**Exhibit 10.33**

 

**LEASE**

 

 

**Landlord**

 

**PKM Properties, LLC**

 

 

**Tenant**

 

**MedicalCV, Inc.**

 

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**BUILDING LEASE**

 

This Building Lease (the“Lease”) is made as of April 4, 2003 by and between PKM Properties, LLC, aMinnesota limited liability company (“Landlord”), whose address is c/o GraconContracting, Inc., 606 24th Ave. South, Suite B12, Minneapolis, MN55454 and MedicalCV, Inc., a Minnesota corporation (“Tenant”), whose address is9725 South Robert Trail, Inver Grove Heights, MN 55077.

 

In consideration of themutual covenants and agreements herein contained, Landlord and Tenant herebycovenant and agree as follows:

 

**1.****                                     ****Demise of Premises**.  In consideration of therentals and other sums to be paid by Tenant and of the other terms, covenants,and conditions on Tenant’s part to be kept and performed, Landlord herebyleases to Tenant, and Tenant hereby takes and hires from Landlord the building,consisting of approximately 54,468 square feet, the two existing parking lots,and the private septic system and drain field (the “Premises”), located on thereal property at 9725 South Robert Trail, Inver Grove Heights, Minnesota,consisting of approximately 19.35 acres and legally described on Exhibit Aattached hereto (the “Property”), together with a non-exclusive right of accessto the Premises on and over the Property, as described in Section 8hereto.  A Certificate of Surveydepicting the Property and the Premises is attached hereto as Exhibit Bfor purposes of reference.

 

**2.****                                     ****Lease Term**.  The Lease Term shall be for ten (10) LeaseYears (as defined below).  commencing onApril 4, 2003 (the “Commencement Date”) and expiring on April 30, 2013, unlessrenewed or terminated earlier as provided in this Lease.  “Lease Year” means the 12-month periodcommencing on May 1, 2003, or any other 12-month period as may be approved inwriting by Landlord, and each successive 12-month period thereafter.  The period during which this Lease shallactually be in effect, including any Renewal Period (as defined below), isreferred to herein as the “Lease Term.” The period of time between the Commencement Date and the first day ofthe first Lease Year (May 1, 2003), shall be considered part of the first LeaseYear and shall be on the same terms and conditions as the first Lease Year, butthe first Lease Year shall still end on April 30, 2004.

 

**3.****                                     ****Renewal Periods.**  IfTenant is not currently in default of the terms and conditions of this Lease,Tenant will have two (2) options to extend the Lease Term for five (5) yearseach (collectively, the “Renewal Periods” and individually, a “RenewalPeriod.”).  In order to exercise therenewal option, Tenant must notify Landlord in writing of its intent to extendthe Lease Term for the applicable Renewal Period (“Renewal Notice”).  If Tenant elects to renew the Lease for thefirst Renewal Period, Tenant shall provide to Landlord the Renewal Notice forthe first Renewal Period not less than one (1) year prior to the expiration ofthe original ten (10) year term of the Lease. If Tenant elects to renew the Lease for the second Renewal Period,Tenant shall provide Landlord the Renewal Notice for the second Renewal Periodnot less than one (1) year prior to the expiration of the first RenewalPeriod.  Renewal Periods shall be on the same terms and conditions as set forth inthis Lease, except as modified by the terms, covenants, and conditions herein.  Failure of Tenant to provide Landlord eitherRenewal Notice required by this Section shall void all of Tenant’s current andfuture renewal rights provided herein.

 

**4.****                                     ****Rental Payments**.

 

A.                                   On or before the first day of each calendarmonth during the Lease Term, Tenant shall pay to Landlord in advance the basemonthly rental set forth below (the

 

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“Base Monthly Rental”), which shall be one-twelfth (1/12) of the baseannual rental set forth below (the “Base Annual Rental”).

 

B.                                     The Base Annual Rental for each of LeaseYears 1 and 2 shall be $360,000, and accordingly, the Base Monthly Rental foreach of Lease Years 1 and 2 shall be $30,000.

 

C.                                     The Base Annual Rental for each of the LeaseYears 3, 4 and 5 shall be $370,800, and accordingly, the Base Monthly Rentalfor each of the Lease Years 3, 4 and 5 shall be $30,900.

 

D.                                    The Base Annual Rental for each of the LeaseYears 6 through 10 shall be $389,340, plus the additional interest paid by theLandlord on its long term permanent financing of the Property in the amount of$3,500,000 during each year of the last five (5) years of the Lease Term ascompared to the interest that would have been due and payable if the interestrate had remained the same for each such year as the interest rate charged onsuch financing during the fifth year of the Lease Term (the “Annual AdditionalInterest”) and, accordingly, the Base Monthly Rental for each of the LeaseYears 6 through 10 shall be $32,445, plus one-twelfth (1/12) of the AnnualAdditional Interest.

 

E.                                      The Base Annual Rental, and accordingly theBase Monthly Rental, for the Renewal Period(s) shall be determined in strictaccordance with Section 5 hereof, entitled “Renewal Period Rent Payments.”

 

F.                                      If the Commencement Date is a date other thanthe first day of the month, Tenant shall pay Landlord on the Commencement Datethe Base Monthly Rental for Lease Year 1, prorated on the basis of the ratiothat the number of days from the Commencement Date through the last day in themonth containing the Commencement Date bears to the number of days in suchmonth.

 

**5.****                                     ****Renewal Period Rental Payments**.

 

A.                                   The Base Annual Rental, and accordingly theBase Monthly Rental, for the Renewal Period(s) shall be at “Market Rate.”  Market Rate shall mean the monthly amountthat a willing, comparable, non-owner, non-renewal tenant would pay, and awilling, comparable landlord of a comparable building in the same region wouldaccept at arm’s length, giving appropriate consideration to all relevantfactors, including but not limited to, annual rental rates per rentable squarefoot, any tenant improvement allowance, length of lease term, tenantcreditworthiness, size and location of the Premises, commissions payable, anyforms of tenant inducements, Tenant’s use of the Premises, and Tenant’s uniqueand specialized leasehold improvements.

 

B.                                     Within forty-five (45) days of Landlord’sreceiving either of Tenant’s Renewal Notices, Landlord shall notify Tenant ofLandlord’s determination of the Market Rate to be applicable during the RenewalPeriod (“Landlord’s Rate Notice”).  Ifthe Market Rate as set forth in Landlord’s Rate Notice is acceptable to Tenantor if Tenant fails to timely object in the manner provided by this Section,then the Renewal Period Rent Payments shall be pursuant to Landlord’s RateNotice.  If the Market Rate as set forthin Landlord’s Rate Notice is not acceptable to Tenant, Tenant must provideLandlord with written notice on or before fifteen (15) days subsequent to thereceipt of Landlord’s Rate

 

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Notice.  If Tenant has so timelyobjected in writing to Landlord’s Rate Notice, then Landlord and Tenant shallnegotiate, in good faith, for up to an additional thirty (30) days to arrive ata mutually acceptable Market Rate.  If,however, at the end of said additional thirty (30) day period Landlord andTenant have failed to arrive at a mutually acceptable Market Rate, the MarketRate shall be determined by arbitration pursuant to Section 5.C hereof.  The determination of Market Rate byarbitration shall be binding on Landlord and Tenant.  All notices under this Section shall be given in the mannerprovided in the Lease for the giving of notices**.**

 

C.                                     If Landlord and Tenant are unable to arrive amutually acceptable Market Rate within the thirty (30) day period set forth inSection 5.B hereof, then within ten (10) days after the expiration of saidthirty (30) day period, each party shall appoint an arbitrator and notify theother party of such appointment in writing by identifying the appointee.  Each party hereto agrees to select as itsrespective appointee an independent appraiser, with MAI designation, who is anindividual with at least ten (10) years experience in evaluating and/orappraising building rental information for office/warehouse/manufacturingbuildings in the Minneapolis/St. Paul metropolitan area.  Neither party may consult directly orindirectly with any arbitrator regarding the Market Rate before appointment, orafter appointment, outside the presence of the other party.  The arbitration shall be conducted under theprovisions of the Arbitration Rules for the Real Estate Industry (as amendedand effective as of September 1, 2000) as published by the AmericanArbitration Association and Minnesota law governing arbitration or as otherwiseagreed by the parties.  Not later thanten (10) days after both arbitrators are appointed, each party shallseparately, but simultaneously, submit in a sealed envelope to each arbitratorwhatever information such party wants the appraisers to consider in determiningMarket Rate, including, but not limited to, their separate suggested MarketRate, and any materials supporting such suggested Market Rate, and shallprovide a copy of all materials submitted to the other party.  The two (2) selected arbitrators, afterreviewing such submissions, shall attempt to determine the actual Market Ratefor the applicable space.  If botharbitrators agree on the actual Market Rate, they shall declare the Market Rate,and their decision shall be final and binding upon the parties.  If the two selected arbitrators are unableto agree on the Market Rate within forty-five (45) days after receipt ofLandlord’s and Tenant’s submitted estimates and supporting materials, then thearbitrators shall inform the parties. Unless the parties shall both otherwisethen direct, said arbitrators shall select a third arbitrator, not later thanten (10) days after the expiration of said forty-five (45) day period.  If no arbitrator is selected by either partywithin such ten (10) day period, or the third arbitrator is not selected withinsuch ten (10) day period, either party may immediately petition the Chief Judgeof the Dakota County District Court (or his designee for such purposes) toappoint the arbitrator to be appointed by a party or such thirdarbitrator.  The third arbitrator shallhave the qualifications and restrictions set forth above, and the threearbitrators shall conduct an arbitration pursuant to the Arbitration Rules forthe Real Estate Industry (as amended and effective as of September 1, 2000) aspublished by the American Arbitration Association and Minnesota law governingarbitration or as otherwise agreed by the parties.  The decision

 

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of any two of the three arbitrators shall be final and binding as tothe actual Market Rate.  The arbitratorsshall make a decision not later than thirty (30) days after appointment of thethird arbitrator.  If no two arbitratorsagree, then the average of the Market Rate of the two arbitrators whosedeterminations are closest to each other (determined on the basis of neteconomic effect) shall be deemed to be the actual Market Rate. Each party shallbe responsible for the costs, charges, and/or fees of its respective appointee,and the parties shall share equally in the costs, charges, and/or fees of thethird arbitrator. The decision of the arbitrator(s) may be entered in any courthaving jurisdiction thereof. If either Landlord or Tenant fails to properlyappoint an arbitrator within the time period established by this Section 5.C,then such defaulting party shall pay all costs incurred by the non-defaultingparty in obtaining the appointment of such arbitrator, including court costsand reasonable attorneys fees and costs.

 

**6.****                                     ****ADDITIONAL RENT**.  In addition to and together with Base MonthlyRental, Tenant shall pay to Landlord, in advance, as “Additional Rent”Landlord’s estimate of all “Operating Costs” and “Taxes” incurred or to beincurred annually by Landlord hereunder in equal monthly installments.

 

A.                                   “Operating Costs” shall be defined as: allreasonable and direct costs of operation, maintenance, repair and management ofthe Premises, as determined in accordance with generally accepted accountingprinciples, that Landlord pays during the Lease Term, including the followingcosts by way of illustration, but not limitation: insurance charges relating toall insurance policies and endorsements customary for manufacturing warehouseproperties and deemed by Landlord to be reasonably necessary or desirable forthe protection, preservation, or operation of all or any part of the Premises;utility costs for all parts of the Premises, such as heat, light, power, steam,gas;  waste disposal, water and sewer,the cost of security and alarm services (including any central stationsignaling system) that Landlord might pay from time to time; the cost ofmaintaining, repairing and replacing any heating, ventilating and airconditioning systems on or within the Premises; the cost of landscaping andseasonal decorations on or within the Premises; the cost of maintaining andrepairing any exterior stairway, truck way, loading dock, package pick-upstation, pedestrian sidewalk and ramp on, within, or connected to the Premises;the cost of maintaining, repairing, replacing, operating, and policing thePremises and their appurtenances and equipment and the costs of making capitalimprovements on or within the Premises, including, without limitation, theroof, signage, and parking lot, except as otherwise provided in this paragraphA, and driveway areas, including the construction and maintenance of lightingfacilities therefore; provided all such costs shall be amortized over thereasonable life of such improvements in accordance with such reasonable lifeand amortization schedules as shall be determined by Landlord in accordancewith generally accepted accounting principles, with interest on the unamortizedamount at one percent (1%) in excess of the prime lending rate announced fromtime to time as such by U.S. Bank Corporation of Minneapolis, Minnesota; laborcosts; all management costs including: management fees not to exceed fourpercent (4%) of Base Rent, administrative fees, employee benefits and payrolltaxes; accounting and legal fees; material costs; equipment costs, includingthe cost of service agreements on equipment; tool costs; the costs of licenses,permits and inspection fees, and any sales, use or service taxes incurred inconnection therewith.

 

Notwithstandingthe above, “Operating Costs” shall not include:

 

(i)                                     Legal or accounting fees associated with theoperation of the business or the entity which constitutes the Landlord, themanagement agent of the Landlord or preservation of the Landlord’s interest inthe Premises relative to third parties. This includes, but is not limited to, formation of ownership entities,internal accounting or legal matters, preparation of tax returns and financialstatements, gathering of data therefor, costs of defending any lawsuit with alender, costs of selling or mortgaging Landlord’s interest.

 

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(ii)                                  Financing or refinancing costs, interest ondebt.

 

(iii)                               Capital costs relating to the parking lot located to the west of thebuilding located on the Premises and which are incurred prior to the date the Tenantbegins using such parking lot and not required to be incurred in order forTenant to comply with paragraph 13.A. hereof.

 

(iv)                              Landlord’s executive salaries and overhead costs, including, withoutlimitation, attorney and accountant costs not related to operation of thePremises, except as otherwise specifically provided in the Lease.

 

(v)                                 Costs resulting from the negligence ofLandlord or its agents.

 

Tenantshall manage and operate the Premises for the benefit of the Landlord andpursuant to an annual budget established by the Tenant and approved by theLandlord and with such changes as the Landlord may reasonably require from timeto time.  Landlord, may at any time,elect to manage and operate the Premises. During the time the Tenant manages and operates the Premises theLandlord shall not charge Tenant management fees.

 

B.                                     “Taxes” shall be :

 

(i)                                     Tenant’s “Pro-rata Share” of real estatetaxes, charges, and other taxes, excluding special assessments for theProperty.  “Pro-rata Share” shall meanan amount equal to the product obtained by multiplying a fraction, thenumerator of which shall be the number of square feet in the Premises and thedenominator of which shall be the number of square feet in the Property timesthe real estate taxes attributable to the value of the land only for theProperty on each annual tax statement during the Lease Term, plus one hundredpercent (100%) of the real estate taxes attributable to the value of theimprovements on the Property as set forth on each annual tax statement duringthe Lease Term; plus

 

(ii)                                  Tenant’s “Equitable Share” of specialassessments levied on the Property. “Equitable Share” shall mean one hundred percent (100%) of the specialassessments with respect to the Property until such time as the Property issubdivided by Landlord (the newly subdivided or platted portion of the Propertyshall be the “Subdivided Property”) and a Certificate of Occupancy is issuedfor new improvements located on the Subdivided Property (the “ReallocationDate”).  From and after the ReallocationDate, Landlord shall pay any installments of special assessments attributableto the Subdivided Property as set forth on the annual tax statement issued forthe Subdivided Property.  Tenant shallpay any installments of special assessments allocated to the Premises as setforth on the annual tax statement issued for the Premises.  If the annual tax statement(s) fails toallocate all of the special assessments between the Premises and the SubdividedProperty, the unallocated portion of the special assessments shall be allocatedbetween Tenant and Landlord such that each shall pay a portion of suchunallocated special assessments equal to the product obtained by multiplying afraction, the numerator of which shall be the value of all improvements on thePremises (in the case of Tenant) or Subdivided Property (in the case ofLandlord) as set forth on the annual tax statement(s), and the denominator ofwhich shall be the value of all improvements located on the Premises andSubdivided Property

 

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combined as set forth on the annual tax statement(s), times the balanceof special assessments attributable to the Property, excluding the Premises andthe Subdivided Property (the “Reallocated Amount”); plus

 

(iii)                               One hundred percent of any taxes, charges or assessments with respectto any improvements, fixtures and equipment, real or personal, located in thePremises and used in connection with Tenant’s business; plus

 

(iv)                              A Pro-rata Share of all fees, reasonable expenses and reasonable costsincurred by Landlord in investigating, protesting, contesting, or in any wayseeking to reduce or avoid any assessments, levies, or real estate taxes orother taxes rate pertaining to any Taxes to be paid by Landlord in any LeaseYear.

 

(v)                                 Taxes shall not include any corporatefranchise, or estate, inheritance, or net income tax, or tax imposed upon anytransfer by Landlord of its interest in this Lease or the Premises, deathtaxes, excess profit taxes, capital stock, or penalties or interest on late paymentof Taxes unless caused by Tenant.

 

(vi)                              Landlord shall not construct any improvements on the Property, exceptany improvements to the Premises as may be required by this Lease, unless anduntil Landlord has subdivided the Property from the Premises.

 

(vii)                           Notwithstanding anything to the contrary in items (i)-(vi) above,within ninety (90) days of the Reallocation Date, Landlord shall pay to Tenantan amount equal to one hundred percent (100%) of the special assessments paidby Tenant from the Commencement Date to the Reallocation Date, less the amountof special assessments Tenant would have paid if special assessments had beenallocated during such time utilizing the formula for determining theReallocated Amount (the “Recalculated Assessment”), plus Simple Interest.  “Simple Interest” shall be calculated by (a)dividing the Recalculated Assessment by the number of years, and portionsthereof, between the Commencement Date and the Reallocation Date (the “Deemed AnnualInstallment”).  One Deemed Annual Installmentshall be deemed to have been paid on May 1 during each Lease Year between theCommencement Date and the Reallocation Date; and (b) applying a simple interestrate of five percent (5%) per annum to each Deemed Annual Installment from thedate it is deemed to have been paid hereunder through the ReallocationDate.  For example, if the RecalculatedAssessment is twenty thousand dollars ($20,000.00), and has been paid over fiveyears between the Commencement Date and the Reallocation Date, the DeemedAnnual Installment would be four thousand dollars ($4,000.00).  Simple interest would be calculated byapplying the simple interest rate of five percent (5%) per annum to fourthousand dollars ($4,000.00) from the date each Deemed Annual Installment is deemedto have been paid hereunder through the Reallocation Date.

 

C.                                     The annual determination of Operating Costsand Taxes shall be itemized and certified to Tenant.  Tenant may review the books and records supporting suchdetermination in the office of Landlord, or Landlord’s agent, during normalbusiness hours, upon giving Landlord five (5) days advance written notice, butin no event more often than once in any one year period.  The results of any such audit will beconclusive, and any adjustment required to any previous payment made by Tenantor Landlord by reason of any such audit shall be made within fourteen (14) daysof delivery of such audit

 

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by such auditor to Landlord and Tenant. If an adjustment of more thanfive percent (5%) in favor of Tenant is required, then Landlord shall bear thecosts of such audit.  Otherwise, Tenantshall bear all costs of the audit.

 

D.                                    Prior to the actual determination thereof fora Lease Year, Landlord may from time to time estimate Tenant’s liability forOperating Costs and/or Taxes under for the Lease Year or portion thereof.  Landlord will give Tenant writtennotification of the amount of such estimate and Tenant agrees that it will pay,as Additional Rent equal monthly installments in the amount of such estimate.  Any such estimate of Operating Costs madepursuant to this section shall remain in effect until further writtennotification to Tenant pursuant hereto.

 

E.                                      When the above mentioned actual determinationof Tenant’s liability for Operating Costs and/or Taxes is made in any LeaseYear and when Tenant is so notified in writing, then:

 

(i)                                     If the total Additional Rent Tenant actuallypaid on account of Operating Costs and/or Taxes for the Lease Year is less thanTenant’s actual liability for Operating Costs and/or Taxes, then Tenant shallpay to Landlord such deficiency as Additional Rent in one lump sum withinthirty (30) days of receipt of Landlord’s bill therefore; and

 

(ii)                                  If the total Additional Rent Tenant actuallypaid on account of Operating Costs and/or Taxes for the Lease Year is more thanTenant’s liability for Operating Costs and/or Taxes, then Landlord shall creditthe difference against the then next due payments to be made by Tenant underthis Section or pay such amount in cash if at the end of the Term.

 

F.                                      If the Commencement Date is a date other thanthe first day of the month, Tenant shall pay Landlord on the Commencement Datethe Additional Rent prorated on the basis of the ratio that the number of daysfrom the Commencement Date through the last day in the month containing theCommencement Date bears to the number of days in such month.

 

G.                                     Landlord shall have the same remedies fornonpayment of Additional Rental as those provided herein for the nonpayment ofBase Monthly Rental.

 

H.                                    Notwithstanding any of the provisions of thisSection 6, nothing contained herein shall constitute an agreement by Landlordto assume the obligation for making payments for any item of Operating Costsfor which Tenant is obligated to make payment by the terms and conditions ofthe Lease.

 

I.                                         Landlord, in its sole discretion, may requireTenant to make payment for any and/or all items of Operating Expenses directlyto the provider of the services for which such Operating Expenses areincurred.  If Tenant is required byLandlord to make payments directly to any service provider, Tenant shallprovide evidence to Landlord that Tenant timely made such payment(s) withinfive (5) days of making such payment. If Tenant fails to timely make any payment that Landlord, pursuant toSection 6.I, has instructed Tenant to make, Tenant shall be in defaulthereunder and solely responsible for any fees, charges, penalties, and/or coststhat may be assessed by the service provider as a result of such untimelypayment.

 

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**7.****                                     ****Rentals To Be Net to Landlord.**  TheBase Monthly Rental payable hereunder shall be net to Landlord, so that thisLease shall yield to Landlord the rentals specified herein during the LeaseTerm and that all costs, expenses and obligations of every kind and nature reasonablynecessary for the operation, maintenance, repair and management of the Premisesshall be performed and paid by Tenant, except as provided in paragraph 6Ahereof.  Notwithstanding any provisionof this Lease, all amounts payable by Tenant as Base Monthly Rental, AdditionalRent and all other amounts due hereunder shall be deemed to be rent under theLease (the “Rent”).

 

**8.****                                     ****Access to Premises. **Landlord hereby agrees to furnish Tenant, andits employees, agents, independent contractors, licensees, and businessinvitees, for the duration of the Lease Term, a non-exclusive right to use theroadway that shall run over and across the Property to access thePremises.  Tenant, and its employees,agents, independent contractors, licensees, and business invitees, shall havethe non-exclusive right to use the existing roadway running on and across theProperty, commonly known as B.T. Drive, for purposes of gaining access to thePremises, until the Landlord shall notify Tenant that another means of accessto the Premises is to be used.  Landlordshall have the right, at its sole discretion, at any time during the Lease Termto relocate all or part of B.T. Drive or to construct an entirely new roadwayrunning on and across the Property.  Anyconstruction costs incurred in relocating all or part of B.T. Drive orconstructing a new roadway shall be the sole responsibility of Landlord.  If Landlord relocates all or part of B.T.Drive or constructs an entirely new roadway on and across the Property, Tenant,and its employees, agents, independent contractors, licensees, and businessinvitees, shall have the non-exclusive right to use the newly constructedroadway for purposes of gaining access to the Premises.  Any such relocated or newly constructedroadway shall be of equal quality and utility as the existing roadway.

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**9.****                                     ****Utilities**.  Tenant shall contract, in its own name, forand pay when due all charges for the connection and use of water, gas,electricity, telephone, garbage collection, sewer use, and other utilityservices supplied to the Premises during the Lease Term.  Under no circumstances shall Landlord beresponsible for any interruption of any utility service.  Tenant shall also pay all sums due and owingby Landlord during the Lease Term under that certain “Energy ConservationPromissory Note,” dated April 14, 1999, a copy of which is attached hereto as ExhibitC.  Tenant shall provide Landlord,on a monthly basis, evidence that Tenant has made timely payment of the sumsdue and owing for all utility charges for the Premises and for all sums due andowing under the Energy Conservation Promissory Note.  Landlord shall have the right, at its sole discretion, at anytime during the Lease Term to relocate the private septic system and drainfield or to remove such private septic system and drain field and connect thepremises to public storm and sanitary sewer. Any construction costs incurred in relocating or removing the privateseptic system and/or drain field which is not necessary or required inLandlord’s reasonable opinion shall be the sole responsibility of theLandlord.  Any construction costsincurred in relocating or removing the private septic system and/or drain fieldwhich is necessary or required in Landlord’s reasonable opinion shall be thesole responsibility of the Tenant. Relocation or removal of the private septic and/or drain field shall notbe deemed necessary unless the City, State Environmental Authorities, otherregulatory authorities or Landlord’s lender financing the Property requires therelocation or removal of the private septic system and/or drain field.  Also, in connection with the relocating orremoving of the private septic system and/or drain field, Tenant shall besolely responsible for abating, relieving and responding to all HazardousMaterials at or to the Property as provided in Section 13 hereof.

 

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**10.****                              ****Insurance**.

 

A.                                   Throughout the Lease Term, Tenant shallmaintain, or cause to be maintained, at its own expense, the following typesand amounts of insurance (which may be included under a blanket insurancepolicy if all the other terms hereof are satisfied), in addition to such otherinsurance as Landlord may reasonably require:

 

(i)                                     Commercial general liability and propertydamage insurance covering Landlord and Tenant against bodily injury liability,property damage liability and automobile bodily injury and property damageliability, including without limitation any liability arising out of theownership, maintenance, repair, condition, or operation of the Premises or adjoiningways, streets or sidewalks.  Suchinsurance policy or policies shall contain a broad form contractual liabilityendorsement under which the insurer agrees to insure Tenant’s obligations ofindemnity under this Lease to the extent insurable, and a “severability ofinterest” clause or endorsement which precludes the insurer from denying theclaim of either Tenant or Landlord because of the negligence or other acts ofthe other, shall be in amounts of not less than $3,000,000.00 per injury andoccurrence with respect to any insured liability, whether for personal injuryor property damage, or such higher limits as Landlord may reasonably requirefrom time to time, and shall be in form and substance satisfactory to Landlord;

 

(ii)                                  All Risks insurance including, but notlimited to, coverage for fire, extended coverage, plate glass, sprinkler andwater damage, covering the Premises, contents of the Premises, and Tenant’sproperty, including, but not limited to, betterments and improvements made byTenant, Tenant’s inventory, trade, or other fixtures, furnishings and otherpersonal property whether or not removable by Tenant.  Coverage shall be provided on a full replacement cost basis andthe Tenant shall bear any deductible expense associated with any loss.

 

(iii)                               State worker’s compensation insurance in the statutorily mandatedlimits, employer’s liability insurance with limits not less than $1,000,000.00or such greater amount as Landlord may from time to time require and such otherinsurance as may be necessary to comply with applicable laws; and

 

(iv)                              Business interruption insurance equal to 100% of the Base MonthlyRental for a period of not less than 12 months.

 

B.                                     All insurance policies shall:

 

(i)                                     Provide for a waiver of subrogation by theinsurer as to claims against Landlord, its employees, and agents;

 

(ii)                                  Provide that any “no other insurance” clausein the insurance policy shall exclude any policies of insurance maintained byLandlord and that the insurance policy shall not be brought into contributionwith insurance maintained by Landlord;

 

(iii)                               Contain a standard without contribution mortgage clause endorsement infavor of any lender designated by Landlord;

 

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(iv)                              Provide that the policy of insurance shall not be terminated,cancelled, or substantially modified without at least 30 days’ prior writtennotice to Landlord and to any lender covered by any standard mortgage clauseendorsement;

 

(v)                                 Provide that the insurer shall not have theoption to restore the Premises if Landlord elects to terminate this Lease inaccordance with the terms hereof; and

 

(vi)                              Be issued by insurance companies licensed to do business in the statein which the Premises is located and which are approved by Landlord, suchapproval not to be unreasonably withheld.

 

C.                                     All insurance policies (with the exception ofworker’s compensation insurance to the extent not available under statutorylaw) shall designate Landlord and any mortgagee of Landlord as additionalinsureds as their interests may appear and shall be payable as set forth inthis Lease.  All such policies shall bewritten as primary policies, with deductibles not to exceed $50,000.00.  Any other policies, including any policy nowor hereafter carried by Landlord, shall serve as excess coverage.  Tenant shall procure policies for allinsurance for periods of not less than one year and shall provide to Landlordand any lender designated by Landlord certificates of insurance or, uponLandlord’s request, duplicate originals or insurance policies evidencing thatinsurance satisfying the requirements of this Lease is in effect at alltimes.  Tenant shall provide to Landlordevidence of renewals of all policies of insurance at least thirty (30) daysprior to the expiration of such policies.

 

**11.****                              ****Payment of Rental and Other Sums**.  AllRental, Additional Rent, and other sums which Tenant is required to payhereunder shall be the unconditional obligation of Tenant and shall be payablein full when due without any setoff, abatement, deferment, deduction, orcounterclaim whatsoever except as provided herein.  Any delinquent payment (that is, any payment not made when due)shall, in addition to any other remedy of Landlord, incur a late charge of fivepercent (5%) (which late charge is intended to compensate Landlord for the costof handling and processing such delinquent payment and should not be consideredinterest) and bear interest at the rate of the prime rate of U.S. Bank plus 600basis points per annum, which interest rate shall accrue from the date suchpayment was due, but in no event shall Tenant be obligated to pay a sum of latecharge and interest higher than the maximum legal rate then in effect (“DefaultRate”).

 

**12.****                              ****Use.**

 

A.                                   Tenant shall use the Premises solely for thepurposes of conducting Tenant’s existing business and for any other legalpurpose provided that the Landlord approves such other use of the Premises withregard to its environmental impact on the Premises and the Property or adverseimpact on the Landlord’s potential future development of the Property, excludingthe Premises.  The Landlord’s approvalwith regard to such other use shall not be unreasonably withheld.  Tenant’s use is specifically conditionedupon such use being allowed under all Laws (as hereinafter defined) and Tenantcomplying with all Laws in its use of the Premises as required by this Section.

 

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B.                                     Tenant shall not, by itself or through anyassignment, sublease, or other type of transfer, convert the Premises to analternative use during the Lease Term without Landlord’s consent as provided insubparagraph A above.

 

**13.****                              ****C****ompliance with Laws, Restrictions, Covenants and Encumbrances**.

 

A.                                   Tenant’s use and occupation of the Premises,and the condition thereof, shall, at Tenant’s sole cost and expense, complyfully with (i) all applicable statutes, regulations, rules, ordinances, codes,licenses, permits, orders, and approvals of any governmental agencies,departments, commissions, bureaus, boards, or instrumentalities of the UnitedStates, the state in which the Premises are located, and all politicalsubdivisions thereof, including, without limitation, all health, building,fire, safety and other codes, ordinances, and requirements and all applicablestandards of the National Board of Fire Underwriters, (ii) the requirements andconditions of all conditional or special use permits covering the Premises andthe use thereof, now or hereafter in effect, (iii) all restrictions, covenants,and encumbrances of record with respect to the Premises, (iv) EnvironmentalLaws (as defined below), and (v) all requirements and matters described inSection 13.F hereof (collectively, the “Laws”).

 

B.                                     Tenant will not permit any act or conditionto exist on or about the Premises which will increase any insurance ratethereon, except when such acts are required in the normal course of itsbusiness and Tenant shall pay for such increase.

 

C.                                     Without limiting the generality of the otherprovisions of this Section, Tenant agrees that it shall be responsible forcomplying in all respects with the Americans with Disabilities Act of 1990, assuch act may be amended from time to time, and all regulations promulgatedthereunder (collectively, the “ADA”), as it affects the Premises, including,but not limited to, making required “readily achievable” changes to remove any architecturalor communications barriers, and providing auxiliary aides and services withinthe Premises.  Tenant further agreesthat any and all additions and alterations made to the Premises during theLease Term will comply with the requirements of the ADA.  Tenant agrees that it will defend,indemnify, and hold harmless Landlord and Landlord’s shareholders, directors,officers, agents, attorneys, and employees from and against any and all claims,demands, causes of action, suits, proceedings, liabilities, damages (includingconsequential and punitive damages), losses, costs, and expenses, includingattorneys’ fees, caused by, incurred, or resulting from Tenant’s failure tocomply with its obligations under this Section.

 

D.                                    Without limiting the generality of the otherprovisions of this Section, Tenant shall (i) comply with all Environmental Laws(as defined below) applicable to the operation or use of the Premises includingwithout limitation the storage, use, and disposal of all Hazardous Materials,(ii) require and use its best efforts to cause all other persons occupying orusing the Premises to comply with all such Environmental Laws, (iii) obtain andrenew all governmental permits, licenses and authorizations required under anyEnvironmental Law with respect to the Property and Tenant’s Use at thePremises, and (iv) provide Landlord with prompt written notice and, whenapplicable, notice to the appropriate governmental agencies, of any actual,threatened or claimed release of a Hazardous Material (as such term is definedbelow) on the Premises or the Property and of any claim, notice, investigationor action relating to the Premises and any Environmental Law.  Tenant covenants and agrees not to use,generate, release, manage, treat, manufacture, store, or dispose of, on, underor about, or transport to or from (any of

 

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the foregoing hereinafter a “Use”) the Premises or the Property anyHazardous Materials, except in compliance with all Environmental Laws and insuch case only in De Minimis Amounts (as such term is defined below).  In the event Tenant breaches any of theforegoing covenants, in addition to any and all other rights and remedies ofLandlord, Landlord at its option may either (i) require Tenant to immediatelyupon demand analyze, remove, abate, and/or otherwise remedy all such HazardousMaterials using licensed contractors approved by Landlord or (ii) perform,without further notice to Tenant, or cause to be performed such analysis,removal, abatement, and/or remedial work for and at the sole expense ofTenant.  For purposes of this Lease, (1)the term “Hazardous Materials” shall include but not be limited to asbestos,urea formaldehyde, polychlorinated biphenyls, oil, petroleum products,pesticides, radioactive materials, hazardous wastes, biomedical wastes, toxicsubstances and any other related or dangerous, toxic or hazardous chemical,material or substance regulated by or defined as hazardous or as a pollutant orcontaminant in, or the Use of or exposure to which is prohibited, limited, governedor regulated by, any Environmental Law; (2) the term “De Minimis Amounts” shallmean, with respect to any given Hazardous Material, that amount or quantity ofthat Hazardous Material in any form or combination of forms which (i) does notconstitute a violation of any Environmental Law and (ii) is reasonablynecessary for Tenant’s business, or customarily employed in, or customarilyassociated with, similar businesses located in the metropolitan area in whichthe Premises is located; and (3) the term “Environmental Laws” shall mean anyfederal, state, or local statute, law, rule, regulation, ordinance, code,policy or rule of common law now or hereafter in effect and in each case asamended, and any judicial or administrative interpretation thereof, includingany judicial or administrative order, consent decree or judgment, relating tothe environment, health, safety or Hazardous Materials.

 

E.                                      Tenant shall be responsible for abating,remediating, and responding to all releases of Hazard Materials at or to theProperty throughout the Term hereof, except to the extent such releases resultfrom Landlord’s negligence.  All suchabatements, remediation, and responses shall be pursuant to Environmental Lawsand be performed to the reasonable satisfaction of the Minnesota PollutionControl Agency and to the reasonable satisfaction of the Landlord in order thatsuch abatements, remediation and responses will be consistent with what wouldbe required in the event of the Landlord’s sale or financing of the Premisesand/or any portion of the Property.  Allsuch remediation, abatement, or responses performed by Tenant shall beperformed at Tenant’s sole cost and expense.

 

F.                                      In addition to the other requirements of thisSection, Tenant shall, at all times throughout the Lease Term, comply with allfederal, state or local statutes, laws, rules, regulations, ordinances, codes,policies, or rules of common law now or hereafter in effect and in each case,as amended, and any judicial or administrative interpretation thereof,including any judicial order, consent, decree, or judgment, applicable toTenant.

 

**14.****                              ****C****ondition of Premises; Maintenance**.

 

A.                                   Tenant has owned and operated the Propertyfor the previous twenty-seven (27) years has inspected, or had the opportunityto inspect, and knows and understands the condition of the Premises and theProperty and hereby accepts the Premises “AS IS” and “WHERE IS” with norepresentation or warranty of Landlord as to the condition thereof.  Tenant acknowledges the environmental conditionof the Premises and the Property as set forth in the following environmentalreports:  Phase I

 

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Environmental Site Assessment report dated March 4, 2003, prepared byPinnacle Engineering, Inc., Phase I Environmental Site Assessment report datedFebruary 10, 2003, prepared by Pinnacle Engineering, Inc., for MedicalCV, Inc.;the Phase I Environmental Site Assessment report dated September 27, 1999,prepared by Pinnacle Engineering, Inc. for Medical, Inc.; and the PreliminaryEnvironmental Subsurface Investigation dated March 10, 1992, prepared by BraunIntertec Environmental, Inc., for Parsinen, Bowman & Levy.  Tenant shall keep all improvements now orhereafter located on or within the Premises in good, clean, sanitary, andworking condition; and Tenant shall at all times at its own expense maintain,repair, and replace, as necessary, the Premises, including all portions of thePremises, whether or not the Premises were in such condition on theCommencement Date.

 

B.                                     Floor Drains;  Environmental Testing.  Tenant, at Landlord’sdiscretion and at Tenant’s sole cost, shall seal floor drains at the Premisesat any time during the term hereof if either of the following conditions aremet:  (i) Tenant has assigned orsubleased any portion of the Premises which includes a floor drain to a thirdparty in which event Tenant shall seal the floor drains in the SubleasedPremises; or (ii) Landlord reasonably concludes, based on the findings of anenvironmental professional retained by or approved by Landlord at Tenant’s solecost, that substances are being or may be released to the floor drains at thePremises in such a manner or in such quantities (whether in aggregate orotherwise) that would either: (a) result in a release or threatened release ofhazardous substances to the environment or (b) cause the Premises to be out ofcompliance with applicable legal requirements in which event Tenant shall sealall the floor drains in the Premises. In addition, Tenant shall conduct from time to time such environmental testingat the Property as may be determined as reasonably necessary by the Landlord orthe Landlord’s lender financing the Property.

 

**15.****                              ****Improvements; Waste; and Alterations**.

 

A.                                   Tenant shall not commit actual orconstructive waste upon the Premises. Tenant shall not make any alternations, improvements, or additions tothe Premises in any manner without the consent of Landlord not to beunreasonably delayed or withheld.  IfLandlord consents to the making of any such alterations, improvements oradditions, the same shall be made by Tenant at Tenant’s sole expense by alicensed contractor and according to plans and specifications approved byLandlord and subject to such other conditions as Landlord shall reasonablyrequire.

 

B.                                     Any work at any time commenced by Tenant onthe Premises shall be prosecuted diligently to completion, shall be of goodworkmanship and materials, and shall comply fully with all the terms of thisLease.  Upon completion of the work, orat any time on or before the completion of the work as Landlord shallreasonably require, Tenant shall promptly provide Landlord with (i) evidence offull payment to all laborers and materialmen contributing to the work, (ii) anarchitect’s certificate certifying the work to have been completed in conformitywith the plans and specifications, (iii) a certificate of occupancy (ifrequired), and (iv) any other documents or information reasonably requested byLandlord.  Tenant shall execute and fileor record, as appropriate, a “notice of non-responsibility,” or any equivalentnotice permitted under applicable law in the state where the Premises islocated.

 

C.                                     Any addition to or alteration of the Premisesshall be the property of Tenant; provided that such addition to or alterationof the Premises shall remain on the

 

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Premises and become the property of Landlord upon the expiration orearlier termination of the Lease Term or at Landlord’s option, removed byTenant, at its sole cost and expense, prior to expiration or termination of theLease Term.  Upon expiration or earliertermination of the Lease Term, Tenant shall execute and deliver to Landlordsuch instruments as Landlord may reasonably require to evidence the ownershipby Landlord of such additions or alterations.

 

**16.****                              ****I****ndemnification**.  Tenant shall indemnify,protect, defend, and hold harmless Landlord and Landlord’s members, directors,officers, agents, lenders, attorneys, and employees (collectively, “IndemnifiedParties”) from and against any and all claims, demands, causes of action,suits, proceedings, liabilities, damages (including consequential and punitivedamages), losses, costs, and expenses, including Landlord’s attorneys fees(collectively, “Claims”), caused by, incurred, or resulting from its operationsof or relating in any manner to the Premises or the Property, whether relatingto its design or construction; latent defects; the presence of HazardousMaterials at, in, or beneath the Premises or Property as of the date hereof oras may be released at the Property during the Lease Term; alteration;maintenance; use by Tenant or any person thereon, supervision or otherwise, orfrom any breach of, default under or failure to perform any term or provisionof this agreement by Tenant, its officers, employees, agents or other persons,except to the extent the Claims arise out of the negligent act of theIndemnified Parties.  It is expresslyunderstood and agreed that Tenant’s obligations under this Section shallsurvive the expiration or earlier termination of this Lease for anyreason.  Landlord agrees to defend,indemnify, and hold Tenant harmless to the extent any Claims are caused by,incurred or resulting from any negligent acts of Landlord on the Premises.

 

**17.****                              ****Quiet Enjoyment**.  So long as Tenant shall paythe Rental and other sums herein provided and shall keep and perform all of theterms, covenants, and conditions on its part herein contained, Tenant shallhave, subject and subordinate to Landlord’s rights herein, the right to thepeaceful and quiet occupancy of the Premises as against all persons claimingby, through, or under Landlord.

 

**18.****                              ****Condemnation or Damage**.

 

A.                                   In case of taking of all or any part of thePremises or the commencement of any proceedings or negotiations which mightresult in a taking for any public or quasi-public purpose by any lawful poweror authority by exercise of the right of condemnation or eminent domain or byagreement between Landlord, Tenant, and those authorized to exercise such right(“Taking”), Tenant will promptly give written notice thereof to Landlord,generally describing the nature and extent of such taking and including copiesof any documents or notices received in connection therewith.

 

B.                                     In case of a Taking of the whole of thePremises, other than for Temporary Taking (as hereinafter defined) (“TotalTaking”), this Lease shall terminate as of the date of such Total Taking, andall rentals, sums of money, and other charges provided to be paid by Tenantshall be apportioned and paid to the date of such Total Taking.  A Total Taking shall include a taking of aportion of the Premises if, in the reasonable determination of Landlord, thereminder of the Premises is not useable and cannot be made useable for thepurposes provided herein.  Landlordshall be entitled to receive the entire award or payment in connection with anytaking of the Premises without deduction for any estate vested in Tenant bythis Lease.  Tenant hereby expresslyassigns to Landlord all of its right, title, and interest in and to every suchaward or payment and agrees that Tenant shall not be entitled to any award orpayment for the

 

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value of Tenant’s leasehold interest in the Lease.  Tenant shall be entitled to claim andreceive any separate award or payment from the condemning authority expresslygranted for the taking of Tenant’s trade fixtures and personal property, theinterruption of its business, and moving expenses (collectively, “Tenant’sDamages”).  Tenant shall promptly sendLandlord copies of all correspondence and pleadings relating to any such claim.

 

C.                                     In case of a temporary use of all or any partof the Premises by a Taking (“Temporary Taking”), this Lease shall remain infull force and effect without any reduction of Base Monthly Rental, AdditionalRental, or any other sum payable hereunder. Landlord shall be entitled to the entire award for a Temporary Taking,whether paid by damages, rent, or otherwise. At the termination of any such Temporary Taking, Landlord will, at itsown cost and expense, promptly commence and complete the restoration of thePremises.  A Temporary Taking shall be ataking for a period of ninety (90) days or less.

 

D.                                    In the event of a Taking of less than all ofthe Premises for other than a Temporary Taking, and such Taking is notreasonably determined by Landlord to be a Total Taking (“Partial Taking”) or ofdamage or destruction to all or any part of the Premises, all awards, insuranceproceeds, compensation or damages shall be paid to Landlord, and Landlord shallhave the option to (i) terminate this Lease by notifying Tenant within sixty(60) calendar days after Tenant gives Landlord notice of such damage ordestruction or that title has vested in the taking authority, provided that thePremises cannot reasonably be restored to a condition reasonably necessary forthe continuation of Tenant’s business in the Premises within two hundred ten(210) days after the date possession shall be taken pursuant to such PartialTaking or the date of such damage or destruction of the Premises or (ii)subject to subparagraph E hereof, continue this Lease in effect, which electionmay be evidenced by either a notice from Landlord to Tenant or Landlord’sfailure to notify Tenant that Landlord has elected to terminate this Leasewithin such 60-day period.  If Landlordelects to terminate the Lease pursuant to the provisions herein, this Leaseshall terminate as of the last day of the month during which such 60-day periodexpired.  Tenant shall then immediatelyvacate and surrender the Premises, all obligations of either party hereundershall cease as of the date of termination (provided however, Tenant’sobligations of indemnity under this Lease and Tenant’s obligations to pay BaseMonthly Rental, Additional Rental, and all other sums (whether payable toLandlord or a third-party) accruing under this Lease prior to the date oftermination shall survive such termination) and Landlord may retain all suchawards, compensation, or damages.  IfLandlord elects not to terminate this Lease, then this Lease shall continue infull force and effect on the following terms: (i) all Base Monthly Rental,Additional Rental, and other sums and obligations due under this Lease shallcontinue unabated, provided that the proceeds of any business interruption orrent loss insurance payable by reason of such occurrence shall be appliedthereto; and (ii) Landlord shall promptly commence and diligently prosecuterestoration of the Premises (but not including any additions or alterationsmade by Tenant) to substantially the same condition, as nearly as practicable,as prior to such partial condemnation, damage, or destruction, provided thatLandlord shall not be obligated to incur any cost or expense in connection withsuch restoration in excess of the net amount (after deducting all costs andexpenses incurred by Landlord, including reasonable attorneys fees and legalcosts) of awards, insurance proceeds, compensation or damages paid toLandlord.  Tenant, at its cost andexpense, shall, after completion of Landlord’s restoration or concurrentlytherewith so long as Tenant’s work does not interfere with Landlord’srestoration work,

 

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promptly commence and diligently prosecute restoration of Tenant’sadditions or alterations to the Premises. Landlord shall be entitled to keep any portion of such award, insuranceproceeds, compensation, or damages which may be in excess of the cost ofLandlord’s restoration work, and Tenant shall bear all additional costs, fees,and expenses of such restoration, in excess of the amount of any such award,insurance proceeds, compensation or damages.

 

E.                                      Notwithstanding the foregoing, in the eventof a Partial Taking or damage or destruction to all or any part of thePremises, Landlord shall not have the right to elect to continue this Lease ineffect, and the term of this Lease shall automatically expire as of the datepossession shall be taken pursuant to such Partial Taking or the date of suchdamage to or destruction of the Premises, if the Premises cannot reasonably berestored to a condition reasonably necessary for the continuation of Tenant’s businessin the Premises within two hundred ten (210) days after the date possessionshall be taken pursuant to such Partial Taking or the date of such damage ordestruction of the Premises.

 

F.                                      Notwithstanding the foregoing, if at the timeof any Taking or damage or destruction of the Premises or at any timethereafter Tenant shall be in default under this Lease and such default shallbe continuing, Landlord is hereby authorized and empowered but shall not beobligated, in the name and on behalf of Tenant and otherwise, to file andprosecute Tenant’s claim, if any, for an award, insurance proceeds,compensation, or damages on account of any Taking or damage or destruction ofthe Premises, and to collect such award, insurance proceeds, compensation, ordamages and apply the same, after deducting all costs, fees, and expensesincident to the collection thereof, to the curing of such default and any otherthen-existing default under this Lease.

 

**19.****                              ****I****nspection**.  Landlord and its authorized representativesshall have the right, upon giving reasonable notice, to enter the Premises orany part thereof during normal business hours and inspect the same and makephotographic or other evidence concerning Tenant’s compliance with the terms ofthis Lease.  Tenant hereby waives anyclaim for damages for any injury or inconvenience to or interference withTenant’s business, any loss of occupancy or quiet enjoyment of the Premises,and any other loss occasioned by such entry, subject to the Landlord’sindemnity set forth in paragraph 16 hereof.

 

**20.****                              ****D****efault, Remedies, and Measure of Damages**.

 

A.                                   Each of the following shall be deemed amaterial breach of this Lease and a default by Tenant:

 

(i)                                     If any representation or warranty of Tenantherein was materially false when made or, in the event that any suchrepresentation or warranty is continuing, becomes materially false at any time,or if Tenant renders any materially false statement or account; or

 

(ii)                                  If any rent or other monetary sum duehereunder is not paid within five days after the date when due; or

 

(iii)                               If Tenant becomes insolvent as defined in the United States BankruptcyCode, 11 U.S.C. Sec. 101 *et seq.*, as amended (the “Code”), files avoluntary petition for relief under the Code, initiates or has initiatedagainst it, a proceeding under any similar law or statute relating tobankruptcy, insolvency, 

 

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reorganization, winding up, or adjustment of debts (collectively,hereinafter, an “Action”), or becomes the subject of an involuntary petitionunder the Code which is not dismissed within sixty (60) days, or is notgenerally paying its debts as the same become due; or

 

(iv)                              If Tenant vacates or abandons the Premises; or

 

(v)                                 If Tenant fails to observe or perform any ofthe covenants, conditions, or obligations of this Lease; or

 

(vi)                              If an Event of Default occurs under the Discretionary Credit Agreement,between Landlord and Tenant, dated January 17, 2003, as amended from time totime, or any of the loan documents relating thereto; or

 

(vii)                           If Tenant fails to observe or perform any of the covenants, conditions,or obligations of any loan or credit agreement between Landlord and Tenant,whether such agreement currently exists or is executed by Landlord and Tenantafter their execution of the Lease.

 

B.                                     If Tenant commits an act as described inSection 20.A.(i), (v) or (vii), and if such breach or default does not involvethe payment of any rent or other monetary sum does not place any rights orproperty of Landlord in immediate jeopardy, and is within the reasonable powerof Tenant to cure, then such event shall not constitute a default hereunder(except as may be expressly provided elsewhere in this Lease) unless and untilLandlord shall have given Tenant notice thereof and a period of thirty (30)days shall have elapsed, during which period Tenant may correct or cure suchevent, upon failure of which a default shall be deemed to have occurredhereunder without further notice or demand of any kind.  If such nonmonetary breach or default cannotreasonably be cured within such 30-day period and Tenant is diligently pursuinga cure of such breach or default, then Tenant shall have a reasonable period tocure such breach or default, which shall in no event exceed ninety (90) daysafter receiving notice of the default from Landlord.  If Tenant is in default under Section 20.A.(ii), (iii), (iv) or(vi) of this Lease, Tenant shall have no right to cure or correct such materialbreach and event of default.

 

C.                                     As a material inducement to Landlordexecuting this Lease, in the event of any breach or default, and with orwithout any notice or demand, except the notice prior to default required undercertain circumstances by the provisions of this Section or such other notice asmay be required by statute, Landlord shall be entitled to exercise, at itsoption, concurrently, successively, or in any combination, all remediesavailable at law or in equity, including, without limitation, any one or moreof the following:

 

(i)                                     To terminate this Lease, whereupon Tenant’sright to possession of the Premises shall cease and this Lease, except as toTenant’s liability, shall be terminated;

 

(ii)                                  To reenter and take possession of thePremises, any or all personal property or fixtures of Tenant upon the Premises,and, to the extent permissible, all franchises, licenses, area developmentagreements, permits, and other rights or privileges of Tenant pertaining to theuse and operation of the Premises, and to expel Tenant and those claiming underor through Tenant,

 

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without being deemed guilty in any manner of trespass or becomingliable for any loss or damage resulting therefrom, without resort to legal orjudicial process, procedure or action, except as may be required by law.  No notice from Landlord hereunder or under aforcible entry and detainer statute or similar law shall constitute an electionby Landlord to terminate this Lease unless such notice specifically sostates.  If Tenant shall, after default,voluntarily give up possession of the Premises to Landlord, deliver to Landlordor its agents the keys to the Premises, or both, such actions shall be deemedto be in compliance with Landlord’s rights and the acceptance thereof byLandlord or its agents shall not be deemed to constitute a termination of thisLease.  Landlord reserves the right followingany reentry and/or reletting to exercise its right to terminate this Lease bygiving Tenant written notice thereof, in which event this Lease will terminateas specified in said notice;

 

(iii)                               To seize all personal property or fixtures upon the Premises whichTenant owns or in which it has an interest, and cause the same to be stored ina public warehouse or elsewhere at Tenant’s sole expense, without becomingliable for any loss or damage resulting therefrom, and without resorting tolegal or judicial process, procedure, or action;

 

(iv)                              To bring an action against Tenant for any damages sustained by Landlordor any equitable relief available to Landlord;

 

(v)                                 To relet the Premises or any part thereof forsuch term or terms (including a term which extends beyond the original term ofthis Lease), at such rentals and upon such other terms as Landlord, in its solediscretion, may reasonably determine, with all proceeds received from suchreletting being applied to the Base Rent, Additional Rent, and all otheramounts due from Tenant under this Lease in such order as Landlord, may, in itssole discretion, determine, which other amounts include, without limitation,all repossession costs, brokerage commissions, attorneys’ fees and expenses,employee expenses, alteration, remodeling and repair costs and expenses ofpreparing for such reletting.  Landlordshall exercise reasonable efforts to relet the Premises or part thereof,Landlord shall be deemed to have used reasonable efforts if Landlord lists thePremises for lease with an experienced commercial broker.  Landlord shall in no event be liable forrefusal or failure to relet the Premises or any part thereof, or, in the eventof any such reletting, for refusal or failure to collect any rent due upon suchreletting, and no such refusal or failure shall operate to relieve Tenant ofany liability under this Lease or otherwise to affect any such liability.  Landlord reserves the right following anyreentry and/or reletting to exercise its right to terminate this Lease bygiving Tenant written notice thereof, in which event this Lease will terminateas specified in said notice;

 

(vi)                              To recover from Tenant all Rent, including any amounts treated asAdditional Rent under the Lease, and all other sums payable by Tenant under theterms of the Lease as the same become due and payable;

 

(vii)                           To accelerate and recover from Tenant as damages, all Rent, includingany amounts treated as Additional Rent under this Lease, and other sums due andpayable by Tenant on the date of breach, plus as liquidated damages and not asa penalty, an amount equal to the sum of (a) the present value

 

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(using an 6% factor) of the difference between (i) an amount equal tothe Rent reserved in this Lease for the balance of the Lease Term including anyamounts treated as Additional Rent under this Lease and all other sums providedin this Lease to be paid by Tenant, and (ii) the fair rental value of thePremises for such remaining Lease Term after such fair rental value has beenreduced by all costs to be incurred by Landlord in order to obtain the fairrental value, and (b) the cost of performing any other covenants which wouldhave otherwise been performed by Tenant;

 

(viii)                        To recover from Tenant all reasonable costs and expenses, includingattorneys’ fees, court costs, expert witness fees, costs of tests and analyses,travel and accommodation expenses, deposition and trial transcripts, copies andother similar costs and fees, paid or incurred by Landlord as a result of suchbreach, regardless of whether or not legal proceedings are actually commenced;

 

(ix)                                To immediately or at any time thereafter, and with or without notice,at Landlord’s sole option but without any obligation to do so, correct suchbreach or default and charge Tenant all reasonable costs and expenses incurredby Landlord therein.  Any sum or sums sopaid by Landlord, together with interest at the then existing maximum legalrate, but not higher than U.S. Bank’s Prime Rate plus 600 basis points perannum, shall be deemed to be Additional Rent hereunder and shall be immediatelydue from Tenant to Landlord.  Any suchacts by Landlord in correcting Tenant’s breaches or defaults hereunder shallnot be deemed to cure said breaches or defaults or constitute any waiver ofLandlord’s right to exercise any or all remedies set forth herein;

 

(x)                                   To immediately or at any time thereafter, andwith or without notice, except as required herein, set off any money of Tenantheld by Landlord under this Lease against any sum owing by Tenant hereunder;and/or

 

(xi)                                To enforce, and Tenant does hereby consent to such enforcement,notwithstanding any laws to the contrary, all of Landlord’s self-help remediesavailable at law or in equity without Landlord resorting to any legal orjudicial process, procedure or action.

 

D.                                    If Tenant is in default under this Lease forother than the nonpayment of the Base Rent, Tenant shall immediately givewritten notice to Landlord of the nature of the Tenant’s default.

 

**21.****                              ****S****ubordination, Nondisturbance, and Attornment**.

 

A.                                   Landlord’s interest in this Lease and/or thePremises shall not be subordinate to any encumbrances placed upon the Premisesby or resulting from any act of Tenant, and nothing herein contained shall beconstrued to require such subordination by Landlord.  Tenant shall keep the Premises free from any liens for workperformed, materials furnished, or obligations incurred by Tenant.  NOTICE IS HEREBY GIVEN THAT TENANT IS NOTAUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST, ORENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF THE PREMISES OR TENANT’SLEASEHOLD

 

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INTEREST THEREIN, EXCEPT AS EXPRESSLY PROVIDED BELOW, AND ANY SUCHPURPORTED TRANSACTION SHALL BE VOID.

 

B.                                     This Lease at all times shall automaticallybe subordinate to the lien of any and all ground leases, mortgages, and trustdeeds now or hereafter placed upon the Premises by Landlord, and Tenantcovenants and agrees to execute and deliver, upon demand, such furtherinstruments subordinating this Lease to the lien of any or all such groundleases, mortgages, or trust deeds as shall be desired by Landlord, or anypresent or proposed mortgagees or trustees under trust deeds, upon thecondition that Tenant shall have the right to remain in possession of thePremises under the terms of this Lease, and shall have all other rights grantedto Tenant under this Lease, notwithstanding any default in any or all suchmortgages or trust deeds, or after foreclosure thereof, so long as Tenant isnot in default under any of the covenants, conditions and agreements containedin this Lease (“Nondisturbance Agreement”). Landlord shall provide Tenant a Nondisturbance Agreement from anymortgagee which has a mortgage against the Premises at the time this Leasecommences.

 

C.                                     If any mortgagee or trustee elects to havethis Lease and the interest of Tenant hereunder be superior to any suchinterest or right and evidences such election by notice given to Tenant, thenthis Lease and the interest of Tenant hereunder shall be deemed superior to anysuch mortgage or trust deed, whether this Lease was executed before or aftersuch mortgage or trust deed and in that event such mortgagee or trustee shallhave the same rights with respect to this Lease as if it had been executed anddelivered prior to the execution and delivery of the mortgage or trust deed andhas been assigned to such mortgagee or trustee.

 

D.                                    Although the foregoing provisions shall beself-operative and no future instrument of subordination shall be required,upon request by Landlord, Tenant shall execute and deliver whatever instrumentsmay be required for such purposes, and in the event Tenant fails so to dowithin ten (10) days after demand, Tenant does hereby make, constitute, andirrevocably appoint Landlord as its agent and attorney-in-fact and in its name,place and stead so to do, which appointment shall be deemed coupled with aninterest.

 

E.                                      In the event any collateral assignee orpurchaser at a foreclosure sale acquires title to the Premises pursuant to theexercise of any remedy provided for in the collateral assignment, mortgage, ortrust deed or otherwise, Tenant shall attorn to such purchaser and recognizesuch purchaser as Landlord under this Lease, which shall continue in full forceand effect as a direct lease between such purchaser and Tenant.  The foregoing provision shall beself-operative and effective without the execution of any further instruments.

 

F.                                      Tenant shall give written notice to anylender of Landlord having a recorded lien upon the Premises or any part thereofof which Tenant has been notified of any breach or default by Landlord of anyof its obligations under this Lease and give such lender at least thirty (30)days beyond any notice period to which Landlord might be entitled to cure suchdefault before Tenant may exercise any remedy with respect thereto.  Upon request by Landlord, Tenant shall alsoprovide Tenant’s most recent financial statements, together with any audit orother opinion received with respect thereto, to any such lender and certify thecontinuing accuracy of such financial statements in such manner as Landlord orsuch lender may request.

 

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**22.****                              ****Estoppel Certificate**.

 

A.                                   At any time, and from time to time, Tenantagrees, promptly and in no event later than ten (10) days after a request fromLandlord, to execute, acknowledge, and deliver to Landlord or any present orproposed mortgagee or purchaser designated by Landlord a certificate in theform supplied by Landlord, certifying: (i) that Tenant has accepted the Premises (or, if Tenant has not doneso, that Tenant has not accepted the Premises, and specifying the reasonstherefor); (ii) that this Lease is in full force and effect and has not beenmodified (or if modified, setting forth all modifications), or, if this Leaseis not in full force and effect, the certificate shall specify the reasonstherefor; (iii) the commencement and expiration dates of the Lease Term and theterms of any renewal options of Tenant; (iv) the date to which the rentals havebeen paid under this Lease and the amount thereof then payable; (v) whetherthere are then any known existing defaults by Landlord in the performance ofits obligations under this Lease, and, if there are any such defaults,specifying the nature and extent thereof; (vi) that no notice has been receivedby Tenant of any default under this Lease which has not been cured, except asto defaults specified in the certificate; (vii) the capacity of the personexecuting such certificate, and that such person is duly authorized to executethe same on behalf of Tenant; and (viii) any other information reasonablyrequested by Landlord, or its present or proposed purchaser or mortgagee.  Tenant shall not be required to execute anyestoppel agreement which acts to amend this Lease

 

B.                                     If Tenant shall fail or refuse to sign acertificate in accordance with the provisions of this Section within ten (10)days following a request by Landlord, Tenant irrevocably constitutes andappoints Landlord as its attorney-in-fact to execute and deliver the certificateto any such third party, it being stipulated that such power of attorney iscoupled with an interest and is irrevocable and binding.  Landlord shall indemnify, defend and holdharmless Tenant from any claims, legal actions, damages and costs from third partiesrelying on such estoppel statement executed by Landlord to the extent suchestoppel statement contains a misstatement of facts.

 

**23.****                              ****Assignment**.

 

A.                                   Landlord shall have the right to sell orconvey the Premises subject to this Lease or to assign its right, title, andinterest as Landlord under this Lease in whole or in part.  In the event of any such sale or assignmentother than a security assignment, Tenant shall attorn to such purchaser orassignee and Landlord shall be relieved, from and after the date of suchtransfer or conveyance, of liability for the performance of any obligation ofLandlord contained herein, except for obligations or liabilities accrued priorto such assignment or sale.

 

B.                                     Tenant shall not, without the consent ofLandlord, which consent shall not be unreasonably withheld, assign, transfer,convey, pledge, mortgage, or grant a deed of trust on this Lease or anyinterest therein, whether by operation of law or otherwise, except as expresslyprovided by other provisions of this Lease.

 

C.                                     Tenant shall have the right to sublet all ora portion of the Premises to third-parties with the written consent ofLandlord, which consent shall not be unreasonably withheld.  Tenant shall provide Landlord all documentationregarding any such sublease.  Anyamounts received by Tenant under such sublease that are in excess of theamounts Tenant is obligated to pay Landlord under this Lease shall first beused to

 

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pay Tenant’s reasonable costs incurred as a result of suchsubletting.  Any remaining excess shallbe shared equally by Landlord and Tenant on a monthly basis.  Tenant shall pay Landlord its share, if any,of any amount received by Tenant under any sublease that is to be sharedequally by Landlord and Tenant, in accordance with this Section 23.C, withintwo (2) days of Tenant’s receipt of payment under such sublease.  Tenant agrees that upon written demand byLandlord, Tenant will furnish to Landlord, within not more than fifteen (15)days after receiving such demand, an accounting for the amounts Tenant receivedunder and expended in connection with any sublease.  Landlord hereby consents to the sublease to Huntter Medical andwaives any entitlement to sublease rent from such sublease so long as Tenant isnot in default under the Lease.  IfTenant is in default under this Lease, then upon Landlord’s written request theTenant shall immediately require the subleasee to pay all amounts due to Tenantunder the sublease to Landlord.

 

D.                                    In regards to the assignments and subleasescontemplated by this Section for which Landlord must provide its consent, it isexpressly agreed that Landlord may withhold or condition such consent basedupon such matters as Landlord may in its reasonable discretion determine,including, without limitation, the experience and creditworthiness of theassignee and/or sublessee, the assumption by the assignee and/or sublessee ofall of Tenant’s obligations hereunder by undertakings enforceable by Landlord,the transfer to such assignee and/or sublessee of all necessary licenses andfranchises to continue operating the Premises for the purposes herein provided,receipt of such representations and warranties from such assignee and/orsublessee as Landlord may request, including such matters as its organization,existence, good standing, and finances and other matters, whether or notsimilar in kind.  At the time of anysuch assignment or sublease that is approved by Landlord, the assignee and/orsublessee shall assume all of the obligations of Tenant under this Lease pursuantto an assumption agreement in form acceptable to Landlord.  No such assignment or subletting shallrelieve Tenant of its obligations respecting this Lease.  Any purported transfer, conveyance, pledge,mortgage, or deed of trust in violation of this paragraph shall be voidable atthe sole option of Landlord.

 

**24.****                              ****Option to Purchase**.

 

A.                                   On the condition that Tenant is not indefault hereunder, Landlord hereby grants to Tenant an option to purchase thePremises and all or a portion of the Property, to be designated by Landlord inits sole discretion (collectively the “Option Property”) at the end of theoriginal ten (10) year term of this Lease. If Tenant desires to exercise such option to purchase, Tenant shall provideLandlord with written notice of its intent to exercise such option (the “OptionNotice”) not less one (1) year prior to the expiration of the original ten (10)year term of this Lease.  Within fifteen(15) days of Landlord’s receipt of the Option Notice, Landlord shall provide toTenant written notice of what, if any, portion of the balance of the PropertyLandlord has elected to include with the Premises as Option Property (“OptionProperty Notice”).  Upon Tenant’sreceipt of the Option Property Notice, Tenant shall notify landlord in writingwithin fifteen (15) days thereafter of whether Tenant elects to purchase theOption Property as designated by Landlord. If Tenant does not provide Landlord with written notice agreeing topurchase the Option Property as designated by Landlord within fifteen (15) daysof receipt of the Option Property Notice, all of Tenant’s rights under thisSection 24 shall terminate.  If Tenantagrees to purchase the Option Property as designated by Landlord by providingLandlord the written notice required by this Section 24, Landlord and Tenantshall thereafter enter into a real estate purchase agreement for the purchaseof the Option

 

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Property with a purchase price equal to the “Fair Market Value” of theOption Property, which shall be determined in strict accordance with theprovisions of this Section 24, but in no event shall the purchase price of (i)the Premises be less than $3,540,000 and (ii) the Property, excluding thePremises, be less than $1,240,000, reduced by the net purchase price receivedby Landlord from the sale of any portion of the Property, excluding thePremises (the “Purchase Agreement”).  IfTenant fails to deliver the Option Notice to Landlord at least one (1) yearprior to the expiration of the original ten (10) year term of this Lease, thenTenant’s option to purchase shall terminate, time being of the essence underthis Section 24.  The closing date forTenant’s purchase of the Option Property shall be March 31, 2013, theexpiration date of the original ten (10) year term of the Lease (the “ClosingDate”).

 

B.                                     “Fair Market Value” shall mean the amountthat a willing, comparable, non-owner, purchaser would pay, and a willing,comparable seller of a comparable building and property in the same regionwould accept at arm’s length.

 

C.                                     If Tenant has provided Landlord writtennotice agreeing to purchase the Option Property as designated by Landlord, thenTenant shall notify Landlord in writing of Tenant’s determination of the FairMarket Value of the Option Property (“Tenant’s FMV Notice”) within thirty (30)days of Tenant’s receipt of Landlord’s Option Property Notice.  If the Fair Market Value as set forth inTenant’s FMV Notice is acceptable to Landlord, then the purchase price is asset forth in the Tenant’s FMV Notice. If the Fair Market Value as set forth in Tenant’s FMV Notice is notacceptable to Landlord, Landlord must provide Tenant with written notice on orbefore thirty (30) days subsequent to the receipt of Tenant’s FMV Notice.  If Landlord has so timely objected inwriting to Tenant’s FMV Notice, then Landlord and Tenant shall negotiate, ingood faith, for up to an additional thirty (30) days to arrive at a mutuallyacceptable Fair Market Value.  If,however, at the end of said additional thirty (30) day period Landlord andTenant have failed to arrive at a mutually acceptable Fair Market Value, theFair Market Value shall be determined by arbitration pursuant to Section 24.Dhereof.  If the determination of FairMarket Value is submitted to arbitration, the results of such arbitration shallbe binding on Landlord and Tenant.  Allnotices under this Section shall be given in the manner provided in the Leasefor the giving of notices**.**

 

D.                                    If Landlord and Tenant have failed to arriveat a mutually acceptable Fair Market Value after negotiating for the thirty(30) day period provided for in Section 24.C of this Lease, then within ten(10) days after expiration of said thirty (30) day period each party shallappoint an arbitrator and notify the other party of such appointment in writingby identifying the appointee.  Eachparty hereto agrees to select as its respective appointee an independentappraiser, with MAI designation, who is an individual with at least ten (10)years experience in appraising office/manufacturing/warehouse buildings in theMinneapolis/St. Paul metropolitan area. Neither party may consult directly or indirectly with any arbitratorregarding the Fair Market Value before appointment, or after appointment,outside the presence of the other party. The arbitration shall be conducted under the provisions of theArbitration Rules for the Real Estate Industry (as amended and effective as ofSeptember 1, 2000) as published by the American Arbitration Associationand Minnesota law governing arbitration or as otherwise agreed by theparties.  Not later than ten (10) daysafter both arbitrators are appointed, each party shall separately, butsimultaneously, submit in a sealed envelope to each arbitrator whateverinformation such party wants the arbitrators to consider in determining theFair Market Value, including, but not limited to, their separate suggested FairMarket Value,

 

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and any materials supporting such suggested Fair Market Value, andshall provide a copy of all materials submitted to the other party.  The two (2) selected arbitrators, afterreviewing such submissions, shall attempt to determine the actual Fair MarketValue for the Option Property.  If botharbitrators agree on the actual Fair Market Value, they shall declare the FairMarket Value, and their decision shall be final and binding upon theparties.  If the two selectedarbitrators are unable to agree on the Fair Market Value within sixty (60) daysafter the date the Landlord and/or Tenant submitted estimates, then thearbitrators shall inform the parties.  Unless the parties shall both otherwise then direct, saidarbitrators shall select a third arbitrator, not later than ten (10) days afterthe expiration of said sixty (60) day period. If no arbitrator is selected by either party within the ten (10) day periodhereinbefore provided, or if the two arbitrators do not appoint a thirdarbitrator within the ten (10) day period, then either party may immediatelypetition the Chief Judge of the Dakota County District Court (or his designeefor such purposes) to appoint such third arbitrator.  The third arbitrator shall have the qualifications andrestrictions set forth above, and the three arbitrators shall conduct anarbitration pursuant to the Arbitration Rules for the Real Estate Industry (asamended and effective as of September 1, 2000) as published by the AmericanArbitration Association and Minnesota law governing arbitration or as otherwiseagreed by the parties.  The decision ofany two of the three arbitrators shall be final and binding as to the actual FairMarket Value.  The arbitrators shallmake a decision not later than forty-five (45) days after appointment of thethird arbitrator.  If no two arbitratorsagree, then the average of the Fair Market Values of the two arbitrators whosedeterminations are closest to each other shall be deemed to be the actual FairMarket Value.  Each party shall beresponsible for the costs, charges, and/or fees of its respective appointee,and the parties shall share equally in the costs, charges, and/or fees of thethird arbitrator. The decision of the arbitrator(s) may be entered in any courthaving jurisdiction thereof.  Thedecision of the arbitrator(s) may be entered in any court having jurisdictionthereof. If either Landlord or Tenant fails to properly appoint an arbitratorwithin the time period established by this Section 24.D, then such defaultingparty shall pay all costs incurred by the non-defaulting party in obtaining theappointment of such arbitrator, including court costs and reasonable attorneysfees and costs.

 

E.                                      Within thirty (30) days after a finaldetermination on the Fair Market Value of the Premises has been reached inaccordance with the provisions herein, Landlord shall deliver to Tenant a titleinsurance commitment from a title company selected by Tenant (the “TitleCompany”) evidencing marketable title to the Premises.  Tenant shall thereafter have ten (10) daysfrom the date of receipt of such documentation to examine title and makeobjections thereto, if any, in writing. Landlord shall use its reasonable efforts to cure any title defectswithin sixty (60) days thereafter.  Iftitle is not marketable and cannot be made marketable by Landlord within suchsixty (60) day period, Tenant may either purchase the Option Property, subjectto the title defects or terminate the purchase agreement and not be obligatedto purchase the Option Property.

 

F.                                      The closing of this transaction contemplatedhereby shall be held at the Title Company, and shall occur on the Closing Date.

 

G.                                     On the Closing Date, Tenant shall pay thepurchase price and Landlord shall convey good and marketable and insurabletitle to Tenant or its designee by limited warranty deed, subject only to the(i) current real estate taxes and special assessments not yet due and payableas of the closing date, except that current real estate taxes shall be proratedbetween Landlord and Tenant on a calendar year basis as of the closing date,(ii)

 

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building and zoning laws, ordinances, and state and federalregulations, (iii) easements not interfering with existing improvements, (iv)any covenant, condition, restriction or lien or other encumbrance created by orthrough Tenant, (v) such liens, covenants, conditions, easements and exceptionsto title as Tenant may agree to in writing, (vi) the Conditional Use Permitissued by the City of Inver Grove Heights, dated July 14, 1997, recorded July24, 1997, as Document No. 1434761, indicating approval by the Inver GroveHeights City Council of a Conditional Use Permit to allow a PCS tower on theproperty at 9605 Jefferson Trail, (vii) road easement in favor of State ofMinnesota, as set forth in the final certificate recorded February 2, 1955 inBook 64, page 240, (viii) easement between Soo Line Railroad Company, in favorof Cooperative Power Association, dated November 15, 1991, recorded January 10,1992 as Document No. 1022688, for construction of maintenance of electrictransmission lines, (ix) trunk watermain, sanitary sewer extension, and utilityeasement(s) in favor of the City of Inver Grove Heights, as created in documentNo. 1740919, (x) unrecorded Option and Site Lease Agreement dated April 16,1997 between CV Dynamics, Inc. and US West Communications Wireless Group, adivision of US West Communications, Inc., and (xi) easements, or claims of easement,not shown by the public records.  Itemscustomarily adjusted in commercial property transactions shall be adjusted asof the Closing Date.  Landlord shall payany transfer taxes imposed by the applicable state or county and any transfertaxes imposed by local ordinance shall be paid by the party designed in suchordinance.

 

**25.****                              ****Right of First Notice.**  Inthe event Landlord elects to sell the Premises or the Premises and all or aportion of the balance of the Property (the “Sale Property”), or Landlordreceives an offer from a third-party to purchase the Sale Property during theLease Term, and provided Tenant is not then in default hereunder, Landlordagrees to provide Tenant written notice of such event as provided by thisSection.  In the event Landlord haselected to sell the Sale Property, the notice to Tenant shall state the termsand conditions upon which Landlord intends the list the Sale Property forsale.  In the event Landlord hasreceived an offer from a third-party to purchase the Sale Property, the noticeto Tenant shall state the terms and conditions of the offer from thethird-party.  Upon receiving fromLandlord the notice required by this Section, Tenant shall have theopportunity, along with any other third-party, to negotiate with the Landlordfor the purchase of the Sale Property. Nothing contained herein shall be construed to provide the Tenant withthe exclusive right to deal with the Landlord for the purchase of the SaleProperty or a right of first refusal. Moreover, Landlord makes no representations as to the amount of timeLandlord will wait or delay after giving Tenant the notice required by thisSection to negotiate with Tenant or to enable Tenant to submit an offer topurchase the Sale Property.  If Tenantfails to purchase the Sale Property after Landlord provides written noticepursuant to this paragraph and the Landlord sells the Sale Property within oneyear of the date of such notice to Tenant, then Tenant’s rights under thisparagraph shall be null and void as to the Sale Property from and after thedate the Landlord conveys the Sale Property to Tenant within such one yearperiod.

 

**26.****                              ****N****otices**.  All notices, consents, approvals or otherinstruments required or permitted to be given by either party pursuant to thisLease shall be in writing and given by (A) hand delivery, (B) facsimile, (C)express overnight delivery service, or (D) certified or registered mail, returnreceipt requested, and shall be deemed to have been delivered upon (A) receipt,if hand delivered, (B) transmission, if delivered by facsimile, (C) the nextbusiness day, if delivered by express overnight delivery service, or (D) thesecond business day following the day of deposit of such notice with the UnitedStates Postal Service, if sent by certified or registered mail, return receiptrequested.  Notices shall be provided tothe parties at the addresses (or facsimile numbers, as applicable) specifiedbelow:

 

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|   | A.       If  to Tenant:    | MedicalCV,  Inc.     |
|--------|---------------------------------------------------------------|----------------------|
|   | 9725 South Robert Trail                                       |
|   | Inver Grove Heights, MN 55077                                 |
|   | Attn: Chief Executive  Officer                                |
|   | Telephone:     (651)  452-3000       |
|   | Facsimile:      (651)  234-6669 |
|   |                                                          |
|   | B.       If  to Landlord   | PKM  Properties, LLC |
|   | c/o  Gracon Contracting, Inc.                                 |
|   | 606 24th Ave.  South                                          |
|   | Suite B12                                                     |
|   | Minneapolis, MN 55454                                         |
|   | Attn:  Paul Miller                                       |
|   | Telephone:     (612)  305-4850       |
|   | Facsimile:      (612)  305-4813 |

 

orto such other address or such other person as either party may from time totime hereafter specify to the other party in a written notice delivered in themanner provided above.

 

**27.****                              ****H****olding Over**.  If Tenant remains in possession of thePremises after the expiration of the Lease Term, Tenant, at Landlord’s optionand within Landlord’s sole discretion, may be deemed a tenant on amonth-to-month basis and shall continue to pay rentals and other sums in theamounts herein provided, except that the Base Monthly Rental shall beautomatically doubled, and to comply with all the terms of this Lease; providedthat nothing herein nor the acceptance of rent by Landlord shall be deemed aconsent to such holding over.  Tenantshall defend, indemnify, protect and hold harmless from and against any and allclaims, losses, and liabilities for damages resulting from Tenant’s failure tosurrender possession upon the expiration of the Lease Term, including, withoutlimitation, any claims made by any succeeding lessee.

 

**28.****                              ****Removal of Tenant’s Property**.  Atthe expiration of the Lease Term, Tenant shall remove from the Premises allpersonal property belonging to Tenant (but not including any improvements, whichshall, at Landlord’s option, become the property of the Landlord at theexpiration of the Lease Term and shall be surrendered by Tenant toLandlord).  Landlord may require Tenantto remove improvements from the Premises which are constructed from and afterthe date of this Lease and which the Landlord requires to be removed at thetime it provides Tenant with its consent to the construction of suchimprovements.  Tenant shall repair anydamage caused by such removal and shall leave the Premises broom clean and ingood and working condition and repair inside and out.  Any property of Tenant left on the Premises on the tenth (10th)day following the expiration of the Lease Term shall automatically andimmediately become the property of Landlord, without relieving Tenant of itsobligation hereunder to remove the same at the option of Landlord.

 

**29.****                              ****F****orce Majeure**.  Any prevention, delay, or stoppage due tostrikes, lockouts, act of God, enemy or hostile governmental action, civilcommotion, fire, or other casualty beyond the control of the party obligated toperform shall excuse the performance by such party for a period equal to anysuch prevention, delay or stoppage, except the obligations imposed with regardto Base Monthly Rental, Additional Rental, and other monies to be paid byTenant pursuant to this Lease.

 

**30.****                              ****Document Review**.  In the event Tenant makes anyrequest upon Landlord requiring Landlord or its attorneys to review and/orprepare (or cause to be reviewed and/or prepared) any

 

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document or documents in connection with or arising out of or a resultof this Lease, then, except as expressly stated elsewhere herein, Tenant shallpay Landlord or its designee promptly upon Landlord’s demand therefor aprocessing and review fee.

 

**31.****                              ****Time Is of the Essence**.  Time is of the essence withrespect to each and every provision of this Lease in which time is a factor.

 

**32.****                              ****Landlord’s Liability**.  Notwithstanding anything tothe contrary provided in this Lease, it is specifically understood and agreed,such agreement being a primary consideration for the execution of this Lease byLandlord, that (i) there shall be absolutely no personal liability on the partof Landlord, its successors or assigns, and its members, officers, directors,employees, and agents to Tenant with respect to any of the terms, covenants,and conditions of this Lease, (ii) Tenant waives all claims, demands, andcauses of action against Landlord’s members, officers, directors, employees,and agents in the event of any breach by Landlord of any of the terms,covenants, and conditions of this Lease to be performed by Landlord, and (iii)Tenant shall look solely to the Premises, rental proceeds and proceeds from thesale of the Premises for the satisfaction of each and every remedy of Tenant inthe event of any breach by Landlord of any of the terms, covenants, andconditions of this Lease to be performed by Landlord, or any other matter inconnection with this Lease or the Premises, such exculpation of liability to beabsolute and without any exception whatsoever.

 

**33.****                              ****Consent of Landlord**.  Unless specified otherwiseherein, Landlord’s consent to any request of Tenant may be conditioned orwithheld in Landlord’s sole discretion. Landlord shall have no liability for damages resulting from Landlord’sfailure to give any consent, approval, or instruction reserved to Landlord,Tenant’s sole remedy in any such event being an action for injunctive relief.

 

**34.****                              ****Waiver and Amendment**.  No provision of this Leaseshall be deemed waived or amended except by a written instrument unambiguouslysetting forth the matter waived or amended and signed by the party againstwhich enforcement of such waiver or amendment is sought.  Waiver of any matter shall not be deemed a waiverof the same or any other matter on any future occasion.  No acceptance by Landlord of an amount lessthan the monthly rent and other payments stipulated to be due under this Leaseshall be deemed to be other than a payment on account of the earliest such rentor other payments then due or in arrears nor shall any endorsement or statementon any check or letter accompanying any such payment be deemed a waiver ofLandlord’s right to collect any unpaid amounts or an accord and satisfaction.

 

**35.****                              ****Successors Bound**.  Except as otherwise specificallyprovided herein, the terms, covenants, and conditions contained in this Leaseshall bind and inure to the benefit of the respective heirs, successors,executors, administrators, and assigns of each of the parties hereto.

 

**36.****                              ****No Merger**.  The voluntary or other surrender of thisLease by Tenant, or a mutual cancellation thereof, shall not result in a mergerof Landlord’s and Tenant’s estates, and shall, at the option of Landlord,either terminate any or all existing subleases or subtenancies, or operate asan assignment to Landlord of any or all of such subleases or subtenancies.

 

**37.****                              ****Captions**.  Captions are used throughout this Lease forconvenience or reference only and shall not be considered in any manner in theconstruction or interpretation hereof.

 

**38.****                              ****Severability**.  The provisions of this Lease shall be deemedseverable.  If any part of this Leaseshall be held unenforceable by any court of competent jurisdiction, theremainder shall

 

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remain in full force and effect, and such unenforceable provision shallbe reformed by such court so as to give maximum legal effect to the intentionof the parties as expressed therein.

 

**39.****                              ****Easements**.  During the Lease Term Landlord shall havethe right to grant utility and public road easements on, over, under, and abovethe Premises without the prior consent of Tenant, provided that such easementswill not materially interfere with Tenant’s use of the Premises.

 

**40.****                              ****Bankruptcy**.

 

A.                                   As a material inducement to Landlordexecuting this Lease, Tenant acknowledges and agrees that Landlord is relyingupon Tenant’s timely performance of all of its obligations under this Leasenotwithstanding the entry of an order for relief under the Code for Tenant andall defaults under the Lease being cured promptly and the Lease being assumedwithin sixty (60) days of any order for relief entered under the Code forTenant, or the Lease being rejected within such sixty (60) day period and thePremises surrendered to Landlord. Accordingly, in consideration of the mutual covenants contained in thisLease and for other good and valuable consideration, Tenant hereby agrees that:

 

(i)                                     All obligations that accrue under this Lease(including the obligation to pay rent), from and after the date that an Actionis commenced shall be timely performed exactly as provided in this Lease andany failure to so perform shall be harmful and prejudicial to Landlord;

 

(ii)                                  Any and all rents that accrue from and afterthe date that an Action is commenced and that are not paid as required by thisLease shall, in the amount of such rents, constitute administrative expenseclaims allowable under the Code with priority of payment at least equal to thatof any other actual and necessary expenses incurred after the commencement ofthe Action;

 

(iii)                               Any extension of the time period within which the Tenant may assume orreject the Lease without an obligation to cause all obligations under the Leaseto be performed as and when required under the Lease shall be harmful andprejudicial to Landlord;

 

(iv)                              Any time period designated as the period within which the Tenant mustcure all defaults and compensate Landlord for all pecuniary losses whichextends beyond the date of assumption of the Lease shall be harmful andprejudicial to Landlord;

 

(v)                                 Any assignment of the Lease must result inall terms and conditions of the Lease being assumed by the assignee withoutalteration or amendment, and any assignment which results in an amendment oralteration of the terms and conditions of the Lease without the express writtenconsent of Landlord shall be harmful and prejudicial to Landlord;

 

(vi)                              Any proposed assignment of the Lease to an assignee that does notpossess operating performance and experience characteristics equal to or betterthan the operating performance and experience of Tenant as of the CommencementDate, shall be harmful and prejudicial to Landlord;

 

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(vii)                           The rejection (or deemed rejection) of the Lease for any reasonwhatsoever or the occurrence of an Event of Default after the commencement ofan Action shall constitute cause for immediate relief from the automatic stayprovisions of the Code, and Tenant stipulates that such automatic stay shall belifted immediately and possession of the Premises will be delivered to Landlordimmediately without the necessity of any further action by Landlord.

 

B.                                     No provision of this Lease shall be deemed awaiver of Landlord’s rights or remedies under the Code or applicable law tooppose any assumption and/or assignment of this Lease, to require timelyperformance of Tenant’s obligations under this Lease, or to regain possessionof the Premises as a result of the failure of Tenant to comply with the termsand conditions of this Lease or the Code.

 

C.                                     Notwithstanding anything in this Lease to thecontrary, all amounts payable by Tenant to or on behalf of Landlord under thisLease, whether or not expressly denominated as such, shall constitute “rent”for the purposes of the Code.

 

D.                                    For purposes of this Section addressing therights and obligations of Landlord and Tenant in the event that an Action iscommenced, the term “Tenant” shall include Tenant’s successor in bankruptcy,whether a trustee, Tenant as debtor in possession, or other responsible person.

 

**41.****                              ****No Offer.**  No contractual or other rights shall existbetween Landlord and Tenant with respect to the Premises until both haveexecuted and delivered this Lease, notwithstanding that deposits may have beenreceived by Landlord and notwithstanding that Landlord may have delivered toTenant an unexecuted copy of this Lease.  The submission of this Lease to Tenant shall be for examinationpurposes only, and does not and shall not constitute a reservation of or anoption for Tenant to lease or otherwise create any interest on the part ofTenant in the Premises.

 

**42.****                              ****Other Documents.**  Each of the parties agrees tosign such other and further documents as may be necessary or appropriate tocarry out the intentions expressed in this Lease.

 

**43.****                              ****Attorneys’ Fees.**  Inthe event of any judicial or other adversarial proceeding between the partiesconcerning this Lease, the prevailing party shall be entitled to recover all ofits reasonable attorneys’ fees and other costs in addition to any other reliefto which it may be entitled.  Inaddition, Landlord shall, upon demand, be entitled to all attorneys’ fees andall other costs incurred in the preparation and service of any notice or demandhereunder, whether or not a legal action is subsequently commenced.

 

**44.****                              ****Development.** Prior to the Landlord commencing or permitting the commencement of anysand or gravel operations or land development on the Property, excluding thePremises, Landlord shall review such operations or development with Tenant todetermine whether or not such operations or development will materiallyinterfere with or materially adversely affect Tenant’s operation on thePremises.  Landlord shall not conductsuch operations or development in a manner and shall not permit such operationsor development to be conducted in a manner which would materially interferewith or materially adversely affect Tenant’s operations on the Premises.

 

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**45.****                              ****Entire Agreement**.  This Lease, and any otherinstruments or agreements referred to herein, constitute the entire agreementbetween the parties with respect to the subject matter hereof, and there are noother representations, warranties, or agreements except as hereinprovided.  Without limiting theforegoing, Tenant specifically acknowledges that neither Landlord nor anyagent, officer, employee, or representative of Landlord has made anyrepresentation or warranty regarding the projected profitability of thebusiness to be conducted on the Premises.

 

**46.****                              ****Forum Selection; Jurisdiction; Venue; Choice of Law.** Tenant acknowledges that this Lease was substantially negotiated in theState of Minnesota, the executed Lease was delivered in the State of Minnesota,all payments under the Lease will be delivered in the State of Minnesota, andthere are substantial contracts between the parties and the transactionscontemplated herein and the State of Minnesota.  For purposes of any action or proceeding arising out of thisLease, the parties hereto expressly submit to the jurisdiction of all federaland state courts located in the State of Minnesota.  Tenant consents that it may be served with any process or paperby registered mail or by personal service within or without the State ofMinnesota in accordance with applicable law, provided a reasonable time forappearance is allowed.  Furthermore,Tenant waives and agrees not to assert in any such action, suit, or proceedingthat is not personally subject to the jurisdiction of such courts, that theaction, suit, or proceeding is brought in an inconvenient forum or that venueof the action, suit, or proceeding is improper.  The creation of this Lease and the rights and remedies ofLandlord with respect to the Premises, as provided herein and by the laws ofthe state in which the Premises is located, shall be governed by and construedin accordance with the internal laws of the state in which the Premises islocated without regard to principles of conflict of law.  With respect to other provisions of thisLease, this Lease shall be governed by the internal laws of the State ofMinnesota.  Nothing contained in thisSection shall limit or restrict the right of Landlord to commence anyproceeding in the federal or state courts located in the state in which thePremises is located to the extent Landlord deems such proceeding necessary oradvisable to exercise remedies available under this Lease.

 

**47.****                              ****Counterparts.**  This Lease may be executed in one or morecounterparts, each of which shall be deemed an original.

 

**48.****                              ****Joint and Several Liability**.  If Tenant consists of morethan one individual or entity, each such individual and/or entity shall bejointly and severally liable for all obligations of Tenant under this Lease.

 

**49.****                              ****Memorandum of Lease.**  Concurrently with theexecution of this Lease, Landlord and Tenant are executing a memorandum oflease in recordable form, indicating the names and addresses of Landlord andTenant, a description of the Premises, the Lease Term, and the terms of anyoptions to extend the Lease Term, or purchase the Premises, but omitting rentand such other terms of this Lease as Landlord may not desire to disclose tothe public.

 

**50.****                              ****No Brokerage.**  Landlord and Tenant represent and warrant toeach other that they have had no conversation or negotiations with any brokerconcerning the leasing of the Premises. Each of Landlord and Tenant agrees to protect, indemnify, save, and keepharmless the other, against and from all liabilities, claims, losses, costs,damages, and expenses, including attorneys’ fees, arising out of, resultingfrom, or in connection with their breach of the foregoing warranty andrepresentation.

 

**51.****                              ****Waiver of Jury Trial and Punitive, Consequential, Special,and Indirect Damages**.  Landlord and Tenant hereby knowingly,voluntarily, and intentionally WAIVE THE RIGHT

 

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EITHER MAY HAVE TO A TRIAL BY JURY with respect to any and all issuespresented in any action, proceeding, claim, or counterclaim brought by eitherof the parties hereto against the other or its successors with respect to anymatter arising out of or in connection with this Lease, the relationship ofLandlord and Tenant, Tenant’s use or occupancy of the Premises, and/or anyclaim for injury or damage, or any emergency or statutory remedy.  This WAIVER BY THE PARTIES HERETO OF ANYRIGHT EITHER MAY HAVE TO A TRIAL BY JURY has been negotiated and is anessential aspect of their bargain. Furthermore, Landlord and Tenant hereby knowingly, voluntarily, andintentionally WAIVE THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL,SPECIAL, AND INDIRECT DAMAGES FROM EACH OTHER with respect to any and allissues presented in any action, proceeding, claim, or counterclaim brought byeither party against the other or its successors with respect to any matterarising out of or in connection with this Lease or any document contemplatedherein or related hereto.  The WAIVER BYLANDLORD AND TENANT OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL,SPECIAL, AND INDIRECT DAMAGES has been negotiated by the parties hereto and isan essential aspect of their bargain.

 

Landlord and Tenant havecaused this Lease to be executed and delivered effective as of the date first abovewritten.

 

[SignaturesPages to Follow]

 

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*Landlord’s Signature Page to Leasebetween PKM Properties, LLC as Landlord and MedicalCV, Inc., as Tenant*

 

 
|   | LANDLORD:              |
|--------|------------------------|
|   |                   |
|   |                   |
|   | PKM  PROPERTIES, LLC.  |
|   |                   |
|   |                   |
|   | By:                    | /s/  Paul K. Miller |   |
|   |                   |
|   |    Its: | Chief  Manager |   |
|        |                        |  |  |  |  |

 

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*Tenant’s Signature Page to Lease between PKM Properties, LLCas Landlord and MedicalCV, Inc., as Tenant*

 

 
|   | TENANT:                |
|--------|------------------------|
|   |                   |
|   |                   |
|   | MEDICALCV,  INC.       |
|   |                   |
|   |                   |
|   | By:                    | /s/  Blair P. Mowery |   |
|   |                   |
|   |    Its: | President  and CEO |   |
|        |                        |  |  |  |  |

 

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**EXHIBIT A**

 

**LEGAL DESCRIPTION OF THE PROPERTY**

 

That part of the West Half(W1/2) of the Southwest Quarter (SW 1⁄4) of Section Nineteen (19), TownshipTwenty-seven (27), Range Twenty-two (22), Dakota County, Minnesota lyingNortherly of the Northerly right-of-way line of Minnesota State Trunk HighwayNo. 3 and Westerly of the Westerly right-of-way line of the Chicago, Milwaukee,St. Paul and Pacific Railroad Company:

 

EXCEPT that part thereofincluded within the North 417.42 feet of the East 417.42 feet of the NorthwestQuarter (NW 1⁄4) of the Southwest Quarter (SW 1⁄4) of Section Nineteen (19),Township Twenty-seven (27), Range Twenty-two (22), Dakota County, Minnesota, asmeasured along the North and East lines thereof, and

 

EXCEPT that part describedas follows:  Commencing at the Northwestcorner of said West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4); thence South 0degrees 01 minutes 18 seconds East (assumed bearing) a distance of 700 feetalong the West line of said West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4) tothe point of beginning of the parcel to be described; thence North 89 degrees58 minutes 42 seconds East a distance of 500 feet; thence South 0 degrees 01minutes 18 seconds East a distance of 343.44 feet, more or less, to theNortherly right-of-way line of State Trunk Highway No. 3; thence Southwesterlyalong said right-of-way line 604.14 feet, more or less, to its intersectionwith the West line of said West Half (W 1⁄2) of the Southwest Quarter (SW 1⁄4);thence Northerly along said West line 666.87 feet, more or less, to the pointof beginning, according to the Government Survey thereof, located in DakotaCounty, Minnesota.

 

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