Document:

Exhibit 10.29

Exhibit 10.29

                     __, 20__

[Name of Recipient]

[Address]

Notice of Grant of Performance-Based Deferred Stock

Dear [Name]:

Congratulations! You have been granted a performance-based deferred stock award (the “Award”)
pursuant to the terms and conditions of the attached Verint Systems Inc. (the “Company”)
Performance-Based Deferred Stock Award Agreement (the “Agreement”) and the 2010 Israeli Supplement.
Your Award entitles you to shares of common stock of the Company (“Common Stock”) on certain dates
subject to the vesting and other terms and conditions of the Agreement and the 2010 Israeli
Supplement. The details of your Award are specified below and in the attached Agreement.

	 	 	 	 	 
	 

	 	Granted To:
	 	[Name]
	 

	 	ID#
	 	[ID Number]
	 
	 	 	 	 
	 

	 	Grant Date:
	 	[Date]
	 

	 	Effective Date:
	 	[Date]
	 
	 	 	 	 
	 

	 	Number of shares of
Deferred Stock
Granted:
	 	[Number] (Target shares)

[Number]1 (Additional shares for overachievement)

[Number] (Maximum shares)
	 
	 	 	 	 
	 

	 	Price Per Share:
	 	U.S.$0.00
	 
	 	 	 	 
	 

	 	Vesting Schedule:	 	The Deferred Stock granted hereby shall vest on the dates
set forth in the Agreement (the “Vesting Dates”), upon the
achievement of specified performance goals; provided,
however, that if the following event (the “Vesting
Event”) has not occurred when Restricted Stock Units would
otherwise vest (upon the achievement of such performance
goals), such Restricted Stock Units will not vest until
such event has occurred: the Company has sufficient
available capacity under
one or more of its existing equity plans or a new
shareholder-approved equity incentive plan for all equity
awards approved on the date of this award, on May 20,
2009, on March 4, 2009, and on May 28, 2008, in each case,
which remain outstanding at such time, to vest in
compliance with the Nasdaq restriction which provides that
only legacy Witness employees and new Company hires since
May 25, 2007 may receive awards under the Witness Systems,
Inc. Amended & Restated Stock Incentive Plan assumed by
the Company in connection with the merger with Witness.

 

	 	 	 
	1	 	Not to exceed 100% of the Target Number of shares
(i.e., if the Target Number of shares is 100, the opportunity for additional
shares may not exceed 100, for a grand total of 200).

 

 

 

	 	 	 	 	 
	 
	 	 	 	 
	 

	 	Delivery of Shares:	 	Regardless of the vesting of your Award and regardless of
the terms set forth in the Agreement, in no event will the
shares of common stock underlying your Award be delivered
to you until the Company has made available to you an
effective registration statement under the Securities Act
of 1933, as amended, relating to the shares.
	 
	 	 	 	 
	 

	 	Restrictions on

Re-Sale:	 	Regardless of the vesting of your Award, in no event will
you be allowed to re-sell the shares underlying this grant
of Deferred Stock until the Company has an effective
registration statement under the Securities Act of 1933,
as amended, relating to the shares desired to be sold.
	 
	 	 	 	 
	 

	 	Termination Date:	 	Notwithstanding any other provision of this Notice of
Grant or of the related Performance-Based Deferred Stock
Award Agreement, if shares of Deferred Stock have not
vested by the tenth anniversary of the Grant Date, such
shares of Deferred Stock shall be forfeited by Grantee as
of such date.
	 
	 	 	 	 
	 

	 	Tax Track:
	 	Capital Gains Tax Track Through a Trustee

	1.	 	The Deferred Stock and any additional rights including, without limitation,
any share bonus that shall be distributed to you in connection with the Award
(the “Additional Rights”), shall be allocated on your
behalf to the Trustee, ESOP Management and Trust Services LTD., Company number
513699538 (the “Trustee”).
	 

 

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	2.	 	The Deferred Stock and Additional Rights shall be allocated on your behalf
to the Trustee under the provision of the Capital Gains Tax Track and will be
held by the Trustee for the period (the “Holding Period”) stated in Section 102
of the Income Tax Ordinance, 1961 and the Income Tax Regulations (Tax Relieves in
Allocation of Shares to Employees), 2003 promulgated thereunder (“Section 102”).
	 

	3.	 	If you sell or withdraw the Deferred Stock or Additional Rights from the
Trustee before the end of the Holding Period (which shall be referred to as a
“Violation”), you shall pay income tax at your marginal rate on the profits
derived from the Deferred Stock or Additional Rights plus payments to the
National Insurance Institute and Health Tax. You many also be required to
reimburse the Company or your employing or engaging company, as the case may be,
(the “Employing Company”) for the employer portion of the payments to the
National Insurance Institute, plus any legally required linkage and interest.
You also may be required to reimburse the Employing Company for any other
expenses that the Employing Company shall bear as a result of a Violation.
	 

	4.	 	The Deferred Stock and/or the Additional Rights are granted to you and
allocated to the Trustee according to the provisions of Section 102, the
Agreement, the 2010 Israeli Supplement and the Hebrew version of the Trust
Agreement signed between the Company and the Trustee, a copy of which has been
made available to you and is made a part of this notice. This Award may
additionally be subject to the terms of an equity incentive plan of the Company,
if so resolved by the Company.
	 

	5.	 	The Award is granted to you on the condition that you sign the Approval of
the Designated Grantee, which constitutes a part of this Notice of Grant, below.
	 

	 	 	 	 	 
	 	Verint Systems Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

 

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APPROVAL OF THE DESIGNATED GRANTEE:

I hereby agree that all the Deferred Stock and Additional Rights granted to me pursuant to the
Award shall be allocated to the Trustee under provisions of the Capital Gains Tax Track and
shall be held by the Trustee for the period stated in Section 102 and in accordance with the
provisions of the Trust Agreement, or for a shorter period if an approval is received from the tax
authorities.

I am aware of the fact that upon termination of my Continuous Service with the Employing Company, I
shall not have a right to the Deferred Stock or the Additional Rights, except as specified in the
Performance-Based Deferred Stock Award Agreement.

I hereby confirm that:

	 	1.	 	I have read the Performance-Based Deferred Stock Award Agreement and I understand and
accept the terms and conditions thereof. I am also aware that the Company is agreeing to
grant me the Award and allocate it on my behalf to the Trustee based on this confirmation;

	 	2.	 	I understand the provisions of Section 102 and the applicable tax track of this grant
of Award;

	 	3.	 	I agree to the terms and conditions of the Hebrew version of the Trust Agreement a
copy of which has been made available to me;

	 	4.	 	Subject to the provisions of Section 102, I confirm that I shall not sell, nor
transfer from the Trustee, the Deferred Stock or Additional Rights before the end of the
Holding Period;

	 	5.	 	If I shall sell, or withdraw from the Trust, the Deferred Stock or the Additional
Rights before the end of the Holding Period as defined in Section 102 (a
“Violation”), either (A) I shall reimburse the Employing Company within three (3)
days of its demand for the employer portion of the payment by the Employing Company to the
National Insurance Institute plus linkage and interest in accordance with the law, as well
as any other expense that the Employing Company shall bear as a result of the said
Violation (all such amounts defined as the “Payment”) or (B) I agree that the
Employing Company may, in its sole discretion, deduct such amounts directly from any
monies to be paid to me as a result of my disposition of the Deferred Stock or the
Additional Rights.

By my signature below, I hereby acknowledge my receipt of this Award granted on the date shown
above, which is issued to me subject to the terms and conditions of the Agreement and the 2010
Israeli Supplement. I further acknowledge receipt of a copy of a Performance-Based Deferred Stock
Award Agreement, the 2010 Israeli Supplement, the Trust Agreement (in Hebrew), and the summary
information sheet (in Hebrew). I agree that the Award is subject to all of the terms and
conditions this Notice of Grant of Deferred Stock, the 2010 Israeli Supplement, and the Agreement
(including any equity plan referred to therein).

	 	 	 	 	 	 	 	 	 	 	 
	Signature:

	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 

 

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VERINT SYSTEMS INC.

PERFORMANCE-BASED DEFERRED STOCK AWARD AGREEMENT

This Performance-Based Deferred Stock Award Agreement (“Agreement”) governs the terms and
conditions of the Performance-Based Deferred Stock Award (the “Award”) specified in the
Notice of Grant of Performance-Based Deferred Stock (the “Notice of Grant”) delivered
herewith entitling the person to whom the Notice of Grant is addressed (“Grantee”) to
receive from Verint Systems Inc. (the “Company”) the targeted number of shares of
performance-based Deferred Stock indicated in the Notice of Grant (and the opportunity to earn
additional shares of Deferred Stock if targeted performance is exceeded, as described herein, if
provided for in the Notice of Grant), subject to the terms and conditions of this Agreement.

	1	 	DEFERRED STOCK; VESTING

	1.1	 	Grant of Performance-Based Deferred Stock.

	(a)	 	Subject to the terms of this Agreement and the 2010 Israeli Supplement, the Company hereby
grants to Grantee the targeted number of shares of performance-based Deferred Stock indicated
in the Notice of Grant (the “Target Shares”), vesting of which depends upon the
Company’s performance during each Performance Period (defined below), as specified for each
such Performance Period.

	(b)	 	Grantee’s right to receive all, any portion of, or more than the Target Shares will be
contingent upon the Company’s achievement of specified levels of Revenue measured over the
following periods (each, a “Performance Period” and, collectively, the
“Performance Periods”):

	 	(i)	 	Payment of the first one-third of the Target Shares (the “2009
Shares”) will be contingent upon the achievement of specified levels of Revenue
during the period from February 1, 2010 through January 31, 2011 (the “2010
Period”);

	 	(ii)	 	Payment of the second one-third of the Target Shares (the “2010
Shares”) will be contingent upon the achievement of specified levels of Revenue
during the period from February 1, 2011 through January 31, 2012 (the “2011
Period”); and

	 	(iii)	 	Payment of the final one-third of the Target Shares (the “2011
Shares”) will be contingent upon the achievement of specified levels of Revenue
during the period from February 1, 2012 through January 31, 2013 (the “2012
Period”).

 

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	(c)	 	The applicable “Revenue” definition and target, “Threshold” level, and “Maximum level” (as
described below) for each Performance Period will be set by the Board of Directors of the
Company (the “Board”) or a committee thereof designated to administer the Award (the
“Committee”) prior to the conclusion of each such Performance Period, and to the
extent practicable, within the first 90 days of each such Performance Period and will be
attached in a performance matrix (the “Performance Matrix”) as an exhibit to this
Agreement. A sample Performance Matrix is set forth on Exhibit A hereto.

	(d)	 	If and when the shares of Deferred Stock vest in accordance with the terms of this Agreement
and the Notice of Grant without forfeiture, and upon the satisfaction of all other applicable
conditions as to the Deferred Stock, one share of Common Stock shall be issuable to Grantee
for each share of Deferred Stock that vests on such date (the “Shares”).
Notwithstanding the foregoing, no Shares will be delivered following the vesting of shares of
Deferred Stock until the Delivery Condition (as defined below) has been satisfied. Any
fractional share of Deferred Stock remaining after the Award is fully vested shall be
discarded and shall not be converted into a fractional Share. No expiration of the
restrictions set forth in this Agreement shall affect the restrictions contained in the 2010
Israeli Supplement (including, without limitation, the restrictions on the Grantee’s right to
hold the Shares directly or to sell or otherwise dispose of the Shares prior to the expiration
of the Holding Period (as hereinafter defined)), which shall be in addition to and separate
from the restrictions contained in this Agreement.

	1.2	 	Vesting of Performance-Based Deferred Stock.

	(a)	 	Below Threshold. If upon conclusion of the relevant Performance Period, Revenue for
that Performance Period falls below the “Threshold” level, as set forth in the applicable
Performance Matrix, no shares of Deferred Stock for that Performance Period shall become
vested.

	(b)	 	Between Threshold and Target. If, upon conclusion of the relevant Performance
Period, Revenue for that Performance Period equals or exceeds the “Threshold” level, but is
less than the “Target” level, as set forth in the applicable Performance Matrix, a portion of
the Target Shares eligible for vesting during such Performance Period (of between the
percentage specified on the Performance Matrix opposite the “Threshold” Revenue level and
100%) will vest based on where actual Revenues for such Performance Period fall between the
“Threshold” level and the “Target” level. If the foregoing calculation would result in the
vesting of a fraction of a share, the result of the calculation will be rounded down to the
nearest whole share.

 

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	(c)	 	Between Target and Maximum. If, upon the conclusion of the relevant Performance
Period, Revenue for that Performance Period equals or exceeds the “Target” level, but is less
than the “Maximum” level, as set forth in the applicable Performance Matrix, 100% of the
Target Shares for such Performance Period will
become vested, plus, if the Notice of Grant indicates that shares in excess of the Target
Shares are eligible to be earned, an additional number of shares of Deferred Stock (of
between 0% and the maximum percentage of the Target Shares for such Performance Period
specified on the Performance Matrix opposite the “Maximum” Revenue level) based on where
actual Revenues for such Performance Period fall between the “Target” level and the
“Maximum” level. If the foregoing calculation would result in the vesting of a fraction of
a share, the result of the calculation will be rounded down to the nearest whole share.

	(d)	 	Equals or Exceeds Maximum. If the Notice of Grant indicates that shares in excess of
the Target Shares are eligible to be earned, and upon conclusion of the relevant Performance
Period, Revenue for that Performance Period equals or exceeds the “Maximum” level, as set
forth in the applicable Performance Matrix, the maximum percentage of the Target Shares for
such Performance Period specified on the Performance Matrix opposite the “Maximum” Revenue
level shall become vested.

	(e)	 	Determination of Earned Award. Within 60 days following the Board’s receipt of the
Company’s audited financial statements covering the relevant Performance Period, the Board or
the Committee will determine (i) whether and to what extent the goals relating to Revenue have
been satisfied for each Performance Period, (ii) the number of shares of Deferred Stock that
shall have become vested hereunder and (iii) whether all other conditions to receipt of the
Shares have been met. The Board or Committee’s determination of the foregoing shall be final
and binding on Grantee absent a showing of manifest error. Notwithstanding any other
provision of this Agreement, no Restricted Stock Units for a given Performance Period shall
vest until the Board or Committee has made the foregoing determinations for such Performance
Period (the date of such determination for each Performance Period, a “Vesting Date”).
In the case of the 2012 Period, such determination shall not be final until on or after the
third anniversary of the date of Board or Committee approval.

	(f)	 	Other Vesting Provisions.

	 	(i)	 	Any shares of Deferred Stock that do not become vested based on the foregoing
provisions with respect to a given Performance Period will be automatically forfeited
by Grantee without consideration.

	 	(ii)	 	Notwithstanding the foregoing vesting provisions, if the following event has
not occurred on the date shares of Deferred Stock would otherwise vest hereunder, such
 shares of Deferred Stock will not vest until such event has occurred: the Company has
sufficient available capacity under one or more of its existing equity plans or a new
shareholder-approved equity incentive plan for all equity awards approved on the date
of this award, on May 20, 2009, on March 4, 2009, and on May 28, 2008, in each case,
which remain outstanding at such time, to vest in compliance with
the Nasdaq restriction which provides that only legacy Witness employees and new
Company hires since May 25, 2007 may receive awards under the Witness Systems, Inc.
Amended & Restated Stock Incentive Plan assumed by the Company in connection with
the merger with Witness (the “Vesting Event”).

 

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	 	(iii)	 	Upon the occurrence of a Change in Control (other than a Hostile Change in
Control), the Committee may, in its sole discretion, elect to accelerate the vesting
of all unvested shares of Deferred Stock. In the event of a Hostile Change in
Control, such accelerated vesting shall occur automatically upon the occurrence of
such Hostile Change in Control (unless the Committee determines that it is
impermissible under Israeli law). At any time before a Change in Control, the
Committee may, without the consent of the Grantee (i) require the entity effecting the
Change in Control or a parent or subsidiary of such entity to assume this Award or
substitute an equivalent cash award therefor or (ii) terminate and cancel all
outstanding shares of Deferred Stock upon the Change in Control. In connection with
any such termination and cancellation of outstanding shares of Deferred Stock upon a
Change in Control, the Committee may, in its discretion, cause the payment to the
Grantee for each unvested share of Deferred Stock equal to the Fair Market Value of
the Common Stock on the date of the Change in Control. For the purposes of this
Section, shares of Deferred Stock under this Award shall be considered assumed if,
following the closing of the Change in Control transaction, each share of Deferred
Stock confers the right to receive cash in an amount equal to the consideration (if
such consideration was cash) or the fair market value of the consideration (if such
consideration was stock, other securities, or property) received in such transaction
by holders of Common Stock for each share of Common Stock held on the effective date
of the transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares of Common
Stock).

	1.3	 	Forfeiture.

	(a)	 	Except as otherwise provided herein, Grantee’s right to receive any of the Deferred Stock is
contingent upon his or her remaining in the Continuous Service of the Company or a Subsidiary
or Affiliate through the end of the relevant Performance Period. If Grantee’s Continuous
Service terminates for any reason, all shares of Deferred Stock which are then unvested shall,
unless otherwise determined by the Board or the Committee in its sole discretion, be cancelled
and the Company shall thereupon have no further obligation thereunder. In the event of any
such forfeiture, all such forfeited Deferred Stock shall be cancelled. For the avoidance of
doubt, subject to a separate written agreement between the parties, Grantee acknowledges and
agrees that he or she has no expectation that any Deferred Stock will vest on the termination
of his or her Continuous Service
for any reason and that he or she will not be entitled to make a claim for any loss
occasioned by such forfeiture as part of any claim for breach of his or her employment or
service contract or otherwise.

 

8

 

	(b)	 	A Grantee’s Continuous Service shall not be considered interrupted in the case of (i)
transfers within the Company, its Subsidiaries, or Affiliates, or any successor thereto, or
(ii) any change in status from employee, director, or consultant (to any other such status) so
long as the provision of services to the Company, a Subsidiary, or Affiliate is not
interrupted or terminated.

	(c)	 	A Grantee’s Continuous Service shall not be considered interrupted in the case of any
approved leave of absence. An approved leave of absence shall include sick leave, military
leave, or any other leave that is required by statute or promised by contract, by Company
policy, or by other authorization of the Company. Any other leave of absence will be
considered unauthorized and Grantee’s Continuous Service will be considered terminated for
purposes of this Agreement at the start of such unauthorized leave. Notwithstanding the
foregoing, unless Grantee’s right to return from an authorized leave is guaranteed by statute
or by contract, if an approved leave of absence exceeds six (6) months in any single
Performance Period, Grantee will forfeit all of the shares of Deferred Stock that are or were
eligible for vesting during such Performance Period, on the date such authorized leave exceeds
six (6) months in duration; provided, however, that the Committee shall have
discretion to waive the effect of the foregoing forfeiture provision or lengthen the six month
period before a forfeiture occurs to the extent necessary to comply with applicable tax,
labor, or other law or based on the particular facts and circumstances of the leave in
question.

	(d)	 	Notwithstanding any other provision of the Notice of Grant or of this Agreement, if shares of
Deferred Stock have not vested by the tenth anniversary of the grant date, such shares of
Deferred Stock shall be forfeited by Grantee as of such date. In the event of any such
forfeiture, all such forfeited Deferred Stock shall be cancelled and the Grantee shall have no
further right or claim to such Deferred Stock or the underlying Shares.

	1.4	 	Custody; Delivery.

	(a)	 	As soon as practicable after the Effective Date specified in the Notice of Grant, the Company
shall direct that the Deferred Stock be registered in the name of and issued to ESOP
Management and Trust Services LTD., Company number 513699538 (the “Trustee”) for the
benefit of the Grantee in book entry format. All Deferred Stock and Shares underlying the
same shall be held in the custody of the Trustee until the later of (i) the applicable Vesting
Date (as defined in Paragraph 1.3) (assuming satisfaction of the Vesting Event on such date)
and (ii) the time when the required holding period (the “Holding Period”) under the
Capital Gains Track with a Trustee (as per the terms of the Israeli Tax Ordinance)
as set forth in the 2010 Israeli Supplement has run and the Grantee has provided to the
Company a written request to release the Shares.

 

9

 

	(b)	 	As soon as administratively practicable following the vesting of shares of Deferred Stock in
accordance with the terms of this Agreement, and subject to the satisfaction of all other
applicable conditions, including, but not limited to, the payment by the Grantee of all
applicable U.S., Israeli, or other withholding taxes, the Company shall issue the applicable
Shares and, at its option, (i) deliver or cause to be delivered to the Trustee, or if the
Holding Period has run and the Grantee has requested release of the shares in accordance with
Paragraph 1.4(a), the Grantee, a certificate or certificates for the applicable Shares or (ii)
transfer or arrange to have transferred the Shares to a brokerage account of the Trustee, or
if the Holding Period has run and the Grantee has requested release of the shares in
accordance with Paragraph 1.4(a), of the Grantee, designated by the Company. Notwithstanding
the foregoing, in no event will the Shares be delivered until the Company has made available
to you an effective registration statement under the Securities Act of 1933, as amended,
relating to the Shares (“Delivery Condition”).

	(c)	 	In addition, notwithstanding the foregoing, the issuance of Shares pursuant to a vesting of a
share of Deferred Stock and the subsequent fulfillment of the Delivery Condition shall be
delayed in the event (i) the Company reasonably anticipates that the issuance of Shares would
constitute a violation of U.S. federal securities laws or other applicable law or Nasdaq rules
or (ii) Grantee is subject to a Company-imposed trading blackout at such time. If the issuance
and delivery of the Shares is delayed by the provisions of this paragraph, such issuance and
delivery shall occur at the earliest date at which, as applicable: (x) the Company reasonably
anticipates that doing so will not cause a violation of U.S. federal securities laws or other
applicable law or Nasdaq rules and (y) Grantee is no longer subject to a Company-imposed
trading blackout. For purposes of this paragraph, the issuance of Shares that would cause
inclusion in gross income or the application of any penalty provision or other provision of
the Code or other tax code applicable to Grantee is not considered a violation of applicable
law.

	(d)	 	For the avoidance of doubt, no vesting under this Agreement shall entitle the Grantee to take
possession of any Shares or become the registered holder thereof until the Holding Period has
ended. However, if a Grantee instructs the Trustee to sell the shares issued pursuant to the
Award or transfer the Shares from the Trustee to the Grantee prior to the end of the Holding
Period, then the tax consequences in Section 102(b)(4) of the Israeli Income Tax Ordinance
shall apply to the Grantee.

 

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	1.5	 	Restrictions.

	(a)	 	Except as provided herein, the Trustee or Grantee, as applicable (the “Holder”) shall
not have any right in, to or with respect to any of the Shares (including any voting rights or
rights with respect to dividends paid on the Company’s Common Stock) issuable under the Award
unless and until the Award is settled by the issuance of such Shares.

	(b)	 	The shares of Deferred Stock may not be transferred in any manner other than by will or by
the laws of descent and distribution. Any attempt to dispose of the Deferred Stock or any
interest in the same in a manner contrary to the restrictions set forth in this Agreement
shall be void and of no effect.

	(c)	 	Regardless of the vesting of your Award, in no event shall Grantee be allowed to re-sell any
 shares of Common Stock underlying this grant of Deferred Stock until the Company has an
effective registration statement under the Securities Act of 1933, as amended (the
“Securities Act”), relating to the shares desired to be sold.

	(d)	 	For the avoidance of doubt, the foregoing restrictions shall be in addition to, and separate
from, the restrictions contained in the 2010 Israeli Supplement (including, without
limitation, the restrictions on the Grantee’s right to hold the Deferred Stock or the Shares
directly or to sell or otherwise dispose of the Deferred Stock or the Shares prior to the
expiration of the Holding Period).

	1.6	 	Tax; Withholding.

	(a)	 	The Company, or its authorized delegates, shall determine the amount of any withholding or
other tax required by law to be withheld or paid by the Company or a subsidiary thereof with
respect to any income recognized by Grantee with respect to the Deferred Stock or the issuance
of the underlying Shares.

	(b)	 	Neither the Company nor any Subsidiary, Affiliate or agent makes any representation or
undertaking regarding the treatment of any tax or withholding in connection with the grant or
vesting of the Award or the subsequent sale of Shares subject to the Award. The Company and
its Subsidiaries and Affiliates do not commit and are under no obligation to structure the
Award to reduce or eliminate Grantee’s tax liability.

	(c)	 	Grantee shall be required to meet any applicable tax withholding obligation, whether United
States federal, state, local, Israeli or otherwise, including any employment tax obligations
or social security obligations (the “Tax Withholding Obligation”), prior to any event
in connection with the Award (e.g., vesting, delivery...etc.) that the Company determines may
result in any Tax Withholding Obligation, and the Company reserves the right to determine the
method or methods by which such Tax Withholding Obligations will be satisfied together
with any associated timing or other details required to effectuate such method or methods.

 

11

 

	(d)	 	Grantee is ultimately liable and responsible for all taxes owed by Grantee in connection with
the Award, regardless of any action the Company or any of its Subsidiaries, Affiliates or
agents takes with respect to any tax withholding obligations that arise in connection with the
Award. Accordingly, Grantee agrees to pay to the Company or its relevant Subsidiary or
Affiliate as soon as practicable, including through additional payroll withholding (if
permitted under applicable law), any amount of required tax withholding that is not satisfied
by any such action of the Company or its Subsidiary or Affiliate.

	(e)	 	The Committee shall be authorized, in its sole discretion, to establish such rules and
procedures relating to the use of shares of Common Stock to satisfy tax withholding
obligations as it deems necessary or appropriate to facilitate and promote the conformity of
the Holder’s transactions under the Agreement (and the 2010 Israeli Supplement) and this
Agreement with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, if such rule
is applicable to transactions by the Holder and with the Israeli Tax Ordinance.

	2	 	CERTAIN DEFINITIONS

Defined terms used herein and not otherwise defined in the body of this Agreement are defined in
Appendix A hereto.

	3	 	REPRESENTATIONS OF GRANTEE

Grantee hereby represents to the Company that Grantee has read and fully understands the provisions
of this Agreement, and Grantee acknowledges that Grantee is relying solely on his or her own
advisors with respect to the tax consequences of this Award. Grantee acknowledges that this
Agreement has not been reviewed or approved by any regulatory authority in his or her country of
residence or otherwise.

 

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	4	 	NOTICES

All notices or communications under this Agreement shall be in writing, addressed as follows:

To the Company:

Verint Systems Inc.

330 South Service Road

Melville, NY 11747-3201

U.S.A.

(631) 962-9600 (phone)

(631) 962-9623 (fax)

Attn: Chief Legal Officer

To Grantee:

as set forth in the Company’s payroll records

Any such notice or communication shall be (a) delivered by hand (with written confirmation of
receipt) or sent by a nationally recognized overnight delivery service (receipt requested) or (b)
sent certified or registered mail, return receipt requested, postage prepaid, addressed as above
(or to such other address as such party may designate in writing from time to time), and the actual
date of receipt shall determine the time at which notice was given. Grantee will promptly notify
the Company in writing upon any change in Grantee’s address.

	5	 	ASSIGNMENT; BINDING AGREEMENT

This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of
Grantee and the assigns and successors of the Company, but neither this Agreement nor any rights
hereunder shall be assignable or otherwise subject to hypothecation by Grantee or the Trustee.

	6	 	ENTIRE AGREEMENT; AMENDMENT

This Agreement, 2010 Israeli Supplement and the Notice of Grant represent the entire agreement of
the parties with respect to the subject matter hereof, except that the Committee reserves the
right, in its sole discretion, to make the Award and this Agreement subject to the terms of an
equity incentive plan of the Company so long as the terms of such equity incentive plan do not
contradict any of the provisions of the Agreement, 2010 Israeli Supplement, or the Notice of Grant
in any material respect. This Agreement or the Notice of Grant may be amended by the Committee
without the consent of Grantee or the Trustee except in the case of an amendment adverse to
Grantee, in which case Grantee’s consent shall be required. Notwithstanding the foregoing,
however, the Committee shall have the power to adopt regulations for carrying out this Agreement
and to make changes in such regulations, as it shall, from time to time, deem advisable. In
addition, any interpretation by the Committee of the terms and provisions of this Agreement and the
administration thereof, and all action taken by the Committee, shall be final and binding.

 

13

 

	7	 	GOVERNING LAW

This Agreement shall be governed by the laws of the state of New York, without giving effect to any
principle of law that would result in the application of the law of any other jurisdiction. Each
party to this Agreement hereby consents and submits himself, herself or itself to the jurisdiction
of the courts of the state of New York for the purposes of any legal action or proceeding arising
out of this Agreement. Nothing in this Agreement shall affect the right of the Company to commence
proceedings against the Grantee in any other competent jurisdiction, or concurrently in more than
one jurisdiction, or to serve process, pleadings and other papers upon the Grantee in any manner
authorized by the laws of any such jurisdiction. The Grantee irrevocably waives:

(a) any objection which it may have now or in the future to the laying of the venue of any
action, suit or proceeding in any court referred to in this Section; and

(b) any claim that any such action, suit or proceeding has been brought in an inconvenient
forum.

	8	 	SEVERABILITY

Whenever possible, each provision in this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, then (a) such provision shall be deemed amended
to accomplish the objectives of the provision as originally written to the fullest extent permitted
by law and (b) all other provisions of this Agreement shall remain in full force and effect.

	9	 	ONE-TIME GRANT; NO RIGHT TO CONTINUED SERVICE OR PARTICIPATION; EFFECT ON OTHER PLANS

Grantee’s award of Deferred Stock is a voluntary, discretionary bonus being made on a one-time
basis and it does not constitute a commitment to make any future awards. Neither this Agreement
nor the Notice of Grant shall confer upon Grantee any right with respect to continued service with
the Company, a Subsidiary or Affiliate, nor shall it interfere in any way with the right of the
Company a Subsidiary or Affiliate to terminate Grantee’s Continuous Service at any time. Payments
received by Grantee pursuant to this Agreement and the Notice of Grant shall not be considered
salary or other compensation for purposes of any severance pay or similar allowance and shall not
be included in the determination of benefits under any pension, group insurance or other benefit
plan of the Company or any Subsidiaries or Affiliate in which Grantee may be
enrolled or for which Grantee may become eligible, except as otherwise required by law, as may be
provided under the terms of such plans or as determined by the Board of Directors of the Company.

 

14

 

	10	 	NO STRICT CONSTRUCTION

No rule of strict construction shall be implied against the Company, the Committee or any other
person in the interpretation of any of the terms of the 2010 Israeli Supplement, this Agreement,
the Notice of Grant or any rule or procedure established by the Committee.

	11	 	USE OF THE WORD “GRANTEE”

Wherever the word “Grantee” is used in any provision of this Agreement under circumstances where
the provision should logically be construed to apply to the Trustee or the executors, the
administrators, or the person or persons to whom the Deferred Stock may be transferred by will or
the laws of descent and distribution, the word “Grantee” shall be deemed to include such person or
persons.

	12	 	FURTHER ASSURANCES

Grantee agrees to, and shall cause the Trustee to, upon demand of the Company or the Committee, do
all acts and execute, deliver and perform all additional documents, instruments and agreements
which may be reasonably required by the Company or the Committee, as the case may be, to implement
the provisions and purposes of this Agreement and the 2010 Israeli Supplement.

	13	 	AMENDMENT TO MEET THE REQUIREMENTS OF SECTION 409A ET AL

Grantee acknowledges that, to the extent applicable, the Company, in the exercise of its sole
discretion and without the consent of Grantee, may amend or modify this Agreement in any manner and
delay the payment of any amounts payable pursuant to this Agreement to the minimum extent necessary
to meet the requirements of Section 409A of the Code as amplified by any Internal Revenue Service
or U.S. Treasury Department regulations or guidance, or any other applicable equivalent tax law,
rule, or regulation, as the Company deems appropriate or advisable.

	14	 	ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

In the event of a reorganization, recapitalization, stock split, spin-off, split-off, split-up,
stock dividend, issuance of stock rights, combination of shares, merger, consolidation or any other
change in the corporate structure of the Company affecting Common Stock, or any distribution to
stockholders other than a regular cash dividend, the Board shall make appropriate adjustment in the
number and kind of shares to which the Deferred Stock
relates and any other adjustments to the Award as it determines appropriate. No fractional shares
of Deferred Stock shall be awarded pursuant to such an adjustment.

 

15

 

	15	 	CONSENT TO TRANSFER PERSONAL DATA

The Company and its Subsidiaries hold certain personal information about Grantee, that may include
Grantee’s name, home address and telephone number, date of birth, social security number or other
employee identification number, salary, nationality, job title, any shares of stock held in the
Company, or details of any entitlement to shares of stock awarded, canceled, purchased, vested, or
unvested, for the purpose of implementing, managing and administering the Award or the Agreement
(“Data”). The Grantee hereby agrees that the Company and/or its Subsidiaries may transfer
Data amongst themselves as necessary for the purpose of implementation, administration and
management of Grantee’s participation in the Award or the Agreement, and the Company and/or any of
its Subsidiaries may each further transfer Data to any third parties assisting the Company in the
implementation, administration and management of the Award or the Agreement. These recipients may
be located throughout the world, including outside the Grantee’s country of residence (or outside
of the European Union, for Grantees located within the European Union). Such countries may not
provide for a similar level of data protection as provided for by local law (such as, for example,
European privacy directive 95/46/EC and local implementations thereof). Grantee hereby authorizes
those recipients – even if they are located in a country outside of Grantee’s country of residence
(or outside of the European Union, for Grantees located within the European Union) – to receive,
possess, use, retain and transfer the Data, in electronic or other form, for the purpose of
implementing, administering and managing Grantee’s participation in the Award or the Agreement,
including any requisite transfer of such Data as may be required for the administration of the
Award or the Agreement and/or the subsequent holding of shares of stock on Grantee’s behalf by a
broker or other third party with whom Grantee or the Company may elect to deposit any shares of
stock acquired pursuant to the Award or the Agreement. Grantee is not obliged to consent to such
collection, use, processing and transfer of personal data and may, at any time, review Data,
require any necessary amendments to it or withdraw the consent contained in this section by
contacting the Company in writing. However, withdrawing or withholding consent may affect
Grantee’s ability to participate in the Award or the Agreement. More information on the Data
and/or the consequences of withholding or withdrawing consent can be obtained from the Company’s
legal department.

END OF AGREEMENT

 

16

 

Appendix A

CERTAIN DEFINITIONS

For purposes of this Agreement, the following terms have the following meanings:

“1934 Act” means the Securities Exchange Act of 1934, as amended.

“Affiliate” means any entity other than the Subsidiaries in which the Company has a
substantial direct or indirect equity interest, as determined by the Board.

“Change in Control” means (i) the Board (or, if approval of the Board is not required as a
matter of law, the stockholders of the Company) shall approve (a) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation or pursuant to
which shares of Common Stock would be converted into cash, securities or other property, other than
a merger of the Company in which the holders of Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving corporation immediately after the
merger, or (b) any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of the Company or (c) the adoption
of any plan or proposal for the liquidation or dissolution of the Company; (ii) any person (as such
term is defined in Section 13(d) of the 1934 Act), corporation or other entity other than the
Company shall make a tender offer or exchange offer to acquire any Common Stock (or securities
convertible into Common Stock) for cash, securities or any other consideration, provided that (a)
at least a portion of such securities sought pursuant to the offer in question is acquired and (b)
after consummation of such offer, the person, corporation or other entity in question is the
“beneficial owner” (as such term is defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, of 20% or more of the outstanding shares of Common Stock (calculated as provided in
paragraph (d) of such Rule 13d-3 in the case of rights to acquire Common Stock); (iii) during any
period of two consecutive years, individuals who at the beginning of such period constituted the
entire Board ceased for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company’s stockholders, of each new director was approved by a vote
of at least two-thirds of the directors then still in office who were directors at the beginning of
the period; or (iv) the occurrence of any other event the Committee determines shall constitute a
“Change in Control” hereunder.

“Code” means the Internal Revenue Code of 1986, as amended.

“Common Stock” means the common stock of the Company, par value $.001 per share, or such
other class or kind of shares or other securities resulting from the application of Section 14 of
the Agreement.

 

17

 

“Continuous Service” means that the provision of services to the Company or a Subsidiary or
Affiliate in any capacity of employee, director or consultant is not interrupted or terminated. In
jurisdictions requiring notice in advance of an effective termination as an employee, director or
consultant, Continuous Service shall be deemed terminated upon the actual cessation of providing
services to the Company or a Subsidiary or Affiliate notwithstanding any required notice period
that must be fulfilled before a termination as an employee, director or consultant can be effective
under applicable labor laws. Continuous Service shall not be considered interrupted in the case of
(i) any approved leave of absence, (ii) transfers among the Company, any Subsidiary or Affiliate,
or any successor, in any capacity of employee, director or consultant, or (iii) any change in
status as long as the individual remains in the service of the Company or a Subsidiary or Affiliate
in any capacity of employee, director or consultant. An approved leave of absence shall include
sick leave, military leave, or any other authorized personal leave.

“Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(a) If the Common Stock is listed on one or more established stock exchanges or national
market systems, including without limitation The Nasdaq Global Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on the principal exchange or system on which the Common Stock is listed
(as determined by the Committee) on the date of determination (or, if no closing sales
price or closing bid was reported on that date, as applicable, on the last trading date
such closing sales price or closing bid was reported), as reported in The Wall Street
Journal or such other source as the Committee deems reliable;

(b) If the Common Stock is regularly quoted on an automated quotation system (including the
OTC Bulletin Board or Pink Sheets) or by a recognized securities dealer, its Fair Market
Value shall be the closing sales price for such stock as quoted on such system or by such
securities dealer on the date of determination, or if no closing sales price was reported
on that date, the closing sale price on the immediately preceding trading date; or

(c) In the absence of an established market for the Common Stock of the type described in
(a) and (b), above, the Fair Market Value thereof shall be determined by the Committee in
good faith.

“Hostile Change in Control” means any Change in Control that is not approved or recommended
by the Board.

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company (or any subsequent parent of the Company) if each of the
corporations other than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the other corporations in
such chain.

 

18

 

 EXHIBIT A

Performance Matrix for 20[__] Period

20[_____] shares of Deferred Stock:

[Number] (Target shares)

[Number]2 (Additional shares for overachievement)

[Number] (Maximum shares)

Definition of “Revenue” for period (e.g., Consolidated GAAP revenue including/excluding the
following items...):                     

Target “Revenue” for 20[__] Period: $                    

	 	 	 	 	 
	 	 	Percent of 20[__]	 
	Revenue Achieved in 20[__] Period	 	 Target Shares Vesting	 
	Threshold ([__]% of 20[__] Target Revenues)
	 	 	[__]	%
	Target (100% of 20[__] Target Revenues)
	 	 	100	%
	Maximum ([__]% of 20[__] Target Revenues)
	 	 	[__]	%3

 

	 	 	 
	2	 	Not to exceed 100% of the Target Number of shares
(i.e., if the Target Number of shares is 100, the opportunity for additional
shares may not exceed 100, for a grand total of 200).
	 
	3	 	Not to exceed 200% (i.e., if the Target Number of
Shares is 100, the opportunity for additional Shares may not exceed 100, for a
grand total of 200 Shares). If the Notice of Grant does not make additional
shares available for over-performance, replace this line of the table with
“Maximum: Not Applicable”.

 

19exv10w1

Exhibit 10.1

LEASE AGREEMENT

     THIS LEASE AGREEMENT (“Lease”) is between Landlord and Tenant as of the Date of Lease.

W I T N E S E T H:

     1. Premises and Term. In consideration of the obligation of Tenant to pay Rent (as defined in
Paragraph 4(g)), and in consideration of the other terms, provisions and covenants hereof, Landlord
hereby leases to Tenant, and Tenant hereby takes from Landlord the Premises designated on the Data
Sheet, as shown crosshatched on the plan attached hereto as Exhibit A, which Premises are
located in the Building, together with all rights, privileges, easements, appurtenances, and
immunities belonging to or in any way pertaining to the Premises.

     TO HAVE AND TO HOLD the same for the Term, provided, however, that in the event the
Commencement Date is a date other than the first day of a calendar month, said Term shall be
extended for said number of months in addition to the remainder of the calendar month following the
Commencement Date, and provided further that if Tenant begins to conduct business in all or any
portion of the Premises before the Commencement Date, all terms and conditions of this Lease shall
apply to such period, except that, on the Commencement Date, and in addition to any other Rent due
and payable on the Commencement Date pursuant to this Lease, Tenant shall pay to Landlord a rental
in respect of the period from the date Tenant begins to conduct business in the Premises to the
Commencement Date, which rental shall be that proportion of Rent payable for the first year of the
Term which the number of days in such period bears to 365.

     Notwithstanding the foregoing, if the Premises shall, on the scheduled Commencement Date of
the Term, not be ready for occupancy by the Tenant due to the possession or occupancy thereof by
any person not lawfully entitled thereto, or because construction has not yet been completed, or by
reason of any Building operations, repair or remodeling to be done by Landlord, Landlord shall use
good faith efforts to complete such construction, Building operations, repair or remodeling and to
deliver possession of the Premises to Tenant. Landlord, using such good faith efforts, shall not
in any way be liable for failure to obtain possession of the Premises for Tenant or to timely
complete such construction, Building operations, repair or remodeling, but the Rent payable by
Tenant under this Lease shall abate until the date Landlord is able to tender possession of the
Premises to Tenant, which date shall be deemed the “Commencement Date;” and the Term shall be
automatically extended so as to include the full number of months stated on the Data Sheet except
that if the Commencement Date is other than the first day of a calendar month, such Term shall also
be extended for the remainder of the calendar month in which possession is tendered.

     The taking of possession by Tenant shall be deemed conclusively to establish that the Premises
(a) have been completed in accordance with the provisions of the Work Letter Agreement attached
hereto as Exhibit B, (b) are in good and satisfactory condition as of when possession was
so taken and (c) consist of the number of rentable square feet stated on the Data Sheet, it being
understood and agreed that the number of rentable square feet in the Premises shall include a
proportionate share of a mechanical room serving the Premises and other premises in the Building.
Upon delivery of the Premises, Tenant shall execute and deliver to Landlord a letter of accepting
the Premises and confirming the Commencement Date, such letter to be in the form attached hereto as
Exhibit E.

     2. Base Rent, Late Payment Charges and Security Deposit.

     (a) Base Rent. Tenant agrees to pay to Landlord Base Rent for the Premises, in
advance, without demand, deduction or set off, for the entire Term at the rate stated in the
Data Sheet, except that the monthly installments payable for the first twelve months of the
Term, which otherwise would be due on the first day of each month beginning on the
Commencement Date shall be due on the Date of Lease. Beginning on the first day of the
thirteenth (13th) full calendar month of the Term and thereafter, one such monthly
installment shall be due and payable without deduction or setoff and without demand on or
before the first day of each calendar month during the Term and any renewal term.

     (b) Late Charge; Interest. If Tenant fails to pay any installment of Rent,
including any amount treated as Additional Rent (as defined in Paragraph 4(g)) of this Lease,
or other sums hereunder prior to the date such installment or other charge becomes delinquent
pursuant to Paragraph 18, Tenant shall pay to Landlord on demand a late charge of $500.00 for
each late installment or other charge to help defray the additional cost to Landlord for
processing such late payments, and such late charge shall be Additional Rent. In addition to
the foregoing, to the extent Rent is not paid on or before the date the same becomes delinquent pursuant to Paragraph 18, all unpaid Rent shall accrue interest
from the first day of each month at a rate which is the lesser of (i) eighteen percent (18%)
per annum; or (ii) the highest amount permitted by applicable law and such interest shall
constitute Additional Rent and shall be payable with the next installment of Base Rent
falling due. The

1

 

provision for the payment of such late charge and interest shall be in
addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord’s remedies in any manner.

     (c) Security Deposit. Tenant agrees to deposit with Landlord on the date hereof
the Security Deposit as stated on the Data Sheet, which Security Deposit shall be held by
Landlord, without interest, as security for the performance of Tenant’s covenants and
obligations under this Lease, it being expressly understood and agreed that such deposit is
not an advance rental deposit or a measure of Landlord’s damages in case of Tenant’s default.
Upon the occurrence of any Event of Default (as defined below) by Tenant, Landlord may, from
time to time, without prejudice to any other remedy provided herein or provided by law, apply
such Security Deposit to any arrears of Rent or other payments due Landlord under this Lease,
and any other damage, injury, expense or liability caused by such Event of Default without
waiving such Event of Default, and Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount, which amount shall
constitute Additional Rent. Although the Security Deposit shall be deemed the property of
Landlord, subject to the provisions of Paragraph 27(a), any remaining balance of such
Security Deposit shall be returned by Landlord to Tenant at such time after termination of
this Lease that all of Tenant’s obligations under this Lease have been fulfilled.

     3. Use. The Premises shall be used only for the Use stated on the Data Sheet and for such other
lawful purposes as may be incidental thereto. Outside storage, including without limitation,
trucks and other vehicles, garbage containers and outdoor furniture are prohibited without
Landlord’s prior written consent. Tenant shall, at its own cost and expense, obtain any and all
licenses and permits necessary for Tenant’s Use. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the Use of the Premises, and shall promptly comply with
all governmental orders and directives for the correction, prevention and abatement of nuisance in
or upon, or connected with, the Premises, all at Tenant’s sole expense. Tenant shall not receive,
store or otherwise handle on the Premises any product, material or merchandise which is explosive
or highly flammable. Tenant will not permit the Premises to be used for any purpose or in any
manner (including without limitation any method of storage) which would render the insurance on the
Building or the property on which the Phase is located (“Property”) void or the insurance risk more
hazardous or cause the State Board of insurance or other insurance authority to disallow any
sprinkler credits. If any increase in the fire and extended coverage insurance premiums paid by
Landlord for the Building is caused by Tenant’s use and occupancy of the Premises, then Tenant
shall pay to Landlord the amount of such increase, upon demand, as Additional Rent.

     4. Operating Costs; Additional Rent.

     (a) Operating Costs. Upon demand, Tenant shall pay to Landlord, during the Term,
Tenant’s proportionate share of Operating Costs, as defined below, calculated on the basis of
Tenant’s Proportionate Share stated on the Data Sheet.

     As used in this Lease, the term “Operating Costs” shall mean any and all expenses, costs
and disbursements of any kind and nature whatsoever incurred by Landlord in connection with
the ownership, management, maintenance, operation and repair of the Property, the Phase or
the Building which Landlord shall pay or become obligated to pay in respect of a calendar
year (regardless of when such Operating Costs were incurred). Operating Costs shall include,
without limitation, the costs of maintenance, repairs, and, subject to the provisions of
Paragraph 5 hereof, replacements to the Building, including, downspouts, gutters, painting,
sprinkler systems, roof and walls; the costs of maintaining and repairing parking lots,
parking structures and easements; property management fees, salaries, fringe benefits and
related costs payable to employees of Landlord’s Managing Agent whose duties are connected
with the Property; insurance costs, all heating and air conditioning costs, electricity,
sewer and water and other utility costs not separately metered to tenants, landscape
maintenance, trash and snow removal, Taxes, as defined in Paragraph 4(f), and costs and
expenses incurred by Landlord in protesting any assessments, levies or the tax rate,
provided, however, that Operating Costs shall not include the following: (i) costs of
alterations of any tenant’s premises, including the Premises; (ii) costs of curing
construction defects to the base Building; (iii) depreciation; (iv) interest and principal
payments on mortgages, and other debt costs; (v) real estate brokers’ leasing commissions or
compensation; (vi) any cost or expenditure (or portion thereof) for which Landlord is
reimbursed, whether by insurance proceeds or otherwise; (vii) cost of any service furnished
to any other occupant of the Building which Landlord does not provide to Tenant hereunder;
and (viii) the full replacement of (A) roofs, (B) exterior walls (as defined in Paragraph 5)
and (C) foundations. Notwithstanding anything contained herein to the contrary, any capital
improvements to the Building, including, without limitation, structural repairs or
replacements to the Building, any capital improvements made after the Date of Lease which are
intended to reduce Operating Costs or any capital improvements which are required under
any governmental laws, regulations, or ordinances which were not applicable to the Building
at the time it was constructed, including, without limitation, the ADA (as defined in
Paragraph 5 hereof), shall be included in Operating Costs.

2

 

     (b) Estimated Operating Costs. Promptly after the commencement of this Lease
and during January of each year or as soon thereafter as practicable, Landlord shall give
Tenant written notice of its estimate of amounts payable under Paragraph 4(a) for such
calendar year. On or before the first day of each month thereafter, Tenant shall pay to
Landlord one/twelfth (1/12th) of such estimated amounts, provided that if such notice is not
given in January, Tenant shall continue to pay on the basis of the prior year’s estimate
until the first day of the month after the month in which such notice is given, at which
time, in addition to paying the first installment of the estimated amount provided by
Landlord for such year, Tenant shall also pay the difference, if any, between the current
year’s estimate and the previous year’s estimate for the period from January 1 of such year
through the last day of the month in which the notice was given. If at any time it appears
to Landlord that the amounts payable under Paragraph 4(a) for the then current calendar year
will vary from its estimate by more than five percent (5%). Landlord may, by written notice
to Tenant, revise its estimate for such year, and subsequent payments by Tenant for such year
shall be based upon such revised estimate.

     Within ninety (90) days after the end of each calendar year or as soon thereafter as
practicable, Landlord shall deliver to Tenant a summary of the total Operating Costs for the
previous calendar year and Tenant’s proportionate share thereof which shall be based upon
Tenant’s Proportionate Share as stated in the Data Sheet. If such summary shows an amount due
from Tenant that is less than the estimated payments previously paid by Tenant (the “Excess
Amount”), Landlord shall credit the Excess Amount against Operating Costs next falling due
hereunder until the Excess Amount is exhausted; provided however, that if the summary shows
an Excess Amount for the year in which this Lease expired, the summary shall be accompanied
by a refund of the Excess Amount to Tenant. If such summary shows an amount due from Tenant
that is more than the estimated payments previously paid by Tenant, Tenant shall pay the
deficiency to Landlord, as Additional Rent, within thirty (30) days after delivery of the
summary.

     (c) Right to Audit. Tenant or its representatives shall have the right to
examine Landlord’s books and records of Operating Costs during normal business hours within
twenty (20) days following the furnishing of the summary to Tenant. Unless Tenant takes
written exception to any item within thirty (30) days following the furnishing of the summary
to Tenant (which item shall be paid in any event), such summary shall be considered as final
and accepted by Tenant.

     (d) Accrual Accounting. If Landlord selects the accrual accounting method
rather than the cash accounting method for operating expense purposes, Operating Costs shall
be deemed to have been paid when such expenses have accrued.

     (e) Taxes. Landlord agrees to pay before they become delinquent all taxes,
installments of special assessments and governmental charges of any kind and nature
whatsoever, (herein collectively referred to as “Taxes”) lawfully due and payable with
respect to the Building, the Phase and the Property. In addition, Tenant shall be liable for
all taxes levied or assessed against personal property, furniture or fixtures placed by
Tenant in the Premises. If any such taxes for which Tenant is liable are levied or assessed
against Landlord or Landlord’s property and if Landlord elects to pay the same or if the
assessed value of Landlord’s property is increased by inclusion of personal property,
furniture or fixtures placed by Tenant in the Premises, and Landlord elects to pay the taxes
based on such increase, Tenant shall pay to Landlord upon demand that part of such taxes.

     (f) Change in Method of Taxation. If at any time during the Term, the present
method of taxation shall be changed so that in lieu of the whole or any part of any Taxes
(including personal property taxes described in Paragraph 4(e) hereof), assessments or
governmental charges levied, assessed or imposed on real estate and the improvements thereon,
there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly
on the Rent or any portion thereof and/or a franchise tax, assessment, levy or charge
measured by or based, in whole or in part, upon such Rent or any portion thereof for the
present or any future building or buildings on the Property, then all such taxes,
assessments, levies or charges, or the part thereof so measured or based, shall be deemed to
be included within the term “Taxes” for the purposes hereof.

     (g) Definition of “Rent”. Any amounts in addition to Base Rent and Operating
Costs, including, without limitation, any costs payable by Tenant to Landlord stated in the
Work Letter Agreement attached hereto as Exhibit B, chargebacks for work performed by
Landlord for the benefit of Tenant, if any, and other costs payable by Tenant to Landlord
hereunder, if any, (collectively the “Additional Rent”) shall be an obligation of Tenant
hereunder and all such Additional Rent shall be due and payable upon demand. Base Rent, Operating Costs and Additional
Rent may be referred to collectively as “Rent.”

3

 

     5. Landlord’s Responsibilities. Except for reasonable wear and tear and any casualty against which
Tenant was obligated to insure under this Lease, Landlord shall maintain all parts of the Building,
other than other tenants’ premises and the Premises, making all necessary repairs and replacements,
whether ordinary or extraordinary, structural or nonstructural, including downspouts, gutters,
irrigation sprinkler system; regularly mow any grass, remove weeds and perform general landscape
maintenance; and maintain and repair the parking lot and driveway areas; provided however, that
Landlord shall be responsible, at its sole cost and expense, for the full replacement of roofs,
exterior walls and foundations and for the compliance with Title III of the Americans With
Disabilities Act of 1990, as amended as of the Date of Lease (the “ADA”), as to the exterior walls
of the Premises, including access to the Building and maintenance of parking. Tenant shall
immediately give Landlord written notice of any defect or need for repairs. Landlord’s liability
with respect to any defects, repairs or maintenance for which Landlord is responsible under any of
the provisions of this Lease shall be limited to the cost of such repairs or maintenance or the
curing of such defect. The term “exterior walls” as used in this Lease shall not include windows,
glass or plate glass, doors, special store fronts or office entries.

     6. Tenant’s Responsibilities.

     (a) Maintenance of Premises. Tenant shall, at its own cost and expense, keep
and maintain all parts of the Premises (except as provided in Paragraph 5) in good condition,
promptly making all necessary repairs and replacements, including but not limited to,
windows, glass and plate glass, doors, any special entry, interior walls and finish work,
floors and floor covering, heating and air conditioning systems, electrical systems, dock
boards, truck doors, dock bumpers, dock seals, plumbing work and fixtures, termite and pest
extermination, regular removal of trash and debris and keeping the parking areas, driveways,
alleys and the whole of the Premises in a clean and sanitary condition, and Tenant shall
comply with the ADA. Tenant shall not be obligated to repair any damage caused by fire,
tornado or other casualty covered by the insurance to be maintained by Landlord pursuant to
Paragraph 12(a), except that Tenant shall be obligated to repair all wind damage to glass
unless caused by a tornado.

     (b) Damage to Demising Walls. Tenant shall not damage any demising wall or
disturb the integrity and support provided by any demising wall and shall, at its sole cost
and expense, promptly repair any damage or injury to any demising wall caused by Tenant or
its employees, agents or invitees.

     (c) Parking. Tenant and its employees, customers and licensees shall have the
nonexclusive right to use, in common with the other parties occupying the Phase, common
parking areas, if any (exclusive of any parking or work load areas designated or to be
designated by Landlord for the exclusive use of Tenant or other tenants occupying or to be
occupying other portions of the Phase), driveways and alleys adjacent to the Building,
subject to such reasonable rules and regulations as Landlord may from time to time prescribe.

     (d) Preventive Maintenance. Tenant shall, at its own cost and expense, enter
into a regularly scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all hot water, heating and air conditioning systems and equipment
serving the Premises. The maintenance contractor and the contract must be approved by
Landlord. The service contract must include all services suggested by the equipment
manufacturer in the operation/maintenance manual and must become effective (and a copy
thereof delivered to Landlord) within thirty (30) days after the date Tenant takes possession
of the Premises.

     (e) Costs Payable by Tenant. Upon demand by Landlord, Tenant shall pay, as
Additional Rent, the cost and expense of repairing any damage to the Premises resulting from
and/or caused in whole or in part by the negligence or misconduct of Tenant, its agents,
servants, employees, contractors, patrons, customers, or any other person entering upon the
property as a result of Tenant’s business activities or caused by Tenant’s default hereunder
to the extent the cost of repairing such damage is not reimbursed by the insurance to be
maintained by Landlord under Paragraph 12(a).

     7. Alterations; Condition of Premises Upon Expiration. Tenant shall not make any alterations,
additions or improvements to the Premises (including but not limited to roof and wall penetrations)
without the prior written consent of Landlord. Tenant may, without the consent of Landlord, but at
its own cost and expense and in a good workmanlike manner erect such shelves, bins, machinery and
trade fixtures as it may deem advisable, without altering the basic character of the Building and
without overloading or damaging such Building, and in each case complying with all applicable
governmental laws, ordinances, regulations and other requirements. Prior to commencing any such
alterations, additions or improvements Tenant shall provide such assurances to Landlord, including, without limitation, waivers of lien, surety company performance and payment
bonds and/or personal guaranties of persons of substance, as Landlord shall require to assure
payment of the costs thereof and to protect Landlord against any loss from mechanics’, laborers’,
materialmen’s or other liens. All alterations, additions, installations, improvements and
partitions erected by

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Tenant, including, without limitation, all telephone and data communications
cabling (“Cabling”), shall be and remain the property of Tenant during the Term and Tenant shall,
unless Landlord otherwise elects as provided below, remove all alterations, additions,
installations, improvements and partitions, including, without limitation, the Cabling, erected or
installed by Tenant and restore the Premises to their original condition by the earliest of (a) the
Expiration Date, (b) the date of termination of this Lease prior to the Expiration Date or (c) the
vacating of the Premises without termination of this Lease (said earliest date may be referred to
as the “Restoration Date”); provided, however, that if Landlord so elects, in writing, prior to the
Restoration Date, such alterations, additions, installations, improvements, partitions and Cabling
(other than trade fixtures and personal property of Tenant) shall become the property of Landlord
as of the Restoration Date and shall be delivered to the Landlord with the Premises. All shelves,
bins, machinery and trade fixtures installed by Tenant shall be removed by Tenant by the
Restoration Date if required by Landlord, and upon any such removal Tenant shall restore the
Premises to their original condition. All such removals and restoration shall be accomplished in a
good and workmanlike manner and shall not damage the primary structural qualities of the Building.

     8. Signs/Window Coverings. All signage visible from the exterior of the Premises shall, at all
times, comply with Exhibit D. Tenant shall not, without the prior written consent of
Landlord, install or affix any window coverings, draperies, signs, window or door lettering or
advertising media of any type on the Property, the Building or in or on the Premises which are
visible from the exterior of the Building. Tenant shall remove any permitted signs and window
coverings, but not blinds, not later than the Restoration Date. Any such installations and
removals shall be made in such manner as to avoid injury or defacement of the Building and other
improvements, and Tenant shall repair any injury or defacement, including, without limitation,
discoloration caused by such installation and/or removal.

     9. Inspection. Landlord and Landlord’s agents and representatives shall have the right to enter
and inspect the Premises at any reasonable time for the purpose of ascertaining the condition of
the Premises or in order to make such repairs and perform such actions as may be required or
permitted to be made by Landlord under the terms of this Lease. Landlord and Landlord’s agents and
representatives shall have the right to enter the Premises at any reasonable time for the purpose
of showing the Premises and, during the period that is six (6) months prior to the end of the Term,
Landlord and Landlord’s agents shall have the right to erect a sign on the Premises indicating the
Premises are available for lease.

     10. Utilities. Tenant shall pay for all water, gas, heat, light, power, telephone, sewer and
sprinkler charges and other utilities and services separately metered for the Premises, together
with any taxes, penalties, surcharges or the like pertaining thereto and shall furnish and install
all replacement electric light bulbs and tubes. Landlord shall not be liable for any interruption
or failure of utility services, communications or data services serving the Building or the
Premises arising from any cause whatsoever.

     11. Assignment and Subletting.

     (a) Assignment and Subletting. Tenant shall not have the right to assign or
pledge this Lease or to sublet the whole or any part of the Premises, whether voluntarily or
by operation of law, or permit the use or occupancy of the Premises by anyone other than
Tenant, without the prior written consent of Landlord, and such restrictions shall be binding
upon any assignee or subtenant to which Landlord has consented. The foregoing prohibition
includes, without limitation, any subletting or assignment which would otherwise occur by
merger, consolidation, reorganization, transfer or other change in Tenant’s corporate,
partnership or proprietary structure. Notwithstanding any permitted assignment or
subletting, Tenant shall at all times remain directly, primarily and fully responsible and
liable for the payment of the Rent and for compliance with all of its other obligations under
the terms, provisions and covenants of this Lease. Upon the occurrence of an Event of
Default, if the Premises or any part thereof are then assigned or sublet, Landlord, in
addition to any other remedies herein provided or provided by law, may, at its option,
collect directly from any assignee or subtenant all amounts due and becoming due to Tenant
under such assignment or sublease and apply such amounts against any sums due to Landlord
from Tenant hereunder, and no such collection shall be construed to constitute a novation or
release of Tenant from the further performance of Tenant’s obligations hereunder. Landlord’s
acceptance of any Rent following any assignment or other transfer prohibited by this
Paragraph 11 shall not be deemed to be a consent by Landlord to such assignment or other
transfer (including, without limitation, a prohibited sublease) nor shall the same be deemed
a waiver of any right or remedy of Landlord hereunder for breach of this Paragraph 11.

     If Landlord grants its consent to any sublease or assignment, Tenant shall pay Landlord,
as Additional Rent (a) one hundred percent (100%) of’ amounts payable to Tenant under the
sublease or assignment and (b) Landlord’s attorneys’ fees
incurred with respect to such assignment or sublease. In addition, if Tenant has any options
to extend or renew the Term, such options shall not be available to any subtenant or
assignee, directly or indirectly. If Tenant assigns this Lease or sublets all or a portion
of the Premises without first obtaining Landlord’s consent, as required by this Paragraph
11(a), said

5

 

assignment or sublease shall be null and void and of no force or effect. Landlord’s consent to an assignment, sublease or other transfer of any interest of Tenant in
this Lease or in the Premises shall not be deemed to be a consent to any subsequent
assignment, transfer, use or occupation.

     Tenant shall, at Tenant’s own cost and expense, discharge in full any outstanding
commission obligation on the part of Landlord with respect to this Lease, and any commissions
which may be due and owing as a result of any proposed assignment or subletting, whether or
not the Premises are recaptured pursuant to subparagraph (b) below and rented by Landlord to
the proposed tenant or any other tenant.

     (b) Right of Recapture. In addition, but not in limitation of, Landlord’s right
to approve of any subtenant or assignee, Landlord shall have the option, in its sole
discretion, in the event of any proposed subletting or assignment, to terminate this Lease,
or in the case of a proposed subletting of less than the entire Premises, to recapture the
portion of the Premises to be sublet, as of the date the subletting or assignment is to be
effective. The option shall be exercised, if at all, by Landlord giving Tenant written
notice thereof within thirty (30) days following Landlord’s receipt of Tenant’s written
notice as required above. If this Lease shall be terminated with respect to the entire
Premises pursuant to this subparagraph, the Term shall end on the date stated in Tenant’s
notice as the effective date of the sublease or assignment as if that date had been the
Expiration Date. If Landlord recaptures only a portion of the Premises under this
subparagraph, the Base Rent during the remainder of the Term shall abate proportionately
based on the Base Rent payable hereunder as of the date immediately prior to such recapture.

     12. Fire and Casualty Damage.

     (a) Notice of Casualty. If the Building should be damaged or destroyed by fire,
tornado or other casualty, Tenant shall give immediate oral and written notice thereof to
Landlord’s Managing Agent.

     (b) Termination of Lease. If the Building should be damaged or destroyed by
fire, tornado or other casualty, or if it should be so damaged thereby that rebuilding or
repairs cannot in Landlord’s estimation be completed within two hundred (200) days after the
date upon which Landlord is notified by Tenant of such damage, this Lease shall terminate and
Base Rent and Operating Costs shall be abated during the unexpired portion of this Lease,
effective upon the date of the occurrence of such damage.

     (c) Repair of Premises. If the Building should be damaged by any peril covered
by the insurance to be provided by Landlord under Paragraph 14(a), but only to such extent
that rebuilding or repairs can, in Landlord’s estimation, be completed within two hundred
(200) days after the date upon which Landlord is notified by Tenant of such damage (except
that Landlord may elect not to rebuild if such damage occurs during the last year of the
Term), this Lease shall not terminate, and Landlord shall, at its sole cost and expense,
proceed with reasonable diligence to rebuild and repair the Building to substantially the
condition in which it existed prior to such damage, except that Landlord shall not be
required to rebuild, repair or replace any part of the partitions, fixtures, additions and
other improvements which may have been placed in, on or about the Premises by Tenant. If the
Premises are untenantable in whole or in part following such damage, Base Rent and Operating
Costs payable hereunder during the period in which the Premises are untenantable shall be
reduced to such extent as may be fair and reasonable under all of the circumstances. In the
event that Landlord should fail to complete such repairs and rebuilding within two hundred
(200) days after the date upon which Landlord is notified by Tenant of such damage (unless
any such delay is due to changes, deletions or additions in construction requested by Tenant,
strikes, lockouts, casualties, force majeure, war, material or labor shortages, governmental
regulation or control or other causes beyond the reasonable control of Landlord, in which
event such period shall be extended for the amount of time Landlord is so delayed), Tenant
may at its option, upon thirty (30) days prior written notice, terminate this Lease as
Tenant’s exclusive remedy, whereupon all rights and obligations of the parties to each other
under this Lease shall cease and terminate.

     (d) Application of Proceeds. Notwithstanding anything herein to the contrary,
in the event the holder of any indebtedness secured by a mortgage or deed of trust covering
the Premises or the Building requires that the insurance proceeds be applied to such
indebtedness, the Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement is made by
any such holder, whereupon all rights and obligations of the parties to each other under this
Lease shall cease and terminate.

     (e) Removal of Personal Property. In the event of any damage to the Building or
the Premises by any peril contemplated by this Paragraph 12, Tenant shall, promptly after the
occurrence of such damage and at its sole cost and

6

 

expense, remove from the Premises any personal property on the Premises belonging to any of Tenant, its agents, employees,
contractors, licensees or invitees. Tenant hereby indemnifies, holds harmless and agrees to
defend Landlord from any loss, liability, damage, judgment, cost or expense, including
attorneys’ fees through all appellate levels arising out of any claim of damage or injury by
any of Tenant, its agents, employees, contractors, licensees or invitees as to itself or
themselves or their respective properties arising as a result of the removal or failure to
remove such personal property. Landlord and Tenant agree that Landlord shall have no
obligation to secure the Building or the Premises in the event of a casualty and that the
risk of loss, by destruction, theft or otherwise, to the personal property of Tenant, its
agents, employees, contractors, licensees or invitees shall be borne, as between Landlord and
Tenant, entirely by Tenant.

     13. Liability, Waiver and Release.

     (a) No Liability. Landlord shall not be liable for and Tenant will indemnify
and hold Landlord harmless from any loss, liability, claims, suits, costs and expenses,
including attorneys’ fees, arising out of any claim of injury or damage on or about the
Premises arising from any cause whatsoever other than Landlord’s gross negligence or willful
misconduct. Landlord shall not be liable to Tenant or Tenant’s agents, employees,
contractors, licensees or invitees for any damage to persons or property arising from any
cause whatsoever except Landlord’s gross negligence or willful misconduct and Tenant assumes
all risks of damage to such persons or property. Landlord shall not be liable or responsible
for any loss or damage to any property or person occasioned by theft, fire, force majeure,
public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order
of governmental body or authority, or other matter beyond control of Landlord, or for any
injury or damage or inconvenience, which may arise through repair or alteration of any part
of the Building, or failure to make repairs, or from any cause whatever except Landlord’s
willful acts or gross negligence.

     (b) Waiver and Release. Except as provided below, each of Landlord and Tenant
agrees to rely entirely upon its own property insurance with respect to any damage, loss or
injury to its property.

     Each of Landlord and Tenant hereby releases the other and the other party’s directors,
officers, employees, agents and others acting on the other party’s behalf (collectively, the
“released parties”) from all claims and all liability or responsibility to the releasing
party and to any person claiming through or under the releasing party, by way of subrogation
or otherwise, for any loss or damage to the releasing party’s business or property caused by
fire or other peril, even if such fire or other peril was caused in whole or in part by the
negligence or other act or omission of one or more of the released parties. Notwithstanding
the foregoing, the release from liability and waiver or subrogation provided for shall (i)
only be effective to the extent that the loss or damage to the releasing party’s business or
property is actually covered by insurance; and (ii) not apply to the extent of any deductible
(or deductibles) applying under such insurance.

     14. Insurance.

     (a) Landlord’s Insurance. Landlord shall maintain in effect at all times during
the Term a policy or policies of insurance insuring the Building against loss or damage by
fire, explosion or other insurable hazards and contingencies for the full replacement value.
Landlord shall not insure any personal property of Tenant or any additional improvements
which Tenant may construct or install on the Premises. Landlord may self-insure the
exposures described above. Subject to the provisions of Paragraphs 12(b), 12(c) and 12(d),
such insurance shall be for the sole benefit of Landlord and under its sole control.

     (b) Tenant’s Insurance.

          (i) Tenant shall, at its sole cost and expense, maintain in effect at all times
during the Term a commercial general liability insurance policy, on an “occurrence”
rather than on a “claims made” basis, with a total combined policy limit of at least
$2,000,000.00. The policy shall include, but not be limited to, coverages for Bodily
Injury, Property Damage, Personal Injury and Contractual Liability (applying to this
Lease), or an equivalent form (or forms) affording coverage at least as broad.
Landlord and Landlord’s Managing Agent shall be named as Additional Insureds under the
policy.

          (ii) Tenant shall, at its sole cost and expense, maintain in effect at all times
during the Term, a policy or polices of insurance covering all of Tenant’s
improvements, fixtures, inventory and other personal property in the
Premises against loss by fire and other hazards covered by an “all-risk” form of
policy, in an amount equal to the full replacement cost thereof, without deduction for
physical depreciation. Such insurance shall include Valuable

7

 

papers and Records coverage providing for the Reproduction Costs measure of recovery and coverage for
damage to Electronic Data Processing Equipment and Media, including coverage of the
perils of mechanical breakdown and electronic disturbance.

          (iii) Tenant shall, at its sole cost and expense, maintain in effect at all times
during the Term, a policy of insurance covering business interruption for a period of
at least 365 days.

          (iv) If the use of the Premises by Tenant increases the premium rate for
insurance carried by Landlord on the Building, Tenant shall pay Landlord, upon demand,
as Additional Rent, the amount of such premium increase.

          (v) Tenant, upon actual knowledge or receipt of written notice by Landlord, shall
not carry any stock of goods, inventory, or Hazardous Substances (as defined in this
Lease) or do anything in or about the Premises which will in any way impair or
invalidate the obligation of the insurer under any policy of insurance required by
this Lease.

          (vi) Insurance policies required by this Paragraph 14(b) shall be in a form
reasonably acceptable to Landlord, with an insurer or insurers having a Best rating of
A-,X or better and qualified to do business in the State of Minnesota, and shall
require at least thirty (30) days prior written notice to Landlord (and, if requested
by Landlord, Landlord’s mortgagee(s)), of termination, cancellation, non-renewal or
material alteration. The liability insurance under subparagraph 14(b)(i) shall be
primary with respect to Landlord and its agents and not participating with any other
available insurance.

     Prior to the Commencement Date, on each anniversary of the Commencement Date and at such
other times as Landlord may request, Tenant shall deliver to Landlord a certificate
evidencing such policies, or other evidence reasonably satisfactory to Landlord, confirming
(A) the terms of the insurance, (B) that the premiums have been paid at least one (1) year in
advance, and (C) that the policies are in full force and effect. If Tenant has a blanket
insurance policy providing coverage for several properties of Tenant, including the Premises,
Landlord will accept a certificate of such insurance, provided:

(1) the certificate states the amounts of insurance and types of coverage;

(2) the amounts are at least equal to the amounts that would be required in this
Lease; and

(3) the policy complies with the other requirements in this Lease.

     15. Condemnation.

     (a) Total Taking. If the whole or any substantial part of the Building is taken
for any public or quasi-public use under governmental law, ordinance or regulation, or by
right of eminent domain, or by private purchase in lieu thereof and the taking would prevent
or materially interfere with the use of the Premises or the Building for the purpose of which
they are being used, this Lease shall terminate and the Base Rent and Operating Costs shall
be abated during the unexpired portion of this Lease effective when the physical taking of
the Property shall occur.

     (b) Partial Taking. If part of the Premises shall be taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and this Lease is not terminated as provided
in the subparagraph above, this Lease shall not terminate but the Base Rent and Operating
Costs payable hereunder during the unexpired portion of this Lease shall be reduced to such
extent as may be fair and reasonable under all of the circumstances.

     (c) Awards. In the event of any such taking or private purchase in lieu
thereof, Landlord and Tenant shall each be entitled to receive and retain such separate
awards and/or portion of lump sum awards as may be allocated to their respective interests in
any condemnation proceedings, provided that Tenant shall not be entitled to receive any award
for Tenant’s loss of its leasehold interest or other property which would have become the
property of Landlord upon termination of this Lease; the right to such award being hereby
assigned to Landlord.

     16. Holding Over. Tenant will, at the termination of this Lease by lapse of time or otherwise,
yield up immediate possession to Landlord. If Tenant retains possession of the Premises or any
part thereof after such termination, then, subject to the last sentence of this Paragraph, such
holding over shall constitute creation of a month to month tenancy, upon the terms and conditions of

8

 

 this Lease; provided, however, that the monthly rental for such holding over shall, in addition
to all other sums which are to be paid by Tenant hereunder, whether or not as Additional Rent, be
equal to two hundred percent (200%) of the Rent being paid monthly to Landlord under this Lease
immediately prior to such termination. In addition to and not in limitation of the foregoing,
Tenant shall also pay to Landlord all damages sustained by Landlord resulting from retention of
possession by Tenant, including the loss of any proposed subsequent tenant for any portion of the
Premises. The provisions of this Paragraph shall not constitute a waiver by Landlord of any right
of re-entry as herein set forth; nor shall receipt of any rent or other sums or any other act in
apparent affirmance of the tenancy operate (a) as an extension of the Term; (b) a waiver of
Landlord’s right to terminate Tenant’s right to possession of the Premises; or (c) a waiver of the
right to terminate this Lease for a breach of any of the terms, covenants, or obligations herein on
Tenant’s part to be performed.

     17. Quiet Enjoyment. Landlord covenants that it now has, or will acquire before Tenant takes
possession of the Premises, insurable title to the Premises. Landlord represents and warrants that
it has full right and authority to enter into this Lease and that Tenant, upon paying the Rent and
performing its other covenants and agreements under this Lease, shall peaceably and quietly have,
hold and enjoy the Premises for the Term, subject to the terms and provisions of this Lease.

     18. Events of Default. Each of the following events shall be deemed to be an Event of Default by
Tenant under this Lease:

     (a) Tenant shall fail to pay any installment or other payment of Rent required herein
when due, and such failure shall continue for a period of five (5) days from the date such
payment was due;

     (b) Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or
shall make an assignment for the benefit of creditors;

     (c) Tenant shall file a petition under any section or chapter of the federal bankruptcy
laws, or under any similar law or statute of the United States or any State, including,
without limitation, a liquidation, rehabilitation or other insolvency statute, whether now or
hereafter in effect; or an order for relief shall be entered against Tenant in any such
bankruptcy or insolvency proceedings filed against Tenant thereunder or Tenant shall be
adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder;

     (d) A receiver or trustee shall be appointed for all or substantially all of the assets
of Tenant;

     (e) Tenant shall generally not pay its debts as such debts become due;

     (f) Tenant shall vacate or abandon all or a substantial portion of the Premises;
provided however, that such vacation or abandonment shall not constitute a default hereunder
unless, in Landlord’s reasonable estimation, Tenant has failed to comply with its obligations
to maintain the Premises as required under this Lease;

     (g) Tenant shall fail to discharge any lien placed upon the Premises in violation of
Paragraph 22 hereof;

     (h) Tenant shall fail to insure and provide evidence of such insurance in accordance
with Paragraph 14(b);

     (i) Tenant shall fail to relocate to New Premises pursuant to Paragraph 26, it being
understood and agreed that Tenant shall not be entitled to the benefit of Paragraph 16 as a
result of such failure; or

     (j) Tenant shall fail to comply with any term, provision or covenant of this Lease
(other than the foregoing in this Paragraph 18), and shall not cure such failure within
twenty (20) days after written notice thereof from Landlord to Tenant.

     19. Remedies. Upon the occurrence of any of such events of default described in Paragraph 18
hereof, Landlord shall have the option to pursue any one or more of the following remedies without
any further notice or demand whatsoever.

     (a) Landlord may, at its election, terminate this Lease or terminate Tenant’s right to
possession only, without terminating the Lease;

9

 

     (b) Upon any termination of this Lease, whether by lapse of time or otherwise, or upon
any termination of Tenant’s right to possession without termination of this Lease, Tenant
shall surrender possession and vacate the Premises immediately and deliver possession thereof
to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and
upon the Premises in such event with or without process of law and to repossess Landlord of
the Premises as of Landlord’s former estate and to expel or remove Tenant and any others who
may be occupying or within the Premises and to alter all locks and other security devices at
the Premises and to remove any and all property therefrom, without being deemed in any manner
guilty of trespass, eviction or forcible entry or detainer, and without incurring any
liability for any damage resulting therefrom. Tenant hereby waives any right to claim damage
for such re-entry and expulsion, and such entry and possession shall not terminate this Lease
or release Tenant, in whole or in part, from any obligation, including Tenant’s obligation to
pay all Rent payable by Tenant hereunder, for the Term or any other right given to Landlord
hereunder or by operation of law;

     (c) Landlord may, but need not, relet the Premises or any part thereof for such Rent and
upon such terms as Landlord, in its sole discretion, shall determine (including the right to
relet the Premises as part of a larger area and the right to change the character or the use
made of the Premises), and Landlord shall not be required to accept any tenant offered by
Tenant or to observe any instructions given by Tenant about such reletting. In any such
case, Landlord may make repairs, alterations and additions in or to the Premises, and
redecorate the same to the extent Landlord deems necessary or desirable, in its sole
discretion. All Rent and other sums received by Landlord from any such reletting shall be
applied as follows: first, to the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord; second, to the payment of any costs and expenses of such alterations
and repairs; third, to the payment of Landlord’s expenses of reletting, including, without
limitation, broker’s commissions, reasonable attorney fees and lease inducements, such as
moving or leasehold improvement allowances; fourth, to the payment of Rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in payment of
future Rent as the same may become due and payable hereunder. If such Rent and other sums
received from such reletting during any month be less than the Rent to be paid during said
month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency
shall be calculated and paid monthly. Notwithstanding any such re-entry by Landlord,
Landlord may at any time hereafter elect to terminate this Lease for such previous breach.

     (d) Tenant acknowledges that the damages Landlord would incur in connection with
terminating this Lease following a default by Tenant would be difficult to estimate or
ascertain. Therefore, Tenant agrees that, in the event Landlord elects to terminate this
Lease, Landlord may, in addition to other remedies available at law or in equity, declare all
Rent payable under this Lease immediately due and payable and recover from Tenant, as
liquidated damages, and not as a penalty, an amount equal to the sum of the following; (i)
all unpaid Rent that is payable by Tenant hereunder and that accrues through the effective
date of termination; plus (ii) the cost of repairs, alterations and/or redecoration of the
Premises that Landlord determines are necessary, in landlord’s sole discretion; plus (iii) a
sum of money equal to the entire amount of Rent that would be payable under the Lease for the
lesser of (A) the three (3) year period commencing upon the effective date of termination, or
(B) the period commencing upon the effective date of termination and ending upon the original
date of the expiration of the Term, which amount shall be immediately due and payable upon
demand, but which amount shall be discounted to present value using a discount rate equal to
the discount rate of the Federal Reserve Bank of Minneapolis as of the date of termination
plus one percent (1%); plus (iv) to the extent not included in the calculation of Rent
payable pursuant to subparagraph (ii) above, a sum of money equal to the remaining principal
balance of the original cost of any leasing commissions and leasehold improvements in the
Premises paid for by Landlord on the effective date of termination, together with interest at
a rate of twelve percent (12%) per annum amortized over the entire Term, assuming
amortization based upon equal monthly payments of principal and interest. For purposes of
calculating the amount of Rent that would be payable under the Lease for the period
succeeding the effective date of termination, such Rent shall be computed on the basis of the
average monthly amount of Rent accruing during the twenty-four (24) month period immediately
preceding the default to which such termination relates (exclusive of any months in which
Tenant received “free” or abated Base Rent concessions); provided, however, if the default
occurs prior to the expiration of the first twenty-four (24) months of the Lease, then the
Rent shall be computed on the basis of the average monthly amount of Rent accruing during all
months preceding the month in which said default occurred (exclusive of any months in which
Tenant received “free” or abated Base Rent concessions).

     (e) Any and all property which may be removed from the Premises by Landlord pursuant to
the authority of the Lease or of law, to which Tenant is or may be entitled, may be handled,
removed and stored, as the case may be, by or at the direction of Landlord at the risk, cost
and expense of Tenant, and Landlord shall in no event be responsible for the value,
preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and
all expenses incurred in such removal and all storage charges against such property so long
as the same shall be in Landlord’s possession or under Landlord’s control. Any such property
of Tenant not retaken by Tenant from storage within thirty (30) days after removal

10

 

from the Premises shall, at Landlord’s option, be deemed conveyed by Tenant to Landlord under this
Lease as by a bill of sale without further payment or credit by Landlord to Tenant.

     (f) Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the
other remedies herein provided or any other remedies provided by law, nor shall pursuit of
any remedy herein provided constitute a forfeiture or waiver of any Rent due to Landlord
hereunder or of any damages accruing to Landlord by reason of the violation of any of the
terms, provisions and covenants herein contained. No act or thing done by the Landlord or
its agents during the Term shall be deemed a termination of this Lease or an acceptance of
the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender
of said Premises shall be valid unless in writing signed by Landlord. No waiver by Landlord
of any violation or breach of any of the terms, provisions and covenants herein contained
shall be deemed or construed to constitute a waiver of any other violation or breach of any
of the terms, provisions and covenants herein contained. Landlord’s acceptance of the
payment of Rent or other payments hereunder after the occurrence of an Event of Default shall
not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing.
Forbearance by Landlord to enforce one or more of the remedies herein provided upon an Event
of Default shall not be deemed or construed to constitute a waiver of such default or of
Landlord’s right to enforce any such remedies with respect to such default or any subsequent
default.

     20. Landlord’s Lien. Landlord reserves (and Tenant hereby grants to Landlord) a security interest
in all fixtures, equipment, personal property (tangible and intangible, including, without
limitation, accounts) of Tenant now or hereafter located in or on the Premises to secure all sums
due from and all obligations to be performed by Tenant hereunder, which lien and security interest
may be enforced by Landlord in any manner provided by law, including, without limitation, under and
in accordance with the Uniform Commercial Code, as enacted in the State of Minnesota, including
without limitation the right to sell the property described in this Paragraph 20 at public or
private sale upon five (5) days notice to Tenant.

     21. Mortgages. This Lease is and shall be subject and subordinate to any mortgage(s) now or at any
time hereafter constituting a lien or charge upon the Property or the Premises, provided, however,
that if the holder of any such mortgage elects to have Tenant’s interest in this Lease superior to
any such instrument, then by notice to Tenant from such holder, this Lease shall be deemed superior
to such lien, whether this Lease was executed before or after said mortgage. Tenant shall at any
time hereafter on demand execute any instruments, releases or other documents which may be required
by any mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such
mortgage.

     22. Mechanic’s Liens. Tenant shall keep the Premises and the Property free from any mechanics’,
materialmen’s, contractors’ or other liens arising from, or any claims for damages growing out of,
any work performed, materials furnished or obligations incurred by or on behalf of Tenant. If such
a lien is filed against the Premises or the Property or any portion thereof as a result of work
performed, materials furnished or obligations incurred by or on behalf of Tenant, Tenant, at its
sole cost and expense, shall cause such lien to be removed within five (5) calendar days after
Tenant becomes aware of the filing of such lien. Tenant hereby agrees to defend and indemnify
Landlord and to hold Landlord harmless from and against any such lien or claim or action thereon,
and shall reimburse Landlord, as Additional Rent for Landlord’s costs of suit and all attorneys’
fees and costs incurred in connection with the removal of any such lien, claim or action. Landlord
hereby reserves the right, at any time and from time to time during the construction of the
Premises or any subsequent alteration to enter onto the Premises and post and review notices in
accordance with Minn. Stat. §514.06, as the same may be amended.

     23. Notices. All Rent payments, bills, statements, notices or communications, required or desired
to be given hereunder shall be in writing and shall be deemed effective and received (a) upon
personal delivery; (b) five (5) days after deposit in the United States mail, certified mail,
return receipt requested, postage prepaid; or (c) one (1) business day after deposit with a
national overnight air courier, fees prepaid, to Landlord or Tenant, as the case may be, at the
notice or Rent payment addresses for each party stated on the Data Sheet. Either party may
designate an additional or another address upon giving written notice to the other party at the
address for notices for such party stated on the Data Sheet pursuant to this Paragraph 23. Any
return of any access cards or keys or other similar devices shall be made to Landlord’s Managing
Agent, at the address stated on the Data Sheet. Landlord’s Managing Agent shall give and receive
notices in the manner prescribed by this Section, and a copy of all notices given to Landlord shall
be given to Landlord’s Managing Agent in the manner prescribed by this Paragraph 23. For the
purposes of this Lease, “Business Day” shall mean a day which is not a Saturday, a Sunday or a
legal holiday of the State of Minnesota.

     If and when included within the term “Landlord,” as used in this instrument, there are more
than one person, firm or corporation, all shall jointly arrange among themselves for their joint
execution of such a notice specifying some individual at some specific address for the receipt of
notices and payments to Landlord; if and when included within the term “Tenant,” as used in this

11

 

instrument, there are more than one person, firm or corporation, all shall jointly arrange among
themselves for their joint execution of such a notice specifying some individual at some specific
address within the continental United States for the receipt of notices and payments to Tenant.
All parties included within the terms “Landlord” and “Tenant,” respectively, shall be bound by
notices given in accordance with the provisions of this paragraph to the same effect as if each had
received such notice.

     24. Hazardous Substances. Tenant shall at all times comply with all applicable local, state and
federal laws, ordinances and regulations relating to Hazardous Substances. “Hazardous Substances”
means (1) any oil, petroleum product, flammable substances, explosives, radioactive materials,
hazardous wastes or substances, toxic wastes or substances, infectious wastes or substances or any
other wastes, materials or pollutants that (A) pose a hazard to the Premises, Building or Property
or to persons on or about the Premises, Building or Property or (B) cause the Premises, Building or
Property to be in violation of any hazardous materials laws; (2) asbestos in any form which,
urea-formaldehyde foam insulation, transformers or other equipment that contains dielectric fluid
containing polychlorinated biphenyl, or radon gas; (3) any chemical, materials or substance defined
as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous
materials,” “extremely hazardous waste,” “restricted hazardous waste,” “infectious waste,” or
“toxic substances,” or words of similar import under any applicable local, state or federal law or
under the regulations adopted or publications promulgated pursuant thereto, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. §§ 9601, et seq.; the Hazardous Materials Transportation Act, as
amended, 42 U.S.C. §§ 6901, et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. §§ 1251, et seq.; (4) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any governmental authority or may or could
pose a hazard to the health and safety of the occupants of the Premises, Building or Property or
the owners and/or occupants of property adjacent to or surrounding the Property, or any other
person or entity coming upon the Property or adjacent property; and (5) any other chemical,
material or substance that may or could pose a hazard to the environment. Tenant shall not: (i)
use the Premises, Building or Property for the storage of Hazardous Substances except for such
activities that are part of the course of tenant’s ordinary business (the “Permitted Activities”);
provided, such Permitted Activities are conducted in accordance with all applicable laws, orders,
regulations and ordinances and have been approved in advance in writing by Landlord; (ii) use the
Premises, Building or Property as a landfill or dump; or (iii) install any underground tanks of any
type at the Property. Tenant shall at its own expense maintain in effect any and all permits,
licenses or other governmental approvals, if any, required for Tenant’s use of the Premises and
require the same of any subtenants. Tenant shall make and cause any subtenant to make all
disclosures required of Tenant by any laws, and shall comply and cause subtenant to comply with all
orders concerning Tenant’s use of the Premises issued by any governmental authority having
jurisdiction over the Premises and take all action required by such governmental authorities to
bring the Tenant’s activities on the Premises into compliance with all environmental and other
laws, rules, regulations and ordinances affecting the Premises. If at any time Tenant shall become
aware, or have reasonable cause to believe, that any Hazardous Substance has been released or has
otherwise come to be located on or beneath the Property, Tenant shall give written notice of that
condition to Landlord immediately after Tenant becomes so aware. Tenant shall be responsible for,
and shall indemnify, defend and hold Landlord harmless from and against, all environmental claims,
demands, damages and liabilities, including, without limitation, court costs and reasonable
attorney fees, if any, arising out of, or in connection with, the generation, storage, disposal or
other presence of any Hazardous Substance in, on or about the Premises, Building or Property during
the Term or that Tenant or its subtenants caused or permitted. The indemnification provided by
this Paragraph 24 shall survive the termination of this Lease.

     25. Expense of Enforcement. Tenant shall pay Landlord, upon demand therefor, for all costs and
reasonable attorneys’ fees and expenses incurred by Landlord in seeking enforcement against Tenant,
any assignee or sublessee of Tenant, or any guarantor of Tenant’s obligations under this Lease, of
Tenant’s or such party’s obligations under this Lease, including, without limitation, the
collection of Rent and the termination of Tenant’s right to possession of the Premises. Such
payment shall constitute Additional Rent payable in accordance with Paragraph 4. Notwithstanding
the foregoing, if Landlord commences any action against Tenant, including, without limitation, an
action in unlawful detainer, which action settles at or prior to any trial in connection therewith,
Landlord shall be entitled to recover from Tenant Landlord’s reasonable attorneys’ fees and
disbursements and the same shall be payable by Tenant to Landlord with the next installment of Rent
falling due and shall constitute Additional Rent hereunder.

     26. Substitution of Premises. At any time after the execution of this Lease, Landlord may, upon
sixty (60) calendar days’ prior written notice delivered to Tenant, substitute for the Premises
other premises in Plymouth Business Center (the “New Premises”), in which event the New Premises
shall be deemed to be the Premises for all purposes hereunder; provided, however, that:

     (a) The New Premises shall be similar in area and in appropriateness for Tenant’s
purposes;

     (b) Base Rent and Tenant’s Proportionate Share of Operating Costs shall be
proportionately adjusted to reflect any increase or decrease in size from the Premises to the
New Premises; and

12

 

     (c) If Tenant is occupying the Premises at the time of any such substitution, Landlord
shall pay the expense of moving Tenant, its property and equipment to the New Premises, shall
pay an amount not to exceed $1,000.00 to replace Tenant’s professionally printed stock of
letterhead, brochures and business cards and shall also pay the expenses of improving the New
Premises with improvements substantially similar to those located in the Premises.

     27. Transfer of Landlord’s Interest; Limitation of Liability.

     (a) Transfer of Landlord’s Interest. The term “Landlord” shall mean only the
owner, at any time of the Property, and in the event of the transfer by such owner of its
interest in the Property, such owner’s grantee or successor shall upon such transfer, become
“Landlord” under this Lease. If any owner transfers its interest in the Premises or the
Property or any portion thereof, other than a transfer for security purposes, such owner
shall automatically be relieved of any and all obligations and liabilities on the part of
such owner as “Landlord” accruing after the date of such transfer, including, without
limitation, such owner’s obligation to return the Security Deposit following assignment or
transfer thereof to such owner’s transferee.

     (b) Limitation of Landlord’s Liability. If Landlord is ever adjudged by any
court to be liable to Tenant, Tenant specifically agrees to look solely to Landlord’s
interest in the Phase for the recovery of any judgment from Landlord, it being agreed that
none of Landlord, its directors, officers, shareholders, managing agents, employees or agents
shall be personally liable for any such judgment. In no event shall Landlord ever be liable
to Tenant, Tenant’s agents, servants or employees, or to any person or entity claiming by or
through Tenant, for any consequential, indirect, special or similar types of damages.

     28. Right of Landlord to Perform. If Tenant shall fail to pay any sum of money other than Rent
required to be paid by it under this Lease, or shall fail to perform any other act on its part to
be performed under this Lease, Landlord may, but shall not be so obligated, and without waiving or
releasing Tenant from any obligations of Tenant, after the end of the fifth calendar day after
notifying Tenant of Tenant’s obligation to perform, make any such payment or perform any such other
act on Tenant’s part to be made or performed; provided, however, that in the event of emergency,
Landlord shall have the right to perform Tenant’s obligations prior to the expiration of the
five-day period specified above. If Landlord performs Tenant’s obligations pursuant to this
Paragraph 28, Landlord shall have the right to use the Security Deposit to pay such expenses, or
pay such expenses directly and reimburse itself from the Security Deposit or to the extent the cost
of such performance exceeds the Security Deposit, Landlord may pay for the cost of such performance
from its own funds, or from a combination of the Security Deposit and its own funds and all such
amounts shall be repaid to Landlord by Tenant as Additional Rent, payable with the next installment
of Base Rent falling due.

     29. Miscellaneous.

     (a) Gender; etc. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.

     (b) Binding Effect. The terms, provisions and covenants and conditions
contained in this Lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives, successors and
permitted assigns, except as otherwise herein expressly provided. Tenant agrees to furnish
promptly upon demand, a corporate resolution, proof of due authorization by partners, or
other appropriate documentation evidencing the due authorization of Tenant to enter into this
Lease. Nothing herein contained shall give any other tenant in the Building any enforceable
rights either against Landlord or Tenant as a result of the covenants and obligations of
either party stated herein.

     (c) Captions. The captions inserted in this Lease are for convenience only and
in no way define, limit or otherwise describe the scope or intent of this Lease, or any
provision hereof, or in any way affect the interpretation of this Lease.

     (d) Estoppel. Tenant agrees from time to time within ten (10) days after
request of Landlord, to deliver to landlord, or Landlord’s designee an estoppel certificate
in a form designated by Landlord. It is understood and agreed that Tenant’s obligation to
furnish such estoppel certificates in a timely fashion is a material inducement for
Landlord’s execution of this Lease, and that, if Tenant fails timely to deliver any estoppel
certificate contemplated by this subparagraph (d), Tenant
shall be liable to Landlord for all losses incurred by Landlord as a result of such
failure, including, without limitation, attorneys’ fees and court costs through all appellate
levels.

13

 

     (e) Amendment. This Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.

     (f) Survival of Obligations. All obligations of Tenant hereunder not fully
performed as of the expiration or earlier termination of the Term shall survive the
expiration or earlier termination of the Term, including without limitation, all payment
obligations with respect to Operating Costs and all obligations concerning the condition of
the Premises. Upon the expiration or earlier termination of the Term, Tenant shall pay to
Landlord the amount as estimated by Landlord, necessary (i) to repair and restore the
Premises as provided herein; and (ii) to discharge Tenant’s obligation for Operating Costs or
other amounts due Landlord. All such amounts shall be used and held by Landlord for payment
of such obligations of Tenant, with Tenant being liable for any additional costs upon demand
by Landlord, or with any excess to be returned to Tenant after all such obligations have been
determined and satisfied. Any security deposit held by Landlord shall be credited against
the amount payable by Tenant under this subparagraph.

     (g) Joint and Several. If there be more than one Tenant, the obligations
hereunder imposed upon Tenant shall be joint and several.

     (h) Brokers. Tenant represents and warrants that it has dealt with no broker,
agent or other person in connection with this transaction or that no broker, agent or other
person brought about this transaction, other than Tenant’s Broker, if any, listed on the Data
Sheet, and Tenant agrees to defend, indemnify and hold Landlord harmless from and against any
claims by any other broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing transaction.

     (i) Severability. If any clause or provision of this Lease is illegal, invalid
or unenforceable under present or future laws effective during the Term, then and in that
event, it is the intention of the parties hereto that the remainder of this Lease shall not
be affected thereby, and it is also the intention of the parties to this Lease that in lieu
of each clause or provision of this Lease that is illegal, invalid or unenforceable, there be
added as a part of this Lease a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal, valid and
enforceable.

     (j) Offer to Lease. Because the Premises are on the open market and are
currently being shown, this Lease shall be treated as an offer and shall not be valid or
binding unless and until accepted by Landlord in writing.

     (k) Waiver of Jury Trial; Jurisdiction. EACH OF LANDLORD AND TENANT HEREBY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION RELATING TO THIS LEASE. At the option of
Landlord, this Lease shall be enforced in any United States District Court for the Federal
District of Minnesota or state court of the State of Minnesota sitting in the State of
Minnesota, and Tenant consents to the jurisdiction and venue of any such court and waives any
argument that venue in such forums is not proper or convenient.

     (l) Complete Agreement. This Lease contains all of the agreements and
understandings relating to the leasing of the Premises and the obligations of Landlord and
Tenant in connection with such leasing. Landlord has not made, and Tenant is not relying
upon, any warranties or representations, promises or statements made by Landlord or any agent
of landlord, except as expressly stated herein. This Lease supersedes any and all prior
agreements and understandings between Landlord and Tenant and alone expresses the agreement
of the parties.

     (m) Governing Law. This Lease, the rights of the parties hereunder and the
interpretation hereof shall be governed by, and construed in accordance with, the internal
laws of the State of Minnesota, without giving effect to conflict of laws principles thereof.

     (n) Construction. The parties agree that counsel for both parties have reviewed
this Agreement. Accordingly, neither party shall be deemed to have drafted this Agreement
and it shall not be construed against either party by virtue of the drafting thereof in the
event of a dispute.

     30. Exhibits. Exhibits A, B, C[,][and D][and E) attached hereto are hereby incorporated by
reference.

14

 

     31. Right of First Offer. Provided that Tenant is not then in default under the Lease, Tenant
shall have a right to lease those certain premises in the Building commonly referred to as Suite
300, located adjacent to the Premises and consisting of 11,020 rentable square feet (the “Offer
Space”) when such Offer Space becomes available for lease during the term of the Lease, subject to
and in accordance with, the provisions of this Paragraph 31; it being understood and agreed that
for the purposes of this Paragraph 31, “available for lease” shall mean (i) the tenant of said
premises (A) as of the expiration date of the term of its lease, has not indicated to Landlord a
desire to renew its lease, whether or not said tenant’s lease contained any right of extension or
renewal and (B) has no unexercised rights of renewal or expansion as to such premises contained in
its lease and (ii) no other tenant has any rights of first offer or expansion as to such premises.
In the event Landlord the Offer Space has become available for lease during the term, Landlord
shall give written notice thereof to Tenant (the “Notice From Landlord”), which notice shall
contain Landlord’s determination of Market Rent (as defined in Paragraph 33 below). Tenant shall
have ten (10) days after receipt of the Notice From Landlord within which to deliver to Landlord
written notice of Tenant’s exercise of this offer (the “Notice of Exercise”), time being of the
essence; provided, that it shall be a condition precedent to the effectiveness of Tenant’s delivery
of a Notice of Exercise that Tenant is not in default in the performance of its obligations under
the Lease as of the date of Tenant’s delivery of the Notice of Exercise. Except for the terms and
conditions specifically set forth in the Notice From Landlord, all terms and conditions of Tenant’s
lease of all or a portion of the Offer Space (including the expiration date thereof) shall be as
provided in this Lease, except that (i) base rent for the Offer Space shall be the then-current
Market Rent, (ii) unless otherwise specified in the Notice From Landlord, the Offer Space shall be
leased “AS IS”; and (iii) the term of the lease of the Offer Space shall be three (3) years unless
otherwise specified in the Notice From Landlord, in Landlord’s sole discretion (the “Offer Space
Term”), it being understood and agreed that if the expiration date of the Offer Space Term will
occur after the expiration of the term of the Lease, then, in the Notice of Exercise, Tenant shall
specify whether it wishes to extend the term of the Lease such that the expiration date of the term
of the Lease shall be coterminous with the expiration date of the Offer Space Term and, in such
case, the base rent payable for the Premises for the period commencing on the day after the
expiration date of the term of the Lease and continuing through the expiration date of the Offer
Space Term shall be the then-current Market Rent for the Offer Space as defined and determined
below. The Notice of Exercise shall contain the same essential terms as the terms set forth in the
Notice From Landlord and shall be in a form sufficient to serve as a commitment by Tenant to enter
into a lease amendment with Landlord containing such terms with respect to the Offer Space as are
identified in the Notice From Landlord, together with, if applicable, Tenant’s notice that it
wishes to extend the term of the Lease such that the expiration date of the term of the Lease shall
be co-terminous with the expiration date of the Offer Space Term as provided in the preceding
sentence. Promptly upon Tenant’s delivery of the Notice of Exercise, the parties shall cooperate
in the execution of an agreement modifying the terms hereof to include the Offer Space as part of
the Premises in accordance with the terms contemplated in such Notice From Landlord, and otherwise
in accordance with the provisions of this Paragraph 31. If Tenant fails to deliver the Notice of
Exercise within said ten (10) day time period, Tenant shall be deemed to have waived its rights to
lease the Offer Space under this Paragraph 31 and shall have no further right to lease the Offer
Space. If Tenant waives its right to lease the Offer Space either in writing or pursuant to the
preceding sentence, Landlord shall be free to lease the Offer Space thereafter to any party upon
any terms. Tenant shall have no right to rescind any Notice of Exercise given as to the Offer
Space. The rights of Tenant under this Paragraph 31 shall not be severed from this Lease or
separately sold, assigned, or otherwise transferred, and shall expire on the expiration date of the
term of the Lease or earlier termination of the Lease and shall not be available to any assignee,
sublessee, or successor to Tenant’s interests hereunder.

     32. Right to Renew. Landlord hereby grants to Tenant a one-time option to renew the Lease as to
the Premises, as the same may have been expanded pursuant to Paragraph 31 hereof, upon the terms
and conditions of this Paragraph 32 if:

     (a) Tenant is not in default under this Lease beyond any time to cure at the time such
option is exercised; and

     (b) Tenant gives Landlord written notice of the exercise of the renewal of this Lease
not later than nine (9) months prior to the end of the Term (the “Renewal Notice of
Exercise”), time being of the essence. Tenant’s failure to deliver the Renewal Notice of
Exercise to Landlord during the notice period specified in this subparagraph (b) shall be
deemed a waiver of Tenant’s right to exercise its option to renew. Landlord and Tenant agree
that if, prior to the date Tenant delivers the Renewal Notice of Exercise, Tenant has leased
any Offer Space (as defined in Paragraph 31 hereof), the Renewal Notice of Exercise and the
subsequent renewal of this Lease pursuant to this Paragraph 32 shall include and be
applicable to such Offer Space. Landlord and Tenant further agree that, unless expressly
provided in said Paragraph 31, any right of first offer granted by said Paragraph 31 shall
expire as of the original Expiration Date of this Lease and shall not be available during the
renewal term.]

If Tenant elects to renew this Lease under this Paragraph 31, the following terms and
conditions shall apply:

15

 

     (x) the renewal term in question shall commence upon the expiration of the Term and
continue thereafter for a period of thirty-six (36) months;

     (y) Base Rent for the Premises for the renewal term shall be Market Rent (as defined in
Paragraph 33 below);

     (z) all of the other terms and conditions contained in this Lease, as it may have been
amended from time to time, shall be as set out in this Lease, it being understood that there
shall be no rights of renewal or extension except as provided in this Paragraph 32, and, upon
the exercise of the right of renewal granted by this Paragraph 32, this Paragraph 32 shall be
of no further force or effect and Tenant shall have no right to further renew or extend the
Term at the expiration of the renewal term.

     Within fifteen (15) days after request thereof from Landlord. Tenant shall execute and
deliver to Landlord those instruments which Landlord may request to evidence the renewal
described in this Paragraph 32. The rights of Tenant under this Paragraph 32 shall not be
severed from this Lease or separately sold, assigned, or otherwise transferred, and shall
expire on the expiration or earlier termination of this Lease. In addition to the foregoing,
the renewal option contemplated by this Paragraph 32 shall automatically terminate and become
null and void and of no further force and effect upon the earliest to occur of (i) the
expiration or termination of this Lease, (ii) the termination of the Tenant’s right to
possession of the Premises, or (iii) the failure of Tenant to timely or properly exercise the
rights granted by this Paragraph 32. The right contemplated by this Paragraph shall not
survive the expiration or termination of this Lease, and shall not be available to any
assignee, subtenant, or successor to Tenant’s interests hereunder.

     33. Market Rent. “Market Rent” means the amount of base rent, which may or may not include
concessions, improvements and other matters (exclusive of Operating Costs) which Landlord would
receive by then renting similar space (including similar square footage) for premises in the
project in which the Building is located. If (a) Tenant has delivered a Renewal Notice of
Exercise, within forty-five (45) days after Landlord’s receipt of the Renewal Notice of Exercise,
Landlord shall deliver to Tenant its determination of Market Rent for the renewal term, or (b)
Landlord delivers a Notice From Landlord, Landlord shall include therein Landlord’s its
determination of Market Rent for the Offer Space (in either case, the “Market Rent Notice”). If
Tenant does not agree with Landlord’s determination of Market Rent as set forth in the Market Rent
Notice, Tenant shall so notify Landlord in writing within ten (10) days after Tenant’s receipt of
the Market Rent Notice (“Tenant’s Notice”). Landlord and Tenant shall, for ten (10) days after
Landlord’s receipt of Tenant’s Notice, negotiate in good faith to come to an agreement as to Market
Rent for the renewal term or for the Offer Space, as the case may be. If Landlord and Tenant are
unable to agree upon Market Rent within said ten day period, then, within ten (10) days commencing
on the day after the expiration of the ten-day negotiating period, Landlord shall, acting in good
faith, choose a person reasonably acceptable to Tenant, experienced in commercial real estate,
knowledgeable about commercial real estate rents regarding office/tech/industrial properties in the
northwest quadrant of the Minneapolis/St. Paul metropolitan area and unrelated to any of Landlord,
Tenant, Landlord’s Managing Agent or Tenant’s Broker and shall refer the matter to such person (the
“Expert”), who shall be deemed to be acting as an expert and not as an arbitrator or appraiser. The
Expert shall make a determination of Market Rent as expeditiously as possible, but in no event
later than thirty (30) days after referral of the matter to him or her, which determination shall
be conclusive and binding on the parties. The parties shall evenly split the costs of the Expert.
Tenant’s failure to give Tenant’s Notice within the time period provided above shall be deemed an
acceptance of Landlord’s determination of Market Rent, and the Term shall be deemed renewed
pursuant to the Market Rent Notice.

     IN WITNESS WHEREOF, the parties have executed this Lease as of the Date of Lease.

	 	 	 	 	 	 	 	 	 
	ST. PAUL PROPERTIES, INC.	 	KIPS BAY MEDICAL, INC.	 	 
	 
	By:

	/s/ R. William Inserra	 	By:  
	/s/ Manny Villafana
	 	 
	 

	Name: R. William Inserra
 	 	 	Name: M.A. Villafana	 	 
	 

	Title: V.P. Asset Management	 	 	Title: Chairman and CEO	 	 

16

 

EXHIBIT A

PREMISES

A-1

 

EXHIBIT B

WORK LETTER

[Landlord Performs Work]

[Allowance]

     This Work Letter (“Work Letter”) is dated 7/6/2007, and is a part of that certain Lease
Agreement (the “Lease”) between KIPS BAY MEDICAL, INC., a Delaware corporation, as “Tenant” and ST.
PAUL PROPERTIES, INC., a Delaware corporation, as “Landlord,” relating to certain demised premises
(“Premises”) at that certain building having a street address of 3405 Annapolis Lane, Plymouth,
Minnesota, 55447 (the “Building”), which Premises are more fully identified in the Lease.
Capitalized terms used herein, unless otherwise defined in this Work Letter, shall have the
respective meanings ascribed to them in the Lease.

     1. Tenant’s Initial Plans; the Work. Tenant desires Landlord to perform certain
leasehold improvement work in the Premises in substantial accordance with the plan or plans
(collectively, the “Initial Plan”) prepared by Mohagen Hansen Architects dated 5/9/2007 a copy or
copies is/are attached hereto as Schedule 1. Such work, as shown in the Initial Plan and as more
fully detailed in the Working Drawings (as defined and described in Paragraph 2 below), shall be
hereinafter referred to as the “Work.” Not later than 8/1/2007 Tenant shall furnish to Landlord
such additional plans, drawings, specifications and finish details as Landlord may reasonably
request to enable Landlord’s architects and engineers to prepare mechanical, electrical and
plumbing plans and to prepare the Working Drawings, including a final telephone layout and special
electrical connection requirements, if any. All plans, drawings, specifications and other details
describing the Work which have been or are hereafter furnished by or on behalf of Tenant shall be
subject to Landlord’s approval, which Landlord agrees shall not be unreasonably withheld. Landlord
shall not be deemed to have acted unreasonably if it withholds its approval of any plans,
specifications, drawings or other details or of any Additional Work (as defined in Paragraph 7
below) because, in Landlord’s reasonable opinion, the work, as described in any such item, or the
Additional Work, as the case may be: (a) is likely to adversely affect Building systems, the
structure of the Building or the safety of the Building and/or its occupants; (b) might impair
Landlord’s ability to furnish services to Tenant or other tenants in the Building; (c) might, in
Landlord’s sole opinion, adversely affect Landlord’s ability to re-lease the Premises; (d) would
increase the cost of operating the Building; (e) would violate any governmental laws, rules or
ordinances (or interpretations thereof); (f) contains or uses hazardous or toxic materials or
substances; (g) would adversely affect the appearance of the Building; (h) might adversely affect
another tenant’s premises; (i) is prohibited by any ground lease affecting the Building or any
mortgage or other instrument encumbering the Building; or (j) is likely to be substantially delayed
because of unavailability or shortage of labor or materials necessary to perform such work or the
difficulties or unusual nature of such work. The foregoing reasons, however, shall not be the only
reasons for which Landlord may withhold its approval, whether or not such other reasons are similar
or dissimilar to the foregoing. Neither the approval by Landlord of the Work or the Initial Plan
or any other plans, drawings, specifications or other items associated with the Work nor Landlord’s
performance, supervision or monitoring of the Work shall constitute any warranty by Landlord to
Tenant of the adequacy of the design for Tenant’s intended use of the Premises.

     2. Working Drawings. If necessary for the performance of the Work and not included as
part of the Initial Plan, Landlord shall prepare or cause to be prepared final working drawings and
specifications for the Work (the “Working Drawings”) based on and consistent with the Initial Plan
and the other plans, drawings, specifications, finished details and other information furnished by
Tenant to Landlord and approved by Landlord pursuant to Paragraph 1 above. So long as the Working
Drawings are consistent with the Initial Plan, Tenant shall approve the Working Drawings within
three (3) days after receipt of same from Landlord by initialing and returning to Landlord each
sheet of the Working Drawings or by executing Landlord’s approval form then in use, whichever
method of approval Landlord may designate.

     3. Performance of the Work; Allowance. Except as hereinafter provided to the
contrary, Landlord shall cause the performance of the Work using (except as may be stated or shown
otherwise in the Working Drawings) building standard materials, quantities and procedures then in
use by Landlord (“Building Standards”). Landlord shall pay for a portion of the “Cost of the Work”
(as defined below) in an amount not to exceed $49,900.00 (the “Allowance”), and Tenant shall pay
for the entire Cost of the Work in excess of the Allowance. Tenant shall not be entitled to any
credit, abatement or payment from Landlord in the event that the amount of the Allowance specified
above exceeds the Cost of the Work. For purposes of this Agreement, the term “Cost of the Work”
shall mean and include any and all costs and expenses of the Work, including, without limitation,
the cost of the Initial Plan, the Working Drawings, the cost of an employee of Landlord or
Landlord’s Managing Agent acting as tenant coordinator/construction manager and all labor
(including overtime) and materials constituting the Work.

     4. Payment. Prior to commencing the Work, Landlord shall submit to Tenant a written
statement of the total Cost of the Work (which shall include the amount of any overtime projected
as necessary to substantially complete the Work by the

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Commencement Date specified in the Lease) as then known by Landlord, and such statement shall
indicate the amount, if any, by which the total Cost of the Work exceeds the Allowance (the “Excess
Costs”). Tenant agrees, within three (3) days after submission to it of such statement, to execute
and deliver to Landlord, in the form then in use by Landlord, an authorization to proceed with the
Work, and Tenant shall also then pay to Landlord an amount equal to the Excess Costs. No Work
shall be commenced until Tenant has fully complied with the preceding provisions of this Paragraph
4. In the event, and each time, that any change order by Tenant, unknown field condition, delay
caused by acts beyond Landlord’s control or other event or circumstance causes the Cost of the Work
to be increased after the time that Landlord delivers to Tenant the aforesaid initial statement of
the Cost of the Work, Landlord shall deliver to Tenant a revised statement of the total Cost of the
Work, indicating the revised calculation of the Excess Costs, if any. Within three (3) days after
submission to Tenant of any such revised statement, Tenant shall pay to Landlord an amount equal to
the Excess Costs, as shown in such revised statement, less the amounts previously paid by Tenant to
Landlord on account of the Excess Costs, and Landlord shall not be required to proceed further with
the Work until Tenant has paid such amount. Delays in the performance of the Work resulting from
the failure of Tenant to comply with the provisions of this Paragraph 4 shall be deemed to be
delays caused by Tenant.

     5. Substantial Completion. Landlord shall cause the Work to be “substantially
completed” on or before the scheduled date of commencement of the Term subject to delays caused by
strikes, lockouts, boycotts or other labor problems, casualties, discontinuance of any utility or
other service required for performance of the Work, unavailability or shortages of materials or
other problems in obtaining materials necessary for performance of the Work or any other matter
beyond the control of Landlord (or beyond the control of Landlord’s contractors or subcontractors
performing the Work) and also subject to “Tenant Delays” (as defined and described in Paragraph 6
of this Work Letter). The Work shall be deemed to be “substantially completed” for all purposes
under this Work Letter and the Lease if and when Landlord’s general contractor issues a written
certificate to Landlord and Tenant, certifying that the Work has been substantially completed
(i.e., completed except for “punchlist” items listed in such architect’s certificate) in
substantial compliance with the Working Drawings, or when Tenant first takes occupancy of the
Premises, whichever first occurs. If the Work is not deemed to be substantially completed on or
before the scheduled date of the commencement of the Term, (a) Landlord agrees to use reasonable
efforts to complete the Work as soon as practicable thereafter, (b) the Lease shall remain in full
force and effect, (c) Landlord shall not be deemed to be in breach or default of the Lease or this
Work Letter as a result thereof and Landlord shall have no liability to Tenant as a result of any
delay in occupancy (whether for damages, abatement of Rent or otherwise), and (d) except in the
event of Tenant Delays and notwithstanding anything contained in the Lease to the contrary, the
Commencement Date of the Term shall be extended to the date on which the Work is deemed to be
substantially completed and the Expiration Date of the Term shall be extended by the number of days
by which the Commencement Date was extended together with the number of days required to make the
Term expire on the next occurring last day of the month. At the request of either Landlord or
Tenant in the event of such extensions in the commencement and expiration dates of the Term, Tenant
and Landlord shall execute and deliver an amendment to the Lease reflecting such extensions.
Landlord agrees to use reasonable diligence to complete all punchlist work listed in the aforesaid
general contractor’s certificate promptly after substantial completion.

     6. Tenant Delays. There shall be no extension of the scheduled commencement or
expiration date of the Term (as otherwise permissibly extended under Paragraph 5 above) if the Work
has not been substantially completed on said scheduled commencement date by reason of any delay
attributable to Tenant (“Tenant Delays”), including without limitation:

     (a) the failure of Tenant to furnish all or any plans, drawings, specifications, finish
details or the other information required under Paragraph 1 above on or before the date
stated in Paragraph 1;

     (b) the failure of Tenant to grant approval of the Working Drawings within the time
required under Paragraph 2 above;

     (c) the failure of Tenant to comply with the requirements of Paragraph 4 above;

     (d) Tenant’s requirements for special worker materials, finishes, or installations other
than the Building Standards or Tenant’s requirements for special construction staging or
phasing;

     (e) the performance of any Additional Work (as defined in Paragraph 7 below) requested
by Tenant or the performance of any work in the Premises by any person, firm or corporation
employed by or on behalf of Tenant, or any failure to complete or delay in completion of such
work; or

     (f) any other act or omission of Tenant.

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     7. Additional Work. Upon Tenant’s request and submission by Tenant (at Tenant’s sole
cost and expense) of the necessary information and/or plans and specifications for work other than
the Work described in the Working Drawings (“Additional Work”) and the approval by Landlord of such
Additional Work, which approval Landlord agrees shall not be unreasonably withheld, Landlord shall
perform such Additional Work, at Tenant’s sole cost and expense, subject, however, to the following
provisions of this Paragraph 7. Prior to commencing any Additional Work requested by Tenant,
Landlord shall submit to Tenant a written statement of the cost of such Additional Work, and,
concurrently with such statement of cost, Landlord shall also submit to Tenant a proposed tenant
extra order (the “TEO”) for the Additional Work in the standard form then in use by Landlord.
Tenant shall execute and deliver to Landlord such TEO and shall pay to Landlord the entire cost of
the Additional Work within five (5) days after Landlord’s submission of such statement and TEO to
Tenant. If Tenant fails to execute or deliver such TEO or pay the entire cost of such Additional
Work within such 5-day period, then Landlord shall not be obligated to do any of the Additional
Work and may proceed to do only the Work, as specified in the Working Drawings.

     8. Tenant Access. Landlord, in Landlord’s reasonable discretion and upon request by
Tenant, may grant to Tenant a license to have access to the Premises prior to the date designated
in the Lease for the commencement of the Term to allow Tenant to do other work required by Tenant
to make the Premises ready for Tenant’s use and occupancy (the “Tenant’s Pre-Occupancy Work”). It
shall be a condition to the grant by Landlord and continued effectiveness of such license that:

     (a) Tenant shall give to Landlord a written request to have such access to the Premises
not less than five (5) days prior to the date on which such access will commence, which
written request shall contain or shall be accompanied by each of the following items, all in
form and substance reasonably acceptable to Landlord: (i) copies of all plans and
specifications pertaining to Tenant’s Pre-Occupancy Work; (ii) copies of all licenses and
permits required in connection with the performance of Tenant’s Pre-Occupancy Work; (iii)
certificates of insurance (in amounts satisfactory to Landlord and with the parties
identified in, or required by, the Lease named as additional insureds) and instruments of
indemnification against all claims, costs, expenses, damages and liabilities which may arise
in connection with Tenant’s Pre-Occupancy Work; and (iv) assurances of the ability of Tenant
to pay for all of Tenant’s Pre-Occupancy Work and/or a letter of credit or other security
deemed appropriate by Landlord securing Tenant’s lien-free completion of Tenant’s
Pre-Occupancy Work.

     (b) Such pre-Term access by Tenant and its representatives shall be subject to
scheduling by Landlord.

     (c) Tenant’s employees, agents, contractors, workers, mechanics, suppliers and invitees
shall work in harmony and not interfere with Landlord or Landlord’s agents in performing the
Work and any Additional Work in the Premises, Landlord’s work in other premises and in common
areas of the Building, or the general operation of the Building. If at any time any such
person representing Tenant shall cause or threaten to cause such disharmony or interference,
including labor disharmony, and Tenant fails to immediately institute and maintain such
corrective actions as directed by Landlord, then Landlord may withdraw such license upon
twenty-four (24) hours’ prior written notice to Tenant.

     (d) Any such entry into and occupancy of the Premises by Tenant or any person or entity
working for or on behalf of Tenant shall be deemed to be subject to all of the terms,
covenants, conditions and provisions of the Lease, specifically the provisions regarding
Tenant’s improvements and alterations to the Premises, and excluding only the covenant to pay
Rent. Landlord shall not be liable for any injury, loss or damage which may occur to any of
Tenant’s Pre-Occupancy Work made in or about the Premises or to property placed therein prior
to the commencement of the Term, the same being at Tenant’s sole risk and liability. Tenant
shall be liable to Landlord for any damage to the Premises or to any portion of the Work or
Additional Work caused by Tenant or any of Tenant’s employees, agents, contractors, workmen
or suppliers. In the event that the performance of Tenant’s Pre-Occupancy Work causes extra
costs to Landlord or extraordinary use of Building services. Tenant shall reimburse Landlord
for such extra cost and/or shall pay Landlord for such elevator service or other Building
services at Landlord’s standard rates then in effect.

     9. Lease Provisions. The terms and provisions of the Lease, insofar as they are
applicable to this Work Letter, are hereby incorporated herein by reference. All amounts payable
by Tenant to Landlord hereunder shall be deemed to be additional Rent under the Lease and, upon any
default in the payment of same, Landlord shall have all of the rights and remedies provided for in
the Lease.

     10. Miscellaneous.

     (a) This Work Letter shall be governed by the laws of the State of Minnesota.

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     (b) This Work Letter may not be amended except by a written instrument signed by the
party or parties to be bound thereby.

     (c) Notices under this Work Letter shall be given in the same manner as under the Lease.

     (d) The headings in this Work Letter herein are for convenience only.

     (e) This Work Letter sets forth the entire agreement of Tenant and Landlord regarding
the Work.

     (f) In the event that the final working drawings and specifications are included as part
of the Initial Plan attached hereto, or in the event Landlord performs the Work without the
necessity of preparing working drawings and specifications, then whenever the term “Working
Drawings” is used in this Agreement, such term shall be deemed to refer to the Initial Plan
and all supplemental plans and specifications approved by Landlord.

     11. Limitation of Landlord’s Liability. If Landlord is ever adjudged by any court to
be liable to Tenant, Tenant specifically agrees to look solely to Landlord’s interest in the Phase
for the recovery of any judgment from Landlord, it being agreed that none of Landlord, its
directors, officers, shareholders, managing agents, employees or agents shall be personally liable
for any such judgment. In no event shall Landlord ever be liable to Tenant, Tenant’s agents,
servants or employees, or to any person or entity claiming by or through Tenant, for any
consequential, indirect, special or similar types of damages.

     12. Lease Provisions. The terms and provisions of the Lease are hereby amended and
supplemented. In the event of any conflict between the provisions of the Lease and the provisions
of this Work Letter, the provisions of this Work Letter shall control. The pursuit of any remedies
by Tenant in connection with any breach by Landlord of its obligations under this Work Letter shall
be subject to the provisions of Paragraph 11 hereof and subject to any other limitations stated in
the Lease.

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SCHEDULE 1

COPIES OF INITIAL PLAN

Type description of Initial Plans on this cover sheet and attach copies of such plans after
this page.

Sched. 1-1

 

Sched. 1-2

 

EXHIBIT C

RULES AND REGULATIONS FOR

PLYMOUTH BUSINESS CENTER

     1. The sidewalks, passages and stairways, if any, shall not be obstructed by Tenant or used
for any purpose other than for ingress to and egress from the Premises. The passages, entrances,
stairways, if any, balconies, if any, and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control and prevent access thereto of all persons
whose presence in the judgment of Landlord shall be prejudicial to the safety, character,
reputation and interests to the Building and its tenants; provided that nothing herein contained
shall be construed to prevent such access to person with whom Tenant normally deals in the ordinary
course of its business unless such persons are engaged in illegal activities. Tenant and its
employees shall not go upon the roof of the Building without the written consent of the Landlord.

     2. The sashes, sash doors, windows, glass lights and any lights or skylights that reflect or
admit light into halls, from the building exterior or other places into the building shall not be
covered or obstructed. Any curtains, blinds, shades, or screens attached or hung to any of the
prior mentioned areas must have prior approval of Landlord. Landlord will provide standard window
coverings on exterior windows and other glass if appropriate and Landlord reserves the right to
regulate position of such coverings.

     3. In case of invasion, riot, public excitement or other commotion, Landlord reserves the
right to prevent access to the Building during the continuance of same. Landlord shall in no case
be liable for damages for the admission or exclusion of any person to or from the Building.
Landlord has the right to evacuate the Building in the event of an emergency or catastrophe.

     4. Two door keys for doors to leased premises shall be furnished at the commencement of a
lease by Landlord. All duplicate keys shall be purchased only from the Landlord. One security
card per each of Tenant’s employees so authorized by Tenant will be issued for all approved
personnel to permit after-hour access, and Landlord reserves the right to assess a fee to Tenant
for the replacement of lost keys or cards. Tenant shall not alter any lock, or install new or
additional locks or bolts, on any door without the prior written approval of Landlord. In the
event such alteration or installation is approved by Landlord, Tenant shall supply Landlord with a
key for any such lock or bolt. Tenant, upon the termination of the tenancy, shall deliver to
Landlord all the keys, locks, bolts, cabinets, safes or vaults, or the means of opening any
lockable device and security cards of offices, rooms and toilet rooms which shall have been
furnished Tenant or which Tenant shall have had made, and in the event of loss of any keys or
security cards so furnished shall pay the Landlord therefor.

     5. All deliveries, including intra-company deliveries, must be made via service entrances.
Tenant agrees to adhere to floor loading maximum levels as stated by Landlord. All damage done to
the Building by the delivery or removal of such items, or by reason of their presence in the
Building, shall be paid to Landlord upon demand by Tenant and shall constitute Additional Rent
under the Lease.

     6. Parking area and parking policies will be established by Landlord, and Tenant agrees to
adhere to said policies. UPON A COMPLAINT BY TENANT AND OTHER TENANTS OF THE BUILDING AND AT ANY
OTHER TIME, Landlord reserves the right to IMPLEMENT AND institute new parking policies as they are
determined to benefit overall Building operations. Tenant agrees to leave no cars, vans or other
vehicles overnight or over any weekend in any parking area. Tenant further agrees that its
employees will not park in the visitor parking areas at any time.

     7. If Tenant desires signal, communication, alarm or other utility or service connection
installed or changed, the same shall be made at the expense of Tenant, with approval and under
direction of Landlord, it being understood and agreed that (a) no audible alarm shall be installed
unless specifically approved in writing by Landlord prior to installation; and (b) only Tenant
shall be obligated to respond to such signal, communication, alarm or other utility or service
connection, and none of Landlord, Landlord’s Managing Agent or other employee, agent or contractor
of Landlord shall, under any circumstances have any obligation to Tenant or others to respond to
such alarm or be liable to Tenant or any party claiming by or through Tenant for any failure to do
so. Any installations, and the boring or cutting for wires, shall be made at the sole cost and
expense of Tenant and under control and direction of Landlord. Landlord retains in all cases the
right to require (x) the installation and use of such electrical-protecting devices that prevents
the transmission of excessive current or electricity into or transmission of excessive current or
electricity into or through the Building (y) the changing of wires and of their installation and
arrangement underground or otherwise as Landlord may direct, and (z) compliance on the part of all
using or seeking access to such wires with such rules as Landlord may establish relating thereto.
All such wires used by Tenant must be clearly tagged at the distribution boards and junction box
and elsewhere in the Building, with (h)

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the number of the Premises to which said wires lead, (i) the purpose for which said wires
are used and j) the name of the company operating same.

     Tenant agrees to instruct all approved communication, and computer and other cabling
installers to attach cable in wire hangers from the deck or in any designated building floor or
ceiling system cable location. Tenant will not allow installers to lay any cabling on top of the
suspended layer ceiling system.

     8. Tenant shall give Landlord prompt notice of all accidents to or defects in air conditioning
equipment, plumbing, electrical facilities or any part of appurtenances of the Premises.

     9. Tenant assumes full responsibility for protecting its space from theft, robbery, and
pilferage, which includes keeping doors locked and other means of entry to the space closed and
secured. Landlord shall be in no way responsible to Tenant, its agents, employees, licensees,
contractors or invitees for any loss of property from the Premises or public areas or for any
damages to any property thereon front any cause whatsoever.

     10. Tenant shall not install or operate machinery or any mechanical devices of a nature not
directly related to Tenant’s ordinary use of the Premises without the prior written permission of
the Landlord. Tenant shall not place in or move about the Premises any safe or other heavy article
which, in Landlord’s reasonable opinion may damage the Premises (including the slab) or overload
the floor of the Premises, shall not mark on or drive nails, screw or drill into the partitions,
woodwork or plaster (except as may be incidental to the hanging of wall decorations) and shall not
in any way deface the Premises or any part thereof.

     11. No person or contractor not employed by Landlord shall be used to perform window washing,
decorating, repair or other work in the leased Premises without the express written consent of
Landlord.

     12. The directories of the Building shall be used exclusively for the display of the name and
location only of the tenants of the Building, including Tenant, and will be provided at the expense
of Landlord. Any additional names requested by Tenant to be displayed in the directories must be
approved by Landlord and, if approved, will be provided at the sole expense of Tenant.

     13. Tenant shall not and shall ensure that its agents, servants, employees, licensees,
contractors or invitees shall not:

     (a) enter into or upon the roof of the Building or any storage, electrical or telephone
closet, or heating, ventilation, air-conditioning, mechanical or elevator machinery housing
areas;

     (b) use any additional method of heating or air conditioning the Premises, including,
without limitation, space heaters of any kind or nature;

     (c) sweep or throw any dirt or other substance into ANY passageway, sidewalk or parking
area;

     (d) bring in or keep in or about the Premises any firearms, vehicles, bicycles,
motorcycles or animals of any kind;

     (e) deposit any trash, refuse or other substance of any kind within or out of the
Building, except in the refuse containers provided therefor;

     (f) permit the operation any device that may produce an odor, cause music, vibrations of
air waves to be heard or felt outside the Premises, or which may emit electrical waves that
shall impair radio, television or any other form of communication system; or

     (g) permit the carrying of a lighted cigar, cigarette, pipe or any other lighted smoking
equipment or permit smoking of cigarettes, cigars or pipes (i) in the common areas of the
Building, including, without limitation, restrooms, except common areas which have been
designated by Landlord in writing as smoking areas; or (ii) within ten (10) yards of any door
leading into the Building or any building comprising a part thereof.

     14. Tenant will not install any radio or television antennas or receptor dish or any device on
the roof or grounds without the prior written approval of Landlord. Tenant understands that
rentals are charged for roof space in the event any roof installation is

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approved in writing by Landlord. Landlord reserves the right to require removal of any
approved installed device in the event it is necessary to do so in Landlord’s opinion.

     15. No sign, light, name placard, poster advertisement or notice visible from the exterior of
any demised premises, shall be placed, inscribed, painted or affixed by Tenant on any part of the
Building without the prior written approval of Landlord. All signs or letterings on doors, or
otherwise, approved by Landlord shall be inscribed, painted or affixed at the sole cost and expense
of Tenant, by a person approved by Landlord.

     16. The toilet-rooms, toilet, urinals, wash bowls and water apparatus shall not be used for
any purpose other than those for which they were constructed or installed, and no sweeping,
rubbish, chemicals or other unsuitable substances shall be thrown or placed therein. Tenant shall
bear the expense of repairing and cleaning up any breakage, stoppage or damage resulting from
violation(s) of this rule by Tenant or its agents, servants, employees, invitees, licensees or
visitors.

     17. Tenant must have Landlord’s prior written consent before using the name of the Building
and/or pictures of the Building in advertising or other publicity.

     18. Tenant shall not make any room-to-room canvass to solicit business from other tenants in
the Building, and shall not exhibit, sell or offer to sell, use, rent or exchange in or from the
Premises unless ordinarily embraced within Tenant’s use of the Premises specified herein.

     19. Tenant shall not do any cooking in the Premises, except that Tenant may install a
microwave oven and coffee makers for the use of its employees in the Premises. Under no
circumstances shall Tenant install or use any hot plates.

     20. No portion of Tenant’s area or any other part of the Building shall at any time be used or
occupied as sleeping or lodging quarters.

     21. Landlord has the right to enact trash removal and trash recycling rules and regulations as
necessary to control trash removal costs or as required by the laws of the State of Minnesota
and/or the United States of America. Tenant agrees to adhere to such trash removal regulations and
to any and all modifications thereof issued by Landlord from time to time.

     22. Tenant will refer all contractors, contractors’ representatives and installation
technicians rendering any service to Tenant to Landlord for Landlord’s supervision, approval and
control before performance of any contractual service. This provision shall apply to any work
performed in the Building including installations of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls, woodwork, trim,
windows, ceilings, equipment or any other physical portion of the Building.

     23. Tenant shall not permit picketing or other union activity involving its employees in the
Building except in those locations and subject to time and other limitations as to which Landlord
may give prior written consent.

     24. Tenant shall not conduct, or permit to be conducted on or from the Premises, any auction
of Tenant’s personal property, any liquidation sale, any going-out-of-business sale or other
similar activity.

     25. Landlord reserves the right to rescind, make reasonable amendments, modifications and
additions to the rules and regulations heretofore set forth, and to make additional reasonable
rules and regulations, as in Landlord’s sole judgment may from time-to-time be needed for the
safety, care, cleanliness and preservation of good order of the Building. Landlord shall not be
responsible for any violation of the foregoing rules and regulations by other tenants of the
Building and shall have no obligation to enforce the same against other tenants.

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EXHIBIT D

Plymouth Business Center

Signage Criteria

There is a uniform sign policy. It is as follows:

FRONT ENTRANCE DOOR

White Vinyl Applied Letters Only

“2 Maximum Height

Helvetica Letters

Two or Three Lines Only

Logos, Script, or Color Variations

REAR OVERHEAD DOOR

Black Vinyl Applied Letters Only

6” Maximum Height

Helvetica Letters

One or Two Lines Only

Logos, Script, or Color Variations

REAR ENTRANCE/HOLLOW METAL DOOR

Black Vinyl Applied Letters Only

2# Maximum Height

Helvetica Letters

Two or Three Lines Only

No Logos, Script, or Color Variations

FRONT

OVERHEAD SIGN

Freeway Exposure (mounted below wallpack lighting)

4’ x 8’ Black Acrylic Background Panel

White or Gray Copy Only

Logo Reproduction Permitted

Non-Freeway Exposure (mounted adjacent to entrance door)

2.5’ x 3.5’ Black Acrylic Background Panel

White or Gray copy Only

Logo Reproduction Permitted

NOTE:

Signage must meet Landlord approval prior to installation.

Signage contractor must obtain permit from City if required.

D-1

 

EXHIBIT E

COMMENCEMENT CONFIRMATION

[Date)

	 	 	 
	Tenant Name:

	 	KIPS BAY MEDICAL, INC.
	Building Address:

	 	Suite                     , 3405 Annapolis Lane, Plymouth, Minnesota 55447

St. Paul Properties, Inc. and Kips Bay Medical, Inc. hereby confirm that the following are the
respective dates required to be specified with regard to the Data Sheet of that certain lease dated
July ___, 2007, between them for the Premises described therein.

Commencement Date:          
                     
                     

Expiration Date:        
                     
                           
     

	 	 	 	 	 	 	 	 	 	 	 	 	 
	ST. PAUL PROPERTIES, INC.	 	KIPS BAY MEDICAL, INC.	 	 
	 
	By:

	 	 	 	 	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	 	Name:
	 	 
	 

	 	Title:
	 	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 
	 	 	 	 
	 	 

	 	 

D-2

 

October 22, 2009

Kips Bay Medical, Inc.

3405 Annapolis Lane Suite 205

Attn: Bonnie Hutterer

Plymouth, MN 55447

RE: Original Lease dated July 26, 2007 for 3405 Annapolis Lane Suite 205

Dear Ms. Bonnie Hutterer:

This letter is to inform you that the landlord under your lease, St. Paul Properties, Inc. (“SPP”),
has merged with and into its single shareholder, St. Paul Fire and Marine Insurance Company
(“SPFM”). SPP and SPVM are both wholly owned subsidiaries of The Travelers Companies, Inc. As a
result of this merger, SPFM becomes your landlord without the need for any amendment to your lease.

Accordingly, beginning with the December 1, 2009 rental payments and beyond should be made payable
and mailed to:

St. Paul Fire and Marine Insurance Co.

c/o NorthMarq Real Estate Services

SDS-12-1269 PO Box 86

Minneapolis, MN 55486-2659

The merger was done simply to streamline the organizational structure of SPFM. There will be no
changes to you as tenant as a result of the merger. We will continue to manage the property on
behalf of SPFM, and SPFM will succeed to all obligations of SPP under your Lease.

Please call if you have any questions. We appreciate having you as a tenant and look forward to
serving you on a continued basis.

Very truly yours,

/s/ Jan
Jetland Murphy

Jan Jetland Murphy

Senior Property Manager

NorthMarq Real Estate Services

D-3

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	PAGE	 
	1. Premises and Term
	 	 	1	 
	2. Base Rent, Late Payment Charges and Security Deposit
	 	 	1	 
	3. Use
	 	 	2	 
	4. Operating Costs; Additional Rent
	 	 	2	 
	5. Landlord’s Responsibilities
	 	 	4	 
	6. Tenant’s Responsibilities
	 	 	4	 
	7. Alterations; Condition of Premises Upon Expiration
	 	 	4	 
	8. Signs/Window Coverings
	 	 	5	 
	9. Inspection
	 	 	5	 
	10. Utilities
	 	 	5	 
	11. Assignment and Subletting
	 	 	5	 
	12. Fire and Casualty Damage
	 	 	6	 
	13. Liability, Waiver and Release
	 	 	7	 
	14. Insurance
	 	 	7	 
	15. Condemnation
	 	 	8	 
	16. Holding Over
	 	 	8	 
	17. Quiet Enjoyment
	 	 	9	 
	18. Events of Default
	 	 	9	 
	19. Remedies
	 	 	9	 
	20. Landlord’s Lien
	 	 	11	 
	21. Mortgages
	 	 	11	 
	22. Mechanic’s Liens
	 	 	11	 
	23. Notices
	 	 	11	 
	24. Hazardous Substances
	 	 	12	 
	25. Expense of Enforcement
	 	 	12	 
	26. Substitution of Premises
	 	 	12	 
	27. Transfer of Landlord’s Interest; Limitation of Liability
	 	 	13	 
	28. Right of Landlord to Perform
	 	 	13	 
	29. Miscellaneous
	 	 	13	 
	30. Exhibits
	 	 	14	 
	31. Right of First Offer
	 	 	15	 
	32. Right to Renew
	 	 	15	 
	33. Market Rent
	 	 	16	 

i

 

DATA SHEET

	 	 	 
	DATE OF LEASE:

	 	July 26, 2007
	 
	 	 
	LANDLORD:

	 	ST. PAUL PROPERTIES. INC., a Delaware corporation
	 
	 	 
	LANDLORD’S ADDRESS FOR RENT:

	 	St. Paul Properties, Inc. C/o United Properties LLC
	 

	 	NW-9044
	 

	 	P.O. Box 1450
	 

	 	Minneapolis, Minnesota 55485-9044
	 
	TENANT:

	 	KIPS BAY MEDICAL, INC. a Delaware corporation
	 
	 	 
	TENANT’S ADDRESS:

	 	Suite 200, 3405 Annapolis Lane, Plymouth, Minnesota, 55447
	 
	 	 
	PREMISES:

	 	Approximately 4,948 rentable square feet, as designated on Exhibit A.
	 
	 	 
	COMMENCEMENT DATE:

	 	September 1, 2007, as the same may be modified pursuant to Paragraph 1 of the lease agreement and Exhibit
E.
	 
	 	 
	EXPIRATION DATE:

	 	August 31, 2010, as the same may be modified pursuant to Paragraph 1 of the lease agreement and Exhibit E.
	 
	 	 
	TERM:

	 	Thirty six (36) months, beginning on the Commencement Date, and ending on the Expiration Date, unless earlier terminated as provided in the lease agreement.
	 
	BASE RENT:

	 	Base Rent shall be due hereunder as follows:

	 	 	 	 	 	 	 	 	 
	 
	 	 	 	Period
	 	Annual Base Rent
	 	Monthly Base Rent
	 
	 	 	 	9/1/07 — 8/31/10
	 	$56,901.96
	 	$4,741.83

	 	 	 	 	 
	USE:

	 	Office/Tech	 	 
	 
	 	 	 	 
	ADDRESSES FOR NOTICES:

	 	Landlord:
	 	with a copy to Landlord’s Managing Agent:
	 
	 

	 	St. Paul Properties, Inc.
	 	United Properties LLC
	 

	 	385 Washington Street
	 	3500 West 80th Street, Suite 200
	 

	 	St. Paul, Minnesota 55102
	 	Bloomington, Minnesota 55431
	 

	 	Attn: Vice President, Asset Management
	 	Attn: Vice President, Property Management
	 
	 

	 	Tenant (prior to Commencement Date:
	 	Tenant (after Commencement Date):
	 

	 	 

	 	Kips Bay Medical, Inc.
	 

	 	 

	 	3405 Annapolis Lane North, Suite                     
	 

	 	 

	 	Plymouth, Minnesota 55447
	 

	 	Attention:
	 	Attention:
	 

	 	

	 	

	 	 	 	 	 
	SECURITY DEPOSIT:

	 	$ 6,803.50	 	 
	 
	 	 	 	 
	PHASE:

	 	Phase VI, Plymouth Business Center, consisting of one building with a rentable square footage of 71,082.

	 
	 	 	 	 
	TENANT’S PROPORTIONATE SHARE:

	 	Six and ninety six one hundredths percent (6.96%), of Phase VI, Plymouth Business Center.

	 
	 	 	 	 
	BUILDING:

	 	3405 Annapolis Lane, Plymouth, Minnesota, the building in which the Premises are located, which building
is a part of Phase VI, Plymouth Business Center.

	 
	 	 	 	 
	TENANT’S BROKER:

	 	United Properties, LLC, Dave Paradise

The information in this Data Sheet is incorporated in and made apart of this lease agreement.

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