10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)
ý	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                              to                               .

Commission File No.: 000-09273

MOCON, Inc.
(Exact name of registrant as specified in its charter)

Minnesota (State or other jurisdiction of incorporation or organization)	41-0903312 (I.R.S. Employer Identification No.)
7500 Boone Avenue North Minneapolis, Minnesota (Address of principal executive offices)	55428 (Zip Code)

Registrant's telephone number, including area code: (763) 493-6370

Securities registered under Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.10 per share	The NASDAQ Stock Market LLC (NASDAQ Global Market)

Securities registered under Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES o    NO ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES o    NO ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES ý    NO o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    YES o    NO o*

* The registrant has not yet been phased into the interactive data requirements.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o
(do not check if a smaller
reporting company) Smaller reporting company ý

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES o    NO ý

The aggregate market value of the registrant's common stock, excluding outstanding shares beneficially owned by directors and executive officers, computed by reference to the price at which the common stock was last sold as of June 30, 2009 (the last business day of the registrant's second quarter) as reported by the Nasdaq Global Market System, was $43,179,422.

As of March 22, 2010, 5,192,445 shares of common stock of the registrant were deemed outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this annual report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the registrant's Proxy Statement for its 2010 Annual Meeting of Shareholders to be held May 20, 2010.

PART I

This annual report on Form 10-K contains or incorporates by reference not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. We refer you to the information under the heading "Part I. Item 1. Business—Forward-Looking Statements."

As used in this annual report on Form 10-K, references to "MOCON," the "Company," "we," "our" or "us," unless the context otherwise requires, refer to MOCON, Inc. and our subsidiaries.

All trademarks or trade names referred to in this report are the property of their respective owners.

ITEM 1.    BUSINESS

        MOCON, Inc. designs, manufactures, markets and services products and provides consulting services primarily in the measurement and analytical instrument and services markets. Our products include instruments that detect, measure and monitor gases and chemical compounds.

        Our gas and vapor permeation products were first used in the food packaging industry to measure small amounts of moisture which adversely affects dry cereal and other food packaging. Today our core business, the detection, measurement and analysis of vapors and gases, serves industries far beyond food packaging. Our products serve niche markets from foods, beverages, pharmaceuticals and consumer products, to oil and gas exploration, industrial safety and homeland security. For example, our newest analyzers measure the parameters necessary to predict the safe shelf life of packaged foods. This effort is leading us into the food and beverage safety markets worldwide.

        Our principal business strategy is to employ our product development and technological capabilities, manufacturing processes and marketing skills in market niches where we can successfully penetrate the market and then strive to become a leader in the market segment. Our management team continually emphasizes product innovation, product performance, quality improvements, cost reductions and other value-adding activities. We continually seek growth opportunities through technological and product improvement, by acquiring and developing new products, and by acquiring new companies.

        MOCON, Inc. was incorporated as a Minnesota corporation in February 1966, and was initially involved in the commercialization of technology developed for the measurement of water vapor permeating through various materials. Today, the key drivers in the industries we serve are food product safety and quality, improving workplace safety, and supplying equipment for oil and gas exploration.

        Historically, a significant portion of our revenues has come from international customers. In this regard, we acquired our subsidiary in Germany to solidify our presence and opportunities in Europe. Similarly, we opened our office in Shanghai, China to better serve our Asian customers.

        Our current plans for growth include substantial funding for research and development to foster new product development together with strategic acquisitions where appropriate.

        Our principal executive offices and worldwide headquarters are located at 7500 Boone Avenue North, Minneapolis, Minnesota 55428, and our telephone number is (763) 493-6370. Our website address is www.mocon.com. The information contained on our website or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report.

        We make available, free of charge on our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or

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furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We also make available, free of charge and through our website, to any shareholder who requests, the charters of our board committees and our Code of Ethics. Requests for copies can be directed to our Chief Financial Officer at the address and phone number above.

Products and Services

        We develop, manufacture, market and service measurement, analytical and monitoring products used to detect, measure and analyze gases and chemical compounds, as well as provide related consulting services. Please see our consolidated financial statements beginning on page F-1 for financial information concerning our business, including our sales, net income and net assets. Our sales are grouped into four major categories as discussed below.

Permeation Products and Services

        Our permeation products consist of systems and services that measure the rate at which various gases and vapors transmit through various materials. These products perform measurements under precise temperature and relative humidity conditions. The principal market for these products consists of manufacturers of packaging materials, including manufacturers of papers, plastic films, coatings and containers and the users of such packaging materials, such as companies in the food, beverage, pharmaceutical and consumer product industries.

        We also provide certain laboratory testing services to companies that have a need for our permeation products. These services consist primarily of testing film and package permeation for companies that:

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wish to outsource their testing needs to us;

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are interested in evaluating our instrumentation prior to purchase; or

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have purchased our products but have a need for additional capacity.

        Our permeation products and services accounted for approximately 57%, 53% and 53% of our consolidated sales in 2009, 2008 and 2007, respectively. Permeation instruments that we currently manufacture include OX-TRAN® systems for oxygen transmission rates, PERMATRAN-W® systems for water vapor transmission rates, and PERMATRAN-C® systems for carbon dioxide transmission rates. Our systems are available in a wide range of options for our customers, including high or low throughput, price, sensitivity and ease of use. They are primarily marketed to both research and development departments as well as production and quality assurance groups.

Gas Analyzer Instruments, Sensors and Detectors

        Our Baseline-MOCON, Inc. subsidiary located near Boulder, Colorado produces advanced gas analysis and monitoring instrumentation used in applications such as oil and gas exploration, process gas analysis, industrial hygiene and safety, environmental air monitoring and homeland security.

        We manufacture and sell two types of gas analyzer instruments—gas chromatographs and total hydrocarbon analyzers. These instruments are typically installed in fixed locations at the monitoring sites and generally perform their functions of detecting and measuring various hydrocarbons continually or at regular intervals. We also sell gas sensors and detectors which are sold to original equipment manufacturers (OEMs) of mobile equipment.

        Our gas analyzer instruments, sensors and detectors are for use in industrial hygiene (detection of hazardous gases in the workplace), hydrocarbon gas analysis for oil and gas exploration, contaminant

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detection in the manufacture of specialty gases, and environmental monitoring (tracking the release, or the presence, of toxic substances). These substances can include the intentional release of toxic gases by terrorists which would be a homeland security application.

        Our gas analyzer instruments, sensors and detectors accounted for approximately 18%, 23% and 21% of our consolidated sales in 2009, 2008 and 2007, respectively. We market some of these products under the names BEVALERT®, PETROALERT®, and piD-TECH®.

Packaging Products and Services

        We manufacture and sell two primary products in this group—headspace analyzers and leak detection equipment. Our headspace analyzer products are used to analyze the amount and type of gas present in the headspace of flexible and rigid packages, as applied to gas flushing modified or controlled atmosphere packaging. The principal market for these products consists of packagers of foods, beverages and pharmaceuticals. Our headspace analyzer products include the PAC CHECK® series of off-line headspace analyzers and the GSA™ series of on-line gas stream analyzers for continuous and intermittent monitoring of modified atmosphere packaging (MAP) and other gas flushing operations.

        Our leak detection products detect leaks in sterile medical trays, food pouches, blister packs and a wide range of other packages. We currently manufacture three types of leak detection instruments. The first type is a non-destructive leak detector that senses small amounts of carbon dioxide escaping from a package or tray. The second type of instrument detects leaks and checks for seal integrity by applying and measuring pressure within a package. The third type pulls a vacuum on a package and looks for vacuum or gas flow changes. The principal markets for these products are packagers of sterile medical items, pharmaceuticals and food products.

        Our packaging products and services group accounted for 18%, 16% and 17% of our consolidated sales in 2009, 2008 and 2007, respectively. We market these products under the names PAC CHECK®, LIPPKE®, SKYE® and PAC GUARD®.

Other Instruments and Services

Consulting and Analytical Services

        We provide consulting and analytical services, on a special project basis, for customers that require custom solutions to unique problems. Services that we typically provide relate to:

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absorption or diffusion of various compounds;

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shelf-life concerns;

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flavor or odor identification; or

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other special permeation applications.

        The principal markets for our consulting and analytical services consist of manufacturers of foods, beverages, pharmaceuticals, plastics, chemicals, electronics and personal care products.

Gas Chromatography Analyzer Products and Services

        We sell various gas chromatographic (GC) instruments and provide services with an emphasis on multidimensional gas chromatography through our Microanalytics Instrumentation Corp. (Microanalytics) subsidiary, which is located near Austin, Texas. A variety of GC specific applications have been developed by our Microanalytics personnel, ranging from petroleum and petrochemical purity assay to aroma and off-odor analysis for the food, beverage, packaging and other industries. We integrate GCs and components that we purchase from third parties to form multidimensional GC

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analyzer systems. These GC analyzers represent state-of-the-art technology in gas chromatographic separations and are used in identifying compounds causing off-odors in various products, in identifying critical aroma compounds, and in high purity analysis of single component matrixes. Our GC analyzer products include the AROMATRAX® systems for odor and aroma analysis and profiling, the PURI-TRAX™ systems consisting of a vinyl chloride monomer purity analysis system and a system for measuring trace levels of oxygenated hydrocarbons in a variety of hydrocarbon products and process streams such as liquefied petroleum gases, and the VAPO-JECT™ automated vaporizing injector system for permanent and liquefied petroleum gases. The principal markets for our GC analyzer products consist of food, beverage, petroleum, chemical and petrochemical manufacturers.

Weighing and Pharmaceutical Products and Services

        Our weighing products automatically determine the weight of pharmaceutical capsules and tablets and reject those that are out of acceptable limits. Our VERICAP® high-speed capsule weighing system runs at rates up to 2,000 capsules per minute and can be integrated into a capsule production line in pharmaceutical factories. Our AB™ automatic balance weighing systems are designed for off-line use for both tablets and capsules, and we market these products primarily to the pharmaceutical industry. In addition, we sell tablet inspection systems and blister packaging-related equipment through our Lippke subsidiary, which is also an agent for other manufacturers.

        Our other instruments and services groups accounted for an aggregate of approximately 7%, 8% and 9% of our consolidated sales in each of the years 2009, 2008 and 2007.

Competition

        We have several competitors for all of our products and services in both foreign and domestic markets. The principal competitive factors for our products and services are:

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product quality and performance;

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product reliability;

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product support; and

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price.

        We compete with a variety of companies in each market in which we sell our products. Some of our competitors have greater assets and resources than we do, and some are smaller than we are. To remain competitive, we must continue to invest in research and development, marketing, customer service and support, and manage our operating expenses. We believe that we have strategies in place to develop technological and other advantages that will give us a competitive advantage over our competitors. However, there can be no assurance that we will have sufficient resources to execute these strategies, or that our competitors will not develop new technologies or other advantages which would require us to reduce our prices, result in lost orders or otherwise adversely affect our financial results.

Manufacturing and Supplies

        We manufacture products at our locations in Minnesota, Texas and Colorado. Our manufacturing capabilities include electro-mechanical assembly, testing, integration of components and systems, calibration and validation of systems. Certain components that we use in our products are currently purchased from single source suppliers. Although we purchase additional quantities of these components in the case of an interruption or delay in supply, an interruption of one of these sources could result in delays in our production while we locate an alternative supplier, which in turn could result in a loss of sales and income.

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Patents, Trademarks and Other Intellectual Property Rights

        We believe that the protection afforded us by our patent rights is important to our business, and we will continue to seek patent protection for our technology and products. We require all of our employees and consultants to assign to us all inventions that are conceived and developed during their employment, except to the extent prohibited by applicable law. To protect our proprietary information, we have entered into confidentiality and non-compete agreements with those of our employees and consultants who have access to sensitive information. We hold both United States and international patents and have U.S. and international patents pending. We currently hold 42 U.S. patents and 36 foreign patents which will expire during the period from 2010 through 2026, and have another 43 patents pending. We do not believe that the expiration of our patents on their scheduled expiration dates will have a material adverse effect on our business.

        We own or have applied for certain trademarks which protect and identify our products. Our trademarks and service marks include the following registered marks: MOCON®, AQUATRACE®, AQUATRAN®, AROMATRAN®, AROMATRAX®, BASELINE®, BEVALERT®, CAL-SMART®, COULOX®, FLO SMART®, HERSCH®, LIPPKE®, LIQUI-BLOK®, OPTIPERM®, OX-TRAN®, PAC CHECK®, PAC GUARD®, PERMATRAN-C®, PERMATRAN-W®, PETROALERT®, piD-TECH®, QUICK START®, SKYE® and VERICAP®. Our trademarks and service marks have a life of 10 to 20 years, and are subject to periodic maintenance which may be extended in accordance with applicable law.

Marketing and Customers; Distribution Methods

        We market our products and services throughout the United States and in over 60 foreign markets. We use a direct sales force of approximately 20 employees and approximately 15 independent sales representatives to market and sell our products and services to end users in the United States, Canada, Germany and China, and use a network of approximately 55 independent sales representatives to market, service and sell our products and services in other foreign countries. To our knowledge, none of our independent sales representatives sell a material amount of product manufactured by any of our competitors.

        For information concerning our export sales by geographic area, see Note 13 of the notes to consolidated financial statements. We market products and services to research laboratories, production environments and quality control applications in the life science, medical, food, pharmaceutical, plastics, paper, electronics, oil and gas and other industries. No single customer accounted for 10% or more of our consolidated sales in any of the fiscal years ended December 31, 2009, 2008 and 2007, and we do not believe that the loss of any single customer would have a material adverse effect on our business or financial performance. One independent representative accounted for approximately 6% of our consolidated sales in each of the years 2009, 2008 and 2007.

Backlog

        As of December 31, 2009, our total backlog was $2,440,794 for all of our products as compared to $2,157,132 and $3,384,510 as of December 31, 2008 and 2007, respectively. We anticipate shipping the majority of the current backlog in 2010.

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Research and Development

        We are committed to an ongoing engineering program dedicated to innovating new products and improving the quality and performance of our existing products. Our engineering expenses are primarily incurred in connection with the improvement of existing products, cost reduction efforts, and the development of new products that may have additional applications or represent extensions of existing product lines. None of these costs are borne directly by our customers.

        We incurred expenses of $1,847,993, $1,950,754 and $2,030,157 during the fiscal years ended December 31, 2009, 2008 and 2007, respectively, for research and development (R&D) of our products. These amounts were approximately 7% of our consolidated sales for each of those three fiscal years. On an annual basis, we currently intend to spend approximately 6% to 8% of our consolidated sales on R&D in the future.

Working Capital Practices

        We strive to maintain a level of inventory that is appropriate given our projected sales. Our standard domestic payment terms are net 30 days and our international payment terms vary but generally range between 30 and 90 days. International sales are, in some cases, transacted pursuant to letters of credit.

Seasonality

        Our business is not seasonal in nature.

Employees

        As of December 31, 2009, we had approximately 130 full-time employees. Included in this total are approximately 20 scientists and engineers who research and develop potential new products. None of our employees are represented by a labor union, and we consider our employee relations to be satisfactory.

Executive Officers

        Our executive officers, their ages and their offices held, as of March 22, 2010, are as follows:

Name	Age		Title
Robert L. Demorest		64	Chairman of the Board, President and Chief Executive Officer, MOCON, Inc.
Daniel W. Mayer		59	Executive Vice President, MOCON, Inc.
Darrell B. Lee		61	Vice President, Chief Financial Officer, Treasurer and Secretary, MOCON, Inc.
Douglas J. Lindemann		52	Vice President and General Manager, MOCON, Inc.
Robert E. Forsberg		54	President, Baseline-MOCON, Inc.

        There are no family relationships among any of our directors and executive officers. Information regarding the business experience of our executive officers is set forth below.

        Mr. Robert L. Demorest has been our President, Chief Executive Officer, and Chairman of the Board since April 2000. Mr. Demorest is also a director of Marten Transport, Ltd., a publicly traded company.

        Mr. Daniel W. Mayer has been an Executive Vice President for us since January 1995.

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        Mr. Darrell B. Lee has been our Chief Financial Officer, Vice President, Treasurer and Secretary since January 2006. Mr. Lee served as our Director of External Reporting from April 2005 to January 2006. Prior to that time, Mr. Lee had served as Vice President and Chief Financial Officer of Spinal Designs International, Inc., a health-care company based in Minneapolis, Minnesota, since 1993.

        Mr. Douglas J. Lindemann has been a Vice President and General Manager for us since January 2001.

        Mr. Robert E. Forsberg has been the President of Baseline-MOCON, Inc. for more than five years.

Forward-Looking Statements

        This Annual Report on Form 10-K contains or incorporates by reference not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on our website or otherwise. All statements other than statements of historical facts included in this Annual Report on Form 10-K that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations, addressable market size estimates and business. We have identified some of these forward-looking statements with words like "believe," "may," "could," "might," "forecast," "possible," "potential," "project," "will," "should," "expect," "intend," "plan," "predict," "anticipate," "estimate," "approximate" or "continue" and other words and terms of similar meaning. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this Annual Report on Form 10-K, including under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses as well as matters specific to us. The following are some of the uncertainties and factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements: successfully competing against our competitors; acceptance, endorsement, and use of our products; technological changes and product obsolescence; our ability to identify acquisition candidates and successfully integrate the operations of those acquisitions into our existing operations; the impact of worldwide economic conditions on our operations; the disruption in global financial markets and the potential impact on the ability of our counterparties to perform their obligations and our ability to obtain future financing; factors impacting the stock market and share price; ability of our manufacturing facilities to meet customer demand; reliance on single source suppliers; loss or impairment of a principal manufacturing facility; regulatory matters; timing and success of new product introductions; adequate protection of our intellectual property rights; product liability claims; and currency and other economic risks inherent in selling our products internationally.

        For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition or operating results, refer to this Annual Report on Form 10-K under Part I, Item 1A, "Risk Factors."

        All forward-looking statements included in this Annual Report on Form 10-K are expressly qualified in their entirety by the foregoing cautionary statements. We wish to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to

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recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described in this Annual Report on Form 10-K under the heading "Item 1A. Risk Factors" below, as well as others that we may consider immaterial or do not anticipate at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. The expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described below under the heading "Item 1A. Risk Factors." The risks and uncertainties described under the heading "Item 1A. Risk Factors" below are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the Securities and Exchange Commission.

ITEM 1A.    RISK FACTORS

        The following are significant factors known to us that could have material adverse effects on our business, financial condition or operating results and should be considered carefully in connection with any evaluation of an investment in our common stock. Additionally, the following risk factors could cause our actual results to materially differ from those reflected in any forward-looking statements.

         Worldwide economic conditions have depressed capital spending during the last year and adversely affected our business, operating results and financial condition and a continuation of economic conditions resulting in lower capital spending may adversely affect us and decrease our stock price.

        We believe that the deterioration in general worldwide economic conditions have resulted, and may continue to result, in our customers decreasing their capital expenditures. Our customers include pharmaceutical, food, medical and chemical companies, laboratories, government agencies and public and private research institutions. The capital spending of these entities can have a significant effect on the demand for our products. Decreases in capital spending by any of these customer groups could have a material adverse effect on our sales, business and results of operations.

        Consistent with the above, our customers' and independent representatives' ability to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired. Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments and such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same loss rates that we have in the past, especially given the current turmoil in the worldwide economy. A significant change in the liquidity or financial condition of our customers could cause unfavorable trends in our receivable collections and additional allowances may be required, which could adversely affect our operating results. In addition, the worldwide economic crisis may adversely impact our suppliers' ability to provide us with materials and components, which could adversely affect our business and operating results. If investors have concerns that our business, operating results and financial condition will be negatively impacted by a worldwide economic downturn, our stock price could decrease.

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         Some of the markets in which we operate have experienced minimal growth in recent years, and our ability to increase our sales will depend in part on our ability to develop new products, develop new applications for our existing products or acquire complementary businesses and product lines.

        We have identified a number of strategies that we believe will allow us to grow our business and increase our sales in markets experiencing minimal growth, including developing new products and technologies, capitalizing on our relationship with Luxcel Biosciences Limited, developing new applications for our technologies, acquiring complementary businesses and product lines, and strengthening our sales force. However, we can make no assurance that we will be able to successfully implement these strategies, or that these strategies will result in the growth of our business or an increase in our sales.

         If we fail to attract and retain qualified managerial and technical personnel, we may fail to remain competitive.

        Our future success depends, in significant part, upon the continued service and performance of our senior management and other key personnel. We rely on knowledgeable, experienced and skilled technical personnel, particularly engineers, scientists and service personnel, to design, assemble, sell and service our products. The loss of the services of our management team, some of whom have significant experience in our industry, and other key personnel could impair our ability to effectively manage our company and to carry out our business plan. Our inability to attract or retain qualified personnel could have a significant negative effect and thereby materially harm our business and financial condition.

         If we acquire businesses in the future, we could experience a decrease in our profit margins, a decrease in our net income, and other adverse consequences.

        One of our growth strategies is to supplement our internal growth with the acquisition of businesses and technologies that complement or augment our existing products. Some of the businesses that we previously acquired have produced net operating losses or low levels of profitability. Other businesses that we may acquire in the future may be marginally profitable or unprofitable, and may require us to improve the operations and market penetration of such companies in order to achieve the level of profitability that we desire.

        Further, acquisitions and the integration of those acquisitions involve a number of risks, including:

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diversion of our management's attention from our core businesses;

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difficulties in assimilating the operations and products of an acquired business or in realizing projected efficiencies, cost savings and revenue synergies;

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potential loss of key employees or clients of the acquired businesses or adverse effects on existing business relationships with suppliers and clients;

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reallocation of amounts of capital from operating initiatives and/or the incurrence of indebtedness to pay the acquisition purchase prices, which could in turn restrict our ability to access additional capital when needed or to pursue other important elements of our business strategy;

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inaccurate assessment of undisclosed, contingent or other liabilities or problems; and

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unanticipated costs associated with the acquisition, including additional expenditures related to Sarbanes-Oxley Act of 2002 compliance.

        In addition, acquisitions that we believe will be beneficial to our business and financial results are difficult to identify and complete for a number of reasons, including the competition among prospective buyers. We may not be able to complete acquisitions in the future, and have not completed an

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acquisition since January 2004. Any acquisitions that we do complete in the future may have an adverse effect on our financial performance and liquidity. It may be necessary for us to raise additional funds either through public or private debt or equity financing in order to finance any future acquisitions. Any equity or debt financing, if available at all, may be on terms that are not favorable to us and may dilute the percentage ownership of our existing shareholders.

         We face risks of technological changes that may render our products obsolete.

        The markets for our products and services are characterized by technological change and evolving industry standards. As a result of such changes and evolving standards, our products may become noncompetitive or obsolete and we may have to develop new products in order to maintain or increase our sales. New product introductions that are responsive to these factors require significant planning, design, development and testing at the technological, product and manufacturing process levels, and we may not be able to timely develop new products. In addition, industry acceptance of new technologies that we may develop may be slow due to, among other things, existing regulations or standards written specifically for older technologies and general unfamiliarity of users with new technologies. As a result, any new products that we may develop may not generate any meaningful sales or profits for us for a number of years, if at all.

         A significant portion of our sales are generated from foreign countries and selling in foreign countries entails a number of risks which could result in a decrease in our sales or an increase in our operating expenses.

        Sales outside the United States accounted for approximately 56% of our sales in each of the years 2009 and 2008, and approximately 52% of our sales in 2007. We expect that foreign sales will continue to account for a significant portion of our revenues in the future. Sales to customers in foreign countries are subject to a number of risks including, among others:

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agreements may be difficult to enforce;

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receivables may be difficult to collect;

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certain regions are experiencing political unrest and conflict and economic instability;

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foreign customers may have longer payment cycles;

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the countries into which we sell may impose tariffs or adopt other restrictions on foreign trade;

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currency fluctuations could reduce reported profitability in future periods;

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fluctuations in exchange rates may affect product demand;

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legal and regulatory requirements may be difficult to monitor and comply with, especially if inconsistent with U.S. laws and regulations;

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customizing products for foreign countries and managing and staffing international operations may lead to increased costs; and

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protection of intellectual property in foreign countries may be more difficult to enforce.

        If any of these risks were to materialize, our sales into foreign countries could decline, or our operating costs could increase, which would adversely affect our financial results.

         Fluctuations in foreign currency exchange rates could result in declines in our reported net sales and net earnings.

        Because the functional currency of our foreign operations is the applicable local currency, we are exposed to foreign currency exchange rate risk arising from transactions in the normal course of

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business, such as sales to third party customers and purchases from suppliers denominated in foreign currencies. Our reported net sales and net earnings are subject to fluctuations in foreign exchange rates. Because our products are manufactured or sourced primarily from the United States, a stronger U.S. dollar generally has a negative impact on results from operations outside the United States while a weaker dollar generally has a positive effect. Our primary exchange rate exposure is with the euro. We currently do not use hedging activities to minimize the volatility associated with foreign currency exchange rate changes. If we do use such activities in the future, they also involve some risk.

         Some of our competitors have greater resources than we do, which may provide our competitors with an advantage in the development and marketing of new products.

        We currently encounter, and expect to continue to encounter, competition in the sale of our products. We believe that the principal competitive factors affecting the market for our products include product quality and performance, price, reliability and customer service. Our competitors include large multinational corporations. Some of our competitors have substantially greater financial, marketing and other resources than we do. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their products than we can. In addition, competition could increase if new companies enter the market or if existing competitors expand their product lines or intensify efforts within existing product lines. Our current products, products under development and our ability to discover new technologies may be insufficient to enable us to compete effectively with our competitors.

         Our reliance upon patents, domestic trademark laws, trade secrets and contractual provisions to protect our proprietary rights may not be sufficient to protect our intellectual property from others who may sell similar products.

        We hold patents relating to various aspects of our products and believe that proprietary technical know-how is critical to many of our products. Proprietary rights relating to our products are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. We cannot be certain that we will be issued any patents from any pending or future patent applications owned by or licensed to us or that the claims allowed under any issued patents will be sufficiently broad to protect our technology. In the absence of patent protection, we may be vulnerable to competitors who attempt to copy our products or gain access to our trade secrets and proprietary know-how. Our competitors may initiate litigation to challenge the validity of our patents, or they may use their resources to design comparable products that do not infringe our patents. We may incur substantial costs if our competitors initiate litigation to challenge the validity of our patents or if we initiate any proceedings to protect our proprietary rights. If the outcome of any such litigation is unfavorable to us, it could have a material adverse effect on our business and results of operations. There may also be pending or issued patents held by parties not affiliated with us that relate to our products or technologies and we may need to acquire licenses to any such patents to continue selling some or all of our products. If we are required to obtain any such license in order to be able to continue to sell some or all of our products, we may not be able to do so on terms that are favorable to us, if at all.

        In addition, we rely on trade secrets and proprietary know-how that we seek to protect, in part, by confidentiality agreements with our collaborators, employees and consultants. These agreements may be breached and we may not have adequate remedies for any such breach. Even if these confidentiality agreements are not breached, our trade secrets may otherwise become known or be independently developed by competitors.

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         We rely on our management information systems for inventory management, distribution and other functions. If our information systems fail to adequately perform these functions or if we experience an interruption in their operation, our business and results of operations could be adversely affected.

        The efficient operation of our business depends on our management information systems. We rely on our management information systems to effectively manage accounting and financial functions, order entry, order fulfillment and inventory replenishment. The failure of our management information systems to perform could disrupt our business and could result in decreased sales, increased overhead costs, excess inventory and product shortages, causing our business and results of operations to suffer. In addition, our management information systems are vulnerable to damage or interruption from natural or man-made disasters, terrorist attacks, computer viruses or hackers, power loss, or other computer systems, internet, telecommunications or data network failures. Any such interruption could adversely affect our business and results of operations.

         The market price of our common stock has fluctuated significantly in the past and will likely continue to do so in the future and any broad market fluctuations may materially adversely affect the market price of our common stock.

        The market price of our common stock has been volatile in the past, ranging from a high sales price of $10.04 and a low sales price of $6.74 during 2009, and several factors could cause the price to fluctuate substantially in the future. These factors include:

•

announcements of new products by us or our competitors;

•

quarterly fluctuations in our financial results;

•

customer contract awards;

•

a change to the rates at which we have historically paid dividends;

•

developments in regulation; and

•

general economic and political conditions in the various markets where our products are sold.

        In addition, the stock prices of instrumentation companies have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of such companies. This market volatility may adversely affect the market price of our common stock.

         Complying with securities laws and regulations is costly for us.

        Changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations promulgated by the SEC and Nasdaq, are creating particular challenges for smaller publicly-held companies like us. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our assessment of our internal control over financial reporting have required, and will continue to require, the expenditure of significant financial and managerial resources.

         If we experience any increase in the cost of raw materials or supplies, we may experience a decrease in profit margins.

        In the past, the overall cost of the materials that we purchase has not risen much more than the rate of inflation. We believe that the price of our products and the prices of our competitors' products

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is a significant factor affecting our customers' buying decisions and consequently, we may not be able to pass along any cost increases in raw materials and supplies in the form of price increases or sustain profit margins that we have achieved in prior years.

         We have spent significant resources to develop new products in the food and beverage safety and packaging industries and we have thus far only realized minimal revenues from these products.

        We recently began to market our newest BevAlert system and OpTech-O₂ Platinum analyzer. We believe that there are significant addressable markets for both of these products and while we believe both of these products are superior in many respects to other similar products being sold by our competitors, each one is new to the marketplace and may not gain the market acceptance necessary to allow us to capitalize on what we believe will be an increasing demand in the food and beverage industries for safety testing and monitoring products. We have realized modest revenues from sales of our BevAlert system and began commercial production of our OpTech-O₂ Platinum analyzer in the fourth quarter of 2009. If we are not able to successfully market these products, we will not recover the significant research and development and other expenses we have incurred to bring these products to market.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        Not applicable.

ITEM 2.    PROPERTIES

        We lease an aggregate of 61,375 square feet of office, engineering, laboratory and production space in Minnesota, Texas, Germany and China. We believe that all of our facilities are generally adequate for their present operations and that suitable space is readily available if any of our leases are not extended.

        Our headquarters and operations center occupy approximately 47,200 square feet of space in Minneapolis, Minnesota. This space is leased until June 2010. We have signed a lease for a new location in Minneapolis, Minnesota that will commence June 1, 2010. This new location consists of approximately 60,000 square feet of space and will serve as our new headquarters and Minneapolis operations center.

        Microanalytics' operations occupy approximately 5,100 square feet of space in the metropolitan area of Austin, Texas. This space is leased until February 2011.

        Lippke's operations are located in Neuwied, Germany, and occupy approximately 8,075 square feet. This space is leased until July 2018.

        The MOCON (Shanghai) Trading Co., Ltd. operations are located in Shanghai, China, and occupy approximately 1,000 square feet. This space is leased until December 2010.

        In addition to our leased facilities described above, we own approximately two acres of land and a building located near Boulder, Colorado that consists of approximately 9,300 square feet of office and production space in which our Baseline-MOCON, Inc. subsidiary conducts its operations.

ITEM 3.    LEGAL PROCEEDINGS

        There are no material pending legal, governmental, administrative or other proceedings to which we are a party or of which any of our property is the subject.

ITEM 4.    RESERVED

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Dividends

        Our common stock is quoted on the Nasdaq Global Market System under the symbol MOCO. The following table sets forth, for the fiscal periods indicated, the high and low sales prices for our common stock as reported by the Nasdaq Global Market System. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The following table also sets forth, for the fiscal periods indicated, the amount of cash dividends declared on our common stock:

	2009						2008
Fiscal Period	High		Low		Dividend		High		Low		Dividend
1st Quarter	$	9.25	$	6.74	$	0.09	$	11.83	$	9.64	$	0.080
2nd Quarter		10.04		8.10		0.09		11.30		10.23		0.085
3rd Quarter		9.00		7.95		0.09		11.44		9.63		0.085
4th Quarter		9.81		7.46		0.09		11.24		6.70		0.090

        We have paid quarterly cash dividends without interruption or decline since 1988. Cash dividends paid in 2009, 2008 and 2007 totaled $1,958,750, $1,835,707 and $1,703,965, respectively. Our Board of Directors monitors and evaluates our dividend practice quarterly, and the Board may elect at any time to increase, decrease or not pay a dividend on our common stock based upon our financial condition, results of operations, cash requirements and future prospects and other factors deemed relevant by the Board.

        For information concerning securities authorized for issuance under equity compensation plans, please see Part III—Item 12.

Holders

        As of March 22, 2010, there were approximately 267 holders of record and approximately 3,163 beneficial holders of our common stock.

Issuer Repurchases of Equity Securities

        We did not repurchase any shares of our common stock or other equity securities of MOCON registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the fourth quarter ended December 31, 2009. On June 23, 2009, our Board of Directors authorized the repurchase of up to $2,000,000 in shares of our common stock (which authorization was given after we exhausted the prior authorization through purchases of shares of our common stock earlier in 2009), however, this amount has been exhausted and we currently are not authorized by our Board of Directors to make further repurchases of our common stock.

Recent Sales of Unregistered Securities

        During the fourth quarter and year ended December 31, 2009, we did not issue or sell any shares of our common stock or other equity securities of MOCON without registration under the Securities Act of 1933, as amended.

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ITEM 6.    SELECTED FINANCIAL DATA

		Years Ended December 31,
		2009		2008		2007		2006		2005
		(in thousands, except per share data)
CONSOLIDATED STATEMENT OF INCOME DATA:
Sales		$	26,638	$	29,696	$	27,397	$	26,290	$	24,582
Net income			2,910		4,059		3,805		3,911		2,915
Net income per common share:
	Basic		0.54		0.73		0.69		0.72		0.54
	Diluted		0.53		0.72		0.67		0.71		0.53
Cash dividends declared per share			0.36		0.34		0.315		0.30		0.285

	As of December 31,
	2009		2008		2007		2006		2005
	(in thousands)
CONSOLIDATED BALANCE SHEET DATA:
Current assets	$	23,706	$	22,357	$	21,306	$	21,023	$	18,257
Total assets		30,327		32,953		29,673		26,877		23,657
Current liabilities		4,088		4,464		3,949		4,817		4,418
Noncurrent liabilities		257		271		339		100		440
Stockholders' equity		25,982		28,218		25,385		21,960		18,799

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        This Management's Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties including those discussed under the heading "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K. For more information, see "Part I Item 1 Business—Forward-Looking Statements" of this Annual Report on Form 10-K. The following discussion of the results of the operations and financial condition of MOCON should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

        MOCON, Inc. designs, manufactures, markets and services products and provides consulting services primarily in the measurement and analytical instrument and services markets. Our products include instruments that detect, measure and monitor gases and chemical compounds. We continually seek growth opportunities through technological and product improvement, by acquiring and developing new products, and by acquiring new companies.

        We have three primary operating locations in the United States—Minnesota, Colorado and Texas—and foreign offices in Germany and China. We use a mix of direct sales force and independent sales representatives to market our products and services in the United States, Canada, Germany and China and use a network of independent sales representatives to market and service our products and services in other foreign countries.

        Historically, a significant portion of our sales have come from international customers. In this regard, we acquired our subsidiary in Germany to solidify our presence and opportunities in Europe. Similarly, we opened our office in Shanghai, China to better serve our Asian customers.

        Our current plans for growth include substantial funding for research and development to foster new product development together with strategic acquisitions where appropriate.

Significant Transactions and Financial Trends

        Throughout these financial sections, you will read about significant transactions or events that materially contribute to, or reduce our earnings, and materially affect our financial results and financial position. In 2009, our revenues and net income were negatively impacted by the depressed worldwide economic conditions, as compared to 2008 results.

        Our international sales have historically accounted for a significant portion of our revenues, and we expect our international sales, as a percentage of total sales, to continue to increase for the foreseeable future.

        Our research and development costs were approximately 7% of our consolidated sales for the years 2009, 2008 and 2007. On an annual basis, we intend to spend approximately 6% to 8% of our sales on research and development in the future.

        While these items are important in understanding and evaluating our financial results, certain trends, such as our international sales accounting for a significant portion of our revenues, and other transactions or events such as those discussed later in this Management's Discussion and Analysis, may also have a material impact on our financial results.

Critical Accounting Policies

        Our significant accounting policies are described in Note 1 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. This Management's Discussion and Analysis

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of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Securities and Exchange Commission has defined a company's most critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies. Although we believe that our estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ significantly from these estimates under different assumptions or conditions.

Revenue Recognition

        We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable when persuasive evidence of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. Our terms are F.O.B. shipping point with no right of return, except in rare cases, and customer acceptance of our products is not required. The revenue recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. We do not have distributors who stock our equipment. We do not offer rebates, price protection, or other similar incentives, and discounts when offered are recorded as a reduction in revenue.

        Revenue for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts.

        Revenues from shipments with multiple element arrangements are recognized as each element is earned, and is allocated among elements on a relative fair value basis when such elements have standalone value.

Allowance for Doubtful Accounts and Sales Returns

        Our allowance for doubtful accounts and sales returns is for accounts receivable balances that are estimated to be uncollectible as well as anticipated sales returns. The reserve is based on a number of factors, including: (1) an analysis of customer accounts and (2) our historical experience with accounts receivable write-offs and sales returns. The analysis includes the age of the receivable, the financial condition of a customer or industry and general economic conditions. We believe our financial results could be materially different if historical trends are not predictive of future results or if economic conditions worsened for our customers. In the event we determined that a smaller or larger allowance for doubtful accounts is appropriate, we would record a credit or charge to selling, general and administrative expense in the period that we made such a determination. As of December 31, 2009 and 2008, we had $162,315 and $137,182, respectively, reserved against our accounts receivable for doubtful accounts and sales returns.

Accrual for Excess and Obsolete Inventories

        We perform an analysis to identify excess and obsolete inventory. We record a charge to cost of sales for amounts identified. Our analysis includes inventory levels, the nature of the components and their inherent risk of obsolescence and the on-hand quantities relative to the sales history of that component. We believe that our financial results could be materially different if historical trends are not predictive of future results or if demand for our products decreased because of economic or competitive conditions or otherwise. As of December 31, 2009 and 2008, we had $301,240 and $303,823, respectively, accrued for excess and obsolete inventories.

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Recoverability of Long-Lived Assets

        We assess the recoverability of goodwill and other long-lived assets annually or whenever events or changes in circumstances indicate that expected future undiscounted cash flows might not be sufficient to support the carrying amount of an asset. We deem an asset to be impaired if a forecast of undiscounted future operating cash flows is less than an asset's carrying amount. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying value of the asset exceeds its fair value. Changes in our business strategies, changes in the economic environment in which we operate, competitive conditions, and other factors could result in future impairment charges. We did not record any long-lived asset impairment charges in 2009 or 2008.

Accrued Product Warranties

        Our products are generally covered by a warranty, with warranty periods ranging from ninety days to one year from the date of sale. Estimated warranty costs are accrued in the same period in which the related revenue is recognized, based on anticipated parts and labor costs, utilizing historical experience. Additional warranty reserves are also accrued for major rework campaigns. We periodically assess the adequacy of our warranty reserves based on changes in these factors and record any necessary adjustments if actual claim experience indicates that adjustments are necessary. Although we believe the likelihood to be relatively low, warranty claims experience could be materially different from actual results due to manufacturing changes that could impact product quality, a change in our warranty policy in response to industry trends, as yet unrecognized defects in products sold, or other factors. As of December 31, 2009 and 2008, we had $209,710 and $229,087, respectively, accrued for future estimated warranty claims.

Income Taxes

        In the preparation of our consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposures together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets.

        Management reviews the deferred tax assets for recoverability on a quarterly basis and assesses the need for valuation allowances. These deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income streams and the impact of tax planning strategies. A valuation allowance is recorded to reduce deferred tax assets when it is determined that it is more likely than not that we would not be able to realize all or part of our deferred tax assets. At December 31, 2009 and 2008, we provided a valuation allowance in the amounts of $320,000 and $364,000, respectively, against our net deferred tax assets, related primarily to a long-term capital loss carryforward.

        On January 1, 2007, we adopted FIN 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109, now codified in ASC 740. ASC 740 requires application of a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Under ASC 740, once the more-likely-than-not threshold is met, the amount of benefit to be recognized is the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period of such a change. We have recognized a tax accrual in the amount of $202,000 and $216,000 in 2009 and 2008, respectively, for estimated exposures associated with uncertain tax positions, and periodically adjust this accrual when facts and circumstances change. However, due to the complexity of some of these uncertainties, the ultimate settlement may result in payments that are significantly different from our current estimate of tax liabilities, resulting in the recognition of additional charges or benefits to income tax expense.

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Results of Operations

        The following table sets forth the relationship between various components of our results of operations, stated as a percent of sales, for fiscal years ended December 31, 2009, 2008 and 2007. Our historical financial data were derived from our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

		Percent of Sales
		2009		2008		2007
Sales			100.0		100.0		100.0
Cost of sales			41.6		40.8		41.6
	Gross profit		58.4		59.2		58.4
Selling, general and administrative expenses			37.0		34.2		31.5
Research and development expenses			6.9		6.6		7.4
	Operating income		14.5		18.4		19.5
Other income, net			1.4		2.0		2.1
	Income before income taxes		15.9		20.4		21.6
Income taxes			5.0		6.7		7.7
	Net income		10.9		13.7		13.9

        The following table summarizes total sales by product line for 2009, 2008 and 2007:

	Years Ended December 31,
	2009		2008		2007
Permeation products and services	$	15,126,259	$	15,850,027	$	14,428,823
Gas analyzers, sensors and detectors		4,933,256		6,678,982		5,662,923
Packaging products and services		4,701,279		4,822,009		4,685,403
Other instruments and services		1,877,304		2,344,688		2,619,433
Total sales	$	26,638,098	$	29,695,706	$	27,396,582

        The following table sets forth the relationship between various components of domestic and foreign sales for 2009, 2008 and 2007:

		Years Ended December 31,
		2009		2008		2007
Domestic sales		$	11,790,911	$	12,960,723	$	13,160,268
Foreign sales:
	Europe		6,591,749		7,836,335		6,595,075
	Asia		5,996,005		6,144,822		5,309,901
	Other		2,259,433		2,753,826		2,331,338
	Total foreign sales		14,847,187		16,734,983		14,236,314
Total sales		$	26,638,098	$	29,695,706	$	27,396,582

Sales

Fiscal 2009 vs. Fiscal 2008

        Sales for 2009 were $26,638,000, a decrease of 10% compared to $29,696,000 for 2008. We believe the global economic slowdown caused some of our potential customers to either defer their capital

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expenditures or purchase less expensive models. The decrease in sales was primarily the result of lower gas analyzer instrument sales to the oil and gas exploration and environmental monitoring markets. In addition, sales of our permeation equipment declined in 2009 as demand in our foreign markets slowed after our strong marketing emphasis in 2008 of a new low cost product. Our consolidated domestic sales, which accounted for 44% of total sales in both 2009 and 2008, decreased 9% in 2009. Our consolidated foreign sales, which accounted for 56% of total sales in both 2009 and 2008, decreased 11% in 2009. The impact of any price increases was not significant in 2009.

Permeation Products and Services

        Sales of our permeation products and services, which accounted for 57% and 53% of our consolidated sales in 2009 and 2008, respectively, decreased $724,000, or 5% in 2009 compared to 2008. This decrease in permeation sales was primarily due to lower shipments to our foreign markets as a result of the slow economy and the corresponding shift to lower cost equipment. We experienced increased sales volume of the PERMATRAN-W Model 1/50 (lower price point product for less sensitivity in water vapor measurement), and the AQUATRAN (a high-end instrument targeted at the electronics, flat panel display, fuel cell, solar cell and other high barrier markets) during the year. Our domestic sales of permeation products increased 5% from 2008 to 2009, as the U.S. economy began to recover from the downturn we experienced beginning in the second half of 2008.

Gas Analyzers, Sensors and Detectors

        Sales of our gas analyzers, sensors and detector products, which accounted for 18% and 23% of our consolidated sales in 2009 and 2008, respectively, decreased $1,746,000, or 26% in 2009 compared to 2008. This decrease was due primarily to lower shipments of instruments to the oil and gas drilling market as a result of lower oil prices, as well as reduced instrument sales to the environmental monitoring market due to economic factors. Our BevAlert instrument is used in the carbonated beverage industry for measuring purity of carbon dioxide and is gaining increased market acceptance, although our sales of this product have been modest to date. Increased concerns by carbonated beverage companies to prevent recalls due to unsafe products are driving this sector. Sales of our piD-TECH sensors to the OEM portable sensor market and other OEM detectors were relatively stable between 2008 and 2009.

Packaging Products

        Sales of our packaging products (headspace analyzers and leak detectors), which accounted for 18% and 16% of our consolidated sales in 2009 and 2008, respectively, decreased $121,000, or 3% in 2009 compared to 2008. The decrease was due primarily to a shift in demand from the more expensive bench-top headspace analyzers to the less expensive portable handheld units. The PAC CHECK series of analyzers continues to gain acceptance in both our domestic and foreign markets. Sales of the Lippke 4000 and 4500 series leak detection instruments also continue to do well. A major focus in 2009 was on strengthening our offerings in the MAP (modified atmospheric packaging) area, where we see potential growth as our food manufacturing customers continue to evaluate ways to safely extend the shelf life of their perishable products.

Other Instruments and Services

        Sales of our other instruments and services group, which accounted for 7% and 8% of our consolidated sales in 2009 and 2008, respectively, decreased $467,000, or 20% in 2009 compared to 2008. This group consists of our weighing and pharmaceutical products, our consulting and testing services, our contract manufacturing and non-MOCON products sold by our German subsidiary. The decrease from 2008 to 2009 was due primarily to lower shipments of our weighing and pharmaceutical products. This group consists of a small number of products compared to our other product groups and

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will typically experience significant fluctuations in demand. In 2009, we committed additional resources to place emphasis on growing our consulting and testing services area. We continue to see growth in this area as we increase our offerings and services.

Fiscal 2008 vs. Fiscal 2007

        Sales for 2008 were $29,696,000, an increase of 8% compared to $27,397,000 for 2007. This increase in sales was primarily the result of the increased volume of our permeation products and services, gas analyzer instruments and sensors, and packaging products. These increases were partially offset by decreases in the sale of weighing and pharmaceutical products and gas chromatography instruments and services. Our domestic sales were $12,961,000, or 44% of total sales in 2008, a 2% decrease compared to $13,160,000, or 48% of sales in 2007. Our foreign sales were $16,735,000, or 56% of total sales in 2008, an increase of 18% compared to $14,236,000, or 52% of sales in 2007. The overall sales volume increase in 2008 was driven by an increased demand as a result of enhanced marketing efforts in our foreign markets, which offset a slight decline in sales in our domestic markets. The impact of any price increases was not significant in 2008.

Permeation Products and Services

        Sales of our permeation products and services, which accounted for 53% of our consolidated sales in both 2008 and 2007, increased $1,421,000, or 10% in 2008 compared to 2007. This increase in permeation sales was primarily due to a 21% increase in foreign sales. We believe that product introductions in recent years, specifically the PERMATRAN-W Model 1/50 (lower price point product for less sensitivity in water vapor measurement), and growing acceptance of the AQUATRAN (for increased sensitivity in measuring water vapor) were factors in this growth. Domestic sales declined 11% from 2007 to 2008, which we believe was attributable to the slowdown in the U.S. economy in the second half of the year.

Gas Analyzers, Sensors and Detectors

        Sales of our gas analyzers, sensors and detector products, which accounted for 23% and 21% of our consolidated sales in 2008 and 2007, respectively, increased $1,016,000, or 18% in 2008 compared to 2007. This increase was due primarily to increased shipments of the piD-TECH Plus to the OEM portable sensor market, which increase was offset somewhat by a decrease in the sales of gas chromatographs. Sales of total hydrocarbon analyzer instruments were essentially the same in both years. Total domestic sales increased $820,000, or 24% in 2008 compared to 2007, and foreign sales increased $196,000, or 9% over the same period.

Packaging Products

        Sales of our packaging products (headspace analyzers and leak detectors), which accounted for 16% and 17% of our consolidated sales in 2008 and 2007, respectively, increased $137,000, or 3% in 2008 compared to 2007. The increase resulted from sales of our Lippke 4000 leak detection instrument primarily in the European markets as well as continued market acceptance of our PAC CHECK series of analyzers generally used for headspace analysis. Our emphasis on the international markets resulted in a 19% increase in sales outside the U.S. of packaging products in 2008 over 2007, and our entry into the medical device market in 2008 contributed to the overall sales increase.

Other Instruments and Services

        Sales of our other instruments and services group, which accounted for 8% and 9% of our consolidated sales in 2008 and 2007, respectively, decreased $275,000, or 10% in 2008 compared to

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2007. This decrease was due primarily to lower shipments of our weighing and pharmaceutical products and reduced consulting and testing services performed.

Gross Profit

Fiscal 2009 vs. Fiscal 2008

        Our gross profit percentages were 58.4% and 59.2% during 2009 and 2008, respectively. The slight decrease in gross profit percentage resulted primarily from lower production volume in our gas analyzer instrument area over which to allocate fixed manufacturing costs.

Fiscal 2008 vs. Fiscal 2007

        Our gross profit percentages were 59.2% and 58.4% during 2008 and 2007, respectively. The increase in gross profit percentage resulted primarily from a higher concentration of permeation equipment sales, sales of new products which replaced older, less profitable items, and higher volume in our detector and sensor area which resulted in increased manufacturing efficiencies.

Selling, General and Administrative Expenses

Fiscal 2009 vs. Fiscal 2008

        Selling, general and administrative expenses were $9,858,000 and $10,170,000, or 37.0% and 34.2% of sales in 2009 and 2008, respectively. The decrease of $312,000 was due primarily to the following: lower travel, promotion and advertising due to cost reductions implemented during 2009; decreased stock option expense due to the lower computed fair value; and lower incentive compensation as a result of lower profitability.

Fiscal 2008 vs. Fiscal 2007

        Selling, general and administrative expenses were $10,170,000 and $8,644,000, or 34.2% and 31.5% of sales in 2008 and 2007, respectively. The increase of $1,526,000 was due primarily to the following: higher salaries and benefits relating to annual wage increases and a 5% increase in average headcount; increased travel, marketing and promotion expenses related to our increased emphasis in foreign markets; and increased professional fees.

Research and Development Expenses

Fiscal 2009 vs. Fiscal 2008

        Research and development (R&D) expenses were $1,848,000 and $1,951,000 in 2009 and 2008, or 6.9% and 6.6% of sales, respectively. The lower expense in 2009 was the result of our decision to delay certain expenditures due to the economic slowdown. For the foreseeable future, we intend to allocate on an annual basis approximately 6% to 8% of sales to research and development. We believe continued R&D expenditures are necessary as we develop new products to expand revenue opportunities in our niche markets and remain competitive.

Fiscal 2008 vs. Fiscal 2007

        R&D expenses were $1,951,000 and $2,030,000 in 2008 and 2007, or 6.6% and 7.4% of sales, respectively. The relatively consistent spending between years was in line with our 2008 R&D plan.

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Other Income, Net

        Other income, net for 2009, 2008 and 2007 was as follows:

		Years Ended December 31,
		2009			2008		2007
Interest income on investments		$	369,176		$	575,094	$	565,441
Foreign currency exchange (loss) gain			(2,956	)		12,500		1,165
Other			(168	)		1,317		13,668
	Total other income	$	366,052		$	588,911	$	580,274

        Interest income decreased in 2009, as compared to 2008, due to both lower average invested balances of cash and marketable securities and lower average yields. Total cash and marketable securities decreased approximately $1,778,000 from December 31, 2008 to December 31, 2009. Interest income increased slightly in 2008, as compared to 2007, primarily due to higher average invested balances of cash and marketable securities, partially offset by lower average yields. Total cash and marketable securities increased approximately $1,084,000 from December 31, 2007 to December 31, 2008.

Income Tax Expense

        Our provision for income taxes for 2009 was $1,319,000, or 31.2% of income before income taxes, compared to $1,990,000, or 32.9% of income before income taxes for 2008. This year over year decrease in the effective tax rate was due primarily to lower state income taxes, a reduction in the valuation allowance, and the effect of lower statutory tax rates in our foreign entities.

        Our provision for income taxes for 2008 was $1,990,000, or 32.9% of income before income taxes, compared to $2,113,000, or 35.7% of income before income taxes for 2007. This year over year decrease in the effective tax rate was due primarily to the increased amount of tax-exempt interest earned, lower statutory tax rates in Germany in 2008, and a reduction in the tax contingency accrual.

        We anticipate our effective tax rate for the full year 2010 will range between 31% and 35%.

Inflation

        We do not believe that inflation has had a material effect on our results of operations in recent years; however, there can be no assurance that our business will not be adversely affected by inflation in the future.

Liquidity and Capital Resources

        Total cash, cash equivalents and marketable securities decreased $1,778,000 during 2009 to $14,331,000 as of December 31, 2009, compared to $16,109,000 at December 31, 2008. We describe the reasons for this decrease below under the caption "Cash Flows from Operating Activities." Our working capital as of December 31, 2009 increased $1,725,000 to $19,617,000, compared to $17,893,000 at December 31, 2008.

        We invest a large portion of our available cash in highly liquid certificates of deposit, municipal bonds and money market funds. Our investment policy is to manage these assets to preserve principal, maintain adequate liquidity at all times, and maximize returns subject to investment guidelines we maintain. We do not have any investments in auction rate or hard-to-value securities.

        We have historically financed our operations, capital equipment and other cash requirements through cash flows generated from operations. We believe that a combination of our existing cash, cash

24

equivalents and marketable securities, plus an expected continuation of cash flow from operations, will continue to be adequate to fund operations and working capital, capital expenditures, dividend payments and any stock repurchase programs that may be authorized in the future. Our belief is based on current business operations and economic conditions and assumes that we continue to operate our business in the ordinary course. During 2009, we borrowed and repaid a short-term loan to supplement our working capital requirements. We currently do not have any committed lines of credit or other credit facilities, and it is uncertain whether such facilities could be obtained in sufficient amounts or on acceptable terms. As of December 31, 2009, we had no commitments for any material capital expenditures.

        One of our strategic objectives is, as market and business conditions warrant, to consider acquisitions of businesses, products or technologies. In this regard, in January 2010, we made a minority equity investment of €2,500,000 in Luxcel Biosciences Limited, an Irish company, to help us establish a stronger presence in the food safety market. If we consummate one or more additional acquisition opportunities, the cost of which exceeds our existing cash resources, we may need to fund such activities with a portion of our cash balances and debt and/or equity financing. If we need to raise additional capital, an equity-based or equity-linked financing may be used which could be dilutive to existing shareholders. If we raise additional funds by issuing debt, we may be subject to restrictive covenants that could limit our operational flexibility and higher interest expense could dilute earnings per share.

Cash Flow

Cash Flows from Operating Activities

        Our primary source of funds is cash provided by operating activities. Cash flow from operating activities totaled $4,153,000, $3,602,000 and $4,234,000 in 2009, 2008 and 2007, respectively. In 2009, cash provided by operating activities increased by $551,000 compared to 2008. This increase was due primarily to the year-over-year decreases in inventories, prepaid income taxes and other receivables, and the increase in deferred revenue. In 2008, cash provided by operating activities decreased by $632,000 compared to 2007. This decrease was due primarily to the year-over-year increases in inventories and prepaid income taxes. Working capital requirements typically will increase or decrease with changes in the level of sales. In addition, the timing of certain accrued payments will affect the annual cash flow. Income tax payments and any employee incentive payments affect the timing of our operating cash flow as they are accrued throughout the year but paid on a quarterly, semi-annual or annual basis.

Cash Flows from Investing Activities

        Cash provided by investing activities totaled $6,161,000 in 2009 as compared to cash used of $2,694,000 in 2008 and $1,743,000 in 2007. Typically, the main source of cash provided or used in this category relates to the trading activity of our marketable securities. Cash provided by maturities of marketable securities, net of purchases, was $6,615,000 in 2009; cash used for marketable security purchases, net of maturities, was $1,760,000 and $704,000 in 2008 and 2007, respectively. Purchases of property, plant and equipment totaled $307,000 in 2009, primarily for additions of office, manufacturing and laboratory equipment, as compared to $720,000 and $437,000 in 2008 and 2007, respectively. We do not believe that any major property, plant and equipment expenditures are required to accommodate our current level of operations.

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        Cash paid for acquisitions in 2007 of $575,000 was related to our purchase of Lippke. This amount resulted from an adjustment of the required earnout payments between the minimum amount originally recorded and the amount that was ultimately paid.

Cash Flows from Financing Activities

        Cash used in financing activities totaled $5,551,000 in 2009 as compared to $1,391,000 in 2008 and $1,182,000 in 2007. The primary use of cash for financing activities in 2009 was the repurchase of an aggregate of 424,000 shares of common stock for a total amount of $3,602,000. In 2009, 2008 and 2007 we used $1,959,000, $1,836,000 and $1,704,000, respectively, for payment of dividends to our shareholders.

        Cash flow from the exercise of stock options generated $10,000, $479,000 and $461,000, for the years 2009, 2008 and 2007, respectively.

Contractual Obligations

        The following table summarizes our future contractual cash obligations as of December 31, 2009 (in thousands):

		Payments Due By Period
		Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Operating leases		$	979		291		351		226		111
Inventory purchase obligations			1,192		1,181		11		—		—
Minority equity investment			3,625		3,625		—		—		—
	Total contractual cash obligations	$	5,796		5,097		362		226		111

        Subsequent to December 31, 2009, we signed a new 15-year lease for a property which will replace our current Minneapolis headquarters and operations center. The new lease will commence on June 1, 2010. The required future minimum lease payments, starting at $367,000 per year and subject to annual increases, have not been included in the above table.

        We adopted FIN 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement 109, now codified in ASC 740, on January 1, 2007. We had $289,000 of gross unrecognized tax benefits as of the date of adoption and $202,000 and $216,000 at December 31, 2009 and 2008, respectively. The timing of any payments which could result from these unrecognized tax benefits will depend on a number of factors. Accordingly, we cannot make reasonably reliable estimates of the period of potential cash settlement, if any, with taxing authorities. Due to the uncertainty regarding the timing of these liabilities, we have excluded these amounts from the contractual obligations table.

        We are parties to a severance agreement with five of our executive officers which provides for the payment to the executive of a lump sum amount upon the occurrence of certain termination events. The payment could amount to one or two times the executive's current annual salary depending on the reason for termination.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

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Recently Issued Accounting Pronouncements

        In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), now codified in ASC 810, which amends the consolidation guidance applicable to variable interest entities and is effective for us beginning July 1, 2010. We believe the adoption of this pronouncement will not have a significant impact on our consolidated financial statements.

        In September 2009, the FASB ratified its guidance on two revenue recognition standards which were to become effective for us beginning January 1, 2011. With earlier adoption permitted, we elected to adopt this guidance in the first quarter 2010. Under the new guidance on revenue arrangements with multiple deliverables, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to the new guidance for multiple deliverable arrangements discussed above. We believe the adoption of this guidance will not have a material impact on our consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

        Substantially all of our marketable securities, some of which are insured by the FDIC, are at fixed interest rates and mature within two years; therefore, we believe that the market risk arising from the holding of these financial instruments is minimal. Based on our average invested cash balances during 2009, a 1% (100 basis points) decrease in the interest rate on such balances would result in a reduction in interest income of approximately $152,000 on an annual basis.

Foreign Currency Exchange Risk

        Historically, in excess of 50% of our consolidated sales have been to international destinations. Since we invoice most of these customers in U.S. dollars, we do not have significant exposure to foreign currency transaction risk. We invoice a small amount to our international customers in their local currency which exposes us to some transaction gain or loss when converting their payments into U.S. dollars. We also pay a small number of our international suppliers in their local currency which exposes us to transaction gain or loss. However, these have not resulted in material amounts in the past. Our foreign operations expose us to foreign currency exchange risk when the euro and yuan currency results of operations are translated to U.S. dollars. While we historically have not experienced any material foreign currency translation losses, we may engage in hedging activity in the future to minimize this risk. Our net investment in foreign subsidiary translated into U.S. dollars is not hedged. Any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment, a component of accumulated other comprehensive income in stockholders' equity, and would not impact our net income.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Our consolidated financial statements and Report of Independent Registered Public Accounting Firm are included beginning on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)

		Quarter
		1st		2nd		3rd		4th
2009:
Sales		$	6,172	$	6,421	$	6,601	$	7,444
Gross profit			3,591		3,627		3,918		4,434
Net income			399		516		874		1,122
Net income per common share:
	Basic	$	0.07	$	0.09	$	0.17	$	0.22
	Diluted		0.07		0.09		0.16		0.21
2008:
Sales		$	7,462	$	7,379	$	7,429	$	7,426
Gross profit			4,308		4,400		4,563		4,310
Net income			886		1,051		1,082		1,040
Net income per common share:
	Basic	$	0.16	$	0.19	$	0.19	$	0.19
	Diluted		0.16		0.18		0.19		0.19

        Note: The sum of the quarterly amounts above may not agree with annual amounts due to rounding.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.

ITEM 9A(T).    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to reasonably ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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        Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that material information relating to our company is made known to management, including our Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.

Management's Report on Internal Control over Financial Reporting

        MOCON's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

        This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

Changes in Internal Control Over Financial Reporting

        There was no change in our internal control over financial reporting that occurred during our fourth quarter of the year ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting

        It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In designing and operating a control system, one must consider the potential benefits of controls relative to their costs and the reality of limited resources available to allocate to control activities, particularly in smaller companies. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any control will meet its objectives under all potential future conditions. Because of such inherent limitations in any control system, there can be no absolute assurance that control issues, misstatements, and/or fraud will be prevented or detected.

ITEM 9B.    OTHER INFORMATION

        None.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        The information required under Item 10 of this Annual Report on Form 10-K is to be contained under the headings "Proposal One—Election of Directors—Information About Board Nominees," "Proposal One—Election of Directors—Additional Information About Board Nominees," "Corporate Governance—Information About our Board and its Committees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement to be filed with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.

        The information concerning our executive officers is included in this Annual Report under Item 1, "Executive Officers" and is incorporated herein by reference.

        During the fourth quarter 2009, we made no material changes to the procedures by which shareholders may recommend nominees to the board of directors, as described in our most recent proxy statement.

        Our Code of Ethics applies to all of our officers, directors and employees, including our principal executive officer and principal financial officer, and meets the requirements of the rules and regulations of the Securities and Exchange Commission. We will disclose any amendments to, and any waivers from a provision of, our Code of Ethics on a Form 8-K filed with the Securities and Exchange Commission. We make available, free of charge and through our website, to any shareholder who requests, the charters of our board committees and our Code of Ethics. Our website is www.mocon.com.

        To request a copy of the charters of our board committees or our Code of Ethics, write to us at:

MOCON, Inc.
7500 Boone Avenue North
Minneapolis, Minnesota 55428
Attention: Chief Financial Officer

ITEM 11.    EXECUTIVE COMPENSATION

        The information required under Item 11 of this Annual Report on Form 10-K is to be contained under the headings "Director Compensation," "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report" in our definitive proxy statement to be filed with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.

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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information required under Item 12 of this Annual Report on Form 10-K is to be contained under the headings "Principal Shareholders and Beneficial Ownership of Management" in our definitive proxy statement to be filed with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.

        The following table summarizes outstanding options under our equity compensation plans as of December 31, 2009. Our only equity compensation plans as of December 31, 2009 were the MOCON, Inc. 2006 Stock Incentive Plan and the MOCON, Inc. 1998 Stock Option Plan. The MOCON, Inc. 1998 Stock Option Plan has terminated with respect to future grants. Options and other stock incentive awards to be granted in the future under the MOCON, Inc. 2006 Stock Incentive Plan are within the discretion of our Board of Directors and the Compensation Committee of our Board of Directors and therefore cannot be ascertained at this time.

Plan Category		Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column)
Equity compensation plans approved by security holders			937,250	$	8.84		141,012
Equity compensation plans not approved by security holders			—		—		—
	Total		937,250				141,012

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

        The information required under Item 13 of this Annual Report on Form 10-K is to be contained under the heading "Related Party Relationships and Transactions" and "Corporate Governance—Director Independence" in our definitive proxy statement to be filed with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.

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ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required under Item 14 of this Annual Report on Form 10-K is to be contained under the headings "Proposal Two—Ratification of Selection of Independent Registered Public Accounting Firm—Audit, Audit-Related, Tax and Other Fees" and "Proposal Two—Ratification of Selection of Independent Registered Public Accounting Firm—Pre-Approval Policies and Procedures" in our definitive proxy statement to be filed with the SEC with respect to our next annual meeting of shareholders, which involves the election of directors and is incorporated herein by reference, or, if such proxy statement is not filed with the SEC within 120 days after the end of the fiscal year covered by this report, such information will be filed as part of an amendment to this report not later than the end of the 120-day period.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

1.    Financial Statements

        The following consolidated financial statements of MOCON, Inc. and its subsidiaries are included herein:

	Page
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2009 and 2008	F-2
Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007	F-3
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 2009, 2008 and 2007	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007	F-5
Notes to Consolidated Financial Statements	F-6

2.

Financial Statement Schedule

        The following financial statement schedule is included herein and should be read in conjunction with the consolidated financial statements referred to above:

Schedule II: Valuation and Qualifying Accounts S-1

3.

Exhibits

        The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index.

        A copy of any of the exhibits listed or referred to above will be furnished at a reasonable cost to any person who was a shareholder of MOCON as of March 22, 2010, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to MOCON, Inc., 7500 Boone Avenue North, Minneapolis, Minnesota 55428; Attn: Shareholder Information.

        The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(a):

A.

MOCON, Inc. 1998 Stock Option Plan, as amended, (incorporated by reference to our Definitive Proxy Statement on Form DEF-14A filed on April 9, 2002 (File No. 000-09273)).



B.

Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 1998 Stock Option Plan, as amended (incorporated by reference to

32

Exhibit 99.1 to our Current Report on Form 8-K filed on December 29, 2004 (File No. 000-09273)).

C.

Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 1998 Stock Option Plan, as amended (incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed on December 29, 2004 (File No. 000-09273)).



D.

MOCON, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)).



E.

Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)).



F.

Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)).



G.

Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 000-09273)).



H.

2003 Compensation Committee resolution setting forth the MOCON Incentive Pay Plan for 2003 and subsequent years (incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 000-09273)).



I.

Description of Non-Employee Director Retirement Plan (incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 000-09273)).



J.

Description of Non-Employee Director Compensation Arrangements (filed herewith).



K.

Description of Executive Officer Compensation Arrangements (filed herewith).



(b)

Exhibits

        The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index.

(c)

Financial Statement Schedule

        See Item 15(a)(2) above for the financial statement schedule filed herewith.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 30, 2010	MOCON, Inc.
	By:	/s/ ROBERT L. DEMOREST Robert L. Demorest, Chairman of the Board, President and Chief Executive Officer (principal executive officer)
	By:	/s/ DARRELL B. LEE Darrell B. Lee, Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated and on March 30, 2010.

Signature and Title

/s/ ROBERT L. DEMOREST
Robert L. Demorest, Chairman of the Board, President and Chief Executive Officer

/s/ DEAN B. CHENOWETH
Dean B. Chenoweth, Director

/s/ DONALD N. DEMORETT
Donald N. DeMorett, Director

/s/ J. LEONARD FRAME
J. Leonard Frame, Director

/s/ ROBERT F. GALLAGHER
Robert F. Gallagher, Director

/s/ DANIEL W. MAYER
Daniel W. Mayer, Director

/s/ RONALD A. MEYER
Ronald A. Meyer, Director

/s/ RICHARD A. PROULX
Richard A. Proulx, Director

/s/ TOM C. THOMAS
Tom C. Thomas, Director

34

MOCON, INC. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2009, 2008 and 2007

Table of Contents

	Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets		F-2
Consolidated Statements of Income		F-3
Consolidated Statements of Stockholders' Equity and Comprehensive Income		F-4
Consolidated Statements of Cash Flows		F-5
Notes to Consolidated Financial Statements		F-6

35

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
MOCON, Inc.:

        We have audited the accompanying consolidated balance sheets of MOCON, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MOCON, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, taken as a whole, presents fairly, in all material respects, the information set forth therein.

	/s/ KPMG LLP
Minneapolis, Minnesota March 30, 2010

F-1

MOCON, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2009 and 2008

			2009		2008
Assets
Current assets:
	Cash and cash equivalents		$	9,393,127	$	4,553,479
	Marketable securities, current			4,371,119		7,087,373
	Trade accounts receivable, less allowance for doubtful accounts of $162,315 in 2009 and $137,182 in 2008			4,589,998		4,514,359
	Other receivables			92,738		255,923
	Inventories			4,265,470		4,731,859
	Prepaid income taxes			223,648		465,641
	Prepaid expenses—other			357,911		385,264
	Deferred income taxes			411,549		362,773
		Total current assets		23,705,560		22,356,671
Marketable securities, noncurrent				567,163		4,468,064
Property, plant, and equipment, net				1,655,187		1,826,269
Goodwill				3,300,088		3,267,926
Technology rights and other intangibles, net				738,035		659,298
Deferred income taxes				280,548		298,094
Other assets				80,427		76,905
		Total assets	$	30,327,008	$	32,953,227
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	1,343,739	$	1,676,448
	Compensation and related expenses			1,479,398		1,498,428
	Other accrued expenses			163,640		310,828
	Accrued product warranties			209,710		229,087
	Dividends payable			465,302		503,308
	Deferred revenue			426,277		245,793
		Total current liabilities		4,088,066		4,463,892
Obligations to former employees				54,141		55,522
Accrued income taxes				202,418		215,820
		Total noncurrent liabilities		256,559		271,342
		Total liabilities		4,344,625		4,735,234
Commitments and contingencies (Note 7)
Stockholders' equity:
	Capital stock—undesignated. Authorized 3,000,000 shares			—		—
	Common stock—$0.10 par value. Authorized 22,000,000 shares; issued and outstanding 5,170,018 shares in 2009 and 5,592,314 shares in 2008			517,002		559,231
	Capital in excess of par value			114,021		2,868,669
	Retained earnings			24,690,293		24,268,266
	Accumulated other comprehensive income			661,067		521,827
		Total stockholders' equity		25,982,383		28,217,993
		Total liabilities and stockholders' equity	$	30,327,008	$	32,953,227

See accompanying notes to consolidated financial statements.

F-2

MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2009, 2008 and 2007

			2009		2008		2007
Sales:
	Products		$	24,791,998	$	28,016,390	$	25,659,362
	Consulting services			1,846,100		1,679,316		1,737,220
		Total sales		26,638,098		29,695,706		27,396,582
Cost of sales:
	Products			10,011,394		11,136,392		10,398,764
	Consulting services			1,056,916		978,529		985,879
		Total cost of sales		11,068,310		12,114,921		11,384,643
		Gross profit		15,569,788		17,580,785		16,011,939
Selling, general and administrative expenses				9,858,493		10,170,083		8,643,735
Research and development expenses				1,847,993		1,950,754		2,030,157
		Operating income		3,863,302		5,459,948		5,338,047
Other income, net				366,052		588,911		580,274
		Income before income taxes		4,229,354		6,048,859		5,918,321
Income taxes				1,318,867		1,990,000		2,113,000
		Net income	$	2,910,487	$	4,058,859	$	3,805,321
Net income per common share:
	Basic		$	0.54	$	0.73	$	0.69
	Diluted		$	0.53	$	0.72	$	0.67
Weighted average common shares outstanding:
	Basic			5,393,066		5,565,801		5,500,767
	Diluted			5,457,964		5,649,208		5,682,562

See accompanying notes to consolidated financial statements.

F-3

MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and Comprehensive Income

Years ended December 31, 2009, 2008 and 2007

		Common stock
														Accumulated other comprehensive income (loss)
		Number of shares			Amount			Capital in excess of par value			Retained earnings						Total
Balance, December 31, 2006			5,469,275		$	546,928		$	1,218,115		$	20,036,869		$	158,061		$	21,959,973
	Stock options exercised		58,776			5,877			455,497			—			—			461,374
	Dividends declared ($0.315 per share)		—			—			—			(1,736,012	)		—			(1,736,012	)
	Stock-based compensation expense		—			—			393,153			—			—			393,153
	Tax benefit on stock plans		—			—			60,418			—			—			60,418
	Net income		—			—			—			3,805,321			—			3,805,321
	Cumulative translation adjustment		—			—			—			—			414,281			414,281
	Adjustment for unrealized gain on marketable equity securities		—			—			—			—			26,759			26,759
	Comprehensive income																	4,246,361
Balance, December 31, 2007			5,528,051			552,805			2,127,183			22,106,178			599,101			25,385,267
	Stock options exercised		79,183			7,918			553,460			—			—			561,378
	Purchase and retirement of common stock		(14,920	)		(1,492	)		(139,836	)		—			—			(141,328	)
	Dividends declared ($0.34 per share)		—			—			—			(1,896,771	)		—			(1,896,771	)
	Stock-based compensation expense		—			—			303,292			—			—			303,292
	Tax benefit on stock plans		—			—			24,570			—			—			24,570
	Net income		—			—			—			4,058,859			—			4,058,859
	Cumulative translation adjustment		—			—			—			—			(54,518	)		(54,518	)
	Amortization of cumulative unrealized gain on marketable securities		—			—			—			—			(22,756	)		(22,756	)
	Comprehensive income																	3,981,585
Balance, December 31, 2008			5,592,314			559,231			2,868,669			24,268,266			521,827			28,217,993
	Stock options exercised		1,275			128			9,903			—			—			10,031
	Purchase and retirement of common stock		(423,571	)		(42,357	)		(2,992,010	)		(567,716	)		—			(3,602,083	)
	Dividends declared ($0.36 per share)		—			—			—			(1,920,744	)		—			(1,920,744	)
	Stock-based compensation expense		—			—			227,434			—			—			227,434
	Tax benefit on stock plans		—			—			25			—			—			25
	Net income		—			—			—			2,910,487			—			2,910,487
	Cumulative translation adjustment		—			—			—			—			141,767			141,767
	Amortization of cumulative unrealized gain on marketable securities		—			—			—			—			(2,527	)		(2,527	)
	Comprehensive income																	3,049,727
Balance, December 31, 2009			5,170,018		$	517,002		$	114,021		$	24,690,293		$	661,067		$	25,982,383

See accompanying notes to consolidated financial statements.

F-4

MOCON, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2009, 2008 and 2007

					2009			2008			2007
Cash flows from operating activities:
	Net income				$	2,910,487		$	4,058,859		$	3,805,321
	Adjustments to reconcile net income to net cash provided by operating activities:
		Stock-based compensation expense				227,434			303,292			393,153
		Loss on disposition of long-term assets				9,459			33,967			26,009
		Depreciation and amortization				577,530			582,767			576,059
		Deferred income taxes				(31,230	)		(118,456	)		116,696
		Excess tax benefit from employee stock plans				(25	)		(24,570	)		(60,418	)
		Changes in operating assets and liabilities:
			Trade accounts receivable			(506,210	)		(12,146	)		226,148
			Other receivables			163,047			(70,230	)		(18,182	)
			Inventories			477,724			(796,400	)		(289,435	)
			Prepaid income taxes			243,058			(476,565	)		—
			Prepaid expenses—other			27,777			(52,948	)		(82,246	)
			Accounts payable			84,797			61,065			50,617
			Compensation and related expenses			(25,295	)		167,393			(18,891	)
			Other accrued expenses			(147,548	)		8,962			(19,674	)
			Accrued product warranties			(20,228	)		30,280			(50,945	)
			Accrued income taxes			(18,095	)		(105,441	)		(202,180	)
			Deferred revenue			180,484			12,501			(217,630	)
				Net cash provided by operating activities		4,153,166			3,602,330			4,234,402
Cash flows from investing activities:
	Purchases of marketable securities					(979,101	)		(8,916,510	)		(9,822,218	)
	Proceeds from maturities of marketable securities					7,593,729			7,156,094			9,118,709
	Cash paid for acquisitions					—			—			(574,568	)
	Purchases of property, plant and equipment					(306,572	)		(719,641	)		(436,527	)
	Proceeds from sale of property and equipment					4,491			7,554			9,595
	Cash paid for patent and trademark registrations					(148,064	)		(218,486	)		(136,065	)
	Other					(3,522	)		(3,387	)		98,490
				Net cash provided by (used in) investing activities		6,160,961			(2,694,376	)		(1,742,584	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options					10,031			478,878			461,374
	Purchases and retirement of common stock					(3,602,083	)		(58,828	)		—
	Excess tax benefit from employee stock plans					25			24,570			60,418
	Dividends paid					(1,958,750	)		(1,835,707	)		(1,703,965	)
				Net cash used in financing activities		(5,550,777	)		(1,391,087	)		(1,182,173	)
Effect of exchange rate changes on cash and cash equivalents						76,298			(170,493	)		348,418
				Net increase (decrease) in cash and cash equivalents		4,839,648			(653,626	)		1,658,063
Cash and cash equivalents:
	Beginning of year					4,553,479			5,207,105			3,549,042
	End of year				$	9,393,127		$	4,553,479		$	5,207,105
Supplemental disclosures of cash flow information:
	Cash paid during the year for income taxes				$	1,367,575		$	2,457,312		$	2,208,601
	Cash paid during the year for interest					4,046			—			—
Supplemental schedule of noncash investing and financing activities:
	Dividends accrued				$	465,302		$	503,308		$	442,244
	Unrealized holding gain on available-for-sale securities					—			—			26,759
	Amortization of cumulative unrealized gain on marketable securities					(2,527	)		(22,756	)		—
	Noncash purchase and retirement of common stock					—			(82,500	)		—
	Noncash exercise of stock options					—			82,500			—

See accompanying notes to consolidated financial statements.

F-5

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies

        MOCON, Inc. (the Company) operates in a single industry segment: the developing, manufacturing and marketing of measurement, analytical, monitoring and consulting products for customers in the barrier packaging, food, pharmaceutical, consumer products, industrial hygiene, air quality monitoring, oil and gas exploration and other industries throughout the world. The following is a summary of the significant accounting policies used in the preparation of the Company's consolidated financial statements.

(a)

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

(b)

Foreign Currency Translation

        The financial statements for operations outside the United States are maintained in their local currency. All assets and liabilities of the Company's foreign subsidiaries are translated to United States dollars at period-end exchange rates, while revenue and expense accounts are translated at the average exchange rates during the period transactions occurred. Translation adjustments arising from the use of differing exchange rates are included in accumulated other comprehensive income or loss in stockholders' equity. Gains and losses on foreign currency transactions are included in other income or loss.

(c)

Cash and Cash Equivalents

        The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

        Cash equivalents consist of short-term investments which are readily convertible to cash.

(d)

Marketable Securities

        Marketable securities at December 31, 2009 and 2008 consist of municipal bonds and certificates of deposit. The classification of our marketable securities was changed as of January 1, 2008 from available-for-sale to held-to-maturity. This change was made due to our current intent and ability to hold these securities until maturity or the call date as the case may be. Under the prior method, these securities were recorded at fair value and the unrealized holding gains and losses were excluded from income and reported as a separate component of stockholders' equity until realized. At the time of the change, there were $25,283 of net unrealized holding gains which were amortized in 2009 and 2008 at $2,527 and $22,756, respectively.

        Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. A decline in the market value of any held-to-maturity security below cost, that is deemed other than temporary is charged to income, resulting in the establishment of a new cost basis for the security.

(e)

Accounts Receivable

        Credit is granted to customers in the normal course of business. Receivables are recorded at original carrying value less reserves for estimated uncollectible accounts and sales returns. The

F-6

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)

Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. When facts and circumstances dictate, the Company may need to adjust its estimates and assumptions.

(f)

Inventories

        Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, and market represents the lower of replacement cost or estimated net realizable value.

(g)

Property, Plant and Equipment

        Property, plant and equipment are carried at cost. Depreciation and amortization are typically computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred and significant renewals and betterments are capitalized.

(h)

Goodwill, Other Intangible Assets and Software Development Costs

        Goodwill represents the excess of the purchase price over the fair value of assets acquired. Pursuant to the provisions of ASC 350, goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of ASC 350. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 360.

        Intangible assets consist of technology rights, patents, trademarks and other intangibles. Technology rights, patents, trademarks and other intangibles are carried at cost less accumulated amortization. Costs incurred in connection with applications for new patents are deferred until a final determination, with respect to the application, is made by appropriate regulatory agencies. Costs of patents abandoned are charged to income in the period of abandonment. Patent costs are amortized over the lesser of 17 years or their estimated useful lives using the straight-line method. Trademarks, trade names and other intangibles are amortized over three to five years.

        The costs of software development, including significant product enhancements, incurred subsequent to establishing technological feasibility are capitalized in accordance with ASC 985. Costs incurred prior to establishment of technological feasibility are charged to research and development expense.

(i)

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

        The Company reviews its long-lived assets and certain identifiable intangibles for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be

F-7

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)

recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(j)

Warranty

        The Company records a liability for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting claim, new product introductions and other factors. In the event the Company determines that its current or future product repair and replacement costs exceed the Company estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made.

(k)

Use of Estimates

        The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(l)

Income Taxes

        Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized.

(m)

Fair Value of Financial Instruments

        The Company's financial instruments are recorded in its Consolidated Balance Sheets. The carrying amount for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments. The fair values of investments in marketable securities are based on quoted market prices and are summarized in Note 2.

(n)

Revenue Recognition

        The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable when persuasive evidence of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. The Company's terms are F.O.B. shipping point with no right of return, except in rare cases, and customer acceptance of its products is not required. The revenue

F-8

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)

recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. The Company does not have distributors who stock its equipment. The Company does not offer rebates, price protection, or other similar incentives, and discounts when offered are recorded as a reduction in revenue.

        Revenue for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts.

        Revenue from shipments with multiple element arrangements are recognized as each element is earned, and is allocated among elements on a relative fair value basis when such elements have standalone value.

        Shipping and handling fees billed to customers are reported within revenue in the consolidated statements of income, and the related costs are included in cost of sales in the consolidated statements of income.

(o)

Advertising Costs

        The Company incurs advertising costs associated with trade shows, print advertising and brochures. Such costs are charged to expense as incurred. Advertising expense was approximately $490,000, $505,000 and $353,000 in 2009, 2008 and 2007, respectively.

(p)

Research and Development Costs

        Research and development expenditures relate to the development of new product hardware and software and enhancements to existing products. All such costs are expensed as incurred.

(q)

Net Income Per Common Share

        Basic net income per common share is computed by dividing net income by the weighted average of common shares outstanding during the year. Diluted net income per share is computed by dividing net income by the weighted average of common and potential dilutive common shares outstanding during the year.

(r)

Stock-Based Compensation

        Under ASC 718, the Company recognizes compensation expense on a straight-line basis over the vesting period for all stock-based awards granted on or after January 1, 2006, and for previously granted awards not yet vested as of January 1, 2006. Under the provisions of ASC 718, the Company recognizes stock-based compensation net of an estimated forfeiture rate, resulting in the recognition of compensation cost for only those shares expected to vest. See Note 9 for additional information on stock-based compensation.

(s)

Recently Issued Accounting Pronouncements

        In June 2009, the Financial Accounting Standards Board (FASB) issued Update No. 2009-01, which establishes The FASB Accounting Standards Codification (ASC) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (GAAP). The ASC is effective for interim and annual periods ending after September 15, 2009. The Company adopted the ASC when referring to GAAP in its report on

F-9

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(1) Summary of Significant Accounting Policies (Continued)

Form 10-Q for the quarter ended September 30, 2009. The adoption of the ASC did not have an impact on the consolidated financial statements.

        In May 2009, the FASB issued SFAS No. 165, Subsequent Events, now codified in ASC 855-10. This statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855-10 was effective for the Company in the second quarter 2009, and its adoption did not have an impact on the consolidated financial statements.

        In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets, now codified as ASC 350-30-65-1. ASC 350-30-65-1 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets, now codified as ASC 350-30. ASC 350-30-65-1 was effective for the Company beginning January 1, 2009, and its implementation of FSP FAS 142-3 did not have an impact on the consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, now codified in ASC 805. ASC 805 retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at their fair values as of the acquisition date. ASC 805 also required that acquisition-related costs be recognized separately from the acquisition. The Company was required to apply the guidance of ASC 805 to any business combinations completed on or after January 1, 2009.

        In September 2006, the FASB issued guidance, now codified in ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB released additional guidance, also now codified under ASC 820, which provided for delayed application of certain guidance related to non-financial assets and non-financial liabilities not measured at fair value on a recurring basis. The Company adopted ASC 820 in the first quarter 2008, except as it applies to those non-financial assets and non-financial liabilities, which was adopted in the first quarter 2009. The adoption did not impact the Company's consolidated financial statements and related disclosures for the year ended December 31, 2009.

(t)

Subsequent Events

        The Company has evaluated the period subsequent to December 31, 2009, and concluded there were no events or transactions occurring during this period that required recognition or additional disclosure in the consolidated financial statements.

F-10

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(2) Marketable Securities

        The classification of our marketable securities was changed as of January 1, 2008 from available-for-sale to held-to-maturity. The amortized cost and fair value for held-to-maturity securities by major security type at December 31, 2009 and 2008 were as follows:

		2009
		Amortized Cost		Fair Value
Held-to-maturity:
	Municipal bonds	$	2,550,294	$	2,584,917
	Certificates of deposit		2,387,988		2,388,000
		$	4,938,282	$	4,972,917
		2008
		Amortized Cost		Fair Value
Held-to-maturity:
	Municipal bonds	$	4,603,040	$	4,614,136
	Certificates of deposit		6,949,870		6,949,972
	Unamortized holding gain on marketable securities		2,527		—
		$	11,555,437	$	11,564,108

        There were no gross realized gains or losses for the years ended December 31, 2009, 2008 and 2007.

        Maturities of investment securities at December 31, 2009 and 2008 were as follows:

	2009				2008
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	4,371,119	$	4,399,293	$	7,087,373	$	7,105,317
Due after one year		567,163		573,624		4,465,537		4,458,791
	$	4,938,282	$	4,972,917	$	11,552,910	$	11,564,108

(3) Inventories

        The major components of inventories at December 31, 2009 and 2008 were as follows:

	2009		2008
Finished products	$	939,385	$	829,861
Work-in-process		1,404,012		1,633,577
Raw materials		1,922,073		2,268,421
	$	4,265,470	$	4,731,859

F-11

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(4) Property, Plant and Equipment

        Property, plant and equipment at December 31, 2009 and 2008 consisted of the following:

		2009			2008			Estimated useful lives
Land		$	200,000		$	200,000		—
Buildings			759,281			742,755		27 years
Machinery and equipment			3,209,227			3,127,428		3 to 10 years
Office equipment			1,192,958			1,111,484		2 to 15 years
Leasehold improvements			634,166			658,864		1 to 5 years
Vehicles			261,035			260,192		3 to 5 years
	Total property, plant and equipment		6,256,667			6,100,723
Less accumulated depreciation			(4,601,480	)		(4,274,454	)
	Net property, plant and equipment	$	1,655,187		$	1,826,269

        Depreciation of property, plant and equipment was $475,673, $464,015 and $420,606 for the years ended December 31, 2009, 2008 and 2007, respectively.

(5) Goodwill and Other Intangible Assets

Goodwill

        As of December 31, 2009 and 2008, goodwill amounted to $3,300,088 and $3,267,926, respectively. The increase was due to foreign currency translation relating to the acquisition of Paul Lippke Handels-GmbH. The Company completed its annual impairment tests during the fourth quarters of 2009 and 2008 and determined there was no impairment.

Other Intangible Assets

        Other intangible assets (all of which are being amortized except projects in process) are as follows:

	As of December 31, 2009
	Cost		Accumulated Amortization			Net
Patents	$	1,008,032	$	(402,392	)	$	605,640
Trademarks and trade names		477,486		(398,424	)		79,062
Other intangibles		778,596		(725,263	)		53,333
	$	2,264,114	$	(1,526,079	)	$	738,035

F-12

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(5) Goodwill and Other Intangible Assets (Continued)

	As of December 31, 2008
	Cost		Accumulated Amortization			Net
Patents	$	860,422	$	(365,329	)	$	495,093
Trademarks and trade names		465,756		(381,551	)		84,205
Other intangibles		778,596		(698,596	)		80,000
	$	2,104,774	$	(1,445,476	)	$	659,298

        Amortization expense was $101,857, $118,752 and $155,453 in 2009, 2008 and 2007, respectively.

        Estimated amortization expense for the fiscal years 2010 to 2014 and thereafter is $88,628, $74,989, $42,564, $37,871, $221,218, respectively.

(6) Warranty

        The Company provides a warranty for most of its products. Warranties are for periods ranging from ninety days to one year, and cover parts and labor for non-maintenance repairs, at the Company location. Operator abuse, improper use, alteration, damage resulting from accident, or failure to follow manufacturer's directions are excluded from warranty coverage.

        Warranty expense is accrued at the time of sale based on historical claims experience. Warranty reserves are also accrued for special rework campaigns for known major product modifications. The Company also offers extended warranty service contracts for select products when the factory warranty period expires.

        Warranty provisions and claims for the years ended December 31, 2009, 2008 and 2007 were as follows:

Description		Balance at Beginning of Year		Warranty Provisions		Warranty Claims		Balance at End of Year
Year ended December 31, 2007:
	Allowance for product warranties	$	246,737		354,383		399,747		201,373
Year ended December 31, 2008:
	Allowance for product warranties	$	201,373		416,043		388,329		229,087
Year ended December 31, 2009:
	Allowance for product warranties	$	229,087		294,579		313,956		209,710

(7) Commitments and Contingencies

(a) Leases

        The Company leases its facilities and certain equipment pursuant to operating leases. The facility leases expire at various times through July 2018 and require the Company to pay operating costs, including real estate taxes.

F-13

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(7) Commitments and Contingencies (Continued)

        Rental expense, including charges for operating costs, was $462,131, $450,725 and $421,840 in 2009, 2008 and 2007, respectively.

        The following is a schedule of future minimum lease payments, excluding charges for operating costs, for operating leases as of December 31, 2009:

Year Ending December 31
2010	$	291,060
2011		116,917
2012		116,917
2013		116,917
2014 and thereafter		337,624
	$	979,435

        Subsequent to December 31, 2009, the Company signed a new 15-year lease for a property which will replace its current Minneapolis headquarters and operations center. The new lease will commence on June 1, 2010. The required future minimum lease payments, starting at $367,000 per year and subject to annual increases, have not been included in the above table.

(b) Executive Severance Agreements

        The Company is a party to a severance agreement with five of its executive officers which provides for the payment to the executive of a lump sum amount upon the occurrence of certain termination events. The payment could amount to one or two times the executive's current annual salary depending on the reason for termination.

(c) Inventory Purchase Obligations

        At December 31, 2009, the Company had approximately $1.2 million of purchase order commitments to suppliers of the Company for delivery of inventory primarily during 2010.

(d) Minority Equity Investment

        At December 31, 2009, the Company had committed to acquire a minority equity interest in Luxcel Biosciences Limited, an Irish company, for approximately $3.6 million. This transaction was closed on January 15, 2010.

(8) Income Taxes

        The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, several state jurisdictions, China and Germany. With limited exceptions, the Company is no longer subject to income tax examinations by taxing authorities for taxable years before 2006.

F-14

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(8) Income Taxes (Continued)

        Income before income taxes was as follows:

			2009		2008		2007
Income before income taxes:
	Domestic		$	2,824,000	$	4,901,000	$	4,580,000
	Foreign			1,405,000		1,148,000		1,338,000
		Total	$	4,229,000	$	6,049,000	$	5,918,000

        The provision (benefit) for income taxes consists of the following:

			2009			2008			2007
Current tax expense:
	Federal		$	892,905		$	1,502,000		$	1,383,000
	State			106,816			170,000			178,000
	Foreign			352,512			414,000			570,000
		Total current expense		1,352,233			2,086,000			2,131,000
Deferred tax expense:
	Federal			(42,277	)		(66,000	)		33,000
	State			(4,727	)		(7,000	)		4,000
	Foreign			13,638			(23,000	)		(55,000	)
		Total deferred expense (benefit)		(33,366	)		(96,000	)		(18,000	)
		Provision for income taxes	$	1,318,867		$	1,990,000		$	2,113,000

        The effective income tax rate varies from the federal statutory tax rate for the following reasons:

			Percentage of pretax income for years ended December 31,
			2009			2008			2007
Tax at statutory federal income tax rate				34.0	%		34.0	%		34.0	%
Increases (reductions) in taxes resulting from:
	State income taxes, net of federal benefit			1.6			2.1			2.0
	Change in valuation allowance			(1.0	)		0.7			—
	Domestic manufacturing deduction			(1.5	)		(1.6	)		(1.7	)
	Effect of foreign operations			(1.6	)		(0.7	)		1.0
	Tax-exempt interest			(0.9	)		(1.3	)		(0.9	)
	Changes in unrecognized tax benefits			(0.3	)		(0.7	)		—
	Stock option compensation			1.6			1.0			1.4
	Research credit			(1.2	)		(0.8	)		(0.5	)
	Other			0.5			0.2			0.4
		Effective income tax rate		31.2	%		32.9	%		35.7	%

F-15

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(8) Income Taxes (Continued)

        The tax effect of significant temporary differences representing deferred tax assets and liabilities at December 31, 2009 and 2008 were as follows:

			2009			2008
Deferred tax assets:
	Allowance for doubtful accounts		$	42,273		$	34,324
	Inventory items			117,039			104,273
	Reserves and accruals			377,191			342,464
	Capital loss carryforward			319,873			321,058
	Compensation expense—stock options			89,837			79,630
	NOL carryforward			—			42,827
	Intangibles			53,019			54,979
	Other			64,374			71,598
		Subtotal		1,063,606			1,051,153
Less: Valuation allowance				(319,873	)		(363,885	)
		Total deferred tax assets		743,733			687,268
Deferred tax liabilities:
	Fixed assets			(51,636	)		(26,401	)
		Net deferred tax asset	$	692,097		$	660,867

        As of December 31, 2009, the Company has determined that establishing a valuation allowance against the deferred tax assets is required since it is more likely than not that the tax benefits of the $319,873 from the capital loss carryforward will not be realized through generating of future capital gain income. The reduction in the valuation allowance from 2008 to 2009 was due to the re-evaluation of a net operating loss carryforward relating to our China location. However, the Company believes it is more likely than not that the remainder of its deferred tax assets at December 31, 2009 will be realized either through future taxable income or net operating loss carrybacks.

        As of December 31, 2009, there were approximately $5,400,000 of accumulated undistributed earnings from the Company's German subsidiary that are considered to be reinvested indefinitely. No deferred tax liability has been provided on such earnings. If they were remitted to the Company, applicable U.S. federal and foreign withholding taxes would be partially offset by available foreign tax credits.

        The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48), now codified in ASC 740, on January 1, 2007, and upon adoption did not need to recognize an adjustment in the previously recorded

F-16

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(8) Income Taxes (Continued)

liability for unrecognized income tax benefits. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

Balance at January 1, 2009	$	168,000
Additions based on tax positions related to the current year		33,000
Additions based on tax positions related to the prior year		4,000
Reductions due to closing of statute of limitations		(12,000	)
Reductions based on tax positions related to the prior year		(18,000	)
Balance at December 31, 2009	$	175,000

        Included in the balance of total unrecognized tax benefits at December 31, 2009 are potential benefits of $127,000 that if recognized would affect the effective tax rate on income before income taxes. The difference between this amount and the corresponding amount of gross unrecognized tax benefits related primarily to the deferred federal benefit for state income tax related amounts.

        The Company does not anticipate that the total amount of unrecognized tax benefits will change significantly in the next twelve months.

        The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total accrued interest and penalties amounted to $27,000 and $48,000 on a gross basis at December 31, 2009 and 2008, respectively, and are excluded from the reconciliation of unrecognized tax benefits presented above.

(9) Stock-Based Compensation

        As of December 31, 2009, the Company has reserved 141,012 shares of common stock for options and other stock-based incentive awards that are still available for grant under the Company's 2006 stock incentive plan, and 937,250 shares for options that have been granted under either the Company's 2006 stock incentive plan or 1998 stock option plan but have not yet been exercised. The Company issues new shares of common stock upon exercise of stock options.

        Under the Company's stock-based incentive plans, option exercise prices are 100% of the market value of the common stock at the date of grant, except if incentive options granted under the 1998 and 2006 plans were granted to persons owning more than 10% of the Company's stock, in which case the option price would be 110% of the market value. Exercise periods are generally for seven to ten years. Certain of the plans allow for the granting of nonqualified stock options. Upon the exercise of these nonqualified options, the Company may realize a compensation deduction allowable for income tax purposes. The after-tax effect of these tax deductions is included in the accompanying consolidated financial statements as an addition to capital in excess of par value.

        Stock-based compensation expense is calculated and recognized primarily on a straight-line basis over the vesting periods of the related stock-based reward. The Company generally provides for the vesting of stock options in equal annual installments over a four-year period commencing on the one-year anniversary of the date of grant, or over a one-year period with one-fourth of the underlying shares vesting at the end of each three-month period following the grant date. Stock-based

F-17

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(9) Stock-Based Compensation (Continued)

compensation expense recognized in the consolidated financial statements for 2009, 2008 and 2007 was as shown below:

	Years Ended December 31,
	2009			2008			2007
Total cost of stock-based compensation	$	227,434		$	303,292		$	393,153
Amount of income tax benefit recognized in earnings		(10,964	)		(44,896	)		(53,543	)
Amount charged against net income	$	216,470		$	258,396		$	339,610

        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes). The Company uses historical data to estimate the expected price volatility, expected option life and expected forfeiture rate. The Company based its estimate of expected volatility for awards granted in 2009, 2008 and 2007 on daily historical trading data of its common stock for a period equivalent to the expected term of the award. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The Company estimated the expected term consistent with historical exercise and cancellation activity of its previous share-based grants with a seven-year contractual term. Forfeitures were based on historical experience. The dividend yield is calculated based upon the dividend payments made during the prior four quarters as a percent of the average stock price for that period. The following assumptions were used to estimate the fair value of options granted during 2009, 2008 and 2007 using the Black-Scholes model:

	2009			2008			2007
Dividend yield		4.1	%		3.1	%		2.6	%
Expected volatility		41	%		37	%		34	%
Risk-free interest rate		3.0	%		2.1	%		4.0	%
Expected lives (in years)		5.5			5.4			5.4

F-18

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(9) Stock-Based Compensation (Continued)

        Information regarding the Company's stock option plans for 2007, 2008 and 2009 was as follows:

		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Options outstanding, December 31, 2006			853,875		$	8.52		6.6
	Granted		95,850			10.95		7.0
	Exercised		(58,776	)		7.85
	Cancelled or expired		(34,512	)		11.26
Options outstanding, December 31, 2007			856,437			8.73		5.4	$	2,061,171
	Granted		91,500			8.58		7.0
	Exercised		(79,183	)		7.09
	Cancelled or expired		(20,192	)		10.96
Options outstanding, December 31, 2008			848,562			8.81		4.9	$	567,879
	Granted		96,500			9.21		7.0
	Exercised		(1,275	)		7.87
	Cancelled or expired		(6,537	)		10.37
Options outstanding, December 31, 2009			937,250		$	8.84		4.2	$	881,656
Options exercisable, December 31, 2009			774,938		$	8.70		3.7	$	860,748

        The weighted average grant date fair value based on the Black-Scholes model for options granted in 2009, 2008 and 2007 was $2.53, $2.16 and $3.02, respectively. The total intrinsic value of options exercised was $1,151, $296,904 and $216,882 during the years ended December 31, 2009, 2008 and 2007, respectively. The aggregate intrinsic values are based upon the closing price of our common stock on the last day of the respective fiscal year.

        A summary of the status of the Company's unvested option shares as of December 31, 2009 is as follows:

		Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2008			163,469		$	2.47
	Options granted		96,500			2.53
	Options cancelled		(4,537	)		2.53
	Options vested		(93,120	)		2.47
Unvested at December 31, 2009			162,312		$	2.50

F-19

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(9) Stock-Based Compensation (Continued)

        As of December 31, 2009, there was $406,436 of total unrecognized compensation cost related to unvested stock-based compensation granted under the Company's plans. That cost is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of option shares vested during the years 2009, 2008 and 2007 was $230,365, $304,302 and $394,818, respectively.

(10) Other Income

        Other income, net for 2009, 2008 and 2007 was as follows:

		Years Ended December 31,
		2009			2008		2007
Interest income on investments		$	369,176		$	575,094	$	565,441
Foreign currency exchange (loss) gain			(2,956	)		12,500		1,165
Other			(168	)		1,317		13,668
	Total other income	$	366,052		$	588,911	$	580,274

(11) Stockholders' Equity

        In the period from March through June 2009, the Company repurchased 181,171 shares of its outstanding common stock. These purchases exhausted the authorization which had been in place since November, 2005. On June 23, 2009, the Board of Directors authorized the repurchase of up to an additional $2,000,000 of our common stock. In August 2009, the Company repurchased a total of 242,400 shares of the Company's common stock which exhausted the existing authorization. Currently, there is no authorization in place to repurchase any of the Company's common stock.

(12) Net Income per Common Share

        The following table presents a reconciliation of the denominators used in the computation of net income per common share—basic and net income per common share—diluted for the years ended December 31, 2009, 2008 and 2007:

	Years Ended December 31,
	2009		2008		2007
Weighted shares of common stock outstanding—basic		5,393,066		5,565,801		5,500,767
Weighted shares of common stock assumed upon exercise of stock options		64,898		83,407		181,795
Weighted shares of common stock outstanding—diluted		5,457,964		5,649,208		5,682,562

        Outstanding stock options totaling 574,387, 484,574 and 140,850 at December 31, 2009, 2008 and 2007, have been excluded from the net income per common share calculations because the effect on net income per common share would not have been dilutive.

F-20

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(13) Product Line, Geographical and Significant Customer Information

        The Company operates in a single industry segment which consists of the development, manufacturing and marketing of measurement, analytical, monitoring, and consulting products used to detect, measure and analyze gases and chemical compounds for customers in the barrier packaging, food, pharmaceutical and other industries throughout the world.

        The following table summarizes total sales by product line for 2009, 2008 and 2007 respectively:

		Years Ended December 31,
		2009		2008		2007
Permeation products and services		$	15,126,259	$	15,850,027	$	14,428,823
Gas analyzers, sensors and detectors			4,933,256		6,678,982		5,662,923
Packaging products and services			4,701,279		4,822,009		4,685,403
Other instruments and services			1,877,304		2,344,688		2,619,433
	Total sales	$	26,638,098	$	29,695,706	$	27,396,582

        The following table summarizes total sales, based upon the country to which sales to external customers were made for fiscal years 2009, 2008 and 2007. All of the Company's tangible long-lived assets are located in the United States, except for an insignificant amount of property and equipment in Germany and China.

			Years Ended December 31,
			2009		2008		2007
Domestic sales			$	11,790,911	$	12,960,723	$	13,160,268
Foreign sales:
	Europe			6,591,749		7,836,335		6,595,075
	Asia			5,996,005		6,144,822		5,309,901
	Other			2,259,433		2,753,826		2,331,338
		Total foreign sales		14,847,187		16,734,983		14,236,314
		Total sales	$	26,638,098	$	29,695,706	$	27,396,582

        The Company's products are marketed outside of North America through various independent representatives. One independent representative accounted for approximately 6% of our consolidated sales in each of the years 2009, 2008 and 2007.

        No single customer accounted for 10% or more of the Company's consolidated revenues in any of the fiscal years ended December 31, 2009, 2008 and 2007.

(14) Savings and Retirement Plan

        The Company has a 401(k) Savings and Retirement Plan covering substantially all of its employees. The Company provides matching contributions in accordance with the plan. The Company's contributions to this plan in 2009, 2008 and 2007 were $193,115, $169,465 and $85,145, respectively.

F-21

MOCON, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, 2008 and 2007

(15) Subsequent Event

        In January 2010, the Company acquired a minority equity ownership interest in Luxcel Biosciences Limited (Luxcel) based in Cork, Ireland. The investment of €2,500,000 (approximately $3,625,000) was made through the Company's wholly-owned subsidiary, MOCON Netherlands Holding B.V., and amounted to a 16.9% equity interest in Luxcel. Luxcel has developed phosphorescence-based sensors that enable rapid, high-throughput screening and detection of bacterial contamination of food samples, non-invasive analysis of gas in food, beverage and pharmaceutical packaging, and one of the most specific measures of drug toxicity and metabolism within pharmaceutical research and development.

F-22

MOCON, INC.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009

Exhibit No.	Exhibit	Method of Filing
3.1	Restated Articles of Incorporation of MOCON, Inc.	Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (File No. 000-09273)
3.2	Third Restated Bylaws of MOCON, Inc.	Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on December 20, 2007 (File No. 000-09273)
10.1	Office/Warehouse Lease, dated July 29, 1994, by and between MOCON, Inc. and DRESCO III, Inc.	Incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 000-09273)
10.2	Lease Notification and Extension Agreement, dated June 6, 1997, by and between MOCON, Inc. and DRESCO III, Inc.	Incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (File No. 000-09273)
10.3	Second Lease Notification and Extension Agreement, dated November 17, 1999, by and between MOCON, Inc. and Boone Associates LLC	Incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 000-09273)
10.4	Office/Warehouse Lease, dated March 9, 2010, by and between MOCON, Inc. and Minnesota Industrial Properties Limited Partnership	Filed herewith
10.5	MOCON, Inc. 1998 Stock Option Plan, as amended	Incorporated by reference to Appendix A to our Definitive Proxy Statement on Form DEF-14A filed on April 9, 2002 (File No. 000-09273)
10.6	Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 1998 Stock Option Plan, as amended	Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed on December 29, 2004 (File No. 000-09273)
10.7	Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 1998 Stock Option Plan, as amended	Incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed on December 29, 2004 (File No. 000-09273)
10.8	MOCON, Inc. 2006 Stock Incentive Plan	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)

Exhibit No.	Exhibit	Method of Filing
10.9	Form of Incentive Stock Option Agreement between MOCON, Inc. and its Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan	Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)
10.10	Form of Non-Statutory Stock Option Agreement between MOCON, Inc. and its Non-Employee Directors and Executive Officers under the MOCON, Inc. 2006 Stock Incentive Plan	Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on May 23, 2006 (File No. 000-09273)
10.11	Form of Executive Severance Agreement	Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 000-09273)
10.12	2003 Compensation Committee resolution setting forth the MOCON Incentive Pay Plan	Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 000-09273)
10.13	Description of Non-Employee Director Retirement Plan	Incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 000-09273)
10.14	Subscription and Shareholders Agreement dated December 21, 2009 among MOCON, Inc., Luxcel Biosciences, Enterprise Ireland, Glanbia Enterprise Fund, and certain other parties named therein	Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed December 23, 2009 (File No. 000-09273)
10.15	Description of Non-Employee Director Compensation Arrangements	Filed herewith
10.16	Description of Executive Officer Compensation Arrangements	Filed herewith
21.1	Subsidiaries of MOCON, Inc.	Filed herewith
23.1	Consent of Independent Registered Public Accounting Firm	Filed herewith
31.1	Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)	Furnished herewith
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)	Furnished herewith

Financial Statement Schedule:

II—Valuation and Qualifying Accounts

        All other schedules are omitted as the required information is inapplicable or the information is presented in our consolidated financial statements or related notes.

Description		Balance at Beginning of Year		Charged to Costs and Expenses		Deductions		Balance at End of Year
Year ended December 31, 2007:
	Allowance for doubtful accounts and sales returns	$	179,861		23,209		77,273		125,797
Year ended December 31, 2008:
	Allowance for doubtful accounts and sales returns	$	125,797		158,133		146,748		137,182
Year ended December 31, 2009:
	Allowance for doubtful accounts and sales returns	$	137,182		113,521		88,388		162,315

S-1

QuickLinks

PART I

ITEM 1. BUSINESS

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. RESERVED

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share data)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A(T). CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES
Table of Contents
Report of Independent Registered Public Accounting Firm
MOCON, INC. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2009

EX-10.4

Exhibit 10.4

LEASE AGREEMENT

between

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP
as “Landlord”

and

MOCON, INC., a Minnesota corporation
as “Tenant”

TABLE OF CONTENTS

SECTION	PAGE
Error! Not a valid heading level in TOC entry on page 1

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BASIC LEASE INFORMATION

Lease Date:	For identification purposes only, the date of this Lease is March 9, 2010.
Landlord:	Minnesota Industrial Properties Limited Partnership, a Minnesota limited partnership
Tenant:	Mocon, Inc., a Minnesota corporation
Project:	Northland Interstate Business Center IV
Building Address:	9300 75th Avenue North, Brooklyn Park, MN 55428
Premises Address:	9300 75th Avenue North, Suite 100, Brooklyn Park, MN 55428
Rentable Area of Building:	Approximately 185,000 square feet.
Premises:	Approximately 60,086 rentable square feet, including approximately 31,718 rentable square feet of office/lab area and approximately 28,368 rentable square feet of warehouse space.
Permitted Use:	The Premises shall be used for lawful warehouse and general office/lab purposes, manufacturing, fabrication and/or assembly of various testing equipment and for no other use or purpose without Landlord’s prior written consent.
Term:	One hundred eighty-four (184) full calendar months (plus any partial month at the beginning of the Term) (“Initial Term”). Tenant has one Extension Option, as defined in Exhibit D to this Lease, to extend the Term of this Lease for one (1) additional consecutive five (5) year period beginning pursuant to Section 35 (Extension of Term) of this Lease.
Scheduled Commencement Date:	June 1, 2010
Expiration Date:	The last day of the one hundred eighty-fourth (184th) full calendar month in the Term
Base Rent:	Initial Term:
	Months 1-5:	none-abated*
	Months 6 - 16:	$367,125.46 per annum

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	$30,593.79 per month
Months 17 - 28:	$376,138.36 per annum
	$31,344.86 per month
Months 29 - 40:	$385,752.12 per annum
	$32,146.01 per month
Months 41 - 52:	$395,365.88 per annum
	$32,947.16 per month
Months 53 - 64:	$405,580.50 per annum
	$33,798.38 per month
Months 65 - 76:	$415,795.12 per annum
	$34,649.59 per month
Months 77 - 88:	$426,009.74 per annum
	$35,500.81 per month
Months 89 - 100:	$436,825.22 per annum
	$36,402.10 per month
Months 101 - 112:	$447,640.70 per annum
	$37,303.39 per month
Months 113 - 124:	$459,057.04 per annum
	$38,254.75 per month
Months 125 - 136:	$470,473.38 per annum
	$39,206.12 per month
Months 137 - 148:	$482,490.58 per annum
	$40,207.55 per month
Months 149 — 160:	$494,507.78 per annum
	$41,208.98 per month
Months 161 - 172:	$507,125.84 per annum
	$42,260.49 per month
Months 173 - 184:	$519,743.90 per annum
	$43,311.99 per month
Extension Term:
Months 185 — 244	Market Rate (see Section 3.1(a)

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	*Tenant shall be entitled to (i) an abatement of Base Rent and Additional Rent during months 1-4 of the Initial Term, and (ii) an abatement of Base Rent only during month 5 of the Initial Term, however, Tenant shall be responsible for utility consumption charges for the Premises during said abatement period.
	**To the extent Tenant engages in a single construction project involving permitted Alterations to the Premises during months 61-120 of the Initial Term that costs equal to or more than Two Hundred Fifty Thousand Dollars ($250,000), then upon completion of the project in compliance with all the terms of this Lease, and delivery to Landlord of unconditional full and final lien waivers evidencing that total hard construction costs for such project equal or exceed $250,000, Landlord will give Tenant a rent credit to be applied against the next installment of Base Rent coming due hereunder equal to Thirty Thousand Dollars ($30,000); provided, however, Landlord may, in its sole discretion, prior to commencement of construction of said construction project, elect to waive Section 6.6 of this Lease with respect to said construction project, in which event the foregoing rent credit shall be null and void.
	***To the extent Tenant engages in a single construction project involving permitted Alterations to the Premises during months 121-180 of the Initial Term that costs equal to or more than Two Hundred Fifty Thousand Dollars ($250,000), then upon completion of the project in compliance with all the terms of this Lease, and delivery to Landlord of unconditional full and final lien waivers evidencing that total hard construction costs for such project equal or exceed $250,000, Landlord will give Tenant a rent credit to be applied against the next installment of Base Rent coming due hereunder equal to Thirty Thousand Dollars ($30,000); provided, however, Landlord may, in its sole discretion, prior to commencement of construction of said construction project, elect to waive Section 6.6 of this Lease with respect to said construction project, in which event the foregoing rent credit shall be null and void.
Tenant’s Share:	32.48%
Security Deposit:	$41,259.06
Landlord’s Address for Payment of Rent:	Minnesota Industrial Properties Limited Partnership c/o Ryan Companies US, Inc. 50 South Tenth Street, Suite 300 Minneapolis MN 55403-2012

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Landlord’s Address for Notices:	Minnesota Industrial Properties Limited Partnership c/o Ryan Companies US, Inc. 50 South Tenth Street, Suite 300 Minneapolis MN 55403-2012
Tenant’s Address for Notices:	Mocon, Inc. 9300 75th Avenue North, Suite 100 Brooklyn Park, MN 55428
Broker(s):	Tenant: NAI Welsh (Peter Mork; Tim Olsen)Landlord: CB Richard Ellis (Matt A. Oelschlager)
Guarantor(s):	None
Property Manager:	Ryan Companies US, Inc.
Additional Provisions:	35. Extension of Term; 36. Permitted Trash Enclosure

Exhibits:
Exhibit A:	The Premises
Exhibit B:	Construction Rider
Exhibit B-1:	Final Cost Estimate
Exhibit C:	Building Rules
Exhibit D:	Additional Provisions Rider
Exhibit E:	Tenant’s Hazardous Materials List
Exhibit F:	Non-Disturbance, Attornment, Estoppel and Subordination Agreement

The Basic Lease Information set forth above is part of the Lease.  In the event of any conflict between any provision in the Basic Lease Information and the Lease, the Lease shall control.

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THIS LEASE is made as of the Lease Date set forth in the Basic Lease Information, by and between the Landlord identified in the Basic Lease Information (“Landlord”), and the Tenant identified in the Basic Lease Information (“Tenant”).  Landlord and Tenant hereby agree as follows:

1.            PREMISES.

1.1          Premises Described.  Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, in its “as-is” condition, except for latent defects in the Tenant Improvements (defined in Exhibit B) and Landlord’s lease obligations hereunder, including the Tenant Improvements described in Exhibit B, upon the terms and subject to the conditions of this Lease, the  premises identified in the Basic Lease Information as the Premises (the “Premises”), in the Building located at the Building Address specified in the Basic Lease Information (the “Building”).  The approximate configuration and location of the Premises is shown on Exhibit A.  Landlord and Tenant agree that during the entire Term of this Lease, including any extension thereof, the rentable area of the Premises (“Rentable Area”) for all purposes under this Lease, except as otherwise provided in Section 12 (Damage or Destruction) or Section 13 (Condemnation), shall be the Rentable Area specified in the Basic Lease Information.  Landlord and Tenant agree that the rentable area of the Building (“Building Rentable Area”) for all purposes under this Lease, except as otherwise provided in Section 12 (Damage or Destruction) or Section 13 (Condemnation), shall be the Building Rentable Area specified in the Basic Lease Information.  The Building, together with the parking facilities serving the Building (the “Parking Facility”), the common areas (the “Common Areas”) and the parcel(s) of land on which the Building and the Parking Facility are situated (collectively, the “Property”), is part of the Project, which  may contain more than one building, identified in the Basic Lease Information (the “Project”).

Notwithstanding the foregoing to the contrary, within thirty (30) days after the earlier of (i) the date Landlord notifies Tenant in writing that installation of the demising wall has been completed sufficient to permit measurement of the Rentable Area of the Premises, or (ii) the date Landlord delivers the Premises to Tenant with the Tenant Improvements Substantially Completed, Landlord’s architect shall have the Rentable Area of the Premises verified by measuring same in accordance with the standard herein provided and shall give written notice as to such measurement to Landlord and Tenant.  In the event that the verification reveals a discrepancy between the Rentable Area of the Premises specified in the Basic Lease Information and the Rentable Area of the Premises determined by Landlord’s architect and either Landlord or Tenant dispute the measurement of Landlord’s architect by written notice delivered to the other party within fifteen (15) days after Landlord delivers its architect verification of the Rentable Area to Tenant, then an independent architect acceptable to both parties (the cost of which shall be divided equally between Landlord and Tenant) shall measure the Premises in accordance with the standard herein provided.  If neither party disputes the Rentable Area determined by Landlord’s architect within said fifteen (15) day period, then the determination of Rentable Area by Landlord’s architect shall be deemed conclusive. If either party timely disputes the Rentable Area determined by Landlord’s architect, then the square footage of Rentable Area of the Premises as determined by said independent architect shall be the Rentable Area of the Premises for purposes of this Lease, and within thirty (30 days thereafter, the parties shall execute an addendum to this Lease in form prepared by Landlord’s counsel confirming same and the Base Rent, Tenant’s Share of Operating Costs and

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any other sums due hereunder based in whole or in part on the rentable square footage of the Building, and further any necessary payments or reimbursements shall be made by the appropriate party.  The Rentable Area of the Building will be calculated in accordance with the American National Standard Method of Measuring Floor Area in Office Buildings, ANSI/BOMAA65.1-1996.

1.2          Common Areas.    The term “Common Areas” as used herein means all areas and facilities outside the Premises, within the exterior boundaries of the Project, that are provided and designated by Landlord from time to time for the general non-exclusive use and convenience of Tenant and of other tenants of Landlord having the common use of such areas, and their respective authorized representatives and invitees.  Common Areas include, without limitation, driveways, parking areas, sidewalks, and landscaped areas, all as generally described or shown on Exhibit A attached hereto.  Landlord hereby grants to Tenant, for the benefit of Tenant and its employees, suppliers, shippers, customers and invitees, during the Term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Landlord under the terms hereof or under the terms of any reasonable rules and regulations or restrictions governing the use of the Building or the Project.  Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas, except for Tenant’s dumpsters and the permitted trash enclosure, as more particularly set forth in Section 36 of this Lease.

(a)           Common Areas-Changes.  Landlord shall have the right, in Landlord’s reasonable discretion, from time to time, so long as Tenant’s rights under the Lease are not materially diminished and Tenant’s access to the Premises and parking are not materially interfered with;

1.             To make changes and reductions to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways;

2.             To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available;

3.             To designate other land outside the boundaries of the Building to be a part of the Common Areas;

4.To add additional improvements to the Common Areas;

5.             To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Building or Project, or any portion thereof;

6.             To do and perform such other acts and make such other changes in, to or with respect to the Common Areas as Landlord may, in the exercise of sound business judgment, deem to be appropriate.

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(b)           Common Area Maintenance.  Landlord shall, in Landlord’s reasonable discretion, maintain and repair the Common Areas (subject to reimbursement pursuant to this Lease) including snow and ice removal from sidewalks and parking areas, lawn care and landscaping and establish and enforce reasonable non-discriminatory rules and regulations concerning such areas.

(c)           Tenant’s Use of Parking Areas.  Tenant and its employees, customers, visitors, and licensees shall have the non-exclusive right to use, in common with other parties occupying the Buildings or Project, at least 175 parking spaces in the Project, subject to such reasonable rules and regulations as Landlord may from time to time prescribe.

2.             TERM; POSSESSION.  The term of this Lease (the “Term”) shall commence on the Commencement Date as described below and, unless sooner terminated, shall expire on the Expiration Date set forth in the Basic Lease Information (the “Expiration Date”).  The “Commencement Date” shall be the date on which Landlord tenders possession of the Premises to Tenant, with all of Landlord’s construction obligations “Substantially Completed” as provided in the Construction Rider attached as Exhibit B (the “Construction Rider”) or, in the event of any “Tenant Delay,” as defined in the Construction Rider, the date on which Landlord could have done so had there been no such Tenant Delay.  The parties anticipate that the Commencement Date will occur on or about the Scheduled Commencement Date set forth in the Basic Lease Information (the “Scheduled Commencement Date”); provided, however, that Landlord shall not be liable for any claims, damages or liabilities if the Premises are not ready for occupancy by the Scheduled Commencement Date, except as specifically set forth herein.  When the Commencement Date has been established, Landlord and Tenant shall at the request of either party confirm the Commencement Date and Expiration Date in writing.

In the event Landlord fails to deliver possession of the Premises to Tenant with the Tenant Improvements Substantially Completed on or before July 1, 2010, subject to force majeure delays (described in Section 26) and Tenant Delays (defined in Exhibit B), then Tenant as its sole and exclusive remedy shall be entitled to an abatement of one day of Base Rent for each day after July 1, 2010 that the Tenant Improvements  have not been Substantially Completed.  Such day-for-day Base Rent abatement shall commence to apply upon the Commencement Date of the Lease and shall continue until applied in full, provided, however, that it is the intent of the parties that this day-for-day rent abatement be applied consecutively, not concurrently, with any other rent abatement or credit which may be then-applicable.  In the event Landlord fails to deliver possession of the Premises to Tenant with the Tenant Improvements Substantially Completed on or before September 1, 2010, subject to force majeure delays (described in Section 26) and Tenant Delays (defined in Exhibit B), then Tenant as its sole and exclusive remedy shall have the right to terminate this Lease by providing Landlord with ten (10) days’ prior written notice thereof, but in any event given before Landlord has Substantially Completed the Tenant Improvements.  Other than as aforesaid, Landlord shall have no liability to Tenant for failure to deliver possession of the Premises to Tenant with Tenant Improvements Substantially Completed on or before June 1, 2010. Notwithstanding anything in this Lease to the contrary, if this Lease is not fully executed by the parties by March 5, 2010, including without limitation, approval and signature by Landlord, Tenant and Wells Fargo Bank, National Association (“Wells Fargo”), of the NDESA attached hereto as Exhibit F, then each of the above described deadlines in this subparagraph shall be extended one day for each day after March 5, 2010 until the Lease is fully executed by the parties and the NDESA is fully executed by Landlord, Tenant and Wells Fargo.

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3.            RENT.

3.1          Base Rent.  Tenant agrees to pay to Landlord the Base Rent in the Base Rent schedule set forth in the Basic Lease Information, without prior notice or demand, on the first day of each and every calendar month during the Term, except as otherwise provided in said Base Rent schedule.  Within forty-five (45) days after execution of the Lease by both Landlord and Tenant, Tenant shall pay Landlord the amount of Base Rent and Additional Rent for the first full month that Rent is payable pursuant to said Base Rent schedule. Base Rent for any partial month at the beginning or end of the Term shall be prorated based on the actual number of days in the month and paid by the Commencement Date.

(a)           Base Rent: Extension Term.  Tenant agrees to pay to Landlord Base Rent for the Extension Term at the Market Rate.  “Market Rate” shall be defined as what an arm’s-length, non-expansion, non-equity tenant of comparable credit to Tenant would, as of the beginning of the term in question, pay for space of comparable size, quality, utility and location, taking into account the length of the term and all allowances and concessions being offered in the market.  The Market Rate shall be determined as follows:  Within thirty (30) days after Landlord receives notice from Tenant of Tenant’s election to exercise an Extension Option, Landlord will give notice to Tenant of its determination of the Market Rate for the Premises and Landlord’s determination will constitute the Market Rate unless Tenant objects by notice to Landlord in writing within thirty (30) days after Tenant’s receipt of Landlord’s determination. Landlord’s notice of determination shall include a statement in all capitalized, 12 point or larger type on the first page of the notice stating:  “THE DETERMINATION OF MARKET RENT SET FORTH HEREIN SHALL BE BINDING ON TENANT UNLESS TENANT SHALL OBJECT THERETO WITHIN 30 DAYS OF TENANT’S RECEIPT OF THIS NOTICE.”   If Tenant so objects, the parties shall meet within fifteen (15) days after Tenant’s objection and attempt to agree on the Market Rate.  If the parties are unable to agree on the Market Rate within such 15-day period, then (x) the Extension Term of this Lease as defined in Exhibit D may be cancelled at the request of either party, provided, however, notice of cancellation must be delivered to the other party within five (5) business days after expiration of the 15-day period described above or this right of cancellation shall be deemed waived and the Market Rate shall be determined by appraisal pursuant to subparagraph (y) below and the following provisions of this Section 3.1(a), or (y) the Market Rate will be determined by appraisal, made by a board of appraisers consisting of three reputable real estate appraisers, each of whom has been actively involved in commercial real estate in Minneapolis, Minnesota no less than ten years prior to appointment (each an “Expert”).  In addition, each such Expert shall have been active over the five (5) year period ending on the date of such appointment in the appraisal of comparable commercial properties in the Northwest submarket of the Twin Cities metropolitan area.  One Expert will be appointed by Tenant, and one Expert will be appointed by Landlord.  Both Landlord and Tenant shall appoint their Expert within fifteen (15) days after the failure of Landlord and Tenant to agree on the Market Rate.  The third Expert will be appointed by the first two Experts.  If the first two Experts are unable to agree on a third Expert within ten (10) days after the appointment of the second Expert, or if either party refuses or neglects to appoint an Expert as herein provided within fifteen (15) days after the appointment of the first Expert, then the third Expert or the second Expert, whose appointment was not made as provided above, may be appointed by any active judge of the District Court of the County where the Premises is located.  If determinations of at least two of the Experts are identical in amount, then that amount will be determined to be the

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Market Rate.  If the determinations of all three Experts are different in amount, the highest appraised value will be averaged with the middle value (that average being referred to as “Sum A”).  The lowest appraised value will be averaged with the middle value (that average being referred to as “Sum B”), and the Market Rate will be determined as follows:  (i) if neither Sum A nor Sum B differs from the middle appraised value by more than 10% of the middle appraised value, then the Market Rate will be the average of the three appraisals, (ii) if either Sum A or Sum B (but not both) differs from the middle appraised value by more than 10% of the middle appraised value, then the Market Rate will be the average of the middle appraised value and the appraised value closer in amount to the middle appraised value, and (iii) if both Sum A and Sum B differ from the middle appraised value by more than 10% of the middle appraised value, then the Market Rate will be equal to the middle appraised value.  Written notice of the Market Rate as duly determined in accordance with this Section shall be promptly given to Landlord and Tenant and will be binding and conclusive on them.  Each party will bear its own expenses in connection with the Market Rate determination proceedings, except that the fees of the Experts will be borne equally.  If, for any reason, the Market Rate has not been determined at the time of the commencement of the Extension Term, then the Market Rate will be the amount set forth in Landlord’s determination, and if the determination of the Experts as provided above indicates that a lesser or greater amount should have been paid than that which was actually paid, a proper adjustment will be made in a payment from Landlord to Tenant, or Tenant to Landlord, as the case may be, such payment to be made within thirty (30) days of the determination of the Market Rate.

3.2          Additional Rent:  Increases in Operating Costs and Taxes.

(a)           Definitions.

(1)           “Operating Costs” means all costs of managing, operating, maintaining and repairing the Property, including, but not limited to, all costs, expenditures, fees and charges for:  (A) operation, maintenance and repair of the Property (including maintenance, repair and replacement of glass and landscaping and maintenance and repair (but not replacement) of the roof covering or membrane); (B) utilities and services (including trash removal),  servicing the Common Areas and associated supplies and materials; (C) compensation (including employment taxes and fringe benefits) for persons who perform duties in connection with the operation, management, maintenance and repair of the Project, such compensation to be appropriately allocated for persons who also perform duties unrelated to the Project ; (D) property (including coverage for earthquake and flood if required to be carried by Landlord by its lender or carried by Landlord in its reasonable determination), liability, rental income (not to exceed 12 month’s coverage) and other insurance relating to the Project, and expenditures for deductible amounts paid under such insurance; (E) licenses, permits and inspections; (F) complying with the requirements of any federal, state, municipal or local law, statute, ordinance or governmental rule or regulation or any orders pursuant thereto (collectively “Laws”) which become effective after the Lease Date ; (G) amortization of capital improvements required to comply with Laws which become effective after the Lease Date, or which are intended to reduce Operating Costs (not to exceed the amount of such savings in any event) or improve the utility, efficiency or capacity of any Building System, with interest on the unamortized balance at the rate paid by Landlord on funds borrowed to finance such capital improvements (or, if Landlord finances such improvements out of Landlord’s funds without borrowing, the rate that Landlord would have paid to borrow such funds, as reasonably determined by Landlord), over such useful life as Landlord shall reasonably

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determine pursuant to generally accepted accounting principals; (H) market rate property management fees, not to exceed five percent (5%) of total gross rental of the Building (provided however, if average occupancy of the Building is less than 100%, then Landlord may recover a minimum management fee at market rates), which shall include accounting, bill paying and management activities, salaries and costs of management employees, such that there will be a single management fee subject to the limitations above; (I) accounting, legal and other professional services incurred in connection with the operation of the Project and the calculation of Operating Costs and Taxes; (J) a reasonable allowance for depreciation on machinery and equipment used to maintain the Project and on other personal property owned by Landlord in the Property; (K) contesting the validity or applicability of any Laws that may affect the Property but only to the extent any cost savings are achieved by the contest; (L) the Building’s proportionate share of any Common Area maintenance fees and expenses shared with other properties adjacent to the Project; and (M) any other cost, expenditure, fee or charge, whether or not herein before described, which in accordance with generally accepted property management practices would be considered an expense of managing, operating, maintaining and repairing the Project.  Operating Costs that vary with occupancy for any calendar year during which average occupancy of the Building is less than one hundred percent (100%) shall be calculated based upon the Operating Costs that would have been incurred if the Building had an average occupancy of one hundred percent (100%) during the entire calendar year.

Operating Costs shall not include (i) capital improvements (except as otherwise provided above); (ii) costs of special services rendered to individual tenants (including Tenant) for which a special charge is made; (iii) interest and principal payments on loans or indebtedness secured by the Building; (iv) costs of improvements or construction allowances for Tenant or other tenants of the Building; (v) costs of services or other benefits of a type which are not available to Tenant but which are available to other tenants or occupants, and costs for which Landlord is reimbursed by other tenants of the Building other than through payment of tenants’ shares of increases in Operating Costs and Taxes; (vi) leasing commissions, attorneys’ fees, advertising or promotional expenses or disputes with tenants, and other expenses incurred in connection with leasing space in the Building or enforcing such leases or developing the Project; (vii) depreciation or amortization, other than as specifically enumerated in the definition of Operating Costs above; (viii) costs, interest, fines or penalties incurred due to Landlord’s violation of any Law or breach of its obligations under this Lease; (ix) the cost of any off-site personnel (except to the extent ratably allocated to the Property, e.g. pro-rata cost of maintenance personnel), Landlord’s home office expenses, or any on-site personnel above the level of building manager or superintendent; (x) debt amortization or financing or refinancing costs; (xi) expenses for which Landlord is or will be reimbursed out of insurance, warranty or condemnation proceeds; (xii) any cost to comply with Laws which were effective as of the Lease Date; (xiii) rent, additional rent and other charges payable under any ground lease or any lease superior to this Lease; (xiv) intentionally deleted; (xv) any costs or other sums paid to any person or entity related to or affiliated with Landlord to the extent that same exceeds the reasonable and customary cost thereof; (xvi) professional fees incurred in connection with the preparation of financial statements, tax returns and other documents and information for Landlord or its mortgagees or other costs associated with the operation of the business of the entity which constitutes Landlord, as the same are distinguished from the costs of operation or management of the Project, such as but not limited to accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging, or hypothecating any of Landlord’s interest in the Project or the land thereunder, costs of disputes between Landlord and its employees or Building management or

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other tenants; (xvii) intentionally deleted; (xviii) costs of paintings, sculptures or other artwork; (xiv) expenses arising from the negligence of Landlord, its agents, employees or contractors; (xx) bad debt or rent loss reserves; (xxi) charitable contributions or memberships in organizations, whether professionals, political, civic or charitable; (xxii) utility charges for utilities separately metered or sub-metered to other tenants and any extraordinary charges imposed on other tenants by Landlord for such tenants’ disproportionate use of shared utilities, if any; (xxiii) costs incurred in connection with the original construction of the Building or the repair of any defects in the initial original construction of the Building or inadequacy of the initial design or construction of the Building, or the Building equipment or appurtenances thereto; or costs incurred in connection with any major change in the Building, such as but not limited to adding or expanding floors or decreasing the size thereof or any sale or marketing of the Property or the preparation of the Property for sale; (xxiv) any recalculation of or additional Operating Expenses for which Landlord first notifies Tenant of required payment more than eighteen (18) months after the later of (1) the year in which the Operating Expenses were incurred, or (2) receipt of the invoice for the applicable recalculated or additional Operating Expense, or in any event more than twenty (24) months after the year in which the Operating Expenses were incurred; (xxv) any amounts “grossed up” based on less than 100% occupancy of the Building, which do not vary with occupancy; (xxvi) rental for a building management office, or any costs attributable to the operation or maintenance of a building management office; (xxvii) costs and reserves thereof of a capital nature, except that Landlord may include the yearly amortization of the cost of capital repairs and replacements (including those described in Section 3.2(a)(1)(G) above), except as otherwise provided in Section 7.2 of this Lease, provided that such capital expenditures are amortized over the useful life of each particular capital expenditure at an interest rate of eight percent (8.0%) per annum; (xxviii) costs relative to any damage or destruction of the Property, except deductibles or retentions maintained on Landlord’s insurance not to exceed $50,000; (xxix) costs associated with Hazardous Materials (except costs not to exceed $1,000 per calendar year for disposal of Hazardous Materials caused by parties against whom Landlord has no recourse or recovery (e.g. unknown third party dumper)); (xxx) special events held on the Property or Project not approved by Tenant; (xxxi) travel entertainment or related expenses incurred by Landlord or its Property Manager or personnel; (xxxii) premiums paid to perform work on the Building or Project after hours or unless approved in advance in writing by Tenant (except in the event of an emergency); and (xxxiii) any costs attributable solely to any buildings other than the Building.

Operating Expenses shall exclude all cash or credit discounts, trade discounts, or quantity discounts received by Landlord or Landlord’s managing agent in the purchase of any goods, utilities, or services in connection with the operation of the Building.  In the event Landlord leases any item otherwise constituting an Operating Expense, Landlord’s election to lease such item rather than purchase it shall not serve to increase Tenant’s proportionate share of Operating Expenses beyond that which would have applied had said item been purchased.  Landlord shall maintain its books and records pertaining to Operating Expenses and Real Estate Taxes in accordance with generally accepted accounting principles.

Notwithstanding anything there to the contrary, Landlord shall not recover as Taxes or Operating Expenses more than 100% of the Taxes and Operating Expenses actually paid by Landlord.  If Landlord receives a refund or credit toward Operating Expenses subsequent to the year in which such expense was paid and charged to Operating Expenses, Landlord shall credit Tenant’s account (or pay to Tenant for such portion as there is insufficient Term remaining to fully utilize the credit)

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the amount of such refund or credit to the extent Tenant directly or indirectly was charged for such expense during a prior year.

(2)           “Taxes” means:  all real property taxes and general, special or district assessments or other governmental impositions, of whatever kind, nature or origin, imposed on or against the Property or against Landlord by reason of its ownership of the Property (except as otherwise provided herein) which are due and payable during the Term; service payments in lieu of taxes and taxes and assessments of every kind and nature whatsoever levied or assessed in addition to, in lieu of or in substitution for existing or additional real or personal property taxes on the Property or the personal property described above that are due and payable during the Term of the Lease; and the reasonable cost of contesting by appropriate proceedings the amount or validity of any taxes, assessments or charges described above, but only to the extent of the cost savings in Taxes that is achieved thereby.  Taxes shall in no event include Landlord’s income, estate, inheritance, transfer, or gross receipts.  In the event Landlord has the right to pay all or any portion of Taxes in installments, then regardless of whether Landlord elects such method of payment, Landlord shall, for the purposes of this Lease, be deemed to have elected the longest period of payment permissible (but without incurring late fees, interest or penalties) for the purpose of the inclusion thereof in Taxes.

(3)           “Tenant’s Share” means the Rentable Area of the Premises divided by the total Rentable Area of the Building, as set forth in the Basic Lease Information.  If the Rentable Area of the Building is changed or the Rentable Area of the Premises is changed by Tenant’s leasing of additional space hereunder or for any other reason, Tenant’s Share shall be adjusted accordingly.

(b)           Additional Rent.

(1)           Tenant shall pay Landlord as “Additional Rent” for each calendar year or portion thereof during the Term (except as otherwise provided in the Base Rent schedule set forth in the Basic Lease Information) Tenant’s Share of the sum of (x) Operating Costs for such  period, and (y) Taxes for such period.

(2)           Prior to the beginning of each calendar year, Landlord shall notify Tenant of Landlord’s estimate of Operating Costs, Taxes and Tenant’s Additional Rent for the following calendar year.  Commencing on the first day of January of each calendar year and continuing on the first day of every month thereafter in such year, Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Additional Rent.  If Landlord thereafter estimates that Operating Costs or Taxes for such year will vary from Landlord’s prior estimate, Landlord may, by notice to Tenant, revise the estimate for such year (and Additional Rent shall thereafter be payable based on the revised estimate).

(3)           Within one hundred twenty (120) days after the end of each calendar year during the Term, Landlord shall furnish Tenant a statement with respect to such year, showing Operating Costs, Taxes and Additional Rent for the year, and the total payments made by Tenant with respect thereto.  Unless Tenant raises any objections to Landlord’s statement within eight (8) months after receipt of the same, such statement shall conclusively be deemed correct and Tenant shall have no right thereafter to dispute such statement or any item therein or the computation of Additional Rent based thereon.  If Tenant does object to such statement, then Landlord shall

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provide Tenant with reasonable verification of the figures shown on the statement and the parties shall negotiate in good faith to resolve any disputes.  Any objection of Tenant to Landlord’s statement and resolution of any dispute shall not postpone the time for payment of any amounts due Tenant or Landlord based on Landlord’s statement, nor shall any failure of Landlord to deliver Landlord’s statement in a timely manner relieve Tenant of Tenant’s obligation to pay any amounts due Landlord based on Landlord’s statement, provided such statement is delivered within eighteen (18) months after the later of (i) the end of the calendar year to which the expenses relate, or (ii) receipt of the invoice for the applicable expenses, but in any event not later than twenty (24) months after the end of the calendar year to which the expenses relate.  Within eight (8) months after receipt of Landlord’s annual reconciliation statement, Tenant shall have the right, during normal business hours and at the offices of Landlord or its management agent, and upon not less than thirty (30) days’ prior written notice to Landlord, to review or audit Landlord’s books and records pertaining to Taxes or Operating Expenses.  If Tenant uses a third party to perform any such review or audit, such third party must be a certified public accountant whose compensation for such work is not based partially or wholly on a contingent fee or similar arrangement.  In the event that Tenant’s review or audit discloses that Landlord has overcharged Tenant, Landlord shall reimburse Tenant for the excess amounts paid by Tenant plus interest at the rate set forth herein for late payments of Rent.  In addition, in the event that any such overcharge exceeds the amount actually owed by Tenant by more than five percent (5%), Landlord shall reimburse Tenant for the reasonable cost of its audit, excluding travel, meals and lodging.

(4)           If Tenant’s Additional Rent as finally determined for any calendar year exceeds the total payments made by Tenant on account thereof, Tenant shall pay Landlord the deficiency within thirty (30) days of Tenant’s receipt of Landlord’s statement.  If the total payments made by Tenant on account thereof exceed Tenant’s Additional Rent as finally determined for such year, Tenant’s excess payment shall be credited toward the rent next due from Tenant under this Lease.  For any partial calendar year at the beginning or end of the Term, Additional Rent shall be prorated on the basis of a 365-day year by computing Tenant’s Share of Operating Costs and Taxes for the entire year and then prorating such amount for the number of days during such year included in the Term.  Notwithstanding the termination of this Lease, Landlord shall pay to Tenant or Tenant shall pay to Landlord, as the case may be, within thirty (30) days after Tenant’s receipt of Landlord’s final statement for the calendar year in which this Lease terminates, the difference between Tenant’s Additional Rent for that year, as finally determined by Landlord, and the total amount previously paid by Tenant on account thereof.

3.3          Payment of Rent.  All amounts payable or reimbursable by Tenant under this Lease, including late charges and interest (collectively, “Rent”), shall constitute rent and shall be payable and recoverable as rent in the manner provided in this Lease.  All sums payable to Landlord on demand under the terms of this Lease shall be payable within thirty (30) days after notice from Landlord of the amounts due.  All Rent shall be paid without offset, recoupment or deduction, except as otherwise specifically set forth herein, in lawful money of the United States of America to Landlord at Landlord’s Address for Payment of Rent as set forth in the Basic Lease Information, or to such other person or at such other place as Landlord may from time to time designate.

4.             SECURITY DEPOSIT.  Upon execution of this Lease, Tenant shall deposit with Landlord the amount specified in the Basic Lease Information as the Security Deposit, if any (the “Security Deposit”), as security for the performance of Tenant’s obligations under this Lease.  Landlord may (but shall have no obligation to) use the Security Deposit or any portion thereof to cure any Event

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of Default under this Lease or to compensate Landlord for any damage Landlord incurs as a result of Tenant’s failure to perform any of Tenant’s obligations hereunder.  In such event Tenant shall pay to Landlord on demand an amount sufficient to replenish the Security Deposit.  If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return to Tenant the Security Deposit or the balance thereof then held by Landlord and not applied as provided above within thirty (30) days after Lease termination.  Landlord may commingle the Security Deposit with Landlord’s general and other funds.  Landlord shall not be required to pay interest on the Security Deposit to Tenant.

5.             USE AND COMPLIANCE WITH LAWS.

5.1          Use.  The Premises shall be used and occupied for the Permitted Use and for no other use or purpose without Landlord’s prior written consent.  Subject to the other terms of this Lease, beginning on the date Landlord delivers the Premises to Tenant with the Tenant Improvements Substantially Completed, Tenant and its employees, licensees, and guests, shall have access to the Premises at all times, 24 hours per day, every day of the year.  Tenant shall comply with all present and future Laws relating to Tenant’s specific or unique manner of use or occupancy of the Premises or because of any Alterations made by Tenant to the Premises (and make any repairs, alterations or improvements as required to comply with all such Laws), and shall observe the Building Rules (as defined in Section 27 - Rules and Regulations); provided, however, Tenant shall not be responsible for any outstanding code compliance violations that are the responsibility of Landlord that may be triggered by Tenant’s specific use or occupancy of the Premises or Alterations made by Tenant to the Premises.  Tenant may install its standard tenant identification logo and letter signage on the exterior of the Premises facing Highway 169, subject to the Building Rules, reasonable consent of Landlord, City approval and subject to and in compliance with applicable laws, codes and ordinances. Tenant shall not do, bring, keep or sell anything in or about the Premises that is prohibited by, or that will cause a cancellation of or an increase in the existing premium for, any insurance policy covering the Property or any part thereof.  Tenant shall not permit the Premises to be occupied or used in any manner that will constitute waste or a nuisance, or unreasonably disturb the quiet enjoyment of or otherwise annoy other tenants in the Building. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises or upon the Property.  Tenant shall not, without the prior consent of Landlord, (i) bring into the Building or the Premises anything that may cause substantial noise, odor or vibration, overload the floors in the Premises or the Building or any of the heating, ventilating and air-conditioning (“HVAC”), mechanical, plumbing, electrical, fire protection, life safety, security or other systems in the Building (“Building Systems”), or jeopardize the structural integrity of the Building or any part thereof; (ii) connect to the utility systems of the Building any apparatus, machinery or other equipment other than that, for which the utility systems have been designed; or (iii) connect to any electrical circuit in the Premises any equipment or other load with aggregate electrical power requirements in excess of 80% of the rated capacity of the circuit. Landlord shall be responsible for complying with all Laws affecting the design, construction and operation of the Building (including the Premises to the extent Tenant is not required to comply therewith as provided for above or as otherwise provided in this Lease) or relating to the performance by Landlord of any duties or obligations to be performed by it hereunder, provided, however, Landlord’s costs of compliance will be included in Operating Costs.  Tenant shall have no obligation to comply with or pay for the compliance with any Laws requiring alterations, modifications, or repairs to any conduits, pipes, or duct work which is located within the Premises (such as within the plenum area) but which exclusively serves any building wide systems

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(provided, however, this shall not relieve Tenant of its obligation to pay for costs related to same to the extent permitted to be included in Operating Costs) or premises within the Building other than the Premises, it being the intent of the parties that the cost of such modifications, alterations, and repairs shall be Landlord’s responsibility or the responsibility of the tenant served exclusively by such systems.  Landlord represents to the best of its actual knowledge and belief that the Building will be in compliance with all Laws as of the date Landlord initially delivers the Premises to Tenant. Landlord warrants that the Premises will be in compliance with all Laws as of the Lease Date. Landlord warrants that the Tenant Improvements constructed upon the Premises by Landlord will be in compliance with all Laws as of the date Landlord initially delivers the Premises to Tenant.

5.2          Hazardous Materials.

(a)           Definitions.

(1)           “Hazardous Materials” shall mean any substance:  (A) that now or in the future is regulated or governed by, requires investigation or remediation under, or is defined as a hazardous waste, hazardous substance, pollutant or contaminant under any governmental statute, code, ordinance, regulation, rule or order, and any amendment thereto, including the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. §9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., or (B) that is toxic, explosive, corrosive, flammable, radioactive, carcinogenic, dangerous or otherwise hazardous, including gasoline, diesel fuel, petroleum hydrocarbons, polychlorinated biphenyls (PCBs), asbestos, radon and urea formaldehyde foam insulation.

(2)           “Environmental Requirements” shall mean all present and future Laws, orders, permits, licenses, approvals, authorizations and other requirements of any kind applicable to Hazardous Materials.

(3)           “Handled by Tenant” and “Handling by Tenant” shall mean and refer to any installation, handling, generation, storage, use, disposal, discharge, release, abatement, removal, transportation, or any other activity of any type by Tenant or its agents, employees, contractors, licensees, assignees, sublessees, transferees or representatives (collectively, “Representatives”) or its guests, customers, invitees, or visitors (collectively, “Visitors”) in connection with or involving Hazardous Materials at or about the Premises introduced, released, disposed or discharged upon the Premises by Tenant, its Representatives or Visitors.

(4)           “Environmental Losses” shall mean all costs and expenses of any kind, damages, including foreseeable and unforeseeable consequential damages, fines and penalties incurred in connection with any violation of and compliance with Environmental Requirements and all losses of any kind attributable to the diminution of value, loss of use or adverse effects on marketability or use of any portion of the Premises or Property.

(b)           Tenant’s Covenants.  Tenant represents that it is a very small quantity generator (EPA classification) and will not change such status to a large quantity generator with respect to its operations in or at the Premises without Landlord’s prior written consent, not to be unreasonably withheld. Subject to the terms of this Lease, Landlord hereby consents to Handling by Tenant of (i) the Hazardous Materials in the quantities identified on Exhibit E attached hereto or

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such other Hazardous Materials as are reasonably required in the operation of Tenant’s business for the Permitted Use, and (ii) small quantities of Hazardous Materials customarily used in the conduct of general office/warehouse activities, such as copier fluids and cleaning supplies(“Permitted Hazardous Materials”),  provided the Permitted Hazardous Materials shall be Handled by Tenant in compliance with Environmental Requirements. Such consent shall not be deemed a release or waiver of Tenant’s obligations under this Lease pertaining to Hazardous Materials Handled by Tenant, including without limitation those Hazardous Materials identified on Exhibit E.  Except for the Permitted Hazardous Materials, no Hazardous Materials shall be Handled by Tenant at or about the Premises or Property without Landlord’s prior written consent, which consent may be granted, denied, or conditioned upon compliance with Landlord’s requirements, all in Landlord’s reasonable discretion.  At the expiration or termination of the Lease, Tenant shall promptly remove from the Premises and Property all Hazardous Materials Handled by Tenant at the Premises or the Property, including without limitation, the Permitted Hazardous Materials. Tenant shall keep and maintain at the Premises in compliance with Environmental Requirements all records and reports pertaining to Hazardous Materials Handled by Tenant at the Premises or Property and shall make same available to Landlord, its environmental consultants, agents and employees for inspection promptly after request by Landlord. Tenant shall cause its environmental consultants, agents or employee(s) responsible for management of  Hazardous Materials Handled by Tenant) to cooperate with Landlord and its consultants, agents, and employees regarding all records, reports, licensing, permitting and other information concerning Hazardous Materials Handled by Tenant. Tenant shall be responsible and liable for the compliance with all of the provisions of this Section by all of Tenant’s Representatives and Visitors, and all of Tenant’s obligations under this Section (including its indemnification obligations under paragraph (e) below) shall survive the expiration or termination of this Lease.

(c)           Compliance.  Tenant shall at Tenant’s expense promptly take all actions required by any governmental agency or entity in connection with or as a result of the Handling by Tenant of Hazardous Materials at or about the Premises or Property, including inspection and testing, performing all cleanup, removal and remediation work required with respect to those Hazardous Materials Handled by Tenant, complying with all closure requirements and post-closure monitoring, and filing all required reports or plans, and obtaining and maintaining necessary licensees and permits.  All of the foregoing work and all Handling by Tenant of all Hazardous Materials shall be performed in a good, safe and workmanlike manner by consultants qualified and licensed to undertake such work and in a manner that will not unreasonably interfere with any other tenant’s quiet enjoyment of the Property or Landlord’s use, operation, leasing and sale of the Property.  Unless otherwise required by law, Tenant shall deliver to Landlord prior to delivery to any governmental agency, or promptly after receipt from any such agency, copies of all permits, manifests, closure or remedial action plans, notices, and all other documents relating to the Handling by Tenant of Hazardous Materials at or about the Premises or Property other than Permitted Hazardous Materials.  If any lien attaches to the Premises or the Property in connection with or as a result of the Handling by Tenant of Hazardous Materials, and Tenant does not cause the same to be released, by payment, bonding or otherwise, within thirty (30) days after the attachment thereof, Landlord shall have the right but not the obligation to cause the same to be released and any sums expended by Landlord (plus Landlord’s administrative costs) in connection therewith shall be payable by Tenant on demand.

(d)           Landlord’s Rights.  Upon 24 hours advance notice (except in an emergency), Landlord shall have the right, but not the obligation, to enter the Premises at any

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reasonable time (i) to confirm Tenant’s compliance with the provisions of this Section 5.2, and (ii) to perform Tenant’s obligations under this Section if Tenant has failed to do so after reasonable notice to Tenant. Tenant shall have the right to have a representative of Tenant present during such entry. Landlord shall also have the right to engage qualified Hazardous Materials consultants to inspect the Premises and review the Handling by Tenant of Hazardous Materials, including review of all permits, reports, plans, and other documents regarding same.  Tenant shall pay to Landlord on demand the costs of Landlord’s consultants’ fees and all costs incurred by Landlord in performing Tenant’s obligations under this Section in the event Tenant has violated the provisions of this Section 5.2.  Landlord shall use reasonable efforts to minimize any interference with Tenant’s business caused by Landlord’s entry into the Premises, but Landlord shall not be responsible for any interference caused thereby except in the case of Landlord’s negligence or willful misconduct.

(e)           Tenant’s Indemnification.  Tenant agrees to indemnify, defend, protect and hold harmless Landlord and its partners or members and its or their partners, members, directors, officers, shareholders, employees and agents from all Environmental Losses and all other claims, actions, losses, damages, liabilities, costs and expenses of every kind, including reasonable attorneys’, experts’ and consultants’ fees and costs, incurred at any time and arising from or in connection with the Handling by Tenant of Hazardous Materials at or about the Property or Tenant’s failure to comply in full with all Environmental Requirements with respect to Tenant’s Handling of Hazardous Materials at or about the Premises. The obligations of the Tenant under this subsection (e) shall survive the expiration or termination of this Lease. It is the intent of Landlord and Tenant that Tenant shall have no liability or responsibility for damage or injury to human health, the environment or natural resources caused by, for abatement and/or clean-up of, or otherwise with respect to, Hazardous Materials by virtue of the interests of Tenant in any part of the Property created hereby, or as the result of Tenant exercising any of its rights or remedies with respect thereto hereunder, unless such Hazardous Materials were Handled by Tenant or Tenant’s Representatives.

(f)            Landlord Obligations.  Landlord hereby represents to the best of its actual knowledge, no Hazardous Materials are now or have ever been located, produced, treated, transported, incorporated, discharged, emitted, released, deposited or disposed of in, upon, under, over or from the Premises or Property. Landlord agrees to indemnify, defend, protect and hold harmless Tenant and its directors, officers, shareholders, employees and agents from all claims, actions, losses, damages, liabilities, costs and expenses of every kind, including reasonable attorneys’, experts’ and consultants’ fees and costs, incurred at any time as a result of (i) the Handling by Landlord of Hazardous Materials at or about the Premises, or (ii) Landlord’s failure to comply in full with all Environmental Requirements imposed upon Landlord with respect to the Premises, excluding Hazardous Materials Handled by Tenant, or (iii) breach of the representations and warranties of Landlord set forth above.  In the event that Tenant reasonably determines that any Hazardous Materials are present on the Premises (other than any Hazardous Materials Handled by Tenant) and represent a material danger to persons or property on the Premises, Tenant shall notify Landlord of the same, and Landlord shall be responsible at its sole expense, to remove, remediate or abate (or cause the responsible party to remove, remediate or abate) such Hazardous Materials within a commercially reasonable time after receipt of said written notification from Tenant. The obligations of the Landlord under this subsection (f) shall survive the expiration or termination of this Lease.

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5.3          Americans With Disabilities Act.      The parties agree that the liabilities and obligations of Landlord and Tenant under that certain federal statute commonly known as the Americans With Disabilities Act as well as the regulations and accessibility guidelines promulgated thereunder as each of the foregoing is supplemented or amended from time to time (collectively, the “ADA”) shall be apportioned as follows:

(a)           If any of the Common Areas, including, but not limited to, exterior and interior routes of ingress and egress, off-street parking and all rules and regulations applicable to the Premises, the Building or the Project, fails to comply with the ADA, such nonconformity shall be promptly made to comply by Landlord.  Landlord shall also cause the manager of the Building and the Project (the “Manager”) to comply with the ADA in its operation of the Building and the Project.

(b)           From and after the Commencement Date of the Lease, Tenant covenants and agrees to conduct its operations within the Premises in compliance with the ADA.  If any of the Premises fails to comply with the ADA due to Tenant’s specific or unique use of the Premises, such nonconformity within the Premises shall be promptly made to comply by Tenant.  In the event that Tenant elects to undertake any alterations to, for or within the Premises, including initial build-out work, Tenant agrees to cause such alterations to be performed in compliance with the ADA.  Landlord shall deliver the Tenant Improvements to be constructed in the Premises by Landlord to Tenant in compliance with the ADA; provided, however, Tenant shall not be responsible for any outstanding ADA compliance violations that are the responsibility of Landlord that may be triggered by Tenant’s specific use or occupancy of the Premises or Alterations made by Tenant to the Premises.

6.             TENANT IMPROVEMENTS & ALTERATIONS.

6.1          Landlord shall perform its obligations with respect to design and construction of any Tenant Improvements (defined in Exhibit B) to be constructed and installed in the Premises, as provided in the Construction Rider.  Except for any work to be constructed by Tenant as provided in the Construction Rider, Tenant shall not make any alterations, improvements or changes to the Premises, including installation of any security system or telephone or data communication wiring, (“Alterations”), without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, except for Alterations to structural portions, footing, or foundations, or utility systems serving other tenants of the Building, where Landlord may withhold its consent in its sole discretion.  Any such Alterations shall be completed by Tenant at Tenant’s sole cost and expense:  (i) with due diligence, in a good and workmanlike manner, using new materials; (ii) in compliance with plans and specifications approved by Landlord; (iii) in compliance with the construction rules and regulations promulgated by Landlord from time to time; (iv) in accordance with all applicable Laws (including all work, whether structural or non-structural, inside or outside the Premises, required to comply fully with all applicable Laws and necessitated by Tenant’s work; provided, however, Tenant shall not be responsible for any outstanding code compliance violations that are the responsibility of Landlord that may be triggered by Alterations made by Tenant to the Premises); and (v) subject to all reasonable conditions which Landlord may impose for Tenant to:  (i) provide evidence of financial ability to pay costs of construction (e.g. loan commitment or bank statement), letter of credit, or payment or performance bonds to the extent the estimated cost of the Alterations equals or exceeds $100,000; (ii) provide evidence of insurance (from Tenant and Tenant’s contractors, subcontractors or design

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professionals); (iii) use only contractors and subcontractors who qualify as an Approved Contractor (defined in Section 6.6 herein) if required by the terms of Section 6.6; and (iv) remove all or part of the Alterations prior to or upon expiration or termination of the Term, provided written notice of requirement to remove such Alterations shall be given at the time Landlord consents to such Alterations, except Cosmetic Alterations and the Tenant Improvements shall not be required to be removed by Tenant at the end of the Term.  Tenant shall have the right, without Landlord’s consent, to make non-structural alterations to the Premises that do not alter the Building Systems, such as painting, wall, floor or window coverings, or installation or rearrangement of cabinets or other modular office dividers that do not affect the Building structure (“Cosmetic Alterations”).  Tenant shall give Landlord not less than ten (10) days prior written notice of any such Cosmetic Alterations and shall otherwise comply with the terms and provisions of this Lease. If any adjustment to any of the Building Systems is required in connection with or as a result of Tenant’s work, such work shall be performed at Tenant’s expense by contractors approved by Landlord.  If any work outside the Premises, or any work on or adjustment to any of the Building Systems, is required in connection with or as a result of Tenant’s work, such work shall be performed at Tenant’s expense by contractors designated by Landlord.  Landlord’s right to review and approve (or withhold approval of) Tenant’s plans, drawings, specifications, contractor(s) and other aspects of construction work proposed by Tenant is intended solely to protect Landlord, the Property and Landlord’s interests.  No approval or consent by Landlord shall be deemed or construed to be a representation or warranty by Landlord as to the adequacy, sufficiency, fitness or suitability thereof or compliance thereof with applicable Laws or other requirements.  Except as otherwise provided in Landlord’s consent, all Alterations shall upon installation become part of the realty and be the property of Landlord. Notwithstanding anything in this Lease to the contrary, Tenant will be obligated to remove Tenant’s identification signage, cabling, and Tenant’s Trade Fixtures and personal property on or before the expiration or earlier termination of the Term of this Lease, and repair and restore any damage to the Premises, Building or Property arising because of installation or removal of the foregoing items.

6.2Before making any Alterations, except Cosmetic Alterations, Tenant shall submit to Landlord for Landlord’s prior approval reasonably detailed final plans and specifications prepared by a licensed architect or engineer, a copy of the construction contract, including the name of the contractor and all subcontractors proposed by Tenant to make the Alterations and a copy of the contractor’s license.  Tenant shall reimburse Landlord upon demand for any expenses incurred by Landlord in connection with any Alterations made by Tenant, including reasonable fees charged by Landlord’s contractors or consultants for construction oversight or review of the plans and specifications prepared by Tenant and to update the existing as-built plans and specifications of the Building to reflect the Alterations, provided, however, the aggregate of such costs shall not exceed two percent (2%) of the cost of design and construction of the Alterations.  Tenant shall obtain all applicable permits, authorizations and governmental approvals and deliver copies of the same to Landlord before commencement of any Alterations.

6.3Tenant shall keep the Premises and the Property free and clear of all liens arising out of any work performed, materials furnished or obligations incurred by Tenant.  If any such lien attaches to the Premises or the Property, and Tenant does not cause the same to be released by payment, bonding or otherwise within thirty (30) days after the attachment thereof, Landlord shall have the right but not the obligation to cause the same to be released by payment of the lien or otherwise, and any sums expended by Landlord (plus Landlord’s administrative costs) in connection therewith shall be payable by Tenant on demand with interest thereon from the date of

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expenditure by Landlord at the Interest Rate (as defined in Section 16.2 - Interest).  Tenant shall give Landlord at least ten (10) days’ notice prior to the commencement of any Alterations except in an emergency and cooperate with Landlord in posting and maintaining notices of non-responsibility in connection therewith.

6.4Subject to the provisions of Section 5 - Use and Compliance with Laws and the foregoing provisions of this Section, Tenant may install and maintain furnishings, equipment, movable partitions, business equipment and other trade fixtures (“Trade Fixtures”) in the Premises, provided that the Trade Fixtures do not become an integral part of the Premises or the Building.  Tenant shall promptly repair any damage to the Premises or the Building caused by any installation or removal of such Trade Fixtures.

6.5All signs, notices and graphics of every kind or character, reasonably visible in or from public view or the Common Areas or the exterior of the Premises, shall relate to the identity of the Tenant or its Permitted Use in the Premises, and shall be subject to Landlord’s prior written approval, which Landlord shall have the right to withhold in its reasonable discretion.  Tenant shall not place or maintain any banners whatsoever or any window décor in or on any exterior window or widow fronting upon any Common Areas or service area or upon any truck doors or service doors without Landlord’s prior written approval which Landlord shall have the right to grant or withhold in its reasonable discretion.  Any installation of signs or graphics on or about the Premises and Project shall be subject to any applicable governmental laws, ordinances, regulations and to any other reasonable requirements imposed by Landlord with respect to signage reasonably visible outside the Premises. There is no monument signage available for Tenant. Tenant shall remove all such signs and graphics at the termination of this Lease.  Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including, without limitation, discoloration caused by such installation or removal, provided Tenant shall be permitted to professionally patch damaged areas (e.g. holes) and paint such discoloration to match the building exterior as reasonably possible without being required to restore more than the discolored area.

6.6Prior to commencing any Work (defined in this Section 6.6), Tenant shall furnish to Landlord the name and address of all Contractors (defined in this Section 6.6) who will be, or are reasonably expected to be, performing any of the Work. All such Contractors shall be licensed by the City of Minneapolis, Minnesota and approved by Landlord, which approval shall not be unreasonably withheld, and the business manager of the applicable local AFL-CIO Building and Construction Trades Council (the “BCTC”) (when approved by Landlord and the BCTC, such Contractor shall be an “Approved Contractor”).  Prior to commencing the Work, Tenant shall also furnish to Landlord for approval, not to be unreasonably withheld, a copy of the construction contract(s), including all amendments, change orders and modifications thereof, for the construction and installation of the Work (“Construction Contract”).  Tenant agrees to comply with the following Quality Contractor Policy and shall cause the Construction Contract to contain provisions requiring the Contractor (and all of its subcontractors) to comply with the following Quality Contractor Policy when performing its work and when selecting any subcontractors to perform the work:

All contractors and subcontractors at any tier performing any construction, repair, refurbishment or restoration (collectively, “Work”), including, without limitation, tenant

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improvements, build-out, alterations, additions, improvements, renovations, repairs, remodeling, painting and installations of fixtures, mechanical, electrical, plumbing, data, security, telecommunication, low voltage or elevator equipment or systems or other equipment, or with respect to any other construction work in, on, or to the Premises or the Project (including any such work performed by any person who contracts to provide services to any portion of the Premises or Project, such as cable, DSL, communications, telecommunications or similar services, but excluding work performed on behalf of and paid for by Tenant for installation of furniture, movable trade fixtures, and equipment of Tenant),  (collectively, “Contractors”) shall: (i) be bound by and signatory to a collective bargaining agreement with a labor organization (a) whose jurisdiction covers the type of work to be performed on the Project, and (b) who is an “Approved Building Trades Department Contractor or Subcontractor;” and (ii) observe area standards for wages and other terms and conditions of employment, including fringe benefits.  For purposes hereof, an “Approved Building Trades Department Contractor or Subcontractor” is a contractor or subcontractor who is currently affiliated with the Building and Construction Trades Department of the AFL-CIO (the “BCTD”) or, if no such BCTD-affiliated contractor or subcontractor is available for a particular trade (e.g., carpentry work), a contractor or subcontractor which is affiliated with a national trade union which was formerly affiliated with the BCTD and which recognizes (and will recognize and respect, for its work on the Project), the jurisdictional limitations established by the local BCTD.  Upon the request of Landlord, each such contractor and subcontractor shall provide written certification that all work performed by such contractor or subcontractor was performed in compliance with this policy.

Contractors may not engage any subcontractor that does not satisfy the provisions of clauses (i) and (ii) above. If at any time Contractor or subcontractor does not satisfy clauses (i) and (ii) above, such Contractor and subcontractor shall not be an Approved Contractor.

7.MAINTENANCE AND REPAIRS.

7.1By taking possession of the Premises, subject to latent defects in the Tenant Improvements not discoverable by Tenant upon reasonable inspection and Landlord’s obligations to perform the Tenant Improvements described in Exhibit B and the other terms and conditions of this Lease, Tenant agrees that the Premises are then in a good and tenantable condition.  During the Term, Tenant at Tenant’s expense but under the direction of Landlord, shall keep the Premises, in a clean, safe and orderly condition, including without limitation, providing its own interior janitorial services (including without limitation, changing and disposal of light bulbs, interior window washing, janitorial supplies and equipment and garbage removal and disposal), and shall repair and maintain the Premises, in a first class condition including, but not limited to, repair and replacement of plate glass in all windows, doors and non-structural interior areas of the Premises, interior and exterior doors, special office entries, floor covering, Building Systems exclusively serving the Premises (including without limitation, heating, ventilating and air conditioning systems and hot water heaters), truck doors, dock bumpers, dock plates and levelers, interior ceilings, plumbing and electrical work and fixtures, skylights and ventilation drops for equipment of Tenant.  Tenant shall at Tenant’s expense also perform necessary pest extermination and regular removal of trash and debris.  Tenant shall, at its own expense, enter into a regularly scheduled preventive maintenance service contract with a maintenance contractor for servicing all hot water, heating and air conditioning systems and equipment exclusively serving the Premises.  The maintenance contractor and the contract must be reasonably approved by Landlord.  The service contract must include all services suggested by the equipment manufacturer within the

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operation/maintenance manual and must become effective and a copy thereof delivered to Landlord within thirty (30) days of the Commencement Date.  Tenant shall not damage any demising wall or disturb the integrity and support provided by any demising wall and shall, at its sole expense, immediately repair any damage to any demising wall caused by Tenant or its employees, agents or invitees, reasonable wear and tear excepted.

Notwithstanding the foregoing to the contrary, from the Commencement Date through December 31, 2010, Landlord shall be responsible for performing, at its sole expense, all necessary repairs (but not preventive maintenance) to the HVAC units serving the Premises. Commencing January 1, 2011 and during the remaining Initial Term of this Lease, Landlord shall be responsible for performing all necessary repairs to the HVAC units serving the Premises, provided, however, Tenant shall reimburse Landlord for fifty percent (50%) of the cost of such repairs within thirty (30) days after written demand for payment by Landlord. Also, if at any time during the Initial Term of the Lease any of the HVAC units serving the Premises need to be replaced, in Landlord’s reasonable determination, then Landlord shall perform such replacement, provided, however, Tenant shall reimburse Landlord for Tenant’s HVAC Share (as defined herein) of the cost of such replacements within thirty (30) days after Landlord delivers written demand for payment to Tenant. “Tenant’s HVAC Share” shall be computed by multiplying the costs of replacement of the HVAC unit(s) serving the Premises incurred by Landlord by a fraction, the numerator of which is the number of months remaining in the Initial Term of the Lease and the denominator of which is one hundred eighty four (184). Landlord shall have no obligation to inspect, service or make any repairs or replacements of the HVAC units serving the Premises until Tenant notifies Landlord in writing of the need for repair or replacement. Also, the foregoing provision shall not limit Tenant’s responsibility and obligation to perform preventive maintenance on the HVAC units serving the Premises and carry a preventive maintenance service contract for said HVAC units in accordance with the immediately preceding paragraph.

7.2Landlord shall maintain or cause to be maintained in reasonably good order, condition and repair, the structural portions of the Building, the roof, foundations, floors and exterior window systems (but not plate glass) and exterior walls of the Building, Building Systems (other than those Building Systems exclusively serving the Premises), and the Common Areas of the Project. All costs incurred by Landlord under this Section 7.2, except repairs and replacements of structural portions of the Building including slab and foundation and except roof replacements and tear out and replacement of the entire parking lot for the Building, shall be reimbursed to Landlord as part of Operating Costs (unless excluded therefore as set forth in the Lease); provided, however, that Tenant shall pay the cost of repairs for any damage to the Premises or the Property by any act or omission of Tenant or Tenant’s Representatives or Visitors, to the extent (if any) not covered by the property insurance required to be maintained by Landlord pursuant to the Lease.  Landlord shall be under no obligation to inspect the Premises.  Tenant shall promptly report in writing to Landlord any defective condition known to Tenant which Landlord is required to repair.

7.3Landlord hereby reserves the right, at any time and from time to time, without liability to Tenant, and without constituting an eviction, constructive or otherwise, or entitling Tenant to any abatement of rent or to terminate this Lease or otherwise releasing Tenant from any of Tenant’s obligations under this Lease, except as otherwise set forth in this Lease:

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(a)To make alterations, additions, repairs, improvements to or in or to decrease the size of area of, all or any part of the Building, the fixtures and equipment therein, and the Building Systems;

(b)To change the Building’s name or street address;

(c)To install and maintain any and all signs on the exterior and interior of the Building; and

(d)If any governmental authority promulgates or revises any Law or imposes mandatory controls or directives on Landlord or the Property relating to the use or conservation of energy or utilities or the reduction of automobile or other emissions or reduction or management of traffic or parking on the Property (collectively “Controls”), to comply with such Controls, whether mandatory or voluntary, or make any alterations to the Property related thereto, provided such voluntary controls do not materially interfere with Tenant’s permitted use and occupancy of the Premises or materially inconvenience Tenant.

(e)With respect to any provision of this Lease which entitles or requires Landlord to make improvements, alterations or repairs to either the Premises, the Building or the Common Areas, or to enter the Premises, Landlord agrees that such entry and/or work, except to the extent required to comply with applicable Laws, shall not (i) materially damage the appearance or reduce the floor area of the Premises, (ii) materially affect Tenant’s layout (including access to the Premises), or (iii) materially interfere with Tenant’s use and enjoyment of the Premises.  Furthermore, any pipes or conduits that may be installed by Landlord in the Premises shall be installed above the ceiling, below the floor, or concealed or “boxed in” in a manner consistent with Tenant’s decor.  All such entry and/or work shall be performed by Landlord in such a way as to minimize unreasonable disruption to Tenant’s business, and any damage caused to the Premises (including tenant’s decor) shall be repaired by Landlord at its expense. In the event (i) such entry and/or work results in Tenant not being able to use the Premises for its then current business operations which are permitted under the terms of this Lease for a period in excess of five (5) consecutive business days, (ii) thereafter, Tenant notifies Landlord in writing of the occurrence of the events described above in Section 7(e)(i), which notice shall include both a depiction and reasonable estimate of the Rentable Area of the area of the Premises affected (“Tenant’s Interference Notice”), and (iii) the occurrence of the events described in Section 7(e)(i) continues for an additional three (3) business days after Landlord’s receipt of Tenant’s Interference Notice, then Monthly Base Rent shall be abated in proportion to the area of the Premises so affected beginning on the fourth (4th) business day after Landlord’s receipt of Tenant’s Interference Notice, until the earlier of (i) completion of such entry and/or work by Landlord, or (ii) Tenant begins using the area of the Premises affected by Landlord’s entry and/or work.

8.TAXES.  Tenant shall pay all rental, excise, sales or transaction privilege taxes arising out of this Lease (excluding, however, state and federal personal or corporate income taxes measured by the income of Landlord from all sources) imposed by any taxing authority upon Landlord or upon Landlord’s receipt of any rent payable by Tenant pursuant to the terms of this Lease (“Rental Tax”).  Tenant shall pay any Rental Tax to Landlord in addition to and at the same time as Base Rent is payable under this Lease.

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9.UTILITIES AND SERVICES.

9.1Utility Services.  Tenant shall pay for all water, gas, heat, air conditioning, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto, and maintenance charges for utilities and shall furnish all electric lamps and ballasts. Gas and electricity service to the Premises shall be separately metered by Landlord as part of the Tenant Improvements (defined in Exhibit B), but shall be paid by Landlord at its sole cost.  Water and sewer service is not separately metered but may be submetered at Landlord’s option, provided that cost of installation of the submeter shall be at Landlord’s sole cost and expense. Consumption charges for any utility services that are separately metered shall be paid by Tenant directly to the utility provider when due. Consumption charges for any utility services that are submetered to the Premises shall be reimbursed by Tenant to Landlord within thirty (30) days after written request for payment by Landlord, which consumption charges shall be the actual cost paid by Landlord to the utility provider without mark-up or additional fees.

9.2Interruption of Services.  In the event of an interruption in or failure or inability to provide any services or utilities to the Premises or Building for any reason (a “Service Failure”), such Service Failure shall not, regardless of its duration, impose upon Landlord any liability whatsoever, constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease or otherwise release Tenant from any of Tenant’s obligations under this Lease.  Notwithstanding anything to the contrary contained herein, in the event of any Service Failure caused by Landlord or its employees, agents or contractors that materially interferes with Tenant’s use and enjoyment of the Premises, Tenant shall have the right to abate Rent in proportion to the area of the Premises rendered untenantable by said interruption if said interruption continues for at least five (5) business days, commencing on the fourth (6th) day.   The foregoing abatement shall be applied consecutively (not concurrently) with any other rent abatement or credit that may be then-applicable during such period.

10.EXCULPATION AND INDEMNIFICATION.

10.1Landlord’s Indemnification of Tenant.  Subject to Section 11.3 and Section 28, Landlord shall indemnify, protect, defend and hold Tenant harmless from and against any claims, actions, liabilities, damages, costs or expenses, including reasonable attorneys’ fees and costs incurred in defending against the same (“Claims”) asserted by any third party against Tenant for loss, injury or damage, to the extent such loss, injury or damage is caused by the willful misconduct or negligent acts or omissions of Landlord or its authorized representatives, or Landlord’s continuing breach or default of this Lease after applicable notice of breach or default and expiration of applicable cure period, excepting only Claims to the extent they are caused by the willful misconduct or negligent acts or omissions of Tenant or its agents, representatives or contractors.

10.2Tenant’s Indemnification of Landlord.  Subject to Section 11.3, Tenant shall indemnify, protect, defend and hold Landlord and Landlord’s Representatives and its mortgagee and management agent harmless from and against Claims asserted by a third party against Landlord or Landlord’s Representatives arising from (a) the negligent acts or omissions of Tenant or Tenant’s Representatives or Visitors in or about the Property, or (b) any construction or other work undertaken by Tenant on the Premises (including any design defects), or (c) any continuing

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breach or default of its obligations under this Lease by Tenant after applicable notice of breach or default and expiration of applicable cure period , or (d) any loss, injury or damage, howsoever and by whomsoever caused, to any person or property, occurring in or about the Premises during the Term, excepting Claims caused by the willful misconduct or negligent acts or omissions of Landlord or its agents, representatives, or contractors.

10.3Damage to Tenant’s Property.  Landlord shall not be liable to Tenant for any loss, injury or other damage to Tenant’s property in or about the Premises or the Property from any cause (including defects in the Property or in any equipment in the Property; fire, explosion or other casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above, or about the Premises or the Property; or acts of other tenants in the Property) unless caused by Landlord’s negligence (unless waived pursuant to Section 11.3) or willful misconduct.  Tenant hereby waives all claims against Landlord for any such loss, injury or damage and the cost and expense of defending against claims relating thereto, including any loss, injury or damage caused by Landlord’s negligence (active or passive), but excluding Landlord’s willful misconduct.

10.4Survival.  The obligations of the parties under this Section 10 shall survive the expiration or termination of this Lease.

11.INSURANCE.

11.1Tenant’s Insurance.

(a)Liability Insurance.  Tenant shall maintain in full force throughout the Term, commercial general liability insurance providing coverage on an occurrence form basis with limits of not less than Three Million Dollars ($3,000,000.00) each occurrence for bodily injury and property damage combined, Three Million Dollars ($3,000,000.00) annual general aggregate, and Three Million Dollars ($3,000,000.00) products and completed operations annual aggregate.  Tenant’s liability insurance policy or policies shall:  (i) include premises and operations liability coverage, products and completed operations liability coverage, broad form property damage coverage including completed operations, blanket contractual liability coverage including, to the maximum extent possible, coverage for the indemnification obligations of Tenant under this Lease, and personal and advertising injury coverage; (ii) provide that the insurance company has the duty to defend all insureds under the policy; (iii) provide that defense costs are paid in addition to and do not deplete any of the policy limits; (iv) cover liabilities arising out of or incurred in connection with Tenant’s use or occupancy of the Premises or the Property; (v) extend coverage to cover liability for the actions of Tenant’s Representatives and Visitors; and (vi) designate separate limits for the Property.  Each policy of liability insurance required by this Section shall:  (i) contain a cross liability endorsement or separation of insureds clause; (ii) provide that any waiver of subrogation rights or release prior to a loss does not void coverage; (iii) provide that it is primary to and not contributing with, any policy of insurance carried by Landlord covering the same loss; (iv) provide that any failure to comply with the reporting provisions shall not affect coverage provided to Landlord, its partners, property managers and Mortgagees; and (v) name Landlord, its partners, the Property Manager identified in the Basic Lease Information (the “Property Manager”), and such other parties in interest (e.g. property manager or mortgagee) as Landlord may from time to time reasonably designate to Tenant in writing, as additional insureds.  Such additional insureds shall be provided at least the same extent of coverage as is provided to Tenant under such policies.

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(b)Property Insurance.  Tenant shall at all times maintain in effect with respect to any Alterations and Tenant’s Trade Fixtures and personal property, commercial property insurance providing coverage, on an “all risk” or “special form” basis, in an amount equal to at least 90% of the full replacement cost of the covered property.  Tenant may carry such insurance under a blanket policy, provided that such policy provides coverage equivalent to a separate policy.  During the Term, the proceeds from any such policies of insurance shall be used for the repair or replacement of the Alterations, Trade Fixtures and personal property so insured.  Landlord shall be provided coverage under such insurance to the extent of its insurable interest and, if requested by Landlord, both Landlord and Tenant shall sign all documents reasonably necessary or proper in connection with the settlement of any claim or loss under such insurance.  Landlord will have no obligation to carry insurance on any Alterations or on Tenant’s Trade Fixtures or personal property.

(c)Requirements For All Policies.  Each policy of insurance required under this Section 11.1 shall:  (i) be in a form, and written by an insurer, reasonably acceptable to Landlord, (ii) be maintained at Tenant’s sole cost and expense, and (iii) require at least thirty (30) days’ written notice to Landlord prior to any cancellation, nonrenewal or modification of insurance coverage.  Insurance companies issuing such policies shall have rating classifications of “A” or better and financial size category ratings of “VII” or better according to the latest edition of the A.M. Best Key Rating Guide.  All insurance companies issuing such policies shall be admitted carriers licensed to do business in the state where the Property is located.  Any deductible amount under such insurance shall not exceed $50,000.  Tenant shall provide to Landlord, upon request, evidence that the insurance required to be carried by Tenant pursuant to this Section, including any endorsement effecting the additional insured status, is in full force and effect and that premiums therefor have been paid.

(d)Updating Coverage.  Tenant shall increase the amounts of insurance as required by any Mortgagee, and, not more frequently than once every five (5) years, as recommended by Landlord’s insurance broker, if, in the opinion of either of them, the amount of insurance then required under this Lease is not adequate provided such increase in insurance is in a commercially reasonable amount in keeping with the standards of other office/warehouse buildings in the Twin Cities area.  Any limits set forth in this Lease on the amount or type of coverage required by Tenant’s insurance shall not limit the liability of Tenant under this Lease.

(e)Certificates of Insurance.  Prior to occupancy of the Premises by Tenant, and not less than thirty (30) days prior to expiration of any policy thereafter, Tenant shall furnish to Landlord a certificate of insurance reflecting that the insurance required by this Section is in force, accompanied by an endorsement showing the required additional insureds satisfactory to Landlord in substance and form.  Notwithstanding the requirements of this paragraph, Tenant shall at Landlord’s request provide to Landlord a certified copy of each insurance policy required to be in force at any time pursuant to the requirements of this Lease or its Exhibits.

11.2Landlord’s Insurance.  During the Term, Landlord shall maintain in effect insurance on the Building with responsible insurers, on an “all risk” or “special form” basis, insuring the Building and the Tenant Improvements in an amount equal to at least 90% of the replacement cost thereof, excluding land, foundations, footings and underground installations.  Landlord shall maintain Commercial General Liability Insurance with limits of not less than $3,000,000.00,

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which may be comprised of primary and excess liability coverage.  Landlord may, but shall not be obligated to, carry insurance against additional perils and/or in greater amounts as is commercially reasonable and in keeping with the standards of other office/warehouse buildings in the Twin Cities area or as may be required by Landlord’s mortgagee.

11.3Mutual Waiver of Right of Recovery & Waiver of Subrogation.  Landlord and Tenant each hereby waive any right of recovery against each other and the partners, managers, members, shareholders, officers, directors, employees, agents and authorized representatives of each other for any loss or damage that is covered by any policy of property insurance maintained by either party (or required by this Lease to be maintained) with respect to the Premises, Property or Project or any Trade Fixtures or any operation in the Premises, regardless of cause, including negligence (active or passive) of the party benefiting from the waiver.  If any such policy of insurance relating to this Lease or to the Premises or the Property does not permit the foregoing waiver or if the coverage under any such policy would be invalidated as a result of such waiver, the party maintaining such policy shall obtain from the insurer under such policy a waiver of all right of recovery by way of subrogation against either party in connection with any claim, loss or damage covered by such policy.

12.DAMAGE OR DESTRUCTION.

12.1Landlord’s Duty to Repair.

(a)If all or a substantial part of the Premises are rendered untenantable or inaccessible by damage to all or any part of the Property from fire or other casualty then, unless either party is entitled to and elects to terminate this Lease pursuant to Section 12.2 - Landlord’s Right to Terminate and Section 12.3 - Tenant’s Right to Terminate, Landlord shall, at its expense, repair and restore the Premises and/or the Property, as the case may be, to substantially their former condition to the extent permitted by then applicable Laws; provided, however, that in no event shall Landlord have any obligation for repair or restoration beyond the extent of insurance proceeds received by Landlord for such repair or restoration, or for any of Tenant’s personal property, Trade Fixtures or Alterations.

(b)If Landlord is required or elects to repair damage to the Premises and/or the Property, this Lease shall continue in effect, but Tenant’s Base Rent and Additional Rent shall be abated with regard to any portion of the Premises that Tenant is prevented from using by reason of such damage or its repair from the date of the casualty until substantial completion of Landlord’s repair of the affected portion of the Premises as required under this Lease.  In no event shall Landlord be liable to Tenant by reason of any injury to or interference with Tenant’s business or property arising from fire or other casualty or by reason of any repairs to any part of the Property necessitated by such casualty.

12.2Right to Terminate.  Either Landlord or Tenant may elect to terminate this Lease following damage by fire or other casualty under the following circumstances:

(a)If, in the reasonable judgment of Landlord, the Premises and the Property cannot be substantially repaired and restored under applicable Laws within two hundred ten (210) days from the date of the casualty; and

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(b)If the fire or other casualty occurs during the last year of the Term, except to the extent the fire or other casualty occurs during the last year of the Initial Term and Tenant has exercised its Extension Option.

If any of the circumstances described in subparagraphs (a) or (b) of this Section 12.2 occur or arise, Landlord shall give Tenant notice within sixty (60) days after the date of the casualty, specifying whether Landlord elects to terminate this Lease as provided above and, if not, Landlord’s estimate of the time required to complete Landlord’s repair obligations under this Lease.

12.3Tenant’s Right to Terminate.  In addition to Section 12.3 above, if Landlord’s estimated time for completion of repairs or restoration provided to Tenant exceeds two hundred ten (210) days, and if neither party elects to terminate this Lease as permitted under this Section 12, then if Landlord does not complete the repairs or restoration to substantially their former condition to the extent permitted by applicable Laws within thirty (30) days after the estimated time for completion provided to Tenant, Tenant may elect to terminate this Lease by written notice to Landlord effective not less than thirty (30) days after the date of such Tenant’s notice except that if Landlord completes such repairs or restoration before the effective date of such termination, such termination shall be deemed a nullity.

12.4Landlord’s Right to Terminate.  In addition to Section 12.3 above, (i) if the Building is damaged or destroyed to the extent that, in the reasonable judgment of Landlord, the cost to repair and restore the Building would exceed fifty percent (50%) of the full replacement cost of the Building, or (ii) if, in the reasonable judgment of Landlord, adequate proceeds are not, for any reason, made available to Landlord from Landlord’s insurance policies (and/or from Landlord’s funds made available for such purpose, at Landlord’s sole option) to make the required repairs; then Landlord shall have the right to terminate this Lease by written notice to Tenant within sixty (60) days after the date of the casualty.

13.CONDEMNATION.

13.1Definitions.

(a)“Award” shall mean all compensation, sums, or anything of value awarded, paid or received on a total or partial Condemnation.

(b)“Condemnation” shall mean (i) a permanent taking (or a temporary taking for a period extending beyond the end of the Term) pursuant to the exercise of the power of condemnation or eminent domain by any public or quasi-public authority, private corporation or individual having such power (“Condemnor”), whether by legal proceedings or otherwise, or (ii) a voluntary sale or transfer by Landlord to any such authority, either under threat of condemnation or while legal proceedings for condemnation are pending.

(c)“Date of Condemnation” shall mean the earlier of the date that title to the property taken is vested in the Condemnor or the date the Condemnor has the right to possession of the property being condemned.

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13.2Effect on Lease.

(a)If the Premises are totally taken by Condemnation, this Lease shall terminate as of the Date of Condemnation.  If a portion but not all of the Premises is taken by Condemnation, this Lease shall remain in effect; provided, however, that if the portion of the Premises remaining after the Condemnation will be unsuitable for Tenant’s continued use, then upon notice to Landlord within thirty (30) days after Landlord notifies Tenant of the Condemnation, Tenant may terminate this Lease effective as of the Date of Condemnation.

(b)If twenty-five percent (25%) or more of the Property or of the parcel(s) of land on which the Building is situated or of the Parking Facility or of the floor area in the Building is taken by Condemnation, or if as a result of any Condemnation the Building is no longer reasonably suitable for the Permitted Use or any other permitted use of any other tenant of the Project, whether or not any portion of the Premises is taken, Landlord may elect to terminate this Lease, effective as of the Date of Condemnation, by notice to Tenant within thirty (30) days after the Date of Condemnation.

(c)If all or a portion of the Premises is temporarily taken by a Condemnor for a period not extending beyond the end of the Term, this Lease shall remain in full force and effect.

13.3Restoration.  If this Lease is not terminated as provided in Section 13.2 - Effect on Lease, Landlord, at its expense, shall diligently proceed to repair and restore the Premises to substantially its former condition (to the extent permitted by then applicable Laws) and/or repair and restore the Building to an architecturally complete building in as close a condition as possible to the condition of the Building existing on the date of taking of possession; provided, however, that Landlord’s obligations to so repair and restore shall be limited to the amount of any Award received by Landlord and not required to be paid to any Mortgagee (as defined in Section 20.2 below).  In no event shall Landlord have any obligation to repair or replace any improvements in the Premises beyond the amount of any Award received by Landlord for such repair or to repair or replace any of Tenant’s personal property, Trade Fixtures, or Alterations.

13.4Abatement and Reduction of Rent.  If any portion of the Premises is taken in a Condemnation or is rendered permanently untenantable by repairs necessitated by the Condemnation, and this Lease is not terminated, the Base Rent and Additional Rent payable under this Lease shall be proportionally reduced as of the Date of Condemnation based upon the percentage of rentable square feet in the Premises so taken or rendered permanently untenantable.  In addition, if this Lease remains in effect following a Condemnation and Landlord proceeds to repair and restore the Premises, the Base Rent and Additional Rent payable under this Lease shall be abated during the period of such repair or restoration to the extent such repairs prevent Tenant’s use of the Premises.

13.5Awards.  Any Award made shall be paid to Landlord, and Tenant hereby assigns to Landlord, and waives all interest in or claim to, any such Award, including any claim for the value of the unexpired Term; provided, however, that Tenant shall be entitled to receive, or to prosecute a separate claim for, an Award for a temporary taking of the Premises or a portion thereof by a Condemnor where this Lease is not terminated (to the extent such Award relates to the unexpired Term), or an Award or portion thereof separately designated for relocation expenses or the

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interruption of or damage to Tenant’s business or as compensation for Tenant’s personal property, Trade Fixtures or Alterations or other claim permitted by law.

13.6Failure to Complete Restoration.  In addition to Section 13.2(a) above, after a taking adversely affecting the Premises and if neither party elects to terminate this Lease as permitted under this Section, and if Landlord is obligated to restore the Premises or if Landlord elects to restore the Premises, and the Premises are not restored to substantially their former condition to the extent permitted by applicable Laws within the longer of two hundred ten (210) days after the date of taking of possession or 30 days after the Landlord’s estimated time for completion provided to Tenant, then, Tenant shall have the right, exercisable by written notice to Landlord given on or before the thirtieth (30th) day after the expiration of the time period set forth herein, to terminate this Lease effective not less than thirty (30) days after the date of such Tenant’s notice except that if Landlord completes such restoration before the effective date of such termination, such termination shall be deemed a nullity.

14.ASSIGNMENT AND SUBLETTING.

14.1Landlord’s Consent Required.  Tenant shall not assign this Lease or any interest therein, or sublet or license or permit the use or occupancy of the Premises or any part thereof by or for the benefit of anyone other than Tenant, or in any other manner transfer all or any part of Tenant’s interest under this Lease (each and all a “Transfer”), without the prior written consent of Landlord, which consent (subject to the other provisions of this Section 14) shall not be unreasonably withheld, conditioned or delayed.  It is acknowledged that so long as Tenant is a publicly traded business entity, any direct or indirect transfer of the stock of the entity (whether in a single transaction or in the aggregate through more than one transaction) shall not be deemed a Transfer.  Notwithstanding the foregoing to the contrary, no consent of Landlord shall be required as a condition of Tenant’s right to assign or sublet this Lease to an affiliate of Tenant. An “affiliate of Tenant” means an entity controlling, controlled by or under common control with Tenant, or a parent or subsidiary of Tenant, or any entity that is Tenant’s successor by merger or that acquires all or substantially all the stock or assets of Tenant. The term “control” or words of similar meaning in the preceding sentence means the power to direct the management of the company. Notwithstanding any provision in this Lease to the contrary, Tenant shall not mortgage, pledge, hypothecate or otherwise encumber this Lease or all or any part of Tenant’s interest under this Lease.

14.2Reasonable Consent.

(a)Prior to any proposed Transfer, Tenant shall submit in writing to Landlord (i) the name and legal composition of the proposed assignee, subtenant, user or other transferee (each a “Proposed Transferee”); (ii) the nature of the business proposed to be carried on in the Premises; (iii) a current balance sheet, income statements for the last two years and such other reasonable financial and other information concerning the Proposed Transferee as Landlord may request; and (iv) a copy of the proposed assignment, sublease or other agreement governing the proposed Transfer.  Within fifteen (15) business days after Landlord receives all such information with respect to Transfer requiring Landlord’s consent under this Section 14, Landlord shall notify Tenant whether it approves or disapproves such Transfer or if it elects to proceed under Section 14.7 - Landlord’s Right to Space.

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(b)Tenant acknowledges and agrees that, among other circumstances for which Landlord could reasonably withhold consent to a proposed Transfer, it shall be reasonable for Landlord to withhold consent where (i) the Proposed Transferee does not intend itself to occupy the entire portion of the Premises assigned or sublet, (ii) based upon reasonable and credible evidence, Landlord reasonably disapproves of the Proposed Transferee’s business operating ability or history, reputation or creditworthiness or the character of the business to be conducted by the Proposed Transferee at the Premises, (iii) the Proposed Transferee is a governmental agency or unit or an existing tenant in the Project (provided Landlord has space in the Building available or becoming available within a reasonable amount of time to meet the existing tenant’s requirements), (iv) the proposed Transfer would violate any “exclusive” rights of any tenants in the Project, (v) Landlord or Landlord’s agent has shown space in the Building to the Proposed Transferee or responded to any inquiries from the Proposed Transferee or the Proposed Transferee’s agent concerning availability of space in the Building, at any time within the preceding six months and Landlord has space in the Building available or becoming available within a reasonable amount of time to reasonably meet the Proposed Transferee’s requirements, or (vi) Landlord otherwise determines that the proposed Transfer would have the effect of decreasing the value of the Building or increasing the expenses associated with operating, maintaining and repairing the Property.  In no event may Tenant, its employees, agents brokers publicly advertise or market (including without limitation, via any listing service) all or any portion of the Premises for assignment or sublease at a rental less than that then sought by Landlord for a direct lease (non-sublease) of comparable space in the Project that is available or becoming available within a reasonable amount of time.

14.3Excess Consideration.  If Landlord consent is required and Landlord consents to the Transfer, Tenant shall pay to Landlord as Additional Rent, within ten (10) days after receipt by Tenant, fifty percent (50%) of any consideration paid by any transferee (the “Transferee”) for the Transfer, including, in the case of a sublease, fifty percent (50%) of the excess of the rent and other consideration payable by the subtenant over the amount of Base Rent and Additional Rent payable hereunder applicable to the subleased space, after deduction of Tenant’s reasonable costs in connection with the Transfer, including broker commissions, construction costs and reasonable attorneys fees. Excess rent or consideration shall not include amounts received by Tenant for sale of stock. Excess rent or consideration shall include amounts received by Tenant for sale or rental of assets, equipment, furniture, and personal property, less in the case of sale of any such item, the fair market value of such item. As a condition of the effectiveness of any such Transfer, Tenant shall provide documentation to Landlord substantiating the excess rent or consideration, Tenant’s costs in connection with the Transfer (such as broker commissions, construction costs and reasonable attorneys’ fees) and amounts received by Tenant for sale or rental of assets, equipment, furniture and personal property and Tenant’s reasonable determination of the fair market value of such items on a line item basis.

14.4No Release Of Tenant.  No Transfer shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether occurring before or after such consent, assignment, subletting or other Transfer.  Each Transferee shall be jointly and severally liable with Tenant (and Tenant shall be jointly and severally liable with each Transferee) for the payment of rent (or, in the case of a sublease, rent in the amount set forth in the sublease) and for the performance of all other terms and provisions of this Lease.  The consent by Landlord to any Transfer shall not relieve Tenant or any such Transferee from the obligation to obtain Landlord’s express prior written consent to any subsequent Transfer by Tenant or any Transferee.  The acceptance of rent by

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Landlord from any other person (whether or not such person is an occupant of the Premises) shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any Transfer.

14.5Effectiveness of Transfer.  Prior to the date on which any permitted Transfer (requiring Landlord’s consent) becomes effective, or within ten (10) days after the date on which any permitted Transfer (not requiring Landlord’s consent) becomes effective, Tenant shall deliver to Landlord a counterpart of the fully executed Transfer document and if consent of Landlord is required, Landlord’s standard form of Consent to Assignment or Consent to Sublease as reasonably agreed to between Landlord, Tenant and the Transferee, executed by Tenant and the Transferee in which each of Tenant and the Transferee confirms its obligations pursuant to this Lease.  Failure or refusal of a Transferee to execute any such instrument shall not release or discharge the Transferee from liability as provided herein.  The voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual cancellation by Landlord and Tenant, shall not work a merger, and any such surrender or cancellation shall, at the option of Landlord, either terminate all or any existing subleases or operate as an assignment to Landlord of any or all of such subleases.

14.6Assignment of Sublease Rents.  Tenant hereby absolutely and irrevocably assigns to Landlord any and all rights to receive rent and other consideration from any sublease and agrees that Landlord, as assignee for Tenant for purposes hereof, or a receiver for Tenant appointed on Landlord’s application may (but shall not be obligated to) collect such rents and other consideration and apply the same toward Tenant’s obligations to Landlord under this Lease; provided, however, that Landlord grants to Tenant at all times prior to occurrence of any Event of Default by Tenant a revocable license to collect such rents (which license shall automatically and without notice be and be deemed to have been revoked and terminated immediately upon any Event of Default).

15.DEFAULT AND REMEDIES.

15.1Events of Default.  The occurrence of any of the following shall constitute an “Event of Default” by Tenant:

(a)Tenant fails to make any payment of Rent when due, or any amount required to replenish the security deposit as provided in Section 4 above, if payment in full is not received by Landlord within five (5) business days after written notice that it is past due.

(b)Tenant abandons the Premises, provided Tenant shall have the right to cease operating its business in the Premises and/or vacate the same without creating a default under this Lease so long as Tenant pays its rental and performs its other obligations under the Lease, but subject to Landlord’s recapture rights under Section 5.1 of this Lease.

(c)Tenant fails timely to deliver any subordination document, estoppel certificate or financial statement requested by Landlord within the applicable time period specified in Sections 20 - Encumbrances - and 21 - Estoppel Certificates and Financial Statements below, if the subordination document, estoppel certificate or financial statement is not received by Landlord within five (5) days of written notice it is past due.

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(d)Tenant violates the restrictions on Transfer set forth in Section 14 - - Assignment and Subletting and fails to cure such violation within fifteen (15) days after written notice of such violation.

(e)Tenant makes an assignment for the benefit of creditors; is adjudicated an insolvent, files a petition (or files an answer admitting the material allegations of a petition) seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors’ rights; all or substantially all of Tenant’s assets are subject to judicial seizure or attachment; or Tenant consents to or acquiesces in the appointment of a trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant’s assets.

(f)Tenant fails, within ninety (90) days after the commencement of any proceedings against Tenant seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors’ rights, to have such proceedings dismissed, or Tenant fails, within ninety (90) days after an appointment, without Tenant’s consent or acquiescence, of any trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant’s assets, to have such appointment vacated.

(g)Tenant fails to perform or comply with any provision of this Lease other than those described in (a) through (f) above, and does not fully cure such failure within thirty (30) days after notice to Tenant, if such failure cannot be cured within such thirty (30)-day period, Tenant fails within such thirty (30)-day period to commence, and thereafter diligently proceed with, all actions necessary to cure such failure as soon as reasonably possible but in all events within ninety (90) days of such notice.

15.2Remedies.  Upon the occurrence of an Event of Default, Landlord shall have the following remedies, which shall not be exclusive but shall be cumulative and shall be in addition to any other remedies now or hereafter allowed by law:

(a)Landlord may terminate Tenant’s right to possession of the Premises at any time by written notice to Tenant.  Tenant expressly acknowledges that in the absence of such written notice from Landlord, no other act of Landlord, including re-entry into the Premises, efforts to relet the Premises, reletting of the Premises for Tenant’s account, storage of Tenant’s personal property and Trade Fixtures, acceptance of keys to the Premises from Tenant or exercise of any other rights and remedies under this Section, shall constitute an acceptance of Tenant’s surrender of the Premises or constitute a termination of this Lease or of Tenant’s right to possession of the Premises.  Upon such termination in writing of Tenant’s right to possession of the Premises, as herein provided, this Lease shall terminate and Landlord shall be entitled to recover damages, including, but not limited to, tenant improvement costs, broker fees and negotiating costs incurred in re-letting the Premises and damages from Tenant for such breach and damages from Tenant for such breach. In the event Landlord elects to terminate this Lease or repossess the Premises by reason of an Event of Default by Tenant, then Landlord shall use reasonable efforts to re-let the Premises.  Landlord’s reasonable efforts as used in the immediately preceding sentence shall be deemed satisfied by listing the Premises’ availability for lease with a broker selected by Landlord.

(b)Landlord may cure the Event of Default at Tenant’s expense.  If Landlord pays any sum or incurs any expense in curing the Event of Default, Tenant shall reimburse Landlord upon demand for the amount of such payment or expense with interest at the Interest

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Rate from the date the sum is paid or the expense is incurred until Landlord is reimbursed by Tenant.

(c)Landlord may remove all Tenant’s property from the Premises, and such property may be stored by Landlord in a public warehouse or elsewhere at the sole cost and for the account of Tenant.  If Landlord does not elect to store any or all of Tenant’s property left in the Premises, Landlord may consider such property to be abandoned by Tenant, and Landlord may thereupon dispose of such property in any manner deemed appropriate by Landlord.  Any proceeds realized by Landlord on the disposal of any such property shall be applied first to offset all expenses of storage and sale, then credited against Tenant’s outstanding obligations to Landlord under this Lease, and any balance remaining after satisfaction of all obligations of Tenant under this Lease shall be delivered to Tenant.

(d)In the event of any default under this Lease by Landlord, Landlord shall have thirty (30) days after receipt of written notice thereof to cure such default, unless it shall be of a nature that it cannot reasonably be cured within said thirty (30) day period, in which event Landlord shall have a reasonable period of time to cure such default provided that Landlord commences to cure such default within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.  If Landlord fails to cure any default within the cure period specified above, Tenant, without limiting any of its rights or remedies permitted at law or in equity, shall have the right (but not the obligation) to cure such default and to recover from Landlord the cost thereof, and Landlord shall pay such costs of cure to Tenant within thirty (30) days after written demand for payment is delivered to Landlord together with written information substantiating such costs incurred. If Landlord does not timely reimburse Tenant for such costs within thirty (30) days after delivery of an initial written demand for payment to Landlord with substantiation of costs incurred, and thereafter, Landlord does not reimburse Tenant for such costs within fifteen (15) days after delivery of a second written demand for payment to Landlord, then Tenant may offset such costs against the next installments of Rent coming due under this Lease.

16.LATE CHARGE AND INTEREST.

16.1Late Charge.  If any payment of Rent is not received by Landlord within five (5) business days after the date when due, Tenant shall pay to Landlord on demand as a late charge the sum of Five Hundred and 00/100 Dollars ($500.00) (each a “Late Charge” and collectively, “Late Charges”).  A Late Charge shall not be imposed more than once on any particular installment not paid when due, but imposition of a Late Charge on any payment not made when due does not eliminate or supersede Late Charges imposed on other (prior) payments not made when due or preclude imposition of a Late Charge on other installments or payments not made when due.

16.2Interest.  In addition to the Late Charges referred to above, which are intended to defray Landlord’s costs resulting from late payments, any payment from Tenant to Landlord not paid when due shall at Landlord’s option bear interest from the date due until paid to Landlord by Tenant at the rate of twelve percent (12%) per annum or the maximum lawful rate that Landlord may charge to Tenant under applicable laws, whichever is less (the “Interest Rate”).  Acceptance of any Late Charge and/or interest shall not constitute a waiver of Tenant’s default with respect to the overdue sum or prevent Landlord from exercising any of its other rights and remedies under this Lease.

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17.WAIVER.  No provisions of this Lease shall be deemed waived by Landlord or Tenant unless such waiver is in a writing signed by the waiving party.  The waiver by Landlord or Tenant of any breach of any provision of this Lease shall not be deemed a waiver of such provision or of any subsequent breach of the same or any other provision of this Lease.  No delay or omission in the exercise of any right or remedy upon any default shall impair such right or remedy or be construed as a waiver.  Landlord’s acceptance of any payments of Rent due under this Lease shall not be deemed a waiver of any default by Tenant under this Lease (including Tenant’s recurrent failure to timely pay rent) other than Tenant’s nonpayment of the accepted sums, and no endorsement or statement on any check or payment or in any letter or document accompanying any check or payment shall be deemed an accord and satisfaction.  Landlord or Tenant’s consent to or approval of any act requiring consent or approval shall not be deemed to waive or render unnecessary consent to or approval of any subsequent act.

18.ENTRY, INSPECTION AND CLOSURE.  Upon reasonable oral or written notice to Tenant (and without notice in emergencies), Landlord and its authorized representatives may enter the Premises at all reasonable times to:  (a) determine whether the Premises are in good condition, (b) determine whether Tenant is complying with its obligations under this Lease, (c) perform any maintenance or repair of the Premises or the Building that Landlord has the right or obligation to perform, (d) install or repair improvements for other tenants where access to the Premises is required for such installation or repair, (e) serve, post or keep posted any notices required or allowed under the provisions of this Lease, (f) during the last nine (9) months of the Term or at any time after Tenant has abandoned the Premises, show the Premises to prospective brokers, agents, buyers, transferees, Mortgagees or tenants, or (g) do any other act or thing necessary for the safety or preservation of the Premises or the Building.  When reasonably necessary, Landlord may temporarily close entrances, doors, corridors, elevators or other facilities in the Building without liability to Tenant by reason of such closure, except as set forth in this Lease.  Landlord shall conduct its activities under this Section in a commercially reasonable manner that will minimize inconvenience to Tenant without incurring additional expense to Landlord.  In no event shall Tenant be entitled to an abatement of rent and Landlord shall not be liable in any manner for any inconvenience, loss of business or other damage to Tenant or other persons arising out of Landlord’s entry on the Premises in accordance with this Section, except as set forth in this Lease.  No action by Landlord pursuant to this paragraph shall constitute an eviction of Tenant, constructive or otherwise, entitle Tenant to an abatement of rent or to terminate this Lease or otherwise release Tenant from any of Tenant’s obligations under this Lease, except as set forth in this Lease.

19.SURRENDER AND HOLDING OVER.

19.1Surrender.  Upon the expiration or termination of this Lease, Tenant shall surrender the Premises and all Tenant Improvements and Alterations to Landlord broom-clean and in their original condition, except for reasonable wear and tear, damage from casualty or condemnation, Landlord’s obligations and any changes resulting from approved Alterations; provided, however, that prior to the expiration or termination of this Lease Tenant shall remove all telephone and other cabling installed in the Building by Tenant and remove from the Premises all Tenant’s personal property and any Trade Fixtures and all Alterations that Landlord has elected to require Tenant to remove as provided in Section 6.1 - Tenant Improvements & Alterations, and repair any damage caused by such removal.  If such removal is not completed before the expiration or termination of the Term, Landlord shall have the right (but no obligation) to remove the same.  Landlord shall

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also have the right to retain or dispose of all or any portion of such property if Tenant does not pay all such costs and retrieve the property within ten (10) days after notice from Landlord (in which event title to all such property described in Landlord’s notice shall be transferred to and vest in Landlord).  Tenant waives all Claims against Landlord for any damage or loss to Tenant resulting from Landlord’s removal, storage, retention, or disposition of any such property.  Upon expiration or termination of this Lease or of Tenant’s possession, whichever is earliest, Tenant shall surrender all keys to the Premises or any other part of the Building and shall deliver to Landlord all keys for or make known to Landlord the combination of locks on all safes, cabinets and vaults that may be located in the Premises.  In no event shall Tenant be required to remove the Tenant Improvements or any Alterations except as provided in Section 6.1.  Tenant’s obligations under this Section shall survive the expiration or termination of this Lease.

19.2Holding Over.  If Tenant (directly or through any Transferee or other successor-in-interest of Tenant) remains in possession of the Premises after the expiration or termination of this Lease, Tenant’s continued possession shall be on the basis of a tenancy at the sufferance of Landlord. In such event, Tenant shall continue to comply with or perform all the terms and obligations of Tenant under this Lease, except that the monthly Base Rent during the first two month’s of Tenant’s holding over shall be one and one half (1.5) times the Base Rent payable in the last full month prior to the termination hereof, and thereafter the monthly Base Rent during the Tenant’s holding over shall be twice the Base Rent payable in the last full month prior to the termination hereof. Tenant shall indemnify, defend and hold Landlord harmless from and against all Claims arising or resulting directly or indirectly from Tenant’s failure to timely surrender the Premises, including (i) any rent payable by or any loss, cost, or damages claimed by any prospective tenant of the Premises, and (ii) Landlord’s damages as a result of such prospective tenant rescinding or refusing to enter into the prospective lease of the Premises by reason of such failure to timely surrender the Premises, provided, however, in order for Tenant to be liable to Landlord hereunder for any Claims for consequential damages made by Landlord or a third party, including a prospective tenant or purchaser of the Premises or Building, Landlord must have given Tenant at least thirty (30) days written notice prior to the accrual of such damages advising Tenant in good faith that Landlord intends to lease, license, sell, transfer or convey the Premises to such third party.

20.ENCUMBRANCES.

20.1Subordination, Non- Disturbance and Attornment.  This Lease is expressly made subject and subordinate to any mortgage, deed of trust, ground lease, underlying lease or like encumbrance affecting any part of the Property or any interest of Landlord therein which is now existing or hereafter executed or recorded (“Encumbrance”); provided, however, that such subordination shall only be effective if this Lease and Tenant’s rights hereunder shall survive the termination of the Encumbrance by lapse of time, foreclosure or otherwise so long as Tenant is not in default under this Lease beyond any applicable cure period.  Simultaneously with Tenant’s execution and delivery of this Lease, Tenant shall execute and deliver to Landlord the Non-Disturbance, Attornment, Estoppel and Subordination Agreement attached hereto as Exhibit F (the “NDESA”). At any time after execution of this Lease and within ten (10) days after written request therefor by Landlord, Tenant shall execute and deliver to Landlord the NDESA, or any additional documents in form reasonably requested by Landlord (including without limitation, a replacement NDESA) to correct clerical errors or omissions in the NDESA, to replace lost or destroyed originals of the NDESA, or to permit recording of the NDESA with the County land title

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records for the Property, or to otherwise evidence the subordination of this Lease with respect to any such Encumbrance and the nondisturbance agreement of the holder of any such Encumbrance, provided the conditions of the first sentence of this Section 20.1 are satisfied and said documents shall not limit or reduce Tenant’s rights under the Lease.  If the interest of Landlord in the Property is transferred pursuant to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall immediately and automatically attorn to the new owner, and this Lease shall continue in full force and effect as a direct lease between the transferee and Tenant on the terms and conditions set forth in this Lease.

20.2Mortgagee Protection.  Tenant agrees to give any holder of any Encumbrance covering any part of the Property (“Mortgagee”), by certified mail, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified in writing (by way of notice of assignment of rents and leases, or otherwise) of the address of such Mortgagee.  If Landlord shall have failed to cure such default within thirty (30) days from the effective date of such notice of default, then the Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary to cure such default (including the time necessary to foreclose or otherwise terminate its Encumbrance, if necessary to effect such cure), and this Lease shall not be terminated so long as such remedies are being diligently pursued. To the extent the Tenant and the applicable Mortgagee have executed an NDESA that contains any provisions that are inconsistent with this Section 20.2, then the terms of said NDESA shall control and be determinative as to such inconsistent provisions.

21.ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS.

21.1Estoppel Certificates.  Within ten (10) days after written request therefor, Tenant shall execute and deliver to Landlord, in a form provided by or satisfactory to Landlord, a certificate stating that this Lease is in full force and effect, describing any amendments or modifications hereto, acknowledging that this Lease is subordinate or prior, as the case may be, to any Encumbrance and stating any other information Landlord may reasonably request regarding the status of this Lease or Tenant’s occupancy of the Premises, including the Term, the monthly Base Rent, the date to which Rent has been paid, the amount of any security deposit or prepaid rent, whether either party hereto is in default under the terms of the Lease, and whether Landlord has completed its construction obligations hereunder (if any).  Any person or entity purchasing, acquiring an interest in or extending financing with respect to the Property shall be entitled to rely upon any such certificate executed by Tenant.

21.2Financial Statements. Within ten (10) business days after written request therefore, but not more than once a year, Tenant shall deliver to Landlord a copy of the financial statements (including at least a year end balance sheet and a statement of profit and loss) of Tenant (and of each guarantor of Tenant’s obligations under this Lease) for each of the three (3) most recently completed years, prepared in accordance with generally accepted accounting principles (and, if such is Tenant’s normal practice, audited by an independent certified public accountant), all then available subsequent interim statements, and such other financial information as may reasonably be requested by Landlord or required by any Mortgagee.

22.NOTICES.  Any notice, demand, request, consent or approval that either party desires or is required to give to the other party under this Lease shall be in writing and shall be served

37

personally, delivered by messenger or courier service, or sent by U.S. certified mail, return receipt requested, postage prepaid, addressed to the other party at the party’s address for notices set forth in the Basic Lease Information.  Any notice required pursuant to any Laws may be incorporated into, given concurrently with or given separately from any notice required under this Lease.  Notices shall be deemed to have been given and be effective on the earlier of (a) receipt (or refusal of delivery or receipt); or (b) one (1) day after acceptance by the independent service for delivery, if sent by independent messenger or courier service, or three (3) days after mailing if sent by mail in accordance with this Section.  Either party may change its address for notices hereunder, effective fifteen (15) days after notice to the other party complying with this Section.  If Tenant sublets the Premises, notices from Landlord shall be effective on the subtenant when given to Tenant pursuant to this Section.

23.ATTORNEYS’ FEES.  In the event of any dispute between Landlord and Tenant in any way related to this Lease, and whether involving contract and/or tort claims, the non-prevailing party shall pay to the prevailing party all reasonable attorneys’ fees and costs and expenses of any type, without restriction by statute, court rule or otherwise, incurred by the prevailing party in connection with any action or proceeding (including any appeal and the enforcement of any judgment or award), whether or not the dispute is litigated or prosecuted to final judgment (collectively, “Fees”).  The “prevailing party” shall be determined based upon an assessment of which party’s major arguments or positions taken in the action or proceeding could fairly be said to have prevailed (whether by compromise, settlement, abandonment by the other party of its claim or defense, final decision, after any appeals, or otherwise) over the other party’s major arguments or positions on major disputed issues. Any Fees incurred in enforcing a judgment shall be recoverable separately from any other amount included in the judgment and shall survive and not be merged in the judgment.  The Fees shall be deemed an “actual pecuniary loss” within the meaning of Bankruptcy Code Section 365(b)(1)(B), and notwithstanding the foregoing, all Fees incurred by either party in any bankruptcy case filed by or against the other party, from and after the order for relief until this Lease is rejected or assumed in such bankruptcy case, will be “obligations of the debtor” as that phrase is used in Bankruptcy Code Section 365(d)(3).

24.QUIET POSSESSION.  Subject to Tenant’s full and timely performance of all of Tenant’s obligations under this Lease, including applicable notice and cure periods, and subject to the terms of this Lease, including Section 20 - Encumbrances, Tenant shall have the quiet possession of the Premises throughout the Term as against any persons or entities lawfully claiming by, through or under Landlord.

25.SECURITY MEASURES.  Landlord may, but shall be under no obligation to, implement such security measures for the Property, as Landlord deems necessary or appropriate to reduce any threat of property loss or damage, bodily injury or business interruption; provided, however, that such measures shall be implemented in a way as not to inconvenience tenants of the Building unreasonably. Landlord shall at all times have the right to change, alter or reduce any such security services or measures.  Tenant shall cooperate and comply with, and cause Tenant’s Representatives and Visitors to cooperate and comply with, such commercially reasonable security measures.  Landlord, its agents and employees shall have no liability to Tenant or its Representatives or Visitors for the implementation or exercise of, or the failure to implement or exercise, any such security measures or for any resulting disturbance of Tenant’s use or enjoyment of the Premises, except in the case of landlord’s negligence or willful misconduct.

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26.FORCE MAJEURE.  If Tenant or Landlord is delayed, interrupted or prevented from performing any of its obligations under this Lease (excluding payment or rent or other monetary obligations), including its obligations under the Construction Rider (if any), and such delay, interruption or prevention is due to fire, act of God, governmental act or failure to act, labor dispute, unavailability of materials or any cause outside the reasonable control of Landlord, then the time for performance of the affected obligations of Landlord shall be extended for a period equivalent to the period of such delay, interruption or prevention.

27.RULES AND REGULATIONS.  Tenant shall be bound by and shall comply with the rules and regulations attached to and made a part of this Lease as Exhibit C to the extent those rules and regulations are not in conflict with the terms of this Lease, as well as any reasonable rules and regulations hereafter adopted by Landlord for all tenants of the Building, upon notice to Tenant thereof (collectively, the “Building Rules”).  Landlord shall not be responsible to Tenant or to any other person for any violation of, or failure to observe, the Building Rules by any other tenant or other person, provided Landlord shall take commercially reasonable efforts to enforce such Building Rules in the event Tenant’s use of the Premises is being materially interfered with by another tenants violation of the Building Rules.

28.LANDLORD’S LIABILITY.  The term “Landlord,” as used in this Lease, shall mean only the owner or owners of the Building at the time in question.  In the event of any conveyance of title to the Building, then from and after the date of such conveyance, the transferor Landlord shall be relieved of all liability with respect to Landlord’s obligations to be performed under this Lease after the date of such conveyance provided that such transferee has assumed all of Landlord’s obligations under this Lease arising from and after the effective date of such transfer.  Notwithstanding any other term or provision of this Lease, the liability of Landlord for its obligations under this Lease is limited solely to Landlord’s interest in the Building (including rents, profits, and proceeds from condemnation, casualty, sale or refinancing of the Building) as the same may from time to time be encumbered (i.e. Tenant’s claim to the foregoing shall be subordinate to the interest of a Mortgagee), and no personal liability shall at any time be asserted or enforceable against any other assets of Landlord or against Landlord’s partners or members or its or their respective partners, shareholders, members, directors, officers or managers on account of any of Landlord’s obligations or actions under this Lease.

29.CONSENTS AND APPROVALS.

29.1Determination in Good Faith.  Wherever the consent, approval, judgment or determination of Landlord is required or permitted under this Lease, Landlord may exercise its good faith business judgment in granting or withholding such consent or approval or in making such judgment or determination without reference to any extrinsic standard of reasonableness, unless the specific provision contained in this Lease providing for such consent, approval, judgment or determination specifies that Landlord’s consent or approval is not to be unreasonably withheld, or that such judgment or determination is to be reasonable, or otherwise specifies the standards under which Landlord may withhold its consent.

29.2No Liability Imposed on Landlord.  The review and/or approval by Landlord of any item or matter to be reviewed or approved by Landlord under the terms of this Lease or any Exhibits or Addenda hereto shall not impose upon Landlord any liability for the accuracy or sufficiency of any such item or matter or the quality or suitability of such item for its intended use. 

39

Any such review or approval is for the sole purpose of protecting Landlord’s interest in the Property, and no third parties, including Tenant or the Representatives and Visitors of Tenant or any person or entity claiming by, through or under Tenant, shall have any rights as a consequence thereof.

30.BROKERS.  Landlord shall pay the fee or commission of the broker or brokers identified in the Basic Lease Information (the “Broker”) in accordance with Landlord’s separate written agreement with the Broker, if any.  Landlord and Tenant warrant and represent to the other that in the negotiating or making of this Lease neither it nor anyone acting on its behalf has dealt with any broker or finder who might be entitled to a fee or commission for this Lease other than the Broker.  Landlord and Tenant shall indemnify and hold the other harmless from any claim or claims, including costs, expenses and attorney’s fees incurred by the indemnified party asserted by any other broker or finder for a fee or commission based upon any dealings with or statements made by the indemnifying party or its representatives.

31.RELOCATION OF PREMISES.  Intentionally omitted.

32.ENTIRE AGREEMENT.  This Lease, including the Exhibits and any Addenda attached hereto, and the documents referred to herein, if any, constitute the entire agreement between Landlord and Tenant with respect to the leasing of space by Tenant in the Building, and supersede all prior or contemporaneous agreements, understandings, proposals and other representations by or between Landlord and Tenant, whether written or oral, all of which are merged herein.  Neither Landlord nor Landlord’s agents have made any representations or warranties with respect to the Premises, the Building, the Project or this Lease except as expressly set forth herein, and no rights, easements or licenses shall be acquired by Tenant by implication or otherwise unless expressly set forth herein.  The submission of this Lease for examination does not constitute an option for the Premises and this Lease shall become effective as a binding agreement only upon execution and delivery thereof by Landlord to Tenant.

33.MISCELLANEOUS.  This Lease may not be amended or modified except by a writing signed by Landlord and Tenant.  Subject to Section 14 - Assignment and Subletting and Section 28 - Landlord’s Liability, this Lease shall be binding on and shall inure to the benefit of the parties and their respective successors, assigns and legal representatives.  The determination that any provisions hereof may be void, invalid, illegal or unenforceable shall not impair any other provisions hereof and all such other provisions of this Lease shall remain in full force and effect.  The unenforceability, invalidity or illegality of any provision of this Lease under particular circumstances shall not render unenforceable, invalid or illegal other provisions of this Lease, or the same provisions under other circumstances.  This Lease shall be construed and interpreted in accordance with the laws (excluding conflict of laws principles) of the State in which the Building is located.  The provisions of this Lease shall be construed in accordance with the fair meaning of the language used and shall not be strictly construed against either party, even if such party drafted the provision in question.  When required by the context of this Lease, the singular includes the plural.  Wherever the term “including” is used in this Lease, it shall be interpreted as meaning “including, but not limited to” the matter or matters thereafter enumerated.  The captions contained in this Lease are for purposes of convenience only and are not to be used to interpret or construe this Lease.  If more than one person or entity is identified as Tenant hereunder, the obligations of each and all of them under this Lease shall be joint and several.  Time is of the essence with respect to this Lease, except as to the conditions relating to the delivery of possession of the Premises to

40

Tenant.  Neither Landlord nor Tenant shall record this Lease, provided that upon the request of either party, such party shall promptly execute a recordable memorandum of lease. If a memorandum of lease is executed and recorded, then promptly upon request by Landlord after termination of this Lease, Tenant shall execute and deliver to Landlord a written instrument in recordable form confirming the termination of this Lease and if Tenant fails to do so within ten (10) days after written request by Landlord and Tenant has not provided Landlord with written notice that Tenant disputes the Lease has terminated, Landlord shall have authority to unilaterally record an affidavit or other written instrument confirming the termination of this Lease without releasing Tenant from its obligation to provide the written termination.

34.AUTHORITY.  Tenant and Landlord represent and warrant that each of the persons executing this Lease on their behalf is a duly organized and validly existing entity, has full right and authority to enter into this Lease and that the persons signing on their behalf are authorized to do so and have the power to bind such party to this Lease.  Landlord and Tenant shall provide the other upon request with evidence reasonably satisfactory confirming the foregoing representations.

(remainder of page left intentionally blank — signatures follow on next page)

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IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of the date first above written.

TENANT:			LANDLORD:
MOCON, INC., a Minnesota corporation			MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP,
			a Minnesota limited partnership
By:	/s/ Darrell B. Lee
	Name:	Darrell B. Lee	By: Minnesota Industrial Portfolio, LLC
	Title:	V.P. & CFO	Its: General Partner
Date:	March 3, 2010		By:	/s/ M.L. Wedin
				Name:	M.L. Wedin
				Title:	Vice President
			Date:	March 9, 2010

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EXHIBIT A

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF MARCH 9, 2010

BETWEEN

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP, AS LANDLORD,

AND

MOCON, INC., AS TENANT (“LEASE”)

THE PREMISES

1

EXHIBIT B

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF MARCH 9, 2010

BETWEEN

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP, AS LANDLORD,

AND

MOCON, INC., AS TENANT (“LEASE”)

CONSTRUCTION RIDER

1.Tenant Improvements.  Landlord shall with reasonable diligence through a contractor designated by Landlord (which contractor may be an affiliate of Landlord) construct and install in the Premises the improvements and fixtures pursuant to the Final Construction Documents (defined herein) (“Tenant Improvements”), at Tenant’s expense, subject to the Allowance provided by Landlord herein. Notwithstanding the foregoing, Landlord shall pay the cost to construct the demising wall and separate the utilities (electricity and gas) at its sole cost, which amount shall not be applied against the Allowance provided by Landlord.  The Final Construction Documents are subject to Landlord’s prior reasonable approval.  Upon request by Landlord, Tenant shall designate in writing an individual authorized to act as Tenant’s Representative with respect to all approvals, directions and authorizations pursuant to this Construction Rider.

1.1.Plans.  The Tenant Improvements shall be constructed substantially as shown in the final construction documents prepared by DE Design dated February 12, 2010, subject to revisions required by the City of Brooklyn Park, MN (“City”), if any (the “Final Construction Documents”).  Landlord has provided Tenant with a bid for the work shown in the Final Construction Documents, a copy of which is attached hereto as Exhibit B-1 (“Final Cost Estimate”).

1.2.Construction.  Landlord shall proceed with reasonable diligence to cause the Tenant Improvements to be Substantially Completed on or prior to June 1, 2010 the Scheduled Commencement Date.  The Tenant Improvements shall be deemed to be “Substantially Completed” when they have been completed in accordance with the Final Construction Documents except for finishing details, minor omissions, decorations and mechanical adjustments of the type normally found on an architectural or construction “punch list” which do not materially interfere with Tenant’s installation of its trade fixtures and equipment and operation of its business therein.  (The definition of Substantially Completed shall also define the terms “Substantial Completion” and “Substantially Complete.”)

Following Substantial Completion of the Tenant Improvements and before Tenant takes possession of the Premises (or as soon thereafter as may be reasonably practicable and in any event within thirty (30) days after Substantial Completion), Landlord and Tenant shall inspect the Premises and jointly prepare a “punch list” of agreed items of construction remaining to be completed.  Landlord shall complete the items set forth in the punch list as soon as reasonably

1

possible.  Tenant shall cooperate with and accommodate Landlord and Landlord’s contractor in completing the items on the punch list.

1.3.Cost of Tenant Improvements.  Landlord shall contribute up to Seven Hundred Twenty-Five Thousand and no/100 Dollars ($725,000.00) (the “Allowance”) toward the cost of the design (including preparation of space plans and Construction Documents), construction and installation of the Tenant Improvements (including without limitation, usual markups for overhead, supervision and profit which shall be included in the Final Cost Estimate), but excluding any of the costs related to the Exercise Room as shown on such plans which shall be paid by Tenant.  Landlord shall provide an additional Seventy-six Thousand Nine Hundred Twenty-five and 00/100 Dollars ($76,925.00) (the “Additional Contribution”) toward the Tenant Improvements or other hard cost of constructing any other fixture or leasehold improvements made by Tenant to the Premises prior to the Commencement Date; provided, however the amount of the Additional Contribution, if any, shall be amortized over the initial one hundred eighty (180) months of the Term at an interest rate of ten and 00/100 percent (10.0%) per annum and added to the Base Rent due and payable monthly pursuant to this Lease.  The balance, if any, of the cost of the Tenant Improvements as set forth in the Final Cost Estimate over and above the Allowance and Additional Contribution (“Additional Cost”) shall be paid by Tenant.  Tenant shall pay Landlord fifty percent (50%) of the Additional Cost based upon the Final Cost Estimate prior to the commencement of construction of the Tenant Improvements.  The balance of the actual Additional Cost shall be paid to Landlord upon Substantial Completion of the Tenant Improvements and full completion of the punch list items, within thirty (30) days after receipt of Landlord’s invoice therefor.  Landlord will use reasonable care in preparing the cost estimates, and Tenant shall have no obligation, other than for Changes set forth below and any City required changes, additions or alterations in or to the Final Construction Documents that increases the cost of the Tenant Improvements, to pay any additional costs of the Tenant Improvements over the approved Final Cost Estimate less the Allowance and Additional Contribution.   Notwithstanding the foregoing, in the event the full Seven Hundred Twenty-Five Thousand and no/100 Dollars ($725,000.00) of the Allowance is not used by Tenant as provided above, then up to Seventy-Two Thousand Five Hundred and no/100 Dollars ($72,500.00) of the unused balance may be used by Tenant for the Additional Cost and the hard cost of constructing any other fixture or leasehold improvements made by Tenant to the Premises prior to the Commencement Date; provided, however, Tenant must request the right to utilize such portion of the unused balance by written notice delivered to Landlord within ninety (90) days after Landlord achieves Substantial Completion of the Tenant Improvements.  Upon Substantial Completion of the Tenant Improvements, the parties shall promptly execute an addendum to this Lease in form prepared by Landlord’s counsel confirming the date of Substantial Completion, the Commencement Date, the Termination Date, the amount of the Additional Contribution, if any, and any increase in the Base Rent based on the amortization of the Additional Contribution, if any.

1.4.Changes.  If Tenant requests any change, addition or alteration in or to the Final Construction Documents (“Changes”) Landlord shall cause Ryan to prepare additional Plans implementing such Change.  Tenant shall pay the cost of preparing additional Plans, which charge may be paid from the Allowance or shall otherwise be reimbursed to Landlord within thirty (30) days after receipt of Landlord’s invoice therefor.  As soon as practicable after the completion of such additional Construction Documents, Landlord shall notify Tenant of the estimated cost of the Changes.  Within three (3) business days after receipt of such cost estimate,

2

Tenant shall notify Landlord in writing whether Tenant approves the Change.  If Tenant approves the Change, Landlord shall proceed with the Change and Tenant shall be liable for any Additional Cost resulting from the Change.  If Tenant fails to approve the Change within such three (3) business day period, construction of the Tenant Improvements shall proceed as provided in accordance with the original Construction Documents.

1.5.Delays.  Tenant shall be responsible for, and shall pay to Landlord, any and all out of pocket costs and expenses incurred by Landlord in connection with any delay in the commencement or completion of any Tenant Improvements and any increase in the cost of Tenant Improvements caused by (i) Tenant’s failure to submit information to Ryan or approve any plans, drawing, specifications, or Construction Documents or cost estimates within the time periods required herein, (ii) any delays in obtaining any items or materials constituting part of the Tenant Improvements requested by Tenant with long lead times, provided Landlord has advised Tenant of the long lead item and Tenant would not accept a reasonably equivalent substitution therefor, (iii) any Changes, or (iv) any other delay requested or caused by Tenant (collectively, “Tenant Delays”).

2.Delivery of Premises.  Upon Substantial Completion of the Tenant Improvements, Landlord shall deliver possession of the Premises to Tenant.  If Landlord has not Substantially Completed the Tenant Improvements and tendered possession of the Premises to Tenant on or before the Scheduled Commencement Date, or if Landlord is unable for any other reason to deliver possession of the Premises to Tenant on or before such date, neither Landlord nor its representatives shall be liable to Tenant for any damage resulting from the delay in completing such construction obligations and/or delivering possession to Tenant and the Lease shall remain in full force and effect unless and until it is terminated under the express provisions of this Paragraph.  If any delays in Substantially Completing the Tenant Improvements are attributable to Tenant Delays, then the Premises shall be deemed to have been Substantially Completed and delivered to Tenant on the date on which Landlord could have Substantially Completed the Premises and tendered the Premises to Tenant but for such Tenant Delays.

3.Early Access to Premises.  Subject to the terms of this Lease (except payment of Base Rent and Additional Rent), when Landlord has completed construction to a point where Landlord reasonably believes Tenant may occupy the Premises to commence installation of its data and communications cabling/wiring and installation of its trade fixtures and equipment and otherwise ready the Premises for Tenant’s occupancy (“Permitted Work”) without interfering with the completion of the Tenant Improvements by Landlord or its contractor, Landlord shall allow Tenant and Tenant’s Representatives to enter the Premises prior to the Commencement Date to perform the Permitted Work; provided, however, that prior to such entry of the Premises, Tenant shall provide evidence reasonably satisfactory to Landlord that Tenant’s insurance, as described in Section 11.1 - Tenant’s Insurance of the Lease, shall be in effect as of the time of such entry.  Such permission may be revoked at any time upon reasonable cause upon twenty-four (24) hours’ notice, and Tenant and its Representatives shall not interfere with Landlord or Landlord’s contractor in completing the Building or the Tenant Improvements.

Tenant agrees that Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of Tenant’s property placed upon or installed in the Premises prior to the Commencement Date, the same being at Tenant’s sole risk, and Tenant shall be liable for all

3

injury, loss or damage to persons or property arising as a result of such entry into the Premises by Tenant or its Representatives.

4.Ownership of Tenant Improvements.  All Tenant Improvements, whether installed by Landlord or Tenant, shall become a part of the Premises, shall be the property of Landlord and, subject to the provisions of the Lease, shall be surrendered by Tenant with the Premises, without any compensation to Tenant, at the expiration or termination of the Lease in accordance with the provisions of the Lease.

4

EXHIBIT B-1

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF MARCH 9, 2010

BETWEEN

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP, AS LANDLORD,

AND

MOCON, INC., AS TENANT (“LEASE”)

FINAL COST ESTIMATE

(see attached 5 pages)

1

February 22th, 2010 [revised lease 2.24.10]

Mr. Adam Warden

Ryan Companies US, INC.

50 South Tenth Street, Suite 300

Minneapolis, MN 55403-2012

RE: Mocon @ Northland IV.

Dear Mr. Warden,

In accordance with the documents issued by DE Design including Bulletin #1, #2 & #3, we propose to complete the work as shown for the sum of:

Final Clean	$	8,500
Site Demo [Exterior Wall] - not in scope	omitted
Site Demo [Exterior Trellis, incl spring EFIS patch & Repaint] - not in scope	omitted
New Exterior Exit Door [cut, patch & Alum Door to match]	in below
Interior Demolition	$	22,705
Site Excavation	$	8,000
Exterior Stoop @ Sidewalk at Front Entry	$	6,500
Landscaping Repairs @ new front entry and Prax-Air Pad	$	1,000
Interior Fence @ Loading Docks - by tenant	omitted
Add for Overhead Door Demo	$	480
Dock Leveler Infill with sand and concrete	$	2,000
Add Steel Stair, Painted at Removed Dock Door	$	7,500
Millwork	$	12,450
Carpentry [Millwork , D/F/H Install, Rough & Finish Included]	$	24,690
Doors, Frames & Hardware [Reuse to greatest extent possible, no touch-up of reused]	$	19,585
Glass & Glazing - omitted sidelights at offices	$	4,500
Aluminum @ Glazing at overhead door	$	3,500

GREINER CONSTRUCTION	PHONE	FAX
Northstar Center West, 625 Marquette Avenue, Suite 640, Minneapolis, MN 55402	612.338.1696	612.338.1892

2

Drywall	$	90.500
Infill windows looking into labs	NA
Add Insulation at offices	$	4,000
New Tenant Demising Wall	by Alt
Top-off Existing Wall at Offices to be demising wall	by Alt
Tape & Sand Finishes on Backside of Demising Wall	$	by alt
Ceramic Tile [includes ceramic floor not indicated on plans]	$	9,000
Acoustic Ceilings [patch existing, new in all labs & training]	$	23,000
EFIS In-fills at Removed Louvers	$	1,500
Painting [offices]	$	37,186
Painting [new walls in manufacturing]	in above
Flooring [new carpet throughout office area, VCT in labs]	$	90,000
Floor patch and leveling	$	4,000
Toilet Accessories & Partitions	$	2,600
[5] Projection Screens	Omitted
Fire Protection	$	13,200
Plumbing	$	46,000
Med-Gas 6 Air Piping [Terminating B’ AFF]	$	65,000
HVAC [only additional equipment are [2] exhaust fans at restrooms & [1] transfer fan @ Server]	$	68,900
Separate Gas Meter [Separation of MOCON space ONLY]	by Alt
Electrical	$	110,000
Electrical [cost to separate Mocon only from the existing utilities]	by Alt
Fire Alarm Rework [Allowance]	$	4,000
General Conditions	$	44,329
Permit Fee	$	10,400
Fee	$	38,800
Subtotal	$	783,825
Alternates agree to at the 2-24.10 meeting
Supply non-structural lid at compressor room	Add: $1,200
Deduct to go to $18yd [material] carpet squares	Deduct: $12,000
Provide Excavation, Concrete, Fencing and Paint for “Prax-Air”	Add: $18,500
Add Trash Enclosure [allow. Block & Conc. $8k, Excavation $4k, Gate $2k, Steel $3k]	Add: $17,000
VE design lighting to meet “office” lighting standard foot-candles	Deduct: $6,600
Alternates Subtotal	Net: $18,100
Total Of Tenant Expenses	$	801,925.00

3

Owner paid items:
Build new demising wall -	Add: $6,500.00
Top off existing demising wall at offices	Add: $4,000.00
Separate Gas for Mocon from remaining building	Add: $3,000.00
Rock & Insulate Non-Tenant Side of Demising Wall [No Taping or paint included]	Add: $8,000.00
Separate Electrical from remainder of building	Add: $40,160.00
Demo existing low voltage cabling only	Add: $7,400
Total of Owner Paid Items	$	69,060.00
Total of All Project Commitments	$	870,985.00

Voluntary Alt See list above:

Add [2] auto-door openers at existing main entry doors	Add: $5,000.00
Paint all existing warehouse walls	Add: $3,600.00
Restain existing doors that are reused	Add: $60 ea - TBO
Provide Med Gas 31 terminations at each various bench locations	Add: $22,000
Add to our proposal $1,000 per day liquidated damages past June 1st	Add: $25,000
Server room [Add 2-ton ductless in lieu of exhaust fan]	Add: $8,600
Install New Appliances only. Supply by others. Does not include Vending	Add: $1,200
Add for Two card reader locations [each additional $1,500]	Add: $8,000
Retape yellow outline on floor around electrical panels	Add: $300

Clarifications:

All work is to be completed during normal working hours.

Does not include any sinks, drains or water not shown

Does not include connection or power to relocated equip. unless specifically indicated on plans.

Does not include SAC/WAC costs

Ceillings Std 2’x 4’ grid with USG #2310 or Armstrong Fine Fissured 1729 at lab spaces

Excludes repair to existing mechanical and electric systems

Pricing is based on current drawings issued to ALL bidders. Pricing does not include any prior information whether known or unknown, if not included on plans or bulletins.

Pricing does not include Prax-Air products, connections, wiring, alarms, piping of any kind.

We do not include Voice Data, Security or low voltage wiring other then “ring and Strings"

We do include revisions to the fire alarm system [by allowance in bid]. Overages in budget due to Cityand/or Ryan Companies requirements will result in additional charges.

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Meter separation design will need to be approved by Xcel Energy.

Removal of existing Data Cabling is added by alternate

Removal, repairs and or reuse of security, card readers or speaker system is not included

Change Order Mark-up to be 5% OH&P and 8% General Conditions

We exclude the supply and installation of eye wash stations. Code is based on materials and location information with which we were not provided.

We do not include soil corrections for exterior site conditions

We do not include and sheeting, shoring or underpinning for exterior excavations to preserve existing conditions.

The building power will be interrupted during the meter work. We have not included costs, such as a generator to keep the current tenant powered.

Does not include power, backing, wall cutting or patching for A/V vendor work. Other than Bulletin #1

Base Bid: Gas and Compressed Air requirements Per D/E Design Bulletin #2

Test Lab
Gas Drops	Qty 5
N2	Qty 4

Engineering Lab
Gas Drops	Qty 3
Air Drops	Qty 3

Film Lab
Gas Drops	Qty 1

Manufacturing Lab
Gas Drops	Qty 2
Air Drops	Qty 1

Demo Lab
Gas Drops	Qty 1
Air Drops	Qty 1

Assembly WHSE
Air Drops	Qty 6
N2 Drops	Qty 1

Test Area
Gas Drops	Qty 20
Air Drops	Qty 6

5

Base Bid Electrical Scope

·Electrical permit

·General demo as required including removal of equipment per note 7

·Relocate

212 2x4 fixtures

7-Exits

1-Electrical panel in office area

·Furnish and install

202-2x4 fixtures

7-Exits

52-Single pole switches

200-Duplex receptacles

5-Ceiling receptacles for projectors

13-GFI receptacles

12-Power pole base feeds for office furniture

5-Floorboxes for conference rooms

50-Phone/Data openings

8-Cord drops with duplex receptacles

33-Cord drops with 4plex receptacles

·Wire and connect 4-ovens

Thank you for the opportunity to provide you with the proposal. If you have any questions or comments, please feel free to call.

Sincerely,

/s/ Kory Carlston

Kory Carlston LEED AP

Project Manager

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EXHIBIT C

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF MARCH 9, 2010

BETWEEN

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP, AS LANDLORD,

AND

MOCON, INC., AS TENANT (“LEASE”)

BUILDING RULES

The following Building Rules are additional provisions of the foregoing Lease to which they are attached.  The capitalized terms used herein have the same meanings as these terms are given in the Lease.

1.Use of Common Areas.  Tenant will not obstruct the sidewalks, exits, or entrances of the Building or the other Common Areas of the Project, and Tenant will not use the Common Areas for any purpose other than ingress and egress to and from the Premises or such other intended uses of the Common Areas.  Landlord reserves the right to control and prevent access to the Common Areas of any person whose presence, in Landlord’s reasonable opinion, would be prejudicial to the safety, reputation and interests of the Building and its tenants, provided such person is not an employee, agent or visitor of Tenant and under Tenant’s reasonable control.

2.No Access to Roof.  Tenant has no right of access to the roof of the Building and will not install, repair or replace any antenna, aerial, aerial wires, fan, air-conditioner or other device on the roof of the Building, without the prior written consent of Landlord.  Any such device installed without such written consent is subject to removal at Tenant’s expense without notice at any time.  In any event Tenant will be liable for any damages or repairs incurred or required as a result of its installation, use, repair, maintenance or removal of such devices on the roof and agrees to indemnify and hold harmless Landlord from any liability, loss, damage, cost or expense, including reasonable attorneys’ fees, arising from any activities of Tenant or of Tenant’s Representatives on the roof of the Building, as required pursuant to the indemnification provisions of the Lease.

3.Signage.  No sign, placard, picture, name, advertisement or notice visible from the exterior of the Premises will be inscribed, painted, affixed or otherwise displayed by Tenant on or in any part of the Building without the prior written consent of Landlord.  Landlord reserves the right to adopt and furnish Tenant with general guidelines relating to signs in or on the Building.  All approved signage will be inscribed, painted or affixed at Tenant’s expense by a person approved by Landlord, which approval will not be unreasonably withheld.

4.Prohibited Uses.  The Premises will not be used for lodging or for the sale of goods to the general public.  Tenant will not permit any food preparation on the Premises except that Tenant may use Underwriters’ Laboratory approved equipment for brewing coffee, tea, hot

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chocolate and similar beverages and heating food so long as such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations.

5.Keys and Locks.  Landlord will furnish Tenant, free of charge, two keys to each door or lock in the Premises.  Landlord may make a reasonable charge for any additional or replacement keys.  Tenant will not duplicate any keys, alter any locks or install any new or additional lock or bolt on any door of its Premises or on any other part of the Building without the prior written consent of Landlord and, in any event, Tenant will provide Landlord with a key for any such lock.  On the termination of the Lease, Tenant will deliver to Landlord all keys to any locks or doors in the Building which have been obtained by Tenant.

6.Nuisances and Dangerous Substances.  Tenant will not conduct itself or permit Tenant’s Representatives or Visitors to conduct themselves, in the Premises or anywhere on or in the Property in a manner which is unreasonably offensive or unduly annoying to any other tenant or Landlord’s property managers.  Tenant will not install or operate any phonograph, radio receiver, musical instrument, or television or other similar device in any part of the Common Areas and shall not operate any such device installed in the Premises in such manner as to unreasonably disturb or annoy other tenants of the Building.  Except as otherwise permitted under the Lease, Tenant will not use or keep in the Premises or the Property any kerosene, gasoline or other combustible fluid or material other than limited quantities thereof reasonably necessary for the maintenance of office equipment, or, without Landlord’s prior written approval, use any method of heating or air conditioning other than that supplied by Landlord.  Tenant will not permit or suffer the Premises to be occupied or used in a manner which would reasonably be offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein.  Tenant will not bring or keep any animals, except Service Animals, in or about the Premises or the Property.

7.Building Name and Address.  Without Landlord’s prior written consent, Tenant will not use the name of the Building in connection with or in promoting or advertising Tenant’s business except as Tenant’s address.

8.Window Coverings.  Other than interior window blinds, no curtains, draperies, shutters, shades, awnings, screens or other coverings, window ventilators, hangings, decorations or similar equipment shall be attached to, hung or placed in, or used in or with any window of the Building without the prior written consent of Landlord.

9.Floor Coverings.  Tenant will not lay or otherwise affix linoleum, tile, carpet or any other floor covering to the floor of the Premises in any manner except as approved in writing by Landlord.  Tenant will be liable for the cost of repair of any damage resulting from the violation of this rule or the removal of any floor covering by Tenant or its contractors, employees or invitees.

10.Wiring and Cabling Installations.  Landlord will direct Tenant’s electricians and other vendors as to where and how data, telephone, and electrical wires and cables are to be installed.  No boring or cutting for wires or cables will be allowed without the prior written consent of Landlord, not to be unreasonably withheld, conditioned or delayed.  The location of burglar alarms, smoke detectors, telephones, call boxes and other office equipment affixed to the

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Premises shall be subject to the written approval of Landlord, not to be unreasonably withheld, conditioned or delayed.

11.Plumbing Facilities.  The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be disposed of therein.  Tenant will be liable for any breakage, stoppage or damage resulting from the violation of this rule by Tenant, its employees or invitees.

12.Refuse.  Except as otherwise permitted in the Lease, Tenant shall store all Tenant’s trash and garbage within the Premises or in other facilities designated by Landlord for such purpose.  Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city in which the Building is located without being in violation of any law or ordinance governing such disposal.  All trash and garbage removal shall be made in accordance with directions issued from time to time by Landlord, only through such Common Areas provided for such purposes and at such times as Landlord may designate.  Tenant shall comply with the requirements of any recycling program adopted by Landlord for the Building. Except as otherwise permitted in the Lease, Tenant understands and acknowledges that its trash bins cannot currently be located or housed outside the Building and Tenant must keep them in its Premises until collection by Tenant’s refuse/recycling vendor.

13.Soliciting.  Canvassing, peddling, soliciting and distribution of handbills or any other written materials in the Building are prohibited, and Tenant will cooperate to prevent the same.

14.Parking.  Tenant will use, and cause Tenant’s Representatives and Visitors to use, any parking spaces to which Tenant is entitled under the Lease in a manner consistent with Landlord’s directional signs and markings in the Parking Facility.  Specifically, but without limitation, Tenant will not park, or permit Tenant’s Representatives or Visitors to park, in a manner that impedes access to and from the Building or the Parking Facility or that violates space reservations for handicapped drivers registered as such.  Landlord may use such reasonable means as may be necessary to enforce the directional signs and markings in the Parking Facility, including but not limited to towing services, and Landlord will not be liable for any damage to vehicles towed as a result of non-compliance with such parking regulations.

15.Fire, Security and Safety Regulations.  Tenant will comply with all safety, security, fire protection and evacuation measures and procedures reasonably established by Landlord or any governmental agency.

16.Responsibility for Theft.  Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

17.Sales and Auctions.  Tenant will not conduct or permit to be conducted any sale by auction in, upon or from the Premises or elsewhere in the Property, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding.

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18.Waiver of Rules.  Landlord may waive any one or more of these Building Rules for the benefit of any particular tenant or tenants, but no such waiver by Landlord will be construed as a waiver of such Building Rules in favor of any other tenant or tenants nor prevent Landlord from thereafter enforcing these Building Rules against any or all of the tenants of the Building.

19.Effect on Lease.  These Building Rules are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease.  Violation of these Building Rules constitutes a failure to fully perform the provisions of the Lease, as referred to in Section 15.1 - “Events of Default”.

20.Intentionally deleted.

21.Additional and Amended Rules.  Landlord reserves the right to rescind or amend these Building Rules and/or adopt any other and reasonable non-discriminating rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building and for the preservation of good order therein.

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EXHIBIT D

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF MARCH 9, 2010

BETWEEN

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP, AS LANDLORD,

AND

MOCON, INC., AS TENANT (“LEASE”)

ADDITIONAL PROVISIONS RIDER

35.EXTENSION OF TERM.  Landlord grants to Tenant the option to extend the Initial Term of this Lease (“Extension Option”) for one (1) additional period of five (5) years (“Extension Term”), subject to and upon the following conditions:

35.1The Extension Term will commence as of the expiration of the Initial Term of this Lease.

35.2Tenant will give irrevocable written notice of exercise to Landlord not less than one hundred eighty (180) days and not more than three hundred sixty five (365) days prior to the commencement of the Extension Term, time being of the essence.

35.3The Extension Term will be upon all of the terms and conditions of this Lease, except that Base Rent will be equal to the Market Rate for the Extension Term and the Premises will be leased to Tenant in its “as-is” condition and the terms of Exhibit B shall not apply. The determination of the Market Rate will be made in accordance with the terms of Section 3.1(a) of this Lease.

35.4No Event of Default beyond any applicable notice and cure period shall be in existence at either the time of exercise or at any time prior to commencement of the Extension Term.

36.PERMITTED TRASH ENCLOSURE. Notwithstanding anything in the Lease to the contrary, Tenant may, at its sole cost and expense, subject to approval by the City and applicable Laws, maintain up to two (2) trash dumpsters in the rear exterior area of the Building immediately adjacent to the loading dock area of the Premises. To the extent the City or applicable Laws require that the dumpsters be housed or stored within an enclosure or be screened in some other manner, Tenant shall, at its sole cost and expense (except as otherwise provided in the final sentence of this Section 36), construct, install, maintain, and repair such trash enclosure and/or screening in compliance with applicable Laws. Prior to obtaining City approval and prior to construction and installation of such enclosure or screening, Tenant shall obtain the prior written consent of Landlord, not to be unreasonably withheld, conditioned or delayed, of Tenant’s detailed plans and specifications for such enclosure and/or screening, upon approval by.  The area where Tenant’s dumpsters and permitted trash enclosure is located shall be treated the same as

1

the Premises for all purposes under this Lease, provided that Tenant shall be responsible for all maintenance, repair, restoration and insurance obligations pertaining to same. Upon expiration or earlier termination of this Lease, Tenant shall remove its dumpsters and the permitted trash enclosure and restore the area where same were located to substantially the same condition that existed on the date of this Lease, reasonable wear and tear excepted. Notwithstanding the foregoing to the contrary, Tenant may include the hard costs of constructing the permitted trash enclosure in the Additional Contribution (defined in Exhibit B of this Lease).

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EXHIBIT E

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF MARCH 9, 2010

BETWEEN

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP, AS LANDLORD,

AND

MOCON, INC., AS TENANT (“LEASE”)

Tenant’s Hazardous Materials List

Hazardous Materials Inventory Statement

Tenant:	Mocon
Building:	Northland IV
Address:	9300 75th Avenue
	Brooklyn Park, MN 55428

Hazard Classification	Chemical Common / Trade Name	Chemical Abstract Service No. (CAS)	Physical State	Quantity Stored	In-Use (open)	In-Use (closed)	Total Quantity of Product	Comments
Flammable Liquids:
Class I-A	Auto Fuel (gasoline)	86290-81 -5	liquid	1.0 gallons	1.0 gallons
Class I-B	Methanol	67-56-1	liquid	15.0 gallons	5.0 gallons
Class I-B	Acetone	67-64-1	liquid	5.0 gallons	5.0 gallons
Class I-B	Isopropyl Alcohol	67-63-0	liquid	5.0 gallons	5.0 gallons
Class I-C	none
	Total Flammable Liquids:			26 gallons	16 gallons
Combustible liquids:
Class II	none
Class III-A	none
Class III-B	Motor Oil	64742650	liquid	5.0 gallons	5.0 gallons
Class III-B	Propylene Glycol	57-55-6	liquid	55.0 gallons	5.0 gallons
	Total Combustible Liquids:			60 gallons	10 gallons
Health Hazards:
Carcinogen	Solder with Lead	7439-92-1	solid	2.0 lbs.	2.0 lbs.
Carcinogen	Cadmium Impreg. Nickel	7440-43-9	solid	100 lbs.	100 lbs.
Corrosive	Potassium Hydroxide Solution	1310-58-3	liquid	30 gallons	5 gallons			17% solution
Corrosive	Ammonium Hydroxide	1336-21-6	liquid	1.0 gallon	1.0 gallon
	Total Corrosives:			31 gallons	6 gallons
Highly Toxic	Mercury (thermometers)	7439-97-6	liquid	0.1 lbs.
Toxic	Cadmium Impregnated Nickel sheet, containing:		solid	100 lbs	100 lbs
	- cadmium	7440-43-9
	- nickel	7440-02-0

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Hazard Classification	Chemical Common / Trade Name	Chemical Abstract Service No. (CAS)	Physical State	Quantity Stored	In-Use (open)	In-Use (closed)	Total Quantity of Product	Comments
Irritants	Propylene Glycol	57-55-6	liquid	55.0 gallons	5.0 gallons
Irritants	Acetone	67-64-1	liquid	5.0 gallons	5.0 gallons
Sensitizers	Isopropyl Alcohol	67-63-0	liquid	5.0 gallons	5.0 gallons
Radioactives	None
Other	Cryogenic Nitrogen	7727-37-9	liquid/gas	3000 gals.				outdoor storage
Plastics:
Type A	ABS (acrylonitrile-butadiene-styrene copolymer)	9003-56-9	solid
Type A	Polyurethane		solid
Type A	Polystyrene	9003-53-6	solid
Type A	TPE (thermoplastic elastomer)		solid
	Total Type A Plastics:			800 lbs.
Type B
Type C
Physical Hazards:
Combustible Fiber	None
Cryogenic, Flammable	None
Cryogenic, Oxidizing	Cryogenic Oxygen	7782-44-7	liquid/gas	500 gals.				outdoor storage
Explosives	None
Flammable Solids	None
Flammable Gas	None
Organic Peroxide	None
Oxidizer	None
Oxidized - Gas	None
Pyrophoric	None
Unstable (reactive)	None
Water Reactive	None

2

EXHIBIT F

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF MARCH 9, 2010

BETWEEN

MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP, AS LANDLORD,

AND

MOCON, INC., AS TENANT (“LEASE”)

NON-DISTURBANCE, ATTORNMENT, ESTOPPEL AND SUBORDINATION AGREEMENT

THIS NON-DISTURBANCE, ATTORNMENT, ESTOPPEL AND SUBORDINATION AGREEMENT (this “Agreement”) is made and entered into as of March 9, 2010, by, between and among WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association as Administrative and Collateral Agent (the “Agent” or “Beneficiary”) for certain Lenders (the “Lenders”) who are or become parties who become parties to that certain Amended and Restated Credit Agreement dated June 5, 2006, as amended by that certain First Amendment to Loan Documents dated as of August 22, 2006, that certain Second Amendment to Loan Documents dated as of March 29, 2007, and that certain Third Amendment to Loan Documents dated April 25, 2008, and as affected by that certain Extension Recognition Agreement dated June 5, 2009 and a certain Restructuring Consent Letter dated June 23, 2009 and by a certain Post Closing Agreement June 23, 2009 and as from time to time hereafter amended or modified, by and between Agent and the Lenders and EBREF Holding Company, LLC, as Borrower (the “Credit Agreement”) and MOCON, INC., a Minnesota corporation (“Lessee”), and MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP (“Lessor”).

RECITALS:

A.Lenders are the owners and holders, or expect to be the owners and holders, of certain Promissory Notes dated as of June 5, 2006, (the “Notes”) in the aggregate principal sum of One Hundred Seventy Million Dollars ($170,000,000.00), which are guaranteed by a certain Payment Guaranty Agreement dated as of June 5, 2006, which Payment Guaranty Agreement is to be joined in by the Lessor and is secured or to be secured by a Indemnity of Trust, Security Agreement and Assignment of Leases and Rents and Fixture Filing (the “Mortgage”)  and an Indemnity Assignment of Leases and Rents (the “Assignment of Rents”), each to be entered into on or about the date of this Agreement, which Mortgage constitutes a lien or encumbrance on that certain real property more particularly described in the attached EXHIBIT A (the “Property”).

B.Lessee is the holder of a leasehold estate covering a portion of the Property (the “Demised Premises”) pursuant to the terms of that certain Lease Agreement dated March 9, 2010,

1

and executed by Lessee and Lessor (the “Lease”). A copy of the Lease, certified as true and correct by Lessee, has previously been delivered to Beneficiary and has not been amended, modified or terminated as of the date hereof.

C.Lessee, Lessor and Beneficiary in its capacity as Collateral Agent and Administrative Agent under the Credit Agreement desire to confirm their understanding with respect to the Lease, the Mortgage and the Assignment of Rents.

AGREEMENT

1.  So long as Lessee is not in default (beyond any period given Lessee to cure such default) in the payment of rent or in the performance of any of the terms, covenants or conditions of the Lease on Lessee’s part to be performed, Lessee’s possession and occupancy of the Demised Premises shall not be interfered with or disturbed by Beneficiary during the term of the Lease or any extension thereof duly exercised by Lessee.

2.  Lessee hereby consents to the assignment by Lessor to Beneficiary of the Lease, as set forth in the Deed of Trust and the Assignment of Rents. If the interests of Lessor shall be transferred to and/or owned by Beneficiary by reason of judicial foreclosure, power-of-sale foreclosure or other proceedings brought by Beneficiary, or by any other manner, including, but not limited to, the institution of a receiver for the Property or Beneficiary’s exercise of its rights under the Assignment of Rents, Lessee shall be bound to Beneficiary under all of the terms, covenants and conditions of the Lease for the balance of the remaining term thereof and any extension thereof duly exercised by Lessee, with the same force and effect as if Beneficiary were the lessor under the Lease, and Lessee does hereby attorn to Beneficiary as its lessor, said attornment to be effective and self-operative without the execution of any further instruments on the part of any of the parties hereto immediately upon Beneficiary’s succeeding to the interest of the lessor under the Lease; provided, however, that Lessee shall be under no obligation to direct its payment of rent to Beneficiary until Lessee receives written notice from Beneficiary to do so. Lessee may rely upon any such written notice received from Beneficiary and the payment of Rent to Beneficiary after receipt of such notice shall satisfy Lessee’s obligations therefore under the Lease.  The respective rights and obligations of Lessee and Beneficiary upon such attornment, to the extent of the then remaining balance of the term of the Lease and any such extension, shall be and are the same as now set forth therein, as modified hereby, it being the intention of the parties hereto for this purpose to incorporate the Lease in this Agreement by reference with the same force and effect as if set forth in full herein.

3.  If Beneficiary shall succeed to the interest of the landlord under the Lease, Beneficiary shall, subject to the last sentence of this Section 3, be bound to Lessee under all of the terms, covenants and conditions of the Lease; provided, however, that Beneficiary shall not be:

(a)  Liable for any act or omission of any prior lessor (including Lessor) or for any monetary damages incurred by Lessee in connection therewith or liable for any act or omission prior to Beneficiary’s succession to title; or

2

(b) Subject to any offsets, defenses or counterclaims which Lessee might have against any prior lessor (including Lessor) or accruing prior to Beneficiary’s succession to title; or

(c)  Bound by any rent, additional rent or advance rent which Lessee might have paid for more than the current month to any prior lessor(including Lessor) or prior to Beneficiary’s succession to title and all such rent shall remain due and owing notwithstanding such advance payment; or

(d)  Bound by any amendment or modification of the Lease made without its consent and written approval; or

(e)  Required to restore the building or otherwise perform the obligations of Lessor under the Lease in the event of a foreclosure of the Deed of Trust or acceptance by Beneficiary of a deed in lieu of foreclosure, in either instance if the building or the restoration obligations have not been fully completed prior to the foreclosure or acceptance, provided, that if the building or other obligations have not been performed by Beneficiary, the Tenant may give Beneficiary a notice that it will terminate the Lease, and Beneficiary may avoid such termination by written notice to Tenant that is agrees to restore or take such other action necessary to remedy such lack of restoration promptly.

Neither Wells Fargo nor any other party who, from time to time, shall be included in the definition of the term “Beneficiary” hereunder shall have any liability or responsibility under or pursuant to the terms of this Agreement after it ceases to own a fee interest in or to the Property.

4.  Subject to the terms of this Agreement (including, but not limited to, those in Section 2 hereof, the Lease and the terms thereof are, and shall at all times continue to be, subject and subordinate in each and every respect, to the Deed of Trust and the terms thereof, and to any and all renewals, modifications, extensions, substitutions, replacements and/or consolidations of the Deed of Trust.  Nothing herein contained shall be deemed or construed as limiting or restricting the enforcement by Beneficiary of any of the terms, covenants, provisions or remedies of the Deed of Trust or the Assignment of Rents, whether or not consistent with the Lease.

5.  The term “Beneficiary” shall be deemed to include Wells Fargo and all of its successors and assigns, including anyone who shall have succeeded to Lessor’s interest by, through or under judicial or power-of-sale foreclosure or other proceedings brought pursuant to the Deed of Trust, or deed in lieu of such foreclosure or proceedings, or otherwise.

6.  Lessor and Lessee represent and warrant to Beneficiary as follows: (a)that the Lease is presently in full force and effect and unmodified or changed; (b)that the term shall commence upon Substantial Completion of the Tenant Improvements as set forth in the Lease, and full rental will then accrue; (c) that all conditions required under the Lease that could have been satisfied as of the date hereof have been met; (d) that no rent under said Lease has been paid more than thirty

3

(30)days in advance of its due date; (e) that no default or event, which with the giving of notice, passage of time, or both, would constitute a default, exists under said Lease;(f) that the Lessee, as of this date, has no charge, lien or claim of offset under said Lease or otherwise, against rents or other charges due or to become due thereunder;(g) that the Lease constitutes the entire agreement between the parties and that Beneficiary shall have no liability or responsibility with respect to any security deposit of Lessee; (h) that the only persons, firms or corporations in possession of said leased premises or having any right to the possession or use of said premises(other than the record owner) are those holding under the Lease; and (i) that the Lessee has no right or interest in or under any contract, option or agreement involving the sale or transfer of the Demised Premises.

7.  In the absence of the prior written consent of Beneficiary, Lessee agrees not to do any of the following: (a) prepay the rent under the Lease for more than one (1) month in advance, (b) enter into any agreement with the Lessor to amend or modify the Lease, (c) voluntarily surrender the Demised Premises or terminate the Lease prior to the expiration date thereof set forth in the Lease, and (d) sublease or assign the Demised Premises.

8.  In the event Lessor shall fail to perform or observe any of the terms, conditions or agreements in the Lease, Lessee shall give written notice thereof to Beneficiary and Beneficiary shall have the right (but not the obligation) to cure such failure. Lessee shall not take any action with respect to such failure under the Lease, including, without limitation, any action in order to terminate, rescind or avoid the Lease or to withhold any rent thereunder, for a period of thirty (30) days after receipt of such written notice by Beneficiary; provided, however, that in the case of any default which cannot with diligence be cured within said 30-day period, if Beneficiary shall proceed promptly to cure such failure and thereafter prosecute the curing of such failure with diligence and continuity, the time within which such failure may be cured shall be extended for such period as may be necessary to complete the curing of such failure with diligence and continuity.

9.  So long as the Loan is outstanding, Lessee covenants to provide Beneficiary with all information, including, but not limited to evidence of payment of taxes and insurance (if Lessee is obligated for such payments under the Lease) to which the Lessor may be entitled under the Lease, at the times and in the manner as the same are provided to the Landlord.

10. So long as the Loan is outstanding, Beneficiary or its designee may enter upon the Property at all reasonable times to visit or inspect the Property and discuss the affairs, finances and accounts of Lessee applicable to the Property or the Lease at such reasonable times as Beneficiary or its designee may request.

11. Lessee hereby represents and warrants that the Lease and this Agreement have been duly authorized, executed and delivered by Lessee and constitute legal, valid and binding instruments, enforceable against Lessee in accordance with their respective terms, except as such terms may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally.

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12. This Agreement may not be modified orally or in any other manner than by an agreement in writing signed by the parties hereto and their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their successors and assigns. In the event of a conflict between the provisions of this Agreement and the provisions of the Lease, the provisions of this Agreement shall control.

13. This Agreement may be executed in several counterparts, and all so executed shall constitute one agreement, binding on all parties hereto, notwithstanding that all parties are not signatories to the original or the same counterpart.

14. All notices or other communications required or permitted to be given pursuant to the provisions hereof shall be in writing and shall be considered as properly given if mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested, or by delivering same in person to the intended addressee, or by prepaid telegram. Notice so given in person or by telegram shall be effective upon its deposit. Notice so given by mail shall be effective two (2) days after deposit in the United States mail. Notice given in any other manner shall be effective only if and when received by the addressee. For purposes of notice, the addresses of the parties shall be:

Lessor:	Minnesota Industrial Properties Limited Partnership
	c/o Ryan Companies US, Inc.
	50 South Tenth Street, Suite 300
	Minneapolis MN 55403-2012
Lessee:	Mocon, Inc.
	9300 75th Avenue North, Suite 100
	Brooklyn Park, MN 55428
Beneficiary:	Wells Fargo Bank, National Association
	Real Estate Group
	1750 H Street, NW, Suite 400,
	Washington, D.C. 20006
	Attention: Manager, Loan Administration Department
With a copy to:	Wells Fargo Bank Real Estate Group
	420 Montgomery Street
	San Francisco, California 94111
	Attention: Chief Credit Officer

provided, however, that any party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of thirty (30) days’ notice to the other parties in the manner set forth hereinabove.

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[Signatures on following page]

6

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

	LESSEE:
	MOCON, INC.,
	a Minnesota corporation
	By:	/s/ Darrell B. Lee
		Name:	Darrell B. Lee
		Title:	V.P. & CFO
STATE OF MINNESOTA	)	ss:
COUNTY OF HENNEPIN	)

I, a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Darrell B. Lee, who is personally well known to me as, or satisfactorily proven to be, the person named as Vice President of MOCON, INC., in the foregoing Non-Disturbance, Attornment, Estoppel and Subordination Agreement bearing date as of the 9th day of March, 2010, personally appeared before me in the said jurisdiction, and by virtue of the authority vested in him or her by said Agreement, acknowledged the same to be the act and deed of said organization, and delivered the same as such.

GIVEN under my hand and official seal this 9th day of March, 2010

/s/ Congcong Luo

Notary Public

My Commission Expires:  January 31, 2014

[SIGNATURES CONTINUED ON NEXT PAGE]

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		LESSOR:
		MINNESOTA INDUSTRIAL PROPERTIES LIMITED PARTNERSHIP,
		a Minnesota limited partnership
		By:  Minnesota Industrial Portfolio, LLC
		Its:  General Partner
		By:	EBREF Holding Company, LLC, a Delaware limited liability company, Manager
		By:	/s/ Mandi L. Wedin
			Mandi L. Wedin
			Vice President
STATE OF MARYLAND	)	ss:
COUNTY OF MONTGOMERY	)

This is to certify that Robert B. Bellinger, Manager of EBREF Holding Company, LLC, a Delaware limited liability company, , who is personally well known to me or who identified [himself] [herself] by exhibiting a current valid photo identification, to wit, [a                                                 drivers license, number                                          ,] [Mandi L. Wedin], personally appeared before me in the jurisdiction set forth above, on the day and year set forth below, and stated to me that [he][she] affixed [his] [her] signature on this page of the foregoing document voluntarily for the purposes set forth therein as Manager of EBREF Holding Company, LLC, as Manager of Minnesota Industrial Portfolio, LLC, as General Partner of Minnesota Industrial Portfolio, LLC, and that he was duly authorized to execute such document..

CERTIFIED this 10th day of March, 2010.

[PHOTOGRAPHICALLY

REPRODUCABLE SEAL]

/s/ Melissa Franklin

Notary Public

My Commission Expires:  August 18, 2013

[SIGNATURES CONTINUED ON NEXT PAGE]

8

	BENEFICIARY:
	WELLS FARGO BANK, NATIONAL ASSOCIATION
	By:	/s/ Liz C. Anderson
		Liz C. Anderson
		Vice President
DISTRICT OF COLUMBIA	) ss:

I, a Notary Public in and for the aforesaid jurisdiction, do hereby certify that Liz C. Anderson, who is personally well known to me as, or satisfactorily proven to be, the person named as Vice President of Wells Fargo Bank, National Association in the foregoing Non-Disturbance, Attornment, Estoppel and Subordination Agreement bearing date as of the         day of                      , 2010 personally appeared before me in the said jurisdiction, and being duly authorized, acknowledged the same to be the act and deed of Wells Fargo Bank, National Association, and delivered the same as such.

GIVEN under my hand and official seal this 11th day of March, 2010.

/s/ Diana Becerra

Notary Public

My Commission Expires:  August 14, 2013

9

EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY

10

EX-10.15

Exhibit 10.15

MOCON, INC.

DESCRIPTION OF NON-EMPLOYEE DIRECTOR
COMPENSATION ARRANGEMENTS

Retainer and Meeting Fees.    Each of the non-employee directors of MOCON, Inc. receives an annual retainer fee of $10,000, paid in equal quarterly installments, without regard to the number of board of directors or committee meetings held or attended by such director, along with an additional $500 for each board meeting or committee meeting attended in person or via telephone. The Chairman of the Audit Committee receives an additional annual retainer fee of $3,000, paid in equal quarterly installments.

Stock Options.    Non-employee directors are granted options to purchase shares of MOCON common stock from time to time in the sole discretion of the board of directors.

Director Retirement Plan.    Pursuant to the MOCON, Inc. Director Retirement Plan, a non-employee director who has served on the board of directors of MOCON for at least five years will, upon retirement, receive an amount equal to the annual retainer fee such director would have been entitled to receive during the fiscal year in which such director’s retirement occurs. This payment, however, will not be made to a director who, following his or her retirement, continues to serve as a consultant to MOCON or any of its subsidiaries. Any amount payable under this retirement plan will be paid as determined by the MOCON board of directors in its sole discretion following such director’s retirement.

Reimbursement of Expenses.    Non-employee directors are reimbursed for actual expenses incurred in attending board and committee meetings.

EX-10.16

Exhibit 10.16

MOCON, INC.

DESCRIPTION OF EXECUTIVE OFFICER

COMPENSATION ARRANGEMENTS

All of the employees of MOCON, Inc., including executive officers, are employed “at will” and do not have employment agreements with MOCON.  MOCON has, however, entered into a written Executive Severance Agreement, a form of which was filed as an exhibit to our Annual Report on Form 10-K for our fiscal year ended December 31, 2007, with five of our full-time executive officers, including each of our officers listed below.  The following is a description of oral compensation arrangements for 2010 between MOCON, Inc. and our executive officers who are listed as “named executive officers” in our proxy statement relating to our 2010 annual meeting of shareholders:

Name of Executive Officer	Title	Base Salary	Bonus Arrangements	Stock Options	Other
Robert L. Demorest	Chairman, President and Chief Executive Officer	$281,635 per year	See footnotes (1) and (2) below	Stock options to purchase shares of MOCON common stock are granted from time to time in the sole discretion of the Compensation Committee of the MOCON board of directors	Under the MOCON, Inc. Savings and Retirement Plan, participants, including executive officers, may voluntarily request that MOCON reduce pre-tax compensation by up to 75% (subject to certain special limitations) and contribute such amounts to a trust. MOCON contributed an amount equal to 50% of the first 6% of the amount that each participant contributed under this plan. MOCON provides an automobile for each of its full-time executive officers. Executive Officers generally receive 3-5 weeks vacation per year. MOCON employees, including its executive officers, are not compensated for unused vacation. Executive officers are reimbursed for expenses incurred in the ordinary course of business. Executive officers receive other benefits received by other MOCON employees, including health, dental and life insurance benefits.
Daniel W. Mayer	Executive Vice President	$212,676 per year	See footnotes (1) and (2) below	See above	See above
Darrell B. Lee	Vice President, Chief Financial Officer, Treasurer and Secretary	$157,073 per year	See footnotes (1) and (2) below	See above	See above

Name of Executive Officer	Title	Base Salary	Bonus Arrangements	Stock Options	Other
Douglas J. Lindemann	Vice President and General Manager	$181,317 per year	See footnotes (1) and (2) below	See above	See above
Robert E. Forsberg	President, Baseline-MOCON, Inc.	$148,361	See footnotes (1) and (2) below	See above	See above

(1)MOCON provides its executive officers and other employees a direct financial incentive to achieve MOCON’s annual profit goals through the MOCON, Inc. Incentive Pay Plan, which was established pursuant to resolutions of the Compensation Committee effective January 1, 2003 and filed as an exhibit to MOCON’s annual report on Form 10-K for the year ended December 31, 2002.  Under the Incentive Pay Plan, annual goals are measured by MOCON’s annual net income before income taxes and incentives for Mr. Demorest, Mr. Lee, Mr. Lindemann and Mr. Mayer, who have overall corporate responsibilities.  The Incentive Pay Plan contemplates that each year the Compensation Committee will establish goal amounts for MOCON’s executive officers and will determine the percentage of salary at goal for MOCON’s executive officers.  On December 31, 2009, the Compensation Committee established these goal amounts and determined these percentages.  Although the goal amounts are confidential, the 2010 percentages of salary at goal range from forty percent to sixty-five percent of 2010 base salary earned, at goal, with the actual incentive paid based on the percentage of goal achieved, up to a maximum of one hundred fifty percent.  The fiscal 2010 goals and percentages of salary were set forth in resolutions approved by the Compensation Committee and are not otherwise set forth in any written agreements between MOCON and the executive officers.  The following are the amounts paid to each of MOCON’s executive officers under the Incentive Pay Plan with respect to fiscal 2009:  Mr. Demorest: $117,849; Mr. Mayer: $54,718; Mr. Lee: $40,412, Mr. Lindemann: $52,459 and Mr. Forsberg: $2,280.  These amounts were paid in March 2010.

(2)On December 31, 2009, the Compensation Committee established individual special performance related bonus arrangements for Messrs. Demorest, Mayer, Lee, Lindemann and Forsberg to further motivate these individuals to attain certain company-related performance goals in addition to the profitability performance-related goals covered under MOCON’s Incentive Pay Plan.  While the specific performance goals remain confidential, the bonuses if paid will be in the form of an extra week of paid vacation and an all-expense paid trip for two, up to maximum amounts ranging from $10,000 to $13,000.  The terms of the fiscal 2010 special performance related bonuses were set forth in resolutions approved by the Compensation Committee and are not otherwise set forth in any written agreements between MOCON and the executive officers.

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF THE COMPANY

The following are wholly-owned subsidiaries of MOCON, Inc.:

Name of Entity	Jurisdiction of Organization
Microanalytics Instrumentation Corp.	Texas
Baseline-MOCON, Inc.	Colorado
Paul Lippke Handels-GmbH Prozess- und Laborsysteme	Germany
MOCON (Shanghai) Trading Co., Ltd.	China
MOCON Netherlands Holding B.V.	Netherlands

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

MOCON, Inc.:

We consent to the incorporation by reference in the registration statements (No. 333-58789, 333-90116 and 333-134413) on Form S-8 of MOCON, Inc. and subsidiaries of our report dated March 30, 2010, with respect to the consolidated balance sheets of MOCON, Inc. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows and the related financial statement schedule for each of the years in the three-year period ended December 31, 2009, which report appears in the December 31, 2009, annual report on Form 10-K of MOCON, Inc. and subsidiaries.

/s/ KPMG LLP

Minneapolis, Minnesota

March 30, 2010

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert L. Demorest, certify that:

1.      I have reviewed this Annual Report on Form 10-K of MOCON, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2010

/s/ Robert L. Demorest

Robert L. Demorest

Chief Executive Officer and President

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Darrell B. Lee, certify that:

1.      I have reviewed this Annual Report on Form 10-K of MOCON, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2010

/s/ Darrell B. Lee

Darrell B. Lee

Chief Financial Officer and Vice President

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of MOCON, Inc. on Form 10-K for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert L. Demorest, Chief Executive Officer of MOCON, Inc., hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of MOCON, Inc.

Date: March 30, 2010

/s/ Robert L. Demorest

Robert L. Demorest

Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of MOCON, Inc. on Form 10-K for the fiscal year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Darrell B. Lee, Chief Financial Officer of MOCON, Inc., hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that, to the best of my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of MOCON, Inc.

Date: March 30, 2010

/s/ Darrell B. Lee

Darrell B. Lee

Chief Financial Officer