REAC Testimony

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    Testimonyto the

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    Government Finance CommitteebyKirsten Diederich Chair State Board o Higher EducationFebruary 12 2014

    Chairman Delzer and members of the Government Finance Committee, I amKirsten Diederich, chair o the State Board o Higher Education.You have requested testimony about UNO's purchase of the ResearchEnterprise and Commercialization (REAC) building on the UNO campus. I willprovide preliminary remarks, followed by Dr. Robert Kelley, president of UNOand Murray Sagsveen, chief of staff, North Dakota University System office.Chancellor Larry Skogen and UNO Vice President for Finance and OperationAlice Brekke are also here to answer any questions committee members mayhave.The North Dakota University System has many responsibilities- in addition toeducating students not only for careers in today's marketplace but also forcareers that do not yet exist. For example, the two research universities, UNOand NDSU, are research and development centers o excellence, partnering withaerospace, agriculture, and other commercial interests. Often, this requires theUniversity System to take risks with programs and buildings to house theseprograms nd the partners who will be developing the programs.When we take risks, we must act on the best information for the best reasonswith the best intentions at the time. However, as we all know, the best intentionsmay not lead to the anticipated results. When that happens, we should reviewthe facts, from beginning to end, as a case study to determine how we cancontinually improve our organization and our programs.We should approach the REAC building from a case study perspective. If we do,we will learn that: The UNO president, then Dr. Charles Chuck Kupchella, and others had avision for a number o research and commercialization facilities on theUNO campus. They formed a nonprofit tax-exempt foundation, the University o NorthDakota Research Foundation, to generate enthusiasm, financial support,and partners for the ambitious project. The first stage of the project was the Research Enterprise andCommercialization Building, designated REAC1. They secured financing, then constructed and furnished the building. However, because of the nationwide economic downturn and (inretrospect) over-optimistic projections, the Foundation experienced cashflow challenges.

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    UNO, now under new leadership, recognized the problem and provided amodest interim subsidy until a long-term solution could be implemented. UNO determined the best long-term option would be to assume ownershipby refinancing the 9.8 million loan. UNO then sought, and obtained, approval from the State Board of HigherEducation (who delegated approval authority to the Chancellor), theChancellor, the Legislative Assembly (which approved Senate Bill 2003),and the Governor (who signed Senate Bill 2003). Now, UNO owns and operates a world-class facility that will better enableUNO, the North Dakota University System, and the State of North Dakotato compete in a global environment.

    Thank you for inviting representatives of the North Dakota University System toaddress your Committee about this facility, which is n important component ofthe University System's overall effort to expand its R D programs and diversifythe economy of the State of North Dakota.I will answer any questions that the committee members may have unless thecommittee prefers holding their questions until after the presentations byPresident Kelley and Mr. Sagsveen.

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    Testimony to theGovernment Finance ommittee

    byRobert Kelley, President, University o North DakotaFebruary 12, 2014

    Good morning, Chairman Delzer and members o the Government Finance Committee.I appreciate the opportunity to provide to you this morning some information aboutREAC. My testimony will directly respond to the REAC-related issues on the agenda:

    Number One: An overview of the original ground lease for the REAC buildingincluding what would happen if the original/ease terms were broken.Sections 16, 18 and 20 o the ground lease addressed the questions o default orbankruptcy by the UNO Research Foundation (UNDRF) (we provided a copy o theground lease to the committee's staff). The lender's interest was secured by thebuilding, so the lender would have acquired possession of the building n the event ofbankruptcy. UNO now owns the REAC building, so the lease has been terminated.

    Number Two: The total cost to construct the REAC building and the sources of fundsused y the UNO Research Foundation for the construction of the building.

    The total cost to construct the building was 17,114,539. The cost of researchequipment and office furniture/equipment was an additional 1,780,656. Fundingsources included:

    1,499,621 from EDA 3,557,547 from Centers for Excellence (NO) 1,493,664 from Department of Commerce (COE) 500,000 from the City o Grand Forks 1,079,451 from DOE and COE for furnishings and equipment 10,000,000 n loans (listed below)Number Three: The liabilities incurred y the UNO Research Foundation to

    construct the facility the liabilities of the Foundation as of December 31 2012 and thecurrent liabilities of the Foundation.Liabilities to construct the facility included a construction/permanent loan o 6,250,000(Bremer), a working capital term loan o 250,000 (Bremer), a construction loan with a

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    balloon payment of $1,000,000 (NO Development Fund), and a tax-exempt bond o$2,500,000 (GF County) for a total o $10,000,000. In addition, capital leases o$494,141 were executed for furniture, fixtures and equipment (FF&E).Liabilities reported by UNDRF as o December 31, 2012, included a $5,924,161construction/permanent loan (Bremer), a $223,000 term loan (Bremer), a $936,521construction loan NO Development Fund), a $2,338,769 tax-exempt bond and$190,494 in capital leases for a total of $9,612,945.The UNO Research Foundation has advised that it currently has no outstandingliabilities.Number Four he legal obligations of the University System nd the state to repay anyloan or financing obtained by the UNO Research Foundation for the construction of thebuildingBased on guidance from the President o the State Board o Higher Education and oneother Board member in June o 2012, UNO sought outside counsel regarding potentialfinancial liability, its relationship with UNDRF (possible conflict of interest questions) andoptions to mitigate risk. An independent appraisal was also recommended andobtained. Advice provided by outside counsel to UNO indicated that there was noexpress contractual acceptance o liability by UNO. However, outside counsel alsoindicated that reasonable arguments could be made that UNO did have some financialobligation. If UNO chose to do nothing, resulting in bankruptcy of UNDRF and thereversion o the building to the lender, there was a strong likelihood that this situationwould end up being resolved in court.Additional factors considered included potential legal costs, reputational risk, loss ofproductivity/occupancy o facility during litigation period, uncertainty as to the length oftime needed to resolve the issue, and uncertainty as to the ultimate outcome.Understanding that the State o North Dakota had an interest in the building asevidenced by the investment made towards the initial cost of construction, as well astowards research/development occurring in the facility, UNO leadership decided to seekapproval from the State Board o Higher Education and the Legislative Assembly topurchase the REAC building. Therefore, although there may not have been a legalobligation to repay the several loans, UNO leadership decided to purchase the building,which thereby required repayment o the loans.

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    Number Five: n overview of the facility including the total amount of rentablesquare feet the total square feet currently leased to other entities and theamount of revenue generated by the leases.

    The building contains 31,982 rentable square feet. Currently, 14,263 square feet areoccupied by non-UNO entities and 3,436 square feet are occupied by Medical SchoolBasic Sciences for research purposes, for a total o 17,699 square feet occupied (55%o capacity).

    Number Six: Limitations on building uses.Grant funding by definition must be used for the purpose for which it is received. In thiscase, the purpose was to construct a building to be used for economic development.More specifically, the grant proposal stated that the original intent of constructing thefacility was to provide space for the growth and development o technology basedcompanies targeted to life sciences and advanced engineering. This space wasintended to be occupied primarily by private sector partners, spin of f companies andbusiness alliances, with related limited University usage also possible. The stated intentfor use was the basis for grant funding from the EOA (proposal incorporated byreference), which funded the infrastructure on the site for the building. EOA hasverbally approved transfer o the grant conditions to UNO effective with the purchaseand the documents are in process. They have also indicated a willingness to providesome flexibility to insure the overall success of the project. UNO continues to worktowards full occupancy consistent with the original stated intent and will coordinate withEOA as appropriate.

    Number Seven: Funding provided by UNO each year since 2009 to support theoperations of the facility.

    UNO provided a 335,000 one-time payment in FY2011 per the lease agreementbetween UNO and UNORF for the period February 2009 through March 31, 2011. Atotal of 1,441,374 was paid by UNO to UNORF in FY2012 for the 15-month period April1 2011 through June 30 2012, per the revised lease agreement dated May 6 2011.Finally, a 250,000 payment was made by UNO to UNORF in FY2013 per theMemorandum o Understanding dated September 6 2012. These documents wereprovided to Legislative Management during the 63rd Legislative Assembly.

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    Number Eight: Membership of the UNO Research Foundation Board ofDirectors at the time of the construction of the building and the currentmembership of the Board ofDirectors:

    The composition o the board o directors changed over time in response to the needsof the organization UNDRF), the push by University officials for increasedcommunication and accountability, the need to mitigate potential conflict o interestrelated to the sale/purchase, and the personal circumstances of various board memberssee enclosed lists). Changes in board composition and voting status were fully

    disclosed on the IRS Form 990 the annual tax return for nonprofit organizations) asrequired by law.Number : n update on the status of the purchase of the building:UNO completed all transactions to purchase the REAC building on September 16 2013.The purchase agreement has been provided to committee staff.We appreciate the opportunity to provide you with this additional information. At theconclusion o our presentations, we will answer any questions the Committee may have.

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    Testimony to theGovernment Finance ommitteebyMurray G. Sagsveen, Chief of Staff, North Dakota University SystemFebruary 12, 2014

    Chairman Delzer and members of the Government Finance Committee, I amMurray G. Sagsveen, Chief of Staff and Director of Legal Services for the NorthDakota University System.It is my understanding there are questions about compliance with legislativeintent related to the purchase of the REAC building. Accordingly, I will focus onthis issue.For the purpose of this testimony, I will summarize the chronology of events inEnclosure 1.President Kelley contacted Chancellor Shirvani in December 2012 State Board ofHigher Education (SBHE) approval to purchase the REAC building. The issuewas added to the agenda of the January 17 SBHE meeting, when the SBHEunanimously approved the following motion:

    UNO request to seek legislative authorization to purchase the ResearchEnterprise and Commercialization building (REAC1) on the UNO campusper NDDCC 54-27-12, and to enter into a financing arrangement for thatpurpose; further authorize the Chancellor to approve the purchase termsand financing arrangement.After the SBHE meeting, North Dakota University System (NDUS) staff contactedthe Senate Appropriations Committee about including authorization language inSB 2003.In February, Alice Brekke, UNO Vice President for Finance and Operations,testified before the Senate Appropriations Committee. She began by stating: weare seeking legislative authority to enter into a financing arrangement with theintent of purchasing and operating REAC1.Upon the recommendation of the Committee, Senate Bill 2003 was amended toinclude language about the REAC building. The language was later amendedupon the recommendation of the conference committee (as shown below).

    SECTION .:1 0 23. UNIVERSITY OF NORTH DAKOTA RESEARCHENTERPRISE AND COMMERCIALIZATION BUILDING PURCHASE-BUDGET SECTION REPORT. During the biennium period beginning Jt y1 2013, with the effective date of this Act and ending June 30, 2015, thestate board of higher education may enter a purchase and financing

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    agreement or agreements with a private entity and do all things necessaryand proper to authorize the purchase of the research enterprise andcommercialization building on the campus o the university o NorthDakota using donations, gifts, or other funds. The state board o highereducation shall provide a report to the budget section i the researchenterprise and commercialization building is purchased as provided underthis section.

    The enclosed chronology clearly shows that the legislators knew UNO would bebuying the REAC building, but no appropriation would be included in SB 2003 forthat purpose.Two months after the Governor signed SB 2003, President Kelley explainedUN D s plans to finance the purchase o the REAC building, and ChancellorSkogen responded with a letter approving the plan.UNO then took the following steps:

    1 Retained an appraiser to verify the value o the building and personalproperty/fixtures.2 Retained independent counsel to represent UNO in the negotiation andpurchase o the building.3 Sought financing proposals from a number o financial institutions andselected the best proposal.4 Signed (State Board o Higher Education dba the University o NorthDakota) a purchase agreement in September 2013 for the appraisedvalue.

    Therefore, it appears that the SBHE, acting through UNO, fully complied with theexpress legislative intent concerning the purchase o the REAC building.Thank you for the opportunity to explain these issues. I will answer any questionsthat the Committee may have.

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    Enclosure 1Chronology of Legislative Events Related to the REAC Building

    SBHE Action n January 2 13n a December 10, 2012, email to Chancellor Shirvani, President Kelley stated:

    UNO is requesting approval to seek legislative authorization to purchasethe REAC-1 building on the UNO campus and to enter into a financingarrangement for that purpose. UNO is working to complete a draftnarrative which I will provide to you as soon as it is completed.President Kelley's executive assistant sent the narrative to Laura Glatt onDecember 20. The first paragraph of the narrative stated:

    Request approval to seek North Dakota Legislative Assemblyauthorization to purchase the Research Enterprise and Commercializationbuilding (REAC-1) on the UNO campus, and to enter into a financingarrangement for that purpose. The building is currently owned by the UNOResearch Foundation and is sited on land owned by UNO (ground lease inplace).The UNO request was addressed at the January 17, 2013, SBHE meeting. Theminutes reflect (at pp. 6-7):It was moved by Diederich, seconded by Shart to approve the following Financialand Facility Consent Agenda items: * * * UNO request to seek legislative authorization to purchase the ResearchEnterprise and Commercialization building (REAC1) on the UNO campusper NDDCC 54-27-12, and to enter into a financing arrangement for thatpurpose; further authorize the Chancellor to approve the purchase termsand financing arrangement.* * *Shaft, Reichert, Diederich, Hjelmstad, Hull, Morton, Neset, and Espegard votedaye. The motion carried unanimously.

    Legislative Action n 2 13Concurrently, Laura Glatt drafted a document titled Proposed Amendments toSB2003 Proposed by the NDUS, January 17, 2013, which included thefollowing paragraph:

    Authorize UNO, per NDCC 54-27-12, to purchase the Research Enterpriseand Commercialization building (REAC1) and enter into a financingarrangement for that purpose.

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    On February 7 Alice Brekke testified before the Senate AppropriationsCommittee. The opening paragraphs stated:I am Alice Brekke, and I am testifying today in my capacity as the VicePresident for Finance and Operations at the University o North Dakota. Ihave been asked to deliver testimony on the Research Enterprise andCommercialization building (known as REAC1) on the UNO campus.Today, we are seeking legislative authority to enter into a financingarrangement with the intent of purchasing and operating REAC1.

    The minutes o that hearing state, in part:Chairman Holmberg: Alice when we had SB 2003 and the Chancellor stestimony, he mentioned a list o things happening. One was a request forthe UNO to purchase what is referred to as the react building on UNO.However when we had our hearing on higher education the board had nottaken action on that and we felt it was a little premature for us to act onsomething that the board had not asked us to act on.Alice Brekke, Vice President for Finance and Operations UNO, seekinglegislative authority to enter into a financing arrangement with the intent opurchasing and operating REAC1 .... The building currently is owned by theUNO Research Foundation. This is a request for authority not funding.After the board took action on January 17, I did provide an electronic copyto Brady [Larson] of the full text o what went to the board and what theboard of higher education actually approved.Chairman Holmberg: This will go to the subcommittee ...

    The February 13 minutes of the Senate Appropriations Committee reflect thefollowing dialogue between Senator Holmberg and Senator Grindberg:Chairman Holmberg: Continuing on page 5 the REAC building is notutilized to its full potential. It has had some financial problems. They areasking us to authorize UNO to purchase that building and it is not usingstate money. They have to fund it themselves. They don t have anappraisal. It is on state land but it is owned by the foundation that isdefunct.Vice Chairman Grind berg: I am going to support this request. This isowned by the research foundation. We are basically allowing theuniversity to pay for this and then the alumni foundation will no longer bythe guarantor for the loan.

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    On February 21, Laura Glatt sent an email to Brady Larson, which stated:We recently discussed what kind of legislative authority is neededregarding the potential purchase of the UNO REAC building. You wereuncertain whether a specific dollar authorization was required or not.While I am not able to address the required legislative action, I did checkwith UNO about whether they have a designated dollar amount, in theevent that specific dollar appropriation is required by the legislature. Theydo not. Furthermore, they are reluctant (and rightfully so) to put forth anamount, as it may pre-empt the negotiation process.I am wondering if it would be appropriate, for the time being, to simply adda section of legislative intent recognizing/authorizing the transaction,including possible financing arrangements; and, if deemed necessary, thata specific dollar appropriation be added later, near the end of the session,if that is deemed necessary. UNO may be in a better position to provide afigure later in the session.

    On the same day, Brady Larson replied to Laura: We'll put a section in theSB2003 amendments regarding the project.The first engrossment of SB2003 included a new section concerning the REACbuilding:

    SECTION 10. UNIVERSITY OF NORTH DAKOTA RESEARCHENTERPRISE AND COMMERCIALIZATION BUILDING PURCHASE-BUDGET SECTION REPORT. During the biennium beginning July 1,2013, and ending June 30, 2015, the state board of higher education mayenter a purchase and financing agreement or agreements with a privateentity and do all things necessary and proper to authorize the purchase ofthe research enterprise and commercialization building on the campus ofthe university of North Dakota using donations, gifts, or other funds. Thestate board of higher education shall provide a report to the budget sectionif the research enterprise and commercialization building is purchased asprovided under this section.

    The amendment was reported to the Senate on February 25 (SJ 564 , and theSenate approved the amendment on February 26 (SJ 603). During thediscussion of the proposed amendment on February 26, Senator Ray Holmbergstated:

    Section 10 has to do with what is called the REAC building. It is a buildingon the campus of UNO that is not owned by UNO but was built with afoundation, the UNO Research Foundation and the building has not livedup to what everyone had hoped and expected. When it was built, there

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    was a human cry around the country for level 3 research labs. There werea few labs so North Dakota through Centers of Excellence money andother funding constructed the REAC building. Unfortunately, I believethere were close to 500 and some other similar buildings being builtaround the country at the same time. Then the economy kind of slumpedand the building has just not lived up to its potential. What they are askingfor in Section 10 is to allow the university to purchase it not using statefunds and then to recover that funding through rentals so it becomes auniversity property. They asked for that permission and we gave it in thisamendment.However, the House deleted Section 10. The April 5 minutes of the HouseAppropriations Education and Environment Division include the following:

    Chairman Skarphol. ... Brady, can you tell us where that language is in thebill?Brady Legislative Council: In the second engrossment it is section 10.Chairman Skarphol: Do it authorize the purchase?Brady: The language allows UNO to enter into a purchase and financingagreement to allow the institution to purchase the React Building.

    Chairman Skarphol: Brady, is there money associated with it?Brady: There is no money associated with it; it just authorizes UNO topurchase the building using private funds or local funds. There is nogeneral fund appropriation associated with this section.

    The summary in the House Journal (at p HJ1617) states: Removes Section 10of the bill which authorized the University of North Dakota to enter a financingand purchase agreement to purchase the research enterprise andcommercialization building located on its campus.The conference committee agreed to the Senate's action. The May 3 minutesinclude the following:

    Section #23, the House had removed the language regarding the UNOREACT building purchase, that one is being restored into the bill, and youwill notice that we are changing the phrase during the biennium beginningJuly 1 with the period beginning with the effective date of this act wehave put in an emergency clause on this Section in the event that UNOwould like to proceed with that purchase immediately.

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    Brady Larson: There was a difference between the House and Senateversion of the bill in relation to the UNO REACT building. The Senate hadadded language to allow UNO to enter into a financing and purchasingagreement. The House removed that language.Representative Skarphol. I move we put it back in. 2nd by SenatorKrebsbach.Chairman Holmberg all in favor aye. It carried.

    The now section 23 stated (SJ 2081 ):SECTION 4Q 23. UNIVERSITY OF NORTH DAKOTA RESEARCHENTERPRISE AND COMMERCIALIZATION BUILDING PURCHASE-BUDGET SECTION REPORT. During the biennium period beginning .My1, 2013, with the effective date of this Act and ending June 30, 2015, thestate board of higher education may enter a purchase and financingagreement or agreements with a private entity and do all things necessaryand proper to authorize the purchase of the research enterprise andcommercialization building on the campus of the university of NorthDakota using donations, gifts, or other funds. The state board of highereducation shall provide a report to the budget section if the researchenterprise and commercialization building is purchased as provided underthis section.

    This final version was adopted by both the Senate and House.Chancellor s Approval n June 2013

    On June 27, UNO President Robert Kelley verbally explained that UNO proposedto issue an RFP for financing UNO's purchase of the REAC building.On June 28, Acting Interim Chancellor Larry Skogen sent a letter to PresidentKelley, which stated: I approve the purchase terms and financing agreement forthe Research Enterprise and Commercialization building (REAC1) as discussedwith Dr. Robert Kelley on June 27, 2013.

    UNO s Financing ArrangementsOn December 31, 2012, the long-term liabilities of the UNO Research Foundationtotaled $9,612,945.43. A majority of this amount ($8,485,930 was owed toBremer Bank).On July 2, UNO issues a request for proposals from Grand Forks financialinstitutions for a loan in the amount of approximately $9,800,000 to finance the

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    acquisition of the Research Enterprise and Commercialization building on thecampus of UND ... from the University of North Dakota Research Foundation.The RFP was sent to fourteen financial institutions.Four financial institutions submitted proposals to UNO. UNO then conducted aninternal review, which involved Assistant Vice President of Finance Peggy Luckeand Vice President for Finance and Operations Alice Brekke. They then sent allinformation to Jon Arntson, UNO's bond counsel, who conducted an independentreview. The group concluded that Bremer was the right choice. Bremer wasselected based o 10 year payment term with a balloon on 10/1/23 Amortized using 25 years No prepayment penalty after 8/1/18 Low additional fees The flexibility to reposition the load after a period of time

    Transfer o wnershipUNO retained Steven Wall Appraisal Services, Inc., Chanhassen, MN, toappraise the REAC building and related property. n a report dated November19, 2012, the appraiser valued the real estate at $8,580,000 and the personalproperty/fixtures at $1,226,000 for a total valuation of $9,806,000.UNO retained independent counsel, the Fredrikson & Byron law firm, to representUNO in the purchase of the REAC building. On July 12, an attorney in that firmsent a letter to the UNO Research Foundation, which stated that UNO isprepared to proceed with the purchase of the University of North DakotaResearch Foundation's ... building, including all furniture, fixtures, and otherpersonal property. The University is prepared to pay $9,800,000.On July 29, an attorney for the Serkland Law Firm, which had been retained bythe Foundation, replied stating:The Foundation is willing to accept the University's offer to sell theFoundation's building, including all furniture, fixtures, and personalproperty, for the total purchase price of $9,800,000. The sale by theFoundation is continent upon verification and review of the November 19,2012 appraisal report by an independent appraiser. Since the priorappraisal was request by the University, the Foundation believes it needsto verify that appraised value before finally agreeing to the offered price. *

    The sale will also be contingent upon receiving approval from the NorthDakota Attorney General's office.UNO contacted Steven Wall Appraisal Services again in September 2013, askingwhether the value of the property had changed. n a September 3 letter to Alice

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    Brekke, Vice President for Finance & Operations, UNO, Wall replied: as o thedate o this letter, September 3 2013, the value o the Real Estate remains at$8,580,000 and the value o the Personal Property and the Trade Fixturesremains at $1,226,000, for a total o $9,806,000.On September 13, Assistant Attorney General Parrell Grossman sent an email tothe Foundation's attorney, which stated: The Attorney General has reviewed theproposed transaction and hereby waives the 45-day waiting period pursuant toNDCC 10-33-122. The Attorney General has no objection to the sale oUNDRF's REAC1 building to the University o North Dakota.On September 16, 2013, the State Board o Higher Education dba the Universityo North Dakota purchased the REAC building and related personal propertyfrom the University o North Dakota Research Foundation for $9.8 million.

    udget SectionThe SBHE has not yet submitted a report to the Budget Section concerning thepurchase o the REAC building.

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    ( JCUS d 'MG :20140211 University of North Dakota Research Foundation 2/11/2014

    Name Employer Title Joined epartedColeal, David 'Cirrus Design [President 12/9/2005 5/1 /2009Devine, Mike Alion ivP 12/9/2005 5/1/2009Jasper John Bolder Thinking :President CEO 12/9/2005 5/17/2011Lanstaff, John Cangene Corp. President CEO 12/9/2005 5/17/2011Kupchella, Charles UND President 12/9/2005 5/1/2009

    Dir. Of Technology Transfer andPetell, Jim UND Commercialization 12/9/2005 5/17/2011Alfonso, Peter UND VP for Research 12/9/2005 5/2/2007Gallager, Robert UND VP for Finance Operations 3 15 2006 5/1/2009Melland, Jim Surefoot Corp. General Manager ' 3 15 2006 5/17/2011Johnson, Gary UND , nterim VP for Research 5 2 2007 5/1/2009Rogers Lonnie Ideal Aerosmith President 5 1 2009 5/17/2011Kelley, Robert UND President 5 1 2009

    Interim VP for Research EconomicMilavetz, Barry UND Development 5 1 2009 5/17/2011Brekke, Alice UND iVP for Finance Operations 5/17/2011 5/22/2013

    VP for Research EconomicJohnson, Phyllis UND Development 5/17/2011Molmen, Dave ,Aitru CEO 1/11/2012

    Associate VP for Intellectual; Property Commercialization

    Moore, Michael UND , Economic Development 10/26/2010 iSeverson, Jim Pinnacle Reach :Owner Principle 8 24 2010Wright, Will Eide Bailley Retired 1 7 2010

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    ;t.r()cfi H 5

    OR Gl lt riiPURCHASE AND SALE AGREEMENT

    This PURCHASE AND SALE AGREEMENT (this Agreement ) is made as of September 6 ,2013(the Effective Date ), by and between University of North Dakota Research Foundation a North Dakotanonprofit corporation (the Seller ), and State Board of Higher Education dba the University of NorthDakota agencies of the State of North Dakota (the Purchaser ).

    WHEREAS, Purchaser is the fee owner of the tracts or parcels of land lying and being in the County ofGrand Forks, State of North Dakota, described as follows:Lot One (I), Block One (1 , West Campus Resubdivision previously platted asBlocks Two (2) and Three (3) of Burlington North Industrial Park Resubdivisionto the City of Grand Forks, North Dakota.The real property or its address is commonly known as 4305 James Ray Drive,Grand Forks, North Dakota 58201 (the Land ).

    WHEREAS, Seller is presently a tenant occupying and holding the Land under a Ground Lease and hasmade ceriain improvements to the Land, including, but not limited to, a research facility situated upon the Land(collectively, the Improvements );NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter set fOJth, it isagreed by and between the parties as follows:

    ARTICLE IPURCHASE AND SALE

    Section 1.1 Agreement of Purchase and Sale. u ~ j e c t to the terms and conditions hereinafter setforth, Seller agrees to sell and convey to Purchaser, and Purchaser agrees to purchase from Seller, the following:{a the Improvements affixed to or located on Land;(b) any and all of Seller's right, title and interest in and to all tangible personal propertylocated upon the Land Ol' within the Improvements, (collectively, the Personal Property );(c) any and all of Seller's right, title and interest in and to the leases, subleases, licensesand othe1 agreements covering all or any portion of the Property (collectively, the Leases ); and(d) any and all of Seller's right, title and interest in and to {i all assignable contracts andagreements (collectively, the Operating Agreements ) relating to the upkeep, repair, maintenance,management or operation of the Land, Improvements, Personal Property and/or Leases (collectively, theProperty ), but only to the extent such Operating Agreements are designated by Purchaser as AssumedOperating Agreements in accordance herewith, {ii all warranties {express or implied) from any contractors,subcontractors and/or other pmties in connection with the Property, (iii) all assignable existing permits, licenses,approvals and authorizations issued by any governmental authority in connection with the Property, (iv) allplans and specifications (including, structural, HV AC, mechanical and plumbing plans and specifications)which relate to the Property.

    Section 1.2 Purchase Price. Seller is to sell and Purchaser is to purchase the Property for theamount of 9,800,000 (Nine Million and Eight Hundred Thousand Dollars) (the Purchase Price ).Section 1.3 Payment of Purchase Price. The Purchase Price shall be payable in full at Closing incash, by wire transfer, or other immediately available funds.

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    ARTICLE IIAUTHORIZATIONSection 2.1 Authorization. The parties acknowledge and agree that this Agreement must receiveapproval from the Attorney General for the State o Notth Dakota (the Attomey Generaf') and Seller and/or

    Purchaser must receive authorization to proceed under this Agreement. Accordingly, the pmties rights andobligations under this Agreement are contingent upon receiving such approval and authorization from theAttorney General.ARTICLE IIICLOSING

    Section 3.1 Time and Place. The consummation o the transactions contemplated hereby (theClosing ) shall occur on or before September 15, 2013 (the Closing Date ). At the Closing, Seller andPurchaser shall perform the obligations set forth in, respectively, Section 3.2 and Section 3.3 hereof, theperformance o which obligations shall be concurrent conditions. The Purchase Price and all documents shall bedelivered on or before the Closing Date.Section 3.2 Seller s Obligations at Closing. At Closing, Seller shall:

    a) deliver to Purchaser a duly executed bill o sale (the Bill of Sale ) conveying theProperty, substantially in the form attached hereto as Exhibit A(b) assign to Purchaser all o Seller s interest in and to the Leases, by duly executedassignment and assumption agreement (the Assignmeut ofLeases ) substantially in the form attached hereto asExhibit B;(c) to the extent assignable, assign to Pmchaser, and Purchaser shall assume, Seller sinterest in the Assumed Operating Agreements and the other intangibles by duly executed assignment andassumption agreement (the Assignment ofOperating Agreemellts ) substantially in the form attached hereto asExhibit C;(d) deliver to Purchaser a duly executed termination o ground lease (the Termination ofGround Lease ) substantially in the form attached hereto as Exhibit D.e) deliver to Pmchaser fully executed originals or copies o all Leases and AssumedOperating Agreements and such other leasing and property files and records that are in the Seller s possession;and

    (f) deliver such additional documents as shall be reasonably required to consummate thetransaction contemplated by this Agreement.Section 3.3 Purchaser s Obligations at Closing. At Closing, Purchaser shall:

    (a) pay to Seller the full amount o the Purchase Price;b) join Seller in execution o the Bill o Sale, the Assignment o Leases, the Assignment oOperating Agreements, and the Termination of Ground Lease; andc) deliver such additional documents as shall be reasonably required to consummate thetransaction contemplated by this Agreement.

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    Section 3.4 Transaction Taxes and Closing Costs.(a) Seller shall pay any transfer tax, sales tax, documentary stamp tax or similar tax, if any,

    which becomes payable by reason of the transfer of the Property from Seller to Purchaser;(b) Purchaser shall pay the following costs and expenses: (i) any recording fees; and (ii)any and all costs and fees associated with any financing obtained by Purchaser.(c) All costs and expenses incident to this transaction and the Closing thereof, and notspecifically described above, shall be paid by the pmiy incurring the same. he provisions of this Section 3.4shall survive the Closing.

    Section 3.5 Conditions Precedent to Obligations of Purchaser. he obligation of Purchaser toconsummate the transaction hereunder shall be subject to the fulfillment on or before the date of Closing of allof the following conditions, any or all of which may be waived by Purchaser in its sole discretion:

    (a) Seller shall have delivered to Purchaser all of the items required to be delivered toPurchaser pursuant to Section 3.2 hereof;(b) Seller shall have performed and observed, in all material respects, all covenants and

    agreements of this Agreement to be performed and observed by Seller as of the date of Closing;Section 3.6 Condit ions Precedent to Obligations of Seller. The obligation of Seller to consummate

    the transaction hereunder shall be subject to the fulfillment on or before the date of Closing of all of thefollowing conditions, any or all of wh ich may be waived by Seller in its sole discretion:

    (a) Seller shall have received the Purchase Price pursuant to and payable in the mannerprovided for in this Agreement;(b) Purchaser shall have delivered to Seller all of the items required to be delivered toSeller p u r s t ~ n t to Section 3.3 hereof;(c) Purchaser shall have performed and observed, in all material respects, all covenants and

    agreements of this Agreement to be performed and observed by Purchaser as of the date of Closing; andARTICLE IVREPRESENTATIONS WARRANTIES AND COVENANTS

    Section 4 1 Representations, Warranties and Covenants of Seller. Seller hereby makes thefollowing representations, warranties, covenants and agreements to Purchaser as of the Effective Date and as ofthe Closing Date:(a) Non-Contravention. The execution and delivery of this Agreement by Seller and theconsummation by Seller of the transactions contemplated hereby will not violate any judgment, order,

    injunction, decree, regulation or ruling of any court or any governmental or quasi-governmental bodies oragencies having jurisdiction over Seller, or any other obligation of Seller.(b) Permits. Seller is in receipt of all permits required by all governmental authorities forthe construction, operation, occupation and use of the Propetty as the Propetty is intended to be constructed,

    operated, occupied and used, all permits are in full force and effect.(c) Eo_gumbrances. Seller is not in default of any obligation of Seller under any mortgageor deed of trust currently encumbering the Property, and Seller and/or the Property is in compliance with all

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    terms and conditions of all easements, restrictions, covenants, restrictions and other matters of record pertainingto the Property.d) Operating Agreements. Seller shall provide a true, correct and complete Jist of allmaterial Operating Agreements. Seller shall terminate, at its sole cost and expense, on or before Closing, all

    Operating Agreements other than the Assumed Operating Agreements. For the purposes hereof, Assumedperating Agreements shall mean those Operating Agreements, if any, that Purchaser expressly elects toassume at Closing by written notice to Seller prior to Closing.The representations, warranties and covenants of Seller set forth in Section 4.1 hereof shallsurvive Closing for a period of twelve 12) months.

    RTICLEVDEFAULTSection 5 I Default by Either Party. If the Closing does not occur due to any default or breach byeither party, both Seller and Purchaser hereby waive all remedies avai able.

    ARTICLE VIMISCELLANEOUSSection 6.1 Notices. Any notice pursuant to this Agreement shall be given in writing by registeredor cettified mail, return receipt requested, or legible facsimile or email transmission, sent to the intendedaddressee at the address set forth below:ff to Seller:

    Copy to:

    If to Purchaser:

    UND Research FoundationAttn: Michael F. Moore, CLPAssociate Vice President, IP Comm. Econ. Dev.University ofNotth Dakota102 Twamley Hall264 Centennial Drive, Stop 7095Grand Forks, ND 58202-7095Facsimile: 70 I) 777-6708Emai I michael. f.moore@research. und.eduTim RichardSerkland Law Firm10 Roberts Street, P.O. Box 6017Fargo, ND 58108-6017Facsimile: 701) 237-4049Email: [email protected] ofNorth DakotaAttn: Alice BrekkeVice President for Finance and OperationsUniversity ofNo11h Dakota314 Twamley Hall264 Centennial Drive, Stop 8376Grand Forks, ND 58202Email: [email protected]

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    Copy to: Todd E. ZimmermanFredriksen Byron P.A.51 Broadway, Suite 402Fargo, ND 58 02Facsimile: (701) 237-8220Email: [email protected]

    The provisions o this section do not supersede any statutes or rules o f court regarding notice o claimsor service of process. In the event o a conflict between this section and any statutes or rules o court, thestatutes or rules o coUit shall govern. Section 6.2 Modifications. This Agreement cannot be changed orally, and no executory agreementshall be effective to waive, change, 11;10dify or discharge t in whole or in part unless such executory agreementis in writing and is signed by the parties against whom enforcement of any waiver, change, modification ordischarge is sought.Section 6.3 Entire Agreement. This Agreement, including the exhibits and schedules hereto andthereto, contains the entire agreement between the patties hereto pe1taining to the subject matter hereof and fully

    supersedes all prior written or oral agreements and understandings between the parties pettaining to such subjectmatter.Section 6.4 Counterparts: This Agreement may be executed in counterparts, all such executedcounterparts shall constitute the same agreement, and the signature o any pmty to any counterpa1t shall bedeemed a signature to, and may be appended to, any other counterpart. Further, the pa1ties agree that telecopiedor electronically mailed .pdf signatures may be used in place o original signatures on this Agreement.Section 6.5 Severability. If any provision o this Agreement is determined by a coutt of competentjurisdiction to be invalid or unenforceable, the remainder o this Agreement shall nonetheless remain in fullforce and effect; provided that the invalidity or unenforceability o such provision does not materially adverselyaffect the benefits accruing to any p t ~ y hereunder.Section 6.6 Applicable Law. This Agreement shall be governed by and construed in accordancewith the laws of the State North Dakota. Any action to enforce this Agreement must be brought in the NortheastCentral Judicial District Court located in Grand Forks County, Notth Dakota.Section 6.7 No Third-Party Beneficiary. The provisions o this Agreement and of the documents tobe executed and delivered at Closing are and will be for the benefit o Seller and Purchaser only and are not forthe benefit o any third party, and accordingly, no third party shall have the right to enforce the provisions o thisAgreement or o the documents to be ,executed and delivered at Closing.Section 6.8 Captions. The section headings appearing in this Agreement are for convenience oreference only and are not intended, to any extent and for any purpose, to limit or define the text o any sectionor any subsection hereof.Section 6.9 Construction. The patties acknowledge that the parties and their counsel have reviewedand revised this Agreement and that the normal rule o construction to the effect that any ambiguities are to beresolved against the drafting party shall not be employed in the interpretation o this Agreement or any exhibitsor amendments hereto.

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    JN WITNESS WHEREOF the pmties hereto have caused this Agreement to be duly executed as of the day andyear first above written.

    SELLER:

    University of North Dakota Research Foundationa Notth Dakota nonprofit corporation

    By: w ~ a ~ t r Name: Wilbur WrightTitle: Vice PresidentPURCHASER:

    State Board of Higher Education dba the University of NorthDakota and the University of North Dakota\ ~ k ; }IJ / l t J 2 ...By: t./C, _/v-. / ulc. c / \ . ~ j Name: Robett 0 Kel /

    Title: President U n i ~ r s i t y ofNorth Dakota /

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    EXHIBIT AFORM OF BILL OF SALETHIS BILL OF SALE (this Bill o Sale ), is made as of September /6, 2013 by and between

    University of North Dakota Research Foundation, a North Dakota nonprofit corporation (the Seller ), andState Board of Higher Education dba the University of North Dakota, agencies of the State of NorthDakota, (the Purchaser ).W I T N S S T H ~

    _ WHEREAS, pursuant to the terms of that certain Purchase and Sale Agreement, dated as ofS q (; I b , 2013, by and between Seller and Purchaser (as the same may be amended or modified, theSaM Agreement ), Seller agreed to sell to Purchaser, inter alia, cettain improvements located on real propetiyowned by Purchaser, including certain personal propetiy and other intangible propetiy, more particularlydescribed in the Sale Agreement (collectively, the Property ). Initially capitalized terms not otherwise definedherein shall have the respective meanings ascribed to such terms in the Sale Agreement;NOW THEREFORE, in consideration of the receipt ofT N AND N0/100 DOLLARS ( 10.00) andother good and valuable consideration paid in hand by Purchaser to Seller, the receipt and sufficiency of whichare hereby acknowledged, Seller has GRANTED, CONVEYED, SOLD, TRANSFERRED, SET OVER andDELIVERED and by these presents does hereby GRANT, SELL, TRANSFER, SET OVER and DELIVER toPurchaser, its legal representatives, successors and assigns, and Purchaser hereby accepts all of Seller's righttitle and interest in and to the Property.This Bill of Sale may be executed in counterpa1ts, each of which shall be an original and all of whichcounterparts taken together shall constitute one and the same agreement.f any term or provision of this Bill of Sale or the application thereof to any persons or circumstancesshall, to any extent, be invalid or unenforceable, the remainder of this Bill of Sale or the application of such termor provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not

    be affected thereby, and each term and provision of this Bill of Sale shall be valid and enforced to the fullestextent permitted by law.{Remainder o.fpage intentionally left hlmzkf

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    IN WITNESS WHEREOF the pmiies hereto have caused this Bill of Sale to be duly executed as of the day andyear first above written.

    SELLER

    University o North Dakota Research Foundationa North Dakota nonprofit corporation

    B y ~ M t j ~N amc: ~ i l b u r r i g h ~TJtle: Vice President

    PURCHASER

    State Board o Higher Education dba the University o NorthDakota and the University o North Dakota) f t;i2JL . J lBy: I ( . J t ~ < - - ~ ~ _ , r{l / c l ) ~ - - ~

    Name: Robert 0. Kel;jTitle: President University of North Dakota r

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    EXHI ITFORM OF ASSIGNMENT OF LEASES

    THIS ASSIGNMENT OF LEASES (this Assignment ), is made as of September /6 2013 by andbetween University of North Dakota Research Foundation, a North Dakota nonprofit corporation (theSeller and Assignor ), and State Board of Higher I

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    IN WITNESS WHEREOF the parties hereto have caused this Assignment to be duly executed as of the day andyear first above wril1en.

    ASSIGNOR:University of North Dakota Research Foundationa Notih Dakota nonprofit corporation

    By: i / v - ~ - ' - ' __ ;:y=Name: Wilbur WrightTitle: Vice President

    ASSIGNEE:

    State Board of Higher Education dba the University of NorthDak {) d the U n i v e 1 : ~ i t y of North D ~ k o ~ aBy - { ~ W ' t c / f _ j A / ~ ( 1Name: Robert el -Title: President Uni1 1:rsity ofNotth Dakota

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    .

    EXHI ITCFORM OF ASSIGNMENT OF OPERATING AGREEMENTSTHIS ASSIGNMENT OF OPERATING AGREEMENTS (this Assignment ), is made as ofSeptember _ 2013 by and between University of Nol tiJ Dakota Research Foundation, a N01ih Dakota

    nonprofit corporation (the Seller and Assignor ), and State Board of Higher Education dba the Universityof North Dakota, agencies of the State of North Dakota, (the Purchaser and Assignee ).WITNESSETH

    r WHEREAS, pursuant to the terms of that certain Purchase and Sale Agreement, dated as ofJ t ;J . I t ____ 2013, by and between Assignor as Seller and Assignee as Purchaser (as the same may beamenckd or modified, the Sale Agreement ), Assignor agreed to sell to Assignee, inter alia, ce1tainimprovements located on real property owned by Assignee, including certain personal property and otherintangible property, more particulady described in the Sale Agreement (collectively, the Property ). Initiallycapitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in theSale Agreement; and

    WHEREAS, the Sale Agreement provides, inter alia that Assignor shall assign to Assignee rights toceJtain intangible property and operating agreements relating to the Land and Improvements and that Assignorand Assignee shall enter into this Assignment.NOW, THEREFOllli, in co.nsideration of the premises and the mutual covenants herein contained, thepatties hereto hereby agree as follows:l. Assignment. Assignor hereby assigns, sets over and transfers to Assignee all of Assignor sright, title and interest in to and under the following, if and only to the extent the same may be assigned byAssignor without expense to Assignor (collectively, the Operating Agreeme11ts ). Assignor agrees toindemnify, defend, and hold Assignee and its agents free and harmless from and against any and all damages,losses, costs, claims, liabilities, expenses, demands and obligations, of any kind or nature whatsoever (includingattorneys fees and costs) attributable to the Operating Agreements, to the extent arising or accruing prior to the

    date hereof or to the extent attributable to events or circumstances which may occur prior to the date hereof.2. Assumption. Assignee hereby assumes and takes responsibility for all damages, losses, costs,claims, liabilities, expenses, demands, and obligations of any kind or nature whatsoever attributable to theOperating Agreements, to the extent arising or accruing on or after the date hereof or to the extent attributable toevents or circumstances which may occur on or after the date hereof.3. Miscellaneous. This Assignment and the obligations of the parties hereunder shall survive theclosing of the transaction referred to in the Sale Agreement and shall not be merged therein, shall be bindingupon and inure to the benefit of the parties hereto, their respective legal representatives, successors and assigns,shall be governed by and construed in accordance with the laws of the State of North Dakota applicable toagreements made and to be wholly performed within said State and may not be modified or amended in anymanner other than by a written agreement signed by the patty to be charged therewith.4. Severability. If any term or provision of this Assignment or the application thereof to anypersons or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Assignment orthe application of such term or provision to persons or circumstances other than those as to which it is heldinvalid or unenforceable shall not be ,affected thereby, and each term and provision of this Assignment shall bevalid and enforced to the fullest extent permitted by law.5. Counterparts. This Assignment may be executed in counterpmis, each of which shall be anoriginal and all of which counterparts taken together shall constitute one and the same agreement.

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    ASSIGNOR:

    University of North Dakota Research Foundationa No1th Dakota nonprofit corporation

    By W ~ { .,)TName: Wilbur Wright. Title: Vice President

    ASSIGNEE:

    State Board of Higher Education dba the University of NorthDakota and the University of North Dakota~ - . { Ii . 7 I ,By /(( _ A < / U { { - { / t t - C ~ d /Name: Robert 0 KelTitle: President Univfrsity ofNorth Dakotai

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    EXHIBITDTERMINATION OF GROUND LEASE

    THIS TERMINATION OF GROUND LEASE this Termination ), is made as of September /b,2013 by and between University of North Dakota Research Foundation, a N01th Dakota nonprofitcorporation the Lessee ), and State Board of Higher Education dba the University of North Dakota,agencies of the State of North Dakota, the Lessor ).

    WI TN SS T J 1:WHEREAS, Lessor is the fee owner of the tracts or parcels of land lying and being in the County ofGrand Forks, State ofNo1th Dakota, described as follows:

    Lot One 1 , Block One I), West Campus Resubdivision previously platted asBlocks Two 2) and Three 3) of Burlington North Industrial Park Resubdivisionto the City of Grand Forks, North Dakota.The real property or its address is commonly known as 4305 James Ray Drive,Grand Forks, North Dakota 5820 l. the Lamf')WHEREAS, Lessee is presently a tenant occupying and holding the Land under a Ground Leaseand has made ce1tain impmvements to the Land, including, but not limited to, a research facility situated uponthe Land collectively, the lmprovemems )

    NOW, THEREFORE in consideration of the premises and the mutual covenants herein contained, thepmties hereto hereby agree as follows:1 Termination. L c s s 1 ~ and Lessee mutually agree to terminate the Ground Lease, including allrights and obligations of the pa1ties thereto.2. Recording. The pa1ties agree to execute any documents necessary for the full cancellationand/or termination of the Ground Lease, including, but not limited to, any documents to be filed with the Officeof the County Recorder in Grand Forks County, North Dakota.

    {Remainder ofpage intentional{v left blank/

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    IN WITNESS WHEREOF, the parties hereto have caused this Termination of Ground Lease to be duly executedas oftbe day and year first above written.

    7272234_4.doc

    LESSEE:University of North akota Research Foundationa North Dakota nonprofit corporation

    By: w ~ 0 t J ~ UName: Wilbur WrightTitle: Vice President

    LESSOR:

    State BoaJ d of Higher Education dba the University ofNorthakota and the University of North akota( .,/ / 1 - 1By:: Lt./l{A_A.. i ~ ~Name: Robert 0 Kel

    Title: President, University ofNorth Dakot

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    GROUND LEASE AND DEVELOPMENT AGREEMENfbetweenTHE STATE BOARD OF HIGHER EDUCATION ANDTHE UNIVERSITY OF NORTH DAKOTAand

    fVV;J us .tl

    Dli: l .d A/fN

    UNIVERSITY OF NORTH DA.l(OTA RESEARCH FOUNDATION

    l,_.f_qrties.This Ground Lease and Development Agreement {''Agreement") is executed this Is rday of M . . u e . ~ 2006, by and between THE STATE BOARD OF HIGHER EDUCATIONAND THE UNIVERSiTY OF NORTH DAKOTA, agencies of the State of North Dakota("'University''), ht..'T'cinafter also reft." T Xi to al LESSOR, and UNIVERSITY. OF NORTHDAKOTA RESEARCH FOUNDATJON, a North Dakota nonprofit corporation (''UNDRF"},hereinafter also referred to as LESSEE.

    ~ , _ J , , g g g L ~ ~ m m tLESSOR hereby .agrees to and does lease to LESSEE and LESSEE agrees to and herebydocs lease from LESSOR the premises hereafter described for the term and at the rental and uponthe conditions and for the purposes hereinafter set forth.

    ;t_Oescrigli.Q l.Qfjhe l:eased_Prem}ses.Thf leased premises consisting of approximately 45)000 square feet more or less are asse1 forth in Exhibit "A'' attached hereto and inCQrporated by reference here (''Premises"} being

    the site plan prepared by LESSEE for the purpose of constructing a Centers of Excellence forLife Sciences and Advanced Technology ("COELSAT".)~ 1 _ , e n g t h of Lease.

    a. Tm ID This A g n ~ c m c m shall commence upon execution of this Agreement("Commencement Date") and shall continue until October l, 2036. Upon temination, pursuantto this s e c t i o n ~ the Premises shall return to the exclusive control of LESSOR. Premises atLESSOR's option .and at LESSEE's expense shall be returned jn the same condition as existedprior to Agreementb. Qntion to R ~ & ~ ~ . LESSEE in its sole discretion shall have the option to renew thisAgreement for two (2) ten ( 0) year tem1s ("Extended Tenns") 1 provided that LESSEE is not indefault, has not violated any provision of this Agreement and has provided written Mtice ofintent to exercise the option to renew to LESSOR no later than ninety (90) days prior to thetcnninati9n of the prior lease tenn. Terms and conditions of this Agreement during anyExtended Term shall be tho same as substantially oontaincd herein.c. ,Rjght V12on T mlliq 1Jim1. At the end of the thirty (30) year term of titis Agreement:, orat the end of any subsequent Extended Ten-n elcc,tcil by LESSEE, pDJ'agraph 20 herein entitled"LESSEE's Rights Upon Termination" shall apply.

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    i,%.l

    d. Access. LESSEE shall have illlencumbered and exclusive use of the Premises toconstruct the CO ELSA T as described in Exhibit B attached hereto and all the improvementsassociated therewith.5 Rent

    a. Base Rent. The base annual rent for the entire tenn of this agreement and any extended tenns shall be One Dollar ( 1.00).b. Payment of Rent. All rent as herein shall be prepaid 30 years in advance uponexecution of this agreement. There shall be a one time fee of Two Thousand Five Hundreddollars ( 2,500.00) to offset the LESSOR's expenses for inspections and certifications. The saidfee shall be paid in full upon execution of his agreement.

    6 Authorized Uses and Purposesa. Research Enterprise and Commercialization Facility. LESSEE understands the

    primary use of the Premises shall be for constrUcting and operating a research' enterprise andcommercialization facility, known initially as COELSAT, and limited to the functions of the typeof facility used for research and commercialization work and ventures which comply with theLESSOR's policies and regulations. LESSEE shall operate a COELSAT in a safe mannerconsistent with nonnal operating practices and applicable laws and regulations, including thepolicies and procedures established by the State Board of Higher Education and University ofNorth Dakota. Any use other than the operation of a COELSAT shall require the writtenapproval of LESSOR. Such approval shall not be unreasonably withheld if the proposed otheruses are consistent with and appropriate to LESSOR's mission and purposes.

    b. Cost of Improvements. The cost of construction of all improvements to the Premisesshall be home by LESSEE. LESSEE agrees to obtain all necessary permits and pay all permitfees.c. Building Aonroval. LESSEE shall submit to LESSOR complete constructiondrawings and specifications for approval. Review and approval of the drawings will becompleted at stages of design development, including at the completion of design developmentwhere the drawings and specifications describe in complete detail all elevations, floor plans, andbuilding materials. Construction of the COELSAT will not begin until LESSOR has approvedall plans and drawings.d. Subsequent Alterations. LESSEE shall have the right during the tenn of thisAgreement to make alterations to existing improvements upon the Premises consistent with theoperation of a research enterprise and commercialization facility, provided, however, that nosuch alterations, etc. shall be commenced prior to obtaining LESSOR's written approval.

    7 Obligations of LESSORa. Operation and Maintenance of Adjacent Facilities. LESSOR agrees that during theTenn of this Agreement or any Extended Tenn, it shall, within its financial ability, operate,maintain and keep in good ,repair all public and common facilities and services on its groundsand adjacent facilities.10/31/06 Page 2 of15

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    f.

    b Paving and Parking Lots. All streets, sidewalks, and parking lots constructed by theLESSEE outside of the Premises shall be maintained and regulated by the LESSOR.Maintenance is limited to that routine striping, patching, cleaning, and snow removal required fornormal operation of a street, parking lot, or sidewalk.B. Obligations of LESSEE

    a Acceptance of Premises. LESSEE, by execution of this Agreement represents that thas inspected the Premises, and that it accepts the condition of same as they now exist, and fullyassumes all risks incident to the use thereof, including, but not limited to, any hidden, latent, orother dangerous conditions on the Premises. LESSEE accepts the Premises in the presentcondition and agrees to repair and maintain any improvements, fixtures, or any other object onthe Premises without expense to LESSOR. LESSEE further agrees to remove, or cause to beremoved at LESSEE s expense, any trash, garbage or debris generated by LESSEE s use of thePremises.b Outside Storage. Other than during construction, LESSEE will not store in a locationsusceptible to view by the public any equipment, materials or supplies on the Premises. Anyscreens or other devices used to keep equipment, materials or supplies from view shall be subjectto written approval by LESSOR.c. Lighting and Signs. LESSEE. shall secure in advance written approval from LESSORbefore placing any exterior lighting or exterior signs on the Premises and such approval shall not

    be unreasonably withheld. All signage used to identify the OELSA T will be similar to in shapeand construction signage currently in use by the LESSOR to identify major buildings.d. LESSEE s Taxes. LESSEE shall promptly pay any and all taxes and assessmentslevied on or against LESSEE s property on said Premises, and all licenses, permits, occupationaland inspection fees assessed or charged against said Premises of either party to this Agreement

    by reason of LESSEE s use or occupancy of said Premises, and LESSEE shall hold LESSORfree and harmless from any loss, damage, or expense, including reasonable attorney s fees,arising out ofor by reason of any charges specified in this subparagraph.If LESSEE, in good faith, desires to contest the validity or amount of any tax orassessment herein agreed to be paid by it, LESSEE shall not be in default hereunder in respect tothe payment of any taxes, payments in lieu of taxes, which LESSEE shall be required by anyprovision hereof to pay so long as LESSEE shall first notify LESSOR prior to the due datethereof of its intention to contest such payment, shall thereafter, in good faith and with allpossible promptness, contest such payment, and LESSEE shall deposit with LESSOR the amount

    of the taxes payable and may thereupon defer the payment of any such ta during such time as .the validity or amount of such taX is contested by LESSEE by appropriate legal proceedings.Should any rebate be made on account of any taxes paid by LESSEE, the amount of such rebateshall belong to and be paid to LESSEE.

    e Compliance with Laws. LESSEE agrees to comply with all laws, ordinances, rulesand regulations promulgated by LESSOR and any governmental unit having jurisdiction,applicable to the use of he Premises and to use the premises in compliance therewith.10/31/06 Page 3 of IS

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    i

    j Safety and Security. The parties hereby agree that LESSEE assumes all responsibilityand obligation for providing safety and security on the Premises, including, but not limited tomaking all necessary arrangements with the University of North Dakota Police Department andthe City of Grand Forks Fire Deparbnent to provide emergency access to the COELSA T. Allpolicy compliance for all chemical, radiation, biological and hazardous materials is to becoordinated with the UND Safety Office.

    k. Construction. LESSEE shall pay the entire cost of all buildings and improvementsconstructed by it on the Premises. LESSEE also agrees to pay the entire cost of all utilities,and/or other improvements to the LESSOR s property that is being completed for the purpose ofconstructing the research enterprise and commercialization facility.i. Pavement and Parking Lots_ LESSEE shall pay the entire cost of all paving for streets,parking lots, and sidewalks that are required for access to the Premises from adjacent streets.LESSEE shall be responsible for all major repairs to the streets, parking lots, and sidewalks that

    are caused by original construction defects and outside the scope of normal repairs. All regularoccupants of the CO ELSA T will e required to obtain parking permits from the LESSOR andcomply with the LESSOR s rules and regulations as they apply to traffic control and parking.9 Quiet Enjoyment.

    LESSOR covenants, warrants, and represents that, subject to the laws of the State ofNorth Dakota and regulations promulgated thereunder, it has full right and power to execute andperform this Agreement and to grant the estate leased herein and that LESSEE, upon payment ofrent herein specified and perfonnance of the covenants and agreements herein contained, shallpeaceably and quietly have, hold and enjoy the Premises during the full term of this Agreement,subject to LESSOR s right to inspect the Premises as stated in paragraph l 0 hereunder.10. LESSOR s Right to Entry.

    LESSOR, its agents, and employees shall have the right to inspect the Prerriises at anyreasonable time for the purpose of examining same and to ascertain if they are in good repair,and at any time during the construction of the improvements prior to occupancy to determine ifthe property meets applicable codes and is being constructed according to the plans andspecifications submitted to the LESSOR y the LESSEE and approved by the LESSOR prior tothe start of construction. Prior to any inspection by LESSOR other than during the constructionperiod, it shall arrange with LESSEE for a suitable time to make such inspection, except inemergency situation such as fire or other conditions hazardous to property or life.11. Civil Rights Assurances.

    LESSEE, in the use of the Premises for itself, its representatives, successors in interest,and assigns, as a part of the consideration hereof, does hereby covenant and agree as a covenantrunning with the premises that: (1) no person on the grounds of sex, race, color, creed, physicalcondition, developmental disability, sexual orientation, national origin or ancestry shall beexcluded from participation in, denied the benefits of, or be otherwise subjected todiscrimination in the use of said facilities; (2) that in the construction of any improvements on,over, or under such premises and the furnishing of services thereon, no person on the grounds ofsex, race, color, creed, physical condition, developmental disability, sexual orientation, national10/31/06 Page 5 of15

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    origin or ancestry shall be ~ l u d e d from participation in, denied the benefits of, or otherwise besubjected to discrimination; and (3) that LESSEE shall use the Premises in compliance with allother requirements imposed by and state or federal agency having jurisdiction over the premises.12 Holding Over

    In the event that LESSEE holds over in its occupation of the Premises or any portionthereof after the expiration or other termination of this Agreement or any renewal of extensionthereof, such holding over shall operate and be construed as a tenancy from month to month atthe same monthly rental that applied to the last preceding month and subject to all the otherterms and conditions herein provided, and in no event shall the tenancy be deemed to be one oflonger than one month. However, nothing contained herein shall be construed as consent byLESSOR to the holding over of the Premises by LESSEE.13. Reasonable Exercise of LESSOR s Rights.

    All rights privileges, options and powers as are reserved by LESSOR with respect to thePremises, shall be exercised in a reasonable manner, without unnecessary and LUlreasonableinterference with LESSEE s use and occupancy of the Premises; and wherever LESSEE s rightsor privileges to act under this Agreement are stated to be subject to prior consent or approval ofLESSOR, it is LUlderstood and agreed that consent or approval shall not be arbitrarily orunreasonably withheld.14. Condemnation.

    In the event of any taking by condemnation or eminent domain of any portion of thePremises, LESSOR and LESSEE shaH share an compensation paid, or award given, for theproperty taken in accordance with their respective interests in the Premises, except that anycompensation paid or award given with respect to the improvements, furniture, furnishings,fixtures, equipment, and other personal property on the Premises owned by LESSEE shall inureto the benefit of LESSEE.

    If all of the Premises is taken, or if a portion thereof is taken so that the operation of thebusiness conducted on the Premises shall be as a result thereof economically not feasible, then,as of the date possession is taken pursuant to such condemnation or ext- Tcise of the right ofeminent domain, this Agreement shall cease and tenninate and the obligations of the partieshereunder for the unexpired term of this Agreement likewise shall cease and terminate. If only aportion of the Premises is taken and operation of the business conducted on the Premises iseconomically feasible, then the rent shall be equitably apportioned and adjusted.15. Damage to Premises

    In the event of partial or complete loss to the Premises and research enterprise andcommercialization facility by fire, the elements, accident, or other occurrence, LESSOR shallhave no obligation to compensate LESSEE for any loss incurred except that caused byLESSOR s negligence. LESSEE shall, within thirty (30) days of said loss give notice toLESSOR of its intent to repair or rebuild, or of its intent to terminate this Agreenient . In theevent that LESSEE chooses to repair or rebuild, the rent shall continue unabated. In the eventthat LESSEE chooses not to repair or rebuild, LESSEE wiH return the Premises to the conditionof its existence prior to LESSEE s improvements.10/31/06 Page 6 ofl5

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    ln the event that a loss or occurrence on the Premises caused by an act of LESSEE causesa loss to LESSOR s property, LESSEE shall, at its expense, repair, replace, or rebuild or cause tobe repaired, replaced or rebuilt, any such property damaged or lost to its previous condition assoon as reasonably possible, and to reimburse LESSOR, its agents, and employees for any andall costs and expenses, including reasonable attorney s fees incurred as a result of such loss ordamage.16. Default.

    LESSOR shall give written notice to LESSEE of any default under this Agreement in thepayment of rent or otherwise, and LESSEE shall have the right for ten 1 0} days after notice tocure any default with respect to the payment of rent, and shall have the right to cure otherdefaults in accordance with other provisions of this Agreement specifically applicable to saiddefault.17. Future Development.LESSOR reserves the right to further develop or improve the adjacent property inLESSOR s sole discretion, regardless of the desires or opinions of LESSEE.18. LESSOR s Right to Terminate.

    a. LESSOR shall have the right to tenninate this Agreement in its entirety immediatelyupon the happening of the following events or as otherwise specified in this Agreement:

    I) Filing of a petition, voluntary or involuntary, for the adjudication of LESSEEas a bankrupt.

    2) The making by LESSEE of any general assignment for the benefit ofcreditors.3) The abandonment by LESSEE of the Premises, except in connection with its

    surrender to an assignee, sublessee, mortgagee, or other parties succeeding to LESSEE sinterest hereunder, provided, however, that such surrender shall be subject to priorwritten approval by LESSOR, and further provided that nonuse of the Premises byLESSEE, so long as the Premises remain available for bona fide lease or sublease for anyuse or purpose authorized hereunder, shall not be deemed abandonment as long asLESSEE is not in default of any of the terms of his Agreement.b. Failure of LESSOR to declare this Agreement terminated upon a default by LESSEE

    for any of the reasons set out above shall not operate to bar or destroy the right of LESSOR tocancel this Agreement by reason of any subsequent violation of the terms of this Agreement.Further, the acceptance of rental by LESSOR for any period after default of any of the terms,covenant, or conditions t>Y LESSEE shall not be deemed a waiver of any right on the part ofLESSOR to cancel this Agreement.19. Mortgages nd Subordination.

    LESSEE shall have the right at any time during the tenn of this Agreement, at its ownexpense, to negotiate and obtain a loan or loans which may be secured.by a mortgage and UCCfilings on LESSEE s improvements to the Premises. In the event that LESSEE encumbers thePremises or any other land owned by LESSOR, said encumbrance shall be c u s ~ for immediatetennination of this Agreement by LESSOR. Further, LESSEE agrees that in the event of such an10/31106 Page 7 of15

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    .

    i.

    c. Insurance. As soon as LESSEE commences construction o the Premises or any partof it, or from and after any earlier date when LESSEE makes actual use of and occupies thePremises or any part of it, LESSEE shaH cause to be written a policy or policies of insurance inthe form generally known as commercial general liabili ty policies. In addition, if any boilers orelevators are included in improvements located on the Premises, LESSEE shall cause to bewritten boiler insurance and elevator insurance policies. The policies sha l insure LESSEEagainst all claims and demands made by any person or persons for injuries received inconnection with the operation and maintenance of the Premises, improvements, and buildingslocatt:d on the Property and for any other risk insured against by such policies. Each class ofpolicies shall be written within limits of not less than Five Hundred Thousand Dollars($500,000) for damages incurred or claimed by any one person for bodily injury, or otherwise,plus One Hundred Thousand Dollars ( 1 00,000) for damages to Premises, and for not less thanOne Million Dollars ($1,000,000) for damages incurred or claimed by more than one person forbodily injury, or otherwise, plus One Hundred Thousand Dollars ($100,000) for damages toproperty. All such policies shall name LESSEE and LESSOR, as their respective interests mayappear, as the insured persons. LESSEE shall promptly deliver evidence of each policy orpolicies (such as an ACORD certificate) to LESSOR as soon as they are written, t o g e t l u ~ r withadequate evidence ofthe fact that the premiums are paid. In addition, the insurance must includethe following:

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    1. Any deductible or s e l f ~ i n s u r e retention amount or other similar obligationunder the policies shall be the sole responsibility of he LESSEE. The amountof any deductible or self-retention is subject to approval by the LESSOR.2. The Insurance may be in a policy or policies of insurance, primary or excess,including the so-called umbrella or catastrophe form, and must be placed withinsurers rated at A or better by A.M. Best Company, Tnc., provided anyexcess policy follows form for coverage. "Follows form" means the excesspolicy to which it is excess. The policies shall be in form and terms approvedby the LESSOR.3. That the insurance required, through a policy or endorsement, shall include:a. A "Waiver of Subrogation" waiving any right to recovery theinsurance company may have against the University;b. A provision tltat the policy and endorsements may not be cancelled ormodified without thirty (30) days prior written notice to the LESSOR;c. A provision that any attorney who represents the LESSOR under thepolicy must first qualify as and be appointed by the North DakotaAttorney General as a Special Assistant Attorney General a5 requiredunder section 54-12-08.of the North Dakota Century Code;d. A provision that the LESSEE'S insurance shall be primary (i.e. payfirst) with respect to any insurance, self-insurance, or self-retentionmaintained by the University and that any insurance, self insurance or

    self retention maintained by the LESSOR shall be in excess ofLESSEE'S insurance and shall not contribute with it; ande. Cross liability severability of interest for all policies andendorsements.

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    '{

    e. By their effective dates, LESSEE shall deliver to LESSOR duplicate certificates ofinsurance.

    f. LESSEE shall pay premiums for all of the insurance policies it is required to carryunder the terms of this Agreement, and shall deliver to LESSOR evidence of such paymentbefore the payment of any premiums becomes in default. LESSEE shall also cause renewals ofexpiring policies to be written and the policies or copies thereof, as required by this Agreement,to be delivered to LESSOR at least ten ( 10) days before the policies expiration dates.23 Liability.

    Each party shall be responsible for claims, losses, damages, and expenses, which areproximately caused by the wrongful or negligent acts or omissions of that party of its agents,employees, or representatives acting within the scope of their duties. The liability of LESSOR issubject to the conditions and limitations set out in chapter 32-12.2 of the North Dakota CenturyCode. Nothing herein shall preclude either party from asserting against third parties any defenseto liability it may have under the Jaw or e construed to create a basis for a claim or suit whennone would otherwise exist. This provision shall survive the termination of this Agreement.24. Environment.

    t shall be the responsibility of LESSEE to verifY the environmental condition of thePremises. Any changes to the condition of the site as a result of any action on the part ofLESSEE shall be the sole responsibility of LESSEE. LESSEE agrees to remediate allenvironmental damages caused by any action on the part of LESSEE, and to pay any fines ordamages associated with such action. LESSEE will not permit or allow the. storing or release ofany hazardous substance, pollutant or contaminant on the Premises or otherwise engage in anyactivity that would subject LESSOR or LESSEE to liability in connection with the storage or useor release of such substances.25. Severability.

    In the event that any provision herein contained is held to be invalid y any court ofcompetent jurisdiction, the invalidity of any such provision shall in no way affect any otherprovision contained herein, provided that the validity of any such provisions does not materiallyprejudice either LESSOR or LESSEE in their respective rights and obligations contained in thevalid provisions of this Agreement.26. Force M ~ j e u r e

    lf act of God, acts of war, acts of terrorism, civil disturbance, labor strikes, governmentalaction, including the revocation of any license or permit necessary for the operationcontemplated in this Agreement, and/or the inadequate or disruption to the supply of materials,goods and/or labor, where such action is not due to LESSEE s fault, or any other causes beyondthe control of LESSEE shall have a adverse effect upon or otherwise impede any constructionphase of the CO ELSAT then any time l i m i ~ a t i o n s described within this agreement andconcerning the commencement of construction; shall be tolled and extended until LESSEEdetermines the herein described events no longer have an adverse effect upon or otherwiseimpede any construction phase of the COELSAT.J0/3l/06 Page of 15

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    ~ ~ i ~

    liJj

    27_ Noticeny notice required or desired to be served by either party upon the other may be served

    by depositing such notice in certified United States mail, return receipt requested, in a sealedenvelope, postage prepaid, and addressed as follows:a To LESSOR:Robert C GallagerVice President for Finance and OperationsUniversity ofNorth DakotaP O Box 8378Grand Forks, ND 58202-8378b. To L E S S E ~Jim PetellUniversity of North Dakota Research Foundation

    James Ray DriveGrand Forks, ND 58202or to such other address or person as shall from time to time be designated by the parties inwriting. The provisions of this section do not supersede any statutes or rules of court regardingnotice of claims or service of process. In the event ofa conflict between this section and anystatutes or rules ofcourt, the statutes or rules of court govern.28 Easements

    LESSOR hereby agrees that it shall grant Easements necessary to supply utilities,parking, and access to the Premises. Terms of all Easements shall be limited to the Term of theLease. Easements shall not be recorded, but will be executed as agreements between theLESSEE and LESSOR and shall describe the boundaries of the easements by graphic illustration.To the extent necessary, LESSOR shall provide adequate ingress and egress easement rights onland owned by the LESSOR but not leased to any other entity to permit full and complete accessof the Premises and the CO ELSA T by LESSEE, its agents, employees, contractors, invitees,guests, customers and other third parties.29 Net Rent

    All rents shall be net to the LESSOR. No service, convenience, gratuity, or other bartershall be deemed as payment of all or part of the rent other than the cash rent stipulated withinthis agreement. 30 Hazardous Substances:

    The LESSEE will be responsible for mitigating at no cost to the LESSOR the effect ofany buried materials, foreign soils, or other unknown conditions deleterious to the constructionofthe.GOELSAT or its related appurtenances. The LESSOR will be responsible for mitigationof he effect any Hazardous Material, Hazardous Waste or other foreign product that is regulatedunder any Environmental Law The LESSOR, based upon its knowledge, represents andwarrants to LESSEE, which representations and warranties the LESSEE has relied and will

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    continue to rely upon during the term of the Lease and extension thereof, the following withrespect to the Premises:

    (a) LESSOR nor any tenant of LESSOR has ever generated, transported, used, stored,treated, disposed of, or managed any Hazardous Waste or Hazardous Material (asdefined below) on the Premises. No lien has ~ e n imposed by any governmental agencyon any property, facility, machinery, or equipment owned, operated, leased, or used byLESSOR in connection with the presence of any Hazardous Material on the Premises.(b) I) LESSOR has no liability under, nor has it ever violated, any Environmental Law (asdefined below), (2) LESSOR and the Premises and any facilities and operations thereonare presently jn compliance with an applicable Environmental Laws; (3) LESSOR hasnever entered into or been subject to any judgment, consent decree, compliance order, or

    d m i n i s t r t ~ v e order with respect to any environmental or health and safety matter or theenforcement of any Environmental Law; and (4) LESSOR has no knowledge of theitems enumerated herein will be forthcoming.

    (c) LESSOR has provided to LESSEE copies of all docwnents, records, and informationknown to LESSOR concerning any environmental or health and safety matter relevant toLESSOR, whether generated by LESSOR or others, including, without limitation,environmental audits, environmental risk assessments, site assessments, documentationregarding off-site disposal of Hazardous Materials, spill control plans, and reports,correspondence, permits, licenses, approvals, consents, and othc:.. T authorizations relatedto environmental or health and safety matters issued by any governmental agency.

    (d) LESSEE shall have the right, exercisable at any time, to investigate and perfonn tests onthe Premises, at LESSEE'S sole cost and expense, to determine whether HazardousMaterials are located on the PremiseS' or if LESSOR (or any entity whose conductLESSOR is or may be responsible under any Environmental Law) has violated anyEnvironmental Law, and LESSEE may, in the event that such Hazardous Materialsand/or violations exist, demand that any and all required corrective action be taken byLESSOR .

    (e) For purposes of this Paragraph, I) Hazardous Material shall mean and include anyhazardous waste, hazardous material, hazardous substance, petroleum product, oil,asbestos or asbestos containing material, toxic substance, pollutant, contaminant, orother substance which may pose a threat to the environmental or to human health orsafety, as defined or regulated under any Environmental Law; (2) Hazardous Wasteshall mean and include any hazardous waste as defined or regulated under anyEnvironmental Law; and (3) Environmental Law shall mean any environmental orhealth and safety-related law, regulation, rule, ordinance, or by-law at the foreign,federal, state or local level, whether existing as of the date hereof, previously enforced,or subsequently enacted.

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    [ i,,

    ]

    f) There are no wells or underground petroleum storage tanks located on the Premises, norhave there ever been any wells or petroleum storage tanks located on the Premises.31 Entire Agreement.

    This Agreement constitutes the entire agreement between the parties and each partyunderstands that there are no other oral understandings or agreements other than those set outherein. This Agreement cannot be added to, altered, or amended in any way except by writtenagreement signed by all of the parties hereto.32. Successors and Assigns.

    The conditions, covenants, and agreements in the foregoing Agreement contained hereinare to be kept and perfonned by the parties hereto and shall be binding upon said respectiveparties, their successors and assigns.33 Choice o Laws Forum.

    This Agreement shall be governed, interpreted, and construed in accordance with thelaws of the State of North Dakota.. which shali also e the forum for any proceeding or suit inlaw or equity arising from or incident to the Agreement.34. Headings.

    The paragraph headings in this Agreement are used only tor ease of reference and do notlimit, modifY, construe, or interpret any provision of his Agreement.35 Non-waiver.

    The failure of either party to exerdse any of its rights under this Agreement for a breachthereof shall not be deemed to be a waiver of such rights, nor shall the same be deemed to be awaiver of any subsequent breach, either of he same provision or otherwise.36 Spoliation -:..NQ..tic .e .of Potential ClaimsLESSEE shall promptly notifY LESSOR of all potential claims that arise from or resultfrom this Agreement. LESSEE shall also take all reasonable steps to preserve all physicalevidence and information that may be relevant to the circumstances surrounding a potentialc1aim while maintaining public safety, and grants to LESSOR the opportunity to review andinspect the evidence, including the scene of an accident.

    The remainder