**EXHIBIT 10.38**

 

**LEASE AGREEMENT**

 

THIS LEASEAGREEMENT made and entered into this 15 day of October, 2005, by andbetween Sten Corporation, a Minnesota corporation (hereinafter referred to asthe “Lessor”), and OLD Holdings, LLC, a Minnesota limited liability company(hereinafter referred to as the “Lessee”).

 

WITNESSETH:

 

##### 1.     **Leased Premises.**  The Lessor in consideration of the rents andcovenants herein contained, to be paid, kept and performed by the Lessee, doeshereby lease and let unto the Lessee and the Lessee does hereby hire and takefrom the Lessor the following to-wit:

 

29,202 squarefeet of space in a 29,202 Square Foot office and warehouse building located at13828 Lincoln St. N.E., Ham Lake, MN 55304: said space hereinafter called the “Premises,” having a warehouse spaceof approximately 20,301 square feet, a warehouse mezzanine storage space ofapproximately 1,519 square feet and an office space of approximately 7,382square feet; such space being measured from the outside walls; all according tothe site plan attached hereto marked Exhibit A and made a part hereof.

 

Said Premisesbeing commonly known as 13828 Lincoln St. N.E., Ham Lake, MN 55304.

 

##### 2.     **Term.** This Lease shall commence on the date hereof and end the 16thday of December, 2005 (the “Termination Date”). The rent for any partial month shall be prorated and adjustedaccordingly.  Lessee may extend theTermination Date for three (3) additional months (the “Extension Period”) byproviding written notice to Lessor prior to the expiration of the statedTermination Date.

 

##### 3.     **Holding Over.**  In the event Lessee remains in possession ofthe Premises after the Termination Date without (1) execution of a new lease,or (2) Lessor’s written consent, Lessee shall be deemed to be occupying thePremises as a tenant from month to month. During this holding over period, the Lessee shall be subject to all ofthe conditions, provisions and obligations of this Lease, except that the rentpayable during the holding over period shall be calculated at $13,333.33 permonth (“Minimum Rent”) and the Additional Rent as set forth herein for theperiod during which the Lessee holds over.

 

##### 4.     **Use of Premises.**  It is agreed that the Premises shall be usedby the Lessee for manufacturing, distribution and related uses, as approved byLessor and subject to all local, State, and Federal regulations regarding theuse of the Premises.  The Lessee will notuse or permit any part of the Premises to be used for any dangerous, noxious,or offensive purpose, or cause or maintain any nuisance on the Premises.  The Lessee agrees

 

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##### to confine itsbusiness activities to the Premises described in Paragraph 1 of this Lease andin that connection further agrees to use the Premises in such manner so as notto disturb other tenants of the building of which the Premises are a part byexcessive noise, emission of odors or fumes, or other disruptive ordisagreeable activities.  For a violationof this paragraph Lessor may terminate this Lease with a thirty (30) day noticegiven pursuant to the terms as further defined in Section 17.

 

##### 5.     **Minimum Rent.**  The Minimum Rent to be paid by the Lessee ofthis lease agreement shall be due and payable in advance, on or before thefirst day of each month, without demand or offset, over the term of the Leaseas follows:

 

###### (a)                                  Fromthe date hereof until the Termination Date the Minimum Rent shall be zero.

 

###### (b)                                 Afterthe Termination Date (whether during the Extension Period or the holdoverperiod), the Minimum Rent shall equal monthly installments of Thirteen ThousandThree Hundred Thirty-three and 33/100 Dollars ($13,333.33).

 

##### 6.     **Additional Rent for Property Tax and Insurance.**  Lessee shall pay for all real estate taxesand special assessments allocable to the term of this Lease.  It is mutually understood and agreed that thetotal floor area of 29,202 square feet in the Premises is 100% of the totalfloor area (of 29,202 square feet) in the building of which the Premises is apart, and that in addition to the Minimum Rent, the Lessee agrees to pay $1.25per square foot in 2005 (based on a total annual tax of $36,450.37), thisequals $3,037.53 per month for estimated tax expense for 2005.  Such additional rent as estimated by Lessorshall be payable by the Lessee to the Lessor in equal monthly installments at thesame time as the monthly Minimum Rent and, at the sole discretion of Lessor,may be adjusted monthly in order to compensate for unusual expensevariations.  A credit or debit adjustmentshall be made within sixty (60) days following the end of each calendar year toreflect the actual tax and expenses.  Theobligation of Lessee to pay the additional rent provided for in this sectionshall survive the termination of this Lease.

 

All otherbuilding maintenance shall be the responsibility of the Lessee.  This shall include, but is not limited to,the following:  water and sewer charges,lawn care, snow removal, parking lot repairs, common area lighting, policing ofgrounds for trash removal, roof repairs, management fees and such other costsof wages, materials and services necessary for the operation and maintenance ofthe property of which the Premises are a part, all accrued and based upon acalendar year operation.

 

##### 7.     **Late Charges.**  Lessee acknowledges that late payments byLessee to Lessor of rent will cause Lessor to incur costs not contemplated bythis Lease, the exact amount of such costs being extremely difficult andimpracticable to fix.  Such costsinclude, without limitation, processing and accounting charges, mortgageinterest penalties, utility late charges, etc. Therefore, if any installment of rent due from Lessee is not received byLessor when due, Lessee shall pay to Lessor an additional sum of $250.00.  The parties agree that this late charge shallnot constitute a waiver of Lessee’s default with respect to

 

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##### the overdue amount, nor preventLessor from exercising any of the other rights and remedies available toLessor.  Late charges shall be appliedafter the fifth of the month.

 

##### 8.     **Utilities.**  The Lessee shall obtain and pay for all utilities,including gas, electricity and city water and any other service used by theLessee in the Premises during the term of this Lease.  In the event that any utility charge is notseparately metered to the Lessee, then the Lessee shall pay a pro rata share ofsuch utility charge.  The Lessee’s prorata share shall be calculated by dividing the Lessee’s leased square footageby the total leaseable square footage of the building.

 

##### 9.     **Maintenance by Lessee.**  The Lessee shall be wholly responsible forthe maintenance, repair and replacement of the Premises, and will keep it in asgood condition as when originally occupied by Lessee, reasonable wear and tearand damage by fire and the elements excepted; and will keep it in an orderly,clean and sanitary condition as required by laws and ordinances applicablethereto; will neither do nor permit to be done therein anything which is inviolation of the terms of insurance policies on said building or the laws orordinances applicable thereto; will neither commit nor suffer waste in saidPremises and will pay for all glass, broken by its fault or another’s,negligence or the fault or negligence of its employees, invitees, customers oragents.

 

It is agreedthat the obligations of the Lessee hereunder shall extend to all parts orportions of the Premises including glass, entrance and overhead garage doorsand related hardware, and including all portions of the heating, airconditioning, plumbing, sprinklers, electrical and mechanical fixtures,equipment, connections and appurtenances.

 

Lessee shallat all times keep the Premises in a neat and clean condition and free fromgarbage, ashes, waste and accumulation of rubbish or filth, and all garbage,waste, and rubbish shall be removed promptly by Lessee at its own expense.  Lessee shall keep the sidewalks directlyadjoining the Premises swept and free from ice and snow and other obstructions.

 

In the eventthe Lessee fails to perform any act required of Lessee under this Lease afterreceiving written notice from Lessor, the Lessor may, in addition to any otherremedy provided herein, perform or satisfy the obligation of Lessee which is indefault and the reasonable cost thereof shall become an amount immediately duefrom Lessee to the Lessor with interest thereon at ten percent (10%) per annumuntil paid.

 

##### 10.   **No Maintenance by Lessor.**  The Lessor shall not be responsible for anymaintenance, repair and replacement of any parts or portions of the Premises.

 

##### 11.   **Parking.**  Parking areas shall be available to theLessee, its employees and business invitees as well as to other tenants of thebuilding, their employees and invitees. The Lessee will neither use nor permit the use by its employees of theoutside parking areas for the overnight storage of automobiles or othervehicles.  Any inoperable, immobile orabandoned vehicles will be towed away, without notice, by Lessor at the vehicleowner’s expense.

 

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##### 12.   **Liability Insurance.**  The Lessee will maintain in full force andeffect during the term hereof a policy of public liability insurance underwhich Lessor and Lessee are named as insureds; that the minimum limits ofliability of such insurance shall be $1,000,000.00 for injury or death to morethan one person and $2,000,000.00 for property damage.  Lessee agrees to deliver a duplicate copy ofsaid policy to Lessor.  Such policy shallcontain a provision requiring thirty (30) days written notice to the Lessor andLessor’s mortgagee before cancellation of the policy can be effective.  Lessee shall also carry, at its own expense, plateglass insurance for doors and windows.

 

##### 13.   **Hazard Insurance.**  The Lessee shall pay the pro rata premium forany property insurance policy Lessor may obtain for the Premises during theTerm of the Lease. The Lessee shall obtain, at its own expense, propertyinsurance for its own property, and in no event shall Lessor be liable for anydamage to such property by reason of fire or other casualty or the elements,leakage of water or steam.  If Lessee’sbusiness shall manufacture, handle, transport, store, dispose or use in anyway, any substance or material classified as hazardous by the ComprehensiveEnvironmental Response Compensation and Liability Act of 1980 (C.E.R.C.L.A.),the Minnesota Environmental Response and Liability Act of 1983 (M.E.R.L.A.), theClean Air Act, the Solid Waste Disposal Act or the Federal Water PollutionControl Act, or any other statutory or regulatory provision, then Lessee shallcarry adequate insurance to cover any and all expenses associated with theclean up of any spill, leak, pumping, pouring, emitting, discharging,injecting, escaping, leaching, dumping or disposing of any of thesematerials.  Lessee further agrees toindemnify, defend and hold harmless Lessor from any suit or claim as a directresult of Lessee’s actions.

 

##### 14.   **Damage.** That in case said Premises shall become untenantable or unfit foroccupancy in whole or in part by the total or partial destruction of saidbuilding by fire or other casualty, and said Lessor shall fail or refuse withinthirty (30) days thereafter to agree in writing to restore the same withinninety (90) days, this Lease may be terminated by either Lessor or Lessee bynotice in writing, and in case said Lessor shall agree in writing to restorethe same within said time, the rent to be paid hereunder pending suchrestoration shall be abated in proportion to the loss and impairment of the useof said Premises, to be determined by agreement between the parties hereto.

 

##### 15.   **Claims Against Lessor.**  The Lessee will make no claim against theLessor for any loss of or damage to property caused by theft, burglary, water,gas, electricity or other means; provided that the Lessor has taken allreasonable precautions against such loss or damage.

 

##### 16.   **Alterations and Liens.**  The Lessee shall not make any alterations inor additions to the Premises without first procuring the Lessor’s writtenconsent and delivering to Lessor plans, specifications, names and addresses ofcontractors, copies of proposed contracts and the necessary permits, in allform and substance satisfactory to Lessor, and furnishing indemnificationagainst liens, costs, damages and expenses as may be required by Lessor.  All additions, improvements, excepting tradefixtures, which may be made or installed by Lessee upon the Premises shall remainthe property of Lessor at the termination of the Lease.

 

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##### 17.   **Default.**  In the event the Lessee should default in thepayment of the rent when due hereunder or default in the keeping or performingof any other term or condition of this Lease the Lessor is hereby authorized tore-enter said Premises, to eject the Lessee, and take full possession of saidPremises, to terminate this Lease at its option, and to lease and let saidPremises as to it shall seem best, to remove from said Premises all personalproperty of the Lessee, and to store the same to the account and at theexpenses and risk of the Lessee, and to sell said property or any part thereof,and out of the proceeds to pay all expenses of so removing, storing and sellingthe same, and all sums which shall then be in arrears or past due for rent; andthat no such act or acts of the Lessor shall be construed as cancellation ofthis Lease or waiver of the right of the Lessor to collect rent hereunder forthe remainder of said term, except said exercise of its option to terminate thesame; and that in case the Lessor shall determine that any action or proceedingat law or otherwise is necessary to enforce the terms and conditions hereof,the Lessee agrees that reasonable attorney’s fees and the necessary costs anddisbursements thereof may be allowed and taxed against it.

 

##### The Lessee agrees not to remove any of its fixtures, equipment andinventory (other than in the ordinary course of business) from the Premiseswithout the consent in writing of the Lessor while any installments of rent arepast due, and during any other default in the conditions of this Lease.

 

##### 18.   **Condemnation.**  If the whole or any part of the Premisesshall be taken by any public authority under the power of eminent domain, the Lesseeshall have no claim to nor shall it be entitled to any portion of any award,for damages or otherwise for the taking of the real estate.  In the event only a portion of the Premisesis taken, the Lease shall cease as to the part taken, and the rent hereinreserved shall be adjusted for the remainder of the Premises so that the Lesseeshall be required to pay for the balance of the term that portion of the rentherein reserved which the value of the part of the Premises remaining aftercondemnation bears to the value of the Premises immediately prior to the dateof condemnation.  The rent shall beapportioned as aforesaid by agreement between the parties or by arbitration orlegal proceedings, but pending such determination the Lessee shall pay at the timeand in the manner above provided, the rent herein reserved, and all othercharges herein required to be paid by the Lessee, without deduction, and uponsuch determination, the Lessee shall be entitled to credit for any excess rentpaid.  If, however, by reason of thecondemnation there is not sufficient space left in the Premises for the Lesseeto conduct business or the taking of parking and common area is so substantialas to render the Premises unsuitable and unfit for which they were rented, thenand in such events the Lease shall terminate. Nothing herein shall be construed to prevent Lessee from claiming andrecovering from the condemning authority such compensation as may be separatelyawarded or recoverable by Lessee in Lessee’s own right.

 

##### 19.   **Subordination.**  It is expressly understood and agreed thatthis Lease is subordinated to any existing mortgages covering said Premises,and extension or renewal thereof, and to any new mortgages which may be placedthereon from time to time and the Lessee agrees to make, execute and deliverany such instruments as may be required subordinating this Lease to suchmortgage including certificates of estoppel.

 

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##### 20.   **Subrogation.**  Each party hereto waives all claims andcauses of action against the other party for any loss or damage to any of itsproperty insured under valid insurance policies to the extent recovery iscollectable thereunder; provided, however, that this waiver shall apply onlywhen permitted by the applicable policy of insurance.  Each party further agrees to use its bestefforts to have any and all fire, extended coverage or other casualty insurancepolicies which may be carried contain a subrogation clause which provides thatthis insurance shall not be invalidated should the insured waive, in writingprior to a loss, any or all right of recovery against any party for lossoccurring to the property described herein.

 

##### 21.   **Assignment or Subletting.**  Lessee will not assign this Lease, and willnot sublet any part of the Premises without the consent in writing of theLessor, which consent is within Lessor’s sole discretion.  Lessee does hereby agree that if the Lesseeshall be declared bankrupt, shall have a receiver appointed of its property,shall make an assignment for benefit of creditors or its rights hereunder shallbe taken under execution, it shall be construed as an assignment of this Leasewithin the meaning thereof.  Anyassignment of this Lease, without the prior written consent of the Lessor shallbe considered an act of default and subject to the remedies provided Lessor inSection 17 of this Lease.

 

##### 22.   **Indemnity.**  Lessee agrees to indemnify and hold Lessorharmless from any and all claims for damages or injury to persons or propertyor the loss of property relating to or arising out of the Premises or theLessee’s use of the Premises, except for claims for damage or injury occasionedby Lessor’s neglect or failure to perform its obligations under the terms ofthis Lease.

 

##### 23.   **Signs.** That no sign, advertisement or notice will be placed or painted on anypart of the outside of said building or Premises in such manner, style andplaces except as designated by the Lessor; and the Lessor reserves the right toremove all others at the expense of the Lessee.

 

##### 24.   **Access.** Lessor reserves the right to enter upon the Premises at all reasonablehours for the purpose of inspecting the same, or of making repairs, additionsor alterations to the building in which the Premises are located, to exhibitthe Premises to prospective tenants, purchasers or others, to display duringthe last ninety (90) days of the term, without hindrance or molestation byLessee, “For Rent” or similar signs on windows or doors in the Premises.  The exercise by Lessor of any of its rightsunder this Section shall not be deemed an eviction of disturbance of Lessee’suse and possession of the Premises.

 

##### 25.   **Condition of the Premises.**  It is mutually agreed and understood that allof the improvements installed or contemplated by this Lease are adequate andsatisfactory to meet the needs of the Lessee herein.  That any improvements, leasehold equipmentand/or labor hereafter required under any Federal, State or Municipal statuteor ordinance shall be provided by and at the expense of Lessee and that saidLessee shall hold the Lessor and the real estate harmless of any claims arisingtherefrom, and that said remodeling, improvement and/or leasehold equipment sorequired and installed shall

 

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##### inure to thebenefit of the Lessor upon the termination of this Lease, unless otherwise agreedto in writing between the parties.

 

##### 26.   **Notices.**  All notices, consents, demands and requestwhich may be or are required to be given by either party to the other, shall bein writing, and shall be deemed given or served when deposited in the United Statesmail by registered or certified mail, postage prepaid, addressed as follows:

 
| To Lessor  at: |   | Sten  Corporation     |
|----------------|--------|-----------------------|
|           |   |                  |
|           |   |                  |
|           |   |                  |
| To Lessee  at: |   | OLD  Holdings, LLC    |
|           |   | 13828  Lincoln St. NE |
|           |   | Ham Lake, MN  55304   |

 

Such addressesmay be changed from time to time by either serving notices as above provided.

 

##### 27.   **Relationship of Parties.**  Nothing contained in this Lease shall bedeemed or construed by the parties hereto or by any third party to create therelationship of principal and agent or of partnership or of joint venture or ofany association whatsoever between Lessor and Lessee, it being expresslyunderstood and agreed that neither the method of computation of rent nor anyother provisions contained in this Lease nor any act or acts of the partieshereto shall be deemed to create any relationship between Lessor and Lesseeother than the relationship of landlord and tenant.

 

##### 28.   **No Recordation.**  The parties agree that this Lease shall notbe recorded.

 

##### 29.   **All Agreements Included.**  This Lease (and that certain PurchaseAgreement between the parties dated August    , 2005) embodiesall the agreements between the parties hereto respecting the Premises herebyleased.  All subsequent changes andmodifications to be valid shall be embodied within a written instrument dulyexecuted by the parties hereto.

 

##### 30.   **Paragraph Headings.**  The headings of the several paragraphscontained herein are for convenience only and do not define, limit or construethe contents, construction or meaning of the provisions of this Lease.

 

##### 31.   **Laws of Minnesota.**  The laws of the State of Minnesota shallgovern the validity, performance and enforcement of this Lease.

 

##### 32.   **Saving Clause.**  The invalidity or unenforceability of anyprovision of this Lease shall not affect or impair the validity of any otherprovision.

 

##### 33.   **Successors and Assigns.**  All of the terms, covenants, provisions andconditions of this Lease shall be binding upon and inure to the benefit of theparties hereto, their respective successors and assigns.

 

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##### 34.   **Deposit.**  Lessee concurrently with the execution ofthis Lease, has deposited with Lessor the sum of $25,000.00 as earnest money,pursuant to the Purchase Agreement to which this Lease Agreement is appended asExhibit C.  The receipt of said depositis hereby acknowledged by Lessor, and said sum shall be retained by Lessor assecurity for the payment by Lessee of the rents herein agreed to be paid byLessee and for performance by Lessee of the terms and covenants of thisLease.  Lessor, at Lessor’s option, mayapply said sum or any part thereof toward the payment of the rents and allother sums payable by Lessee under this Lease, and toward the performance ofany of Lessee’s covenants under this Lease. Lessor may exhaust any or all rights and remedies against Lessee beforeresorting to said sum.  In the event thisdeposit shall not be utilized for any such purposes, then such deposit shall bereturned to Lessee within twenty-one (21) days after expiration of the term ofthe Lease.  Lessor shall not be requiredto pay Lessee any interest on the security deposit.

 

##### 35.   **Guaranty.**  If so required by Lessor, Lessee’s Guarantorshall execute and deliver to Landlord upon execution of this Lease a Guarantyin the form attached hereto as Exhibit B.

 

IN WITNESSWHEREOF, the respective parties hereto have executed this instrument induplicate the day and year first above written.

 
|       | **LESSOR:**           |
|------------|-----------------------|
|       |                  |
| ** ** | **STEN Corporation**  |
|       |                  |   |
|       |                  |   |
|       | By:                   |   |
|       |                  |   |
|       |                  | Its: |   |
|       |                  |
|       | Date:                 |   |
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|       | **LESSEE:**           |
|       | ** **            |
|       | **OLD Holdings, LLC** |
|       |                  |   |
|       |                  |   |
|       | By:                   |   |
|       |                  |   |
|       |                  | Its: |   |
|       |                  |
|       | Date:                 |   |
|            |                       |  |  |  |  |

 

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