Exhibit 10.2


 


Form 10-QSB for quarter ended
December 31, 2003


 


Restated October 15, 2002


 


RESTATED LEASE AND OPTION TO PURCHASE


 


THIS LEASE is made and entered into as of this 6th day of August, 2001,
by and between B&L Rentals, L.L.C., a Minnesota limited liability company
(“Landlord”), and WATERS INSTRUMENTS, INC., a Minnesota corporation.(“Tenant”).


 


WITNESSETH:


 


Landlord and NORTH CENTRAL PLASTICS, INCORPORATED (“NCP”) entered into
a certain Lease and-Option to Purchase dated August 6, 2001 (the “Original
Lease”)..  NCP has merged into Tenant
and Tenant is the surviving corporation of that merger.  Landlord and Tenant desire to amend and
restate the Original Lease in the form of this document.


 


Landlord hereby leases to Tenant, and Tenant leases from Landlord the
premises described in Exhibit A attached and hereby made a part hereof,
which premises are hereinafter referred to as the “leased premises”.


 


TO HAVE AND TO HOLD the leased premises and appurtenances for a term of
approximately ten (10) years, commencing on the date hereof and ending at 12:00
midnight, June 30, 2011, subject to the following terms and conditions.


 


ARTICLE 1.  RENT.  Landlord reserves and Tenant covenants to
pay to Landlord, without demand, at the place at which notices to Landlord are
to be given pursuant to Article 15, base rent for the leased premises as
follows:


 


	
  Period

  	
   

  	
  Monthly
  Base Rent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Beginning on the date hereof

  and ending December 31, 2003

  	
   

  	
  $

  	
  16,666.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Beginning January 1, 2004

  and ending December 31, 2004

  	
   

  	
  $

  	
  18,750.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Beginning January 1, 2005

  and ending December 31, 2005

  	
   

  	
  $

  	
  20,833.33

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Beginning January 1, 2005

  and ending June 30, 2011

  	
   

  	
  $

  	
  30,000.00

  	
   

  



 


Base rent shall be payable in advance on the first day of each and
every calendar month during the term of this Lease.  A pro rata portion of such monthly base rent shall be due for any
partial


 


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calendar month during the term of this Lease, in proportion to the
number of days of such calendar month falling within the term.


 


ARTICLE 2.  OPTION TO
PURCHASE. 
Landlord hereby grants to Tenant, and Tenant hereby accepts, the
exclusive option to purchase the leased premises (the “Option”) at any time on
or after June 30, 2002, and on or before December 31, 2005, for a
purchase price (the “Option Price”) equal to Two Million Dollars ($2,000,000),
plus any additional amounts necessary to satisfy array Construction Loans
pursuant to Article 6, and subject to the other terms and conditions
stated in this Article.  Said Option
shall be exercisable by written notice to Landlord given by or on behalf of
Tenant at, any time on or after May 31, 2002 and on or before December 1,
2005, and the closing of such purchase (“Option Closing”) shall be held on such
date as Tenant may specify, but no later than December 31, 2005, or such
other date as the parties may mutually agree.


 


(a)                                  1031
Exchange.  Tenant hereby declares its
intent to purchase the leased premises as part of a like-kind exchange under
the provisions of Internal Revenue Code Section 1031 and regulations
promulgated thereunder.  Notwithstanding
the foregoing, Tenant shall have no obligation to purchase the leased premises
unless and until Tenant has exercised the Option.  Landlord shall cooperate reasonably with Tenant as Tenant effects
a like-kind exchange; provided, that Landlord shall not be required to bear
additional costs or liabilities in connection therewith.


 


(b)                                 Within
ten (10) days after exercise of the Option, Landlord shall deliver to Tenant a
commitment for a current-form ALTA owner’s policy of title insurance in the
amount of.  the Option Price and issued
by a title insurance company reasonably acceptable to Tenant.  Tenant shall have a period of ten (10) days
after receipt of said commitment to review the same and to make any objections
thereto, such objections to be made in writing within said ten (10) day period
or deemed waived.  Tenant shall not
object to any reservations, restrictions and easements of record as of the date
of this Lease which have been disclosed to Tenant by Landlord on or before the
date of this Lease.  If any such
objections are made, Landlord shall have a period of sixty (60) days within
which to cure such objections, during which period the Option Closing shall be
postponed and, if necessary, the term of this Lease shall be extended.  If such objections are not cured within such
sixty (60) day period, then Tenant shall have the option to either (i) waive
such objections and proceed to the Option Closing, or (ii) rescind its notice
of exercise of this Option, in which event the term of this Lease shall be
extended for a period of ninety (90) days from and after the date such notice
of exercise of this Option is rescinded. 
Landlord shall pay all charges and exam fees for issuance of the
commitment for title insurance, and Tenant shall be responsible for the premium
for any policy of title insurance ordered by Tenant.


 


(c)                                  At
the Option Closing, Landlord shall convey good and marketable title to the
leased premises to Tenant by general warranty deed, subject to no encumbrances
other than reservations, restrictions and easements of record as of the date of
this Lease which have been disclosed to Tenant by Landlord on or before the
date of this Lease.  This Lease shall
automatically terminate as of the date of the Option Closing, and all rents and
additional rents payable pursuant to this Lease shall be prorated as of the
date of the Option Closing.  Tenant
shall assume all unpaid real estate taxes and special assessments, except for
real estate taxes


 


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attributable to periods prior to the date of this Lease and prorated to
the date of this Lease and special assessments which are levied or pending as
of the date of this Lease, all of which shall be paid by Landlord.


 


(d)                                 In
the event Landlord defaults in the performance of its obligations under this
Article, Tenant shall be entitled to specific performance of Landlord’s
obligations hereunder, ‘to recover Tenant’s actual damages incurred by reason
of such default, or both, or to terminate its exercise of this Option, in which
event the term of this Lease shall be extended for a period of ninety (90) days
from and after the date of such termination. 
In the event Tenant defaults iii the performance of its obligations
under this Article, after exercise of the Option, Landlord shall be entitled to
specific performance of Tenant’s obligations hereunder, to Landlord’s actual
damages incurred by reason of such default, or both, or to terminate the this
Agreement.  In any action to enforce the
parties’ obligations with respect to the Option, the prevailing party shall be
entitled to recover its reasonable costs and attorneys fees.


 


(e)                                  In
the event the leased premises are subject to any encumbrances on the date of
the Option Closing, except as, expressly permitted hereby, all such
encumbrances shall be satisfied out of the sale proceeds to Landlord and, if
such encumbrances cannot be prepaid, Tenant shall be entitled to assume the
same.  Landlord agrees not to place any
additional encumbrances against the leased premises during the tern of this
Lease.


 


ARTICLE 3.  NET LEASE.  Without limitation of the specific
provisions of this Lease, the parties declare that this Lease shall be
construed in all respects to be a .net lease, with all expenses of operating,
maintaining and insuring the leased premises, and paying taxes and special
assessments and similar charges against the leased premises, to be borne by
Tenant, with the exception only of reasonable wear and tear and loss by reason
of fire and other casualty insurable under the current “special cause of loss”
form of building and personal property insurance policy published by the
Insurance Services Office or equivalent (hereinafter referred to as “Standard
Hazard Insurance”).


 


ARTICLE 4.  TAXES AND
SPECIAL ASSESSMENTS. 
Tenant shall pay, when due and before penalty attaches; all real estate
taxes and installments of special assessments, and any similar charges or liens
due and payable during the term hereof with respect to the leased premises and
improvements situated thereon, provided that election shall be made to pay any
special assessment over the longest period allowed by law.  For any partial calendar year within the
term or any renewal term of this Lease, Tenant shall be responsible for a pro
rata portion of such taxes and special assessments due and payable in such
calendar year in proportion to the number of days of such calendar year falling
within the term or renewal term of this Lease, and appropriate adjustments
shall be made at the beginning of the term and at the end of the term or
renewal term hereof.  Notwithstanding
the foregoing, Landlord shall be responsible for, and shall pay when due, all real
estate taxes and installments of special assessments payable prior to the date
of this Lease and prorated to the date of this Lease, and shall pay all special
assessments levied or pending as of the date of this Lease.


 


ARTICLE 5.  MAINTENANCE AND
REPAIR.  Tenant
hereby accepts the leased premises in the condition they are in.  Tenant, at its sole cost and expense, will
keep, maintain


 


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and rebuild, if necessary, the leased premises, including any altered,
rebuilt, additional or substituted improvements, in good repair and appearance
during the term and any renewal term of this Lease, ordinary wear and tear and
damage by fire or other casualty insurable under Standard Hazard Insurance
excepted.  All repairs made by Tenant
shall be at least equal to the original work in class and quality.  Tenant shall put, keep and maintain all
portions of the leased premises and the sidewalks, curbs, drives, parking
areas, landscaped areas, and passageways adjoining the same in a clean and
orderly condition, free of dirt, rubbish, snow; ice and unlawful obstructions.


 


ARTICLE 6.  ALTERATIONS AND
ADDITIONS. 
Tenant may, at any time and from time to time during the term and any
renewal term of this Lease, at its sole cost and expense, make additions to,
alterations of, substitutions and replacements for, and removals from the
improvements on the leased premises (hereinafter “alterations”), provided,
however, that (i) the total market value of the leased premises shall not be
lessened by reason of any such alterations, (ii) any alterations shall be done
in a good and first class workmanlike manner, (iii) all such alterations shall
be .expeditiously completed in compliance with all laws, ordinances, orders,
rules, regulations and requirements applicable thereto, (iv) if Tenant or
Tenant’s contractor estimates that any such alterations will cost more than One
Hundred Thousand and no/100 Dollars ($100,000.00), Tenant shall give to
Landlord notice of its intention to undertake the same at least thirty (30)
days prior to commencement of the work, and (v) prior to commencement of the
work Tenant shall have obtained all required governmental consents and
approvals for such work.  Tenant shall
promptly pay for all such alterations and shall hold Landlord harmless from any
liens or charges against the leased premises by reason of any such work.  Tenant shall procure and pay for all
required permits, certificates and licenses in connection with such
alterations.  All such alterations shall
become the property of Landlord, except that trade fixtures which may be
removed without material damage to the leased premises shall remain the
property of Tenant.


 


Upon Tenant’s exercise of the Option, upon Tenant’s request, Landlord
shall enter into one or more contracts for the alteration or improvement of the
leased premises as Tenant may specify in Tenant’s discretion (the “Construction
Contracts”) subject to the following sentences.  Any such Construction Contract shall, be without recourse to Landlord.  Tenant shall advance and loan to Landlord
without recourse any amounts the Construction Contracts specify Landlord is to
pay during any period before the Option Closing (the “Construction
Loans”).  The Option Price shall be
increased upon the Option Closing to an amount equal to Two Million Dollars
($2,000,000) plus the total amount necessary to pay and satisfy the
Construction Loans:


 


ARTICLE 7.  USE OF LEASED
PREMISES; COMPLIANCE WITH LAWS; ENVIRONMENTAL COVENANTS.  The leased premises shall be used and
occupied by Tenant as an office, warehouse and manufacturing facility and for
any other lawful purpose, and such use and occupancy shall be in compliance
with all applicable laws, ordinances and governmental regulations.  Without limiting the foregoing, Tenant
shall, at Tenant’s expense, make all such improvements and alterations required
by reason of Tenant’s use of the leased premises under the Americans with
Disabilities Act and shall comply with all Environmental Laws as hereinafter
provided, and Landlord shall have no responsibility for the same; provided that
Landlord warrants that the leased premises currently comply with all
requirements of the


 


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Americans with Disabilities Act and Environmental Laws and Tenant shall
have no obligation to remedy any existing violation of the same.  Tenant shall indemnify, defend and hold
harmless Landlord from any loss or liability incurred by reason of any failure
by Tenant to comply with applicable laws in its use and occupancy of the leased
premises from and after the date hereof, and Landlord shall indemnify, defend
and hold harmless Tenant from any loss or liability incurred by reason of
Landlord’s warranty set forth above in this Article.


 


As used herein, the following terms shall have the following meanings:


 


“Environmental, Law” - The Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. §9601 et seq.; the Resource Conservation
and Recovery Act, 42 U.S.C. §6901 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. § 1802 et seq.; the Toxic Substances
Control Act, 15 U.S.C. §2601 et seq.; the Federal Water Pollution
Control Act, 33 U.S.C. §1251 et seq.; the Clean Water Act, 33 U.S.C.
§1321 et seq.; the Clean Air Act, 42 U.S.C. §.7401 et seq.; the
Minnesota Environmental Response and Liability Act, Minn. Stat. Chap. 115B; the
Minnesota Petroleum Tank Release Cleanup Act, Minn. Stat. Chap. 115C; any other
federal, state, county, municipal, local or other statute, law, ordinance or
regulation that may relate to pesticides, agricultural or industrial chemicals,
wastes, Hazardous Substances (as defined in this Lease), human health or the
environment; all regulations promulgated by a regulatory body pursuant to any
of the foregoing statutes, laws, regulations, or ordinances and all as may from
time to time be amended or subsequently enacted.


 


“Hazardous Substances” - Asbestos, urea formaldehyde, polychlorinated
biphenyls, nuclear fuel or materials, chemical waste, radioactive materials,
explosives, known carcinogens, petroleum products, pesticides; fertilizers, or
any other substance that is toxic or hazardous, or that is a pollutant,
contaminant, chemical, material or substance defined as hazardous or as a
pollutant or contaminant in, or the use; transportation, storage, release or
disposal of which is regulated by, any Environmental Law.


 


Tenant covenants and agrees with Landlord that Tenant shall not use, or
permit the use of, the leased premises for the handling, storage,
transportation, manufacture, release or disposal of any Hazardous Substances,
except for Hazardous Substances of such types and in such quantities as
normally used in Tenant’s business as specified in this Article, which are kept
and used in compliance with all Environmental Laws.  In addition, the Tenant shall not install or maintain, or permit
the installation or maintenance of, any above-ground or underground storage
tanks for the storage of petroleum, petroleum by-products or other Hazardous
Substances in, about or under the leased premises unless (i) the Tenant has
obtained the prior written consent of the Landlord for such installation and
maintenance and (ii) the Tenant installs and maintains such above-ground or
underground storage tanks in compliance with all applicable Environmental
Laws.  Upon the occurrence of an event
of .default hereunder or if the Landlord receives information which leads the
Landlord, in its reasonable discretion, to believe that a Hazardous Substance
is present on or is being handled, stored, transported, manufactured, released
or disposed of in, on or about the leased premises, except as permitted above,
the Landlord may, at its option, through its employees, agents or independent
contractors, enter upon the leased premises and perform, at the Tenant’s
expense, environmental tests (including core drilling),


 


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studies, investigations and reports from a reputable environmental
consultant chosen by Landlord.  If any
such environmental reports indicates any presence, handling, storage,
transportation, manufacture, release or disposal of Hazardous Substances in, on
or about the leased premises, except as permitted above, the Landlord may
require the Tenant, at the Tenant’s expense, to refrain from and take remedial
action with respect to any such presence, handling, storage, transportation,
manufacture, release or disposal to the satisfaction of the Landlord:  The, Tenant shall immediately notify the
Landlord in writing of any claim, investigation, administrative proceeding,
litigation, regulatory hearing or request or demand for remedial or response
action or for compensation which may be proposed, threatened or pending,
alleging the presence, handling, storage, transportation, manufacture, release,
disposal or improper handling of Hazardous Substances in, on or about the
leased premises not permitted hereby. 
The Landlord shall have the right, but not the obligation, to join and
participate in any such investigation, administrative proceeding, litigation,
regulatory hearing or other action, and, unless such investigation,
administrative proceeding, litigation, regulatory action or other action is the
result of any condition which occurred prior to or exists on the date of this
Lease; Tenant shall pay upon demand its attorneys’ fees and expenses in
connection therewith.  The Tenant shall
not take any remedial or response action or enter into any settlement or other
compromise with respect to any claim, investigation, administrative proceeding,
litigation, regulatory hearing or request or demand for remedial or response
action or for compensation without prior written notice to and consent by
Landlord, which consent shall not unreasonably be withheld or delayed.


 


Tenant shall defend, indemnify and hold Landlord harmless from any and
all, claims, actions, damages, costs, expenses and liability suffered or
incurred or paid by or asserted against Landlord, including but not limited to
reasonable attorneys fees incurred in the defense of such claims and actions,
whether for cleanup or other response costs of for damage to property, personal
injury or death, and whether to public agencies or authorities or to private
persons (i) arising from or with respect to acts or practices of Tenant
occurring after the date hereof in violation of any Environmental Law, or (ii)
resulting from the presence on or about the leased premises or the release from
or onto the leased premises of any Hazardous Substances occurring during the term
of this Lease.  The Tenant’s liability
hereunder shall not be limited to the extent of insurance carried by or
provided by the Tenant or subject to any exclusions from coverage in any
insurance policy.  Landlord shall
defend, indemnify and hold Tenant harmless from any and all claims, actions,
damages, costs, expenses and liability suffered or incurred or paid by or
asserted against Tenant, including but not limited to reasonable attorneys fees
incurred in the defense of such claims and actions, whether for cleanup or
other response costs or for damage to property, personal injury or death, and
whether to public agencies or authorities or to private persons (i) arising
from or with respect to acts or practices on or at the leased premises
occurring prior to the date hereof in violation of any Environmental Law, or
(ii) resulting from the presence on or about the leased premises or the release
from or onto the leased premises of any Hazardous Substances occurring prior to
the commencement of the term of this Lease. 
The Landlord’s liability hereunder shall not be limited to the extent of
insurance carried by or provided by the Landlord or subject to any exclusions
from coverage in any insurance policy.


 


The covenants and obligations of Tenant and Landlord contained in this
Article shall survive expiration or earlier termination of the term of
this Lease.


 


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ARTICLE 8.  UTILITIES.  Tenant will pay or cause to be paid when due
all charges for gas, water, sewer, electricity, telephone and other utilities
and services used, rendered or supplied to, upon or in connection with the
leased premises, and Landlord shall have no responsibility to supply the
same.  Without limiting Tenant’s general
duty to .maintain and repair, Tenant shall maintain in good order and condition
during the term and any renewal term of this Lease all pipes, wires, conduits,
boilers and other equipment for the provision of utility services to the leased
premises.


 


ARTICLE 9.  INSURANCE.


 


(a)                                  Public
Liability.  At all times during the term
and any renewal term of this Lease, Tenant shall keep in full force and effect
at its expense a policy or policies of commercial general liability insurance
with respect to the leased.  premises
and the business of Tenant and any subtenant, licensee or concessionaire, with
companies licensed to do business in the State of Minnesota, in which both
Tenant and Landlord shall be named as insureds and adequately covered under
reasonable limits of liability not less than $2,000,000 general liability
aggregate and $1,000,000 per occurrence. 
Tenant shall furnish Landlord with certificates or other acceptable
evidence that such insurance is in effect, which evidence shall state that
Landlord shall be notified in writing thirty (30) days prior to cancellation,
material change or renewal of insurance.


 


(b)                                 Hazard
Insurance.  At all times during the term
and any renewal term of this Lease, Tenant shall keep in full force and effect
a policy of Standard Hazard Insurance, with companies licensed to do business
in the State of Minnesota, covering all improvements on the property in the
amount of their full insurable replacement value, naming both Landlord and
Tenant as insureds; and shall furnish Landlord with certificates or other
acceptable evidence that such insurance is in effect, which evidence shall
state that Landlord shall be notified in writing thirty (30) days prior to
cancellation, material change or renewal of such insurance.  Tenant may separately or under the same policy
insure any trade fixtures, equipment, supplies and other personal property
owned by Tenant and located upon the leased premises.


 


(c)                                  Waiver
of Subrogation.  To the extent such
waiver does not void or diminish the coverage under any policy, Landlord and
Tenant hereby waive any rights each may have against the other on account of
any loss or damage occasioned to Landlord or Tenant, as the case may be, or
their respective property, to the extent such loss or damage is covered by
insurance carried by either Landlord or Tenant or may be insured (regardless of
whether coverage is actually in effect) under Standard Hazard Insurance.


 


ARTICLE 10.  NON-LIABILITY;
COVENANTS TO HOLD HARMLESS.  Landlord shall be held harmless by Tenant from any liability for
damages to any person or property in or upon the leased premises and the
sidewalks adjoining same, including the property of Tenant and its employees
and all persons in he building at its or their invitation.  All property kept, stored or maintained in
the leased premises shall be so kept, stored or maintained at the sole risk of
Tenant.  Tenant agrees to make payment
when due for any labor, services, materials, supplies or equipment furnished or
alleged to have been furnished to Tenant in or about the leased premises during
the term of this Lease which may be secured by any mechanic’s, materialmen’s or
other


 


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lien against the leased premises or the Landlord’s interest therein and
will cause each such lien to be discharged at the time performance of any
obligation secured thereby matures; provided that Tenant may contest such lien
by appropriate proceedings which stay the enforcement thereof, upon providing
reasonable assurances or security to Landlord that Tenant will pay the amount
secured by such lien if found to be valid, but if such lien is reduced to final
judgment and if such judgment or process thereon is not stayed, or if stayed
and said stay expires, then and in such event Tenant shall forthwith pay and discharge
said judgment.  Landlord shall have the
right to post and maintain on the leased premises notice of nonresponsibility
under the laws of Minnesota.


 


ARTICLE 11.  EMINENT DOMAIN.


 


(a)                                  Entire
Premises.  If substantially all of the
leased premises shall be taken under the power of eminent domain-then the term
of this Lease shall cease as of the day possession shall be taken and the rent
shall be paid up to that day with a proportionate refund by Landlord of such
rent as may have been paid in advance.


 


(b)                                 Partial
Taking.  If more than ten percent (10%)
of the floor space in the building or buildings located on the leased premises
shall be taken under the power of eminent domain, Tenant shall have the right
to terminate this Lease as of the day possession shall be taken by notice to
Landlord given within ten (10) days after possession is so taken.  If more than twenty percent (20%) of the
parking area in the leased premises is taken under the power of eminent domain,
Tenant shall have the right to terminate this Lease as of the day possession
shall be taken by like notice to Landlord, unless Landlord shall provide and
make subject to this Lease and part of the leased premises, on or before the
day possession shall be taken, a reasonably equivalent substitute parking
area.  Tenant shall be allowed a
reasonable time not to exceed ninety (90) days after any such termination to
vacate the remainder of the leased premises, and rent shall be paid up to the
day possession shall be taken or the day Tenant vacates the remainder, of the
leased premises, whichever is later.


 


(c)                                  Continuation
of Lease.  In the event this Lease is
not terminated pursuant to paragraphs (a) or (b) of this Article, all the terms
of this Lease shall continue in effect, except that the base rent shall be
reduced in proportion to the reduction in floor space in the building or
buildings located on the leased premises as a result of the taking, and
Landlord shall, at its own cost and expense, make all necessary repairs or
alterations to the basic building or buildings, exterior and interior work to
be in conformance with the then existing architectural design of the
improvements so, as to constitute the remaining premises a complete
architectural unit.


 


(d)                                 Damages.  In any event all damages awarded for such
taking under the power of eminent domain, whether for the whole or a part of
the leased premises, shall belong to and be the property of Landlord whether
such damages shall be awarded as compensation for diminution in value to the
leasehold or to the fee of the premises; provided, however, that Landlord shall
not be entitled to any award made to Tenant for its leasehold improvements made
after the date of this Lease, for relocation benefits provided by M.S.A.
Section 117.52 or similar successor statute, for “going concern” value of
its business, loss of business, fair value of, and cost of removal of stock and
fixtures or for temporary requisition of the use or occupancy of the


 


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leased premises or a part thereof, which shall belong to Tenant; and
provided, however, that the Option Price for the Option granted in
Article 2 above shall be reduced by the amount of any such awards paid to
Landlord.


 


(e)                                  Definition.  The term “eminent domain” shall include the
exercise of any similar power and any purchase or other acquisition in lieu of
condemnation.


 


ARTICLE 12.  DAMAGE.


 


(a)                                  Partial
or Total Destruction.  In case the
leased premises shall be partially or totally destroyed by fire or other
casualty insurable under Standard Hazard Insurance so as to become partially or
totally untenantable, the same, unless Landlord or Tenant shall terminate this
Lease as hereinafter provided, shall be repaired or rebuilt as quickly as
practicable at the cost of Landlord (provided that Landlord shall not be
responsible for any costs in excess of available insurance proceeds paid or
payable by reason of such damage or destruction), and the base rent shall abate
during the period of repair in proportion to the portion of the floor space in
the building or buildings located on the leased premises that is untenantable
or unfit for use by Tenant in its business.


 


(b)                                 Extensive
Damage; Election.  If the building or
buildings located on the leased premises shall be destroyed or damaged by fire
or other casualty insurable under Standard Hazard Insurance, so as to become
wholly untenantable, and the leased premises cannot be repaired or restored
within the remaining term of this Lease, then either Landlord or Tenant may
terminate this Lease as of the date of such destruction or damage by giving
written notice to the other party of such election within thirty (30) days
after such damage or destruction.


 


(c)                                  Effect
on Option.  Notwithstanding any
provision of this Lease, in the event this Lease is terminated by Landlord by
reason of damage to or destruction of the leased premises, Tenant shall have
the right to exercise the Option granted in Article 2 hereof by written
notice to Landlord given at any time within sixty (60) days after the date of
such damage or destruction, whether or not the Option is otherwise exercisable
at such time, and upon the Option Closing pursuant to Tenant’s exercise of the
Option all insurance proceeds paid or payable by reason of such damage or
destruction shall be paid or assigned to Tenant, and the Option Price shall
otherwise not be adjusted under this Article.


 


ARTICLE 13.  SURRENDER;
HOLDING OVER. 
On the last day of the term hereof or on the sooner termination thereof,
Tenant shall peaceably surrender the leased premises in good order, condition
and repair, broom-clean, fire and other casualty insurable under Standard
Hazard Insurance and reasonable wear and tear only excepted.  Tenant shall repair any damage to the leased
premises caused by removal of Tenant’s trade fixtures or equipment.  Any of Tenant’s property, not removed on the
last day of the term hereof or on the sooner termination thereof, shall be
deemed abandoned.  In the event Tenant
remains in possession of the leased premises after the expiration of the term
and any renewal term of this Lease without the execution of a new lease but
with the acquiescence of Landlord, it shall be deemed to be occupying said
leased premises as a tenant from month-to-month, subject to all the conditions,


 


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provisions and obligations of this Lease insofar as the same can be
applicable to a month-to-month tenancy.


 


ARTICLE 14.  DEFAULT;
REMEDIES.


 


(a)                                  Default.  The occurrence of any of the following shall
constitute an event of default under this Lease:


 


1.                                       Tenant shall
have failed to pay any installment of base rent to Landlord when the same shall
be due and payable and such failure shall continue for a period of ten (10)
days after written notice thereof; or


 


2.                                       Tenant shall
have failed to keep in full force and effect the insurance policies required by
Article 9 above or shall have failed to pay taxes  and special assessments when due as required
by Article 4 above and such failure shall continue for a period of ten
(10) days after written notice thereof; or


 


3.                                       Tenant shall
have failed to comply with any other provision of this Lease, and shall not
have cured such failure within sixty (60) days after Landlord, by written
notice, has informed Tenant of such noncompliance; provided, however, in the
case of a default which cannot be cured, with due diligence, within a period of
sixty (60) days, Tenant shall have such additional time to cure such default as
may be reasonably necessary, provided that Tenant proceeds promptly and with
due diligence to cure such default after receipt of said notice; or


 


4.                                       Tenant shall
have filed a petition in bankruptcy or insolvency or for reorganization or for
the appointment of a receiver or trustee for it or its property, or any similar
petition, or shall have made an assignment for the benefit of creditors, or an
order for relief shall have been entered in any proceeding under the federal
Bankruptcy Code in which Tenant is named as the debtor; or


 


5.                                       Any involuntary
petition of the type or similar to those referred to in Paragraph 4 of this
Subsection (a) shall have been filed against Tenant, and shall not be
vacated or withdrawn within one hundred twenty (120) days after the date of the
filing thereof.


 


(b)                                 Remedies.  Whenever any event of default shall have
occurred and be subsisting, Landlord may elect either:


 


1.                                       To cancel and
terminate this Lease; or


 


2.                                       To reenter and
take possession of the leased premises, and terminate Tenant’s right to
possession of the leased premises, without terminating this Lease or any of
Tenant’s obligations for the balance of the term of this Lease.


 


10

















 


Landlord may at any time elect to terminate this Lease despite a prior
election to exercise its remedies under Paragraph 2 above.  In the event Landlord exercises its remedies
under Paragraph 2 above, it may remove all persons and property from the leased
premises and store such property at the cost of and for the account of Tenant,
may make alterations and repairs and redecorate the premises to the extent
deemed by Landlord necessary or desirable, and may relet the premises, or any
part thereof, for the account of Tenant, to any person, firm or corporation,
other than Tenant, for such tent, for such time and upon such terms as
Landlord, in Landlord’s sole discretion, shall determine; but Landlord shall
not be required to accept any tenant offered by Tenant or to observe any
instruction given by Tenant concerning such reletting.  Any rent and other amounts received by
Landlord upon such reletting shall be applied first to the costs and expenses
of Landlord in regaining possession of the leased premises, storing property
removed from the premises, making alterations or repairs or redecorating the
leased premises, and reletting the premises, including, without limitation,
brokerage and reasonable attorneys fees, then to the rentals and other
obligations of Tenant under this Lease, and any surplus shall be paid to
Tenant.


 


ARTICLE 15.  NOTICES.  Any notice required or permitted under this
Lease shall be deemed sufficiently given or served when personally delivered
(in person, by commercial courier service, by facsimile with confirmed
transmission, or otherwise) or forty-eight (48) hours after mailed by registered
or certified mail to Tenant at:


 


Waters Instruments, Inc.’


2950 Xenium Lane North


Suite 108 .


Plymouth, MN 55441.


Facsimile No.:  763/509-7450


Attention:  Gerald W. Grabowski


 


and to Landlord at:


 


Jon Berg and Ronald Langlie


B&L Rentals, L.L.C.


906 Fifth Avenue East


Ellendale, MN 56026


Facsimile No.: 


 


and either party may by like written notice at any time designate a
different address to which notices shall subsequently be sent.


 


ARTICLE 16.  GENERAL.  This Lease does not.  create the relationship of principal and
agent or of partnership or of joint venture or of any association between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of landlord and tenant and optionor and optionee.  One or more waivers of any default of Tenant
by Landlord shall not be construed as a waiver of a subsequent, breach of the
same covenant, term or condition.  The
consent to or approval by Landlord of any act by Tenant requiring Landlord’s
consent or approval shall not waive or render unnecessary Landlord’s consent to
or approval of any subsequent similar act by


 


11

















 


Tenant.  Whenever under this
Lease provision is made for Tenant securing the consent or approval of
Landlord, such consent or approval shall not be unreasonably withheld.  Each term and each provision of this Lease
performable by Tenant shall be construed to be both a covenant and a
condition.  The marginal or topical
headings of the several articles, paragraphs and clauses are for convenience
only and do not define, limit or construe the contents of such articles,
paragraphs or clauses.  All preliminary
negotiations and all prior written agreements regarding the subject matter of
this Lease are superseded and merged into and incorporated in this Lease.  The laws of the State of Minnesota shall
govern the validity, performance and enforcement of this Lease.  The terms, covenants and conditions hereof
shall be binding upon and inure to the benefit of the successors in interest
and assigns of the parties hereto.


 


ARTICLE 17.  QUIET
ENJOYMENT. 
Landlord covenants and agrees with Tenant that upon Tenant paying the
rent and performing all of the terms and conditions on Tenant’s part to be
observed and performed, Tenant may peaceably and quietly enjoy the premises
hereby leased, subject, nevertheless, to the terms and conditions of this
Lease.


 


ARTICLE 18.  ASSIGNMENT AND
SUBLETTING. 
Neither Landlord nor Tenant shall assign this Lease or sublease all or
part of the leased premises without the prior written consent of the other
party.  Notwithstanding the foregoing,
Tenant shall have the right to assign or transfer its rights and interest under
this Lease, including without limitation its rights under Article 2
hereof, without the consent of Landlord, in connection and together with the
sale or transfer of all or substantially all the assets of Tenant, in
connection with a merger of Tenant with another entity, regardless of whether
Tenant or another entity is the surviving entity, or to an entity that,
controls, is controlled by, or is under common control with Tenant; provided
that the obligations of Tenant hereunder shall not be released or otherwise
affected by such assignment and Tenant, shall remain personally liable for the
payment and performance of its obligations hereunder upon and after such
assignment or transfer.


 


ARTICLE 19.  SETTLEMENT
ISSUES. 
Notwithstanding any other provision of this Agreement, if the Option is
exercised and the Option Closing occurs prior to December 2, 2003, the Option
Price will be reduced as set forth in the following table:


 


	
  Date of Option Closing

  	
   

  	
  Reduction
  of Option Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  After January 1 and on or before February 1, 2003

  	
   

  	
  $

  	
  70,950

  	
   

  
	
  After February 1 and on or before March 1, 2003

  	
   

  	
  $

  	
  64,500

  	
   

  
	
  After March 1 and on or before April 1, 2003

  	
   

  	
  $

  	
  58,050

  	
   

  
	
  After April 1 and on or before May 1, 2003

  	
   

  	
  $

  	
  51,600

  	
   

  
	
  After May 1 and on or before June 1, 2003

  	
   

  	
  $

  	
  45,150

  	
   

  
	
  After June 1 and on or before July, 1, 2003

  	
   

  	
  $

  	
  38,700

  	
   

  
	
  After July 1 and on or before August 1, 2003

  	
   

  	
  $

  	
  32,250

  	
   

  
	
  After August 1 and on or before September 1, 2003

  	
   

  	
  $

  	
  25,800

  	
   

  
	
  After September 1 and on or before October 1, 2003

  	
   

  	
  $

  	
  19,350

  	
   

  
	
  After October 1 and on or before November 1, 2003

  	
   

  	
  $

  	
  12,900

  	
   

  
	
  After November 1 and on or before December 1, 2003

  	
   

  	
  $

  	
  6,450

  	
   

  



 


ARTICLE 20.  MEMORANDUM OF
LEASE.  The
parties agree not to record or register this Lease, but the parties shall
execute on the date hereof two (2) copies of the Memorandum of


 


12

















 


Lease and Option attached hereto as Exhibit B, and either party
may record or register said Memorandum of Lease and Option.


 


(Signatures follow).


 


IN WITNESS WHEREOF, the Landlord and the Tenant have caused this Lease
to be executed as of the day and year first above written.


 


 


	
   

  	
  B&L RENTALS, L.L.C.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Jon A. Berg

  
	
   

  	
  Its

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Ronald H. Langlie

  
	
   

  	
  Its

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WATERS INSTRUMENTS, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Its President

  



 


13

















 


EXHIBIT A


TO


LEASE AND OPTION TO PURCHASE


 


LEGAL DESCRIPTION OF LEASED PREMISES


 


PARCEL I:


 


A tract of land in the Northwest Quarter of Section 30, Township
105 North, Range 20 West, Steele County, Minnesota, described as follows:


 


Commencing at a point on the North line of State Highway #30 and 600
feet West of the Intersection of the West right-of-way of Interstate
Highway #35 and North right-of-way of State Highway #30; thence North 400 feet;
thence West 600 feet; thence South to a point on the North line of said State
Highway #30; thence East along the North right-of-Way Highway #30 to a point of
commencement.


 


PARCEL II:


 


A tract of land being a part of the Northwest Quarter of
Section 30, Township 105 North, Range 20 West, Steele County, Minnesota,
described as follows:


 


Commencing at the Southeast Corner of said Northwest Quarter; thence
West along the South line of said Northwest Quarter 650.66.feet; thence North
20 degrees West 44.70 feet; thence North 20 degrees East 79.81 feet to the
point of beginning (said point being the intersection of the North Right
of Way line of State Trunk Highway No. 30 and the Westerly Right of Way line of
Interstate Highway No. 35); thence West parallel with the South line of said
Northwest Quarter along said North Right of Way line 600.0 feet; thence North
400.0 feet; thence East 745.23 feet to the Westerly Right of Way line of said
Highway No: 35; thence South 20 degrees West 425.68 feet to the point of
beginning.


 

















 


EXHIBIT B


TO


BUILDING LEASE


 


MEMORANDUM OF LEASE AND OPTION


 


THIS AGREEMENT, Made and entered into as of the 6th day of August,
2001, by and between B&L Rentals, L.L.C., a Minnesota limited liability
company (“Landlord”), and NORTH CENTRAL PLASTICS, INCORPORATED, a Minnesota
corporation (“Tenant”).


 


WITNESSETH:


 


WHEREAS, the parties have this day entered into that certain Lease and
Option to Purchase (the “Lease and Option”),. 
wherein Landlord has leased to Tenant and has granted Tenant an option
to purchase certain property located in Steele County, Minnesota, described in Exhibit
A attached hereto, which, premises are hereinafter referred to as the
“leased premises”.


 


NOW, THEREFORE, in consideration of the mutual covenants contained in
said Lease and Option, and for other good and valuable consideration, Landlord
hereby leases the leased premises to Tenant, upon the terms and conditions and
for the rent set forth in the Lease and Option, which is hereby incorporated
herein and made a part hereof, for a term of approximately ten (10) years,
commencing on the date hereof and expiring on June 30, 2011, and grants to
Tenant the option to purchase the leased premises during a period commencing
June 30, 2002 and expiring December 1, 2005 upon the terms and
conditions and for the purchase price set forth in the Lease and Option.


 


IN WITNESS WHEREOF, the parties have hereunto set their hands the day
and year first above written.


 


	
   

  	
  B&L RENTALS, L.L.C.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Jon A. Berg

  
	
   

  	
  Its

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Ronald H. Langlie

  
	
   

  	
  Its

  	
   

  



 


(signatures continue)


 


1

















 


	
   

  	
  WATERS INSTRUMENTS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Its President

  



 


 


	
  STATE OF MINNESOTA

  	
  )

  
	
   

  	
  ) SS.

  
	
  COUNTY OF ___________

  	
  )

  



 


The foregoing instrument was acknowledged before me this
         day of October, 2002, by JON
A. BERG and RONALD H. LANGLIE on be of B&L Rentals, L.L.C.


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notary Public

  



 


 


	
  STATE OF MINNESOTA

  	
  )

  
	
   

  	
  ) SS.

  
	
  COUNTY OF ___________

  	
  )

  



 


The foregoing instrument was acknowledged before me this
        of October, 2002, by Jerry
Grabowski, the President of WATERS INSTRUMENTS, INC., a Minnesota corporation on
behalf of the corporation.


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notary Public

  



 


THIS INSTRUMENT DRAFTED BY:


 


FREDRIKSON & BYRON, P.A.


1100 International Centre


900 Second Avenue South


Minneapolis, MN 55402


 


2

















 


EXHIBIT A


TO


MEMORANDUM OF LEASE AND OPTION


 


LEGAL DESCRIPTION OF LEASED PREMISES


 


PARCEL I:


 


A tract of land in the Northwest Quarter of Section 30, Township
105 North, Range 20 West, Steele County, Minnesota, described as follows:


 


Commencing at a point on the North line of State Highway #30 and 600
feet West of the Intersection of the West right-of-way of Interstate
Highway #35 and North right-of-way of State Highway #30; thence North 400 feet;
thence West 600 feet; thence South to a point on the North line of said State Highway
#30; thence East along the North right-of-way Highway #30 to a point of
commencement.


 


PARCEL II:


 


A tract of land being a part of the Northwest Quarter of
Section 30, Township 105 North, Range 20 West, Steele County, Minnesota,
described as follows:


 


Commencing at the Southeast Comer of said Northwest Quarter; thence
West along the South line of said Northwest Quarter 650.66 feet; thence North
20 degrees West 44.70 feet; thence North 20 degrees East 79.81 feet to the
point of beginning.(said point being the intersection of the North Right
of Way line of State Trunk Highway No. 30 and the Westerly Right of Way line of
Interstate Highway No. 35); thence West parallel with the South line of said
Northwest Quarter along said North Right of Way line 600.0 feet; thence North
400.0 feet; thence East 745.23 feet to the Westerly Right of Way 1ine of said
Highway No. 35; thence South 20 degrees West 425.68 feet to the point of
beginning.


 

















 


TERMINATION OF LEASE AGREEMENT


 


THIS AGREEMENT is made this 3rd day of November, 2003, by
and between B & L Rentals, LLC, a Minnesota limited liability company,
hereinafter referred to as “B & L Rentals”: and North Central Plastics,
Incorporated, now known as Waters Instruments, Inc. through a merger into
Waters Instruments, Inc., hereinafter referred to as “Waters”.


 


WHEREAS, the parties hereto did enter into a Lease Agreement and Option
dated August 6, 2001, pursuant to that Memorandum of Lease and Option
dated August 6, 200, filed August 15, 2001, as Document No. A291865,
referred to that certain unrecorded Lease by and between B & L Rentals,
LLC, a Minnesota limited liability company, as Lessor and North Central
Plastics, Incorporated, a Minnesota corporation, as Lessee; and


 


WHEREAS, said option has been exercised and said real estate has been
acquired by Waters Instruments, Inc.; and


 


WHEREAS, the lease agreement is to be terminated.


 


NOW, THEREFORE, the parties hereto agree as follows:


 


1.                                       That
lease agreement referred to by that Memorandum of Lease and Option dated
August 6, 2001, filed August 15, 2001, as Document No. A291865 is
hereby terminated effective November 3, 2003.


 


IN WITNESS WHEREOF, the parties hereto have executed this agreement the
date and year first above written.


 


 


	
   

  	
  B & L Rentals, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald H. Langlie

  	
   

  
	
   

  	
   

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Waters Instruments, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gregory J. Anshus