Document:

Exhibit 10.8

 

STRATEGIC
PARTNERSHIP AGREEMENT

 

THIS STRATEGIC PARTNERSHIP AGREEMENT is entered into as of the 8th of
October, 2004 (the “Effective Date”) by and between MathStar, Inc., a
Minnesota corporation (“MathStar”); Valley Technologies, Inc., a Pennsylvania
corporation (“VTI”); and, for purposes of only Sections 2.5, 3.1.2 and
3.3, Gerald Petrole, the President and Chief Executive Officer of VTI (“Petrole”).  MathStar and VTI are hereinafter referred to
as the “Parties” and individually as a “Party.”

 

RECITALS

 

WHEREAS, MathStar is a fabless semiconductor company addressing the
reprogrammable logic markets with a new class of platform chips called “Field
Programmable Object Arrays” (“FPOAs”), which are high performance,
reprogrammable integrated circuits based on MathStar’s proprietary Silicon
Object technology;

 

WHEREAS, VTI provides very high performance digital signal processing (“DSP”)
and data acquisition boards and systems to the commercial and military markets;

 

WHEREAS, VTI is willing to be engaged in developing and supporting
products, algorithms and applications for the FPOAs (the “VTI Products”), and
VTI is willing to provide the services of Petrole to assist MathStar in
marketing the FPOAs, all as provided herein;

 

WHEREAS, some of the VTI Products will be printed circuit board
products utilizing FPOAs (the “Hardware Products”); and

 

WHEREAS, the Parties desire to set forth the terms and conditions under
which such development and marketing shall take place.

 

NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, MathStar and VTI hereby agree
as follows:

 

SECTION 1

 

DEFINITIONS

 

As used throughout this Agreement, and in addition to the other
definitions contained in this Agreement, the following terms shall have the
meanings set forth below:

 

1.1.         “Affiliate” of a Party
means any Person controlling, controlled by or under common control with such
Party.  Two Persons will be considered to
be affiliated with one another if one of them controls the other, or if both of
them are controlled by a common third party. 
One Person will be considered to control another Person if it has the
power to direct or cause the 

 

1

 

direction of the management and policies of the other Person, whether
directly or indirectly, through one or more intermediaries or otherwise, and
whether by virtue of the ownership of shares or other equity interests, the
holding of voting rights or contractual rights, or otherwise.

 

1.2.         “Agreement” means the
terms and conditions contained in this Agreement and all attached Exhibits,
Schedules, Attachments, and Addenda and any other documents made a part of this
Agreement or incorporated by reference (including Statements of Work), as the
same may be amended, modified or supplemented from time to time.

 

1.3.         “Bankruptcy Event” means
that a Party:  (i) ceases conducting
its business in the normal course; (ii) becomes insolvent or unable to
meet its obligations as they become due; (iii) makes a general assignment
for the benefit of its creditors; (iv) petitions, applies for, or suffers
or permits, with or without its consent, the appointment of a custodian,
receiver, trustee in bankruptcy or similar officer for all or any substantial
part of its business or assets; or (v) avails itself or becomes subject to
any proceeding under the United States Bankruptcy Code or any similar state,
federal or foreign statute relating to bankruptcy, insolvency, reorganization,
receivership, arrangement, adjustment of debts, dissolution or liquidation,
which proceeding is not dismissed within sixty (60) days of the commencement
thereof.

 

1.4.         “Change of Control” means
with respect to a Party:  (i) the
direct or indirect acquisition by another entity in a single transaction or
series of related transactions of either (A) the majority of the voting
stock of such Party or (B) all or substantially all of the assets of such
Party; or (ii) such Party has merged with, or into, another entity, and
the holders of securities of that Party representing 100% of the voting power
before the merger hold less than 50% of the voting power of the surviving
entity immediately after the merger.

 

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

 

1.6.         “Confidential Information”
means information including, without limitation, Technology, that is
transmitted or otherwise provided, directly or indirectly, by or on behalf of
either Party to the other Party in connection with this Agreement and the
activities hereunder, and that should reasonably have been understood by the
receiving Party because of legends or other markings, the circumstances of
disclosure or the nature of the information itself, to be proprietary and
confidential to the disclosing Party. 
Confidential Information may be disclosed in written or other tangible
form (including on magnetic media) or by oral, visual or other means, including
inspection or discovery of tangible objects.

 

1.7.         “Deliverable” means any
tangible or intangible material, work or thing delivered by one Party to the
other Party hereunder pursuant to this Agreement, including any associated
Documentation.

 

1.8.         “Derivative Work” has the
meaning ascribed to it under the United States Copyright Law, Title 17 U.S.C. Section 101
et. seq., as amended now or in the future.

 

1.9.         “Design Wins” means the
acceptance by a customer or prospective customer of the FPOAs for use in or
with respect to such customer’s or prospective customer’s products, as
determined by the mutual agreement of the Parties.

 

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1.10.       “Development Schedule”
means the schedule for the completion of identified Deliverables as set
forth in Exhibit A this Agreement or a Statement of Work.

 

1.11.       “Documentation” means all
or any portion of the materials, in written or other tangible form (including
on magnetic media), generated by either Party in the performance of development
hereunder or generally made available by either Party for use in connection
with the VTI Products and FPOAs including, without limitation, any summaries;
designs; architectures; program logic; flow charts; program listings;
functional or technical specifications; logical models; user guides; operator
guides; installation and operation guides; and any other supporting or
programming materials.

 

1.12.       “Enhancement” means any
improvement, upgrade, new version of, enhancement to, fix, extension which is
compatible or interoperable with, or any Derivative Work of, any Technology.

 

1.13.       “Fully Diluted Basis” means
all shares of a Party’s capital stock outstanding as of any specified date and
all shares of such Party’s capital stock subject to options, warrants, convertible
debt or other rights to acquire such Party’s capital stock outstanding as of
such date.

 

1.14.       “Intellectual Property
Rights” means all rights of a Person in, to, or arising out of:  (i) any United States, international or
foreign patent or any application therefor and any and all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof; (ii) inventions
(whether patentable or not in any country), invention disclosures,
improvements, trade secrets, proprietary information, know-how, Technology and
technical data; (iii) copyrights, copyright registrations, mask works,
mask work registrations and applications therefor in the United States or any
foreign country, and all other rights corresponding thereto throughout the world;
(iv) Trademarks, Trademark registrations and applications therefor in the
United States or any foreign country; (v) trade secrets; and (vi) any
other proprietary rights in Technology anywhere in the world.

 

1.15.       “MathStar Common Stock”
means the common stock of MathStar, $0.01 par value per share.

 

1.16.       “MathStar Personnel” means
MathStar employees, agents and subcontractors and the employees and agents of
any such subcontractors directly or indirectly supplied or otherwise used
hereunder by MathStar.

 

1.17.       “MathStar Technology” shall
mean Technology, including FPOAs, owned by or licensed to MathStar and provided
to VTI hereunder, but excluding VTI Technology.

 

1.18.       “Person” means any
individual or entity including, without limitation, any corporation, company,
partnership, joint venture, association, joint stock company, trust,
unincorporated association, limited liability corporation, limited liability
partnership, firm, governmental entity or other person or entity of similar
nature.

 

1.19.       “Revenues” means all
revenues as recognized at any time by VTI in accordance with United States
generally accepted accounting principles, consistently applied, from all sales,
licenses, rentals, leases, subscriptions and any other dispositions of VTI
Products, less actual 

 

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returns, discounts and rebates, and from maintenance and support
services rendered by or on behalf of VTI with respect to the VTI Products.

 

1.20.       “Software” means all
tangible and intangible information in object code form constituting one or
more computer or apparatus programs and the informational content of such
programs including, without limitation, associated data files, data (including
image and sound data), design tools, user interfaces, templates, menus, buttons
and icons, together with all related Documentation.

 

1.21.       “Specifications” means the
specifications as set forth in Exhibit A to this Agreement and any
amendments or changes to such specifications made in accordance with this
Agreement.

 

1.22.       “Statement of Work” means a
written document that is mutually agreed upon by the Parties setting forth the
requirements for the development of VTI Products and FPOAs and Enhancements to
VTI Products and FPOAs.  Each Statement
of Work shall be effective only when signed by the Parties.  Once agreed upon and executed by the Parties,
a Statement of Work shall be deemed incorporated into and shall become a part
of this Agreement.

 

1.23.       “Technology” means all
technology, including all know-how, show-how, techniques, design rules, trade
secrets, inventions (whether or not patented or patentable), algorithms,
routines and Software and associated Documentation, files, data-bases, works of
authorship, processes, devices and hardware.

 

1.24.       “Trademarks” means all
trademarks, trade names, service marks, logos, trade dress or the like, now
owned or hereafter acquired by either Party, and all other trademarks, trade
names, service marks and logos identifying or used in connection with their
respective Technology, whether or not registered in any jurisdiction.

 

1.25.       “VTI Personnel” means VTI
employees, agents and subcontractors and the employees and agents of any such
subcontractors directly or indirectly supplied or otherwise used hereunder by
VTI, including Petrole.

 

1.26.       “VTI Technology” shall mean
Technology owned by or licensed to VTI and used hereunder to develop the VTI
Products, but excluding MathStar Technology.

 

SECTION 2

 

DEVELOPMENT,
MARKETING AND RELATED OBLIGATIONS

 

2.1.         Development.

 

2.1.1.      Development
of VTI Products.  During the period beginning September 1,
2004 and through and including the date one year from the effective date, using
the FPOAs and other MathStar Technology licensed to VTI hereunder, VTI shall
expend at least Two Million and 00/100 Dollars ($2,000,000.00) on the
development of the VTI Products in accordance with the Specifications and
Development Schedule set forth in Exhibit A, as such
Specifications and Development Schedule may be amended or modified by 

 

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Statements of Work.  Of the $2,000,000.00, at least One Hundred
Thousand and 00/100 Dollars ($100,00.00) will be spent on MathStar development
tools, including development software. 
As reasonably requested by VTI, MathStar shall assist VTI in such
development and shall allow VTI access to the source code and related
Documentation including, without limitation, all updates, Enhancements and new
versions (collectively, the “Source Materials”) for the FPOAs for the purpose
of VTI undertaking such development.  As
reasonably requested by MathStar, VTI shall allow MathStar access to the Source
Materials for the VTI Products for the purpose of MathStar assisting VTI in
such development.

 

2.1.2.      Ownership
of Intellectual Property Rights in VTI Products.  The Parties
agree that VTI shall own all Intellectual Property Rights contained in the VTI
Products.  Notwithstanding such rights,
the Parties agree that MathStar shall retain exclusive ownership of all Intellectual
Property Rights contained in or related to the FPOAs.  The Parties shall cooperate with each other
to register and enforce against third parties all Intellectual Property Rights
that the Parties mutually agree should be registered and enforced with respect
to the VTI Products and the FPOAs.

 

2.1.3.      Planning
Committee.  The Parties shall appoint employees from each Party
to a planning committee (the “Planning Committee”).  The Planning Committee’s responsibilities
shall include, but not be limited to, planning and monitoring development
activities, scheduling, marketing, pricing conditions and other matters
relating to the Parties’ obligations under this Agreement.  The Parties agree that the Planning Committee’s
membership can be changed from time to time to properly staff the Planning
Committee to address relevant issues. 
The Planning Committee shall be responsible for:  (i) deciding on and approving
specifications for the VTI Products; (ii) coordinating and disseminating
all development schedules; and (iii) coordinating joint marketing efforts.

 

2.2.         Subcontracting.  Either
Party may subcontract the performance of any portion of the development to be
performed under this Agreement to any third party subject to the other Party’s
prior consent, which consent shall not be unreasonably withheld.  The Parties agree that no subcontracting to a
direct or indirect competitor of either Party will occur hereunder.  Each Party shall provide the other Party with
the names of any third parties to whom the subcontracting party subcontracts
the performance of any portion of the development under this Agreement, along
with proof of receipt of written assurances and warranties by such third party
contractors regarding ownership of all resulting Intellectual Property Rights
by MathStar and VTI jointly, indemnification and confidentiality.  Notwithstanding any such subcontracting,
unless otherwise agreed by the Parties in writing, each Party shall in any
event and at all times remain liable for performance of its obligations under
this Agreement.

 

2.3.         No Limitation of Other
Rights.  The acceptance by either Party of any Deliverable from
the other Party pursuant to this Agreement shall not limit in any manner the
accepting Party’s rights pursuant to any other provision of this Agreement including,
without limitation, any warranty granted hereunder.

 

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2.4.         Marketing Activities.  During
the Term, MathStar and VTI shall jointly market the VTI Products, which
marketing activities may include, but may not be limited to, the following:

 

(i)            promoting,
distributing, soliciting and obtaining orders for the VTI Products;

 

(ii)           demonstrating
the VTI Products’ utility for distributors, potential resellers, customers and
potential customers;

 

(iii)          publishing
information about the VTI Products, including electronically and on the Parties’
respective websites;

 

(iv)          demonstrating
the VTI Products for industry analysts;

 

(v)           including
the VTI Products in trade shows, conferences and other marketing events;

 

(vi)          determining
the packaging, branding and/or any advertising campaigns and promotions for the
VTI Products; and

 

(vii)         determining
pricing for the VTI Products.

 

Each of MathStar and VTI shall bear its own expenses in connection with
the marketing activities set forth in this Section 2.4.

 

2.5.         Services of Petrole.  During
the period ending twelve (12) months from the Effective Date, VTI shall provide
MathStar with the services of Petrole, who shall promote the use of FPOAs in
the military and space industries and secure Design Wins for the FPOAs on
behalf of MathStar.  Petrole shall remain
an employee of VTI for all purposes and shall not become an employee of
MathStar.

 

2.5.1.      Fee
Paid to VTI.  In consideration of VTI providing Petrole’s
services to MathStar as provided in the foregoing paragraph, MathStar shall pay
to VTI the amount of Twelve Thousand Five Hundred and 00/100 Dollars
($12,500.00) per calendar month.  Such
payment shall be made with respect to services rendered in each calendar month
on or before the fifteenth (15th) calendar day of the next calendar month.  By way of example, and not by way of
limitation, for services rendered by Petrole in January 2005, MathStar is
to pay to VTI $12,500.00 on or before February 15, 2005.

 

2.5.2.      Expense
Reimbursement.  MathStar shall reimburse VTI for all normal,
reasonable business travel expenses incurred by VTI with respect to Petrole
rendering the services as provided in this Section 2.5.  MathStar shall reimburse VTI within thirty
(30) calendar days after receiving reasonable proof of the incurrence and
amount of such expenses; provided, that MathStar shall not be obligated to make
such reimbursement payment more often than once every calendar month.  Expenses of greater that $1,000 shall receive
the prior approval of MathStar’s Vice President of Sales and Marketing. In the
case of travel expenses, the purpose of which is to benefit both VTI and
MathStar, VTI and MathStar shall agree on the proper allocation of expenses
between the Parties.

 

 

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2.6.         Technical
Training.  At each Party’s reasonable request to the other Party,
and upon at least ten (10) days’ written notice by such requesting Party
to the other Party, the Party receiving the notice will provide the other Party
with technical training for personnel selected by the requesting Party at such
times and locations as shall be mutually agreed to by the Parties.  Each Party shall bear its own expenses in
connection with complying with this Section 2.6.

 

2.7.         Maintenance and
Support Services.  VTI shall be principally responsible under
this Agreement for providing maintenance and support services to customers and
other end-users of the VTI Products with respect to the VTI Products.  As reasonably requested by VTI, MathStar
shall assist VTI in rendering such services. 
Each Party shall bear its own expenses in complying with this Section 2.7.

 

SECTION 3

 

OTHER
AGREEMENTS

 

3.1.         Warrants to Purchase
MathStar Common Stock.

 

3.1.1.      VTI
Warrants and VTI Employee Warrants.  On the Effective Date,
MathStar shall issue to VTI warrants to purchase a total of 250,000 shares of
MathStar Common Stock (the “VTI Warrants”). 
Within twelve months (12) after the Effective Date, MathStar shall issue
to individuals who are key employees of VTI (the “VTI Employees”), and who are
identified in written notices given by VTI to MathStar as hereinafter provided
from time to time during the twelve (12)-month period described in the
foregoing sentence, warrants to purchase a total of five hundred thousand
(500,000) shares of MathStar Common Stock (the “VTI Employee Warrants”).  The VTI Warrants and the VTI Employee
Warrants shall have a term of ten (10) years from the Effective Date,
shall have an initial exercise price of $2.00 per share, shall vest as to
one-third of the shares subject to the VTI Warrants and the VTI Employee
Warrants on each of the first, second and third anniversary dates of the
Effective Date, provided that the Agreement is then in effect, and shall
otherwise be in the form attached hereto as Exhibit B.  During the twelve (12)-month period described
in the first sentence of this Section 3.1.1, VTI shall identify in written
notices to MathStar the identities, addresses and Social Security numbers of
the VTI Employees and the number of VTI Employee Warrants each VTI Employee is
to receive.  MathStar shall not have any
obligation to issue any VTI Employee Warrants after the expiration of the
twelve (12)-month period described in the first sentence of this Section 3.1.1.  In addition, and notwithstanding the
foregoing, MathStar will not be obligated to issue the VTI Employee Warrants to
the VTI Employees if MathStar determines, in its sole discretion, that such
transfers would be in violation of applicable securities laws.  The VTI Warrants and the VTI Employee
Warrants shall terminate and be of no further force or effect with respect to
any portion thereof that has not vested upon the termination or expiration of
this Agreement.

 

3.1.2.      Petrole
Warrants.  Upon the execution of this Agreement, MathStar shall
issue to Petrole warrants to purchase a total of two hundred fifty thousand
(250,000) shares of MathStar Common Stock (the “Petrole

 

* Confidential Treatment has been requested, the portion indicated has
been redacted and the redacted portion has been separately filed with the
Securities and Exchange Commission.

 

7

 

Warrants”). 
The Petrole Warrants shall have a term of five (5) years from the
Effective Date, shall have an initial exercise price of $2.00 per share, shall
vest as to 50,000 shares of MathStar Common Stock upon the achievement of each
Design Win, and shall otherwise be in the form attached hereto as Exhibit C.  The Petrole Warrants shall terminate and be of
no further force or effect with respect to any portion thereof that has not
vested on or before the first anniversary date of the Effective Date.

 

3.2.         MathStar Option.  VTI
hereby grants to MathStar an option (the “MathStar Option”) to purchase a number
of shares of VTI’s capital stock equal to ten percent (10%) of VTI’s shares of
capital stock on a Fully Diluted Basis as of the date of exercise of the
MathStar Option, after taking into account the shares subject to the MathStar
Option,  for a total purchase price of one
million and 00/100 Dollars ($1,000,000.00). 
The MathStar Option shall vest as to 100% of the shares of capital stock
subject to the MathStar Option immediately after VTI becomes a
Subchapter C corporation under the Code or upon the termination or
expiration of this Agreement, whichever occurs first.  The MathStar Option shall have a term of ten (10) years
from the Effective Date.

 

3.3.         Right of First Refusal.  Until
three years after the Effective Date, if VTI proposes to enter into a Change of
Control, MathStar shall have the exclusive right of first refusal (the “Right
of First Refusal”) to acquire all shares of VTI capital stock then outstanding
in cash for a purchase price that is equivalent to the purchase price to be
paid in the Change of Control transaction (whether the consideration involved
in such Change of Control transaction consists of cash, securities and/or other
property).  When VTI has knowledge of a
potential Change of Control transaction involving VTI, it shall notify MathStar
in writing within five (5) calendar days of obtaining such knowledge.  MathStar then shall have thirty (30) calendar
days after receiving the written notice from VTI to exercise its Right of First
Refusal hereunder, and it shall exercise such Right of First Refusal by giving
written notice to VTI within such thirty (30) day period.  The closing of the exercise by MathStar of
the Right of First Refusal the shall occur on such time and date and at such
place as shall be mutually agreed upon by the Parties.  Petrole hereby agrees for himself
individually and the shares of VTI capital stock beneficially owned by him that
he shall be bound by the terms of this Section 3.3.

 

3.4.         Independent
Contractors.

 

3.4.1.      The
relationship of the Parties hereunder shall be that of independent
contractors.  Accordingly, and without
modification of any obligations of either Party under this Agreement, each
Party will provide day-to-day management and supervision of the development and
marketing tasks for which it is responsible under the terms of this Agreement
including, without limitation, determining the time, scheduling, manner, method
and place of performance.

 

3.4.2.      VTI
represents and warrants that pursuant to the Code, the regulations promulgated
thereunder and applicable provisions of common law, all VTI Personnel will be
independent contractors in relation to MathStar.  Accordingly, VTI will file any and all
required forms and necessary payments appropriate to the status of VTI
Personnel as independent contractors in relation to MathStar.  If such independent contractor status is

 

8

 

denied or changed and any VTI Personnel are
declared to have “employee” status with respect to MathStar, VTI agrees to hold
MathStar harmless from and against all costs, including any interest, penalties
and legal fees, which MathStar may incur as the result of such change in
status.

 

3.5.         Personnel Taxes and
Benefits.  Each Party shall be responsible for all
employee-related benefits applicable to its personnel performing development,
marketing or other activities under this Agreement.  Neither Party shall be obligated to provide
the other Party’s personnel with employee benefits of any type unless otherwise
required by law.  Each Party is
responsible for withholding its portion of Federal Insurance Contributions Act
(“FICA”) taxes and for withholding income taxes for federal and state income
tax purposes in the manner required by law. 
Each Party will, in a timely manner, pay over all amounts withheld to
the Internal Revenue Service or to the appropriate state or foreign government
authorities, as the case may be, and will timely pay its share of all FICA and
Federal Unemployment Tax Act taxes for all of its personnel performing work under
this Agreement.  Each Party shall be
indemnified and held harmless by the other Party from any liability, cost or
expense, including any interest, penalties and legal fees, that may be assessed
against or incurred by the other Party’s failure to make any such payment.

 

3.6.         Nonsolicitation.  During
the Term and for a period of twelve (12) months thereafter, neither Party will
directly or indirectly solicit for employment any employees of the other Party;
provided, however, that this Section 3.6 shall not be construed as
precluding either Party from hiring any Person that seeks employment or
responds to a general advertisement.

 

3.7.         Competing Products.  Without
MathStar’s express written consent, VTI shall not reproduce FPOAs or related
Documentation, in whole or in part, in any form or medium, except as permitted
under this Agreement.  Except as provided
in this Agreement, VTI shall not engage, directly or indirectly, or in concert
with any Person, in the distribution or sale of any platform chips or other products
competitive with FPOAs during the Term and for a period of two (2) years
thereafter.  Without VTI’s express
written consent, MathStar shall not reproduce VTI Products or related
Documentation, in whole or in part, in any form or medium, except as permitted
under this Agreement.  Except as provided
in this Agreement, MathStar shall not directly engage in the distribution or
sale of any products competitive with VTI Products during the Term and for a
period of two (2) years thereafter.

 

3.8.         Communication.  During
the Term, MathStar and VTI will communicate regularly with each other as
appropriate on issues relating to the development, marketing and distribution
of the VTI Products and FPOAs.  Each
Party agrees to use reasonable efforts to ensure that all actions and
statements made by its employees about VTI Products and FPOAs do not adversely
affect the other Party’s goodwill, reputation or products.

 

3.9.         Royalty; Reports and
Audit Rights.  During the Term, VTI shall pay to MathStar a
royalty (the “Royalty”) equal to * of all Revenues derived from the Hardware
Products and, in connection therewith, the parties agree to the following
provisions:

 

* Confidential Treatment has been requested, the portion indicated has
been redacted and the redacted portion has been separately filed with the
Securities and Exchange Commission.

 

9

 

3.9.1.      Reports.  Within
ten (10) days after the last day of each calendar quarter, VTI shall
deliver to MathStar a report showing, in reasonable detail, the types and
sources of Revenues recognized by VTI during each calendar month in such
calendar quarter, the number of VTI Products generating such Revenues and the
total amount of all Revenues.  All
Revenues shall be recorded on the reports in United States Dollars.  Any monetary conversions required to make the
report shall be calculated based on the exchange rate reported by The Wall
Street Journal on the last business day of the calendar month for which the
Revenues are reported.

 

3.9.2.      Audit
Rights.  Upon reasonable prior notice, MathStar shall have the
right to appoint an independent accounting firm or other agent reasonably
acceptable to VTI to examine such financial books, records and accounts during
VTI’s normal business hours to verify the information contained in any of the
reports provided by VTI pursuant to Section 3.9.1, subject to the
execution of VTI’s standard confidentiality agreement by the accounting firm or
agent; provided, however, that execution of such agreement will not preclude
such firm from reporting its audit results to MathStar.  If such audit discloses an underreporting of
Revenues of 5% or more, VTI will bear all costs associated with any such audit.  In every other case, MathStar shall bear such
costs.  In no event will VTI be subject
to more than two audits per year unless the audit for the prior year or other
period disclosed an underreporting of Revenues of 5% or more.

 

3.9.3.      Payment
of Revenues.  Within fifteen (15) calendar days after the end of each
calendar quarter, VTI shall pay to MathStar, by wire transfer or other
immediately available funds, the Royalty for such calendar quarter.

 

3.10.       Costs and Expenses.  Unless
expressly provided otherwise in this Agreement, each Party shall be responsible
for paying its own costs and expenses of performing its obligations and duties
under this Agreement.

 

3.11.       Conflicting Agreements.  During
the Term and for a period of twelve (12) months thereafter, and except for this
Agreement:

 

(i)            MathStar
shall not enter into an agreement or arrangement with any other Person which
involves the use of FPOAs by such Person or such Person’s Affiliates in the
development of single board computers and, in addition, involves the issuance
of MathStar Common Stock to such Person or such Person’s Affiliates; and

 

(ii)           VTI
shall not enter into an agreement or arrangement with any other Person which
involves the use of such other Person’s integrated circuits in the development
or production of single board computers by VTI or its Affiliates and, in
addition, involves the issuance of VTI’s capital stock to such Person or such
Person’s Affiliates.

 

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SECTION 4

 

LICENSES
AND PROPRIETARY RIGHTS

 

4.1.         VTI Technology.  VTI
shall own all rights, title and interest in and to all VTI Technology and any
Derivative Works thereof, including all Intellectual Property Rights therein
and thereto.

 

4.2.         MathStar Technology.  MathStar
shall retain exclusive ownership of all rights, title and interest in and to
all MathStar Technology and any Derivative Works thereof, including all
Intellectual Property Rights therein and thereto.

 

4.3.         Prohibitions
Against Modifications.  Except as may otherwise be provided in
this Agreement, during the Term, neither Party shall:  (i) modify, adapt, translate, localize,
distribute or create Derivative Works of the VTI Products or FPOAs except with
the prior written consent of the Other Party; (ii) decompile, disassemble,
reverse engineer or otherwise reduce the VTI Products or FPOAs to human
perceptible form; (iii) remove or allow to be removed the other Party’s
copyright, Trademark, trade secrets or other proprietary rights notice from any
unit of VTI Products or FPOAs; or (iv) make copies of the VTI Products or
FPOAs or related documentation except for back copies if needed for such Party
to fulfill its obligations under this Agreement.

 

4.4.         Disclosure of Third
Party Materials.  Each Party shall promptly disclose to the other
party the extent to which any Deliverable, or any portion thereof, uses,
incorporates or is dependent upon Technology owned by or licensed from third
parties, and the disclosing Party shall obtain for the other Party, at no cost
to the other Party, any license rights to any Intellectual Property Rights
embodied in any Deliverable necessary or appropriate to the other Party’s right
to use such Deliverable.

 

4.5.         Trademark License.  Each
Party authorizes the other Party to use its current and future Trademarks
solely in connection with the marketing and distribution of VTI Products and
FPOAs pursuant to this Agreement.  Each
Party shall use the Trademarks of the other Party solely in accordance with the
quality control requirements from the other Party and agrees that the other
Party may, from time to time, revise these quality control requirements for the
purpose of protecting the standards of quality established for that Party’s
goods and services sold under the Trademarks and protecting that Party’s rights
in the Trademarks.

 

4.6.         No Other Licenses.  Except
as expressly set forth in this Agreement, nothing contained in this Agreement
shall be construed as granting or conferring, by implication, estoppel or
otherwise, any license or right under any Intellectual Property Rights, whether
now existing or hereafter obtained, and no such license or other right shall
arise from this Agreement or from any acts or omissions in connection with the
execution of this Agreement or the performance of the obligations of the
Parties hereunder.

 

4.7.         Tangible Property.  Unless
otherwise agreed to in writing, any tangible property including, but not
limited to, Documentation and equipment or material of every description
furnished by one Party to the other Party hereunder, is and shall main the
property of the furnishing Party.  The
Parties shall not use such property except in performing its obligations under
this Agreement.  All such property shall
be returned to the furnishing Party upon the 

 

11

 

earlier of either the furnishing Party’s request, the completion or
termination of the relevant services or the expiration or termination of this
Agreement.

 

4.8.         Access.  
Throughout the Term of this Agreement, both Parties shall have access to the
Intellectual Property of the other to the extent required to fulfill their
obligations under this Agreement.

 

4.9.         Bankruptcy Event.  If a Bankruptcy Event occurs with respect to
either Party, or if either Party terminates this Agreement under Section 9.2
or Section 9.3, the other Party shall forthwith be entitled to a complete
duplicate of (or complete access to, as appropriate) any Technology licensed to
it hereunder and all embodiments of such Technology and the same, if not
already in such Party’s possession, shall be delivered to the Party upon that
Party’s written request.  In any of such
events, the Party entitled to the Technology shall have the non-exclusive,
perpetual, worldwide, royalty-free right to fully exploit in any manner all
such Technology and Intellectual Property Rights and to perform any and all of
the other Party’s obligations hereunder.

 

SECTION 5

 

REPRESENTATIONS
AND WARRANTIES

 

5.1.         VTI Representations
and Warranties.  As an inducement to MathStar entering into this
Agreement, VTI represents and warrants to MathStar on the Effective Date and on
an ongoing basis as follows:

 

5.1.1.      Organization
Representations; Enforceability.  VTI is duly organized, validly
existing and in good standing under the laws of the State of Pennsylvania.  The execution and delivery of this Agreement
by VTI and the transactions contemplated hereunder have been duly and validly
authorized by all necessary action on the part of VTI.  This Agreement constitutes a valid and
binding obligation of VTI enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting enforcement of creditors’ rights
generally and by general principles of equity (whether applied at law or in
equity).

 

5.1.2.      No
Conflict.  The entering into and performance of this Agreement by
VTI does not and will not violate, conflict with or result in a material
default under any other contract, agreement, indenture, decree, judgment,
undertaking, conveyance, lien or encumbrance to which VTI is a party or by
which it or any of its properties is or may become subject or bound.  VTI will not grant any rights under any
future agreement, nor will it permit or suffer any lien, obligation or
encumbrance, that will conflict with the full enjoyment by MathStar of MathStar’s
rights under this Agreement.

 

5.1.3.      Right
to Make Full Grant.  VTI has and shall have all requisite
ownership, rights, licenses, capital structure and corporate authority to
perform its obligations under this Agreement fully as contemplated hereby and
to grant to MathStar all rights with respect to the VTI Technology,
Deliverables, VTI Products, the MathStar Option, the Right of First Refusal and
Intellectual Property Rights purported to be granted by VTI to MathStar
hereunder, free and clear of any and all agreements, liens, adverse claims,
encumbrances 

 

12

 

and interests of any Person including,
without limitation, VTI’s employees, agents and contractors and such contractors’
employees and agents who have provided, are providing or will provide services
with respect to the development of the Deliverables.

 

5.1.4.      Noninfringement.  Nothing
contained in the VTI Technology or contained or to be contained in the VTI Products
will infringe, violate or misappropriate any Intellectual Property Right of any
third party, and no characteristic of the VTI Technology contained or to be
contained in the VTI Products does or will cause manufacturing, using,
licensing, maintaining or selling the VTI Products to infringe, violate or
misappropriate any Intellectual Property Right of any third party.

 

5.1.5.      No
Harmful Code or Viruses.  To VTI’s knowledge, the VTI Products
will contain no matter which is injurious to end-users or their property, “booby
traps,” “time bombs” or other programming that may interfere with the normal
functioning of the VTI Products or the end-user’s equipment, programs or
data.  To VTI’s knowledge, the VTI
Products will be free from computer viruses.

 

5.1.6.      Performance.  VTI
represents and warrants to MathStar that the VTI Products will substantially
perform in accordance with the Specifications therefor.

 

5.1.7.      Indemnity.  VTI
shall be responsible for, indemnify and hold MathStar harmless from, any
damages, costs, liabilities and/or expenses (including, without limitation,
reasonable attorneys’ fees), arising out of the breach of the foregoing
Sections 5.1.1 through 5.1.6 (inclusive).

 

5.2.         MathStar’s
Representations and Warranties.  As an inducement to VTI entering
into this Agreement, MathStar represents and warrants to VTI on the Effective
Date and on an ongoing basis as follows:

 

5.2.1.      Organization
Representations; Enforceability.  MathStar is duly organized,
validly existing and in good standing under the laws of the State of
Minnesota.  The execution and delivery of
this Agreement by MathStar and the transactions contemplated hereunder have
been duly and validly authorized by all necessary action on the part of MathStar.  This Agreement constitutes a valid and
binding obligation of MathStar enforceable in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting enforcement of creditors’ rights
generally and by general principles of equity (whether applied at law or in
equity).

 

5.2.2.      No
Conflict.  The entering into and performance of this Agreement by
MathStar does not and will not violate, conflict with or result in a material
default under any other contract, agreement, indenture, decree, judgment,
undertaking, conveyance, lien or encumbrance to which MathStar is a party or by
which it or any of its properties is or may become subject or bound.  MathStar will not grant any rights under any
future agreement, nor will it permit or suffer any lien, obligation or
encumbrance, that will conflict with the full enjoyment by VTI of VTI’s rights
under this Agreement.

 

13

 

5.2.3.      Right
to Make Full Grant.  MathStar has and shall have all requisite
ownership, rights and licenses to perform its obligations under this Agreement
fully as contemplated hereby and to grant to VTI all rights with respect to the
MathStar Technology, FPOAs, VTI Warrants, VTI Employee Warrants, Petrole
Warrants, and Intellectual Property Rights purported to be granted by MathStar
to VTI hereunder, free and clear of any and all agreements, liens, adverse
claims, encumbrances and interests of any Person including, without limitation,
MathStar’s employees, agents and contractors and such contractors’ employees
and agents who have provided, are providing or will provide services with
respect to the development of the Deliverables.

 

5.2.4.      Noninfringement.  Nothing
contained in the MathStar Technology contained or to be contained in the FPOAs
will infringe, violate or misappropriate any Intellectual Property Right of any
third party, and no characteristic of the FPOAs contained or to be contained in
the VTI Products does or will cause manufacturing, using, licensing,
maintaining or selling the VTI Products to infringe, violate or misappropriate
any Intellectual Property Right of any third party.

 

5.2.5.      No
Harmful Code or Viruses.  To MathStar’s knowledge, the FPOAs to
be delivered by MathStar to VTI for use in the VTI Products will contain no
matter which is injurious to end-users or their property, “booby traps,” “time
bombs” or other programming that may interfere with the normal functioning of
the VTI Products or the end-user’s equipment, programs or data.  To MathStar’s knowledge, such FPOAs will be
free from computer viruses.

 

5.2.6.      Performance.  MathStar
represents and warrants to VTI that the FPOAs will substantially perform in
accordance with the Specifications therefor.

 

5.2.7.      Indemnity.  MathStar
shall be responsible for, indemnify and hold VTI harmless from, any damages,
costs, liabilities, and/or expenses (including, without limitation, reasonable
attorneys’ fees), arising out of the breach of the foregoing
Sections 5.2.1 through 5.2.6 (inclusive).

 

5.3.         Warranty Disclaimer.  EXCEPT
AS SET FORTH IN THIS AGREEMENT AND IN ANY APPLICABLE STATEMENT OF WORK, NEITHER
PARTY MAKES ANY WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, REGARDING OR
RELATING TO THE SUBJECT MATTER HEREOF. 
EACH PARTY SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
SUBJECT MATTER HEREOF.

 

5.4.         Consequential Damages.  Notwithstanding
any other provisions of this Agreement, and with the exception of the infringement
indemnification set forth in Sections 5.1.7 and 5.2.7 of this Agreement,
neither Party (“Defending Party”) shall be liable to the other Party or any
Person claiming by, through or under the other Party for any special,
incidental, indirect or consequential damages whatsoever including, but not
limited to, loss of profits or loss of business, arising out of, or resulting
from Defending Party’s performance of this Agreement, from any cause or causes
including, without limitation, any such damages caused by the negligence,
professional errors or omissions, strict liability, or breach of contract or
warranty,

 

14

 

express or implied, of the Defending Party or its partners, employees,
agents or subcontractors, even if advised of the possibility of such damages.

 

5.5.         Failure of Essential
Purpose.  The Parties agree that the limitations specified in
this Section 5 shall survive and apply even if any limited remedy
specified in this Agreement is found to have failed of its essential purpose.

 

SECTION 6

 

CONFIDENTIAL
INFORMATION

 

6.1.         Terms of Agreement.  The
terms of this Agreement are the Confidential Information of both Parties and
shall not be disclosed by either Party in any manner (including, but not limited
to, news releases, articles, brochures, advertisements, speeches or other
information releases) without the prior written consent of the other Party,
which shall not be unreasonably withheld.

 

6.2.         Limitations on Use and
Disclosure.  Each Party receiving Confidential Information (the “Recipient”)
agrees as to any such Confidential Information that may be disclosed to it by
the other Party hereunder (the “Discloser”):

 

(i)            to
protect such Confidential Information from disclosure to others, using the same
degree of care used to protect its own confidential or proprietary information
of like importance, but in any case using no less than a reasonable degree of
care.  Recipient may disclose
Confidential Information received hereunder to (A) its Affiliates who
agree, in advance, in writing, to be bound by this Agreement, and (B) to
its employees and subcontractors, and its Affiliates’ employees and
subcontractors, who have a need to know, for the purpose of this Agreement, and
who are bound to protect, the received Confidential Information from
unauthorized use and disclosure under the terms of a written agreement.  Confidential Information shall not otherwise
be disclosed to any third party without the prior written consent of the Party
owning such Confidential Information;

 

(ii)           to
use such Confidential Information only for the purposes of this Agreement;

 

(iii)          not
to make copies of any such Confidential Information or any part thereof except
for the purposes of this Agreement; and

 

(iv)          to
reproduce and maintain on any copies of any Confidential Information such
proprietary legends or notices as are contained in or on the original or as the
owner of the Confidential Information may otherwise reasonably request.

 

6.3.         Technology.  The
Parties agree that the MathStar Technology and the VTI Technology, as
applicable, and Deliverables embodying the same, shall be deemed the
Confidential Information of the Party owning such Technology under the terms
hereof.

 

6.4.         Exceptions.  The
restrictions of this Section 6 on use and disclosure of Confidential
Information shall not apply to information that (i) was publicly known at
the time of Discloser’s

 

15

 

communication thereof to Recipient; (ii) becomes publicly known
through no fault of Recipient subsequent to the time of Discloser’s
communication thereof to Recipient; (iii) was in Recipient’s possession
free of any obligation of confidence at the time of Discloser’s communication
thereof to Recipient; (iv) is developed by Recipient independently of and
without reference to any of Discloser’s Confidential Information or other
information that Discloser disclosed in confidence to any third party; (v) is
rightfully obtained by Recipient from third parties authorized to make such
disclosure without restriction; or (vi) is identified by Discloser as no
longer proprietary or confidential.  In
addition to the foregoing, it is understood and agreed that nothing contained
in this Section 6 is intended to, nor shall, restrict the use by either
Party of general ideas, concepts, approaches, techniques or know-how learned or
developed by such Party as a result of access to Discloser’s Confidential
Information; provided, however, that such ideas, concepts, approaches,
techniques or know-how are not embodied or specifically described in written
information, software code or other tangible form furnished by the Discloser to
such Party hereunder.

 

6.5.         Disclosure Pursuant to
Legal Requirement.  If Recipient is required by law, regulation
or court order to disclose any of Discloser’s Confidential Information,
Recipient will promptly notify Discloser in writing before making any such
disclosure in order to facilitate Discloser seeking a protective order or other
appropriate remedy from the proper authority. 
Recipient agrees to cooperate with Discloser in seeking such order or
other remedy.  Recipient further agrees
that if Discloser is not successful in precluding the requesting legal body
from requiring the disclosure of the Confidential Information, it will furnish
only that portion of the Confidential Information which is legally required and
will exercise all reasonable efforts to obtain reliable assurances that
confidential treatment will be accorded the Confidential Information.

 

6.6.         Return of Confidential
Information.  All Confidential Information disclosed under this
Agreement (including information in computer software or held in electronic
storage media) shall be and remain the property of Discloser.  All such information in any computer memory
or data storage apparatus shall be erased or destroyed and all such information
in tangible form shall be returned to Discloser, promptly upon the earlier
of:  (i) the written consent of the
Discloser; or (ii) completion or termination of the applicable Statement
of Work; or (iii) termination or expiration of this Agreement, and shall
not thereafter be retained in any form by Recipient.  If Discloser requests the return of
Confidential Information pursuant to subsection (i) of this Section 6.6,
then Recipient shall comply with such request; provided, however, that if
returning such Confidential Information prevents Recipient from exercising a
license granted hereunder, such request shall constitute a material breach of
this Agreement.  In addition to the
foregoing, if either Party has received the other Party’s source code in
furtherance of the purposes of the Agreement, the Party receiving such source
code shall return or destroy all copies thereof as soon as reasonably practical
after no longer having a need for such source code.

 

6.7.         Equitable Relief.  The
Parties acknowledge that their respective Confidential Information is unique
and valuable, and that breach by either Party of the obligations of this
Agreement regarding such Confidential Information and Intellectual Property
Rights will result in irreparable injury to the affected Party for which
monetary damages alone would not be adequate remedy. Therefore, the Parties
agree that in the event of a breach or threatened breach of such provisions,
the affected Party shall be entitled to specific performance and injunctive or
other 

 

16

 

equitable relief as a remedy for any such breach or anticipated breach
without the necessity of posting a bond. 
Any such relief shall be in addition to and not in lieu of any
appropriate relief in the way of monetary damages.

 

SECTION 7

 

LIMITATIONS
OF LIABILITY

 

EXCEPT (A) AS TO THE OBLIGATIONS OF THE PARTIES UNDER SECTION 8,
(B) FOR LIABILITY ARISING OUT OF BREACHES OF SECTION 6 AND (C) ANY
MISUSE OR MISAPPROPRIATION OF A PARTY’S INTELLECTUAL PROPERTY RIGHTS BY THE
OTHER PARTY HERETO, TO THE MAXIMUM EXTENT ALLOWED BY APPLICABLE LAW, UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, STATUTORY OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
REVENUE OR PROFITS) RESULTING FROM, ARISING OUT OF, OR RELATED TO ITS
PERFORMANCE OR FAILURE TO PERFORM ANY OF ITS OBLIGATIONS UNDER, OR BREACH
OF, THIS AGREEMENT, WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED, KNEW, OR
SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.  EXCEPT (X) AS TO THE OBLIGATIONS OF THE
PARTIES UNDER SECTION 8, (Y) FOR LIABILITY ARISING OUT OF BREACHES OF SECTION 6
AND (Z) ANY MISUSE OR MISAPPROPRIATION OF A PARTY’S INTELLECTUAL PROPERTY
RIGHTS BY THE OTHER PARTY HERETO, EACH PARTY’S LIABILITY FOR DAMAGES SHALL BE
LIMITED TO THE AMOUNT OF REVENUES TO WHICH IT IS ENTITLED UNDER THIS AGREEMENT.

 

SECTION 8

 

INDEMNITY

 

Each Party (as applicable, an “Indemnifying Party”) will defend at its
expense and indemnify and hold harmless the other Party and its respective
directors, officers, employees, agents, advisers and customers (each, an “Indemnitee”)
from and against any action, suit or other proceeding, or settlement thereof,
to the extent that such action, suit or proceeding arises out of or results
from (i) damage to tangible personal property and personal injury or death
arising from any occurrence caused by any act or omission of the Indemnifying
Party related to the performance of this Agreement; or (ii) any claim,
allegation or finding that any exploitation of any Technology of the
Indemnifying Party or portion thereof infringes the Intellectual Property
Rights of any third party.  The
Indemnifying Party shall pay those losses, damages, expenses and costs
including, without limitation, interest, penalties and fees of attorneys and
accountants, awarded against, or incurred by, any Indemnitee in, or as a result
of, any such suit, action or other proceeding, or any settlement thereof,
provided that (A) the Indemnitee reasonably promptly notifies the
Indemnifying Party in writing of any such claim, (B) the Indemnifying
Party is accorded control of the defense and of all negotiations for settlement
or compromise of such claim, and (C) the Indemnitee cooperates with the
Indemnifying Party, at the Indemnifying Party’s expense, in the defense and
settlement of such claim, including providing to the 

 

17

 

Indemnifying Party, at the Indemnifying Party’s expense, such
information and assistance as the Indemnifying Party may reasonably
request.  The Indemnitee may, at its own
expense, be represented in such defense.

 

 

 

SECTION 9

 

TERM AND
TERMINATION

 

9.1.         Term.  Unless
earlier terminated in accordance with its terms, the initial term of this
Agreement shall commence as of the Effective Date and shall remain in full
force and effect until and including September 30, 2007 (the “Term”).  Unless earlier terminated by either of the
Parties as otherwise provided in this Agreement, this Agreement shall
automatically renew for successive one (1)-year periods, commencing on October 1
of each year and ending on September 30 of the following year unless
either Party gives the other Party at least ninety (90) days’ written notice of
termination before the expiration of the period then in effect.

 

9.2.         Termination for Breach.  Either
Party may terminate this Agreement if the other Party is in material breach of
any term, condition or provision of this Agreement, which breach, if capable of
being cured, is not cured within thirty (30) days after the non-breaching Party
gives the breaching Party written notice of such breach.

 

9.3.         Termination for
Bankruptcy; Change of Control.  Either Party, may, at its sole
discretion, terminate this Agreement and all rights and licenses granted
hereunder effective immediately upon notice to the other Party if a Bankruptcy
Event or Change of Control occurs with respect to such other Party.

 

9.4.         Annual Review. The
Parties agree that during the initial term of this Agreement annual reviews
will be held to determine whether it is in the best interest of both Parties to
continue the Agreement. These reviews will focus on the mutual accomplishments
of the Parties in relation to the agreed upon projects and milestones. The
first review, at the end of the first twelve months, will be based on the
milestones of completing the proposed image processing demonstration system,
including the SBC, and the attainment of at least three design wins. Subsequent
annual reviews will be based on the mutually constructed development plans.

 

9.5.         Effect of Termination.  Subject
to the provisions of Section 4.9, if all or part of this Agreement is
terminated hereunder:

 

(a)           the
Parties shall continue performance of any portion of this Agreement or any
Statement of Work not terminated;

 

(b)           VTI
shall immediately document in detail the status of a Statement of Work, if any,
that has been terminated, and VTI shall deliver to MathStar all copies of the
Deliverables that are in its or any third party’s possession, whether or not
such Deliverables have been completed or are still in progress.  Such Deliverables shall, for all purposes of
this Agreement, be deemed transferred to MathStar, with respect to which
MathStar shall have all applicable ownership and license rights; and

 

18

 

(c)           the
Parties shall immediately cease work as of the effective date of termination as
to any terminated Statement of Work.

 

9.6.         Available Remedies.  Termination
of all or any portion of this Agreement in accordance with this Section 9
shall not limit the terminating Party from pursuing any other remedies
otherwise available to it at law or in equity, including injunctive relief.

 

SECTION 10

 

GENERAL

 

10.1.       Waiver.  The
failure of either Party to insist on the strict performance of any terms,
covenants and conditions of this Agreement at any time, or in any one or more
instances, or its failure to take advantage of any of its rights hereunder, or
any course of conduct or dealing, shall not be construed as a waiver or
relinquishment of any such rights or conditions at any future time and shall in
no way affect the continuance in full force and effect of all the provisions of
this Agreement.

 

10.2.       Headings.  Headings
used in this Agreement are for convenience of reference only and shall not be
construed as altering or construing the meaning of this Agreement or any of its
parts.

 

10.3.       Governing Law;
Arbitration.

 

10.3.1.    Governing
Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota, excluding the body of law
pertaining to conflicts of law.

 

10.3.2.    Arbitration.  Except
with respect to any dispute involving a Party’s Intellectual Property Rights,
any dispute or claim arising out of or related to this Agreement, or the
interpretation, making, performance, breach or termination thereof, shall be
submitted to the American Arbitration Association (“AAA”) and finally settled
by binding arbitration under the AAA International Arbitration Rules by
three (3) arbitrators appointed in accordance with said Rules.  The location of such arbitration shall be at
a place in the United States designated by the Party not requesting arbitration.  Judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.  The arbitrators shall apply Minnesota law to
the merits of any dispute or claim, excluding the body of law pertaining to
conflicts of law.  At the request of
either Party, the arbitrators will enter an appropriate protective order to
maintain the confidentiality of information produced or exchanged in the course
of the arbitration proceedings.  The
costs of the arbitration, including administrative and arbitrator’s fees, shall
be shared equally by the Parties.  Each
Party shall bear the costs of its own attorneys’ fees and expert witness
fees.  Notwithstanding the foregoing,
neither Party shall be precluded from seeking an injunction or other equitable
relief in any court of competent jurisdiction applying the local law of such
court to remedy or prevent violation of any provision of this Agreement
relating to Confidential Information or their respective Intellectual Property
Rights.

 

19

 

10.4.       Survival.  The
Parties agree that the provisions of Sections 2.3, 2.7, 3.3, 3.4, 3.5,
3.6, 4.1, 4.2, 4.6 and 5 through 10 (inclusive) shall survive the expiration or
any earlier termination of this Agreement. 
In addition, the following shall survive the termination or expiration
of this Agreement for any reason:

 

(i)            any
licenses to the VTI Products or FPOAs granted by VTI to resellers, end-users or
other third parties;

 

(ii)           any
rights VTI or MathStar needs to provide maintenance and support services to
end-users of the VTI Products;

 

(iii)          VTI’s
obligation to provide maintenance and support in accordance with Section 2.7;
and

 

(iv)          the
VTI Warrants, VTI Employee Warrants, the Petrole Warrants and the MathStar
Option, each in accordance with its terms.

 

10.5.       Severability.  If
any provision of this Agreement is held to be illegal, invalid or
unenforceable, the remaining terms shall not be affected.  The Agreement shall be interpreted as if the
illegal, invalid or unenforceable provision had not been included in it, and
the invalid or unenforceable provision shall be replaced by a mutually
acceptable provision which, being valid and enforceable, comes closest to the
intention of the Parties underlying the invalid or unenforceable provision.

 

10.6.       Notices.  All
notices, requests, demands, or communications required or permitted hereunder
shall be in writing and shall be delivered personally or by electronic mail,
facsimile or overnight delivery service at the respective addresses set forth
below (or at such other addresses as shall be given in writing by either Party
to the other pursuant to the terms of this Section).  All notices, requests, demand or
communications shall be deemed effective upon receipt for personal delivery, or
on the second business day following the date of sending by electronic mail,
facsimile or overnight delivery service.

 

	
  MathStar:

  	
   

  	
  MathStar, Inc.

  
	
   

  	
   

  	
  5900 Green Oak Drive

  
	
   

  	
   

  	
  Minnetonka, Minnesota 55343

  
	
   

  	
   

  	
  Attention: Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone: (952) 746-2200

  
	
   

  	
   

  	
  Facsimile: (952) 746-2201

  

 

20

 

	
  VTI:

  	
   

  	
  Valley Technologies, Inc.

  
	
   

  	
   

  	
  724 Claremont Avenue

  
	
   

  	
   

  	
  Tamaqua, PA 18252

  
	
   

  	
   

  	
  Attention: Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone: (570) 668-3737

  
	
   

  	
   

  	
  Facsimile: (570) 668-6360

  

 

10.7.       Assignment.  The
respective rights and obligations provided in this Agreement shall bind and
inure to the benefit of the Parties and their legal representatives, successors
and permitted assigns.  Neither Party
shall assign this Agreement, in whole or in part, without the prior written
consent of the other Party, which consent may be withheld for any reason.  Notwithstanding the foregoing, neither VTI
nor MathStar shall be required to obtain the other Party’s consent to assign
this Agreement in connection with a merger or sale of all or substantially all
of such Party’s assets, but only if such merger or sale does not involve a
company the other Party reasonably deems to be a competitor, and only if the
non-merging Party has not terminated this Agreement under Section 9.3 in
connection with such merger or sale by the other Party.  Any assignment by either party in violation
of this Section 10.7 shall be null and void.

 

10.8.       Press Releases; Public
Announcements.  Neither Party may make any press release or
public announcement about this Agreement, its existence or its contents without
the prior written consent of the other Party.

 

10.9.       Relationship of Parties.  Nothing
contained in this Agreement shall be deemed or construed as creating a joint
venture or partnership between MathStar and VTI.  Neither Party is by virtue of this Agreement
authorized as an agent, employee or legal representative of the other Party.  Except as specifically set forth herein,
neither Party shall have power to control the activities and operations of the
other.  Neither Party shall have any
power or authority to bind or commit the other.

 

10.10.     Order of Precedence.  If
there is any ambiguity and/or inconsistency among the terms and conditions of
this Agreement and any Statement of Work, the terms and conditions of this
Agreement shall control unless such Statement of Work by its express terms
overrides a specific Section or Sections of this Agreement.

 

10.11.     Force Majeure.  Neither
Party shall be liable in case of “Force Majeure.”  The Parties to this Agreement agree that “Force
Majeure” shall include (but shall not be limited to):  material breakdown of equipment, labor
disputes of whatever nature or cause, and any other circumstances reasonably
beyond the control of one of the Parties. 
The occurrence of a Force Majeure event shall not relieve either Party
of its payment obligations under this Agreement.

 

10.12.     Entire Agreement;
Amendment.  This Agreement constitutes the entire understanding
of the Parties and supersedes all prior or contemporaneous written and oral
agreements, representations or negotiations with respect to the subject matter
hereof including, without limitation, the Mutual Non-Disclosure Agreement by
and between MathStar and VTI dated as of June 16, 2004, which is
terminated and shall be of no further force or effect, effective as of the 

 

21

 

Effective Date. This Agreement may not be modified or amended except in
writing signed by both Parties.

 

IN WITNESS WHEREOF, this Agreement is executed by the duly authorized
representatives of the Parties as of the date first set forth above.

 

	
  MathStar, Inc.

  	
   

  	
  Valley Technologies, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Douglas M. Pihl

  	
   

  	
  /s/ Gerald Petrole Sr.

  
	
  Signature

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
  Douglas M. Pihl

  	
   

  	
  Gerald Petrole Sr.

  
	
  Named Types or Printed

  	
   

  	
  Name Typed or Printed

  
	
   

  	
   

  	
   

  
	
  President and CEO

  	
   

  	
  President and CEO

  
	
  Title Typed or Printed

  	
   

  	
  Title Typed or Printed

  

 

 

	
  /s/ Gerald Petrole Sr.

  	
   

  
	
  Gerald Petrole, as to only
  Sections 2.5, 3.1.2 and 3.3

  	
   

  	
   

  
				

 

22

 

EXHIBIT A

 

DEVELOPMENT SCHEDULE

 

 

Reconfiguarable Sensor Imaging System
Demonstration Project

 

 

 

Introduction

 

This project develops a demonstration system based on the specification
from customer(s).  This

demonstration system includes one FPOA SOA13D40-01, one Single Board
Computer (SBC), and a display

PC as shown in Figure 1.

The FPOA device performs
real-time data registration, processing and detection.  The SBC initializes and issues control
commands to FPOA. The display PC receives processed result and display them in
a user friendly format.

 

MathStar has teamed up with
Valley Technology for this project. The customer will provide the display PC

and the presentation software
and the rest of the system will be designed and implemented by the two
companies.  The division of work is
describe as following.

 

Hardware

 

VTI will provide

 

•                   Design and
implement one FPOA that can either standalone or interface with a PCI backplane

•                   Design and
implement one SBC board that can interface with a PCI backplane

•                   Final hardware
and software integration and test

 

MathStar will provide

 

•                   FPOA SOA13D40-1
device

 

Software

 

VTI will provide

 

•                   All software
running on SBC

•                   The following
software on FPOA

•                  Interface to PCI
bridge and SBC

•                  Interface to A/D
device

•                  Interface to
external memory (RLDRAM)

•                  Interface to
LEDs and jumpers

•                  The following
processing software: spike suppression, non-uniformity correction, super-frame
calculation, spatial filter, peak detection

 

MathStar will provide

 

 

 

•                   Temporal
processing that includes: covariance matrix calculation, temporal matched
filter and peak detection

•                   Final FPOA
software integration and test

 

Documentations

 

VTI will
provide

 

•                   FPOA board
specification

•                   Demo system
specification

 

MathStar will
provide

 

•                   FPOA software
specification

 

 

 

 

 

EXHIBIT B

 

FORM OF
VTI WARRANT

 

 

THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES
ACT”), AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS
(“BLUE SKY LAWS”). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION OF THIS WARRANT OR ANY INTEREST THEREIN MAY BE MADE
EXCEPT PURSUANT TO (1) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (2) AN OPINION OF
COUNSEL FOR THE COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.

 

	
                ,
  200   

  	
   

  	
  Series VTI-     

  

 

WARRANT

 

To Purchase           

Shares of Common Stock of

 

MATHSTAR,
INC.

 

MathStar, Inc., a Minnesota corporation
(the “Company”), for value received, hereby certifies that                ,
or his/her/its registered assigns (the “Holder”), is entitled, subject to the
terms set forth below, upon exercise of this Warrant, to purchase from the
Company, at any time or from time to time, subject to the vesting schedule set
forth in Section 1 of this Warrant below, and on or before 11:59 p.m.
(Minneapolis, Minnesota time) on October 8, 2014 (subject to earlier
termination as provided in Section 7 of this Warrant), a total of                   
(            )
shares of common stock of the Company, $0.01 par value per share (the “Common
Stock”), at an initial exercise price of $2.00 per share.  (The initial exercise price of $2.00 per
share set forth in the foregoing sentence is hereinafter referred to as the “Exercise
Price,” and the Exercise Price is subject to adjustment as provided in the
antidilution provisions of this Warrant under Section 5 hereof.)  This Warrant is one of a series of warrants
(the “VTI Strategic Warrants”) entitled the “VTI Warrants, “ the “VTI Employee
Warrants” and the “Petrole Warrants” issued pursuant to Sections 3.1.1 and
3.1.2 of the Strategic Partnership Agreement dated as of October 8, 2004
(the “Strategic Partnership Agreement”) by and among the Company, Valley
Technologies, Inc. (“VTI”) and Gerald Petrole.

 

The shares of Common Stock which may be
acquired upon exercise of this Warrant are referred to herein as the “Warrant
Shares.”  As used herein, the term “Holder”
includes any party who acquires all or a part of this Warrant as a registered
transferee, or any record holder or holders of the Warrant Shares issued upon
exercise, whether in whole or in part, of the Warrant.  The term “Common Stock” shall include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.

 

B-1

 

This Warrant is further subject to the
following provisions, terms and conditions:

 

1.     Vesting;
Exercise of Warrant.  This Warrant
shall become exercisable as to one-third (1/3) of the total number of Warrant
Shares on each of October 8, 2005, October 8, 2006 and October 8,
2007.  The Holder may exercise this
Warrant after the Warrant Shares have vested and before its expiration or
termination, in whole or in part (but not as to any fraction of a share of
Common Stock), by sending to the Company at its principal office (i) this
Warrant, (ii) the Exercise Form attached hereto as Exhibit A,
completed and duly executed by such Holder or by such Holder’s duly authorized
attorney-in-fact, and (iii) the payment of the Exercise Price in the form
of a wire transfer, a bank or certified check or, in the Company’s sole
discretion, a personal check, in the amount of the Exercise Price multiplied by
the number of Warrant Shares as to which the Warrant is being exercised.

 

2.     Effective
Date of Exercise.  Each exercise of
this Warrant shall be deemed effective as of the close of business on the day
on which this Warrant is surrendered to the Company as provided in Section 1
above.  At such time, the person or
persons in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.

 

3.     Issuance
of the Warrant Shares. Within fifteen (15) days after the exercise of this
Warrant, in whole or in part, the Company will, at its expense, issue in the
name of and deliver to the Holder or such other person as the Holder may direct
(upon payment by such Holder of any applicable transfer taxes): (i) a
certificate or certificates for the number of full Warrant Shares to which
Holder is entitled upon exercise, and (ii) unless this Warrant has
expired, a new Warrant or Warrants (dated the date hereof and in form identical
hereto) representing the right to purchase the remaining number of shares of
Common Stock, if any, with respect to which this Warrant has not then been
exercised.

 

4.     Exchange
and Replacement. Subject to Sections 1 and 8, this Warrant
is exchangeable upon the surrender of the Warrant by the Holder to the Company
at its principal office for new Warrants of like tenor and date representing in
the aggregate the right to purchase the number of Warrant Shares then
purchasable hereunder. The new Warrants will represent the right to purchase
such number of Warrant Shares (not to exceed the aggregate total number then
purchasable hereunder) as the Holder shall designate at the time of such
surrender.  Upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant. This Warrant
shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange or replacement. 
The Company shall pay all expenses, taxes (other than stock transfer
taxes), and other charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 4.

 

5.     Antidilution
Adjustments to Exercise Price.  The
provisions of this Warrant are subject to adjustment as provided in this Section 5.

 

(a)   The
Exercise Price shall be adjusted from time to time such that in case the
Company shall hereafter:

 

B-2

 

(i)            pay
any dividends on any class of stock of the Company payable in Common Stock or
securities convertible into Common Stock;

 

(ii)           subdivide
its then outstanding shares of Common Stock into a greater number of shares; or

 

(iii)          combine
outstanding shares of Common Stock, by reclassification or otherwise;

 

then, in any such event, the Exercise Price
in effect immediately prior to such event shall (until adjusted again pursuant
hereto) be adjusted immediately after such event to a price (calculated to the
nearest full cent) determined by dividing (A) the number of shares of
Common Stock outstanding immediately prior to such event, multiplied by the
then existing Exercise Price, by (B) the total number of shares of Common
Stock outstanding immediately after such event (including in each case the
maximum number of shares of Common Stock issuable in respect of any securities
convertible into Common Stock), and the resulting quotient shall be the
adjusted Exercise Price per share.  An
adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. 
If, as a result of an adjustment made pursuant to this Subsection, the
Holder of any Warrant thereafter surrendered for exercise shall become entitled
to receive shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive) shall reasonably and not arbitrarily determine
the allocation of the adjusted Exercise Price between or among shares of such
classes of capital stock or shares of Common Stock and other capital
stock.  All calculations under this Subsection shall
be made to the nearest cent or to the nearest 1/100 of a share, as the case may
be.  If at any time as a result of an
adjustment made pursuant to this Subsection, the holder of any Warrant
thereafter surrendered for exercise shall become entitled to receive any shares
of the Company other than shares of Common Stock, thereafter the Exercise Price
of such other shares so receivable upon exercise of any Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock
contained in this Section.

 

(b)   Upon
each adjustment of the Exercise Price pursuant to Section 5(a) above,
the Holder of each Warrant shall thereafter (until another such adjustment) be
entitled to purchase at the adjusted Exercise Price the number of shares,
calculated to the nearest full share, obtained by multiplying the number of
shares specified in such Warrant that may be purchased at such Exercise Price
(as adjusted as a result of all adjustments in the Exercise Price in effect
prior to such adjustment) by the Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.

 

(c)   In
case of any consolidation or merger to which the Company is a party, other than
a merger or consolidation in which the Company is the continuing corporation,
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Company), there shall be no adjustment under 

 

B-3

 

Section 5(a) above,
but the Holder of each Warrant then outstanding shall have the right thereafter
to convert such Warrant into the kind and amount of shares of stock and other
securities and property which he would have owned or have been entitled to
receive immediately after such consolidation, merger, statutory exchange, sale,
or conveyance had such Warrant been exercised immediately before the effective
date of such consolidation, merger, statutory exchange, sale, or conveyance
and, in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section with respect to
the rights and interests thereafter of any Holders of the Warrant, to the end
that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant.  The
provisions of this Subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.

 

(d)   Upon
any adjustment of the Exercise Price, then and in each such case, the Company
shall give written notice thereof, by first-class mail, postage prepaid,
addressed to the Holder as shown on the books of the Company, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares of Common Stock purchasable at
such price upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.

 

6.     Fractional
Shares.

 

(a)   Fractional
shares shall not be issued upon the exercise of this Warrant.  However, in any case where the Holder would,
except for the provisions of this Section 6, be entitled under the terms
hereof to receive a fractional share, the Company shall, upon the exercise of
this Warrant, issue the largest number of whole shares and pay a sum in cash
equal to the sum of (a) the excess, if any, of the Fair Market Value of
such fractional share over the proportional part of the Exercise Price
represented by such fractional share, plus (b) the proportional part of
the Exercise Price represented by such fractional share.

 

(b)   For
purposes of this Section, the term “Fair Market Value” with respect to shares
of Common Stock as of a particular date (the “Determination Date”) shall mean:

 

(i)            If
the Company’s Common Stock is traded on an exchange or is quoted on The NASDAQ
National Market, then the average closing or last sale prices, respectively,
reported for the ten (10) consecutive trading days immediately preceding
the Determination Date;

 

(ii)           If
the Company’s Common Stock is not traded on an exchange or quoted on The NASDAQ
National Market but is traded on The NASDAQ SmallCap Market, the OTC Bulletin
Board or the local over-the-counter market, then the average of the mid-points
between the closing bid and asked prices reported for the ten (10) consecutive
trading days immediately preceding the Determination Date; and

 

B-4

 

(iii)          If
the Company’s Common Stock is not publicly traded, then the then the price
established in good faith by the Company’s Board of Directors.

 

7.     Earlier
Termination.  Notwithstanding
anything in this Agreement to the contrary, (a) upon termination or
expiration of the Strategic Partnership Agreement, this Warrant shall
immediately terminate and be of no further force or effect with respect to any
Warrant Shares as to which this Warrant has not then vested, but such
termination or expiration shall not affect the vested portion of the Warrant,
and (b) if the employment of the Holder with VTI is terminated for any
reason other than by reason of the death or disability of the Holder, (i) this
Warrant shall immediately terminate and be of no further force or effect with
respect to any Warrant Shares as to which this Warrant has not then vested, and
(ii) the Holder shall have ninety (90) days after the effective date of
such termination of employment to exercise this Warrant with respect to any
Warrant Shares as to which this Warrant has vested and, if this Warrant is not
exercised during such ninety (90)-day period, it shall immediately terminate at
the end thereof and be of no further force or effect.  The termination of the Holder’s employment
with VTI due to the Holder’s death or disability (with disability being
determined in the Company’s sole discretion) shall not affect the vesting or
continuation of this Warrant.

 

8.     No
Voting Rights.  This Warrant shall
not entitle the Holder to any voting rights or other rights as a shareholder of
the Company unless and until exercised pursuant to the provisions hereof.

 

9.     Notification
of Transfer of Warrant or Resale of Warrant Shares.  The Holder of this Warrant, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock issued
upon the exercise hereof, of such Holder’s intention to do so. The notice shall
include: (a) a brief description of the manner of any proposed transfer,
and (b) an opinion of counsel reasonably satisfactory to the Company that (i) the
proposed exercise or transfer may be effected without registration or
qualification under the Securities Act and any applicable Blue Sky Laws, or (ii) the
proposed exercise or transfer has been registered under such laws.  Upon delivering such notice, the Holder shall
be entitled to transfer this Warrant or such Warrant Shares, all in accordance
with the terms of the notice delivered by such Holder to the Company, provided
that an appropriate legend may be endorsed on the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
reasonable opinion of counsel to the Company to prevent further transfer which
would be in violation of Section 5 of the Securities Act and applicable
Blue Sky Laws.

 

If, in the reasonable opinion of counsel to
the Company or other counsel reasonably acceptable to the Company, the proposed
transfer or disposition of this Warrant or the Warrant Shares described in the
written notice given pursuant to this Section 8 may not be effected
without registration of this Warrant or the Warrant Shares, the Company shall
promptly give written notice thereof to the Holder within ten (10) days
after the Company receives such notice, and such Holder will limit its
activities in respect to such as, in the opinion of such counsel, is permitted
by law.

 

10.  Covenants
of the Company.  The Company
covenants and agrees that all Warrant Shares will, upon issuance, be duly
authorized and issued, fully paid, nonassessable and free from all taxes, liens
and charges with respect to the issue thereof. 
The Company further covenants and agrees that during the period within
which the rights represented by this Warrant 

 

B-5

 

may be exercised,  the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise hereof, a
sufficient number of shares of its Common Stock to provide for the exercise of
this Warrant.

 

11.  Notices.  All notices hereunder shall be in writing and
shall be delivered personally or by telefax (receipt confirmed), or shall be
sent by a reputable express delivery service or by certified mail, postage
prepaid with return receipt requested, addressed as follows:

 

(i)            if
to Holder, at such Holder’s registered address as reflected in the Company’s
records; and

 

(ii)           if
to the Company, to:

 

MathStar, Inc.

5900 Green Oak Drive

Minneapolis, MN 55343

Attention: 
Chief Executive Officer

Facsimile: 
(952) 746-2201

 

Any party may change the above-specified
recipient and/or mailing address by notice to all other parties given in the
manner herein prescribed.  All notices
shall be deemed given on the day when actually delivered as provided above if
delivered personally or by telefax or on the day shown on the return receipt if
delivered by mail or delivery service.

 

12.  Miscellaneous.

 

(a)   This
Warrant may be amended by agreement of the Company and the holders of
outstanding VTI Strategic Warrants to purchase at least a majority of the
number of shares of Common Stock then subject to outstanding VTI Strategic
Warrants.

 

(b)   This
Warrant shall be governed by and construed in accordance with the laws of the
State of Minnesota without regard to its conflict of laws provisions.

 

(c)   The
Company will not, by amendment of its Articles of Incorporation or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, but will, at all times in good faith,
assist, insofar as it is able, in the carrying out of all provisions hereof and
in the taking of all other action which may be necessary in order to protect
the rights of the Holder hereof against dilution, consistent with the terms of
this Warrant.

 

(d)   A
number of shares of Common Stock sufficient to provide for the exercise of this
Warrant upon the basis herein set forth shall at all times be reserved for the
exercise thereof.

 

B-6

 

IN WITNESS WHEREOF, the Company has caused
this Warrant to be signed by its authorized officer and dated as of the date
stated above.

 

	
   

  	
  MathStar, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name Typed or Printed

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
  Title Typed or Printed

  

 

B-7

 

Exhibit A

 

WARRANT
EXERCISE FORM

 

To be signed only upon exercise
of Warrant.

 

The undersigned, the holder of the within
Warrant issued by MathStar, Inc., hereby irrevocably elects to exercise
the purchase rights represented by such Warrant for, and to purchase
thereunder, a total of               
Warrant Shares to which such Warrant relates and herewith makes payment of $              
per share and a total of $              
for the purchase of such Warrant Shares.

 

Said purchase price is paid in full herewith
in cash, via wire transfer, by certified or bank check or, in the sole
discretion of MathStar, Inc., by personal check, and the undersigned
requests that such shares be issued and be delivered to                                     ,
the address for which is set forth below the signature of the undersigned.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Taxpayer’s I.D. Number)

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address)

  

 

B-8

 

EXHIBIT C

 

FORM OF
PETROLE WARRANT

 

 

THIS WARRANT, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES
ACT”), AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS
(“BLUE SKY LAWS”). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION OF THIS WARRANT OR ANY INTEREST THEREIN MAY BE MADE
EXCEPT PURSUANT TO (1) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (2) AN OPINION OF
COUNSEL FOR THE COMPANY OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.

 

	
  Date:

  	
   

  	
  Series VTI     

  

 

WARRANT

 

To Purchase          

Shares of Common Stock of

 

MATHSTAR,
INC.

 

MathStar, Inc., a Minnesota corporation
(the “Company”), for value received, hereby certifies that                      
or his registered assigns (the “Holder”), is entitled, subject to the terms set
forth below, upon exercise of this Warrant, to purchase from the Company, at
any time or from time to time, subject to the vesting schedule set forth
in Section 1 of this Warrant below, and on or before 11:59 p.m.
(Minneapolis, Minnesota time) on                        
(subject to earlier termination as provided in Section 7 of this Warrant),
a total of                                    
(              )
shares of common stock of the Company, $0.01 par value per share (the “Common
Stock”), at an initial exercise price of $        
per share.  (The initial exercise price
of $             per
share set forth in the foregoing sentence is hereinafter referred to as the “Exercise
Price,” and the Exercise Price is subject to adjustment as provided in the
antidilution provisions of this Warrant under Section 5 hereof.)  This Warrant is one of a series of warrants
(the “VTI Strategic Warrants”) entitled the “VTI Warrants, “ the “VTI Employee
Warrants” and the “Petrole Warrants” issued pursuant to Sections 3.1.1 and
3.1.2 of the Strategic Partnership Agreement dated as of                    
(the “Strategic Partnership Agreement”) by and among the Company, Valley
Technologies, Inc. and Gerald Petrole.

 

The shares of Common Stock which may be
acquired upon exercise of this Warrant are referred to herein as the “Warrant
Shares.”  As used herein, the term “Holder”
includes any party who acquires all or a part of this Warrant as a registered
transferee, or any record holder or holders of the Warrant Shares issued upon
exercise, whether in whole or in part, of the Warrant.  The term “Common Stock” shall include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.

 

C-1

 

This Warrant is further subject to the
following provisions, terms and conditions:

 

13.  Vesting;
Exercise of Warrant.  This Warrant
shall become exercisable as to                        
(               )
Warrant Shares upon the achievement of each “Design Win,” as the term “Design
Win” is defined and determined in accordance with the Strategic Partnership
Agreement.  The Holder may exercise this
Warrant after the Warrant Shares have vested and before its expiration or
termination, in whole or in part (but not as to any fraction of a share of
Common Stock), by sending to the Company at its principal office (i) this
Warrant, (ii) the Exercise Form attached hereto as Exhibit A,
completed and duly executed by such Holder or by such Holder’s duly authorized
attorney-in-fact, and (iii) the payment of the Exercise Price in the form
of a wire transfer, a bank or certified check or, in the Company’s sole discretion,
a personal check, in the amount of the Exercise Price multiplied by the number
of Warrant Shares as to which the Warrant is being exercised.

 

14.  Effective
Date of Exercise.  Each exercise of
this Warrant shall be deemed effective as of the close of business on the day
on which this Warrant is surrendered to the Company as provided in Section 1
above.  At such time, the person or
persons in whose name or names any certificates for Warrant Shares shall be
issuable upon such exercise shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.

 

15.  Issuance
of the Warrant Shares. Within fifteen (15) days after the exercise of this
Warrant, in whole or in part, the Company will, at its expense, issue in the
name of and deliver to the Holder or such other person as the Holder may direct
(upon payment by such Holder of any applicable transfer taxes): (i) a
certificate or certificates for the number of full Warrant Shares to which
Holder is entitled upon exercise, and (ii) unless this Warrant has
expired, a new Warrant or Warrants (dated the date hereof and in form identical
hereto) representing the right to purchase the remaining number of shares of
Common Stock, if any, with respect to which this Warrant has not then been
exercised.

 

16.  Exchange
and Replacement. Subject to Sections 1 and 8, this Warrant
is exchangeable upon the surrender of the Warrant by the Holder to the Company
at its principal office for new Warrants of like tenor and date representing in
the aggregate the right to purchase the number of Warrant Shares then
purchasable hereunder. The new Warrants will represent the right to purchase
such number of Warrant Shares (not to exceed the aggregate total number then
purchasable hereunder) as the Holder shall designate at the time of such
surrender.  Upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant. This Warrant
shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange or replacement. 
The Company shall pay all expenses, taxes (other than stock transfer
taxes), and other charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 4.

 

17.  Antidilution
Adjustments to Exercise Price.  The
provisions of this Warrant are subject to adjustment as provided in this Section 5.

 

(a)   The
Exercise Price shall be adjusted from time to time such that in case the Company
shall hereafter:

 

C-2

 

(i)            pay
any dividends on any class of stock of the Company payable in Common Stock or
securities convertible into Common Stock;

 

(ii)           subdivide
its then outstanding shares of Common Stock into a greater number of shares; or

 

(iii)          combine
outstanding shares of Common Stock, by reclassification or otherwise;

 

then, in any such event, the Exercise Price
in effect immediately prior to such event shall (until adjusted again pursuant
hereto) be adjusted immediately after such event to a price (calculated to the
nearest full cent) determined by dividing (A) the number of shares of
Common Stock outstanding immediately prior to such event, multiplied by the
then existing Exercise Price, by (B) the total number of shares of Common
Stock outstanding immediately after such event (including in each case the
maximum number of shares of Common Stock issuable in respect of any securities
convertible into Common Stock), and the resulting quotient shall be the
adjusted Exercise Price per share.  An
adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. 
If, as a result of an adjustment made pursuant to this Subsection, the
Holder of any Warrant thereafter surrendered for exercise shall become entitled
to receive shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive) shall reasonably and not arbitrarily
determine the allocation of the adjusted Exercise Price between or among shares
of such classes of capital stock or shares of Common Stock and other capital
stock.  All calculations under this Subsection shall
be made to the nearest cent or to the nearest 1/100 of a share, as the case may
be.  If at any time as a result of an adjustment
made pursuant to this Subsection, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of the
Company other than shares of Common Stock, thereafter the Exercise Price of
such other shares so receivable upon exercise of any Warrant shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to Common Stock contained in this
Section.

 

(b)   Upon
each adjustment of the Exercise Price pursuant to Section 5(a) above,
the Holder of each Warrant shall thereafter (until another such adjustment) be
entitled to purchase at the adjusted Exercise Price the number of shares,
calculated to the nearest full share, obtained by multiplying the number of
shares specified in such Warrant that may be purchased at such Exercise Price
(as adjusted as a result of all adjustments in the Exercise Price in effect
prior to such adjustment) by the Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.

 

(c)   In
case of any consolidation or merger to which the Company is a party, other than
a merger or consolidation in which the Company is the continuing corporation,
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation (including any
exchange effected in connection with a 

 

C-3

 

merger of a
third corporation into the Company), there shall be no adjustment under Section 5(a) above,
but the Holder of each Warrant then outstanding shall have the right thereafter
to convert such Warrant into the kind and amount of shares of stock and other
securities and property which he would have owned or have been entitled to
receive immediately after such consolidation, merger, statutory exchange, sale,
or conveyance had such Warrant been exercised immediately before the effective
date of such consolidation, merger, statutory exchange, sale, or conveyance
and, in any such case, if necessary, appropriate adjustment shall be made in
the application of the provisions set forth in this Section with respect
to the rights and interests thereafter of any Holders of the Warrant, to the
end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant.  The
provisions of this Subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.

 

(d)   Upon
any adjustment of the Exercise Price, then and in each such case, the Company
shall give written notice thereof, by first-class mail, postage prepaid,
addressed to the Holder as shown on the books of the Company, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease, if any, in the number of shares of Common Stock purchasable at
such price upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is based.

 

18.  Fractional
Shares.

 

(a)   Fractional
shares shall not be issued upon the exercise of this Warrant.  However, in any case where the Holder would,
except for the provisions of this Section 6, be entitled under the terms
hereof to receive a fractional share, the Company shall, upon the exercise of
this Warrant, issue the largest number of whole shares and pay a sum in cash
equal to the sum of (a) the excess, if any, of the Fair Market Value of
such fractional share over the proportional part of the Exercise Price
represented by such fractional share, plus (b) the proportional part of
the Exercise Price represented by such fractional share.

 

(b)   For
purposes of this Section, the term “Fair Market Value” with respect to shares
of Common Stock as of a particular date (the “Determination Date”) shall mean:

 

(i)            If
the Company’s Common Stock is traded on an exchange or is quoted on The NASDAQ
National Market, then the average closing or last sale prices, respectively,
reported for the ten (10) consecutive trading days immediately preceding
the Determination Date;

 

(ii)           If
the Company’s Common Stock is not traded on an exchange or quoted on The NASDAQ
National Market but is traded on The NASDAQ SmallCap Market, the OTC Bulletin
Board or the local over-the-counter market, then the average of the mid-points
between the closing bid and asked prices reported for the ten (10) consecutive
trading days immediately preceding the Determination Date; and

 

C-4

 

(iii)          If
the Company’s Common Stock is not publicly traded, then the then the price
established in good faith by the Company’s Board of Directors.

 

19.  Earlier
Termination.  Notwithstanding
anything in this Agreement to the contrary, on the earlier to occur of                 
or the effective date of the termination or expiration of the Strategic
Partnership Agreement, this Warrant shall terminate and be of no further force
or effect with respect to any Warrant Shares as to which this Warrant has not
then vested, but such termination shall not affect the vested portion of this
Warrant.

 

20.  No
Voting Rights.  This Warrant shall
not entitle the Holder to any voting rights or other rights as a shareholder of
the Company unless and until exercised pursuant to the provisions hereof.

 

21.  Notification
of Transfer of Warrant or Resale of Warrant Shares.  The Holder of this Warrant, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock issued
upon the exercise hereof, of such Holder’s intention to do so. The notice shall
include: (a) a brief description of the manner of any proposed transfer,
and (b) an opinion of counsel reasonably satisfactory to the Company that (i) the
proposed exercise or transfer may be effected without registration or
qualification under the Securities Act and any applicable Blue Sky Laws, or (ii) the
proposed exercise or transfer has been registered under such laws.  Upon delivering such notice, the Holder shall
be entitled to transfer this Warrant or such Warrant Shares, all in accordance
with the terms of the notice delivered by such Holder to the Company, provided
that an appropriate legend may be endorsed on the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
reasonable opinion of counsel to the Company to prevent further transfer which
would be in violation of Section 5 of the Securities Act and applicable
Blue Sky Laws.

 

If, in the reasonable opinion of counsel to
the Company or other counsel reasonably acceptable to the Company, the proposed
transfer or disposition of this Warrant or the Warrant Shares described in the
written notice given pursuant to this Section 8 may not be effected without
registration of this Warrant or the Warrant Shares, the Company shall promptly
give written notice thereof to the Holder within ten (10) days after the
Company receives such notice, and such Holder will limit its activities in
respect to such as, in the opinion of such counsel, is permitted by law.

 

22.  Covenants
of the Company.  The Company
covenants and agrees that all Warrant Shares will, upon issuance, be duly
authorized and issued, fully paid, nonassessable and free from all taxes, liens
and charges with respect to the issue thereof. 
The Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised,  the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise hereof, a
sufficient number of shares of its Common Stock to provide for the exercise of
this Warrant.

 

23.  Notices.   All notices hereunder shall be in writing
and shall be delivered personally or by telefax (receipt confirmed), or shall
be sent by a reputable express delivery service or by certified mail, postage
prepaid with return receipt requested, addressed as follows:

 

C-5

 

(i)            if
to Holder, at such Holder’s registered address as reflected in the Company’s
records; and

 

(ii)           if
to the Company, to:

 

MathStar, Inc.

5900 Green Oak Drive

Minneapolis, MN  55343

Attention: 
Chief Executive Officer

Facsimile: 
(952) 746-2201

 

Any party may change the above-specified
recipient and/or mailing address by notice to all other parties given in the
manner herein prescribed.  All notices
shall be deemed given on the day when actually delivered as provided above if
delivered personally or by telefax or on the day shown on the return receipt if
delivered by mail or delivery service.

 

24.  Miscellaneous.

 

(a)   This
Warrant may be amended by agreement of the Company and the holders of
outstanding VTI Strategic Warrants to purchase at least a majority of the
number of shares of Common Stock then subject to outstanding VTI Strategic
Warrants.

 

(b)   This
Warrant shall be governed by and construed in accordance with the laws of the
State of Minnesota without regard to its conflict of laws provisions.

 

(c)   The
Company will not, by amendment of its Articles of Incorporation or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, but will, at all times in good faith,
assist, insofar as it is able, in the carrying out of all provisions hereof and
in the taking of all other action which may be necessary in order to protect
the rights of the Holder hereof against dilution, consistent with the terms of
this Warrant.

 

(d)   A
number of shares of Common Stock sufficient to provide for the exercise of this
Warrant upon the basis herein set forth shall at all times be reserved for the
exercise thereof.

 

C-6

 

IN WITNESS WHEREOF, the Company has caused
this Warrant to be signed by its authorized officer and dated as of the date
stated above.

 

	
   

  	
  MathStar, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name Typed or Printed

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
  Title Typed or Printed

  

 

C-7

 

Exhibit A

 

WARRANT
EXERCISE FORM

 

To be signed only upon exercise
of Warrant.

 

The undersigned, the holder of the within
Warrant issued by MathStar, Inc., hereby irrevocably elects to exercise
the purchase rights represented by such Warrant for, and to purchase
thereunder, a total of                     
Warrant Shares to which such Warrant relates and herewith makes payment of $                    
per share and a total of $                  
for the purchase of such Warrant Shares.

 

Said purchase price is paid in full herewith
in cash, via wire transfer, by certified or bank check or, in the sole
discretion of MathStar, Inc., by personal check, and the undersigned
requests that such shares be issued and be delivered to                                  ,
the address for which is set forth below the signature of the undersigned.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Taxpayer’s I.D. Number)

  	
   

  	
  (Signature)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address)

  

 

C-8Exhibit 10.9

 

LEASE

 

THIS Lease (“Lease”), is entered into
as of the 14th day of December, 2001, by and between GREEN OAK ASSOCIATES, a
Minnesota general partnership (“Landlord”), and MATHSTAR, INC., a Minnesota
corporation (“Tenant”).

 

DEFINITIONS:

 

“Property” - That certain real
property located in the City of Minnetonka, County of Hennepin, State of
Minnesota and legally described on Exhibit ”A” attached hereto and made a
part hereof (the “Land”), including the Building and all other improvements
located thereon.

 

“Building” - That certain office
building containing approximately 60,000 square feet located upon the Land and
commonly described as 5900 Green Oak Drive.

 

“Phase One Premises” – The entire
first floor of the Building.

 

“Phase Two Premises” – One-half of the
second floor of the Building, as shown on Exhibit B.

 

“Phase Three Premises” – One-half of
the second floor of the Building as shown on Exhibit B.

 

“Phase Four Premises” — The entire
third floor of the Building.

 

“Premises” – That portion of the
Building that at any given time has been delivered to Tenant pursuant to
Article 1.

 

WITNESSETH:

 

ARTICLE 1

 

TERM:

 

Tenant and Landlord agree that the
Premises shall be leased in phases as set forth below (collectively referred to
as the “Phases,” individually referred to as a “Phase”).  For and in consideration of the rents,
additional rents, terms, provisions and covenants herein contained, Landlord
hereby lets, leases and demises to Tenant the right to occupy the Premises
commencing on the dates as set forth below:

 

Phase One Premises: January 15, 2002 (“Phase
One Commencement Date”);

 

Phase Two Premises: August 1, 2002;

 

Phase Three Premises: February 1,
2003;

 

 

Phase Four Premises: May 1, 2003.

 

The term (the “Initial Term”) of this
Lease shall commence on the Phase One Commencement Date and shall expire on the
date that is sixty-three and one half (63 1/2) months after the Phase One
Commencement Date (the “Expiration Date”). 
The Expiration Date shall be subject to adjustment pursuant to the immediately
following paragraph.  The Initial Term
and any extension thereof are herein collectively sometimes referred to as the “Term”
or “Term of this Lease.”

 

Notwithstanding
the foregoing, if Landlord shall be unable to deliver possession of any of the
Phases to Tenant on the date contemplated by Article 2, due to the
possession or occupancy thereof by the prior tenant or subtenant, or others not
lawfully entitled thereto, Landlord shall use good faith efforts to evict such
occupant and to deliver possession of the Premises to Tenant as soon as
reasonably practicable.  Landlord, using
such good faith efforts, shall not in any way be liable for failure to deliver
possession of any part of the Premises to Tenant, but, subject to the provision
at the end of this sentence, the applicable Phase Commencement Date shall be
postponed with respect to the Phase One Premises until the date which is one
(1) month after the date on which Landlord tenders possession of the Phase
One Premises or with respect to the remaining Phases, the date which is two
(2) months after the date which Landlord tenders possession of the
applicable portion of the Premises to Tenant and, if necessary, the Term shall
be automatically extended so as to include a full sixty-three and one half (63
1/2) months (plus any partial month) following the Phase One Commencement Date;
provided, however, if Landlord fails to deliver (a) the Phase One Premises
on or before the Phase One Commencement Date; (b) the Phase Two Premises,
on or before October 1, 2002; (c) the Phase Three Premises, on or
before May 1, 2003; or (d) the Phase Four Premises, on or before
November 1, 2003, then in each such event Landlord agrees that Tenant
shall receive one day free rent on the square footage of the Phase which is not
delivered by the date described above (for example, if the Phase Two Premises
are not delivered until October 3, 2002, Tenant will receive two days of
free rent on the Phase Two Premises only). 
Any delay in delivery of any Phase other than Phase One shall not extend
the Term.

 

The
Initial Term is subject to extension as provided in Article 42 hereof.

 

ARTICLE 2

 

POSSESSION:

 

For the purpose of constructing the
Tenant Improvements (as defined herein), it is the intention of the parties
that Landlord deliver possession of the first floor of the Building
approximately one month prior to the Phase One Commencement Date and each other
Phase approximately two months prior to the respective Phase Commencement Date.

 

Landlord shall use its good faith
efforts to deliver possession of each Phase to Tenant for the purpose of
constructing the Tenant Improvements (as defined herein) and otherwise
preparing the Phase for use by Tenant one month prior to the Phase One
Commencement Date and two months prior to the other applicable Phase
Commencement Date as set forth in Article 1.  The date that possession of each Phase is
actually delivered to Tenant is herein referred to as the 

 

2

 

“Phase Delivery Date.” 
During the applicable one (1) month or two (2) month period
beginning with each Phase Delivery Date (the “Phase Early Occupancy Period”)
Tenant shall not be required to pay (a) Base Rent for the Phase of the
Premises being delivered, or (b) any amount toward Additional Rent for the
Phase of the Premises being delivered, including but not limited to insurance
and/or operating expenses during the respective Phase Early Occupancy Period,
provided, however, that Tenant shall pay for all utilities consumed in the
Phase during the Phase Early Occupancy Period.

 

Landlord shall cooperate with Tenant
to transfer direct billing, or otherwise establish Tenant as the responsible
billing party for all utilities consumed for each Phase from and after the
respective Phase Delivery Date, to the extent possible prior to Tenant’s
occupancy of all four Phases of the Premises. 
Other than as specifically stated in this Article 2, during each
Phase Early Occupancy Period, Tenant shall abide with all other terms and
conditions of this Lease, including without limitation, insurance obligations
of Tenant.

 

ARTICLE 3

 

BASE RENT:

 

Landlord
reserves, and Tenant shall pay Landlord base rental (“Base Rent”) during the
Initial Term, payable in advance, in monthly installments as set forth below,
commencing on the Phase One Commencement Date and continuing on the first day
of each and every month thereafter for the next succeeding months during the
balance of the Initial Term.

 

	
  Months of the Term

  	
   

  	
  Square Footage

  Schedule

  	
   

  	
  Rent per 

  Square Foot

  	
   

  	
  Monthly 

  Base Rent

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  01/15/02 -
  07/31/02

  	
   

  	
  20,000

  	
   

  	
  $

  	
  9.00

  	
   

  	
  $

  	
  15,000.00

  	
   

  
	
  08/01/02 -
  01/31/03

  	
   

  	
  30,000

  	
   

  	
  $

  	
  9.00

  	
   

  	
  $

  	
  22,500.00

  	
   

  
	
  02/01/03 -
  04/30/03

  	
   

  	
  40,000

  	
   

  	
  $

  	
  9.00

  	
   

  	
  $

  	
  30,000.00

  	
   

  
	
  05/01/03 -
  12/31/03

  	
   

  	
  60,000

  	
   

  	
  $

  	
  9.00

  	
   

  	
  $

  	
  45,000.00

  	
   

  
	
  01/01/04 –
  12/31/04

  	
   

  	
  60,000

  	
   

  	
  $

  	
  10.00

  	
   

  	
  $

  	
  50,000.00

  	
   

  
	
  01/01/05
  –12/31/05

  	
   

  	
  60,000

  	
   

  	
  $

  	
  11.00

  	
   

  	
  $

  	
  55,000.00

  	
   

  
	
  01/01/06 –
  04/30/07

  	
   

  	
  60,000

  	
   

  	
  $

  	
  12.00

  	
   

  	
  $

  	
  60,000.00

  	
   

  

 

Notwithstanding the foregoing, no Base
Rent shall be due or payable in respect of the first full month of the Initial
Term.  This Lease is a net lease in all
respects.  Except as otherwise expressly
provided in this Lease, the Base Rent shall be absolutely net to Landlord and
Landlord shall be under no obligation or liability to furnish or pay for any of
the repairs, maintenance, real estate taxes, installments of special
assessments, utilities, insurance or for any other expenses which are in any
manner incurred with respect to the Premises or the business conducted thereon,
all of which shall be the sole obligation and liability of the Tenant.

 

3

 

ARTICLE 4

 

ADDITIONAL RENT; TAXES AND OPERATING EXPENSES:

 

Tenant
shall pay as Additional Rent Tenant’s proportionate share of “Taxes” with
respect to any calendar year which shall be defined as and comprised of:
(i) real estate taxes and annual installments of special assessments due
and payable against the Property, and the Building; (ii) any taxes levied
or assessed, in whole or in part, in lieu of real estate taxes; (iii) any
taxes on the stream of rental income (other than income taxes); (iv) all
other taxes or any other federal, state or local governmental charges on the
Land, the Building or this Lease levied as part of or in lieu of real estate
taxes and assessments; and (v) any sales tax or similar tax assessed or
payable in connection with services provided by Landlord hereunder.  Tenant shall also pay as Additional Rent any
and all Taxes levied or assessed, in whole or in part, based on the value of
Tenant’s personal property in the Premises.

 

Tenant
shall also pay, as Additional Rent, its proportionate share of all “Operating
Expenses” incurred by Landlord during any calendar year.  Subject to the exclusions and limitation
expressly provided below, Operating Expenses shall include Landlord’s costs of
maintaining, repairing and operating the Property and Building including, but
not limited to:

 

1.             janitorial
and window washing expenses;

 

2.             expenses
related to operating, maintaining, repairing and replacing any part of the
Building including landscaping, planters, paving, curbs, sidewalks, roadways,
parking facilities (including all parking lots, garages and ramps), drainage
facilities, machines, equipment and lighting facilities;

 

3.             expenses for
trash and rubbish removal;

 

4.             management
fees in an amount not to exceed 5% of all other “Operating Expenses”;

 

5.             insurance
(which may include, but not be limited to, hazard, plate glass, boiler and
machinery, liability and loss of rent insurance);

 

6.             security
expenses;

 

7.             costs
incurred in renting or purchasing equipment necessary or appropriate for the
smooth operation of the Property or Building;

 

8.             costs of
contesting the value of the Property or Building for real estate taxation
purposes;

 

9.             wages,
salaries and related expenses of all employees engaged in the management,
operation, maintenance or security of the Property or Building (to the extent
such employees are directly involved in such management, operation, maintenance

 

4

 

or security, as opposed to the
management, operation, maintenance or security of other properties) and the
costs of a management office servicing the building;

 

10.           the cost of
all supplies and materials used in the operation and maintenance of the
Property or Building;

 

11.           light bulbs
and ballasts;

 

12.           the cost of
maintenance and service agreements for the Building and the equipment therein;

 

13.           accounting and
audit costs;

 

14.           the cost of
all utilities, including, without limitation, water, electricity and gas and
the cost of heating, lighting, air conditioning and ventilating the Building;

 

15.           interior and
exterior maintenance expenses including expenses related to maintenance and
replacement of the roofs, foundations and structural portions of the Building
and the electrical, mechanical, plumbing and other systems and facilities
serving the Property or Building;

 

16.           amortization,
on a commercially reasonable basis, of (a) capital improvements and
expenditures made to: (i) reduce operating costs, (ii) comply with
requirements of Landlord’s insurance carrier that are enacted, or first
interpreted to apply to the Property or the Building, after the date of this
Lease, or (iii) comply with any law, rule, regulation or order of any
governmental authority that is enacted, or first interpreted to apply to the
Property or the Building, after the date of this Lease, and (b) other
costs and expenditures which are appropriately accounted for as capital
expenditures.

 

The
amortized cost of capital improvements and expenditures may, at Landlord’s
option, include actual or imputed interest at the rate that Landlord would
reasonably be required to pay to finance the cost of the given capital
improvement.  Landlord’s records
regarding Operating Expenses shall be made available to Tenant, at Landlord’s
place of business, during normal business hours upon request of Tenant.  If the Building does not have one hundred
percent (100%) occupancy during an entire calendar year, then the variable cost
component of “Operating Expenses” (i.e. the component of Operating Expenses
that varies depending upon the occupancy level of the Building) shall be
equitably adjusted so that the total amount of Operating Expenses equals the
total amount which would have been paid or incurred by Landlord had the
Building been one hundred percent (100%) occupied for the entire calendar
year.  In no event shall Landlord be
entitled to receive from Tenant and any other tenants in the Building an aggregate
amount in excess of actual Operating Expenses as a result of the foregoing
provision.

 

Tenant
shall pay with its monthly installment of Base Rent the amount Landlord
reasonably estimates for Tenant’s proportionate share of all Additional Rent
items.  When Landlord has determined the
actual amounts for each such Additional Rent item, Landlord shall advise Tenant
of any additional amounts due from Tenant or any credit due to Tenant.  Within thirty (30) days of Tenant’s
receipt of such statement, Tenant shall pay the additional amount due 

 

5

 

to Landlord, if any.  Tenant shall provide Landlord with written
notice of any objection that Tenant may have to any Additional Rent item within
one hundred twenty (120) days of the later to occur of (i) the end of the
calendar year in which the Additional Rent items are incurred, or (ii) the
date upon which Landlord provides Tenant a statement of the actual amount of
any Additional Rent item; it being further agreed that in connection with the
foregoing, Landlord shall make available to Tenant, at Landlord’s designated
office and during normal business hours, Landlord’s books and records
maintained with respect to Additional Rent for the applicable calendar
year.  In the event of a failure to
object within such time period, Tenant shall be deemed to waive any further
right to object to such Additional Rent. 
Following Landlord’s review and in the event Landlord agrees with Tenant’s
objection, any overpayment shall be credited against the next Additional Rent
payment due.  If the Term has expired,
any overpayment shall be promptly refunded to Tenant and any underpayment shall
be promptly paid to Landlord.  Landlord
may from time to time adjust the monthly installment of estimated Additional
Rent charges to more accurately reflect Landlord’s current estimate of such
charges.  Landlord presently calculates
Additional Rent based on a calendar year, and Tenant’s obligation for Operating
Expenses and Taxes shall be pro rated on a calendar basis if the calendar year
includes any period of time not within the Term.  Tenant’s proportionate share shall be based
on that portion of the Building that has been delivered to Tenant pursuant to
Article 2 hereof.

 

ARTICLE 5

 

COVENANT TO PAY RENT:

 

The
covenants of Tenant to pay the Base Rent and the Additional Rent are each
independent of any other covenant, condition, provision or agreement contained
in this Lease.  All rents are payable to
Landlord without deduction, counterclaim or set-off at:

 

Green Oak Associates

6125 Blue Circle Drive

Minnetonka, Minnesota 55343

Attention: Cyrille E. DeCosse

 

or such other address as Landlord may from time to time
designate in writing.

 

ARTICLE 6

 

UTILITIES:

 

Tenant
shall pay for all utilities consumed on the Premises during the Term,
including, but not limited to, all charges for sewer usage or rental, garbage,
disposal, refuse removal, water, electricity, gas, fuel oil, L.P. gas,
telephone and/or other utility services or energy source furnished to the
Building and Premises.

 

6

 

ARTICLE 7

 

CARE AND REPAIR OF THE PREMISES (“PREMISES MAINTENANCE”):

 

Tenant
shall, at all times throughout the Term of this Lease and at its sole expense,
keep and maintain the Premises in a clean, safe, sanitary and first class
condition and in compliance with all applicable laws, codes, ordinances, rules
and regulations.  Tenant’s obligations
hereunder regarding the Premises shall include, but not be limited to, the
maintenance and repair and replacement, if necessary, of the heating and air
conditioning fixtures, equipment, and systems, the electrical system, and all
lighting and plumbing fixtures and equipment located within, or exclusively
serving, the Premises, fixtures, motors and machinery; all interior walls, partitions,
doors and windows, including the regular painting thereof; all exterior
entrances, windows, doors and docks and the replacement of all broken
glass.  When used in this provision, the
term “repairs” shall include replacements or renewals when necessary, and all
such repairs made by the Tenant shall be equal in quality and class to the
original work.  The Tenant shall keep and
maintain all portions of the Premises in a clean and orderly condition, free of
accumulation of dirt and rubbish.

 

If Tenant
fails, refuses or neglects to maintain or repair the Premises as required in
this Lease after notice shall have been given Tenant in accordance with
Articles 17 and 32 of this Lease, Landlord may perform such maintenance and/or
make such repairs without liability to Tenant for any loss or damage that may
accrue to Tenant’s merchandise, fixtures or other property or to Tenant’s
business by reason thereof, and upon completion thereof, Tenant shall pay to
Landlord all reasonable costs plus 15% for overhead incurred by Landlord in
making such repairs upon presentation to Tenant of a bill therefor.

 

During
the term of this Lease, Landlord shall, at Landlord’s initial cost and expense
but subject to Article 4 hereof, keep and maintain in good order,
condition and repair, the foundation, exterior walls (except glass or other
breakable materials used in structural portions), roof, foundation, and
structural portions of the Building and the electrical, mechanical, plumbing
and other systems and facilities serving the Building and located outside of
the Premises.

 

Notwithstanding
any provision herein to the contrary, Tenant and Landlord agree that during any
given calendar year, Tenant shall be obligated to pay the first $15,000.00
associated with replacement of all or any portion of the heating, air
conditioning and ventilation system and Landlord shall be responsible for the
remainder of such replacement costs during such year.  The foregoing provision shall relate only to
replacement of portions of the system and not replacement of parts associated
with maintenance of the system.

 

ARTICLE 8

 

SIGNS:

 

Tenant
shall have the right to erect or cause to be erected any signs, notices or
advertisements upon the Premises or affix any such signage thereto which is
visible from the exterior of the Building which comply with applicable law and
the Opus II Declaration of Industrial Standards and Protective Covenants (“Protective
Covenants”) affecting the Premises, a copy of which is attached hereto as
Exhibit D.  In no event, however, shall
Tenant erect any 

 

7

 

signs on the roof of the Building or
any which by reason of size, weight, location or otherwise, might affect the
structural integrity of the Building. 
Signs placed on the Premises by Tenant shall be removed by it not later
than the expiration of the Term or any sooner termination thereof.  Upon removal of any such signs Tenant shall
repair any damage caused by the existence of such signage or its removal.

 

ARTICLE 9

 

ALTERATIONS, INSTALLATION, FIXTURES;

INITIAL LANDLORD AND TENANT IMPROVEMENTS:

 

Following
the completion of Tenant’s Work, thereafter, Tenant shall not make any
alterations, additions, or improvements in or to the Premises or add, disturb
or in any way change any of the Building’s systems, costing in excess of
$10,000.00 in each instance without prior notice to Landlord, receipt of all
necessary permits and governmental approval and in compliance with the
Protective Covenants.  Tenant shall not
make any structural alterations, additions or improvements, make any changes to
the Building’s systems or make any repair, alteration or replacement to the
roof of the Building without Landlord’s prior written consent, which shall not
be unreasonably withheld or delayed. 
Along with any request for Landlord’s consent Tenant shall furnish to
Landlord the proposed plans and specifications, names and addresses of
contractors, copies of contracts, necessary permits and licenses for the
proposed work, and a performance bond executed by a commercial surety, or other
security reasonably satisfactory to Landlord, in an amount equal to at least
125% of the cost of such alterations, changes, additions or improvements.  In the event alterations are required by any
governmental agency by reason of the particular use and occupancy of the
Premises by Tenant, Tenant shall make such alterations at its own cost and
expense subject to Landlord’s obligations pursuant to Article 7.  Alterations or additions by either Landlord
or Tenant must be built in compliance with all laws, ordinances and
governmental regulations affecting the Premises and each party shall warrant to
the other that all such alterations, additions, or improvements performed by
either Landlord or Tenant shall be in strict compliance with all relevant laws,
ordinances, governmental regulations, and insurance requirements.  The work shall comply with all insurance
requirements and all applicable laws, ordinances, rules and regulations and
shall be constructed in a good and workman-like manner.  All permanently affixed alterations,
installations, physical additions or improvements to the Premises made by
Tenant, including, without limitation, the Initial Tenant Improvements (but
excluding Tenant’s signage, business equipment, furniture, trade fixtures and
other personal property) shall at once become the property of Landlord and
surrendered to Landlord upon the termination of this Lease.  Tenant shall be responsible for all costs
related to improvements or modifications to the Premises required or necessary
to comply with the Americans With Disabilities Act of 1990 (ADA), or similar
statutes.

 

Landlord,
by written notice to Tenant given at the time required consent is granted may
require Tenant, at Tenant’s sole cost and expense, to remove upon expiration or
other termination of this Lease any improvements, additions or installations
installed by Tenant in the Building and repair any damage caused by the
installation and removal of such improvements, additions, or installations.  The only improvements, additions or
installations that Tenant shall remove, or be required to remove, shall be
those specified in such notice. 
Notwithstanding the foregoing provisions of this paragraph, Landlord may
not require Tenant to remove any part of 

 

8

 

the Initial Tenant Improvements,
structural or otherwise, which are made to the Building or to the non-Building
portions of the Premises.

 

Tenant
agrees to defend and hold Landlord harmless from any and all claims and
liabilities of any kind and description which may arise out of or be connected
in any way with alterations, changes, additions or improvements made by Tenant.

 

Tenant
intends to construct certain improvements to the Premises (“Initial Tenant
Improvements”), which are generally described in Exhibit C hereto.  Landlord approves construction of the Initial
Tenant Improvements substantially in accordance with Exhibit C, subject to
Landlord’s approving the final plans and specifications therefor, which approval
will not be unreasonably withheld or delayed. 
Tenant shall comply with all of the provisions of this Article in
constructing the Initial Tenant Improvements. 
Landlord shall reimburse Tenant for a portion of the cost of the Initial
Tenant Improvements as set forth below in accordance with the provisions of
Exhibit C:

 

	
  Phase

  	
   

  	
  Tenant Improvement Allowance

  
	
   

  	
   

  	
   

  
	
  Phase One Premises

  	
   

  	
  $15.00 per rentable square foot for
  the Phase One Premises;

  
	
   

  	
   

  	
   

  
	
  Phase Two Premises

  	
   

  	
  Amount equal to the product of $.25
  per rentable square foot of Phase Two Premises multiplied by the number of
  months remaining in the Initial Term of the Lease at the time Tenant takes
  occupancy of and commences payment of Base Rent related to the Phase Two
  Premises, minus two months;

  
	
   

  	
   

  	
   

  
	
  Phase Three Premises

  	
   

  	
  Amount equal to the product of $.25
  per rentable square foot of Phase Three Premises multiplied by the number of
  months remaining in the Initial Term of the Lease at the time Tenant takes
  occupancy of and commences payment of Base Rent related to the Phase Three
  Premises, minus two months.

  
	
   

  	
   

  	
   

  
	
  Phase Four Premises

  	
   

  	
  Amount equal to the product of $.25
  per rentable square foot of Phase Four Premises multiplied by the number of
  months remaining in the Initial Term of the Lease at the time Tenant takes
  occupancy of and commences payment of Base Rent related to the Phase Four
  Premises, minus two months.

  

 

Nothing
in this Lease shall be construed as consent on the part of Landlord to subject
Landlord’s estate in the Premises to any lien or liability arising out of any
work performed by Tenant.  Landlord
reserves the right to post notices of nonliability in, on and about the
Premises in connection with any work performed by Tenant.

 

9

 

ARTICLE 10

 

PREPAID RENT:

 

Base Rent
and Additional Rent due and payable hereunder shall be paid in advance pursuant
to the following schedule:

 

	
  Rent Due Date:

  	
   

  	
  Payment Due

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Upon execution of the Lease:

  	
   

  	
  $390,000.00;

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  June 1, 2002

  	
   

  	
  $177,500.00;

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  January 1, 2003

  	
   

  	
  $165,000.00; and

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  March 1, 2003

  	
   

  	
  $310,000.00;

  	
   

  

 

provided, however, Landlord agrees that it shall not
require rent be prepaid as set forth in Items 3 and 4 above, if on the date
that each such payment is due Tenant delivers a statement, certified by Tenant’s
independent public accounting firm, providing that Tenant has a book value
equal to or greater than $5,000,000 and Tenant’s net revenues over the proceeding?? 12 months are equal to or
greater than $10,000,000; provided, however, in connection with the third
payment due hereunder, if on or before March 1, 2003, Tenant delivers the
foregoing statement, Landlord agrees to refund to Tenant the unused portion of
the prepaid rent payment made on January 1, 2003.  All prepaid Base Rent and Additional Rent
amounts shall be applied to the immediately succeeding month’s rent otherwise
due hereunder, and each month thereafter, until applied in full, provided
however, in the event of a default hereunder, Landlord may apply the prepaid
rent in any manner Landlord chooses. 
Notwithstanding any provision herein to the contrary, all prepaid rent
shall be deemed earned upon receipt thereof, and except as provided above, in
no event shall Landlord be obligated to return any of the foregoing payments.

 

ARTICLE 11

 

USE:

 

The
Premises shall be used and occupied by Tenant solely for general office
purposes.  Subject to Landlord’s
obligations hereunder, Tenant shall comply with all applicable laws, ordinances
and governmental regulations affecting the Building and Premises.  The Premises shall not be used in such manner
that, in accordance with any requirement of law or of any public authority,
Landlord shall be obliged on account of the purpose or manner of said use to
make any addition or alteration to or in the Building.  Tenant shall occupy the Premises, conduct its
business and control its agents, employees, invitees and visitors in such a way
as is lawful, does not result in waste, and will not permit or create any
nuisance; and Tenant’s use of the Premises shall conform to the Protective
Covenants affecting the Premises. 
Landlord shall not permit the storage of any type of equipment, property
or materials on the Premises other than those used exclusively by Landlord in
exercising it rights or performing its obligations hereunder and shall not
allow any obstacles, automobiles, containers or other materials to be placed in
the parking lot area of the Premises without the prior written consent of
Tenant.

 

10

 

ARTICLE 12

 

ACCESS TO THE PREMISES:

 

The
Tenant agrees to permit the Landlord and the authorized representatives of the
Landlord to enter the Premises at all times during Tenant’s usual business
hours, upon reasonable prior notice thereof to Tenant, for the purpose of
inspecting the same and making any necessary repairs to the Premises and
performing any work therein that may be necessary to comply with any laws,
ordinances, rules, regulations or requirements of any public authority or of the
Board of Fire Underwriters or any similar body or that the Landlord may deem
necessary to prevent waste or deterioration in connection with the
Premises.  Nothing herein shall imply any
duty upon the part of the Landlord to do any such work which, under any
provision of this Lease, the Tenant may be required to perform and the
performance thereof by the Landlord shall not constitute a waiver of the Tenant’s
default in failing to perform the same. 
The Landlord may, during the progress of any work in the Premises, keep
and store upon the Premises all necessary materials, tools and equipment and,
except in an emergency, shall coordinate all staging, scheduling and access
with Tenant prior to entry.  The Landlord
shall not in any event be liable for inconvenience, annoyance, disturbance,
loss of business, or other damage of the Tenant by reason of making repairs or
the performance of any work in the Premises, or on account of bringing
materials, supplies and equipment into or through the Premises during the course
thereof and the obligations of the Tenant under this Lease shall not thereby be
affected in any manner whatsoever; provided, however, that Landlord shall use
reasonable efforts to minimize any disturbance or interference with Tenant’s
business.

 

Landlord
reserves the right to enter the Premises at any time in the event of an
emergency and at reasonable hours upon reasonable prior notice to Tenant to
exhibit the Premises to prospective purchasers, lenders and to the display “For
Lease” or similar signs on the grounds of the Building and to exhibit the
Premises to prospective tenants during the last year of the Term of this Lease,
as the same may have been extended, all without hindrance or molestation by
Tenant.

 

ARTICLE 13

 

EMINENT DOMAIN:

 

In the
event of any eminent domain or condemnation proceeding or private sale in lieu
thereof in respect to the Premises during the term thereof, the following
provisions shall apply:

 

a.             If the whole
of the Premises shall be acquired or condemned by eminent domain for any public
or quasi-public use or purpose, then the term of this Lease shall cease and
terminate as of the date possession shall be taken in such proceeding and all
rentals shall be paid up to that date.

 

b.             If any part
constituting less than the whole of the Premises shall be acquired or condemned
as aforesaid, and in the event that such partial taking or condemnation shall
materially affect the Premises so as to render the Premises unsuitable for the
business of the Tenant, in the reasonable opinion of Tenant, then the term of
this 

 

11

 

Lease shall cease and terminate as of
the date possession shall be taken by the condemning authority and rent shall
be paid to the date of such termination.

 

In the
event of a partial taking or condemnation of the Premises which shall not
materially affect the Premises so as to render the Premises unsuitable for the
business of the Tenant, in the reasonable opinion of the Tenant, this Lease
shall continue in full force and effect but with a proportionate abatement of
the Base Rent and Additional Rent based on the portion, if any, of the Premises
taken.  Landlord reserves the right, at
its option, to restore the Building and the Premises to substantially the same
condition as they were prior to such condemnation.  In such event, Landlord shall give written
notice to Tenant, within thirty (30) days following the date possession
shall be taken by the condemning authority, of Landlord’s intention to
restore.  Upon Landlord’s notice of
election to restore, Landlord shall commence restoration and shall restore the
Building and the Premises with reasonable promptness, subject to delays beyond
Landlord’s control and delays in the making of condemnation or sale proceeds
adjustments by Landlord.  Tenant shall
have no right to terminate this Lease except as herein provided.  Upon completion of such restoration, the rent
shall be adjusted based upon the portion, if any, of the Premises restored.

 

c.             In the event
of any condemnation or taking as aforesaid, whether whole or partial, the
Tenant shall not be entitled to any part of the award paid for such
condemnation of the Premises, and Landlord is to receive the full amount of
such award; Tenant hereby expressly waiving any right to claim to any part
thereof.

 

d.             Although all
damages in the event of any condemnation of the Premises shall belong to the
Landlord, whether such damages are awarded as compensation for diminution in
value of the leasehold or to the fee of the Premises, Tenant shall have the
right to claim and recover from the condemning authority, but not from
Landlord, such compensation as may be separately awarded or recoverable by
Tenant in Tenant’s own right on account of any and all damage to Tenant’s
business by reason of the condemnation and for or on account of any cost or
loss to which Tenant might be put in removing Tenant’s merchandise, furniture,
fixtures and equipment.  However, Tenant
shall have no claim against Landlord or make any claim with the condemning
authority for the loss of its leasehold estate, any unexpired term or loss of
any possible renewal or extension of said Lease or loss of any possible value
of said Lease, any unexpired term renewal or extension of said Lease.

 

ARTICLE 14

 

DAMAGE OR DESTRUCTION:

 

In the
event of any damage or destruction too the Premises by fire or other cause
during the term hereof, the following provisions shall apply:

 

12

 

a.             If the
Building is damaged by fire or any other cause to such extent that the cost of
restoration, as reasonably estimated by Landlord, will equal or exceed fifty
percent (50%) of the replacement value of the Building (exclusive of
foundations) just prior to the occurrence of the damage, then Landlord may, no
later than the sixtieth (60th) day following the damage, give Tenant
written notice of Landlord’s election to terminate this Lease.

 

b.             If the
Premises are not suitable as a result of said damage for the purposes for which
they are demised hereunder or if, in the reasonable opinion of Tenant,
restoration cannot be completed within one hundred eighty (180) days following
the casualty, then Tenant may, no later than the sixtieth (60th) day
following the damage, give Landlord a written notice of election to terminate
this Lease.

 

c.             If during
the last year of the Initial Term or Option Term (unless in the case of the
Initial Term or first Option Term this Lease has been, or is within
twenty (20) days after the date of damage, extended for the next Option
Term) the Building shall be destroyed or so damaged by fire or other insured
casualty as to render more than fifty percent (50%) thereof untenantable,
either Landlord or Tenant may, at its option, by written notice to the other
party given within thirty (30) days after such damage or destruction,
terminate this Lease effective a date not more than thirty (30) days after
the date of such notice.

 

d.             If the cost
of restoration as reasonably estimated by Landlord shall amount to less than
fifty percent (50%) of said replacement value of the Building, or if, despite
the cost, neither Landlord nor Tenant elects to terminate this Lease, Landlord
shall restore the Building and the Premises with reasonable promptness, subject
to delays beyond Landlord’s control and delays in the making of insurance
adjustments by Landlord.  Landlord shall
not be responsible for restoring or repairing leasehold improvements of the
Tenant, except to the extent recovered insurance proceeds are sufficient to do
so.

 

e.             In the event
any of the elections to terminate are appropriately exercised, this Lease shall
be deemed to terminate on the date of the receipt of the notice of election and
all rents shall be paid up to that date. 
Tenant shall have no claim against Landlord for the value of any unexpired
term of this Lease.

 

f.              In any case
where damage to the Building shall materially affect the Premises so as to
render them unsuitable in whole or in part for the purposes for which they are
demised hereunder, then, unless such destruction was wholly or partially caused
by the gross negligence of Tenant, its employees, contractors or licensees, a
portion of the Base Rent and Additional Rent based upon the amount of the
extent which the Premises is rendered unsuitable shall be abated until repaired
or restored.  If the destruction or
damage was wholly or partially caused by gross negligence of Tenant as
aforesaid and if Landlord shall elect to rebuild, the Base Rent and additional
rent shall not abate and the Tenant shall remain liable for the same; provided,
however, Tenant shall receive a credit for any proceeds of rent loss insurance
actually paid to Landlord, less the reasonable cost and expenses, 

 

13

 

including, without limitation,
reasonable attorneys fees, incurred by Landlord in collecting the same.

 

g.             Tenant will
reimburse Landlord for the portion of any loss which is deductible under
Landlord’s policy of casualty insurance (up to the maximum deductible under
such policy provided for in this Lease), which amount shall not exceed $5,000,
unless such loss is the result of Landlord’s gross negligence or willful acts
or omissions.

 

ARTICLE 15

 

CASUALTY INSURANCE:

 

a.             Tenant shall
keep all of its machinery, equipment, furniture, fixtures, leasehold improvements
and other property under the care, custody, or control of Tenant and business
interests which may be located in, upon, or about the Premises insured for the
benefit of Tenant in an amount equal to one hundred percent (100%) of the full
insurable value thereof on a replacement cost basis against loss or damage by
fire and such other risk or risks of a similar or dissimilar nature as are now,
or may in the future be, customarily covered under so-called “all risk” fire
and extended coverage insurance, including, but without limiting the generality
of the foregoing, windstorms, hail, explosions, vandalism, theft, malicious
mischief, civil commotion, and such other coverage as Tenant may deem
appropriate or necessary.  Tenant agrees
that such policy or policies of insurance shall permit releases of liability as
provided herein and/or waiver of subrogation clause as to Landlord.

 

Tenant
hereby waives and releases all claims, liabilities and causes of action against
Landlord and its agents, servants and employees for loss or damage to, or
destruction of, any of the machinery, equipment, furniture, fixtures, leasehold
improvements and other property, whether that of Tenant or of others in, upon
or about the Premises resulting from fire, explosion or the other perils
included in standard extended coverage insurance notwithstanding that such
loss, claim, expense or damage may have been caused by the negligence (but not
gross negligence or willful acts) of Landlord, its agents or employees, and
Tenant agrees to look to the insurance coverage only in the event of such
loss.  Landlord hereby waives and
releases all claims, liabilities and causes of action against Tenant and its
agents, servants and employees for loss or damage to, or destruction of all or
a portion of the Premises resulting from fire, explosion or other perils
included in standard extended coverage insurance notwithstanding that such
loss, claim, expense or damage may have been caused by the negligence (but not
gross negligence or willful acts) of Tenant, its agents or employees, and
Landlord agrees to look to the insurance coverage only in the event of such
loss.

 

b.             If Tenant
installs any electrical equipment that overloads the power lines to the
Building or its wiring, Tenant shall, at its own expense, make whatever changes

 

14

 

are necessary to comply with the
requirements of the insurance underwriter, insurance rating bureau and
governmental authorities having jurisdiction.

 

ARTICLE 16

 

PUBLIC LIABILITY INSURANCE:

 

Tenant
shall, during the term hereof, keep in full force and effect, at its expense, a
policy or policies of public liability insurance with respect to the Premises
and the business of Tenant in amounts no less than $2,000,000.00 per occurrence
naming the Landlord and any mortgagees designated by Landlord as additional
insureds.  The insurance shall include
contractual liability coverage specifically insuring Tenant’s indemnity
obligations hereunder, shall cover the entire Premises, including sidewalks and
parking lot areas within the Premises, and shall be issued by insurance
companies licensed to do business in Minnesota with a Best’s Insurance Rating
of A+V or better.  The policies shall
provide for at least thirty (30) days’ prior written notice to Landlord
and any mortgagees named therein, in the event of cancellation or any material
change.  Copies or certificates of the
policy or policies shall be delivered to Landlord prior to the commencement of
the Term and copies or certificates of renewal of the policy or policies shall
be delivered to Landlord no later than thirty (30) days prior to the
expiration date of the policy or policies then in force.

 

ARTICLE 17

 

DEFAULT OF TENANT/LANDLORD:

 

a.             In the event
of any failure of Tenant to pay any rental due hereunder within ten (10)
days of when due, or any failure to perform any other terms, conditions or
covenants of this Lease to be observed or performed by Tenant for more than
thirty (30) days after written notice of such failure shall have been
given to Tenant (or such longer period as may be reasonably required if such
failure is not reasonably capable of being cured within thirty (30) days
so long as Tenant is diligently and in good faith proceeding to cure the same),
or any report required to be furnished to Landlord pursuant to the terms of
this Lease is false or misleading in any material respect, or if Tenant shall
become bankrupt or insolvent or file any debtor proceedings or any person shall
take or have against Tenant in any court pursuant to any statute either of the
United States or of any state a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of Tenant’s property and such proceeding is not dismissed within
sixty (60) days of filing, or if Tenant makes an assignment for the
benefit of creditors, or petitions for or enters into an arrangement, or if
Tenant shall suffer this Lease to be taken under any writ of execution, then in
any such event Tenant shall be in default hereunder, and Landlord, in addition
to their rights of remedies it may have, shall have the right to reenter the
property in accordance with applicable law and remove all persons and property
from the Premises and such property may be removed and stored in a public
warehouse or elsewhere at the cost of, and for the account of Tenant, all
without being guilty of 

 

15

 

trespass or becoming liable for any
loss or damage which may be occasioned thereby.

 

b.             Should
Landlord elect to re-enter the Demised Premises as herein provided, or should
it take possession of the Premises pursuant to legal proceedings or pursuant to
any notice provided for by law, it may either terminate this Lease or it may
from time to time, without terminating this Lease, make such reasonable
alterations and repairs as may be required in order to relet the Premises and
relet the Premises or any part thereof upon such term or terms (which may be
for a term extending beyond the term of this Lease) and at such rental or
rentals and upon such other terms and conditions as Landlord in its reasonable
business discretion may deem advisable. 
Upon each such subletting all rentals received by the Landlord from such
reletting shall be applied 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 reletting, including reasonable brokerage fees and
reasonable attorney’s fees and reasonable out-of-pocket costs of such
alterations and repairs; third, to the payment of the rent due and unpaid
payment of future rent as the same may become due and payable hereunder.  If such rentals received from such reletting during
any month is less than that to be paid during that month by Tenant hereunder,
Tenant, upon demand, shall pay any such deficiency to Landlord.  No such re-entry or taking possession of the
Premises by Landlord shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention be given to Tenant, or
unless the termination thereof be decreed by a court of competent
jurisdiction.  Notwithstanding any such
reletting without termination, Landlord may at any time after such re-entry and
reletting elect to terminate this Lease for any such breach.  In addition to any other remedies it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the Premises, reasonable attorney’s
fees, and including, upon termination hereof, the present worth at the time of
such termination of the excess, if any, of the amount of rent and charges
equivalent to rent reserved in this Lease for the remainder of the stated term
over the then reasonable rental value of the Premises for the remainder of the
stated term, all of which amounts shall be immediately due and payable from
Tenant to Landlord.

 

c.             Landlord
may, at its option, instead of exercising any other rights or remedies
available to it in this Lease or otherwise by law, statute or equity, spend
such money as is reasonably necessary to cure any default of Tenant herein and
the amount so spent and costs incurred, including attorney’s fees, in curing
such default, shall be paid by Tenant as Additional Rent upon demand.

 

d.             In the event
suit shall be brought for recovery of possession of the Premises, for the
recovery of rent or any other amount due under the provisions of this Lease, or
because of the breach of any other covenant herein contained on the part of
Tenant to be kept or performed and a judgment is entered in favor of Landlord,
Tenant shall pay to Landlord all expenses incurred therefor, including
reasonable 

 

16

 

attorney’s fees, together with
interest on all such expenses at the rate of twelve percent (12%) per annum
from the date incurred to the date paid.

 

e.             Tenant
hereby expressly waives any and all rights of redemption granted by or under
any present or future laws in the event of Tenant being evicted or dispossessed
for any cause, or in the event of Landlord obtaining possession of the Premises
by reason of the violation by Tenant of any of the covenants or conditions of
this Lease, or otherwise.  Tenant also
waives any demand for possession of the Premises and any demand for payment of
rent and any notice of intent to re-enter the Premises, or of intent to
terminate this Lease, other than the notices above provided in this Article,
and waives any and every other notice or demand prescribed by any applicable
statutes or laws.

 

f.              Should
Landlord be in default under its obligations under this Lease, Landlord shall
have reasonable and adequate time in which to cure the same after written
notice to Landlord by Tenant, provided Landlord, within thirty (30) days
after receipt of such notice from Tenant, diligently and in good faith
commences, and thereafter continues, to cure such default.

 

If
Landlord defaults in the performance of any of its covenants hereunder beyond
any applicable notice and/or cure period, Tenant may, but without obligation,
cure the default and bring an action to recover the reasonable costs and
related expenses thereof together with interest thereon from the date of
advance by Tenant at the rate of twelve percent (12%) per annum; provided,
however, in no event shall Tenant have right to deduct or set off the amount
thereof against the Base Rent, Additional Rent or any other charges to be paid
by Tenant hereunder.

 

g.             No remedy
herein or elsewhere in this Lease or otherwise by law, statute or equity,
conferred upon or reserved to Landlord or Tenant shall be exclusive of any
other remedy, but shall be cumulative and may be exercised from time to time
and as often as the occasion may arise.

 

ARTICLE 18

 

COVENANTS TO HOLD HARMLESS:

 

Tenant
shall hold harmless Landlord from any liability for damages resulting from a
breach by Tenant of its obligations under this Lease and, except to the extent
the liability for damage or loss is caused by the negligence or willful
misconduct of Landlord, its agents or employees, from any liability for damages
to any person or property in or upon the Premises and the Premises, including
the person and the property of Tenant and its employees and all persons in the
Building at its or their invitation or sufferance, and from all damages
resulting from Tenant’s failure to perform the covenants of this Lease.  All property kept, maintained or stored on
the Premises shall be so kept, maintained or stored at the sole risk of
Tenant.  Tenant agrees to pay all sums of
money in respect of any labor, service, materials, supplies or equipment
furnished or alleged to have been furnished to Tenant in or about the Premises,
and not furnished on order of Landlord, which may be secured by any Mechanic’s,
Materialmen’s or other lien to

 

17

 

be discharged at the time performance
of any obligation secured thereby matures, provided that Tenant may contest
such lien, but if such lien is reduced to final judgment and if such judgment
or process thereon is not stayed, or if stayed and said stay expires, then and
in each such event, Tenant shall forthwith pay and discharge said
judgment.  Landlord shall have the right
to post and maintain on the Premises notices of non-responsibility under the
laws of the State of Minnesota.

 

Landlord
shall hold Tenant harmless from any liability for damages resulting from a
breach by Landlord of its obligations under this Lease, including but not
limited to, failure to repair, and for any damage or loss which is caused by
the negligence or willful misconduct of Landlord, its agents or employees.

 

ARTICLE 19

 

NON-LIABILITY:

 

Subject
to the terms and conditions of this Lease, including Articles 7, 15 and 18
hereof, Landlord shall not be liable for damage to any property of Tenant or of
others located on the Premises, nor for the loss of or damage to any property
of Tenant or of others by theft or otherwise. 
Except to the extent caused by the negligence or willful misconduct of
Landlord, its agents or employees, or Landlord’s failure to perform its repair
obligations hereunder following notice, Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water, rain or snow, or leaks from any part
of the Premises or from the pipes, appliances, or plumbing works, or from the
roof, street or subsurface or from any other place or by dampness or by any such
damage caused by persons in the Premises, occupants of adjacent property, of
the buildings, or the public, or caused by operations in construction of any
private, public or quasi-public work. 
Landlord shall not be liable for any latent or patent defects in the
Premises.  All property of Tenant kept or
stored on the Premises shall be so kept or stored at the risk of Tenant only
and Tenant shall hold Landlord harmless from any claims arising out of damage
to the same, including subrogation claims by Tenant’s insurance carrier.

 

ARTICLE 20

 

SUBORDINATION:

 

This
Lease shall be subordinated to any mortgages that may now exist or that may
hereafter be placed upon the Premises and to any and all advances made
thereunder, and to the interest upon the indebtedness evidenced by such
mortgages, and to all renewals, replacements and extensions thereof.  Landlord acknowledges that the Premises are
currently subject to a mortgage with Farm Bureau Life Insurance Company of
Michigan.  Landlord shall use reasonable
efforts to obtain a Subordination, Nondisturbance and Attornment (SNDA)
Agreement executed on behalf of Landlord, Tenant and such mortgagee in form and
substance reasonably acceptable to Tenant. 
In the event of execution by Landlord after the date of this Lease of
any such mortgage, renewal, replacement or extension, Tenant agrees to execute
a subordination agreement with the holder thereof which agreement shall provide
that:

 

18

 

a.             Such holder
shall not disturb the possession and other rights of Tenant under this Lease so
long as Tenant is not in default hereunder,

 

b.             In the event
of acquisition of title to the Premises by such holder, such holder shall
accept the Tenant as Tenant of the Premises under the terms and conditions of
this Lease and shall perform all the obligations of Landlord hereunder, and

 

c.             The Tenant
shall recognize such holder as Landlord hereunder.

 

Tenant
shall, within fifteen (15) days following receipt of a written request
from Landlord therefor, execute and deliver to Landlord or to any proposed
holder of a mortgage or trust deed, or to any proposed purchaser of the
Premises, a certificate in recordable form, certifying that this Lease is in
full force and effect, and that there are no offsets against rent nor known
defenses to Tenant’s performance under this Lease, or setting forth any such
offsets or defenses claimed by Tenant as the case may be.

 

ARTICLE 21

 

ASSIGNMENT OR SUBLETTING:

 

Tenant
agrees to use and occupy the Premises throughout the entire term hereof for no
purpose or purposes other than those herein specified in the manner and to
substantially the extent now intended, and, except as otherwise expressly
provided in this Article with respect to Affiliates (as defined herein), not to
transfer or assign this Lease or sublet said Premises, or any part thereof
whether by voluntary act, operation of law, or otherwise, without obtaining the
prior written consent of Landlord in each instance.  Tenant shall seek such consent of Landlord by
a written request therefor, setting forth such information as Landlord may deem
reasonably necessary.  Landlord agrees
not to withhold or delay consent unreasonably. 
Landlord shall not be deemed to be acting unreasonably if its mortgagee
has a right to provide or withhold consent and refuses to consent.  Consent by Landlord to any assignment of this
Lease or to any subletting of the Premises shall not be a waiver of Landlord’s
rights under this Article as to any subsequent assignment or subletting.  Landlord’s rights to assign this Lease are
and shall remain unqualified.  No such
assignment or subleasing shall relieve the Tenant from any of Tenant’s
obligations in this Lease contained, nor shall any assignment or sublease or
other transfer of this Lease be effective unless the assignee, subtenant or
transferee, shall at the time of such assignment, sublease or transfer, assume
in writing for the benefit of Landlord, its successors or assigns, all of the
terms, covenants and conditions of this Lease thereafter to be performed by
Tenant and shall agree in writing to be bound thereby.  Should Tenant assign or sublease in
accordance with the terms of this Lease to a non-affiliate third party, fifty
percent (50%) of the excess of any subrent or assignment consideration received
by Tenant over the Base Rent payable by Tenant under this Lease (after Tenant
has recouped its costs and expenses of obtaining such subtenant or assignee)
shall be forwarded to and retained by Landlord, which increase shall be in
addition to the Base Rent and Additional Rent due Landlord under this Lease.

 

If Tenant
is a corporation (other than a corporation whose shares are publicly traded), a
limited liability entity, or a partnership, any transfer or series of transfers
of the ownership 

 

19

 

interests of Tenant which results in
more than 50% of such interests being held other than as held on the date of
this Lease shall be deemed an assignment of this Lease which shall require
Landlord’s consent, which consent shall not be unreasonably withheld.

 

ARTICLE 22

 

ATTORNMENT:

 

In the
event of a sale or assignment of Landlord’s interest in the Premises or the
Building in which the Premises are located, or this Lease, or if the Premises
come into custody or possession of a mortgagee or any other party whether
because of a mortgage foreclosure, or otherwise, Tenant shall attorn to such
assignee or other party and recognize such party as Landlord hereunder;
provided, however, Tenant’s peaceable possession will not be disturbed so long
as Tenant faithfully performs its obligations under this Lease.  Tenant shall execute, on demand, any
attornment agreement required by any such party to be executed, containing such
provisions and such other provisions as such party may require.

 

ARTICLE 23

 

NOVATION IN THE EVENT OF SALE:

 

In the
event of the sale of the Premises, Landlord shall be and hereby is relieved of
all of the covenants and obligations created hereby accruing from and after the
date of sale, and such sale shall result automatically in the purchaser
assuming and agreeing to carry out all the covenants and obligations of
Landlord herein.  Notwithstanding the
foregoing provisions of this Article, Landlord, in the event of a sale of the
Premises, shall cause to be included in the agreement of sale and purchase a
covenant whereby the purchaser of the Premises assumes and agrees to carry out
all of the covenants and obligations of Landlord herein.

 

The
Tenant agrees at any time and from time to time upon not less than
thirty (30) days prior written request by the Landlord to execute,
acknowledge and deliver to the Landlord a statement in writing certifying that
this Lease is unmodified and in full force and effect or in full force and
effect as modified and stating the modifications; that Landlord is not, to
Tenant’s knowledge, in default hereunder or specifically stating any alleged
defaults; the amount of the Base Rent and the dates through which the Base Rent
and Additional Rent items have been paid; and certifying to such other matters
as Landlord may reasonably request. 
Landlord and any such other party to whom the certificate is addressed
shall have the right to rely on such certificate.

 

ARTICLE 24

 

SUCCESSORS AND ASSIGNS:

 

The
terms, covenants and conditions hereof shall be binding upon and inure to the
successors and assigns of the parties hereto.

 

20

 

ARTICLE 25

 

REMOVAL OF FIXTURES:

 

At the
end of the Term and in accordance with Article 29, Tenant will promptly
remove at the sole cost and expense of Tenant all fixtures and equipment
installed by Tenant simultaneously with vacating the Premises and Tenant will
promptly repair any damage caused by such installation or removal at the sole
cost and expense of Tenant.

 

ARTICLE 26

 

QUIET ENJOYMENT:

 

Landlord
warrants that it has full right to execute and to perform this Lease and to
grant the estate demised, and that Landlord shall defend Tenant’s right, upon
payment of the rents and other amounts due and the performance of all the
terms, conditions, covenant and agreements on Tenant’s part to be observed and
performed under this Lease, to peaceably and quietly enjoy the Premises for the
uses permitted hereunder, subject, nevertheless, to the terms and conditions of
this Lease.

 

ARTICLE 27

 

RECORDING:

 

Upon the
request of Landlord or Tenant, the other party shall join in the execution of
the Memorandum lease for the purposes of recordation.  Said Memorandum lease shall describe the
parties, the Premises and the term of the Lease and shall incorporate this
Lease by reference.  The cost of
recording shall be borne by the party requesting same.

 

ARTICLE 28

 

OVERDUE PAYMENTS:

 

All
monies due under this Lease from Tenant to Landlord shall be due within
ten (10) days following receipt of an invoice therefor, except for Base
Rent which shall be due on or before the first day of each month in advance
without notice and if not paid within five (5) business days of when due
on more than one (1) occasions in any twelve (12) month period, shall
result in the imposition of a service charge for such subsequent late payment
in the same twelve (12) month period in the amount of twelve percent (12%)
of the amount due.

 

ARTICLE 29

 

SURRENDER:

 

On the
Expiration Date or upon the termination hereof upon a day other than the
Expiration Date, Tenant shall peaceably surrender the Premises broom-clean in
good order, condition and repair, reasonable wear and tear, fire and other
insured casualty and Acts of God excepted. 
On or before the Expiration Date or upon termination of this Lease on a
day other than 

 

21

 

the Expiration Date, Tenant shall, at
its expense, remove all trade fixtures, personal property and equipment and
signs from the Premises and any property not removed shall be deemed to have
been abandoned.  Any damage caused in the
removal of such items shall be repaired by Tenant, at its expense.  All alterations, additions, improvements and
fixtures (other than trade fixtures, computer equipment, personal property and
business equipment) which shall have been made or installed by Landlord or
Tenant upon the Premises and all floor covering so installed shall remain upon
and be surrendered with the Premises as a part thereof, without disturbance,
molestation or injury, and without charge, at the expiration or termination of
this Lease.  If the Premises is not
surrendered on the Expiration Date or the date of termination, Tenant shall
indemnify Landlord against loss or liability, claims, without limitation, made
by any succeeding Tenant founded on such delay. 
Tenant shall promptly surrender all keys for the Premises to Landlord at
the place then fixed for payment of rent and shall inform Landlord of
combinations of any locks and safes on the Premises.

 

ARTICLE 30

 

HOLDING OVER:

 

In the
event of a holding over by Tenant after expiration or termination of this Lease
without the consent in writing of Landlord, Tenant shall be deemed a Tenant at
sufferance and shall pay rent for such occupancy at the rate of one hundred
fifty percent (150%) of the last-current aggregate Base and Additional Rent,
prorated for the entire holdover period, plus all attorney’s fees and expenses
incurred by Landlord in enforcing its rights hereunder, plus any other damages
occasioned by such holding over.  Except
as otherwise agreed in writing, any holding over with the written consent of
Landlord shall constitute a month-to-month tenancy.

 

ARTICLE 31

 

CONSENTS BY LANDLORD:

 

Whenever
a provision is made under this Lease for securing the consent or approval by
Landlord or Tenant, such consent or approval shall only be in writing and shall
not be unreasonably withheld or delayed.

 

ARTICLE 32

 

NOTICES:

 

All
notices to be given in connection with this Lease shall be in writing and
delivered personally, sent by facsimile or sent by a nationally recognized
overnight courier service or registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:

 

	
  If to Tenant:

  	
   

  	
  MathStar, Inc.

  
	
   

  	
   

  	
  5900 Green Oak Drive

  
	
   

  	
   

  	
  Minnetonka, MN 55343

  
	
   

  	
   

  	
  Attn: Bryon Bequette

  

 

22

 

	
  with a copy to:

  	
   

  	
  Winthrop & Weinstine, P.A.

  
	
   

  	
   

  	
  3000 Dain Rauscher Plaza

  
	
   

  	
   

  	
  60 South Sixth Street

  
	
   

  	
   

  	
  Minneapolis, MN 55402

  
	
   

  	
   

  	
  Attn: James W. Dierking

  
	
   

  	
   

  	
   

  
	
  If to Landlord:

  	
   

  	
  Green Oak Associates

  
	
   

  	
   

  	
  6125 Blue Circle Drive

  
	
   

  	
   

  	
  Minnetonka, Minnesota 55343

  
	
   

  	
   

  	
  Attention: Cyrille E. DeCosse

  
	
   

  	
   

  	
  Facsimile: 952-933-9089

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Gray, Plant, Mooty, Mooty &
  Bennett, P.A.

  
	
   

  	
   

  	
  3400 City Center

  
	
   

  	
   

  	
  33 South Sixth Street

  
	
   

  	
   

  	
  Minneapolis, Minnesota 55402

  
	
   

  	
   

  	
  Attention: Laura J. Schoenbauer

  
	
   

  	
   

  	
  Facsimile: 612-333-0066

  

 

Notice sent by personal delivery shall
be deemed given when received by the parties set forth above or by an
authorized agent at the addresses set forth above, as evidenced by signed
delivery receipt.  Notices sent by
courier shall be deemed to have been given to the party to whom it is sent on
the date the same is received or rejected as evidenced by the receipt of a
nationally recognized overnight courier showing delivery or attempted delivery
for next day service to such party at its then current address for the giving
of notices.  Notices sent by facsimile
shall be deemed to have been given on the date transmitted and received as
evidenced by facsimile confirmation of successful transmission.  Notices sent by mail shall be deemed to have
been given to or served upon the party to whom it is addressed on the date the
same is received or rejected, as evidenced by return receipt, if sent in the
United States registered or certified mail, return receipt requested, postage
prepaid, properly addressed in the manner above provided.  Either party hereto may change such party’s
address for the service of notice hereunder by written notice of said change to
the other party hereto, in the manner above specified.

 

ARTICLE 33

 

FINANCIAL STATEMENTS:

 

Within
fifteen (15) days after the receipt of a written request by Landlord, from
time to time, Tenant shall deliver to Landlord a complete copy of audited
financial statements for Tenant prepared in accordance with generally accepted
principles of accounting consistently applied, for its then two (2) most
recent fiscal years, including, but not limited to, its balance sheet,
statement of income, notes to its financial statements, and the certification
of its auditor as to the same.  Landlord
shall receive and maintain all such financial statements in strict confidence,
provided Landlord shall have the right to deliver such financial statements to
prospective buyers and lenders of the Property.

 

23

 

ARTICLE 34

 

INTENT OF PARTIES:

 

Subject
to the terms of Section 4 hereof, Tenant acknowledges and agrees that Base
Rent shall be absolutely net to Landlord so that this Lease shall yield net to
Landlord the Base Rent specified in Article III in each year of the term
and that except as expressly provided in this Lease, all Real Estate Taxes,
insurance premiums, utility charges, maintenance, repair and replacement
expenses, all expenses related to compliance with laws, and all other costs,
fees, charges, expenses, reimbursements and obligations of every kind and
nature whatsoever relating to the Premises which may arise or become due during
the term or by reason of events occurring during the term shall be paid or
discharged by Tenant as Additional Rent without previous demand therefor and
without any right of setoff or deduction whatsoever, as additional rent.

 

ARTICLE 35

 

GENERAL:

 

a.             The Lease
does not create the relationship of principal agent or of partnership or of
joint venture or of any association between Landlord and Tenant, the sole
relationship between the parties hereto being that of Landlord and Tenant.

 

No waiver
of any default of Tenant or Landlord hereunder shall be implied from any
omission by the other party to take any action on account of such default if
such default persists or is repeated, and no express waiver shall affect any
default other than the default specified in the express waiver and that only
for the time and to the extent therein stated. 
One or more waivers by Landlord or Tenant shall not then be construed as
a waiver of a subsequent breach of the same covenant, term or condition.  The consent to or approval by Landlord or
Tenant of any act requiring consent or approval shall not waive or render
unnecessary Landlord’s or Tenant’s consent to or approval of any subsequent
similar act by the other party shall be construed to be both a covenant and a
condition.  No action required or
permitted to be taken by or on behalf of Landlord under the terms or provisions
of this Lease shall be deemed to constitute an eviction or disturbance of
Tenant’s possession of the Premises.  All
preliminary negotiations are merged into and incorporated in this Lease.  The laws of the State of Minnesota shall
govern the validity, performance and enforcement of this Lease.

 

b.             This Lease
and the Exhibits attached hereto and forming a part hereof, constitute the
entire agreement between Landlord and Tenant affecting the Premises.  Any other agreements, subsequent alterations,
amendments, changes or additions to this Lease shall be binding upon Landlord
and Tenant only when reduced to writing and executed by the parties.

 

c.             If any
agreement, covenant or condition of this Lease or the application thereof to
any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such agreement, covenant or
condition to persons or circumstances other than those as to which it is held 

 

24

 

invalid or unenforceable, shall not be
affected thereby and each agreement, covenant or condition of this Lease shall
be valid and be enforced to the fullest extent permitted by law.

 

d.             Time is of
the essence of this Lease and in the performance of all of the agreements
contained herein.

 

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

 

f.              The
headings contained herein are for convenience only, and are not a part of this
Lease.

 

g.             The parties
agree that the provisions of this Lease have been negotiated between them and
that no provision hereof shall be construed against either Landlord or Tenant
as a result of its having drafted it.

 

ARTICLE 36

 

COMPLIANCE WITH LAWS,

HAZARDOUS MATERIAL:

 

a.             Tenant
covenants through the Lease Term, at Tenant’s sole cost and expense, promptly
to comply with all laws and ordinances and the orders, rules and regulations
and requirements of all federal, state and municipal governments and
appropriate departments, commission, boards, and officers thereof, and the
orders, rules and regulations of the Board of Fire Underwriters where the
Premises are situated, or any other body now or hereafter having jurisdiction over
the Premises, whether or not the same require structural repairs or
alterations, which may be applicable to the materials introduced into the
Premises by Tenant, or arising out of Tenant’s use or manner of use of the
Premises.  Tenant will likewise observe
and comply with the requirements of all policies of public liability, fire and
all other policies of insurance at any time in force with respect to the
building and improvements on the Premises and the equipment thereof.

 

b.             In the event
any Hazardous Material (as hereinafter defined) is brought or caused to be
brought into or onto, the Building or the Premises by Tenant, Tenant shall
handle any such material in compliance with all applicable federal, state
and/or local regulations.  For purposes
of this Article, “Hazardous Material” means and includes any hazardous, toxic
or dangerous waste, substance or material defined as such in (or for purposes
of) the Comprehensive Environmental Response, Compensation, and Liability Act,
any so-called “Superfund” or “Superlien” law, or any federal, state or local
statute, law, ordinance, code, rule, regulation, order decree regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or materials, as now or at any
time hereafter in effect.  Tenant shall
submit to Landlord on an annual basis copies of its approved hazardous
materials communication plan, OSHA monitoring plan, and permits required by the
Resource Recovery and 

 

25

 

Conservation Act of 1976, if Tenant is
required to prepare, file or obtain any such plans or permits.  Tenant will indemnify and hold harmless
Landlord from any losses, liabilities, damages, costs or expenses (including
reasonable attorneys’ fees) which Landlord may suffer or incur as a result of
Tenant’s introduction into or onto the Building or Premises of any Hazardous
Material.  This Article shall survive the
expiration or sooner termination of this Lease.

 

c.             Landlord represents
that to its actual knowledge without having made any investigation, that no
asbestos or other Hazardous Materials are unlawfully located on the Premises as
of the date hereof.  Landlord will
indemnify and hold harmless Tenant from any losses, liabilities, damages, costs
or expenses (including reasonable attorneys’ fees) which Tenant may suffer or
incur as a result of the presence as of the date hereof of any Hazardous
Materials in the Building or the Premises, in violation of current laws.

 

d.             This Article
shall survive the expiration or sooner termination of this Lease.

 

ARTICLE 37

 

CAPTIONS:

 

The
captions are inserted only as a matter of convenience and for reference, and in
no way define, limit or describe the scope of this Lease nor the intent or any
provision thereof.

 

ARTICLE 38

 

ATTACHMENTS:

 

See
Exhibits A - D which are attached hereto and made a part hereof.

 

	
  Exhibit

  	
   

  	
  Description

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Legal Description

  
	
  Exhibit B

  	
   

  	
  Description of Phase Two Premises
  and Phase Three Premises

  
	
  Exhibit C

  	
   

  	
  Description of Initial Tenant
  Improvements

  
	
  Exhibit D

  	
   

  	
  Protective Covenants

  

 

ARTICLE 39

 

SUBMISSION:

 

Submission
of this instrument to Tenant or proposed Tenant or his agents or attorneys for
examination, review, consideration or signature does not constitute or imply an
offer to lease reservation of space, or option to lease, and this instrument
shall have no binding legal effect until execution hereof by both
Landlord/Owner and Tenant or its agents.

 

26

 

ARTICLE 40

 

REPRESENTATION:

 

It is
agreed that United Properties and Dan Wicker (“collectively “Landlord’s Broker”)
are representing Landlord in connection with this Lease, and Welsh Companies
and Bill Ritter (collectively “Tenant’s Broker”) are representing Tenant in
connection with this Lease.  Landlord
shall pay any fee or commission due Landlord’s Broker pursuant to a separate
agreement between them.  Landlord also
will pay a commission of $3.00 per square foot to Tenant’s Broker, due and
payable as follows:

 

	
  $

  	
  30,000.00

  	
   

  	
  Upon execution of the Lease

  
	
   

  	
   

  	
   

  
	
  $

  	
  30,000.00

  	
   

  	
  On the Commencement Date for the
  Phase One Premises and payment of rent for said Premises

  
	
   

  	
   

  	
   

  
	
  $

  	
  30,000.00

  	
   

  	
  On the Commencement Date for the
  Phase Two Premises and payment of rent for said Premises

  
	
   

  	
   

  	
   

  
	
  $

  	
  30,000.00

  	
   

  	
  On the Commencement Date for the
  Phase Three Premises and payment of rent for said Premises

  
	
   

  	
   

  	
   

  
	
  $

  	
  60,000.00

  	
   

  	
  On the Commencement Date for the
  Phase Four Premises by Tenant and payment of rent for said Premises

  

 

Landlord agrees that upon occupancy of
the Phase One Premises by Tenant, Landlord agrees to deposit the remaining
commission due hereunder to Tenant’s Broker into an escrow account, which
amount shall be paid to Tenant’s Broker as provided above.

 

Landlord
agrees to indemnify Tenant against and hold it harmless from, all liabilities
arising from any claim for a fee or commission by Landlord’s Broker, Tenant’s
Broker, or any other agent or broker (including, without limitation, court
costs and reasonable counsel fees in connection therewith) arising out of
Landlord’s acts.  Tenant agrees to
indemnify Landlord against and hold it harmless from, all liabilities arising
from any claim for a fee or commission by Tenant’s Broker (other than with
respect to the amount payable by Landlord as provided in the immediately
preceding paragraph) or any other agent or broker (including, without
limitation, court costs and reasonable counsel fees in connection therewith)
arising out of Tenant’s acts.

 

ARTICLE 41

 

CONDITION OF PREMISES:

 

Tenant
acknowledges that it has made all inspections of and investigations with
respect to the Premises as it desires and except for Landlord’s obligations
hereunder, is leasing the Premises in their “as is” condition “with all faults”
on the date hereof, without any representation or warranty by or on behalf of
Landlord as to the condition of the Premises or their fitness for any
particular use.

 

27

 

ARTICLE 42

 

EXTENSION OPTIONS:

 

Tenant
shall have the right to extend the term of this Lease for two (2)
additional terms of three (3) years each (each such 3-year period, an “Option
Term”) by giving written notice of such extension to Landlord not more than
two (2) years nor less than nine (9) months days prior to the expiration of the Initial
Term or the first Option Term, as applicable, of this Lease, time being of the
essence hereof; provided that, at the date of expiration of the Initial Term
this Lease shall be in full force and effect and no material or monetary
default by Tenant shall exist after expiration of the applicable cure period
following notice.  If Tenant shall give
notice to Landlord of its election to extend the term of this Lease for an
Option Term but a material or monetary default (after written notice and
expiration of applicable cure period) shall exist on the date of the expiration
of the Initial Term or the first Option Term, as applicable, Landlord, at its
option, may extend the term of this Lease for the applicable Option Term.  The Lease for each Option Term shall be on
the same terms, covenants and conditions contained in this Lease except that
the Base Rent for each Option Term shall be equal to the Market Rent for the
Premises determined as of the commencement of the applicable Option Term.

 

Within
thirty (30) days after receipt by Landlord of Tenant’s notice exercising
Tenant’s right to extend the term of this Lease for the Option Term, as
provided above, Landlord shall give Tenant notice of Landlord’s determination
of the Market Rent (as herein defined) for the Premises.  If Tenant disagrees with Landlord’s
determination of the Market Rent for the Premises, Tenant shall give notice to
Landlord within thirty (30) days after the date of Landlord’s notice, time
being of the essence.  Upon receipt of
such notice, Landlord and Tenant shall for a period of thirty (30) days or
such longer period on which Landlord and Tenant may agree (the “Negotiation
Period”) negotiate in good faith in an attempt to reach agreement upon the
Market Rent for the Premises.  If at the
end of the Negotiation Period, Landlord and Tenant are unable to agree upon the
Market Rent for the Premises, then the Market Rent for the applicable Option
Term shall be determined by appraisal, made by a Board consisting of three reputable
real estate appraisers, each of whom shall be a Member of the American
Institute of Real Estate Appraisers with the designation of “MAI,” shall be
experienced in the appraisal of commercial real estate in Hennepin County,
Minnesota, and shall have no Disqualifying Interest (as defined herein).  One appraiser shall be appointed by Landlord
or its representative and one appraiser shall be appointed by Tenant or its
representative.  The third appraiser
shall be appointed by the first two appraisers. 
If the first two appraisers are unable to agree on a third appraiser
within thirty (30) days after the appointment of the second appraiser, or
if either party refuses or neglects to appoint an appraiser as herein provided
within twenty (20) days after the appointment of the first appraiser, then
such third appraiser or such second appraiser whose appointment was not made as
aforesaid shall be appointed by the then President of the Minnesota chapter of
the American Institute of Real Estate Appraisers or such successor body
hereafter constituted exercising similar functions, unless such President shall
have a direct or indirect financial or other business interest in or in common
with any of the parties hereto (a “Disqualifying Interest”), in which case the
third appraiser or such other appraiser whose appointment was not made as
aforesaid shall be appointed by the then next highest ranking officer of the
Minnesota chapter of the American Institute of Real Estate Appraisers or such
successor body who shall not have a disqualifying interest.  If the Market Rent determination of 

 

28

 

at least two of the appraisers shall
be identical in amount, that amount shall be final and binding on both Landlord
and Tenant.  If the determinations of all
three appraisers shall be different, the Market Rent shall be the average of
the two determinations which are closest to each other.

 

If the
Market Rent for the Leased Premises for the Option Term has not been agreed to
by Landlord and Tenant or determined by the Board as hereinabove provided by
the expiration of the Initial Term or immediately prior Option Term, as
applicable, pending resolution of such dispute, Annual Base Rent during the
period the dispute remains unresolved shall be payable as set forth in Landlord’s
notice.  Within fourteen (14) days
after resolution of such dispute, the amounts paid by Tenant shall be adjusted
by payment to the appropriate party such that all amounts paid equal amounts
properly due as determined by the Board. 
Landlord and Tenant shall each act promptly and diligently in causing
determinations to be made under this Article. 
Landlord and Tenant shall share equally the costs and expenses of the
Board.  For purposes of this Lease the
term “Market Rent” means the annual amount of rent determined as of the
commencement of the Option Term, exclusive of operating costs and other items
of additional rent, that a willing tenant would pay and a willing landlord
would accept in “as is - where is” condition, assuming a lease containing the
same terms and conditions as those contained in this Lease, taking into account
that Landlord will not be providing any leasehold improvements or paying any
leasing commissions and that Tenant will not be paying any leasing commissions
or incurring any relocation expenses. 
The rights of Tenant under this Article shall not be severed from this
Lease or separately sold, assigned or otherwise transferred, and shall expire
not later than the expiration or earlier termination of this Lease.

 

If Tenant
exercises the Option Term, Landlord agrees to pay a tenant improvement
allowance to Tenant for improvements to the Premises in the amount equal to
$15.00 per rentable square foot of the Premises minus the amount of the tenant
improvement allowance previously paid to Tenant under Article 9
hereof.  Such tenant improvement
allowance shall be paid pursuant to Exhibit C attached hereto and
incorporated herein.

 

ARTICLE 43

 

CONTINGENCY:

 

This
lease is contingent on Landlord obtaining the termination, effective a date no
later than December 20, 2001, and otherwise on terms and conditions
acceptable to Landlord in its sole discretion, of the existing lease (“Existing
Lease”) covering the Premises between it and Creative Publishing International,
Inc. (“CPI”) and the existing subleases (“Existing Subleases”) between CPI and
Lightning Rod Software (“LRS”) and LRS and Dialogic, Inc.  If termination of either the Existing Lease
or the Existing Subleases has not been obtained on or before such date, this
Lease shall terminate and neither Landlord nor Tenant shall have further rights
or obligations hereunder.

 

29

 

IN WITNESS WHEREOF, the Landlord and
the Tenant have caused these presents to be executed in form and manner
sufficient to bind them at law, as of the day and year first above written.

 

	
  Tenant:

  	
   

  	
  Landlord:

  
	
   

  	
   

  	
   

  
	
  MATHSTAR, INC.,

  	
   

  	
  GREEN OAK
  ASSOCIATES,

  
	
  a Minnesota
  corporation

  	
   

  	
  a Minnesota general
  partnership

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/Bryon Bequette

  	
   

  	
  By:

  	
  /s/ Cyrill DeCosse

  	
   

  
	
   

  	
  Its:

  	
  Chief Financial Officer

  	
   

  	
   

  	
  Its: General Partner

  
							

 

30

 

EXHIBIT A

 

Legal
Description

 

Hennepin County, Minnesota:

 

That part of Lot 3, Block 14, Opus 2
Fourth Addition, according to the recorded plat thereof, lying Northerly of the
following described line: Beginning at a point on that particular West line of
said Lot 3 having a record dimension of 755.05 feet, distant 725.05 feet
Southerly from the Northwest corner of said Lot 3; thence Easterly, parallel
with the North line of said Lot 3, a distance of 460.46 feet to the Easterly
line of said Lot 3 and there terminating; EXCEPT the South 0.48 feet of the
above described property.

 

A-1

 

EXHIBIT B

 

Description
of Phase Two Premises and Phase Three Premises

 

Second Floor, 5900 Green Oak Drive, Minnetonka, MN [Floor
Plan]

 

 

 

B-1

 

EXHIBIT C

 

WORK AGREEMENT

 

THIS
AGREEMENT (the “Agreement”) made as of the       day
of December, 2001, between Green Oak Associates, a Minnesota general
partnership (“Landlord”), and Mathstar, Inc., a Minnesota corporation (“Tenant”).  The parties hereby acknowledge that they are
parties to that certain Lease Agreement dated December     ,
2001 (the “Lease”).

 

1.             The Work.  Under the Lease, Tenant has agreed to accept
the Premises “as is,” without any obligations for the performance of
improvements or other work by Landlord, and Tenant desires to perform certain
improvements thereto (the “Work”).  Such
Work shall be in accordance with the provisions of this Agreement, and to the
extent not expressly inconsistent herewith, in accordance with the provisions
of the Lease.  Performance of the Work
shall not serve to abate or extend the time for the commencement of Rent under
the Lease.

 

2.             Cost of the Work.  Except as provided hereinafter,
Tenant shall pay all costs (the “Costs of the Work”) associated with the Work
whatsoever, including without limitation, all permits, inspection fees, fees of
space planners, architects, engineers, contractors and other consultants,
utility connections, the cost of all labor and materials, bonds, insurance, and
any structural or mechanical work, additional HVAC equipment or sprinkler heads,
or modifications to any building mechanical, electrical, plumbing or other
systems and equipment or relocation of any existing sprinkler heads, either
within or outside the Premises required as a result of the layout, design, or
construction of the Work.

 

Of the
Costs of the Work, Landlord shall reimburse Tenant the amount set forth in the
Lease (the “Improvement Allowance”).  The
Improvement Allowance shall be funded by Landlord within thirty (30) days
after the Work has been completed in accordance with the “Space Plan” and “Working
Drawings” approved by Landlord in writing in accordance with the provisions
hereof, and Tenant has submitted all invoices, lien waivers, affidavits of
payment, and such other evidence as Landlord may reasonably require showing
that the cost of the Work has been paid for and that no mechanic’s, materialmen’s
or other such liens have been or may be filed against the Property or the
Premises.

 

Notwithstanding
the foregoing, during construction of improvements on the Phase One Premises
and the Phase Two Premises, of the Cost of the Work, Landlord agrees to pay the
Improvement Allowance directly to the contractor after the Work has been
completed in accordance with the “Space Plan” and “Working Drawings” approved
by Landlord in writing in accordance with the provisions hereof, and Tenant has
submitted all invoices, lien waivers for any Costs of Work in excess of
Improvement Allowance, affidavits of payment for any Costs of Work in excess of
Improvement Allowance, and other evidence as Landlord may reasonably require
showing that the Cost of the Work has been paid for and that no mechanic’s,
materialmen’s or other liens have been or may be filed against the Property or
the Premises.

 

C-1

 

3.             Space Plan and Specifications.

 

A.            No later than ninety (90) days prior to the
commencement date for each phase, Tenant shall submit two (2) sets of a “Space
Plan” (as described in Section 16 of this Agreement) to Landlord for
approval.

 

B.            Landlord shall, within ten (10) days after receipt
thereof, either approve said Space Plan, or disapprove the same advising Tenant
in writing of the reasons for such disapproval. 
In the event Landlord disapproves said Space Plan, Tenant shall modify
the same, taking into account the reasons given by Landlord for said
disapproval, and shall submit two sets of the revised Space Plan to Landlord
within ten (10) days after receipt of Landlord’s initial disapproval.

 

4.             Working Drawings.

 

A.            No later than ten (10) days after receipt of
Landlord’s approval of the Space Plan, Tenant shall submit to Landlord for
approval two (2) sets of “Working Drawings” (as defined in Section 16
of this Agreement).

 

B.            Landlord shall, within ten (10) working days after
receipt thereof, either approve the Working Drawings or disapprove the same,
advising Tenant of the reasons for disapproval. 
If Landlord disapproves of the Working Drawings, Tenant shall modify and
submit revised Working Drawings, taking into account the reasons given by Landlord
for disapproval, within five (5) days after receipt of Landlord’s initial
disapproval.

 

5.             Landlord’s Approval.  Landlord shall not unreasonably
withhold approval of any Space Plans or Working Drawings submitted hereunder
(or changes thereto pursuant to Section 7 below) if they provide for a
customary office layout, with finishes and materials generally conforming to
building standard finishes and materials currently being used by Landlord at
the Property, are compatible with the Property’s shell and core construction,
and if no modifications will be required for the Property electrical, heating,
air-conditioning, ventilation, plumbing, fire protection, life safety, or other
systems or equipment, and will not require any structural modifications to the
Property, whether required by heavy loads or otherwise.

 

6.             Space Planners, Architects, Engineers.  The Space
Plan, Working Drawings, and the Work shall be prepared and performed by Jafvert
Mueller Architects, Inc. (for the Work to the Phase One Premises).  Landlord shall have the right to approve any
space planners, architects, or engineers which Tenant hires in connection with
any Work to the Phase Two Premises, Phase Three Premises, and Phase Four
Premises, which consent shall not be unreasonably withheld.

 

7.             Change Orders.  No material changes, modifications,
alterations or additions to the approved Space Plan or Working Drawings may be
made without the prior written consent of the Landlord after the written
request therefor by Tenant.  In the event
that the Premises are not constructed in accordance with said approved Space
Plan and Working Drawings, then Tenant shall not be permitted to occupy the
Premises until the Premises reasonably comply in all respects with said
approved Space Plan and Working Drawings; in such case, the Rent shall
nevertheless commence to accrue and be payable as otherwise provided in the
Amendment.

 

C-2

 

8.             Compliance.  Tenant’s Work shall comply in all respects
with the following: (a) the Building Code of the City and State in which
the Building is located and State, County, City or other laws, codes,
ordinances and regulations, as each may apply according to the rulings of the
controlling public official, agent or other such person, (b) applicable
standards of the National Board of Fire Underwriters and National Electrical
Code, and (c) building material manufacturer’s specifications.

 

9.             Guarantees.  Each contractor, subcontractor and supplier
participating in Tenant’s Work shall guarantee that the portion thereof for
which he is responsible shall be free from any defects in workmanship and
materials for a period of not less than one (1) year from the date of
completion thereof.  Every such
contractor, subcontractor and supplier shall be responsible for the replacement
or repair, without any additional charge, of all work done or furnished in
accordance with its contract which shall become defective within one (1)
year after completion thereof.  The
correction of such work shall include, without additional charge, all
additional expenses and damages in connection with such removal or replacement
of all or any part of Tenant’s Work and/or the Property and/or common areas, or
work which may be damaged or disturbed thereby. 
All such warranties or guarantees as to materials or workmanship of or
with respect to Tenant’s Work shall be contained in the contract or subcontract
which shall be written such that said warranties or guarantees shall inure to
the benefit of both Landlord and Tenant, as their respective interests may
appear, and can be directly enforced by either. 
Tenant covenants to give Landlord any assignment or other assurances
necessary to effect such right of direct enforcement.  Copies of all contracts and subcontracts shall
be furnished to Landlord promptly after the same are entered.

 

10.           Performance.

 

A.            Tenant’s Work shall be commenced after Landlord
approves the Working Drawings, and shall thereafter be diligently prosecuted to
completion, subject to delays for reasons beyond Tenant’s control (except
financial matters).  All Work shall
conform with the Working Drawings approved by Landlord in writing, and Landlord
may periodically inspect the Work for such compliance.  Tenant’s Work shall be coordinated under
Landlord’s direction with the work being done or to be performed for or by
other tenants in the Property so that Tenant’s Work will not interfere with or
delay the completion of any other construction work in the Property.

 

B.            Tenant’s Work shall be performed in a thoroughly safe,
first-class and workmanlike manner in conformity with the approved Space Plan
and Working Drawings, and shall be in good and usable condition at the date of
completion.

 

C.            Tenant shall be required to obtain and pay for all
necessary permits and/or fees with respect to Tenant’s Work, and the same shall
be shown to Landlord prior to commencement of the Work.

 

D.            Each contractor and subcontractor shall be required to
obtain prior written approval from Landlord for any space outside Tenant’s Premises
within the Property, which such contractor or subcontractor desires to use for
storage, handling, and moving of his materials and equipment, as well as for
the location of any facilities for his personnel.

 

C-3

 

E.             The contractors and subcontractors shall be required to
remove from the Premises and dispose of, at least once a week and more
frequently as Landlord may direct, all debris and rubbish caused by or
resulting from the construction.  Upon
completion of Tenant’s Work, the contractors and subcontractors shall remove
all surplus materials, debris and rubbish of whatever kind remaining within the
Property which has been brought in or created by the contractors and
subcontractors in the performance of Tenant’s Work.  If any contractor or subcontractor shall
neglect, refuse or fail to remove any such debris, rubbish, surplus material or
temporary structures within two (2) days after notice to Tenant from
Landlord with respect thereto, Landlord may cause the same to be removed by
contract or otherwise as Landlord may determine expedient, and charge the cost
thereof to Tenant as additional Rent under the Lease.

 

F.             Tenant shall obtain and furnish Landlord all approvals
with respect to electrical, water and telephone work as may be required by the
respective company supplying the service. 
Tenant shall obtain utility service, including meter, from the utility
company supplying service, unless Landlord elects to supply service and/or
meters.

 

G.            Landlord’s acceptance of Tenant’s Work as being
complete in accordance with the approved Space Plan and Working Drawings shall
be subject to Landlord’s inspection and written approval.

 

H.            Tenant shall, at its cost and expense construct,
purchase, install and perform any and all items of Tenant’s Work, stock its
merchandise and employ its personnel so as to obtain any governmentally
required certificate of occupancy and to occupy the Premises as soon as
possible, and in all cases on or before the date required therefor hereunder or
under the Amendment.

 

I.              If an expansion joint occurs within the Premises,
Tenant shall install finish floor covering to or covering such joint in a
workmanlike manner, and Landlord shall not accept responsibility for any finish
floor covering applied to or installed over the expansion joint.

 

J.             Copies of “as built” drawings shall be provided to
Landlord no later than thirty (30) days after completion of the Work,
provided that such drawings are actually obtained by Tenant.

 

K.            Landlord’s approval of Tenant’s plans and
specifications, and Landlord’s recommendations or approvals concerning
contractors, subcontractors, space planners, engineers or architects, shall not
be deemed a warranty as to the quality or adequacy of the Work, or the design
thereof, or of its compliance with Laws, codes and other legal requirements.

 

L.             Tenant shall conduct its labor relations and relations
with employees so as to avoid strikes, picketing and boycotts of, on or about
the Premises or Property.  If any employees
strike, or if picket lines or boycotts or other visible activities
objectionable to Landlord are established, conducted, or carried out against
Tenant, its employees, agents, contractors, subcontractors or suppliers, in or
about the Premises or Property, Tenant shall immediately close the Premises and
remove or cause to be removed all such employees, agents, contractors,
subcontractors and suppliers until the dispute has been settled.

 

C-4

 

M.           Landlord shall not be responsible for any disturbance
or deficiency created in the air conditioning or other mechanical, electrical
or structural facilities within the Property or Premises as a result of the
Work.  If such disturbances or
deficiencies result, Tenant shall correct the same and restore the services to
Landlord’s reasonable satisfaction, within a reasonable time.

 

N.            If performance of the Work shall require that
additional services or facilities (including without limitation, extra or
after-hours elevator usage or cleaning services) be provided, Tenant shall pay
Landlord’s reasonable charges therefor.

 

O.            Tenant’s contractors shall comply with the rules of the
Property and Landlord’s requirements respecting the hours of availability of
elevators and manner of handling materials, equipment and debris.  Demolition must be performed after 6:00 p.m.
on weekends.  Deliver of materials,
equipment and removal of debris must be arranged to avoid any inconvenience or
annoyance to other occupants.  The Work
and all cleaning in the Premises must be controlled to prevent dirt, dust or
other matter from infiltrating into adjacent tenant or mechanical areas.

 

P.             Landlord may impose reasonable additional requirements
from time to time in order to ensure that the Work, and the construction
thereof does not disturb or interfere with any other tenants of the Property,
or their visitors, contractors or agents, not interfere with the efficient,
safe and secure operation of the Property.

 

11.           Insurance.  All contractors and subcontractors shall
carry Worker’s Compensation Insurance covering all of their respective
employees in the statutory amounts. 
Employer’s Liability Insurance in the amount of at least $500,000 per
occurrence, and comprehensive general liability insurance of at least
$3,000,000 combined single limit for bodily injury, death, or property damage;
and the policies therefor shall cover Landlord and Tenant as additional
insureds, as well as the contractor or subcontractor.  Tenant shall carry builder’s risk insurance
coverage respecting the construction and improvements to be made by Tenant, in
the amount of the anticipated cost of construction of the Work (or any
guaranteed maximum price).  All insurance
carriers hereunder shall be rated at least A and X in Best’s Insurance
Guide.  Certificates for all such
insurance shall be delivered to Landlord before the construction is commenced
or contractors’ equipment is moved onto the Property.  All policies of insurance must require that
the carrier give Landlord twenty (20) days’ advance written notice of any
cancellation or reduction in the amounts of insurance.  In the event that during the course of Tenant’s
Work any damage shall occur to the construction and improvements being made by
Tenant, then Tenant shall repair the same at Tenant’s cost.

 

12.           Liens.  Tenant shall keep the Property and the
Premises free from any mechanic’s, materialmen’s or similar liens or other such
encumbrances in connection with the Work, and shall indemnify and hold Landlord
harmless from and against any claims, liabilities, judgments, or costs
(including attorneys’ fees) arising in connection therewith.  Tenant shall give Landlord notice of at least
twenty (20) days prior to the commencement of the Work (or such additional
time as may be necessary under applicable laws), to afford Landlord the
opportunity of posting and recording appropriate notices of
non-responsibility.  Tenant shall remove
any such lien or encumbrance by bond or otherwise within thirty (30) days
after written notice by Landlord, and if Tenant shall fail to do so, Landlord
may pay the amount necessary to remove such lien or encumbrance, without being
responsible for investigating the validity thereof.  The amount paid 

 

C-5

 

shall be deemed additional rent under the Lease payable
upon demand, without limitation as to other remedies available to Landlord
under the Lease.  Nothing contained
herein shall authorize Tenant to do any act which shall subject Landlord’s
title to the Property or the Premises to any liens or encumbrances whether
claimed by operation of law or express or implied contract.  Any claim to a lien or encumbrance upon the
Property or the Premises arising in connection with the Work shall be null and
void, or at Landlord’s option shall attach only against Tenant’s interest in
the Premises and shall in all respects be subordinate to Landlord’s title to
the Property and the Premises.

 

13.           Indemnity.  Tenant shall indemnify, defend and hold
harmless Landlord (and Landlord’s principals, partners, agents, trustees,
beneficiaries, offices, employees and affiliates) from and against any claims,
demands, losses, damages, injuries, liabilities, expenses, judgments, liens,
encumbrances, orders and awards, together with attorneys’ fees and litigation
expenses arising out of or in connection with the Work, or Tenant’s failure to
comply with the provisions hereof or any failure by Tenant’s contractors,
subcontractors or their employees to comply with the provisions hereof, except
to the extent caused by Landlord’s intentional or negligent acts.

 

14.           Certain Definitions.

 

A.            “Space Plan” herein means a preliminary floor plan,
drawn to scale, showing: (1) demising walls, corridor doors, interior
partition walls and interior doors, including any special walls, glass
partitions or special corridor doors, (2) any restrooms, kitchens,
computer rooms, file rooms and other special purpose rooms, and any sinks or
other plumbing facilities, or other special facilities or equipment, (3) any
communications system, indicating telephone and computer outlet locations, and
(4) any other details or features required to reasonably delineate the
Work to be performed.

 

B.            “Working Drawings” herein means fully dimensioned
architectural construction drawings and specifications, and any required
engineering drawings (including mechanical, electrical, plumbing,
air-conditioning, ventilation and heating), and shall include any applicable
items described above for the Space Plan, and if applicable: (1) electrical
outlet locations, circuits and anticipated usage therefor, (2) reflected
ceiling plan, including lighting, switching and any special ceiling
specifications, (3) duct locations for heating, ventilating and
air-conditioning equipment, (4) details of all millwork,
(5) dimensions of all equipment and cabinets to be built in,
(6) furniture plan showing details of space occupancy, (7) keying
schedule, (8) lighting arrangement, (9) location of print machines,
equipment in lunch rooms, concentrated file and library loadings and any other
equipment or systems (with brand names wherever possible) which require special
consideration relative to air-conditioning, ventilation, electrical, plumbing,
structural, fire protection, life—fire-safety system, or mechanical systems,
(10) special heating, ventilating and air conditioning equipment and
requirements, (11) weight and location of heavy equipment, and anticipated
loads for special usage rooms, (12) demolition plan, (13) partition
construction plan, (14) type and color of floor and wall coverings, wall
paint and any other finishes, and any other details or features required to
completely delineate the Work to be performed.

 

15.           Incorporated Into Lease; Default.  THE PARTIES
AGREE THAT THE PROVISIONS OF THIS AGREEMENT ARE HEREBY INCORPORATED BY THIS 

 

C-6

 

REFERENCE INTO THE AMENDMENT FULLY AS THOUGH SET FORTH
THEREIN.  In the event of any express
inconsistencies between the Lease and this Agreement, the latter shall govern and
control.  If Tenant shall default under
this Agreement, Landlord may order that all Work being performed in the
Premises be stopped immediately, and that no further deliveries to the Premises
be made, until such default is cured, without limitation as to Landlord’s other
remedies.  Any amounts payable by Tenant
to Landlord hereunder shall be paid as additional rent under the Lease.  Any default by the other party hereunder
shall constitute a default under the Lease and shall be subject to the remedies
and other provisions applicable thereto under the Lease.  If Tenant shall default under the Lease or
this Agreement and fail to cure the same within the time permitted for cure
under the Lease, at Landlord’s option, all amounts paid or incurred by Landlord
towards the Improvement Allowance shall become immediately due and payable as
additional rent under the Lease.

 

[Preliminary Floor Plan]

 

C-7

 

EXHIBIT D

 

DECLARATION

OF

INDUSTRIAL STANDARDS

AND PROTECTIVE COVENANTS

 

THIS DECLARATION, Made this 8th day of
April, 1982, by RAUENHORST CORPORATION, a Minnesota corporation, with its
principal place of business at 2200 Northwestern Financial Center, 7900
Xerxes Avenue South, Minneapolis, Minnesota 55431 (hereinafter called “Declarer”).

 

WHEREAS, Declarer is the owner of the
premises lying and being in the County of Hennepin, State of Minnesota,
described on Exhibit ”A,” attached hereto and incorporated herein by
reference (“Premises”), and is the owner of other property located in the
recorded plat of Opus 2 Fourth Addition (“Other Property”).

 

WHEREAS, Declarer is desirous of
subjecting said Premises to the conditions, covenants, restrictions and
reservations hereinafter set forth to insure development, improvement and use
of the Premises acceptance to Declarer so as to:

 

(a)           Protect
Declarer’s Other Property from unacceptable development, improvement and use.

 

(b)           Guard against
erection thereon of structures built of materials unacceptable to Declarer or
which are unattractive to Declarer in appearance or design.

 

(c)           Insure
development of the Premises in a form adequate and reasonable to Declarer.

 

(d)           Provide
adequate off-street parking space and loading facilities, sign controls and
setbacks; and, in general, to provide a development that will promote the
general welfare of the Other Property.

 

(Paragraphs (a), (b), (c) and (d),
above, are sometimes hereinafter collectively called “Criteria Standards.”)

 

NOW, THEREFORE, Declarer hereby declares that the
Premises shall be developed in accordance with the following standards and
guidelines and in line with the aforementioned Criteria Standards, and shall
apply to and bind each and every owner and successor in interest thereof, and
are imposed upon the Premises as a servitude in favor of Declarer only for the
benefit of Declarer and such assignee of the Declarer as shall be given the
right to enforce the provisions hereof by written instrument recorded in the
Office of the Registrar of Titles, 

 

D-1

 

Hennepin County, Minnesota, but only if such assignment
specifically gives the assignee the right to enforce this Declaration.  Mere purchase of the Premises or any of the
Other Property shall confer no right to enforce the provisions hereof.  Further, such conditions, covenants,
restrictions and reservations shall operate as covenants passing with the title
to said Premises, and are as follows:

 

ARTICLE
I.  DEFINITION OF TERMS.  The following terms and words as
used in the context herein shall be defined as follows:

 

(a)           Building Site
shall mean any lot, or portion thereof, or two or more contiguous lots, or
portions thereof, or a parcel of land upon which an industrial or commercial
building or buildings and appurtenant structures may be erected in conformance
with the requirements of this Declaration.

 

(b)           Declarer shall
mean Rauenhorst Corporation, its successors and assigns.

 

(c)           Improvements
shall mean and include all construction necessary to erect a building and other
improvements or the Premises for a use permitted by the zoning ordinances of
the City of Minnetonka, and shall include the building, parking areas, loading
areas, driveways, sidewalks, fences, lawns, landscaping and lighting.

 

(d)           Owner shall
mean the party or parties, their heirs, successors or assigns who are in title
or claim title to any part or parcel of the Premises.

 

(e)           Street shall
mean a right-of-way dedicated to the public or in respect to which an easement
has been granted to the public.

 

ARTICLE II.  PERMITTED
USES AND PERFORMANCE STANDARDS.

 

(a)           No noxious or offensive trades, services or activities
shall be conducted on the Premises, nor shall anything be done thereon which
may be or become an annoyance or nuisance to Declarer by reason at unsightliness
or excessive emission of odors, fumes, smoke, vibration, dirt, dust, glare,
waste or noise.

 

(b)           Without otherwise limiting the provisions of
paragraph (a) above, or of any other term or condition of this
Declaration, the permitted uses shall be light industrial, offices, research,
assembling or processing, jobbing, wholesaling and uses ordinarily incidental
to the operation of a permitted principal use. 
All uses shall comply with the zoning ordinances of the City of
Minnetonka, Minnesota.  Said zoning
ordinances shall govern if inconsistent herewith to the extent actually
inconsistent.  If not inconsistent
herewith, the standards herein contained shall be considered as requirements in
addition to said zoning ordinances.  The
Premises shall not be used for the following purposes:

 

Auto
salvage yard; used material yard or any type of exposed open sales or storage
of materials, or any use which would create an excessive amount of sewage or a
quality of sewage which would cause a disposal problem; or for manufacture,
storage or sale of explosives or similar dangerous products.

 

D-2

 

ARTICLE
III.  PERFORMANCE STANDARDS.  Declarer, on the basis of
the-experience of others, has learned that to set measured minimum or maximum
standards for control of noise, vibration, dirt, dust, smoke, odor, glare and
waste within an industrial area is difficult if not impossible.  Therefore, in order to protect its interest
in the Other Property and to enable Declarer to orderly develop the Other
Property, complete architectural and engineering plans for any proposed
Improvement to be constructed on the Premises shall be submitted by Owner to
Declarer prior to commencement of any development or construction of any
Improvement on the Premises.  Such plans
shall contain the items and information required by Articles IV, V, VI and
VII hereof, and shall contain sufficient engineering data to enable Declarer to
determine whether or not the proposed Improvement will operate within “safe
limits” of noise, vibration, dirt, dust, smoke, odor, glare and waste.

 

ARTICLE
IV.  OFF-STREET PARKING AND LOADING.

 

(a)           Adequate off-street parking shall be provided by Owner
for customers and employees.

 

(b)           Off-street loading space shall be provided and such
space shall not be part of the area allocated as required for off-street
parking space.

 

(c)           Truck loading and receiving areas shall not be on the
street side of any building; provided, however, as applies in the case of other
restraints, Declarer reserves the right to review and permit such areas on the
street side of any building where the facilities are so screened as to be
acceptable to Declarer.

 

(d)           All off-street parking, driveways and loading areas
shall be properly surfaced to control dust and properly graded to assure proper
drainage.

 

(e)           No parking shall be permitted on a side yard abutting a
dedicated public street without the written approval of Declarer.

 

(f)            From and after the date a building is constructed on a
Building Site, Owner or Owners of such Building Site shall maintain adequate
on-site parking spaces and loading facilities to serve the needs of each such
Building Site, taking into account the building or buildings located or to be
located thereon, and the use made or to be made thereof, and shall keep such
parking areas, driveways and loading areas surfaced with asphalt or concrete
and properly kept and maintained at all times.

 

(g)           No on-street parking or loading will be permitted.

 

ARTICLE
V.  LANDSCAPING, OUTSIDE STORAGE AND MAINTENANCE.

 

(a)           Sites occupied by a building shall be landscaped in
accordance with a plan approved by Declarer. 
Such landscaping shall include sodding, planting of trees, shrubs and
other customary landscape treatment, and, if required by Declarer, an
underground sprinkling system.

 

D-3

 

(b)           The landscape development, having once been installed
in accordance with an approved plan, shall be kept and maintained in a neat and
adequate condition, which shall include lawns mowed, edges trimmed, and trees
and shrubs kept in good condition and appearance.

 

(c)           The approved plan for landscaping a Building Site may
not be altered substantially without submitting a revised plan to Declarer for
approval.

 

(d)           The Premises shall at all times be kept free from
debris, paper, excessive leaves, branches and trash of all kinds.

 

(e)           Outside storage of materials, equipment and products
shall be prohibited except as approved by Declarer.

 

(f)            Nothing shall be done on any Building Site that
interferes with the natural drainage of surface waters.

 

ARTICLE
VI.  SIGNS – ADVERTISING SPACE.  Declarer
recognizes there is need for signs advertising the identity of Owner and the
business conducted on the Premises.  It
is further recognized that acceptable standards for such signs may change from
time to time.  In order to allow for such
change, all requests for signs to be located on the Premises shall be submitted
to Declarer for approval.  Declarer shall
consider any such application in light of the Criteria Standards set forth
herein and other appropriate data, and shall either approve the proposed signs
as submitted or require that the proposal be altered so that any signs
constructed in connection therewith shall be such as to fulfill the said
criteria Standards.  In the event
Declarer does not disapprove any such sign proposals within thirty (30)
days after submission, said approval shall be deemed to have been given;
provided, however, that no sign located an the Premises subject hereto shall:

 

(a)           Be what is known as an advertising sign advertising
businesses or products other than those sold, manufactured or warehoused on the
Premises on which the sign is located.

 

(b)           Have in use any flashing, pulsating or rotating light
or lights.

 

(c)           Be located on a rooftop.

 

(d)           Violate any ordinances of the City of Minnetonka.

 

ARTICLE
VII.  PLANS AND BUILDINGS.

 

(a)           No improvements shall be erected, placed or altered on
the Premises until the building or other alteration plans, specifications,
including front elevations and/or architect’s rendering, and a site plan
showing the location of such Improvement on the Premises, including parking,
loading and landscape plans, have been submitted to and approved, in writing,
by Declarer as to conformity and harmony with existing and planned structures
on the Other Property, and as to location of the Improvements on the Building
Site, giving due regard to the anticipated use thereof as may affect adjoining
structures, use and operations, and as to location of the Improvements with
respect to topography, grade and finished ground elevation, and as to 

 

D-4

 

fulfilling the purposes and Criteria Standards herein
contained; provided, however, that Declarer shall not be liable to anyone in
damages or otherwise who has submitted plans for approval or to anyone by
reason of mistake in judgment, negligence or nonfeasance of itself, its agents
or employees, arising out of or in connection with the approval or disapproval
of any such plans or any action or inaction in connection with this
Declaration.  Likewise, any person, firm
or corporation that submits plans to Declarer for approval, or becomes an
Owner, agrees not to bring any action or suit to recover any damages or other
relief against Declarer.  Declarer shall
not unreasonably withhold approval of any plans submitted pursuant hereto;
provided, however, that failure to meet the Criteria Standards or the standards
contained herein shall be grounds for Declarer’s reasonable disapproval of any
such plans.  Failure of Declarer to
disapprove any plans within thirty (30) days after submission of said
plans to it shall be deemed to be approved thereof.  All construction work shall, upon approval of
plans by Declarer, be carried on with dispatch, and upon completion thereof the
site shall be landscaped promptly.

 

(b)           All improvements shall be constructed in conformity
with the existing building codes of the City of Minnetonka.

 

(c)           All building plans shall be prepared by an architect
duly licensed under the then existing registration laws of the State of
Minnesota.

 

(d)           Any building erected on the Premises shall be of
concrete masonry construction, its equivalent or better.  The architectural treatment on the sides of buildings
facing a street shall be one or more of the following:

 

(1)           Face brick.

 

(2)           Architectural
pre-cast concrete panel.

 

(3)           Pre-finished
curtain wall construction in conjunction with face brick.

 

(4)           Other
materials when approved by Declarer in writing.

 

(5)           All buildings
shall be constructed so as to screen all electrical and mechanical equipment on
the roof or to secure all such equipment mounted at ground level by screening
approved by Declarer.

 

(6)           All exterior
lighting fixtures and standards shall be provided by Owner and shall comply
with the overall lighting plan of Declarer and shall be subject to approval by
Declarer.

 

ARTICLE
VIII.  UNDERGROUND ELECTRICAL FACILITIES.  No building or
structure located on the Premises shall be served by other than underground
electric and telephone distribution facilities. 
Poles, wires or other aboveground electric or telephone distribution
facilities may be temporarily installed during construction of buildings or
structures, in emergencies or during construction or repair of the underground
system.  For the protection of
underground cables and facilities, the grade or contour of the land above and
adjacent to said facilities shall not hereafter be substantially increased,
decreased or otherwise changed or altered without the written consent of the
utility company providing such service.

 

D-5

 

ARTICLE
IX.  EASEMENTS.  Declarer reserves, for itself, its successors
and assigns, a permanent easement over, upon, under and across the easements as
shown on the plat of said Premises for the carrying of utilities, water or
sewage and the maintenance of such facilities, and Declarer is hereby given the
power and authority to execute deeds or other necessary documents releasing or
conveying any such rights that it may deem advisable or necessary.

 

ARTICLE
X.  ENFORCEMENT.

 

(a)           Whenever approval of Declarer is required, Declarer
shall take action within thirty (30) days after receipt of the request and
all plans, specifications or other documents required to be submitted for
approval.  If not approved, specified
written objections shall be mailed or delivered to the applicant within
thirty (30) days, otherwise the request shall be deemed to have been
granted.  All requests for approval or
applications for variance of the within conditions shall be submitted, in
writing, by certified mail to Declarer at 2200 Northwestern Financial Center,
7900 Xerxes Avenue South, Minneapolis, Minnesota 55431, Attention: Legal
Division.

 

(b)           Each of the conditions, covenants, restrictions and
reservations contained herein shall continue and inure to the benefit of
Declarer, and its assigns (as limited herein), for a period of twenty (20)
years from the date of filing for record, and shall be automatically extended
in their entirety for successive periods of ten (10) years unless Declarer
executes, acknowledges and files for record an appropriate instrument, in
writing, terminating and releasing the requirements of this Declaration.

 

(c)           The standards set forth herein shall be enforceable by
Declarer, and its assigns (as limited herein), for the maximum period allowed
by law and shall be enforceable by:

 

(1)           Injunctive
relief, prohibitive or mandatory, to prevent breach of or to enforce
performance or observance of these standards and requirements; or

 

(2)           Money judgment
for damages by reason of the breach of these standards; or

 

(3)           Both (1) and
(2) above.

 

(d)           Failure of Declarer to enforce any provisions of the
standards and requirements contained herein upon the violation thereof shall in
no event be deemed to be a waiver of the rights to do so as to any subsequent
violation.

 

(e)           Declarer may grant variances from the strict
application of the provisions of these standards and requirements in cases
where, by reason of extraordinary and exceptional conditions of any site or
circumstances, strict application of any standard would result in peculiar and
practical difficulties or exceptional or undue hardship upon the owner of any
Building Site, or where otherwise deemed appropriate by Declarer.

 

D-6

 

(f)            Invalidation of any of the provisions of these
standards and requirements, whether by Court Order or otherwise, shall in no
way affect any of the other provisions which shall remain in full force and
effect.

 

IN TESTIMONY WHEREOF, Declarer has
caused these presents to be executed the day and year first above written.

 

	
   

  	
   

  	
  RAUENHORST CORPORATION 

  (Declarer)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gene Haugland

  
	
   

  	
   

  	
  Its: President - Real Estate
  Division

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  And:

  	
  /s/ Robert C. Perkins

  
	
   

  	
   

  	
  Its: Assistant Secretary

  
				

 

 

	
  STATE OF MINNESOTA

  	
  )

  
	
   

  	
  ) ss.

  
	
  COUNTY OF HENNEPIN

  	
  )

  

 

 

The foregoing instrument was
acknowledged before me this 8th day of April, 1982, by Gene Haugland, President
- Real Estate Division, and by Robert C. Perkins, Assistant Secretary, of
Rauenhorst Corporation, a Minnesota corporation, on behalf of the corporation.

 

 

	
   

  	
  /s/ Irene V. Anderson

  
	
   

  	
  Notary Public

  

 

INSTRUMENT PREPARED BY:

JAMES L. TUCKER

2200 Northwestern Financial Center

7900 Xerxes Avenue South

Minneapolis, Minnesota 55431

 

D-7

 

EXHIBIT “A”

to

DECLARATION

OF
INDUSTRIAL STANDARDS

AND

PROTECTIVE
COVENANTS

 

The parcel of land situated in the City of Minnetonka,
County of Hennepin, State of Minnesota, sometimes referred to in the attached
Declaration of Industrial Standards and Protective Covenants as the “Premises,”
is described as follows, to-wit:

 

That part of Lot 3, Block 14, Opus 2
Fourth Addition, according to the recorded plat thereof, lying Northerly of the
following described line: Beginning at a point on that particular West line of
said Lot 3 having a record dimension of 755.05 feet, distant 725.05 feet
Southerly from the Northwest corner of said Lot 3; thence Easterly, parallel
with the North line of said Lot 3, a distance of 460.46 feet to the Easterly
line of said Lot 3 and there terminating; EXCEPT the South 0.48 feet of the
above described property.

 

A-1

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