------------------------------------------
Typed or Printed Name of Person Signing
Its:
--------------------------------------------------
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<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Lot 10 except the West 110 feet thereof and all of Lots 11, 12 and 13, Block 5,
Edina Interchange Center, according to the recorded plat thereof.
<PAGE>
EXHIBIT B
FLOOR PLAN
<PAGE>
EXHIBIT C
SIGN CRITERIA
<PAGE>
EXHIBIT D
LANDLORD'S WORK
Landlord agrees to repair or replace one existing HVAC unit that is currently
not working. The cost of such repair or replacement will be paid for through
Operating Costs.
<PAGE>
EXHIBIT E
ADDITIONAL PROVISIONS
CONCESSION:
As an inducement to lease, Landlord shall abate the first two months of base
rent (5/1/96 - 6/30/96) due under the renewal term as outlined in Section 1.12
of this lease.
EXPANSION:
If Tenant is not in default, Tenant may have the first opportunity to lease the
adjacent 6,188 sq. ft. effective July 1, 1997 by providing nine (9) months
advance written notice. Tenant agrees to lease the expansion space at the same
rate as the current occupant ($4.52 p.s.f.) for the remainder of the extended
term.
CONTRACTION:
If Tenant is not in default, Landlord agrees to reduce the premises (and the
corresponding base rent and additional rent due under the lease by 2,692 sq. ft.
representing the mezzanine to bay 4 and the extension of warehouse space into
bay 4 (5190 West 76th Street) effective July 1, 1997 provided i) Tenant has not
exercised its first opportunity to lease as outlined above; and ii) The current
occupant of the adjacent 6,188 sq. ft. does not renew its lease.
The revised rent schedule will be as follows:
PERIOD SQ. FT. ANNUAL RENT MONTHLY RENT
7/1/97 - 6/30/98 28,595 $122,672.55 $10,222.71
7/1/98 - 6/30/99 28,595 $128,391.55 $10,699.30
-33-
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED FOOTNOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 489
<SECURITIES> 1,223
<RECEIVABLES> 3,012
<ALLOWANCES> 381
<INVENTORY> 1,981
<CURRENT-ASSETS> 6,553
<PP&E> 1,140
<DEPRECIATION> 717
<TOTAL-ASSETS> 8,054
<CURRENT-LIABILITIES> 5,699
<BONDS> 0
163
0
<COMMON> 0
<OTHER-SE> 1,991
<TOTAL-LIABILITY-AND-EQUITY> 8,054
<SALES> 8,632
<TOTAL-REVENUES> 8,632
<CGS> 7,743
<TOTAL-COSTS> 7,743
<OTHER-EXPENSES> 1,135
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (211)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
