Document:

EXHIBIT 10.1

 

THIRD LOAN MODIFICATION AGREEMENT

 

This Third Loan
Modification Agreement (this “Loan Modification
Agreement”) is entered into as of the Third Loan Modification
Effective Date by and between SILICON VALLEY BANK,
a California corporation, with its principal place of business at
3003 Tasman Drive, Santa Clara, California 95054 and with a loan
production office located at One Newton Executive Park, Suite 200, 2221
Washington Street, Newton, Massachusetts 02462 (“Bank”)
and (i) SATCON TECHNOLOGY CORPORATION, a
Delaware corporation; SATCON POWER SYSTEMS, INC.,
a Delaware corporation; SATCON ELECTRONICS, INC.,
a Delaware corporation; SATCON APPLIED TECHNOLOGY,
INC., a Delaware corporation; each with offices located at 27
Drydock Avenue, Boston, Massachusetts 02210; and (ii) SATCON POWER
SYSTEMS CANADA LTD. (the “Canadian Borrower”),
a corporation organized under the laws of the Province of Ontario, Canada with
offices located at 835 Harrington Court, Burlington, Ontario L7N 3P3
(individually and collectively, jointly and severally, “Borrower”).

 

1.             DESCRIPTION OF
EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and
obligations which may be owing by Borrower to Bank, Borrower is indebted to
Bank pursuant to a loan arrangement dated as of February 20, 2008,
evidenced by, among other documents, a certain Loan and Security Agreement
dated as of February 20, 2008, as amended by that certain First Loan
Modification Agreement, dated as of the First Loan Modification Effective Date
and that certain Second Loan Modification Agreement, dated as of the Second
Loan Modification Effective Date (as amended, the “Loan
Agreement”).  Capitalized
terms used but not otherwise defined herein shall have the same meaning as in
the Loan Agreement.

 

DESCRIPTION OF
COLLATERAL.  Repayment
of the Obligations is secured by the Collateral as described in the Loan
Agreement and a certain Intellectual Property Security Agreement dated as of February 20,
2008, as may be amended from time to time (the “IP Agreement”).

 

2.             Hereinafter, the Loan
Agreement and the IP Agreement, together with all other documents executed in
connection therewith evidencing, securing or otherwise relating to the
Obligations (other than this Loan Modification Agreement) shall be referred to
as the “Existing Loan Documents”.

 

3.             DESCRIPTION OF
CHANGE IN TERMS.

 

A.                                   Modifications
to Loan Agreement.

 

1                                          The
Loan Agreement shall be amended by deleting the following Section 2.4(e) in
its entirety:

 

“(e)         Collateral Monitoring Fee.  During each month in which any Obligations
are outstanding under this Agreement, a monthly collateral monitoring fee of
$750, payable in arrears on the last day of each month (prorated for any
partial month) at the beginning and upon termination of this Agreement; and”

 

and
inserting in lieu thereof the following:

 

“(e)         Collateral
Monitoring Fee.  During each month in
which any Obligations are outstanding under this Agreement, a monthly
collateral monitoring fee of $750, payable in arrears on the last day of each
month (prorated for any partial month) at the beginning and upon termination of
this Agreement; provided, however, such fee shall be waived for

 

1

 

any month in which Borrower’s unrestricted cash on
deposit at Bank plus unused availability pursuant to the Revolving Line under
this Agreement, as determined by Bank with reference to the Availability Amount
set forth herein, is greater than $10,000,000 at all times during such month;
and”

 

2                                          The
Loan Agreement shall be amended by deleting the following text appearing as Section 6.2(a)(i) in
its entirety:

 

“(i) weekly
(monthly, if there are no borrowings under this Agreement or in the event
Borrower maintains or exceeds $12,000,000 in (A) Borrower’s unrestricted
cash on deposit at Bank plus (B) unused availability pursuant to the
Revolving Line under this Agreement, as determined by Bank with reference to
the Availability Amount set forth herein) (twice per month, if there are
borrowings under this Agreement and Borrower maintains between $10,000,000 and
$12,000,000 in (A) unrestricted cash on deposit at Bank plus (B) unused
availability pursuant to the Revolving Line under this Agreement, as determined
by Bank with reference to the Availability Amount set forth herein, and upon
each request for a Credit Extension, a Transaction Report;”

 

and inserting in lieu thereof the following:

 

“(i) twice
per month as of the 15th day and as of the last day of each month
(monthly, in the event Borrower maintains or exceeds $10,000,000 in (A) Borrower’s
unrestricted cash on deposit at Bank plus (B) unused availability pursuant
to the Revolving Line under this Agreement, as determined by Bank with
reference to the Availability Amount set forth herein), and upon each request
for a Credit Extension, a Transaction Report;”

 

3                                          The
Loan Agreement shall be amended by deleting the following Section 6.6
entitled “Access to Collateral; Books and Records” in its entirety:

 

“6.6        Access to Collateral;
Books and Records.  At reasonable
times, on one (1) Business Day’s notice (provided no notice is required if
an Event of Default has occurred and is continuing), Bank, or its agents, shall
have the right to inspect the Collateral and the right to audit and copy
Borrower’s Books.  The foregoing
inspections and audits shall be (i) conducted three times per year or as
conditions warrant in Bank’s discretion, and (ii) at Borrower’s expense,
and the charge therefor shall be $750 per person per day (or such higher amount
as shall represent Bank’s then-current standard charge for the same), plus
reasonable out-of-pocket expenses.  In
the event Borrower and Bank schedule an audit more than ten (10) days in
advance, and Borrower cancels or seeks to reschedules the audit with less than
ten (10) days written notice to Bank, then (without limiting any of Bank’s
rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any
out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated
costs and expenses of the cancellation or rescheduling.”

 

and
inserting in lieu thereof the following:

 

“6.6        Access to Collateral;
Books and Records.  At reasonable
times, on one (1) Business Day’s notice (provided no notice is required if
an Event of Default has occurred and is continuing), Bank, or its agents, shall
have the right to inspect the Collateral and the right to audit and copy
Borrower’s Books.  The foregoing
inspections and audits shall

 

2

 

be (i) conducted
three times per year or as conditions warrant in Bank’s discretion, and (ii) at
Borrower’s expense, and the charge therefor shall be $850 per person per day
(or such higher amount as shall represent Bank’s then-current standard charge
for the same), plus reasonable out-of-pocket expenses.  In the event Borrower and Bank schedule an
audit more than ten (10) days in advance, and Borrower cancels or seeks to
reschedules the audit with less than ten (10) days written notice to Bank,
then (without limiting any of Bank’s rights or remedies), Borrower shall pay
Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to
compensate Bank for the anticipated costs and expenses of the cancellation or
rescheduling.”

 

4                                          The
Loan Agreement shall be amended by deleting the following Section 6.9
entitled “Financial Covenants” in its entirety:

 

“              6.9          Financial
Covenants.

 

Borrower shall maintain
at all times, to be certified by the Borrower as of the last day of each month, unless otherwise noted, on a consolidated basis with
respect to Borrower and its Subsidiaries:

 

(a)           Liquidity.  Borrower’s (A) unrestricted cash on
deposit at Bank plus (B) unused availability pursuant to the Revolving
Line under this Agreement, as determined by Bank with reference to the
Availability Amount set forth herein, of at least $4,000,000.

 

(b)           Tangible
Net Worth.  A Tangible Net Worth,
tested as of the last day of each fiscal quarter, of at least (i) from the
Second Loan Modification Effective Date through March 31, 2009,
$12,000,000, and (ii) from June 30, 2009, and as of the end of each
fiscal quarter of Borrower thereafter, $12,500,000. The Tangible Net Worth
requirements set forth herein shall  increase by 50% of quarterly Net
Income and 50% of issuances of equity after the Second Loan Modification
Effective Date.”

 

and inserting in lieu
thereof the following:

 

“              6.9          Financial Covenants.

 

Borrower shall maintain
at all times, to be certified by the Borrower as of the last day of each month, unless otherwise noted, on a consolidated basis with
respect to Borrower and its Subsidiaries:

 

(a)           Liquidity.  Borrower’s (A) unrestricted
cash on deposit at Bank plus (B) unused availability pursuant to the
Revolving Line under this Agreement, as determined by Bank with reference to
the Availability Amount set forth herein, of at least $4,000,000.

 

(b)           Tangible Net Worth.  A Tangible Net Worth, tested as of the last
day of each fiscal quarter, of at least (i) as of the quarter ending September 30,
2009, $16,000,000, and (ii) as of the quarter ending December 31,
2009 and as of the end of each fiscal quarter of Borrower thereafter,
$15,000,000. The Tangible Net Worth requirements set forth herein shall  increase by 50%
of quarterly Net Income and 50% of issuances of equity after the Third Loan
Modification Effective Date.”

 

3

 

5                                          The
Loan Agreement shall be amended by deleting the following definitions appearing
in Section 13.1 thereof, entitled “Definitions”:

 

“              “Borrowing Base” is (a) 80% of Eligible Accounts plus (b) the
lesser of 25% of the value of Borrower’s Eligible Inventory (valued at the
lower of cost or wholesale fair market value) or $1,000,000, as determined by
Bank from Borrower’s most recent Borrowing Base Certificate, provided, however,
that Bank may decrease the foregoing percentages  in
its good faith business judgment based on events, conditions, contingencies, or
risks which, as determined by Bank, may adversely affect Collateral.”

 

“Eligible
Inventory” means, at any time, the aggregate of Borrower’s
Inventory that (a) consists of finished goods or raw materials, in good,
new, and salable condition, which are not perishable, returned, consigned,
obsolete, not sellable, damaged, or defective, and is not comprised of
demonstrative or custom inventory, works in progress, packaging or shipping
materials, or supplies; (b) meet all applicable governmental standards; (c) have
been manufactured in compliance with the Fair Labor Standards Act; (d) are
not subject to any Liens, except the first priority Liens granted or in favor
of Bank under this Agreement or any of the other Loan Documents; (e) are
located at Borrower’s principal place of business, any location noted on the
Borrower’s Perfection Certificate delivered in connection herewith (provided
Bank has received a landlord’s waiver, bailee’s waiver or similar agreement in
form reasonably satisfactory to Bank with respect to such location), or any
location permitted under Section 7.2; and (f) are otherwise
acceptable to Bank in its good faith business judgment.

 

“Prime Rate” is Bank’s most recently announced “prime rate,”
even if it is not Bank’s lowest rate.”

 

and inserting in lieu
thereof the following:

 

“              “Borrowing Base” is 80% of Eligible Accounts, as determined
by Bank from Borrower’s most recent Borrowing Base Certificate, provided,
however, that Bank may decrease the foregoing percentage  in
its good faith business judgment based on events, conditions, contingencies, or
risks which, as determined by Bank, may adversely affect Collateral.

 

“Prime Rate” is the greater of (i) Bank’s most recently
announced “prime rate,” even if it is not Bank’s lowest rate and (ii) four
percent (4.00%) per annum.”

 

The Loan Agreement shall
be amended by inserting the following definitions in the appropriate
alphabetical order in Section 13.1 thereof, entitled “Definitions”:

“              “Third Loan Modification Agreement” means that certain Third
Loan Modification Agreement, dated as of the Third Loan Modification Effective
Date, by and between Borrower and Bank.”

 

“Third Loan Modification Effective Date” is the date noted on
the signature page to the Third Loan Modification Agreement.”

 

4

 

6                                          The
Compliance Certificate appearing as Exhibit D
to the Loan Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit D hereto.

 

4.             FEES.  Borrower shall pay to Bank a modification fee
in the amount of Ten Thousand Dollars ($10,000.00), which fee shall be due and
payable and fully earned as of the date hereof. 
Borrower shall also reimburse Bank for all legal fees and expenses
incurred by Bank in connection with the Existing Loan Documents and this
amendment thereto.

 

5.             RATIFICATION OF
INTELLECTUAL PROPERTY SECURITY AGREEMENT. Borrower hereby ratifies,
confirms, and reaffirms, all and singular, the terms and conditions of the IP
Agreement and acknowledges, confirms and agrees that the IP Agreement contains
an accurate and complete listing of all Intellectual Property.

 

6.             RATIFICATION OF
PERFECTION CERTIFICATE.  Borrower
hereby ratifies, confirms and reaffirms, all and singular, the terms and
disclosures contained in a certain Perfection Certificate dated as of February 20,
2008 between Borrower and Bank, and acknowledges, confirms and agrees the
disclosures Borrower provided to Bank in the Perfection Certificate, as
amended, has not changed.

 

7.             AUTHORIZATION TO
FILE.  Borrower hereby authorizes
Bank to file UCC financing statements without notice to Borrower, with all
appropriate jurisdictions, as Bank deems appropriate, in order to further
perfect or protect Bank’s interest in the Collateral, including a notice that
any disposition of the Collateral, by either the Borrower or any other Person,
shall be deemed to violate the rights of the Bank under the Code.

 

8.             CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.

 

9.             RATIFICATION OF
LOAN DOCUMENTS.  Borrower hereby
ratifies, confirms, and reaffirms all terms and conditions of all security or
other collateral granted to the Bank, and confirms that the indebtedness
secured thereby includes, without limitation, the Obligations.

 

10.           NO DEFENSES OF
BORROWER.  Borrower hereby
acknowledges and agrees that, as of the date of this Loan Modification
Agreement, Borrower has no offsets, defenses, claims, or counterclaims against
Bank with respect to the Obligations, or otherwise, and that if Borrower now
has, or ever did have, any offsets, defenses, claims, or counterclaims against
Bank, whether known or unknown, at law or in equity, all of them are hereby
expressly WAIVED and Borrower hereby RELEASES Bank from any liability
thereunder.

 

11.           CONTINUING VALIDITY.  Borrower understands and agrees that in
modifying the existing Obligations, Bank is relying upon Borrower’s
representations, warranties, and agreements, as set forth in the Existing Loan
Documents.  Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect.  Bank’s agreement to modifications to the
existing Obligations pursuant to this Loan Modification Agreement in no way
shall obligate Bank to make any future modifications to the Obligations.  Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Obligations.  It is the intention of Bank and Borrower to
retain as liable parties all makers of Existing Loan Documents, unless the
party is expressly released by Bank in writing. 
No maker will be released by virtue of this Loan Modification Agreement.

 

5

 

12.           COUNTERSIGNATURE.  This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Bank.

 

[The remainder of this page is
intentionally left blank]

 

6

 

IN
WITNESS WHEREOF, the parties hereto have caused this Loan
Modification Agreement to be executed as a sealed instrument under the laws of
the Commonwealth of Massachusetts as of the Third Loan Modification Effective
Date.

 

 

	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
  SATCON
  TECHNOLOGY CORPORATION

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Charles S. Rhoades

  	
   

  
	
  Name:

  	
  Charles
  S. Rhoades

  	
   

  
	
  Title:

  	
  President
  and Treasurer

  	
   

  
	
   

  	
   

  
	
  SATCON
  POWER SYSTEMS, INC.

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Charles S. Rhoades

  	
   

  
	
  Name:

  	
  Charles
  S. Rhoades

  	
   

  
	
  Title:

  	
  President
  and Treasurer

  	
   

  
	
   

  	
   

  
	
  SATCON
  APPLIED TECHNOLOGY, INC.

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Charles S. Rhoades

  	
   

  
	
  Name:

  	
  Charles
  S. Rhoades

  	
   

  
	
  Title:

  	
  President
  and Treasurer

  	
   

  
	
   

  	
   

  
	
  SATCON
  ELECTRONICS, INC.

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Charles S. Rhoades

  	
   

  
	
  Name:

  	
  Charles
  S. Rhoades

  	
   

  
	
  Title:

  	
  President
  and Treasurer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SATCON
  POWER SYSTEMS CANADA LTD.

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Charles S. Rhoades

  	
   

  
	
  Name:

  	
  Charles
  S. Rhoades

  	
   

  
	
  Title:

  	
  President
  and Treasurer

  	
   

  
	
   

  	
   

  
	
  BANK:

  	
   

  
	
   

  	
   

  
	
  SILICON
  VALLEY BANK

  	
   

  
	
   

  	
   

  
	
  By

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 

Third Loan Modification Effective Date: September 30,
2009

 

 

[Satcon
–Third Loan Modification Agreement Signature Page]

 

 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

	
  TO:

  	
   

  	
  SILICON
  VALLEY BANK

  	
  Date:

  	
   

  
	
  FROM:

  	
   

  	
  SATCON TECHNOLOGY CORPORATION, et al.

  	
   

  	
   

  

 

The undersigned
authorized officer of Satcon Technology Corporation and its Subsidiaries (“Borrower”)
certifies that under the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the “Agreement”), (1) Borrower is in
complete compliance for the period ending
                              
with all required covenants except as noted below, (2) there are no Events
of Default, (3) all representations and warranties in the Agreement are
true and correct in all material respects on this date except as noted below;
provided, however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, (4) Borrower,
and each of its Subsidiaries, has timely filed all required tax returns and
reports, and Borrower has timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower except as
otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any
of its Subsidiaries, if any, relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank.  Attached are the required documents
supporting the certification.  The
undersigned certifies that these are prepared in accordance with generally GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The
undersigned acknowledges that no borrowings may be requested at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that compliance is determined not just at the date this
certificate is delivered.  Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

Please
indicate compliance status by circling Yes/No under “Complies” column.

 

	
  Reporting
  Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly
  financial statements with Compliance Certificate

  	
   

  	
  Monthly
  within 30 days

  	
   

  	
  Yes   No

  
	
  Annual
  financial statement (CPA Audited) + CC

  	
   

  	
  FYE
  within 120 days

  	
   

  	
  Yes   No

  
	
  10-Q,
  10-K and 8-K

  	
   

  	
  Within
  5 days after filing with SEC

  	
   

  	
  Yes   No

  
	
  A/R &
  A/P Agings

  	
   

  	
  Monthly
  within 15 days

  	
   

  	
  Yes   No

  
	
  Projections

  	
   

  	
  Annually

  	
   

  	
  Yes   No

  

 

]

 

The
following Intellectual Property was registered after the Effective Date (if no
registrations, state “None”)

 

 

	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain on a Monthly Basis:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Liquidity

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  $

  	
   

  	
  Yes   No

  	
   

  
	
  Minimum Tangible Net Worth

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
  Yes   No

  	
   

  
	
   

  	
   

  	
   

  	
  *See
  Section6.9(b)

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

The
following financial covenant analyses and information set forth in Schedule 1
attached hereto are true and accurate as of the date of this Certificate.

 

The
following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions
to note.”)

 

 

 

	
  SATCON TECHNOLOGY
  CORPORATION, et al.

  	
   

  	
  BANK
  USE ONLY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Received
  by:

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
  Name:

  	
   

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
  Verified:

  	
   

  
	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Compliance
  Status:  o Yes   o No

  
							

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

Dated:                                

 

I.              Liquidity (Section 6.9(a))

 

Required:               $4,000,000 (at all times)

 

Actual:

 

	
  A.

  	
   

  	
  Unrestricted
  cash at Bank

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
   

  	
  Availability
  Amount

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
   

  	
  Liquidity
  (line A plus line B)

  	
   

  	
  $

  	
   

  

 

Is line C equal to or
greater than
$4,000,000          ?

 

	
  o

  	
  No,
  not in compliance

  	
  o

  	
  Yes,
  in compliance

  

 

 

II.            Tangible Net Worth
(Section 6.9(b))

 

Required:               As of the fiscal quarter ending September 30, 2009, $16,000,000, and (ii) as of
the quarter ending December 31, 2009, and as of the end of each fiscal
quarter of Borrower thereafter, $15,000,000. 
The Tangible Net Worth requirements set forth herein shall  increase by 50%
of quarterly Net Income and 50% of issuances of equity after the Third Loan
Modification Effective Date.

 

Actual:                   $           

 

	
  A.

  	
   

  	
  Aggregate
  value of total assets of Borrower

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
   

  	
  Deferred
  Financing Costs

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
   

  	
  Aggregate
  value of goodwill of Borrower

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  D.

  	
   

  	
  Aggregate
  value of intangible assets of Borrower

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
   

  	
  Aggregate
  value of obligations owing to Borrower from officers or other directors

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  F.

  	
   

  	
  Aggregate
  value of any reserves not already deducted from assets

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  G.

  	
   

  	
  Total
  Liabilities

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  H.

  	
   

  	
  Value
  of Line A plus B minus C minus D minus E minus
  F minus G

  	
   

  	
  $

  	
   

  

 

Is line H equal to or
greater than $          ?

 

	
  o

  	
  No,
  not in compliance

  	
  o

  	
  Yes,
  in compliance

  

 

BOS 46,531,632v2
063230.010000Exhibit 10.36

 

PURCHASE
AGREEMENT

 

THIS PURCHASE AGREEMENT (this “Agreement”) is
made as of the 11th day of August, 2009 (the “Effective
Date,” being the date this Agreement has been fully executed as
evidenced by the signature page attached hereto) by and between Appliance
Recycling Centers of America, Inc. a Minnesota corporation (“Seller”) and Japs-Olson Company, a Delaware corporation (“Purchaser”).

 

RECITALS

 

A.                                   Seller is the fee owner of the real
property with a street address of 7400 Excelsior Boulevard, St. Louis Park,
Minnesota, consisting of the parcels of land that are identified on Exhibit A
attached hereto and incorporated herein containing approximately 10.18
acres, together with all the appurtenant rights, mineral rights, privileges,
and easements belonging thereto (the “Land”), and the
approximately 126,458 square foot building and other improvements located
thereon (the “Improvements”).  The Land and the Improvements are herein
sometimes collectively referred to as the as the “Real
Property”.

 

B.                                     Seller desires to sell the Real Property
to Purchaser and Purchaser desires to purchase the Real Property from Seller on
the terms and conditions herein set forth.

 

C.                                     Upon Closing (as defined herein) Seller
intends to continue to occupy the Real Property in accordance with the terms of
the Lease attached hereto as Exhibit B (the “Lease”)
by and between the parties hereto, which Lease is a condition of Seller’s
agreeing to sell the Real Property hereunder.

 

AGREEMENT

 

ACCORDINGLY, in consideration of the RECITALS, the mutual covenants and
undertakings contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:

 

1.                                       Sale and Purchase of Property. 
Seller agrees to sell the Real Property to Purchaser and Purchaser
agrees to purchase the Real Property from Seller on the terms and conditions
contained in this Agreement.

 

2.                                       Purchase Price. 
Purchaser agrees to pay to Seller the sum of Four Million Six Hundred
Fifty Thousand Dollars ($4,650,000), subject to Closing prorations and
adjustments as set forth herein (the “Purchase Price”)
for the Real Property.

 

The Purchase Price shall be payable as follows:

 

a.                                       Within three (3) business days after
the Effective Date of this Agreement, Purchaser shall deposit with the Title
Company (as defined herein) One Hundred Thousand Dollars ($100,000) (together
with any interest earned thereon and additions 

 

 

thereto the “Earnest Money”). 
Title Company shall hold the Earnest Money in escrow and shall disburse
the Earnest Money according to the terms of this Agreement.  The Earnest Money shall be applicable to the
Purchase Price or otherwise disbursed to the party entitled to it under the
terms of this Agreement.

 

b.                                      The balance of the Purchase Price shall
be payable by wire transfer at Closing of immediately available funds to a bank
account designated by Seller.

 

3.                                       Title.  Seller has
provided to Purchaser an owner’s commitment for title insurance issued by
Commonwealth Land Title Insurance Company with an Effective Date of March 17, 2006.  Purchaser shall have such commitment updated
by a nationally recognized title company of its choosing (“Title
Company”), at Seller’s expense, naming Purchaser as the proposed
owner-insured of the Real Property in the full amount of the Purchase Price
(the “Commitment”), together with copies of
all documents referred to in the Commitment. 
Purchaser shall also promptly order and review UCC searches made of the
Uniform Commercial Code records of the Secretary of State in which Seller is
incorporated (the “UCC Report”).

 

Within ten (10) days after receiving the last of the “Title Evidence” (being the Commitment, the Survey [as
defined in paragraph 4 below] and the UCC Report), Purchaser will make written
objections (“Objections”) to matters disclosed
by the Title Evidence to which it objects; provided, Purchaser need not object to mortgages or
other monetary liens; which if not sooner satisfied, Seller shall be obligated
to satisfy any such mortgages or other monetary liens at Closing at its sole
cost and expense.  If any Objections are
made to matters disclosed by the Title Evidence, Seller shall be allowed thirty
(30) days after such Objections are made to cure such Objections.  Seller shall use commercially
reasonable efforts to correct any Objections.  Pending the
curing of any Objections, the Closing Date (as defined in Paragraph 8 hereof)
shall be postponed if necessary, but upon curing of the objections and within
five (5) days after written notice of the curing given by Seller to
Purchaser, Seller and Purchaser shall perform this Agreement in accordance with
its terms.  To the extent an Objection is
made to a monetary judgment or lien securing a promissory note or other amount
due (e.g., an unpaid mechanic’s lien) and can be satisfied by the payment of
money in a liquidated amount, Purchaser shall have the right to apply a portion
of the cash payable to Seller at the Closing to the satisfaction of such
Objection and the amount so applied shall reduce the amount of cash payable to
Seller at the Closing.  If the Objections
are not cured or adequately addressed within such thirty (30) day period,
Purchaser will have the option to do any of the following:

 

a.                                       Purchaser may
terminate this Agreement by giving written notice to Seller in which event all
Earnest Money shall be returned immediately to Purchaser;

 

b.                                      Withhold from the Purchase Price an
amount which, in the reasonable judgment of Title, is sufficient to assure cure
of the Objections, in an amount up to, but not to exceed Twenty Thousand
Dollars ($20,000); provided, the $20,000 limitation shall not apply to Seller’s
right to offset the purchase price for liquidated amounts as set forth above,
nor shall any such offset reduce the applicable $20,000 limit set forth
above.  Any amount so withheld will be
placed in escrow with Title, pending such cure. 
If Seller does not cure such Objections within ninety (90) days after
such escrow is established,

 

2

 

Purchaser may then cure such Objections and charge the costs of such
cure (including reasonable attorney’s fees) against the escrowed amount.  If such escrow is established, the parties
agree to execute and deliver such documents as may be reasonably required by
Title, and Seller agrees to pay the charges of Title to create and administer
the escrow; or

 

c.                                       Purchaser may
elect to waive the Objection and proceed to Close.

 

4.                                       Survey.  Seller has
provided to Purchaser an ALTA survey dated September 25, 2002.  Purchaser shall update such survey (as so
updated, the “Survey”), at Seller’s expense, not
to exceed One Thousand Five Hundred Dollars ($1,500), with any excess payable
by Purchaser.

 

5.                                       Documents to be Delivered by Seller. 
Within ten (10) days after the date hereof Seller shall deliver to
Purchaser true and complete copies of the following to the extent the same are
in Seller’s possession or control:

 

a.                                       A copy of all soil reports, engineering
reports, plans, specifications, structural reports and inspections and other
information pertaining to the Real Property, including without limitation any
additional information regarding Seller’s Disclosures set forth in Paragraph 7.

 

b.                                      Copies of any environmental audits and
reports concerning the Real Property and all other documents relating to the
discharge and/or remediation of Hazardous Substances (as defined in Paragraph 7
hereof) in, on, about or from the Real Property.

 

c.                                       Copies of any certificate of occupancy,
conditional use permit or other permits or authorizations issued by any
governmental body having jurisdiction in connection with any state of facts or
activity presently existing or being carried on with respect to the Real
Property.

 

d.                                      Copies of any guaranties or warranties
that are in effect with respect to the Real Property.

 

6.                                       Inspection.  Purchaser,
its agents and designees, are hereby granted the right, at times reasonably
acceptable to Seller and Purchaser, to enter upon and survey, inspect, analyze,
and test the Real Property, including, without limitation, the Improvements and
groundwater, for all reasonable purposes, including, without limitation, the
presence of Hazardous Substances.  No
subsurface testing of the Real Property by Purchaser or its agents and
contractors shall occur without the prior written consent of Seller, which
consent shall not be unreasonably withheld. 
Purchaser shall pay for the cost of all investigations, analyses and
tests which are ordered by Purchaser. 
Purchaser shall be responsible, at Purchaser’s sole expense, to repair
any damage resulting from Purchaser’s performance of such tests or
inspections.  Purchaser hereby agrees to
indemnify, defend and hold Seller harmless from any liens, claims, damages,
costs, and liability (including, without limitation, reasonable attorney’s
fees) resulting from the entering upon the Real Property or the performing of
any of the analyses, tests or inspections referred to in this Paragraph;
however, nothing contained herein shall be deemed to require Purchaser to hold

 

3

 

Seller harmless
from any liability for discovered conditions. 
Purchaser’s obligations under this Paragraph shall survive the closing
or termination of this Agreement.

 

7.                                       Representations
of Seller.  Seller
represents to Purchaser as follows:

 

a.                                       Seller is and on the Closing Date will be
the owner of fee title to the Real Property. 
Seller will cause the Real Property to be released from any mortgages or
other monetary liens at or prior to closing.

 

b.                                      Except as to Seller leaseback of the Real
Property pursuant to the Lease and the Seller’s lease with the City of St.
Louis Park for a portion of the Land used for material and equipment storage
pursuant to a Lease Agreement dated April 29, 2009 (attached hereto as Exhibit C),
there are no leases or other occupancy agreements or purchase agreements,
purchase options or rights of first refusal affecting the Real Property.  Prior to Closing, Seller will not enter into
any leases or occupancy agreements or purchase agreements, purchase options or
rights of first refusal affecting the Real Property.

 

c.                                       At Closing, no management or service
contracts or agreements will be in effect with respect to the Real Property by
which Purchaser shall be bound.

 

d.                                      Neither Seller nor, to Seller’s
knowledge, any other owner or occupant of the Real Property has received any
notice from a governmental body having jurisdiction to the effect that the Real
Property, or any system or component serving the Real Property is not currently
in compliance with any applicable law, code, ordinance or regulation,
including, without limitation, those relating to environmental protection (“Applicable Laws”). 
Seller has not received any notice, order or other communication from
any governmental body having jurisdiction requiring any work to be performed
with respect to the Real Property that has not been performed.

 

e.                                       There is no action, litigation,
investigation, condemnation or proceeding of any kind pending or, to Seller’s
knowledge, threatened against Seller or the Real Property, or any interest
therein, which could affect the Real Property, any portion thereof or title
thereto, except as identified in the Disclosure Schedule attached hereto as Exhibit D
and incorporated herein.

 

f.                                         Seller has received no notices with
respect to improvements planned which may result in special assessments being
levied against the Real Property in the future and, to Seller’s knowledge,
there are no such improvements planned which may result in special assessments
being levied against the Real Property in the future.

 

g.                                      To Seller’s knowledge, there are no
wells, whether in use, not in use, or sealed, located on the Real Property.

 

h.                                      To Seller’s knowledge, there are no
underground tanks or septic systems located on the Real Property and there were
no above ground or underground tanks or septic systems located on the Real
Property that have been removed.

 

4

 

i.                                          Neither Seller nor, to Seller’s
knowledge, any other owner or occupant of the Real Property has generated,
treated, released or disposed of, or otherwise placed, deposited in or located
on the Real Property any Hazardous Substances in violation of any Applicable
Law relating to the protection of human health or the environment.  Except as disclosed in a Phase I
Environmental Site Assessment Report dated August 22, 2002 issued by SECOR
International Incorporated, to Seller’s knowledge, there are no substances or
conditions in or on the Real Property that may support a claim or cause of
action under CERCLA, Minnesota Statutes Chapter 115B, or any other
federal, state or local environmental statutes, regulations, ordinances or
other environmental regulatory requirements.

 

The term Hazardous Substances includes any toxic or hazardous substances or
hazardous wastes, pollutants or contaminants, including, without limitation,
asbestos, urea formaldehyde, the group of organic compounds known as
polychlorinated biphenyls, petroleum products including gasoline, fuel oil,
crude oil and various constituents of such products, radio active materials and
any hazardous substances or wastes, pollutants or contaminants as defined in or
regulated pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9601-9657, as amended and
reauthorized, Minnesota Statutes Chapter 115B, or any other federal, state or
local laws relating to any such substances, wastes, pollutants or contaminants
or human health or the environment.

 

Seller shall promptly notify Purchaser in
writing if it acquires any knowledge which change in any of the foregoing
representations, including without limitation, any additional developments with
respect to those matters set forth on Exhibit D.  The notice shall describe in detail the
nature of the change and the basis therefor. 
If there is a material adverse change in any of the foregoing
representations prior to Closing, Purchaser will have the right to terminate
this Agreement by giving written notice to Seller within ten (10) days
after it receives written notice of such material change.  If Purchaser so terminates this Agreement,
the Earnest Money shall be returned to it and neither party shall have further
rights or obligations hereunder except for any obligations contained in this
Agreement which expressly survive termination.

 

8.                                       Closing/Payment of Closing Costs. 
Subject to postponement as provided elsewhere in this Agreement, the
closing hereunder (“Closing”) shall
take place as soon as reasonably practical after the final contingency set
forth in Paragraph 24 below has been satisfied or waived as provided for
therein and all necessary loan documentation related to the acquisition
financing has been fully negotiated and agreed to and Purchaser’s Lender is in
a position to fund, but in no event later than October 15, 2009.  (Such date or such other date as this
transaction actually closes as determined in accordance with the provisions of
this Agreement is herein sometimes called the “Closing Date”).  The Closing shall take place at the offices
of Leonard, Street and Deinard, 150 South Fifth Street, Suite 2300,
Minneapolis, Minnesota 55402 or such other place which is mutually acceptable
to the parties.

 

At the Closing, Seller shall execute, where appropriate, and deliver to
Purchaser:

 

a.                                       A limited warranty deed (“Deed”) properly executed and acknowledged on behalf of
Seller in recordable form, conveying the Real Property to Purchaser subject

 

5

 

only to matters accepted by Purchaser pursuant to Paragraph 3
hereof.  Unless Seller provides a well
disclosure certificate pursuant to Minn. Stat. § 103I.235., the Deed shall
contain a certification by Seller that Seller does not know of any wells on the
Real Property.

 

b.                                      The Lease.

 

c.                                       Any certificates, instruments, and other
documents necessary to permit the recording of the deed.

 

d.                                      A Standard Seller’s Affidavit with
respect to judgments, bankruptcies, tax liens, mechanics liens, parties in
possession, unrecorded interests, encroachment or boundary line questions, and
related matters, properly executed on behalf of Seller.

 

e.                                       A certificate to the effect that the
warranties of Seller contained in this Agreement, as modified by any notices
provided by Seller as provided in Paragraph 7 hereof, are true, correct and
complete in all material respects as of the Closing Date.

 

f.                                         An affidavit in form and content
satisfactory to Purchaser stating that Seller is not a “foreign person” within
the meaning of Section 1445 of the Internal Revenue Code.

 

g.                                      An assignment to Purchaser, without any
representations or warranties, of any assignable permits, guaranties or
warranties pertaining to the Real Property that Purchaser desires to have
assigned to it.

 

h.                                      Such other instruments and documents as
are reasonably necessary complete the transaction contemplated hereby.

 

At the Closing, Purchaser shall execute, where appropriate, and deliver
to Seller:

 

a.                                       The balance of the Purchase Price to
Seller in accordance with Paragraph 2 hereof.

 

b.                                      The Lease.

 

c.                                       Such other instruments and documents as
are reasonably necessary complete the transaction contemplated hereby.

 

Seller shall pay the deed tax payable on the Deed, the cost of updating
the Commitment, and the cost of updating the 2002 survey (in an amount not to
exceed $1,500).  Seller and Purchaser
each shall pay one-half of any fee charged by Title Company for serving as the
agent for the Closing.  Purchaser shall
be responsible for the payment of the premium for any policy of title insurance
it elects to purchase and all requested endorsements.  Except as otherwise provided herein, each
party shall pay its own legal fees.

 

6

 

9.                                       Real Estate Taxes and Special Assessments. 
Real estate taxes due and payable in the year prior to the year of
Closing and all prior years, including any real estate taxes otherwise payable
during any such year which may have been deferred, shall be paid by
Seller.  Real estate taxes due and
payable in the year of Closing, shall be prorated as of the Closing Date based
upon the parties’ respective period of ownership of the Real Property in the
calendar year of Closing; provided Seller shall be responsible for the same
pursuant to the terms of the Lease.

 

On or prior to the Closing Date, Seller shall pay all special
assessments, whether or not then due, levied or pending against the Real
Property as of the date of this Agreement; or, at Purchaser’s option, Purchaser
shall receive a credit for the amount thereof against the Purchase Price at
closing.  If the actual amount of any
pending assessments is not known at the Closing Date, the Title Company shall
withhold in escrow from Seller’s proceeds at closing an amount equal to 125% of
the estimated amount thereof.  When the
amount of said assessments becomes fixed and payable, the Title Company shall
apply said escrow in payment of the assessments, returning any surplus to
Seller; provided that if the amount withheld in escrow is insufficient to pay
the assessments, Seller shall immediately pay, and shall be liable for the
immediate payment of, any such deficiency.

 

10.                                 Possession; Expenses. 
Seller will deliver possession of the Real Property to Purchaser on the
Closing Date, subject to the rights of the Seller under the Lease.  All utilities and other expenses shall be pro
rated and adjusted as of the Closing Date, with Seller responsible for any such
expenses as of the Closing Date in accordance with the terms of the Lease.

 

11.                                 Risk of Loss. 
Risk of loss to the Real Property prior to Closing shall remain in
Seller.

 

If, prior to the Closing Date, proceedings for the condemnation of the
Real Property, or any interest therein, or any portion thereof, are commenced
by any governmental authority having jurisdiction to do so, or the Improvements
are materially damaged, Purchaser may, at its option, terminate this Agreement
by written notice to Seller given within fifteen (15) days after Seller advises
Purchaser in writing of the occurrence of such an event.  If Purchaser so terminates this Agreement,
the Earnest Money shall be immediately refunded to Purchaser and neither party
shall have any further rights, obligations or liability under this
Agreement.  If the Closing is otherwise
scheduled to occur prior to expiration of the fifteen (15) day period, it shall
be extended, at Purchaser’s option, to the first business day following
expiration of the fifteen (15) day period. 
In the event of any such condemnation, destruction or any damage to the
Real Property, or any interest therein, or any portion thereof, Seller agrees
to fully inform Purchaser regarding any insurance providing coverage with
respect thereto and the Seller’s good faith estimate of the probable amount of
any condemnation award or insurance proceeds recoverable on account thereof,
and if this Agreement is not terminated on account thereof, Seller shall assign
to Purchaser at Closing its rights to any such condemnation award or insurance
proceeds and Purchaser shall receive a credit against the Purchase Price for (i) any
condemnation or insurance proceeds paid to Seller and (ii) any portion of
any such casualty loss which is deductible under, deemed to be coinsured by
Seller or is otherwise not covered under Seller’s insurance coverage.  For purposes of this
Paragraph, the words “materially damaged” mean damage that is reasonably
estimated will cost $30,000.00 or more to repair.

 

7

 

12.                                 Notices.  Any notice
required or permitted hereunder shall be given by personal delivery upon an
authorized representative of a party hereto; or if mailed by United States
registered or certified mail return receipt requested, postage prepaid; or if
transmitted by e-mail (in “pdf” format), with a copy sent by U.S. Mail as
provided above; or if deposited cost paid with a nationally recognized,
reputable, overnight courier, properly addressed as follows:

 

	
  If to Purchaser:

  	
   

  	
  Japs-Olson
  Company

  
	
   

  	
   

  	
  7500 Excelsior
  Boulevard

  
	
   

  	
   

  	
  St. Louis Park,
  Minnesota  55426

  
	
   

  	
   

  	
  Attention: Gary
  Petrangelo

  
	
   

  	
   

  	
  e-mail address:
  gpetrang@japsolson.com

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Leonard, Street
  and Deinard

  
	
   

  	
   

  	
  Professional Association

  
	
   

  	
   

  	
  150 South Fifth
  Street; Suite 2300

  
	
   

  	
   

  	
  Minneapolis,
  MN  55402

  
	
   

  	
   

  	
  Attention:  Morris Sherman

  
	
   

  	
   

  	
  e-mail address:
  morris.sherman@leonard.com

  
	
   

  	
   

  	
   

  
	
  If to Seller:

  	
   

  	
  Appliance
  Recycling Centers of America, Inc.

  
	
   

  	
   

  	
  7400 Excelsior
  Boulevard

  
	
   

  	
   

  	
  St. Louis Park,
  Minnesota   55426

  
	
   

  	
   

  	
  Attention:  Jack Cameron

  
	
   

  	
   

  	
  e-mail address:
  jcameron@arcainc.com

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Mackall
  Crounse & Moore, PLC

  
	
   

  	
   

  	
  1400 AT&T
  Tower

  
	
   

  	
   

  	
  901 Marquette
  Avenue

  
	
   

  	
   

  	
  Minneapolis,
  Minnesota 55402

  
	
   

  	
   

  	
  Attention:  William J. O’Brien

  
	
   

  	
   

  	
  e-mail address:
  wjo@mcmlaw.com

  

 

Notices shall be
deemed effective on the earlier of the date of receipt or the date of deposit,
as aforesaid; provided, however, that if notice is given by deposit, the time
for response to any notice by the other party shall commence to run one
business day after any such deposit.  Any
party may change its address for the service of notice by giving notice of such
change ten (10) days prior to the effective date of such change.

 

13.                                 Default.  If Seller
defaults in the performance of its obligations hereunder or breaches any
representation or warranty contained herein, and such default shall not be
cured within five (5) days after notice from Purchaser, Purchaser shall
have and may pursue all rights and remedies available to it hereunder, at law
or in equity, or otherwise, including, but not limited to, an action for
damages or specific performance.  Any
action for specific performance shall be commenced not later than six (6) months
following the date of the alleged breach or default.

 

8

 

If Purchaser defaults in its obligation to close under this Agreement,
Seller, as its sole and exclusive remedy, shall be entitled to terminate this
Agreement in accordance with Minn. Stat. Section 559.21 and retain the
Earnest Money as liquidated damages.

 

14.                                 Complete Agreement. 
This is a final Agreement between the parties and contains their entire
agreement and supersedes all previous understandings and agreements, oral or
written, relative to the subject matter of this Agreement.  This Agreement may be amended only in a
writing duly executed by all parties.

 

15.                                 Time of the Essence; Business Days. 
Time is of the essence in the performance of this Agreement.  If any date which constitutes a deadline for
performance or notice under this Agreement falls on a weekend, a nationally
recognized holiday or a day which the federal wire system is not in operation,
such deadline shall be deemed to be the next business day which does not fall
on such a date.

 

16.                                 Controlling Law.  
This Agreement shall be governed by the laws of the State of Minnesota.

 

17.                                 Assignment; Successors and Assigns. 
This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns.  An assigning party shall give notice to the
other of any assignment promptly thereafter. 
Upon receipt of any assignment by Purchaser, Seller will recognize the
assignee identified in the notice as the “Purchaser” hereunder with the right
to purchase the Purchaser pursuant to this Agreement.  No assignment shall relieve Seller or
Purchaser, as applicable, from liability for the performance of its obligations
under this Agreement.

 

18.                                 Incorporation of Recitals; Survive
Closing.  The Recitals are incorporated into and made a
part of this Agreement.  All of the
covenants, warranties and provisions contained in this Agreement shall survive
and be enforceable after Closing.

 

19.                                 Captions.  The paragraph
headings or captions appearing in this Agreement are for convenience only, are
not a part of this Agreement, and are not to be considered in interpreting this
Agreement.

 

20.                                 Brokerage Commission. 
Seller and Purchaser each warrants to the other that, in connection with
this Agreement, they have dealt with no broker, finder, or similar person.  Seller will indemnify, defend and hold
harmless Purchaser against any claim made by Broker and any other agent or broker
for a commission or fee based on acts or agreements of Seller.  Purchaser will indemnify, defend and hold
harmless Seller against any claim made by any agent or broker for a commission
or fee based on acts or agreements of Purchaser.

 

21.                                 Counterparts; Delivery by E-mail. 
This Agreement may be executed in two or more counterparts, each of
which shall be an original and all of which shall constitute one
Agreement.  Delivery of an executed copy
of this Agreement by e-mail (in “pdf” format) shall be deemed delivery of the
executed original.

 

9

 

22.                                 Severability of Provisions. 
If any term or provision of this Agreement is illegal or invalid for any
reason, such illegality or invalidity shall not affect the validity or
enforceability of the remainder of this Agreement.

 

23.                                 Attorneys’ Fees. If any action at law or in equity,
including an action for declaratory relief, is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys’ fees and all other costs and expenses of
litigation from the other party, which amounts may be set by the court in the
trial of such action or may be enforced in a separate action brought for that
purpose, and which amounts shall be in addition to any other relief which may
be awarded.

 

24.                                 Purchaser’s Contingencies; Seller’s
Cooperation.  Purchaser’s obligation to close under this
Agreement is expressly conditioned upon Purchaser determining in its sole and
absolute discretion on or before the date that is thirty (30) days after the
Effective Date of this Agreement (the “Contingency Date”)
that all aspects of the contemplated transaction are acceptable; provided the
contingency date for the financing contingency (as set forth below) shall be October 12,
2009 (the “Final Contingency Date”).  The various aspects of such contingencies
include without limitation those set forth below:

 

a.                                       Purchaser having determined that the
physical and environmental condition of the Real Property, including, without
limitation, the Improvements, are acceptable to Purchaser.

 

b.                                      Purchaser
having obtained or determined that it will be able to obtain all
authorizations, approvals, licenses, variances, permits and other governmental
approvals (but no rezoning of the Real Property) (collectively “Approvals”) that it deems necessary or desirable to utilize
the Real Property for Purchaser’s intended use.

 

c.                                       Purchaser having determined that the
terms of the Lease and Seller’s ability to fulfill its financial obligations
thereunder are acceptable to Purchaser.

 

d.                                      Purchaser shall have obtained mortgage
financing from a commercial lender (“Purchaser’s Lender”)
for the contemplated transaction on terms and conditions acceptable to it.

 

The foregoing contingencies are for Purchaser’s sole benefit.  Whether or not any contingency has been
satisfied shall be determined by Purchaser in the exercise of its sole and
absolute discretion.  If any contingency
is not satisfied on or before the applicable contingency date, Purchaser, at
its option, may terminate this Agreement by giving written notice to Seller
within two (2) business days of the applicable contingency date.  If Purchaser so terminates this Agreement,
the Earnest Money shall be refunded to Purchaser promptly and neither party
shall have any further rights, obligations or liability hereunder.  If no such notice is provided by Purchaser to
Seller by such dates, the contingencies shall be deemed waived and the
Purchaser and Seller shall proceed to close.

 

10

 

Seller will cooperate with Purchaser’s
efforts to obtain Approvals to the extent Purchaser reasonably requests;
cooperation to include, but not be limited to, promptly executing applications and
related documentation required to be signed by the owner of the Real Property
to obtain Approvals.  Seller shall not be
obligated to incur any out of pocket expenses in connection with Purchaser’s
pursuit of any Approvals.

 

25.                                 No Strict Construction.  The parties and their respective counsel have
participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties hereto and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any provision of this Agreement.

 

26.                                 Agreements Concerning Escrow of Earnest
Money.  Title Company agrees to hold the Earnest
Money in accordance with the terms of this Agreement and disburse the same
strictly in accordance with such terms. 
Title Company shall invest the Earnest Money in the name of Purchaser in
a federally insured interest bearing account or a money market mutual fund
which invests only in securities of the United States Government and/or its
agencies or such other investments as shall be approved by both Purchaser and
Seller in writing.  Seller and Purchaser
shall provide the Title Company with their respective Federal Taxpayer I.D.
Numbers, if necessary.

 

Title Company shall have
no responsibility for any decision concerning performance or effectiveness of
this Agreement or to resolve any disputes concerning this Agreement or with
regard to the Earnest Money.  Title
Company shall be responsible only to act in accordance with the joint and
mutual direction of both Seller and Purchaser, or in lieu thereof, the
direction of a court of competent jurisdiction. 
Seller and Purchaser agree to hold Title Company harmless from all
claims for damages arising out of this Agreement and do hereby agree to
indemnify Title Company for all costs and expenses in connection with the
escrow, including court costs and attorneys’ fees, except for Title Company’s
failure to account for the funds held hereunder or acting in conflict with the
terms hereof.

 

Title Company is joining
this Agreement for the purposes set forth in this Paragraph 26 and its failure
to execute this Agreement shall in no way limit or affect the binding effect of
this Agreement on Seller and Purchaser upon their respective execution of the
same.

 

27.                                 Indemnification. 
Seller agrees to indemnify, defend and hold harmless Purchaser against
any claim made by any third party, including but not limited to those listed on
Exhibit D, related to the Real Property or Seller’s right or
ability to enter into or consummate the transaction contemplated hereby, which
accrued or are claim to have accrued during the period of time the Real
Property was owned by Seller.  Provided
further, Seller agrees to provide Title Company with all relevant background
information with respect to any potential third party claims, including but not
limited to those listed on Exhibit D, in order for Purchaser to
obtain appropriate affirmative title insurance coverage with respect to such
issues.

 

[Signature page follows.]

 

11

 

SIGNATURE
PAGE

TO

PURCHASE
AGREEMENT

 

IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year set forth below.

 

	
   

  	
  APPLIANCE
  RECYCLING CENTERS OF AMERICA, INC., a Minnesota corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Edward R.
  Cameron

  
	
   

  	
  Name:

  	
  Edward R.
  Cameron

  
	
   

  	
  Its:

  	
  President &
  CEO

  
	
   

  	
   

  	
   

  
	
  Date of
  Signature:

  	
   

  	
   

  
	
  August 11,
  2009

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JAPS-OLSON
  COMPANY, a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert E.
  Murphy

  
	
   

  	
  Name:

  	
  Robert E. Murphy

  
	
   

  	
  Its:

  	
  Chairman

  
	
   

  	
   

  	
   

  
	
  Date of
  Signature:

  	
   

  	
   

  
	
  August 11,
  2009

  	
   

  	
   

  

 

12

 

JOINDER
OF TITLE COMPANY

 

Chicago Title Insurance Company joins in this Agreement for the sole
purpose of agreeing to act as escrow agent for the Earnest Money as provided in
Paragraph 26 hereof and it hereby acknowledges receipt of Purchaser’s check in
the amount of $100,000 which represents the Earnest Money.

 

 

	
   

  	
  Chicago Title
  Insurance Company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tamora
  Hartman

  
	
   

  	
  Name:

  	
  Tamora Hartman

  
	
   

  	
  Its:

  	
  Commercial Atty.

  

 

13

 

EXHIBIT A

 

IDENTIFICATION
OF REAL PROPERTY

 

Hennepin County Property Tax ID Nos. 20-117-21-31-0010 and 20-117-21-24-0017.

 

Tract D, Registered Land
Survey No. 1674, Files of Registrar of Titles, County of Hennepin, State
of Minnesota.

 

Being registered land as is
evidenced by Certificate of No. 830574.

 

14

 

EXHIBIT B

 

FORM OF
LEASE

 

[See
attached; includes Exhibit A and Exhibit B to Lease.]

 

15

 

LEASE

 

THIS LEASE (this “Lease”)
is made and entered into this      day of
                    , 2009,
by and between Japs-Olson Company, a Delaware corporation (“Landlord”), and Appliance Recycling Centers of America, Inc.,
a Minnesota corporation (“Tenant”).

 

RECITALS

 

A.                                   Landlord and
Tenant are parties to that certain Purchase Agreement dated August 11,
2009 (the “Purchase Agreement”) with respect
to certain real
property located at 7400 Excelsior Boulevard in the City of St. Louis Park,
Hennepin County, Minnesota and consisting of the parcels of land that are
identified on Exhibit A attached hereto and incorporated herein
containing approximately 10.18 acres, together with all the appurtenant
rights, mineral rights, privileges, and easements belonging thereto (the “Land”), and the approximately 126,458 square foot building
(according to the survey provided by Tenant pursuant to the Purchase Agreement
referenced below) and other improvements located thereon (the “Improvements”).  The
Land and the Improvements are herein sometimes collectively referred to as the
as the “Real Property”.

 

B.                                     Upon Closing
(as defined in the Purchase Agreement), Tenant desires to lease from Landlord
the Real Property (subject to the provisions of Section 1.4 below, the “Premises”) in order to conduct its business operations as
set forth in Section 4.1 below).

 

C.                                     Landlord is
willing to enter into this Lease and allow Tenant to conduct such business, on
the terms, conditions and covenants hereinafter set forth.

 

NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which each party hereby acknowledges, the parties
agree as follows:

 

ARTICLE 1

PREMISES;
AS IS; NET LEASE

 

1.1                                 Grant;
Premises.  In
consideration of the full and timely performance by Tenant of all the terms,
conditions and covenants of this Lease, including timely payment of all Rent
(as defined herein, including Base Rent and additional rent due hereunder),
Landlord does hereby lease to Tenant, and Tenant does hereby lease from
Landlord, the Premises.

 

1.2                                 Site
Leased “As Is”.  Tenant
takes the Premises in their present state and condition, “as is” and without
any obligation on the part of Landlord to make any alterations, changes,
improvements, repairs or replacements of any kind whatsoever.  Prior to the date hereof, Tenant has occupied
the Premises as fee owner of the Real Property; accordingly, Tenant shall take
possession of the Premises under the terms of this Lease with an acknowledgment
that the Premises, including all fixtures, equipment and personal property
thereon, are in good repair and working order, and in clean and tenantable
condition, as of the Effective Date. 
Landlord makes no covenants, representations or warranties as to the
age, quantity or condition of the Premises, their value, their fitness for any
specific purpose, or the title thereto, and no such covenants, representations
or warranties shall be implied.

 

16

 

1.3                                 Premises.  Landlord may utilize that portion of the
Premises shown on Exhibit B attached hereto (the “Joint Use Area”) for parking, storage or other purposes
(including without limitation, leasing to third parties), provided the same
does not materially and adversely affect Tenant’s business operations.  Provided such joint use shall not impose any
costs, expenses, obligations or liabilities on Landlord (except as expressly
set forth in Sections 4.5 and 6.2 below).

 

1.4                                 Covenant
for Quiet Enjoyment. 
Landlord warrants that it has full right to make this Lease, and that
during the full term of this Lease, or any extension thereof, so long as Tenant
shall not be in default of any of its obligations hereunder, and so long as
Tenant shall fully keep and perform the covenants and obligations of this
Lease, and pay promptly when due the rentals and other payments herein
covenanted to be made, Tenant shall have and enjoy quiet and peaceable
possession of the Property.  Tenant’s
right of quiet enjoyment shall be subject to Landlord’s right to construct
wetlands and/or drainage ponds upon the Property required by any applicable
governmental unit as part of Landlord’s development of its adjoining property,
provided that such construction does not interfere with or restrict Tenant’s
occupancy during the term of the Lease. 
Tenant agrees to subordinate its lease rights to any such wetland or
drainage ponds construction consistent with the foregoing.

 

1.5                                 Net
Lease.  It is the
intention and purpose of the parties that this Lease shall be an entirely “net
lease” to the Landlord, with no exceptions and with no maintenance obligations
of Landlord.  Accordingly, all costs or
expenses of whatever character, nature or kind, general and special, ordinary
and extraordinary, foreseen or unforeseen, that may be necessary with respect
to operation of the said Premises, and Tenant’s authorized use thereof during
the entire term of this Lease, shall be paid by Tenant.  All provisions of this Lease relating to
costs and expenses are to be construed in light of such intention and purpose
to construe this Lease as a “net lease.”

 

ARTICLE 2

TERM

 

2.1                                 Term;
Lease Year.  Tenant
shall have and hold the Premises for a term (as the same may be extended or
terminated prior to the expiration thereof, the “Term”)
of approximately five (5) years commencing on the     
day of
                    ,
2009 (the “Commencement Date”) and extending
until and including the last day of the month in which the fifth anniversary of
the Commencement Date occurs (the “Expiration Date”).  Each twelve (12) month period commencing on January 1
and concluding on December 31 is called a “Lease Year.”  The initial calendar year of the term, 2009,
shall be a partial Lease Year, as will the final calendar year of the
Lease.  Tenant shall have the right to
extend the initial Term pursuant to Section 2.2 below.

 

2.2                                 Renewal Option.  Subject to the
terms and conditions set forth herein, Tenant shall have the option (the “Renewal Option”) to extend the Term of this Lease for an
additional one (1) year period (the “Renewal Term”),
which Renewal Term shall commence as of the Expiration Date and end on the
anniversary of the Expiration Date (the “Renewal Expiration Date”),
provided that this Lease shall not have been previously terminated and that
Tenant shall not be in default in the observance or performance of any of the
terms, covenants or conditions of this Lease and shall not have cured during
any applicable notice period (i) on the date Tenant 

 

17

 

gives Landlord written
notice (the “Renewal Notice”) of Tenant’s
election to exercise the Renewal Option, and (ii) on the Expiration
Date.  The Renewal Option shall be
exercised with respect to the entire Premises only and shall be exercisable by
Tenant’s delivery of the Renewal Notice to Landlord at least one (1) year
prior to the Expiration Date.

 

2.3                                 Renewal
Option Terms.   If Tenant exercises the Renewal Option in
accordance with the terms set forth above, the Renewal Term shall be upon the
same terms, covenants and conditions as those contained in this Lease, except
that (i) the monthly Base Rent (as defined in Section 3.1 below)
shall be increased to Forty-Seven Thousand Four Hundred Twenty-Two and No/ 100
Dollars ($47,422.00); (ii) the provisions of Section 2.2 above
relative to Tenant’s right to extend the Term of this Lease shall not be
applicable during the Renewal Term; and (iii) the Expiration Date shall,
for the purposes of the Lease, be defined as the Renewal Expiration Date.

 

ARTICLE 3

 

BASE RENT; ADDITIONAL
RENT; SURRENDER; GUARANTY

 

3.1                                 Base
Rent.  The base
rent payable during the term of this Lease shall be payable in monthly
installments of Forty-Two Thousand One Hundred Fifty-Three and No/100 Dollars
($42,153.00) per month (“Base Rent”) for
each month of the Term.  Base Rent for
any partial Rent shall be prorated.

 

3.2                                 Holding
Over.  Should
Tenant continue to occupy the Premises after the expiration or termination of
this Lease, whether with or without the consent of Landlord, such tenancy shall
be on a month-to-month basis, and Base Rent shall be increased to 150% of the Base
Rent.

 

3.3                                 Additional
Rent.  In addition
to Base Rent, Tenant shall pay additional rent (as set forth in Article 5
below).  Base Rent, additional rent and
any other amounts due Landlord hereunder are sometimes collectively referred to
as “Rent”.

 

3.4                                 Payment
of Rent; Late Charge. 
Tenant shall pay Base Rent, together with any monthly additional rent
payments due hereunder, to Landlord, without the necessity for demand, and
without setoff or deduction, in advance on the first business day of each and
every month during the term hereof at Landlord’s address set forth in Article 13
of this Lease, or such other place as Landlord may from time to time designate
in writing.  If any Rent is not received
within five (5) days of the date which it is due, a “Late Charge”
equal to five percent (5%) of the amount due shall be assessed and be
immediately due and payable; provided once a Late Charge has been assessed,
during the next twelve months, any subsequent Rent payments which are not made
on or before the due date shall incur a Late Charge as of the day immediately
following the due date (that is, the five (5) day grace period shall be
available only once in any twelve month period).  The Late Charge
shall be in addition to, and not in lieu of, “Default
Interest”.  Default Interest
shall begin to accrue at the rate of 12% per annum on all outstanding and
delinquent Rent as of the date such Rent becomes delinquent, and shall continue
to accrue until paid in full.  Late
Charges and Default Interest shall not be construed as liquidated damages or as
limiting Landlord’s remedies in any manner, but shall instead be additional
remedies available to Landlord together with all of Landlord’s other rights and
remedies hereunder, at law or in equity.

 

18

 

3.5                                 Tenant
to Surrender Premises in Good Condition.  Upon the expiration or termination of the
term of this Lease, Tenant shall at its own expense: (a) remove from the
Premises all moveable furnishings and other items of personal property and
equipment, (b) repair any damage or injury, and make any necessary
replacements, caused or necessitated by such removal; (c) remove, in
compliance with law, any “hazardous substances” as defined in Section 14.1,
that may be present in, on or under the Premises; (d) remove all
alterations made by Tenant and not consented to by Landlord; and (e) quit
and deliver up the Premises (including all parking areas located on the Land)
to Landlord, peaceably and quietly, in as good order, condition and repair as
the same were on the date this Lease commenced (that is, in their “AS-IS”
condition as of the Effective Date), reasonable wear and tear and casualty
excepted; provided Tenant shall have no obligation to repair or restore any
portion of the Real Estate associated with Landlord’s wetland and drainage
ponds construction or improvements associated therewith.

 

ARTICLE 4

USE;
COMPLIANCE WITH LAWS

 

4.1                                 Permitted
Use.  Subject to all the terms and
conditions of this Lease, Tenant shall use and occupy the Premises only as a
shall be used and occupied by Tenant for the sole business purpose of
continuing to conduct its business operations in the same general manner it is
as of the Effective date (i.e., as a retail and recycling facility for home
appliances, warehousing of inventory and related general office use). Tenant
shall not use the Property for any other purposes without the prior written
consent of the Landlord, and only if such use at all times is in material
compliance with all applicable laws, ordinances and government
regulations.  Tenant shall not in any
manner deface or injure the Premises or any part thereof.  Tenant shall not do anything or permit
anything to be done upon the Premises which would constitute a public or
private nuisance or waste, or would tend unreasonably to disturb occupants of
neighboring properties, or would cause structural injury to the Improvements or
cause the value or usefulness of the Premises or any part thereof to diminish
in any material respect.  Tenant shall
conduct its business in a reputable manner as a quality establishment.

 

4.2                                 Compliance
with Laws.  Tenant
shall not use or occupy the Premises or permit the Premises to be used or
occupied contrary to any statute, rule, order, ordinance, requirement or
regulation applicable thereto (including, but not limited to, “environmental
laws” described in Article 14 below) or in a manner which would violate
any certificate of occupancy affecting the same, or for illegal or immoral
purposes.  Tenant shall observe and comply
with all conditions and requirements necessary to preserve and extend any and
all rights, licenses, permits (including but not limited to zoning variances,
special exemptions and nonconforming uses), privileges, franchises and
concessions which are now applicable to the Premises, or which have been
granted to or contracted for by Tenant or Landlord in connection with any
existing or presently contemplated use of the Premises.

 

4.3                                 Permits
and Approvals.  Tenant
shall, at its sole cost and expense, procure any and all necessary permits,
certificates, licenses or other authorizations required for its use of the
Premises as set forth in Section 4.1 above.  If the owner of the Premises is required by
law to join in any such application, Landlord shall reasonably cooperate with
Tenant in connection with such application, but at Tenant’s cost.

 

19

 

4.4                                 Rules and
Regulations.  Tenant
shall comply with, and shall cause Tenant’s employees, contractors to comply
with, any reasonable rules and regulations as may reasonably be adopted by
Landlord from time to time and of which Landlord shall notify Tenant in
writing; none of which shall materially interfere with Tenant’s business
operations or cause Tenant to incur material and unnecessary additional
expenses.

 

4.5                                 Parking
Areas.  Landlord
and Tenant agree that Landlord will not be responsible for any loss, theft or
damage to vehicles, or the contents thereof, parked or left in the parking
areas of the Premises and Tenant agrees to so advise its employees, visitors or
invitees who may use such parking areas. 
Parking areas shall be utilized in a reasonable manner to allow for the
efficient joint use of the Joint Use Area as contemplated by Section 1.4
above.  All responsibility for damage and
theft to vehicles and their contents is assumed by Tenant or Tenant’s partners,
trustees, officers, directors, shareholders, members, beneficiaries, licensees,
invitees, or any assignees, subtenants or assignees’ or subtenants’ agents, employees,
contractors, servants, guests, or independent contractors (collectively, “Tenant Parties”). 
Tenant shall repair or cause to be repaired, at Tenant’s sole cost and
expense, any and all damage to any portion of the Property caused by the use by
Tenant Parties of the driveway or parking areas within the Property.  Landlord shall not be liable to Tenant by
reason of any moratorium, initiative, referendum, statute, regulation or other
governmental action which could in any manner prevent or limit the parking
rights of Tenant hereunder.  Any
governmental charges or surcharges or other monetary obligations imposed
relative to parking rights with respect to the Building shall be considered
assessments and shall be payable by Tenant as set forth in Section 5.1.  Notwithstanding the foregoing, Landlord shall
be liable for any damage caused by its negligent use of the Joint Use Area.

 

ARTICLE 5

ADDITIONAL
RENT; TAXES; UTILITIES

 

5.1                                 Tenant
to Pay Taxes and Assessments.  As further consideration for this Lease,
Tenant shall pay all real estate taxes, charges and assessments of every kind
and nature which shall be due and payable during the Term, including all
installments of special assessments now or hereafter levied and interest
thereon.  Provided, however, that
regardless of the payment dates for real estate taxes due and payable in 2009  and in the final Lease Year, and any installments of
special assessments and interest thereon payable therewith, such taxes and
assessments shall be prorated between Landlord and Tenant on a daily basis to
reflect the term of this Lease and any extension or renewal thereof, and any
holdover tenancy.  The parties agree that
any special assessments assessed against the Premises after the Commencement
Date shall be paid in installments spread over the longest period of time
permitted under law.  Notwithstanding
anything to the contrary, in the event that the Premises are assessed for an
improvement requested by Tenant or required solely because of Tenant’s use of
the Property, Tenant shall be solely liable for such assessment and shall pay
such assessment in full prior to the Expiration Date (or, if Tenant has
exercised the Renewal Option, the Renewal Expiration Date).

 

Without limiting the provisions of Section 5.5 below, or being
limited thereby, Tenant shall pay to Landlord, as additional rent, on a monthly
basis along with each payment of Base Rent, a sum equal to one-twelfth (1/12th)
of the total amount of real estate taxes and installments of special
assessments and other assessment charges and interest (“Taxes”)
due and payable during the 

 

20

 

Lease Year or partial Lease Year in lieu of Tenant’s direct payment of
taxes (provided, if a catch up payment is needed to ensure that the full amount
of funds necessary to pay the Taxes for the current Lease Year is available to
Landlord prior to the due date for such tax payment, Tenant shall promptly make
such payment to Landlord within thirty (30) days of such request).  In the event such amount is not known, Tenant
shall pay one-twelfth (1/12th) of the product of the most recently issued tax
bill multiplied by 1.03, and when the current tax amount becomes known, Tenant
shall immediately pay to Landlord any shortfall between monthly installments
that would have been due were the tax bill known, and those actually paid.  In the event Tenant’s monthly installments
towards the tax bill are greater than that actually owed based on the tax bill,
Landlord shall credit the total amount of the overpayment to the next
installment or installments of Rent coming due. 
Provided that Tenant has paid all monthly tax installments to Landlord
on a timely basis, Landlord will cause the appropriate payment of Taxes to be
made before penalties or interest are assessed or accrue.

 

5.2                                 Time
of Payment of Taxes and Receipts.  Subject to the provisions of Section 5.1,
Tenant shall be responsible for all Taxes.

 

5.3                                 Tenant
to Pay for Utilities. 
Tenant shall fully and promptly pay when due all utility charges for all
services furnished to or upon the Premises during the full term of this Lease
and any holdover tenancy, including, without limitation, water, gas,
electricity, sewage disposal, and telephone tolls.  Under no circumstances shall an interruption
of any or all of said utilities constitute a constructive eviction or be deemed
a default by Landlord under this Lease.

 

5.4                                 Definition
of Rent.  All
payments to be made by Tenant under the Lease, however denominated, shall be
considered, and are payable, as Rent.

 

5.5                                 Compliance
with Mortgage. 
Notwithstanding anything in this Lease to the contrary, Tenant agrees to
make monthly escrow payments to, or for the benefit of, any mortgagee or the
servicer of such mortgagee (collectively, “Lenders”) for
the insurance, real estate taxes (including any installments of special
assessments and other assessment charges and interest), or other expenses, to
the extent that such payments are required pursuant to any mortgage of record.

 

5.6                                 Escrow
for Insurance.  Without
limiting the foregoing, or being limited thereby, Tenant shall pay to Landlord,
as additional rent, on a monthly basis along with each payment of Base Rent, a
sum equal to one-twelfth (1/12th) of the total amount of insurance premiums for
the insurance policy referenced in Section 6.4 below for coverage
applicable during the Term (provided, if a catch up payment is needed to ensure
that the full amount of funds necessary to pay the insurance policy premium for
the current Lease Year is available to Landlord prior to the due date for such
policy premium payment, Tenant shall promptly make such payment to Landlord
upon request).

 

ARTICLE 6

MAINTENANCE;
INDEMNITY; INSURANCE

 

6.1                                 Maintenance.  During the Term, Tenant shall at all times
keep the entire Premises, including all Improvements and components thereof, in
good and safe condition at its 

 

21

 

sole cost and expense.  Such obligations shall include without
limitation, the maintenance of the structural integrity of the exterior walls,
roof and foundation of the Improvements and all other components of the
Premises (whether structural or non-structural), and all fixtures and equipment
thereon or therein, including without limitation, the HVAC system, all interior
and exterior windows, boilers, and other equipment and fixtures, and each and
every walkway, passageway and parking areas appurtenant to the Premises, in
good repair and safe and working condition, and in full compliance with all
laws, ordinances and regulations then in force, making whatever replacement may
be necessary under the circumstances. 
Tenant’s obligations under this Section includes, but is not
limited to, all routine maintenance for all portions of the Premises, including
the painting of all surfaces, clearance of snow, landscaping, etc., as well as
repairing (but not resurfacing; provided that while Tenant shall have no
affirmative obligation to resurface the parking areas, nor shall Landlord) of
the parking areas (including without limitation the Joint Use Area); all such
maintenance (including maintenance of the Joint Use Area) shall be without
contribution from Landlord.

 

6.2                                 Waiver
of Liability.  Landlord
shall not be liable to Tenant, or Tenant’s agents, employees, customers, or
invitees, for injury, death or property damage occurring in, on or about the
Premises.  Except for Landlord’s
negligence or willful misconduct, Tenant shall indemnify, protect, defend and
hold harmless the Premises, Landlord and any Lender, Landlord’s partners,
trustees, officers, directors, shareholders, members, employees, beneficiaries,
heirs and assigns (collectively, the “Landlord Parties”)
from and against any and all claims, loss of rents and/or damages, costs,
liens, judgments, penalties, loss of permits, attorneys’ and consultants’ fees,
expenses and/or liabilities arising out of, directly or indirectly, in whole or
in part involving, or in connection with, the occupancy of the Premises by
Tenant, the conduct of Tenant’s business, any act, omission or neglect of Tenant,
Tenant Parties, and out of any default or breach by Tenant in the performance
in a timely manner of any obligation on Tenant’s part to be performed under
this Lease.  The foregoing shall include,
but not be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Landlord or any Landlord Party) litigated and/or reduced to
judgment.  In case any action or
proceeding be brought against Landlord by reason of any of the foregoing
matters, Tenant upon notice from Landlord shall defend the same at Tenant’s
expense by counsel reasonably satisfactory to Landlord and Landlord shall
cooperate with Tenant in such defense. 
Landlord need not have first paid any such claim in order to be so
indemnified.  Tenant’s indemnity
obligations under this Section shall survive the expiration or earlier
termination of the Lease.  Landlord shall
not be liable for, and Tenant hereby waives and releases Landlord from, injury
or damage to the person or goods, wares, merchandise or other property of
Tenant, Tenant’s employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defect of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or from other sources or places, and regardless of whether the
cause of such damage or injury or the means of repairing the same is accessible
or not.  Notwithstanding Landlord’s
negligence or breach of this Lease, Landlord shall under no circumstances be
liable for injury to Tenant’s business or for any loss of income or profit
therefrom.

 

22

 

6.3                                 General
Liability and Related Insurance.  During the entire term of this Lease and any
extensions or renewals thereof, and any holdover tenancy Tenant shall obtain
and keep in full force and effect, at its sole cost and expense, a policy of
comprehensive public liability insurance with respect to the Premises and the
business of Tenant thereon, written on an “occurrence”, and not a “claims made”
basis, by a responsible casualty or indemnity company authorized to do business
in the Property Jurisdiction, under which policy Landlord and Lenders, if any,
shall be named as additional insureds, and with not less than $2,000,000 single
coverage limits for each occurrence of injury or property damage.  Prior to the Commencement Date, Tenant shall
furnish Landlord with said policy or with a certificate that said insurance is
in effect, which shall state that Landlord will be notified in writing thirty
(30) days prior to any cancellation, material change or renewal of said
insurance.  If the Premises has a boiler
or steam vessel, Tenant shall also place and carry boiler insurance with such a
casualty or indemnity company in an amount of coverage not less than $1,000,000
per accident, and Tenant shall comply fully with all applicable laws,
ordinances, and regulations with reference to the operation and inspection of
such boiler and steam vessel.  Tenant
shall also maintain such other insurance coverage as Tenant may reasonably
conclude are prudent or advisable based on the use to which Tenant is putting
the Premises.  Tenant shall also maintain
such other insurance coverages, in form and amounts acceptable to Lenders, as
such Lenders may reasonably require under any mortgage encumbering the
Premises, now or in the future.

 

6.4                                 Casualty
Insurance.  At Tenant’s
sole cost and expense as provided for in Section 5.7, Landlord will
maintain property insurance on the Improvements (exclusive of Tenant’s personal
property interests that may be located therein) on an “occurrence” basis and
not a “claims made” basis, under an “all risk” form of fire insurance policy,
with full extended coverage endorsements added, and in accordance with the
requirements of any mortgage encumbering the Real Property from time to time.

 

6.5                                 Worker’s
Compensation Insurance.  Tenant shall maintain at all times any worker’s
compensation insurance coverage as may be required by law and, upon request,
shall present a certificate of such insurance to Landlord.

 

6.6                                 Loss
of Income Insurance; Business Interruption Insurance.  Tenant shall maintain loss-of-income and
extra-expense insurance in such amounts as will reimburse Tenant for direct or
indirect loss of earnings attributable to all perils commonly insured against
by prudent tenants or attributable to prevention of access to or use of the
Premises as a result of such perils.

 

6.7                                 Form of
Policies.  The minimum
limits of policies of insurance required of Tenant under this Lease shall in no
event limit the liability of Tenant under this Lease.  Such insurance shall (a) (except Workers’
Compensation) name Landlord, and any other party it reasonably so specifies, as
an additional insured; (b) specifically cover the liability assumed by
Tenant under this Lease, including, but not limited to, Tenant’s obligations to
indemnify Landlord under this Lease; (c) be issued by an insurance company
having a rating of not less than A-1X in Best’s Insurance Guide or which is
otherwise acceptable to Landlord and licensed to do business in the Property
Jurisdiction; (d) be primary insurance as to all claims thereunder and
provide that any insurance carried by Landlord is excess and is
non-contributing with any insurance requirement of Tenant; (e) provide
that said insurance shall not be canceled, expire or

 

23

 

coverage changed unless
thirty (30) days’ prior written notice shall have been given to Landlord and
any Lender and any landlord of an underlying ground or master lease; and (f) contain
a cross-liability endorsement or severability of interest clause acceptable to
Landlord.  Tenant shall deliver said
policy or policies or certificates thereof to Landlord on or before the Lease
commencement date and at least thirty (30) days before the expiration dates
thereof.  In the event Tenant shall fail
to procure such insurance, or to deliver such policies or certificate, Landlord
may, at its option, procure such policies for the account of Tenant, and the
cost thereof shall be paid to Landlord as additional rent ten (10) days
after delivery to Tenant of bills therefor.

 

6.8           Subrogation of Claims.  Landlord and Tenant hereby waive any and all
claims and causes of action against each other based on the destruction of or
damage to the Premises or the contents thereof as a result of any cause that is
to be insured pursuant to this Article 5, and agree that their respective
insurers shall be bound by this waiver, even if such loss or damage was caused
by the fault or negligence of the other party or anyone for whom the other
party may be responsible.

 

6.9           Damage Not to Terminate
Lease.  Except as set
forth below, should any building, structure or other improvement upon the
Premises be damaged or destroyed by any cause, such damage or destruction shall
not effect a cancellation of this Lease, effect any reduction or abatement of
rent, or release Tenant from liability for the full performance of all of the
covenants of this Lease, past, present or future, except as expressly provided
for herein.

 

6.10         Rebuilding after Damage.
In case the Improvements shall be materially damaged or destroyed by fire or
other casualty such that Tenant is unable to make reasonable use of the
Premises, Landlord may elect to repair, restore or rebuild the Improvements by
notice to Tenant given with twenty (20) days of the casualty event, and shall complete
the same as rapidly as possible, but in any event not later than ninety (90)
days after such damage or destruction. 
In connection with such repair, Landlord shall not be required to expend
any sums in excess of insurance proceeds actually received by Landlord.  In the event the Improvements are so
materially damaged and destroyed and Landlord elects not to repair, restore or
rebuild the Improvements and as a result Tenant is not able to make reasonable
use of the Premises, Tenant may terminate this Lease as of the later of the
date of the casualty or the date Tenant no longer makes productive use of the
Premises.

 

ARTICLE 7

ALTERATIONS; CONSTRUCTION STANDARDS

 

7.1           Alterations.  Tenant may, at its sole cost and expense,
expand, alter, remodel or enlarge any now or hereafter existing improvement,
provided that it has first secured the written consent of Landlord to the plans
and specifications therefor and further provided that any such work shall be in
accordance with the provisions of Section 7.2.  Any leasehold improvements made by Tenant,
and any fixtures (except trade fixtures) installed on the Premises by Tenant,
shall be the property of Landlord from and after the time of their construction
or installation; provided, however, that Landlord may require that any or all
leasehold improvements be removed by the expiration or earlier termination of
this Lease, notwithstanding that the installation of such leasehold
improvements may have been consented to by Landlord.  Every alteration shall comply with all
building codes and other applicable regulations.  In no event shall 

 

24

 

Landlord’s approval of any
alteration serve as a representation or warranty by Landlord regarding the
fitness or adequacy of such leasehold improvement, including, without
limitation, any warranty that such improvement complies with any code or
regulation.

 

7.2           Construction Standards.  Any such work, and any rebuilding and
restoration under Article 5 or 9 with a cost in excess of $25,000 for any
single improvement, or $50,000 annually, shall be constructed and installed
according to plans and specifications prepared by Tenant’s architect or agent,
and approved in writing by Landlord.  In
all of the foregoing construction and installation described in the preceding
sentence whether or not approved by Landlord, Tenant shall be bound by and do
all of the following:

 

(a)           Complete said construction and installation as rapidly as
practical and pay for all labor performed and materials furnished, when due and
payable;

 

(b)           Keep the Premises free and clear of all liens for labor
performed and materials furnished, and defend, at its sole cost and expense,
each and every lien asserted or filed against the Premises or any part thereof,
and pay each and every judgment made or given against said Premises, or any
part thereof, on account of any such lien;

 

(c)           Indemnify and save Landlord harmless from and against any
and every claim, demand, action, cause of action, or charge, including
reasonable attorneys’ fees incurred by Landlord, arising out of or connected
with or alleged to arise out of or to be connected with any act or omission of
Tenant, or any agent, employee, contractor or sub-contractor in or about the
Premises, or connected with the assertion or filing of any lien against said
Premises;

 

(d)           Procure, or cause its general contractor to procure,
before entering onto the Premises, and maintain in full force until all work is
fully completed, a policy of builder’s risk insurance covering the completed
value of any work to be performed, and a policy of indemnity insurance written
by a casualty or indemnity company authorized to do business in the Property
Jurisdiction, indemnifying Landlord against all liability for injury arising
out of, or in any way connected with, or alleged to arise out of or in any way
be connected with any said work, with not less than $1,000,000 single coverage
limits for each occurrence of injury or property damage.  In connection with all said work on the
Premises, Tenant or its contractors shall procure and maintain in force such
workers’ compensation or other insurance as may be required by the laws of the
Property Jurisdiction, fully protecting Landlord.  Landlord and Landlord’s mortgagee shall be
named as an additional insured under said policies, and said policies, or
certificates evidencing that such insurance is in effect, shall be delivered by
Tenant to Landlord prior to any contractor’s commencement of work on the
Premises.  Said policies or certificates
shall state that Landlord will be notified in writing thirty (30) days prior to
any cancellation, material change or renewal of any such insurance;

 

7.3           Landlord’s Consent.  Landlord shall not unreasonably withhold or
delay its consent to a proposed alteration, or the plans and specifications
therefor, if no substantial change in use of the Premises is contemplated and
the value of the Premises is likely to be enhanced thereby.

 

25

 

7.4           Landlord’s Oversight of
Improvements.  Landlord
shall have the right to inspect any leasehold improvements as they are being
constructed or once completed.  In no
event shall Landlord’s inspection or oversight of a leasehold improvement serve
as a representation or warranty by Landlord regarding the fitness or adequacy
of such leasehold improvement, including, without limitation, any warranty that
such improvement complies with any code or regulation.

 

ARTICLE 8

ASSIGNMENT AND SUBLETTING; ENCUMBRANCES

 

8.1           No Assignment of Tenant’s
Interest.  Tenant shall
not mortgage, pledge, hypothecate, encumber, or permit any lien to attach to,
this Lease or any interest hereunder. 
Without the prior written consent of Landlord, Tenant may not assign,
sublet, or otherwise transfer its interest in the Premises or this Lease by
operation of law or otherwise, or permit the use of the Premises by any persons
other than Tenant and its employees (any of the foregoing are hereinafter
sometimes referred to collectively as “Transfers”).

 

Any Transfer made without
Landlord’s prior written consent shall (which may be conditioned or withheld in
its sole but reasonable business judgment and without limiting the foregoing,
subject to its Lender’s approval and consent), at Landlord’s option, be null,
void and of no effect, and shall, at Landlord’s option, constitute a Default by
Tenant under this Lease.  Notwithstanding
anything to the contrary, no Transfer, whether or not consented to by Landlord
shall release the named Tenant from its obligations hereunder.  Landlord reserves the right to direct the
Tenant to terminate the Lease Agreement dated April 29, 2009 between it
and the City of St. Louis Park with respect to the Joint Use Area (the “Joint Use Area Lease”) in accordance with the termination
provisions set forth therein.  Until such
termination Tenant shall be entitled to the rent due thereunder and such Joint
Use Area Lease shall be considered a valid sublease, subject to the terms of
this Lease.  After such termination,
Landlord may choose to enter into a generally similar agreement with the City
of St. Louis Park or any other third party, or otherwise utilize or lease the
Joint Use Area as provided for in Section 1.3 above,  in its sole and absolute discretion and
Landlord shall be entitled to any and all rents resulting therefrom.

 

8.2           Landlord May Assign.  Landlord’s right to assign this Lease or sell
or convey the Premises, subject to this Lease, are and shall remain
unqualified.  Upon any said assignment,
sale or conveyance and provided the Landlord’s purchaser assumes all
obligations hereunder, Landlord shall thereupon be entirely freed of all
obligations of the Landlord hereunder accruing thereafter and shall not be
subject to any liability resulting from any act or omission or event occurring
after said assignment, sale or conveyance.

 

8.3           Tenant to Place No
Mortgage.  Tenant shall
not at any time during the term of this Lease place, suffer or allow any
mortgage or similar security instrument upon its leasehold interest created
hereby, even though Landlord’s title is superior to said mortgage or
instrument.

 

8.4           Landlord May Place
Mortgage.  Landlord shall
have the unrestricted right at any time during the full term of this Lease to
place any mortgage or similar security instrument upon the Landlord’s interest
in the Premises.

 

26

 

8.5           Other Liens Prohibited.  Tenant shall not cause, suffer or acquiesce
in the attachment of any other liens or encumbrances, including without
limitation, any mechanic’s or materialmen’s liens, judgment liens, tax liens or
liens for the cost of environmental remediation, to the Premises or the
Landlord’s or Tenant’s interest therein.

 

ARTICLE 9

LANDLORD’S CURATIVE RIGHTS

 

9.1           Landlord May Pay
Taxes, Liens, etc.  In the
event Tenant shall fail or neglect at the times and as herein provided to pay
any tax, charge or assessment against the Premises, or to pay any lien or
judgment against or affecting the Premises, or to provide and pay for any
insurance, or to make any other payment which it is the obligation of Tenant to
pay under the terms of this Lease, when due and payable, then in addition to
all other remedies provided by this Lease or as now or hereafter provided by
law, Landlord may, at its option, upon fifteen (15) days notice, pay any such
judgment, tax, charge or assessment, or procure such insurance or pay the
premiums therefor, and pay any other amount herein required to be paid by
Tenant.  The amount or amounts so paid
and interest thereon as hereinafter provided shall thereupon be immediately due
and payable by Tenant to Landlord, as additional Rent hereunder.

 

9.2           Tenant May Contest
Taxes, etc.  Tenant,
however, shall not be required to pay, remove or discharge any tax,
assessments, tax lien, or any materialmen’s or mechanics’ lien or judgment
against the Premises so long as Tenant shall in good faith contest the same or
the validity thereof by appropriate legal proceedings, and so long as Landlord’s
title and rights are not in any manner impaired or jeopardized thereby, provided
Tenant deposits with Landlord sufficient funds or other security acceptable to
Landlord to protect Landlord and the Premises. 
Pending any such legal proceedings, Landlord shall not pay, remove or
discharge the tax, assessment, tax lien, materialmen’s or mechanics’ lien or
judgment thereby contested unless its title or rights are being impaired or
jeopardized by such delay or by such contest, in which event Landlord may use
any such deposits to pay and discharge the same.

 

9.3           Tenant to Furnish Receipts.  Upon demand by Landlord, Tenant shall
promptly furnish to Landlord receipts or other satisfactory evidence showing
that Tenant has fully and promptly paid and discharged all charges, premiums,
or any other payments required to be made by Tenant under the terms of this
Lease.

 

9.4           Landlord’s Right to Enter
Premises.  Landlord, and
its authorized agents or attorney, shall have the right, but not be obligated
to enter the Premises: (a) at any time in an emergency, and (b) upon
prior notice to Tenant at other reasonable times during normal business hours
to inspect, and to make such repairs, improvements and/or alterations in and to
the Premises as Landlord may reasonably deem necessary under the circumstances,
and there shall be no abatement of rents or any liability on the part of
Landlord for any inconvenience, annoyance, or injury to business resulting
therefrom, provided that Landlord shall use its best efforts to minimize
interference with Tenant’s business and occupancy of the Premises.

 

27

 

ARTICLE 10

CONDEMNATION

 

10.1         Condemnation.  In the event the Premises or any part thereof
shall at any time during the term of this Lease be condemned and taken by right
of eminent domain, the damages allowed therefor (whether or not the same be
specifically apportioned by the Court or the Commissioner, or by any other body
making or supervising such condemnation, and regardless of such apportionment,
if any) shall be the sole property of Landlord, except that Tenant shall be
entitled to any separate award for Tenant’s relocation expenses as defined by
applicable law; provided in no event shall any award made to Tenant have the
effect of diminishing the award made to Landlord.

 

10.2         Rent after Condemnation;
Termination.  If the whole
of the Premises be condemned and taken, Rent hereunder shall cease from the
time Tenant shall be deprived of possession of the Premises, and this Lease
shall thereupon terminate and Landlord shall refund to Tenant any prepaid and
unearned rent.  If a part, but not the
whole, of the Premises be so taken or condemned, then this Lease and all of its
provisions shall continue in full force and effect as to the remainder of the
Premises not so taken until the expiration of the full Term of this Lease,
except that the Base Rent to be paid by Tenant may be adjusted as provided in Section 10.3,
if the provisions of said paragraph are applicable; provided, nonetheless, that
in the event of a partial condemnation and taking which materially and substantially
interferes with the operation of Tenant’s business, Tenant shall have the
right, by notice given to Landlord not later than sixty (60) days following the
date Tenant shall be deprived of possession of a portion of the Premises, to
terminate this Lease, and upon the giving of such notice, this Lease shall
terminate as of the date specified in the notice.  Any Rents and other amounts and obligations
due hereunder shall be apportioned as of said date.

 

10.3         Abatement after Material
Taking.  In the event of a
partial condemnation and taking which materially and substantially interferes
with the operation of Tenant’s business, and Tenant does not terminate this
Lease as herein provided, Base Rent for the Premises shall (in the absence of
agreement by the parties) be equitably abated based on application to the
appropriate District Court.

 

ARTICLE 11

DEFAULT; REMEDIES

 

11.1         Non payment of Rent;
Defaults.  The occurrence
of any one or more of the following matters constitutes a default (“Default”) by Tenant under this Lease:

 

(i)            Any
failure by Tenant to pay any Rent, including without limitation, base rent, and
additional costs within five (5) days of when due under this Lease, or any
part thereof.

 

(ii)           Any
violation or default by Tenant of any of the other covenants, agreements,
stipulations or conditions herein, or in any other agreements between Landlord
and Tenant relating to the Premises, and such violation or default shall
continue for a period of thirty (30) days after written notice from Landlord of
such violation or default.

 

28

 

(iii)          Any
commencement by, or against Tenant of any proceedings under a bankruptcy,
receivership, insolvency or similar type of action.

 

(iv)          Any commencement by, or against Tenant of
any proceedings under a bankruptcy, receivership, insolvency or similar type of
action provided that Tenant shall have sixty (60) days to cause the dismissal
of any such involuntary proceeding.

 

(v)           Abandonment or
vacation of any substantial portion of the Premises by Tenant for a period of
more than thirty (30) days.

 

(vi)          Any
Default otherwise defined hereunder.

 

11.2         Landlord’s Remedies Upon
Default; Survival.  Upon
the occurrence of a Default, Landlord shall have the remedies set forth herein,
which shall not be exclusive but shall be cumulative and shall be in addition
to any other remedies set forth in the Lease or that are now or hereafter
allowed by law.  The terms of this Article 14
shall survive the termination of this Lease.

 

(i)            If
Tenant shall have vacated the Premises, Landlord may, to the extent permitted
by law, without terminating this Lease, change the locks on the doors to the
Premises and exclude Tenant therefrom.

 

(ii)           Landlord
may, upon notice to Tenant, terminate this Lease, or without notice to Tenant
re-enter the Premises without terminating this Lease.  No re-entry or taking possession of the
Premises by Landlord shall be construed as an election on its part to terminate
this Lease unless a notice of such intention is given to Tenant (all other
demands and notices of forfeiture or other similar notices being hereby
expressly waived by Tenant).  Upon the
service of any such notice of termination, the term of this Lease shall
automatically terminate.  Should Landlord
at any time terminate this Lease for any breach, in addition to any other
remedies it may have, it may recover from Tenant all damages it may incur by
reason of such breach, including the cost of recovering the Premises,
reasonable attorneys’ fees, and the value at the time of such termination of
any rent reserved in this Lease for the remainder of the term over the then
reasonable rental value of the Premises for the remainder of such term,
discounted to present value at an assumed interest rate of five percent (5%),
all of which amount shall be immediately due and payable from Tenant to
Landlord.

 

(iii)          Landlord
may require that, upon any termination of the Lease or Tenant’s right to
possession without termination of this Lease, Tenant shall immediately surrender
possession of the Premises to Landlord, vacate the same and remove all effects
therefrom except those that may not be removed under other provisions of this
Lease.  If Tenant fails to surrender
possession and vacate as aforesaid, Landlord may forthwith re-enter the
Premises and expel and remove Tenant and any other persons and property
therefrom, without being deemed guilty of trespass, eviction, conversion or
forcible entry and without thereby waiving Landlord’s rights to rent or any
other rights given Landlord under this Lease or at law or in equity.  If Tenant does not remove its property from
the Premises as required by this Lease, Landlord may either declare such
property abandoned and dispose of the same in any reasonable manner without
liability to

 

29

 

Tenant or any other party, or remove any or all of such effects in any
manner it shall choose and store the same without liability to Tenant.  Tenant shall pay Landlord on demand any
expenses incurred in such removal and storage for any length of time during
which the same shall be in Landlord’s possession or in storage.

 

(iv)          Landlord
can continue this Lease in full force and effect, and the Lease will continue
in effect as long as Landlord does not terminate Tenant’s right to possession,
and Landlord shall have the right to collect all Rent when due.  After Tenant’s right to possession is
terminated Landlord may enter the Premises and may make such improvements,
alterations and repairs as it shall determine may be reasonably necessary to
relet the Premises and Landlord may (but shall not be required to) relet the
same or any part thereof upon such terms and conditions as Landlord in its sole
discretion may deem advisable.  Upon any
reletting, all rentals received by Landlord from such reletting shall be
applied as follows: first, to the payment of any indebtedness other than rent
or other charges due under this Lease from Tenant to Landlord; second, to the
payment of any costs and expenses of such reletting, including brokerage fees,
reasonable attorneys’ fees and costs of such improvements, alterations and
repairs; and third, to the payment of Rent. 
In no event shall Tenant be entitled to receive any surplus of any sums
received by Landlord on a reletting in excess of the rental and other charges
payable hereunder.  If such rentals and
other charges received from such reletting during any month are less than those
to be paid during that month by Tenant, Tenant shall pay any such deficiency to
Landlord upon demand.  No act by Landlord
allowed by this Section shall terminate this Lease unless Landlord has
notified Tenant that Landlord elects to terminate this Lease.

 

11.3         Landlord’s Right to Cure.  In the event of any Default by Tenant beyond
any applicable cure period by Tenant (provide no cure period shall apply in the
event an emergency necessitates immediate action by Landlord), Landlord may
immediately or at any time thereafter, without notice, cure such breach for the
account and at the expense of Tenant.  If
Landlord at any time by reason of such breach, is compelled to pay, or elects
to pay, any sum of money or do any act which requires the payment of any sum of
money or is compelled to incur any expense, including reasonable attorneys
fees, in instituting or prosecuting any action or proceeding to enforce
Landlord’s rights hereunder, the sum or sums so paid by Landlord together all
with interest thereon at the Default Rate, or the maximum permitted by law,
from the date of payment thereof, shall be deemed to be Rent hereunder and
shall be due from Tenant to Landlord on the first day of the month following
the payment of such respective sums or expenses.

 

ARTICLE 12

SUBORDINATION; ESTOPPEL

 

12.1         Subordination.  This Lease is subject and subordinate to the
lien of any mortgage which may now or hereafter encumber the Premises.  In confirmation of such subordination, Tenant
shall, at Landlord’s request from time to time, promptly execute any
certificate or other document reasonably requested by the holder of the mortgage.  Tenant agrees that in the event that any
proceedings are brought for the foreclosure of any mortgage, Tenant shall
immediately and automatically attorn to the purchaser at such foreclosure sale,
as the landlord under this Lease, and Tenant waives the provisions of any
statute or rule of law, now or hereafter in effect, 

 

30

 

which may give or purport to
give Tenant any right to terminate or otherwise adversely affect this Lease or
the obligations of Tenant hereunder in the event that any such foreclosure
proceeding is prosecuted or completed. 
Notwithstanding anything to the contrary in this Article, so long as
Tenant is not in default under this Lease, this Lease shall remain in full
force and effect and the holder of the Mortgage and any purchaser at
foreclosure sale thereof shall not disturb Tenant’s rights and/or possession
hereunder.

 

12.2         Estoppel Certificates.  Tenant agrees at any time and from time to
time, upon not less than ten (10) days prior written notice by Landlord,
to execute, acknowledge and deliver to Landlord or a party designated by
Landlord an estoppel statement in the form reasonably requested by Landlord,
and including such other matters relating to this Lease as may reasonably be
requested.  Any such statement delivered
pursuant thereto may be relied upon by Landlord, any prospective purchaser of
the Premises, any mortgagee or prospective mortgagee of the Premises or of
Landlord’s interest, or any prospective assignee of any such mortgagee.

 

ARTICLE 13

NOTICES

 

Any notice required or permitted hereunder shall be given by personal
delivery upon an authorized representative of a party hereto; or if mailed by
United States registered or certified mail return receipt requested, postage
prepaid; or if transmitted by e-mail (in “pdf” format), with a copy sent by
U.S. Mail as provided above; or if deposited cost paid with a nationally
recognized, reputable, overnight courier, properly addressed as follows:

 

	
  If to Landlord:

  	
   

  	
  Japs-Olson Company

  
	
   

  	
   

  	
  7500 Excelsior
  Boulevard

  
	
   

  	
   

  	
  St. Louis Park,
  Minnesota  55426

  
	
   

  	
   

  	
  Attention:  Gary Petrangelo

  
	
   

  	
   

  	
  e-mail address:
  gpetrang@japsolson.com

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Leonard, Street
  and Deinard

  
	
   

  	
   

  	
  Professional Association

  
	
   

  	
   

  	
  150 South Fifth
  Street; Suite 2300

  
	
   

  	
   

  	
  Minneapolis,
  MN  55402

  
	
   

  	
   

  	
  Attention:  Morris Sherman

  
	
   

  	
   

  	
  e-mail address:
  morris.sherman@leonard.com

  
	
   

  	
   

  	
   

  
	
  If to Tenant:

  	
   

  	
  Appliance
  Recycling Centers of America, Inc.

  
	
   

  	
   

  	
  7400 Excelsior
  Boulevard

  
	
   

  	
   

  	
  St. Louis Park,
  Minnesota  55426

  
	
   

  	
   

  	
  Attention:  Jack Cameron

  
	
   

  	
   

  	
  e-mail address:
  jcameron@arcainc.com

  

 

31

 

	
  With a copy to:

  	
   

  	
  Mackall
  Crounse & Moore, PLC

  
	
   

  	
   

  	
  1400 AT&T
  Tower

  
	
   

  	
   

  	
  901 Marquette
  Avenue

  
	
   

  	
   

  	
  Minneapolis,
  Minnesota 55402

  
	
   

  	
   

  	
  Attention:  William J. O’Brien

  
	
   

  	
   

  	
  e-mail address:
  wjo@mcmlaw.com

  

 

Notices shall be deemed effective on the earlier of the date of receipt
or the date of deposit, as aforesaid; provided, however, that if notice is
given by deposit, the time for response to any notice by the other party shall
commence to run one business day after any such deposit.  Any party may change its address for the
service of notice by giving notice of such change ten (10) days prior to
the effective date of such change.

 

ARTICLE 14

ENVIRONMENTAL PROVISIONS

 

14.1         Definitions.  For the purposes of this Lease, the term “environmental laws” means, collectively, all applicable
laws, ordinances, and regulations (including consent decrees and administrative
orders) relating to public health and safety and protection of the environment,
including but not limited to the Comprehensive Environmental Response,
Compensation, and Liability Act (“CERCLA”), 42
U.S.C. §9601, et seq., or the Hazardous Materials Transportation Act, 49 U.S.C.
§1801, et seq., the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. §6901, et seq., and any other
applicable federal, state or local law, regulation, ordinance or requirement
(including consent decrees and administrative orders) relating to or imposing
liability or standards of conduct concerning any hazardous, toxic, or dangerous
waste, substance or material, all as amended and modified from time to time.  For purposes of this
Lease, the term “hazardous material” means:  (a) “hazardous substances” or “toxic
substances” as those terms are defined by CERCLA, or any other environmental
law, (b) “hazardous wastes,” as that term is defined by RCRA; (c) any
pollutant or contaminant or hazardous, dangerous, or toxic chemicals,
materials, or substances within the meaning of any environmental law; (d) crude
oil or any fraction of it that is liquid at standard conditions of temperature
and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (e) any
radioactive material, including any source, special nuclear, or by-product material
as defined at 42 U.S.C. §2011, et seq., as amended to and after this date; (f) asbestos
in any form or condition; and (g) polychlorinated biphenyls (PCBs) or
substances or compounds containing PCBs.

 

14.2         Tenant’s Compliance With
Law and Environmental Matters. 
To the best of Tenant’s actual knowledge, and except as disclosed in a
Phase I Environmental Site Assessment Report dated August 22, 2002 issued
by SECOR International Incorporated, the Premises contain no hazardous
material, except in compliance with all environmental laws.  Tenant represents, warrants and covenants to
Landlord that during the term of this Lease Tenant will cause the Premises at
all times to be and remain in compliance with all environmental laws except any
portion of the Joint Use Area where Landlord or its employees, agents,
contractors or invitees has caused any environmental issues.  Tenant agrees to obtain and keep in effect
all governmental permits and approvals relating to the use or operation of the
Premises required by applicable environmental laws, and Tenant agrees to comply
with the terms of the same.

 

32

 

14.3         Tenant’s Use of Hazardous
Materials.  Tenant
represents, warrants and covenants to Landlord that Tenant will not cause or
permit to occur any generation, manufacture, storage, treatment,
transportation, release, or disposal of hazardous material on, in, under, about
or from the Premises except in quantities required for the conduct of Tenant’s
business and pursuant to handling practices permitted by applicable law
(including, but not limited to, all environmental laws).  If Tenant or any one of its employees,
agents, contractors, suppliers or invitees causes, contributes to or aggravates
any release or disposal of any hazardous material on, in, under or about the
Premises, Tenant, at its own cost and expense, will immediately take such
action as is necessary to detain the spread of and remove the hazardous
material to the reasonable satisfaction of Landlord and the appropriate
governmental authorities.

 

14.4         Notification and Cure.  Tenant represents, warrants and covenants to
Landlord that Tenant will immediately notify Landlord and provide copies upon
receipt of all written complaints, claims, citations, demands, inquiries,
reports, or notices relating to compliance with environmental laws.  Tenant will, at its sole cost, promptly cure
and have dismissed with prejudice any such actions.  Tenant will keep the Premises free of any
lien imposed pursuant to any environmental laws.

 

14.5         Investigation by Landlord.  Landlord shall have the right at all
reasonable times during normal business hours and from time to time to conduct
environmental audits of the Premises, and Tenant will cooperate in the conduct
of those audits.  The audits will be
conducted by a consultant of Landlord’s choosing, and if any hazardous material
(other than quantities handled as permitted by law) is detected or if a
violation of any of Tenant’s warranties, representations, or covenants
contained in this Article is discovered, the fees and expenses of such
consultant will be borne by Tenant and will be paid as additional rent under
this Lease on demand by Landlord.

 

14.6         Breach by Tenant.  If Tenant breaches or fails to comply with
any of the foregoing warranties, representations, and covenants, Landlord may
cause the removal (or other cleanup acceptable to Landlord) of any hazardous
material released or exacerbated by Tenant from the Premises.  The costs of such hazardous material removal
and any other cleanup (including transportation and storage costs) will be
additional rent under this Lease, whether or not a court or administrative
agency has ordered the cleanup, due and payable on Landlord’s demand.  Tenant hereby grants Landlord, its employees,
agents and contractors, access to the Premises to remove or otherwise clean up
any hazardous material.  Landlord,
however, has no affirmative obligation to remove or otherwise clean up any
hazardous material, from the Premises, and nothing in this Lease will be
construed as creating any such obligation.

 

14.7         Indemnification.  Tenant represents, warrants and covenants to
Landlord that Tenant shall indemnify, defend, and hold the Premises, Landlord,
and all Landlord Parties free and harmless from and against all losses,
liabilities, obligations, penalties, claims, litigation, demands, defenses,
costs, judgments, suits, proceedings, damages (including consequential
damages), disbursements, or expenses of any kind (including attorneys’ and
experts’ fees and expenses and fees and expenses incurred in investigating,
defending, or prosecuting any litigation, claim, or proceeding) that may at any
time be imposed upon, incurred by, asserted, or awarded against Landlord or any
of them in connection with or arising from or out of:  (a) any hazardous material on, in,
under, or affecting all or any portion of the Premises that was caused 

 

33

 

by Tenant’s occupancy of the
Premises; (b) any misrepresentation, inaccuracy, or breach of any
warranty, covenant, or agreement contained or referred to in this Article; (c) any
violation or claim of violation by Tenant, its employees, agents, contractors,
suppliers or invitees of any environmental law during the Term of this Lease;
or (d) the imposition of any lien against the Premises for the recovery of
any costs for environmental cleanup or other response costs relating to the
release or threatened release of hazardous material used and released by
Tenant.

 

This indemnification is the continuing
obligation of Tenant and shall survive termination of this Lease.  Tenant, its successors, and assigns waive,
release, and agree not to make any claim or bring any cost recovery action
against Landlord or any Landlord Party under CERCLA or any state equivalent or
any similar law now existing or enacted after this date.

 

ARTICLE 15

MISCELLANEOUS

 

15.1         Time is of Essence.  Whenever any payment is to be made under this
Lease by Tenant at or within a specified time, or whenever any act is to be
done under this Lease by either party at or within a stated time, time is of
the essence.

 

15.2         No Recording.  Neither party shall record this Lease without
the prior written consent of the other.

 

15.3         Captions.  The captions and headings herein are for
convenience and reference only and do not limit or construe the provisions
hereof.

 

15.4         Severability.  If any term, condition, covenant, agreement
or provision of this Lease, or the application thereof to any circumstance
shall, to any extent, be held by a court of competent jurisdiction or by any
authorized governmental authority to be invalid, void or unenforceable, the
remainder of this Lease shall not be affected by such holding, and the
remaining terms, conditions, covenants, agreements and provisions hereof shall
continue in and be accorded full force and effect.

 

15.5         Entire Agreement.  This Lease represents the entire agreement
between the parties hereto with respect to the Premises, and there are no
agreements, understandings or undertakings relating to said subject matter
except as set forth herein, and all prior negotiations and writings between the
parties and their representatives, attorneys, brokers and agents are superseded
hereby and thereby.

 

15.6         Modifications.  This Lease may not be amended, modified or
supplemented except by a writing, executed by the party against whom such
amendment, modification or supplement is sought to be enforced.

 

15.7         No Continuing Waiver.  No waiver of any term, condition, covenant or
remedy hereunder or delay in the enforcement of any remedy hereunder in any one
instance shall be deemed to be a waiver of any other term, condition, covenant
or remedy in such instance or of such waived or delayed term, condition,
covenant or remedy in any other instance.

 

34

 

15.8                           Binding.  All of the terms, conditions, covenants,
agreements and provisions of this Lease shall be construed as covenants running
with the land and shall inure to the benefit of and be binding upon the parties
hereto and upon their respective personal representatives, heirs, successors
and permitted assigns.

 

15.9                           Collection;
Attorney’s Fees.  In the
event Tenant defaults in its obligations to pay Rent or any other sum due and
payable hereunder, Landlord shall be entitled to reimbursement from Tenant for
all of Landlord’s costs of collection (including reasonable attorney’s fees),
regardless of whether or not a suit has been commenced.  In the event any action is brought by
Landlord or Tenant to enforce any other provision of this Lease, the prevailing
party shall be entitled to an award of its costs and reasonable attorney’s
fees.  Notwithstanding anything to the
contrary, Tenant agrees to look solely to Landlord’s interest in the Premises
for the recovery of any judgment from Landlord, it being agreed that Landlord
or its directors, officers or shareholders (if Landlord is a corporation),
shall never be personally liable for any such judgment.

 

15.10                     Governing
Law.  This Lease shall be governed
by the laws of the State of Minnesota.

 

15.11                     Brokerage
Commission.  Landlord
and Tenant each warrants to the other that, in connection with this Lease, they
have dealt with no broker, finder, or similar person.  Landlord will indemnify, defend and hold
harmless Tenant against any claim made by any broker or other agent or for a
commission or fee based on acts or agreements of Seller.  Tenant will indemnify, defend and hold
harmless Landlord against any claim made by any agent or broker for a
commission or fee based on acts or agreements of Tenant.

 

15.12                     Counterparts;
Delivery by E-mail.  This
Lease may be executed in two or more counterparts, each of which shall be an
original and all of which shall constitute one Lease.  Delivery of an executed copy of this Lease by
e-mail (in “pdf” format) shall be deemed delivery of the executed original.

 

15.13                     Severability
of Provisions.  If any term
or provision of this Lease is illegal or invalid for any reason, such
illegality or invalidity shall not affect the validity or enforceability of the
remainder of this Lease.

 

15.14                     Required
Insurance: Business Interruption; and Personal Property.  Tenant acknowledges and agrees that this
Lease does not provide Tenant any relief from its obligations to pay Rent in
the event of an interruption of utilities, services and various other
circumstances (regardless of cause), accordingly, Tenant covenants and agrees
to procure and maintain, at its sole cost and expense, adequate and appropriate
“business interruption” insurance with respect to its business risks and
obligations related thereto.  Tenant
acknowledges and agrees that under the terms of Lease, it is responsible for
any damage or destruction of its personal property, trade fixtures or other
assets which it owns and accordingly, covenants and agrees to procure and
maintain, at its sole cost and expense, adequate and appropriate property
insurance.

 

[Signature page follows.]

 

35

 

IN WITNESS WHEREOF, the parties have executed
this instrument as of the day and year first above written.

 

 

	
   

  	
  APPLIANCE
  RECYCLING CENTERS OF AMERICA, INC. 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JAPS-OLSON
  COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Its:

  	
   

  

 

36

 

EXHIBIT A

 

REAL PROPERTY

 

Tract D, Registered Land
Survey No. 1674, Files of Registrar of Titles, County of Hennepin, State
of Minnesota.

 

Being registered land as is
evidenced by Certificate of No. 830574.

 

 

EXHIBIT B

 

DEPICTION OF JOINT USE AREA

 

[See attached.]

 

38

 

LOGISMap Output Page

 

 

EXHIBIT A

 

39

 

EXHIBIT C

 

LEASE
WITH THE CITY OF ST. LOUIS PARK

 

[See
attached.]

 

40

 

	
   

  	
  CONTRACT NO.

  
	
   

  	
  32-09

  

 

	
  LEASE
  AGREEMENT

  

 

	
   

  	
  CITY OF ST. LOUIS
  PARK

  

 

THIS LEASE (the “Lease”), made as of this 29th day of April,
2009, by and between APPLIANCE RECYCLING CENTERS OF AMERICA INC., a Minnesota
corporation, (“ARCA”) as Lesser, and the CITY OF ST. LOUIS PARK, a Minnesota municipal
corporation (the “City”, as Lessee.

 

WHEREAS, ARCA is the owner of the real property located
at 7400 Excelsior Boulevard, St. Louis Park, Hennepin County, Minnesota; and

 

WHEREAS, the City desires to lease from ARCA
approximately 175’ x 400’ on the northwest corner of 7400 Excelsior Boulevard
as shown on Exhibit “A” (“Subject Property”) for the purpose of material and
equipment storage, and ARCA desires to lease the Subject Property to the City,
under the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, the parties hereto agree as follows:

 

1.                                       Demise of Subject Property. Subject to and upon the terms, conditions,
covenants and undertakings hereinafter set forth, ARCA hereby leases to the
City, and the City hereby leases from ARCA, the Subject Property.

 

2.                                       Lease Term. The term of this Lease shall commence on May 1,
2009 and continue thereafter on a month to month basis until the City
terminates the Lease by giving ARCA thirty (30) days’ advance written notice.
In the event ARCA wants to terminate the lease for whatever reason, ARCA will
provide (30) days’ advance written notice and will require the lessee to vacate
the premises within 30 days after receipt of the notice. Lessee needs to
provide ARCA proof of insurance for the materials being stored.

 

3.                                       Rent. The rent for the term at this Lease shall be One Thousand
and No/100 ($1,000.00) Dollars per month, payable on the first day of each
month commencing May 1, 2009 and continuing on the first day of each month
thereafter. If the City determines that it will need to use the Subject
Property during the winter of 2009—2010, the monthly rent will be negotiated at
that time.

 

4.                                       Site Improvements. Prior to the Lease commencement date,
City will, at its expense, grade the Subject Property to meet its needs to store
material and equipment and, if necessary, place temporary structures on the
Subject Property. When the Lease terminates, the City shall remove all
material, equipment or temporary structures and leave the property in a clean
and sanitary condition.

 

5.                                       Use. The City may use the Subject Property to store
material and equipment and access the site from existing driveways. No other
use will be permitted without the written consent of ARCA.

 

41

 

6.                                       Maintenance and Upkeep. The City is responsible, at its expense,
for maintenance and upkeep of the Subject Property.

 

7.                                       Quiet Enjoyment. ARCA covenants that upon the City
paying the rent reserved herein, and performing all conditions and covenants
set forth in this Lease, the City shall and may peaceably have, hold, and enjoy
the Subject Property for the term of this Lease. The City covenants that upon
expiration of this Lease, it shall give ARCA peaceable possession of the
Subject Property.

 

8.                                       Indemnification. The City will indemnify and hold ARCA harmless
from any and all claims arising out of the City’s use of the Subject Property,
except to the extent caused by the negligence or misconduct of ARCA or its
employees, contractors or invitees.

 

9.                                       Default. In the event that the City shall fail, neglect or
refuse to comply with any term set forth herein, ARCA may, at ARCA’s option, at
any time after such default, terminate this Lease and take possession of the
Subject Property.

 

10.                                 Binding Effect. This Lease shall inure to the benefit of
and shall be binding upon the City and ARCA and their respective successors and
assigns.

 

11.                                 Severability. In the event any provision of this
Lease shall be held invalid or unenforceable by any court or competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.

 

12.                                 Amendments, Changes and Modifications. This Lease may be amended or any of its
terms modified only by written amendment authorized and executed by the City and
ARCA.

 

13.                                 Notices and Demands. All notices and requests which may be
given or which are required to be hereunder shall be sent by United States
Mail, postage prepaid, certified with return receipt requested as follows:

 

	
  To ARCA:

  	
  Marlin Hunt

  
	
   

  	
  7400 Excelsior
  Boulevard

  
	
   

  	
  St. Louis Park,
  Minnesota 55416

  
	
   

  	
  952-715-0298

  
	
   

  	
   

  
	
  To City:

  	
  John Altepeter

  
	
   

  	
  City of St. Louis Park

  
	
   

  	
  5005 Minnetonka Boulevard

  
	
   

  	
  St. Louis Park,
  Minnesota 55416

  
	
   

  	
  952-924-2176

  

 

42

 

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.

 

	
   

  	
  CITY OF ST. LOUIS PARK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas K. Harmening

  
	
   

  	
   

  	
  Thomas K. Harmening,
  City Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  APPLIANCE RECYCLING CENTERS OF
  AMERICA INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marilin Hurt

  
	
   

  	
   

  	
  Its:

  	
  Center Mgr (ARCA)

  

 

43

 

LOGISMap Output Page

 

 

EXHIBIT A

 

44

 

EXHIBIT D

 

SELLER’S
DISCLOSURE SCHEDULE

 

Potential claims
with respect to the Real Property which have been threatened or alleged by RKL
Landholding, LLC or Emad V. Abed relating to Purchase Agreements executed (or
negotiated) and subsequently canceled between either of them and the Seller
(with reference dates of March 14, 2006 and December 29, 2006);
provided as of the Effective Date, no action has been commenced and to the best
of Seller’s knowledge, none are contemplated or imminent.  Provided further, Seller believes that any
such claim would have no merit and that the referenced Purchase Agreements have
been terminated in accordance with their terms and applicable law and are of no
further force and effect.

 

45

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