EXHIBIT 10.3


 


FORM 10-QSB FOR
QUARTER ENDED DECEMBER 31, 2003


 


TRIPLE NET LEASE


 


THIS LEASE, made
and entered into on this 13th day of January, 2004, by and between 1620
Industrial Drive LLC, a Minnesota limited liability company, herein referred to
as “Lessor,” and Waters Instruments Inc., a Minnesota corporation, herein
referred to as “Tenant.”


 


ARTICLE 
I.                                           DEMISE, DESCRIPTION AND
USE OF PREMISES


 


Lessor leases to Tenant
and Tenant hires from Lessor, for the purpose of conducting a research,
distribution, service and manufacturing business thereon, those certain
premises, with the appurtenances (“premises”), shown on the floorplan attached
hereto as Exhibit “A”, constituting part of the building located at
1620 Industrial Drive in the City of Rochester, County of Olmsted, State of
Minnesota, and more particularly described below.  As used herein, the term “building” refers to the real property
described on Exhibit “B” attached hereto and any improvements located
thereon, from time to time, during the term hereof.  Tenant shall also have the right to non-exclusive use of the
parking areas and drives on the land, to exclusive use of 15 of the parking
stalls directly adjacent to the portion of the building constituting the
premises or adjacent to the sidewalks abutting the same, to install signage on
the building or on the land identifying Tenant’s occupancy in compliance with
all applicable laws, and to use of any common areas in the building designed
for use by all occupants thereof.


 


ARTICLE 
II.                                       TERM


 


The initial term of this
Lease shall be for a period of five (5) years, commencing on March 1,
2004, and ending on February 28, 2009. 
As used herein, the expression “term hereof” refers to such initial term
and to any renewal thereof as hereinafter provided.


 


ARTICLE 
III.                                   RENT


 


Tenant shall pay for the
use and occupancy of the premises a fixed annual rental for each year of the
rental term of Sixty-One Thousand Seven Hundred Sixty ($61,760.00) Dollars,
payable in equal monthly installments of Five Thousand One Hundred Forty-Six
($5,146.00) Dollars, on the 1st day of each month, in advance, without demand.


 


Assuming Tenant exercises the option to extend the
term of this Lease for five (5) years in accordance with Article XVIII
below, the rent shall be increased (but not decreased) effective as of
March 1, 2009, based on the change in the Consumer
Price Index, calculated as follows:


 

















 


Lessor
shall compute the increase, if any, in the cost of living based upon the
“revised Consumers’ Price Index for All Urban Consumers-Cities,” hereinafter
called the Index, published by the Bureau of Labor Statistics of the United
States Department of Labor.


 


The Index number
indicated in the column for the City of Minneapolis, entitled “all items,” for
the month of March, 2004, shall be the “Base Index Number,” and the
corresponding Index for the month of February, 2009 shall be the “Current Index
Number.”


 


The Current Index Number
shall be divided by the Base Index Number. 
The resulting quotient (if greater than 1) shall be multiplied by
the initial rent to determine the new rent. 
If the resulting quotient is 1 or less, the rent shall remain the same.


 


	
   

  	
  Example:

  	
  CPI – March 2004

  	
  =  100

  	
   

  
	
   

  	
  CPI –
  February 2009

  	
  =  109

  	
   

  
	
   

  	
  Rent Commencing
  3-1-2009

  	
  =  109/100 x $5,146.00

  	
  = $5,609.14/mo

  



 


Notwithstanding anything
in this Lease to the contrary, all amounts payable by Tenant to or on behalf of
Lessor, whether or not expressly denominated as rent, shall be deemed to be
additional rent for all purposes, including for the purposes of Section 502(b)(7)
of the Bankruptcy Code, Title 11 of the United States Code.


 


Notwithstanding the
foregoing, the increase in fixed annual rental as of March 1, 2009 shall
not exceed ten percent (10%) of the initial fixed annual rental.


 


In addition to the fixed annual
rental provided above, Tenant shall pay to Lessor on the first day of each
month commencing March 1, 2004 and ending February 1, 2009, without
demand, an additional payment of One Hundred Thirty-three and 33/100 Dollars
($133.33), which amount represents Tenant’s contribution to Landlord’s cost of
constructing the demising wall and separately-metered utilities to the premises
as required by this Lease.  Tenant shall
not otherwise be responsible for, and Landlord shall pay without any right of
reimbursement, all costs and expenses related to construction of the demising
wall and the installation of separate meters and construction of other pipes,
lines, conduits and facilities necessary to provide separately-metered utility
service to the premises.  The payment
required by this paragraph shall not continue during any renewal term of this
Lease.


 


ARTICLE 
IV.                                  WARRANTY OF QUIET
POSSESSION


 


Lessor covenants that
Tenant shall have quiet and peaceable possession of the demised premises during
the term hereof.


 


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ARTICLE 
V.                                      USES PROHIBITED


 


Tenant shall not use or
permit the demised premises, or any part thereof, to be used for any purpose or
purposes other than the purpose or purposes for which the demised premises are
hereby leased; and no use shall be made or permitted to be made of the demised
premises, or acts done, which will cause a cancellation of any standard
insurance policy covering any building located on the premises, or any part
thereof, nor shall Tenant sell, or permit to be kept, used or sold, in or about
the demised premises any article which may be prohibited by the standard
form of insurance policies.  Tenant
shall, at Tenant’s sole cost, comply with all requirements pertaining to the
demised premises, of any insurance organization or company necessary for the
maintenance of standard insurance, as herein provided, covering any building
and appurtenances at any time located on the demised premises.


 


ARTICLE 
VI.                                  ABANDONMENT OF PREMISES


 


Tenant shall not vacate
for a period in excess of thirty (30) days, subject to force majeure such as
casualty damage or acts of god, or abandon the premises at any time during the
term hereof; if Tenant shall abandon, so vacate or surrender the demised premises,
or be dispossessed by process of law, or otherwise, by reason of Tenant’s
default under this Lease, any personal property belonging to Tenant and left on
the premises shall be deemed to be abandoned, at the option of the Lessor,
except such property as may be encumbered to Lessor.


 


ARTICLE 
VII.                              WASTE AND NUISANCE
PROHIBITED


 


During the term of this
Lease, Tenant shall comply with all applicable laws affecting the demised
premises, the breach of which might result in any penalty on Lessor or
forfeiture of Lessor’s title to the demised premises.  Tenant shall not commit, or suffer to be committed, any waste on
the demised premises, or any nuisance.


 


ARTICLE 
VIII.                          LESSOR’S RIGHT OF ENTRY


 


Tenant shall permit
Lessor and the agents and employees of Lessor to enter into and upon the
demised premises at all reasonable times and upon reasonable notice for the
purpose of inspecting the same, or for the purpose of posting notices of
non-responsibility for alterations, additions or repairs, without any liability
to Tenant for any loss of occupation or quiet enjoyment of the premises thereby
occasioned, and shall permit the Lessor and Lessor’s agents and employees, at
anytime within the last six (6) months prior to the expiration of this Lease,
or any renewals thereof, to place on the demised premises any usual or ordinary
“To Let” or “To Lease” signs and exhibit the premises to prospective tenants at
reasonable hours.  Notwithstanding the
foregoing, Lessor recognizes that Tenant manufactures and handles an
FDA-approved product which requires a special manufacturing environment, and
Lessor agrees to use all commercially-reasonable efforts in exercising its
rights of entry provided herein not to interfere with or otherwise adversely
affect Tenant’s business operations in the premises.


 


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ARTICLE 
IX.                                  SUBLETTING AND ASSIGNMENT


 


Tenant shall not sublet
the premises in whole or in part without Lessor’s written consent, which
consent shall not unreasonably be withheld, delayed or conditioned, and shall
not be conditioned upon an increase in rentals, and the making of any such
sublease shall not release Tenant from, or otherwise affect in any manner, any
of Tenant’s obligations hereunder. 
Tenant shall not assign, transfer, mortgage or encumber this Lease, or
any interest therein, without the prior written consent of Lessor, which
consent shall not unreasonably be withheld, delayed or conditioned, and shall
not be conditioned upon an increase in rentals, and a consent to an assignment
shall not be deemed to be a consent to any subsequent assignment.  If this Lease is assigned to any person or
entity pursuant to the provisions of the Bankruptcy Code, Title 11 of the
United States Code, any and all moneys or other considerations payable or
otherwise to be delivered in connection with such assignment shall be paid or
delivered to Lessor, shall be and remain the exclusive property of Lessor, and
shall not constitute property of Tenant or of the estate of Tenant within the
meaning of the Bankruptcy Code.  Any and
all moneys or other considerations constituting Lessor’s property under the
preceding sentence not paid or delivered to Lessor shall be held in trust for
the benefit of Lessor and to be promptly paid or delivered to Lessor.


 


Any person or entity to
which this Lease is assigned pursuant to the provisions of the Bankruptcy Code,
Title 11 of the United States Code, shall be deemed without further act or
deed to have assumed all of the obligations arising under this Lease on and
after the date of such assignment.  Any
such assignee shall upon demand execute and deliver to Lessor an instrument
confirming such assumption.


 


ARTICLE 
X.                                      NOTICES


 


All notices, demands or
other writings in this Lease provided to be given or made or sent, or which may
be given or made or sent, by either party hereto to the other, shall be deemed
to have been fully given or made or sent when made in writing and two (2)
business days after deposited in the United States mail, registered and postage
prepaid, and addressed as follows:


 


	
  To Lessor:

  	
   

  	
  1620 Industrial Drive
  LLC

  
	
   

  	
   

  	
  1321 Southview Drive

  
	
   

  	
   

  	
  Hastings, Minnesota
  55033

  
	
   

  	
   

  	
   

  
	
  To Tenant:

  	
   

  	
  Waters Instruments Inc.

  
	
   

  	
   

  	
  13705 26th
  Avenue North #102

  
	
   

  	
   

  	
  Minneapolis, Minnesota
  55441

  



 


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The address to which any
notice, demand or other writing may be given or made or sent to any party as
above provided, may be changed by written notice given by such party as above
provided.


 


ARTICLE 
XI.                                  TAXES AND ASSESSMENTS


 


A.                                   Taxes.  Lessor shall pay and discharge as they
become due, promptly and before delinquency, all taxes, assessments, rates,
charges, license fees, municipal liens, levies, excises, or imposts, whether
general or special, or ordinary or extraordinary, of every name, nature and
kind whatsoever, including all governmental charges of whatsoever name, nature,
or kind, which may be levied, assessed, charged, or imposed, or which may
become a lien or charge on or against the building, or any part thereof, the
leasehold of Tenant herein, the premises described herein, any building or
buildings, or any other improvements now or hereafter thereon, or on or against
Tenant’s estate hereby created which may be subject to taxation, or on or
against Lessor by reason of their ownership of the fee underlying this Lease,
during the entire term hereof, excepting only those other taxes hereafter
specifically excepted.


 


B.                                     Assessments
Affecting Improvements. 
Specifically and without in any way limiting the generality of the
foregoing, Lessor shall pay all special assessments and levies or charges made
by any municipal or political subdivision for local improvements, and shall pay
the same in cash as they shall fall due and before they shall become delinquent
as required by the act and proceedings under which any such assessments or
levies or charges are made by any municipal or political subdivision.  If the right is given to pay in either one
sum or in installments, Lessor may elect either mode of payment and their
election shall be binding on Lessor. 
If, by making any such election to pay in installments, any of such
improvements shall be payable after the termination of this Lease or any
extended term thereof, such unpaid installments shall be prorated as of the
date of termination, and amounts payable after such date shall be paid by
Lessor.


 


C.                                     Tenant
Obligation.  Tenant shall
pay to Lessor each year an amount equal to fifty-six (56%) percent of the real
estate taxes against the building payable during each year of this Lease,
prorated based on the term of Tenant’s occupancy.  Said amounts shall be payable on May 1 and October 1 of
each year.  Lessor shall promptly
deliver to Tenant all notices of tax valuation and assessment received by
Lessor with respect to the building.


 


ARTICLE 
XII.                              CONSTRUCTION OF
IMPROVEMENTS


 


A.                                   Alterations,
Improvements and Changes Permitted.  Tenant shall have the right to make such alterations,
improvements and changes to the premises as Tenant may deem necessary, provided
that prior to making any structural alterations, improvements or


 


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changes, Tenant shall
obtain Lessor’s written approval of plans and specifications thereof, which
approval Lessor shall not unreasonably withhold, provided that the value of the
building shall not be diminished and the structural integrity of the building
shall not be adversely affected by any such alterations, improvements or
changes.  In the event of disapproval,
Lessor shall give to Tenant an itemized statement of reasons therefor.  If Lessor does not disapprove the plans and
specifications provided for in this section within fifteen (15) days after
the same has been submitted to Lessor, such plans and specifications shall be
deemed to have been approved by Lessor. 
Tenant will in no event make any alterations, improvements or other
changes of any kind to the premises that will decrease the value of such
building, or that will adversely affect the structural integrity of the
building.  Prior to commencing any work
that will cost in excess of Fifteen Thousand Dollars ($15,000), Tenant shall
furnish Lessor, on demand with a good and sufficient surety bond or other
security reasonably satisfactory to Lessor insuring the completion of such work
and the payment of all bills therefor.


 


B.                                     Restoration
and Replacement of Currently Existing Structure.  Tenant shall have no obligation to restore
or replace the building at the expiration or other termination of this Lease,
except that Tenant shall keep and maintain the premises in a condition
comparable to its condition when delivered to Tenant, reasonable wear and tear
and casualty damage excepted.


 


C.                                     Disposition
of New Improvements.  All
alterations, improvements, changes or additions made in or to the premises
shall be the property of Lessor, and Tenant shall have only a leasehold
interest therein, subject to the terms hereof.


 


ARTICLE 
XIII.                          CAM


 


Tenant shall pay to
Lessor, as and for additional rent, an amount equal to Tenant’s pro rata
share of all insurance, and all other costs incurred by Lessor with respect to
the building.  Tenant’s pro rata
share of such amount shall be equal to fifty-six (56%) percent.  These costs shall include, but not be limited
to, insurance premiums, maintenance, exterior lighting, snow plowing,
landscaping, yard maintenance, and all other maintenance and operation costs
incurred by Lessor with respect to the building in which the premises are
located.  These costs shall not include
income, property (except as provided in Article XI), estate, income,
alternative minimum or francise taxes payable by Lessor, nor principal or
interest obligations of Lessor on indebtedness related to the building in which
the premises are located, nor any expenditure which must be capitalized for
federal income tax purposes (other than amortization without interest over the
reasonably-estimated useful life of capital expenditures made to comply with
changes of codes and laws enacted after the date hereof or to reduce operating
expenses, to the extent of such reduction), nor management fees in excess of
four percent (4%) of gross rents, nor leasing or legal fees, nor costs of
improving space for occupancy by other tenants, nor any expenses for services
which are paid for separately by Tenant with respect to the demised


 


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premises.  Tenant’s initial payments to Lessor for
expenses referred to in this Article shall be based upon annual expenses
with respect to the building of
$                        ,
and increases of all expenses other than insurance premiums and utilities for
subsequent years shall not exceed three percent (3%) of the payments during the
previous year.


 


ARTICLE 
XIV.                         REPAIRS AND DESTRUCTION OF IMPROVEMENTS


 


A.                                   Maintenance
of Premises.  Tenant
shall, throughout the term of this Lease, at its own cost, and without any
expense to Lessor, keep and maintain the premises, including all improvements
of every kind which may be a part thereof, and all appurtenances thereto,
including sidewalks adjacent thereto, in good, sanitary and neat order,
condition and repair, reasonable wear and tear and casualty damage
excepted.  Lessor shall not be obligated
to make any repairs, replacements, or renewals of any kind, nature or
description, whatsoever, to the demised premises, except as expressly provided
in this Lease.  Tenant shall also comply
with and abide by all federal, state, country, municipal and other governmental
statutes, ordinances, laws and regulations affecting the demised premises, the
improvements thereon, or any activity or condition on or in such premises.  Notwithstanding the foregoing, Lessor shall
be responsible to pay for, without any right to reimbursement under
Article XIII or otherwise, any major repair or replacement of the heating,
ventilating and air conditioning systems serving the premises, the electrical
service to the premises or the plumbing or other mechanical systems serving the
premises; provided that such major repair or replacement is not made necessary
by reason of Tenant’s negligence or abuse of such systems or failure to provide
customary maintenance to such systems. 
For purposes of this Lease, a “major repair or replacement” shall mean
any single repair or replacement which either (a) costs in excess of Tne Thousand
Five Hundred Dollars ($2,500), or (b) constitutes the replacement of a
compressor or evaporator or furnace.


 


B.                                     Obligations
of Lessor.  Lessor shall,
prior to the commencement of the term, at Lessor’s expense and without any
right of reimbursement from Tenant under Article XIII or otherwise,
construct a demising wall separating the premises from the rest of the building
in accordance with the specifications set forth on Exhibit “C” attached
hereto.  Lessor shall also, prior to
occupancy of the building by any other tenant, at Lessor’s expense and without
any right of reimbursement from Tenant under Article XIII or otherwise,
install separate meters and construct other pipes, lines, conduits and
facilities necessary to provide separately-metered utility service to the
premises.  Lessor shall also be
responsible, at its sole expense but subject to the provisions of
Article VIII above, for maintenance and repair of (i) the exterior walls,
roof, footings, foundation and structural elements of the building, (ii) the
exterior parking areas, drives and walks serving the building, and (iii) any
common areas of the building designed for use by more than one tenant, and for
keeping the exterior parking areas, drives and walks serving the building
reasonably free of snow, ice and debris. 
All such items shall be kept in good condition


 


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and repair by Lessor, and
in substantially as good condition as they are now in.  In the event Lessor does not reasonably
correct any deficiency in such maintenance of the building or exterior areas
within a reasonable time (taking into account the effect such deficiency is
having on the operations of Tenant, and in any event not exceeding thirty (30)
days) after notice of such deficiency is given by Tenant to Lessor, then Tenant
shall have the right to correct such deficiency and thereafter deduct the
reasonably costs incurred in so correcting the deficiency from the rentals
payable under this Lease.  In the event
of any disagreement between Lessor and Tenant as to whether there is a
deficiency in such maintenance of the building or exterior areas by Lessor,
such dispute shall be resolved by arbitration in accordance with the rules of
the American Arbitration Association.


 


C.                                     Damage or
Destruction of Improvements. 
In case the premises or building shall be partially or totally destroyed
by fire or other casualty so as to render the premises partially or totally
untenantable, the same, unless Lessor or Tenant shall terminate this Lease as
hereinafter provided, shall be repaired or rebuilt as quickly as practicable at
the cost of Lessor, and the rentals and other payments by Tenant under this
Lease shall abate during the period of repair in proportion to the portion of
the floor space in the premises that is untenantable or unfit for use by Tenant
in its business.


 


If the premises or
building shall be destroyed or damaged by fire or other casualty, so as to
become wholly untenantable (“Major Damage”), and:


 


1.                                       the
premises cannot be repaired or restored within one hundred twenty (120) days
after such damage or destruction; or


 


2.                                       the
unexpired portion of the term or any renewal term of this Lease is one (1) year
or less at the date of the damage;


 


then Tenant may terminate
this Lease as of the date of such destruction or damage by giving written
notice to Lessor of such election within sixty (60) days after the date of such
damage or destruction.  Further, in the
event of such Major Damage, Lessor shall have the right to terminate this Lease
and shall have no obligation to restore if either (i) the cost of restoration
is reasonably estimated to exceed One Million Dollars ($1,000,000), or (ii)
Lessor’s mortgage lender does not make the insurance proceeds payable by reason
of such Major Damage available to pay the costs of the restoration.


 


ARTICLE 
XV.                             UTILITIES


 


Landlord shall provide
all facilities necessary for delivery of water, sewer, electricity, gas, and
telephone utilities to the premises. 
Tenant shall fully and promptly pay for all water, sewer, electrical,
gas, telephone service or other public utilities of every kind furnished to the
premises


 


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throughout the term
hereof to the extent separately metered to the premises, and all other costs
and expenses of every kind whatsoever of or in connection with the use,
operation and maintenance of the utility systems serving the premises only, and
except as expressly provided in this Lease Lessor shall have no responsibility
of any kind for any thereof.  Prior to
such time as any utility service is separately metered to the premises, and so
long as the remainder of the building is not occupied by any other tenants,
Tenant shall, within twenty (20) days after receiving an invoice from Lessor
therefor, reimburse Landlord for eighty percent (80%) of the cost of such
utility service provided to the leasable spaces in the building but not
separately metered to the premises. 
Nothing herein shall prohibit Lessor from collecting expenses incurred
by Lessor for utility service to the common areas of the building in accordance
with the provisions of Article XIII hereof.


 


ARTICLE 
XVI.                         LIENS


 


A.                                   Tenant’s
Duty to Keep Premises Free of Liens.  Tenant shall keep all of the premises and every part thereof and
the building free and clear of any and all mechanics’ materialmen’s, and other
liens for or arising out of or in connection with work or labor done, services
performed, or materials or appliances furnished for or in connection with any
operations of Tenant, any alteration, improvement or repairs or additions which
Tenant may make or cause to be made, or any work or construction by or for
Tenant on or about the premises, or any obligations of any kind incurred by
Tenant, and at all times promptly and fully pay and discharge any and all
claims on which any such lien may or could be based, and to indemnify Lessor
and all of the premises and the building against all such liens and claims of
liens and suits or other proceedings pertaining thereto.


 


B.                                     Contesting
Liens.  If Tenant desires
to contest any such lien, it shall notify Lessor of its intention to do so
within one hundred eighty (180) days after filing of such lien.  In such case, and provided that Tenant shall
on demand protect Lessor by a good and sufficient surety bond against any such
lien and any cost, liability or damage arising out of such contest, Tenant
shall not be in default hereunder until ninety (90) days after the final
determination of the validity thereof, within which time Tenant shall satisfy
and discharge such lien to the extent held valid; but the satisfaction and
discharge of any such lien shall not, in any case, be delayed until execution
is had on any judgment rendered thereon, and such delay shall be a default of
Tenant hereunder.  In the event of any
such contest, Tenant shall protect and indemnify Lessor against all loss,
expense and damage resulting therefrom.


 


ARTICLE 
XVII.                     INDEMNIFICATION OF LESSOR


 


Lessor shall not be
liable for any loss, injury, death, or damage to persons or property which at
any time may be suffered or sustained by Tenant or by any person whosoever may
at any time be using or occupying or visiting the demised premises or be in,
on, or about the same, whether


 


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such loss, injury, death,
or damage shall be caused by or in any way result from or arise out of any act,
omission, or negligence of Tenant or of any occupant, subtenant, visitor, or
user of any portion of the premises, or shall result from or be caused by any
other matter or thing whether of the same kind as or of a different kind than
the matter or things above set forth, and Tenant shall indemnify Lessor against
all claims, liability, loss, or damage whatsoever on account of any such loss,
injury, death, or damage.  Tenant hereby
waives all claims against Lessor for damages to the premises and to the
property of the Tenant in, on or about the premises, and for injuries to
persons or property in or about the premises, from any cause arising at any
time.  The two preceding sentences shall
not apply to loss, injury, death, or damage arising by reason of the negligence
or misconduct of the Lessor, its agents or employees.


 


ARTICLE 
XVIII.                 ATTORNEY’S FEES


 


If any action at law or
in equity shall be brought to recover any rent under this Lease, or for or on
account of any breach of, or to enforce or interpret any of the covenants,
terms or conditions of this Lease, or for the recovery of the possession of the
demised premises, the prevailing party shall be entitled to recover from the
other party as part of the prevailing party’s costs reasonable attorney’s fees,
the amount of which shall be fixed by the Court and shall be made a part of any
judgment or decree rendered.


 


ARTICLE 
XIX.                         OPTION TO RENEW


 


Lessor grants to Tenant,
subject to the conditions set forth below, the right and option to renew this
Lease for a period of five (5) years, beginning on March 1, 2009, and
expiring on February 28, 2014, at a rental determined as provided above,
and otherwise subject to and on all the terms and conditions herein
contained.  Notice in writing to Lessor
of Tenant’s intention to exercise said option shall be given at least sixty
(60) days prior to expiration of the original term of the Lease herein.


 


ARTICLE 
XX.                             REDELIVERY OF PREMISES


 


Tenant shall pay all sums
required to be paid by Tenant hereunder in the amounts, at the times, and in
the manner herein provided, and shall keep and perform all the terms and
conditions hereof on their part to be kept and performed, and, at the
expiration or sooner termination of this Lease, peaceably and quietly quit and
surrender to Lessor the premises in good order and condition subject to the
other provisions of this Lease and subject to reasonable wear and tear and
casualty damage.


 


ARTICLE 
XXI.                         REMEDIES CUMULATIVE


 


All remedies hereinbefore
and hereinafter conferred on Lessor shall be deemed cumulative and no one
exclusive of the other, or of any other remedy conferred by law.


 


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ARTICLE 
XXII.                     INSURANCE


 


A.                                   Insurance
Coverage of Premises and Waiver of Rights in Insured Losses.  Lessor shall, at all times during the term
of this Lease and at Lessor’s sole expense, subject to the provisions of
Article XIII, keep the building and all improvements which are now or
hereafter a part of the building insured against loss or damage by fire and the
extended coverage and special cause of loss hazards for the properties’ full
insurable replacement value.


 


Lessor and Tenant agree
that neither shall be liable to the other for damage to the building or the
premises or to any of the contents thereof, whether owned by Tenant or Lessor,
by perils insured against by the party owning such damaged or destroyed
property.  The Lessor hereby waives any
and all rights of recovery from the Tenant for loss caused by the perils of
fire and other perils included in the definition of extended coverage or
special causes of loss, and the Tenant hereby waives any and all right of
recovery from the Lessor for loss caused by the perils of fire and other perils
included in the definition of extended coverage or special causes of loss.  Each party hereto shall provide the other
party with documentary evidence of the concurrence of their respective
insurance carriers with the provisions of this clause.


 


B.                                     Personal
Injury Liability Insurance. 
Tenant shall maintain in effect throughout the term of this Lease
personal injury liability insurance covering the premises and its appurtenances
and the sidewalks fronting thereon in the amount of One Million ($1,000,000.00)
Dollars for injury to or death of any one person, and Two Million
($2,000,000.00) Dollars for injury to or death of any number of persons in one
occurrence, and property damage liability insurance in the amount of Two
Hundred Fifty Thousand ($250,000.00) Dollars. 
Such insurance shall specifically insure Tenant against all liability
assumed by it hereunder, as well as liability imposed by law, and shall insure
both Lessor and Tenant but shall be so endorsed as to create the same liability
on the part of the insurer as though separate policies had been written for
Lessor and Tenant.


 


C.                                     Cost of
Insurance Deemed Additional Rental.  The cost of insurance required to be carried by Tenant in this
section shall be deemed to be additional rental hereunder.


 


ARTICLE 
XXIII.                 DEFAULT AND TERMINATION


 


If any one or more of the
following events shall occur:


 


A.                                   Tenant
shall fail to make any payment hereunder when due, whether for rent or
otherwise, and such failure shall continue for a period of five (5) days after
written notice of such failure is given to Tenant; or


 


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B.                                     Any
financial report or statement, certificate, statement, representation or
warranty at any time furnished or made by or on behalf of Tenant or any
guarantor of any of Tenant’s obligations hereunder, including, without
limitation, any representation or warranty made by Tenant herein, proves to
have been false or misleading in any material respect at the time as of which
the facts therein set forth were stated or certified, or any such financial
report or statement has omitted any material contingent or unliquidated
liability or claim against Tenant or any such guarantor; or


 


C.                                     Tenant
shall fail to perform or observe any covenant, condition or agreement to be
performed or observed by him hereunder, and such failure shall continue for a
period of thirty (30) days after written notice of such failure is given to
Tenant, or, in the event the covenant, condition or agreement may not
reasonably be performed or observed within such period of thirty (30) days, for
such longer period of time as may be reasonably necessary to perform or observe
such covenant, condition or agreement; provided that Tenant commences to cure
such failure with such thirty (30) day period and thereafter diligently
continues to proceed to cure such failure; or


 


D.                                    Tenant
or any guarantor of any of Tenant’s obligations hereunder shall cease doing
business as a going concern, make an assignment for the benefit of creditors,
generally not pay his debts as they become due or admit in writing his
inability to pay his debts as they become due, file a petition commencing a
voluntary case under any chapter of the Bankruptcy Code, Title 11 of the
United States Code, be adjudicated an insolvent, file a petition seeking for
himself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or future
statute, law, rule or regulation, or file an answer admitting the material
allegations of a petition filed against it in any such proceeding, consent to
the filing of such a petition or acquiesce in the appointment of a trustee,
receiver, custodian or other similar official for him or of all or any
substantial part of his assets or properties, or take any action looking to his
dissolution or liquidation; or


 


E.                                      An
order for relief against Tenant or any guarantor of any of Tenant’s obligations
hereunder shall have been entered under any chapter of the Bankruptcy Code, or
a decree or order by a court having jurisdiction in the premises shall have
been entered approving as properly filed a petition seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief against
Tenant or any guarantor of any of Tenant’s obligations hereunder under any
present or future statute, law, rule or regulation, or within thirty (30) days
after the appointment without Tenant’s or such guarantor’s consent or
acquiescence of any trustee, receiver, custodian or other similar official for
him or such guarantor or of all or any substantial part of his or such
guarantor’s assets and properties, such appointment shall not be vacated; or


 


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F.                                      An
order, judgment or decree for payment of money shall be entered against Tenant
or such guarantor by a court of competent jurisdiction and shall continue in
effect for any period of thirty (30) consecutive days without a stay of
execution, or any execution or writ or process shall be issued under any action
or proceeding against Tenant whereby the leased premises or its use may be
levied upon or restrained;


 


Then and in any such
event Lessor may, at the sole discretion of Lessor, without notice or demand,
take any one or more of the following steps:


 


1.                                       Immediately
terminate Tenant’s rights hereunder with or without process of law, directly or
acting through agents, without liability to Tenant, enter upon the premises of
Tenant and take immediate possession of all or any portion of the premises and
thenceforth hold, possess and enjoy the same free from any right of the Tenant
to the possession and use of the premises for any purpose whatsoever, in which
event Tenant hereby expressly waives all further rights to possession of the
premises and all claims for injuries suffered through or caused by any such
repossession; or


 


2.                                       Sue
for and seek to recover from Tenant all rent and other sums then past due
pursuant to the terms and provisions of this Lease; or


 


ARTICLE 
XXIV.                LESSOR’S RIGHT TO PERFORM


 


In the event that Tenant
by failing or neglecting to do or perform any act or thing herein provided by
it to be done or performed, shall be in default hereunder and such failure
shall continue for a period of ninety (90) days after written notice from
Lessor specifying the nature of the act or thing to be done or performed, then
Lessor may, but shall not be required to, do or perform or cause to be done or
performed such act or thing (entering on the demised premises for such
purposes, if Lessor shall so elect), and Lessor shall not be or be held liable
or in any way responsible for any loss, inconvenience, annoyance, or damage
resulting to Tenant on account thereof, and Tenant shall repay to Lessor on
demand the entire expense thereof, including compensation to the agents and
employees of Lessor.  Any act or thing
done by Lessor pursuant to the provisions of this section shall not be
construed as a waiver of any such default by Lessor, or as a waiver of any
covenant, term, or condition herein contained or the performance thereof, or of
any other right or remedy of Lessor hereunder or otherwise.


 


ARTICLE 
XXV.                    EFFECT OF EMINENT DOMAIN


 


A.                                   Effect of
Total Condemnation.  In
the event the entire demised premises shall be appropriated or taken under the
power of eminent domain by any public or quasi-public authority, this Lease
shall terminate and expire as of the date of such taking, and Tenant shall
thereupon be released from any liability thereafter accruing hereunder.


 


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B.                                     Effect of
Partial Condemnation.  In
the event a portion of the demised premises shall be so appropriated or taken
and the remainder of the premises shall not be suitable for the use then being
made of the property by Tenant, or if the remainder of the property is not one
undivided parcel of premises, Tenant shall have the right to terminate this
Lease as of the date of such taking on giving to Lessor written notice of such
termination within thirty (30) days after Lessor has notified Tenant in writing
that the premises has been so appropriated or taken.


 


In the event a portion of
the demised premises shall be so appropriated or taken and the remainder of the
property shall still be suitable for the use then being made of the property by
Tenant, this Lease agreement shall remain in full force and effect but there
shall be a pro rata adjustment of the rental payments due hereunder based on
the square footage appropriated or taken in such proceedings.


 


C.                                     Condemnation
Award.  Lessor shall be
entitled to the entire award in any condemnation proceeding or other proceeding
for taking for public or quasi public use, including, without limitation, any
award made for the value of the leasehold estate created by this Lease.  No award for any partial or entire taking
shall be apportioned, and Tenant hereby assigns to Lessor any award that may be
made in a condemnation or other taking, together with any and all rights of
Tenant now or hereafter arising to all or part of the award; provided, however,
that nothing contained herein shall be deemed to give Lessor any interest in,
or require Tenant to assign to Lessor, any award made to Tenant specifically
for its relocation expenses, the taking of personal property, or loss of “going
concern” value of Tenant’s business.


 


ARTICLE 
XXVI.                SURRENDER OF LEASE


 


The voluntary or other
surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not
work a merger, and shall, at the option of Lessor, terminate all or any
existing subleases or subtenancies, or may, at the option of the Lessor,
operate as an assignment to them of any or all such subleases or subtenancies.


 


ARTICLE  XXVII.  DISPOSITION
OF IMPROVEMENTS ON TERMINATION OF LEASE


 


On termination of this
Lease for any cause, Lessor shall become the owner of any improvements on the
demised premises.


 


ARTICLE 
XXVIII.  TRANSFER OF SECURITY


 


If any security is given
by Tenant to secure the faithful performance of all or any of the covenants of
this Lease on the part of Tenant, Lessor may transfer or deliver the security,
as such, to the purchaser of the reversion, in the event that the reversion be
sold, and thereupon Lessor shall be discharged from any further liability in
reference thereto.


 


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ARTICLE 
XXIX.                WAIVER


 


The waiver by Lessor of,
or the failure of Lessor to take action with respect to any breach of any term,
covenant or condition herein contained, shall not be deemed to be a waiver of
such term, covenant or condition, or subsequent breach of the same, or any
other term, covenant or condition herein contained.  The subsequent acceptance of rent hereunder by Lessor shall not
be deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of Tenant to pay
the particular rental so accepted, regardless of Lessor’s knowledge of such
preceding breach at the time of acceptance of such rent.


 


ARTICLE 
XXX.                    EFFECT OF TENANT’S HOLDING OVER


 


Any holding over after
the expiration of the term of this Lease, with consent of Lessor, shall be
construed to be a tenancy from month to month, on the same terms and conditions
herein specified, so far as applicable.


 


ARTICLE 
XXXI.                LEASE TO BE SUBORDINATE


 


This Lease is subject and
subordinate to Lessor’s first mortgage and restrictions which may now or
hereafter affect the building, and to all renewals, amendments, modifications
and extensions thereof; provided that any mortgagee or other purchaser at
mortgage foreclosure sale shall recognize this Lease and shall not disturb
Tenant’s occupancy hereunder so long as Tenant is not in default hereunder
beyond applicable periods of grace. 
This clause shall be self-operative, and no further instruments shall be
required; provided, however, that for confirmation of such subordination or
superiority, Tenant shall execute promptly any agreement requested by
Lessor.  Tenant hereby attorns to any
such first mortgagee, purchaser at foreclosure sale, or recipient of a deed in
lieu of foreclosure, and agrees to execute any reasonable agreement affirming
such attornment.


 


ARTICLE  XXXII.  ESTOPPEL
CERTIFICATE


 


Tenant shall, within ten
(10) business days following a request from Lessor, execute and deliver to
Lessor an Estoppel Certificate in such form and content as requested by Lessor
and reasonably acceptable to Tenant, attesting to the terms and condition of
this Lease and the compliance to date of Lessor with the terms and conditions
of this Lease and such other matters as requested by Lessor concerning the
tenancy of Tenant under this Lease.  In
the event that Tenant asserts any default by Lessor, Tenant shall set forth
such alleged default or defaults upon the said certificate in detail and attest
to the fact that those listed defaults are the only defaults by Lessor
hereunder.


 


Lessor shall, within ten
(10) business days following a request from Tenant, execute and deliver to
Tenant an Estoppel Certificate in such form and content as requested by Tenant
and reasonably acceptable to Lessor, attesting to the terms and condition of
this Lease and the compliance to date of Tenant with the terms and conditions
of this Lease and such other matters


 


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as requested by Tenant
concerning the tenancy of Tenant under this Lease.  In the event that Lessor asserts any default by Tenant, Lessor
shall set forth such alleged default or defaults upon the said certificate in
detail and attest to the fact that those listed defaults are the only defaults
by Tenant hereunder.


 


ARTICLE 
XXXIII.  PARTIES BOUND


 


The covenants and
conditions herein contained shall, subject to the provisions as to assignment,
transfer and subletting, apply to and bind the heirs, successors, executors,
administrators and assigns of all the parties hereto; and all of the parties
hereto shall be jointly and severally liable hereunder.


 


ARTICLE 
XXXIV.  TIME OF THE ESSENCE


 


Time is of the essence of
this Lease, and of each and every covenant, term, condition, and provision
hereof.


 


ARTICLE  XXXV.  SECTION CAPTIONS


 


The captions appearing
after the section number designations of this Lease are for convenience
only and are not a part of the Lease and do not in any way limit or amplify the
terms and provisions of this Lease.


 


ARTICLE 
XXXVI.  GOVERNING LAW


 


This Lease shall be governed
by, construed and enforced in accordance with the laws of the State of
Minnesota.


 


ARTICLE  XXXVII.  MISCELLANEOUS


 


Where applicable, words
used in this instrument in the masculine gender include the feminine and
neuter; the singular number includes the plural and the plural the singular.


 


IN WITNESS WHEREOF,
the parties hereto have executed this Lease at Rochester, Minnesota, effective
on the day and year first above written.


 


 


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  LESSOR:

  
	
   

  	
   

  
	
   

  	
  1620 INDUSTRIAL DRIVE
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Patrick O. Regan

  	
   

  
	
   

  	
   

  	
  Patrick O. Regan,

  	
   

  
	
   

  	
   

  	
  Chief Manager/President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TENANT:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  WATERS INSTRUMENTS INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Jerry W. Grabowski

  	
   

  
	
   

  	
   

  	
  Jerry W. Grabowski,

  	
   

  
	
   

  	
   

  	
  President and Chief
  Executive Officer

  	
   

  
							



 


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EXHIBIT “A”


 


Floor Plan Showing Demised Premises


 

















 


EXHIBIT “B”


 


Legal Description of Land on which
Building is Located


 

















 


EXHIBIT “C”


 


Specifications for Demising Wall