LEASE AGREEMENT

 

between
 

Gilles Mazoyer
 
(the "Landlord")
 
and

Bemag Transformer Inc.

(the "Tenant")

 

for certain premises
 
located at
 
33 Racine Street,
City of Farnham, Province of Québec, J2N 3A3
 

 
Lease Agt - Farnham
PIONEER- BEMAG/VERMONT NIS Client ID 543450-3
Document# 1962156v8
Drafted: June 29, 2011
 
 
 

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TABLE OF CONTENTS

Page
ARTICLE I DEFINITIONS, INTENT AND INTERPRETATION
1
 
1.1
Definitions
1
 
1.2
Freely Negotiated
4
       
ARTICLE II LEASE
4
 
2.1
Lease of Premises
4
       
ARTICLE Ill TERM
4
 
3.1
Term
4
 
3.2
Option to Extend
4
       
ARTICLE IV RENT
5
 
4.1
Base Rent
5
 
4.2
Additional Rent
 5
 
4.3
Operating Expense Estimate
 5
 
4.4
Records
6
 
4.5
Business Taxes
6
 
4.6
Sales and Services Tax
6
               
ARTICLE V UTILITIES AND HEATING, VENTILATION AND AIR-CONDITIONING
6
 
5.1
Utilities
6
 
5.2
Building Systems
7
       
  ARTICLE VI USE OF BUILDING
7
 
6.1
Use of the Premises
7
 
6.2
Environmental Indemnification
7
       
ARTICLE VII MAINTENANCE, REPAIRS AND ALTERATIONS
8
 
7.1
Maintenance and Repairs by the Tenant
8
 
7.2
Tenant's Major Work
8
 
7.3
Maintenance and Repairs by the Landlord
9
 
7.4
Right of Inspection
9
 
7.5
Surrender of the Premises
9
 
7.6
Standard of Maintenance
10
       
ARTICLE VIII INSURANCE AND INDEMNITY
10
 
8.1
Tenant's Insurance
10
 
8.2
Terms and Conditions of the Tenant's Insurance
10
 
8.3
Landlord's Insurance
11

 
 
 

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ARTICLE IX DAMAGE, DESTRUCTION AND EXPROPRIATION
12
 
9.1
Destruction of Premises
12
 
9.2
Determination of Damage or Destruction
12
 
9.3
Expropriation
13
               
ARTICLE X SUB-LET AND ASSIGNMENT
13
 
10.1
Consent to Sub-let or Assign
13
 
10.2
Permitted Transferee
13
               
ARTICLE XI DEFAULT AND TERMINATION
14
 
11.1
Events of Default
14
 
11.2
Re-entry
14
       
ARTICLE XII NOTICE
15
       
ARTICLE XIII MISCELLANEOUS
16
 
13.1
No Tacit Renewal
16
 
13.2
Entire  Agreement
16
 
13.3
Waiver
16
 
13.4
Liability
16
 
13.5
Governing Law and Severability
16
 
13.6
Successors and Assigns
17
 
13.7
Headings  and Numbers
17
 
13.8
Interpretation
17
 
13.9
Registration of the Lease
17
 
13.10
Election of Domicile
17
 
13.11
Language
17
       
SCHEDULE "A" PLAN OF THE PREMISES
19
       
SCHEDULE "B" INSURANCE CERTIFICATE
20
       
SCHEDULE "C" TENANT'S RESOLUTION
21

 
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THIS LEASE made in the City of Montreal, Province of Quebec, as of the 1st day
of July, 2011.

BETWEEN:
GILLES MAZOYER, businessman, domiciled at 423 ch. Priest, in the City of Sutton,
Province of Québec, JOE 2KO,
 
(hereinafter referred to as the "Landlord")
 
PARTY OF THE FIRST PART

 

AND:
BEMAG TRANSFORMER INC., a corporation duly Incorporated according to law, having
its head Office at 33 Racine Street, in the City of Farnham, Province of Québec,
J2N 3A3,
 
(hereinafter referred to as the "Tenant")
 
PARTY OF THE SECOND PART

 
 
 
WHEREAS the Landlord is the owner of the Building (as defined below);
 
WHEREAS the Building is situated on lot SIX HUNDRED AND TWENTY-NINE {629) of the
official Cadastre of Ville de Farnham of the Registration Division of Missisquoi
(the "Land");

NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
 
ARTICLE I
 
DEFINITIONS, INTENT AND INTERPRETATION
 

1.1           Definitions
 

When used in this Lease, the following words or expressions have the meanings
hereinafter set forth:
 
1.1.1
"Additional Rent" means collectively  the Operating Expenses and the Taxes;

 

1.1.2
"Bankruptcy Act" means the Bankruptcy  and Insolvency Act, (Canada), as
amended  or replaced from time  to time;

 

1.1.3
"Base Rent" has the meaning ascribed thereto in Section 4.1;

 

1.1.4
"Building Systems" has the meaning ascribed thereto in Section 5.2;

 
 
 

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1.1.5
"Building" means the  building, situated  on the  Land, bearing  civic address
33 Racine Street, in the  City of  Farnham, Province of Quebec, J2N 3A3,
with  all improvements, equipment  and facilities thereon erected or situated
from time to time;

 
1.1.6
"Business" means the designing, producing  and selling  of  medium  and high
voltage transformers and line reactors and such other business as the Tenant may
operate from time to time in the Premises;

 
1.1.7
"Civil Code" means the Civil Code of Quebec, as amended from time to time;

 
1.1.8
"Commencement Date" has the meaning ascribed thereto in Section 3.1;

 
1.1.9
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands) ,ground waters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource, and all sewer systems;

 
1.1.10
"Environmental Laws" means any and all applicable federal, provincial,
municipal, or local laws in force from time to time pertaining to the
Environment, Hazardous Substances, pollution or protection of the Environment,
and public and occupational health and safety including, without limitation,
environmental laws, by-laws, rules, regulations, orders, decrees, codes or
policies, rules and guidelines which, although not actually having the force of
law, are considered by any competent governmental authorities as requiring
compliance as if having the force of law, relating to: (i) on-site or off-site
contamination; (ii) chemical substances or products; (iii) Release of Hazardous
Substances into the Environment; (iv) the manufacture, processing, use,
treatment, storage, transport, packaging, labeling, recycling, disposal
destruction, incineration, burial, or handling of Hazardous Substances; and (v)
any preventive measures and Remedial Action;

 
1.1.11
"Event Date" has the meaning ascribed thereto·in Section 9.1;

 
1.1.12
"Event of Default" has the meaning ascribed to it in Section 11.1;

 
1.1.13
"Extension Period" has the meaning ascribed to it in Section 3.2

 
1.1.14
"Gross Rentable Area'' means FIFTY-TWO THOUSAND (52,000) square feet comprised
of THIRTY THOUSAND (30,000) square feet of ground floor space and TWENTY-TWO
THOUSAND {22,000) square feet of mezzanine space;

 
1.1.15
"GST" means federal Goods and Services Tax;

 
1.1.16
"Hazardous Substances" means all pollutants, contaminants, chemicals or wastes
that pose a risk to human health or the Environment, or any other carcinogenic,
mutagenic, ignitable, corrosive, reactive, toxic, infectious, hazardous
substances or material (whether solid, liquid or gaseous) including, without
limitation, asbestos, petroleum and petroleum based products, urea formaldehyde,
polychlorinated biphenyls and bioaerosols;

 
 
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1.1.17
"Hypothecary Creditor" means any Person who is the beneficiary of a hypothec
affecting the Building or any part thereof;

 
1.1.18
"Land" means lot number SIX HUNDRED TWENTY-NINE (629) of the official cadastre
of the City of Farnham, Division of Missisquoi;

 
1.1.19
"Lease" means this agreement of lease;

 
1.1.20
"Lease Year" means, July 1st to June 30th of each year of the Term;

 
1.1.21
"Operating Expenses" means and includes all costs of cleaning, repairing,
maintaining and insuring the Property, the costs for the maintenance, repairs
and replacements of capital expenditure nature and of the Structure;

 
1.1.22
"Option to Extend" has the meaning ascribed thereto in Section 3.2;

 
1.1.23
"Premises" means the Building and the Land;

 
1.1.24
"QST" means Quebec Sales Tax;

 
1.1.25
"Release" means any sudden, intermittent or gradual release, spill, leak,
pumping, addition, pouring, emission, emptying, discharge, injection, escape,
leaching, migrating, disposal, dumping, deposit, spraying, burial, abandonment,
incineration or seepage, whether accidental or intentional;

 
1.1.26
"Remedial Action" means any action required under Environment Laws to (i) clean
up, remove, treat or in any other way deal with Hazardous Substances in the
Environment; (ii) prevent any Release of Hazardous Substances where such Release
would constitute a violation of Environmental Laws; or (iii) perform remedial
studies, investigations, restoration and post-remedial studies, investigations
and monitoring on, about or in connection with the Property;

 
1.1.27
"Sales Tax" means GST and QST with respect to any amount payable by the Tenant
to the Landlord under this Lease;

 
1.1.28
"Structural" means relating to the Structure;

 
1.1.29
"Structure" means, the foundations, structural steel, columns and beams,
supports, bearing walls, weather walls, exterior walls and assemblies, cement
floors, subfloors and the roof (including membrane and surface covering), and
parts of the central, mechanical, plumbing and electrical systems which are in
the cement floor, within the concrete, support or cinderblock walls or in the
structural or cement ceilings;

 
 
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1.1.30
"Taxes" means all real estate, municipal,  school, water  taxes and garbage
collection taxes payable in relation to the Premises;

 
1.1.31
"Term" has the meaning ascribed thereto in Section 3.1;

 
1.1.32
"Utilities" means electricity (including, subject to the provisions of Section
5.1, any emergency electricity service), gas, water, fuel, steam, power and all
other utilities consumed in any part of the Premises and for any exterior
lighting.

 
1.2
Freely Negotiated

 
Each party  acknowledges  that  it has had  the  opportunity
to  consult  with  legal counsel in connection with  the negotiation and
execution  of this Lease. Each of them acknowledges that all provisions of this
Lease have been freely  and fully  discussed and negotiated  and that  this
Lease does not constitute a contract of adhesion.
 
ARTICLE II
 
LEASE

2.1
Lease of Premises

 
The Landlord hereby leases to the Tenant, and the Tenant hereby leases from the
Landlord, the Premises, on a net net basis.
 
ARTICLE III
 
TERM

3.1
Term

 
Unless sooner terminated or extended pursuant to any other provision hereof the
Term shall commence on July 1, 2011 (the "Commencement Date") and shall
terminate on June 30, 2014, unless the Tenant exercises its Option to Extend, in
which case the Term will expire on June 30, 2016.

 
3.2
Option to Extend

 
If not in default under the terms of this Lease, the Tenant shall have the
right, exercisable by written notice to the Landlord not less than SIX (6)
months before the expiry of the Term (the "Tenant's Notice"), to extend the Term
of the Lease (the "Option to Extend") for a further period of TWO (2) years (the
"Extension Period"). Should the Tenant exercise said option to extend the Term,
this Lease shall be extended to the end of the Extension Period upon the same
terms and conditions as contained in this Lease, save and except (i) for the
Base Rent which shall be increased by the annual increase in CPI between the
third and fourth year of the Term and between the fourth and the fifth year of
the Term and (ii) there will be no further right to extend or renew the
Extension Period.
 
 
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ARTICLE IV RENT
 
4.1           Base Rent
 
The Tenant covenants and agrees to pay, without set off or abatement, in
advance, on the first (1st) day of each month during the Term, from and after
the Commencement Date, to the Landlord at the address mentioned in Article XII,
a base rent of four dollars and fifty cents ($4.50) per square foot of the Gross
Rentable Area being a total of one hundred thirty-five thousand dollars
($135,000) per annum (the "Base Rent") payable in equal consecutive monthly
installments of eleven thousand two hundred fifty dollars ($11,250) plus Sales
Tax, without demand, set-off, abatement, deduction or compensation.
 
4.2 Additional Rent
 
In addition to the Base Rent, the Tenant covenants and agrees to pay in advance,
on the first (1st) day of each month during the Term, from and after the
Commencement Date, to the Landlord, the Additional Rent provided for as follows,
without demand, set-off, abatement, deduction or compensation, except as set out
elsewhere in this Lease or if the Tenant is deprived of peaceable enjoyment of
the Premises:
 
4.2.1
an amount  equal to  one twelfth (1/12)  of  the Taxes payable  during  each
year of the Term; and

 
4.2.2
an amount  equal to one twelfth (1/12)  of the  estimated  Operating  Expenses
for each Lease Year.

 
4.3           Operating Expense Estimate
 
Prior to the commencement of each Lease Year, the Landlord shall estimate the
amount of Operating Expenses for such Lease Year and notify the Tenant in
writing of such estimate, providing reasonable details as to the breakdown and
calculation thereof. The estimate may not exceed the Operating Expenses for the
previous year by more than ten percent (10%). As soon as practicable during each
Lease Year, the Landlord shall provide the Tenant with reasonable evidence of
the amount of Taxes payable by the Tenant and the monthly installments of
Additional Rent shall be adjusted accordingly. For the first (1st) Lease Year,
the total Operating Expenses are estimated to be ten thousand dollars ($10,000),
plus the cost of insuring the Building which is estimated to be fourteen
thousand five hundred dollars ($14,500), payable in equal consecutive
installments of one thousand two hundred eight dollars and thirty-three cents
($1,208.33). The Landlord warrants that the type of coverage and amounts of the
insurance on the Building during the Term will be substantially the same as the
type of coverage and amounts of insurance that were in place during the twelve
(12) month preceding the Commencement Date. For the first (15t) lease Year, the
Taxes are twenty-seven thousand dollars ($27,000), subject to adjustment once
the landlord receives the Tax bills from the City of Farnham for the 2012
calendar year, payable in equal consecutive monthly installments of two thousand
two hundred fifty dollars ($2,250).
 
 
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Within  SIXTY (60) days after the expiration  of each lease  Year, the landlord
shall make a final determination of Operating Expenses based on the actual costs
incurred, and shall so notify  the Tenant, providing copies of invoices and
sufficient  details as to the breakdown  and calculation so that  the Tenant may
verify the  landlord's determination. If there has been a shortfall, the Tenant
shall pay to the landlord the amount  of such shortfall  within  thirty  (30)
days of delivery of the landlord's Notice. Any overpayment may be paid by the
landlord, without interest, to the Tenant without interest within THIRTY (30)
days after delivery of the landlord's notice.
 
4.4
Records

 
The landlord shall keep accurate and proper  records of all costs, expenses and
disbursements with  regard  to  the  Taxes and operating Expenses for  a
period  of three  (3) years and shall provide  copies thereof  to the Tenant, if
required  by the Tenant. Payment by the Tenant shall not  prejudice  the
Tenant's  right  to  claim and recover  from  the  landlord any amount  paid in
excess of the amount actually due to the landlord, or any other right or remedy
available to the Tenant.
 
4.5
Business Taxes

 
The Tenant shall pay to the  competent authority, as and when  due, all business
taxes which may be levied or imposed upon the Premises or upon the business
carried on therein or which may be payable by the Tenant as tenant or occupant
thereof.
 
4.6
Sales and Services Tax

 
The Tenant shall pay to the landlord all Sales Taxes calculated in accordance
with  applicable legislation.
 
ARTICLE V
 
UTILITIES AND HEATING, VENTILATION AND AIR-CONDITIONING
 
5.1
Utilities

 
During the Term, the Tenant shall pay directly  to  each
relevant  Utility  company  all costs of Utilities used or consumed in or with
respect to the Property.

 
 
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5.2         Building Systems
 
The Tenant shall repair and maintain at its cost, when necessary, the systems of
the Building, including without limitation the heating, ventilating and air
conditioning system and all plumbing, mechanical, electrical and environmental
systems (collectively called the “Building Systems") which are not part of the
Structure. The Tenant shall maintain the Building Systems so that they continue
to conform to specifications determined and approved by the Landlord, acting
reasonably, but shall be appropriate for the Tenant's operations and intended
use of the Premises and shall be maintained by the Tenant in good working order.
The Landlord warrants that at the Commencement Date, all of the Building Systems
conform to the Landlord's specifications and are in good working order and do
not require any repair or replacement.
 
ARTICLE VI
 
USE OF BUILDING
 
6.1         Use of the Premises
 
The Premises shall be used for manufacturing, assembly, storage, research and
development, offices, warehousing, parking spaces and for any ancillary
operations  and for any other purpose permitted by applicable law in compliance
with law and municipal by-laws.
 
The Landlord hereby declares and warrants  that the Premises can be used for the
purpose  for which they  are being used on the Commencement Date and that  they
have been used for the purposes of operating the Business for at least the last
ten (10) years.
 
6.2          Environmental Indemnification
 
6.2.1
The Tenant shall be responsible for and shall indemnify the Landlord from any
and all loss, liability, prosecution, order, claim, demand, notice, action,
judgment, damage, fine or expenses (including cost of investigation and defense,
legal and other professional fees and expenses, interest and penalties and any
failure (collectively, the “Damages") directly resulting from or related to any
and all environmental conditions it causes subsequent to the Commencement Date,
including without limitation any failure by the Tenant or its officers,
directors or employees to comply with applicable Environmental Laws, except
those environmental conditions existing in whole or in part on the Commencement
Date, whether or not known at such time, and affecting the Property.

 
6.2.2
Notwithstanding any provision of this Lease to the contrary, including without
limitation the obligation of the Tenant to indemnify pursuant to Section 6.2.1
of this Lease, the Landlord acknowledges, agrees and undertakes that, if, as a
result of any non­ compliance with Environmental Laws respecting the Premises,
the cause of which arose prior to the Commencement Date, the Tenant is or is
likely to be required under Environmental Law or by any governmental authority
to take any remedial action with respect to such non-compliance, the Landlord
shall, with the prior approval of the Tenant (except if required by law), do
what is necessary, at its sole cost and expense, to ensure that such remedial
action is carried out as soon as is reasonably possible (but in any event within
the time limits prescribed by applicable law including without limitation any
and all Environmental Laws) and in accordance with all applicable laws,
including without limitation any and all Environmental Laws.

 
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6.2.3
Notwithstanding any provision of this Lease to the contrary, including without
limitation the obligation of the Tenant to indemnify pursuant to Section 6.2.1
of this Lease, the Tenant acknowledges, agrees and undertakes that, if, as a
result of any non-compliance with Environmental Laws respecting the Premises,
arising after the Commencement Date, the Landlord is or is likely to be required
under Environmental Law or by any governmental authority to take any remedial
action with respect to such non­ compliance, the Tenant shall, with the prior
approval of the Landlord (except if required by law), do what is necessary, at
its sole cost and expense, to ensure that such remedial action is carried out as
soon as is reasonably possible (but in any event within the time limits
prescribed by applicable law including without limitation anyand all
Environmental Laws) and in accordance with all applicable laws, including
without limitation any and all Environmental Laws.

 
ARTICLE VII
 
MAINTENANCE, REPAIRS AND ALTERATIONS

 
7.1         Maintenance and Repairs by the Tenant
 
The Tenant shall also be responsible, at its cost, for the maintenance of the
interior of the Building to keep it in a good state of cleanliness, a state
similar to what it is at the Commencement Date, reasonable wear and tear
excepted.
 
7.2 Tenant's Major Work
 
The Tenant shall not, without obtaining the Landlord's prior written approval,
not to be unreasonably withheld or delayed, make any alteration, replacement,
change, improvement or major repair in or to the Premises in excess of fifty
thousand dollars ($50,000) (collectively, the "Tenant's Major Work") during the
Term and any extension or renewal thereof. The Landlord may request detailed
plans and specifications from the Tenant if the Tenant's Major Work affects the
structure of the Building.
 
The Landlord shall not be liable for the payment of any expenditures, or for
work or material related to the Tenant's Major Work. All of the Tenant's Major
Work is at the Tenant's expense and the Tenant is solely and fully liable to the
contractors for material furnished and for work executed, and for the supplying
of services and materials. If a privilege or any other charge is registered
against the Premises because of an action or an omission on the part of the
Tenant, the Tenant shall at its expense have such privilege or charge discharged
and cancelled immediately.

 
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During the Tenant's Major Work, the Landlord, its employees and agents may enter
the Premises during normal business hours upon reasonable prior notice to
examine the Tenant's Major Work, the whole provided that such inspections shall
not interfere with the Tenant's operations.
 
7.3           Maintenance and Repairs by the Landlord
 
Notwithstanding anything to the contrary contained herein, the Landlord shall be
solely responsible, at its sole cost and expense, for all maintenance, repairs
and replacements of the Structure, of the Premises and to make all repairs of a
capital expenditure nature.
 
The Landlord shall make all necessary maintenance, repairs and replacements to
the extent required to keep the Structure in a state of good repair and
maintenance in accordance with the standards for a similar industrial buildings
in the City of Farnham.
 
Should the Landlord need to effect any repairs or replacement to the Structure,
the Landlord shall send to the Tenant a prior written notice of at least fifteen
(15) business days, (or at any time during an emergency), and shall proceed with
the works diligently and shall minimize interference with the Tenant's
operations within the Premises and the Tenant's quiet enjoyment of the Premises.
 
7.4           Right of Inspection
 
During the Term, the Landlord, its employees and agents may enter the Premises
provided the Landlord has given to the Tenant prior written notice of at least
seven (7) days, during normal business hours, or in the case of emergency, at
any time, to examine the state of repair of the Premises and the equipment,
fixtures and improvements therein, the whole provided that such inspections or
work shall not interfere with the Tenant's operations and to make such
alterations or repairs as the Landlord shall deem necessary acting reasonably
for the safety or preservation or proper administration or improvement of the
Premises. All lack of repair and maintenance found upon such examination and for
which the Tenant is responsible pursuant to this Lease shall, within thirty (30)
days after written notice to the Tenant, be properly and sufficiently repaired
by the Tenant, to the extent possible in the reasonable opinion of the Tenant.
 
7.5           Surrender of the Premises
 
Subject to Section 7.2 hereof, at the expiration of the Term or earlier
termination of this Lease, the Tenant will surrender the Premises in a condition
and state of repair substantially equivalent to the one existing on the
Commencement Date, except for reasonable wear and tear and except for repair
which is the responsibility of the Landlord hereunder. The Tenant will surrender
all keys for the Premises to the Landlord at the place then fixed for the
payment of Rent and will inform the Landlord of all combinations of locks, safes
and vaults, if any, in the Premises. Notwithstanding anything to the contrary
contained in this Lease, the Tenant shall be entitled, at its option, at the
expiration of the Term or earlier termination of this Lease, to remove from the
Premises any of its equipment, machinery, improvements, fixtures or
installations (even if same have been permanently affixed to the Building),
provided the Tenant repair any damages cause by such removal which shall be to
the Landlord's satisfaction (provided that the Tenant not be required to expend
more than what is commercially reasonable in the circumstances), normal wear and
tear excepted.
 
 
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7.6         Standard of Maintenance
 
Notwithstanding any other provision of this Lease, the Tenant shall not be
obliged to keep the Premises in a condition better than the condition it was
kept prior to the Commencement Date.
 
ARTICLE VIII
 
INSURANCE AND INDEMNITY
 
8.1         Tenant's Insurance
 
The Tenant shall, throughout the Term, at its sole cost and expense, take out
and keep in full force and affect the following insurance with reputable
insurers:
 
8.1.1
"all-risk" tenant insurance, including the perils of flood and fire, upon
property of every kind and description owned by the Tenant, or for which the
Tenant is legally liable, or installed by or on behalf of the Tenant and which
is located within the Premises, in amounts not less than the full replacement
cost, in each case, thereof;

 
8.1.2
comprehensive general liability insurance including but not limited to personal
injury liability, contractual liability, contingent employer's liability,
non-owned automobile liability and owners' and contractors' protective insurance
coverage with respect to the Premises, to the business carried on, in or from
the Premises and to the Tenant's use of the Premises, coverage to include the
activities and operations conducted by the Tenant and any other person on the
Premises and by the Tenant and any other person performing work on behalf of the
Tenant and those for whom the Tenant is in law responsible in any other part of
the Building. Such policies shall be issued for the global amount as would a
prudent tenant of similar premises in the Farnham real estate market would take
out and maintain for each occurrence involving bodily injury, death or property
damage.

 
8.1.3
any other  insurance  which may be required from  time  to time  by the
Landlord, acting
reasonably,   in  accordance  with   Farnham  real  estate   market   standards  for  similar
buildings.

 
8.2          Terms and Conditions of the Tenant's Insurance
 
Each insurance  policy  referred to in Section 8.1 shall name the  Landlord  as
additional  named insured  as its interest  may appear  and shall contain  a
waiver  of any subrogation  rights which the Tenant's insurers may have against
the Landlord.  The Tenant agrees to take all measures necessary in order
that  any amount  received as compensation  for a claim under "all risk" and
comprehensive  general liability  insurance be preferentially applied to the
repair of the damage that the Building or the Landlord may have suffered.  The
Tenant agrees that the certificate  of insurance  will  be
delivered  to  the  Landlord  as soon as practicable  after  the  issuance
of  the required  insurance but no later than on the Commencement Date.
 
 
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The Tenant agrees that certificates of insurance will be delivered to the
Landlord within fifteen (15) days from the Landlord's request.

 
8.3
Landlord's Insurance

 
 
The  Landlord  shall, throughout the  Term,
take  out  and  keep  in  full  force  and  effect  the following insurance with
reputable  insurers reasonably acceptable to the Tenant:

 
8.3.1
"all-risk" insurance, including the perils of fire, upon the Premises, in
amounts not less than the full replacement cost thereof; and

 
8.3.2
comprehensive general liability insurance including but not limited to personal
injury liability, contractual liability, contingent employer's liability,
worker's compensation liability, non-owned automobile liability and owners' and
contractors' protective insurance coverage with respect to the Premises, to the
business carried on, in or from the Premises and to the Landlord's use of the
Premises, coverage to include the activities and operations conducted by the
Landlord and any other person in, on or other Premises and by the Landlord and
any other person performing work on behalf of the Landlord and those for whom
the Landlord is in law responsible in any other part of the Property. Such
policies shall be issued for the global amount of not less than two million
dollars ($2,000,000) for each occurrence involving bodily injury, death or
property damage.

 
Each insurance  policy  referred to  in Section 8.3 shall name  the  Tenant  as
additional  named insured as its interest  may appear and shall contain  a
waiver  of any subrogation  rights which the Landlord's insurers may have
against the Tenant, its shareholders, directors and employees. The Landlord
agrees to take all measures necessary in order  that  any amount  received as
compensation  for a claim under "all risk" and comprehensive general
liability  insurance be preferentially applied to the repair of the damage that
the Building or that the Tenant may have suffered.   The Landlord agrees
that  the certificate  of insurance  will be delivered to the Tenant as soon as
practicable  after  the  issuance of the  required  insurance  but  no
later  than  on the Commencement Date.

 
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ARTICLE IX
 
DAMAGE, DESTRUCTION AND EXPROPRIATION
 

9.1         Destruction of Premises
 
Should the Premises be destroyed or damaged:
 
9.1.1
Damage which cannot be repaired within ninety (90) days - if the Landlord,
acting reasonably and taking into consideration the nature of the Business, is
of the opinion that the damage or destruction is such as to render the Premises
wholly unfit for occupancy, or that their utilization is impossible or
hazardous, and if in either case the Landlord acting reasonably is of the
opinion that the damage cannot be repaired with reasonable diligence within
ninety (90) days following the date of the damage or destruction (the "Event
Date"). The Tenant may, within fifteen (15) days following the giving of this
notice, terminate this Lease by notice to the Landlord to that effect, in which
case this Lease shall terminate on the Event Date and the Rent shall be
calculated and paid in full to the Event Date. In the event that the Tenant does
not terminate this Lease, the Rent shall abate from the Event Date until thirty
(30) days after the date on which the Premises have been repaired by the
Landlord to the extent that they are ready for the Tenant to install its
fixtures, machinery, equipment and installations;

 
9.1.2
Damage which can be repaired within ninety (90) days - if the Landlord, acting
reasonably and taking into consideration the nature of the Business, is of the
opinion that the damage or destruction is such as to render the Premises wholly
unfit for occupancy, or that their utilization is impossible or hazardous, and
if in either case the Landlord acting reasonably is of the opinion that the
damage may be repaired by the Landlord with reasonable diligence within ninety
(90) days following the Event Date, the Landlord shall send a written notice to
that effect to the Tenant within fifteen (15) days following the Event Date and
the Landlord shall carry out the necessary repairs to the Premises and the Rent
shall abate from the Event Date until thirty (30) days after the date on which
the Premises have been repaired to the extent that they are ready for the Tenant
to install its fixtures, machinery, equipment and installations.If the Landlord,
acting reasonably and taking into consideration the nature of the Business, is
of the opinion that the damage can be repaired as mentioned hereinbefore within
ninety (90) days following the Event Date that the nature of the damage is such
as to render the Premises only partially unfit for occupancy, the Rent shall,
until the damage has been repaired, be reduced in the proportion that the part
of the Premises rendered unfit for occupancy bears to the total area of the
Premises by the Landlord.

 
9.2          Determination of Damage or Destruction
 
In the event that the Tenant, acting reasonably, disagrees with the opinion of
the Landlord under Section 9.1above, the Tenant may, at its own cost and
expense, retain a qualified expert to determine whether the opinion of the
Landlord is reasonable given the nature of the Business and the damage or
destruction that occurred, in which event the determination of such expert shall
be final and binding on the Landlord and the Tenant.
 
 
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9.3         Expropriation
 
In the  case of an expropriation or of a taking of possession
(“Expropriation")  by a competent authority which, according to the  Landlord or
the Tenant both  acting reasonably, renders  the Building  or the Premises
unusable, the Landlord or the Tenant may terminate this Lease from the date of
the Expropriation by way of a written notice to the other  party.  The Landlord
shall promptly advise the Tenant in writing on becoming aware of any such
Expropriation receiving notice thereof.   Both  the  Landlord  and
the  Tenant  agree to  co-operate  with  each other  in respect  of any
expropriation of all or any part of the Premises, so that  each may receive the
maximum  award to which each is entitled  by law.
 
ARTICLE X
 
SUB-LET AND ASSIGNMENT
 
10.1         Consent to Sub-let or Assign
 
The Tenant shall have the  right  to assign or transfer  this Lease or sublet
the  Premises or any part  thereof or  allow  the  Premises or  any
part  thereof to  be used or  occupied  by  another (individually and
collectively,  a "Transfer"), provided  in all cases that  the Tenant
obtains  the prior  written consent of the Landlord, which shall not be
unreasonably  withheld or delayed.
 
10.2         Permitted Transferee
 
Notwithstanding anything to the contrary contained herein or in the Lease, the
Tenant will have the right to sublet the whole or any part of the Leased
Premises, or to assign the Lease without the Landlord's consent to:
 
10.2.1
any parent, affiliate (as such term is defined in the  Canada Business
Corporations Act) or subsidiary of the Tenant; or

 
10.2.2
a  corporation  formed    by  the   Tenant   and   another(s)   as  a  result   of   a  merger,
amalgamation  or any other bona fide corporate reorganization; or

 
10.2.3
a company whose shares are listed in a. recognized stock exchange; or

 
10.2.4
any person  who  acquires  all or substantially all of the  Tenant's  assets
situated  in the Premises whether directly or indirectly.

 
Notwithstanding the preceding, with respect to  Sections 10.2.1 and 10.2.2, the
Tenant is not discharged from its primary  duty as principal debtor  under the
Lease for the rest of the Term.
 
 
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ARTICLE XI
 
DEFAULT AND TERMINATION

11.1         Events of Default
 
Each of  the  following  events  (hereinafter called  an "Event of
Default")  shall be  a  default hereunder  by the Tenant and a breach of this
Lease:
 
11.1.1
if the Tenant fails to pay any rent payable or any amount  due pursuant to this
Lease as and when the same become  payable and such default  remains  uncured
ten (10) days following receipt by the Tenant of a written notice from the
Landlord; or

 
11.1.2
if the Tenant is in default in fulfilling any other term, condition or
obligation  of this Lease and the default is not cured within  thirty (30} days
of written notice of such default from the  Landlord or such longer
period  being necessary to cure such default  provided  it is being remedied
diligently  and expeditiously; or

 
11.1.3
if  the  Tenant or any person  occupying  the  Premises files  any proposal  or
makes any assignment for the benefit  of creditors  or any arrangement or
compromise  or becomes bankrupt  or insolvent  or takes the benefit  of or
becomes subject to any legislation that may be in force relating to bankrupt  or
insolvent debtors; or

 
11.1.4
if any application  or petition or certificate or order is made or granted for
the winding­ up  or  dissolution  or  liquidation of  the  Tenant  or
its  assets, voluntarily or  otherwise (other  than a voluntary  liquidation or
dissolution in the context  of an internal  corporate reorganization) and
remains undischarged after a period of fifteen  (15) days; or

 
11.1.5
if a writ  of  execution  is issued  against  the  goods  or  property
of  the  Tenant  in  the Premises or against this Lease and remains
uncontested  within the delay permitted by law and/or the writ is not cancelled
within thirty (30} days after its issuance; or

 
11.1.6
if a receiver or a sequestrator  is appointed  for all or any portion of the
Tenant1 S property and such appointment remains undischarged after a period of
fifteen (15) days.

 
11.2         Re-entry
 
Upon the occurrence of an Event of Default, the Landlord may, without
prejudice  to any other right  of  the  Landlord  hereunder or  by  law, as
the  case may  be, enter  and  repossess the Premises in accordance
with  applicable  law, the whole  without the Landlord being considered guilty
of trespassing or become subject to any prosecution.
 
 
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ARTICLE XII
 
NOTICE

Any notice, consent, approval, demand, request or other instrument which may or
is required to be given under this Lease shall be in writing and deemed to have
been legally delivered if it is delivered  in person or by e-mail or, in the
case of a default hereunder, by bailiff, and shall be addressed:
 
 
To the Landlord:
 
Mr. Gilles Mazoyer

 
423 ch. Priest

 
Sutton, Quebec JOE 2KO
 
Fax: •

 
 
To the Tenant:
 
Bemag Transformer Inc.

 
33 Racine Street

 
Farnham, Quebec H2N 3A3

 
 
Attention: •
Fax:  •

 
 
With a copy to:
 
Pioneer Power Solutions Inc.

 
400 Kelby Street, gth  Floor

 
Fort Lee, NJ 07024

 
USA
 
Attention: Mr. Nathan Mazurek
Fax: •

 

or  at such other  place as either  party  may  designate  to  the  other  in
the  manner  provided hereinbefore.
 
Any  notice  sent  by  e-mail  shall
be  deemed  to  have  been  given  and  received  on  the  day following the
date of transmission.   Any notice  given in person or by bailiff  shall be
deemed to have been given the day of its delivery.

Any notice  of default  shall be sent on the  same day by bailiff  as well as by
e-mail, and such notice of default  shall be deemed to have been given on the
date of delivery by bailiff.

 
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ARTICLE XIII
 
MISCELLANEOUS
 
13.1
No Tacit Renewal

 
Notwithstanding the provisions of the Civil Code, there shall be no tacit
renewal of this Lease. Should the Tenant remain in possession of the Premises
after the expiration of the Term or of any renewal thereof without the written
consent of the landlord, such occupation shall be on a monthly basis at a
monthly rate equal to one hundred and ten percent (110%) of the monthly
installment of Rent payable for the last month preceding the expiration of the
Term or Extension Period, as applicable, without prejudice to the Landlord's
right to re-enter and take possession of the Premises and remove the Tenant
therefrom, without notice or indemnity to the Tenant, and without prejudice to
the Landlord's other recourses hereunder or by law.
 
13.2
Entire Agreement

 
This lease together with the schedules referred to herein set forth the entire
agreement and understanding between the parties concerning the lease of the
Premises, and the Tenant acknowledges that there have been no promises,
representations, agreements, conditions or understandings, either oral or
written, express or implied, collateral or otherwise, between the Landlord and
the Tenant. Except as otherwise expressly provided, no subsequent alteration,
amendment, change or addition to this Lease shall be binding upon the Landlord
or the Tenant unless in writing and duly signed by the Tenant and the Landlord.
 
13.3
Waiver

 
The waiver by either party of any breach of any term, obligation or condition
herein contained is not deemed to be a waiver of such term, obligations or
condition or of a subsequent breach of the same or of any other term, obligation
or condition herein contained. No obligation, term or condition of this Lease
will be deemed to have been waived by either party unless the waiver is in
writing, signed by such party.
 
13.4
Liability

 
Should more than one person as the Tenant sign this lease, each of them shall be
solidarily liable to the Landlord for the payment of Rent and the performance
and observance of the terms and conditions of this Lease, without the benefits
of division, discussion or subrogation.
 
13.5
Governing Law and Severability

 
This Lease will be interpreted and governed by the laws of the Province of
Quebec and the federal laws of Canada applicable therein. If for any reason
whatsoever any provision or any part of any provision of this lease, or the
application thereof to any person or circumstance, is to any extent held or
rendered invalid, unenforceable or illegal, then such provision or part in
question shall be deemed to be independent, severable and divisible from the
remainder of the Lease and its invalidity, unenforceability or illegality shall
not affect, impair or invalidate the remainder of the Lease or any part thereof
and such prov1s1on or partial prov1s1on shall continue to be applicable to and
enforceable against any other person or circumstance other than those to which
it has been held or rendered invalid, unenforceable or illegal.
 
 
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13.6
Successors and Assigns

 
All rights and liabilities herein granted to or imposed upon the respective
parties hereto extend to and bind the successors and assigns of the Landlord and
the permitted successors and assigns of the Tenant, as the case may be.
 
13.7
Headings and Numbers

 
The headings, captions, section numbers, article numbers and table of contents
appearing in this Lease are inserted only as a matter of convenience and in no
way define, limit or describe the scope or intent of this Lease or the section
of the Lease to which they relate, or otherwise in any way affect this Lease.
 
13.8
Interpretation

 
The words "hereof", "herein", "hereunder" and similar expressions used in any
Section or Subsection of this Lease relate to the whole of this Lease and not to
that Section or Subsection only, unless the context otherwise requires. Where
required by the context hereof the singular shall include the plural and the
neuter gender, the masculine or feminine.
 
13.9
Registration of the Lease

 
The Tenant may register the present Lease by notice pursuant to Article 2999.1
of the Civil Code at the Land Registry Office for the Registration Division of
Missisquoi provided the Tenant does not publish any of the financial terms of
this Lease.

13.10 Election of Domicile
 
The parties herein hereby elect domicile in the District of Montreal, where any
and all legal proceedings by either party against the other shall be instituted.
 
13.11
Language

 
The parties acknowledge having expressly required that this Lease and all
documents relating thereto be drawn in English.
 
Les parties déclarent avoir expressément requis que ce Bail et tous les
documents s'y rapportant soient rédigés en anglais.
 
 
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IN WITNESS WHEREOF:
 
The Landlord has executed this Lease at the City of Montréal, Province of
Québec, as of the date first written above.
 
 

         
/s/ (not legible)
   
/s/  Gilles Mazoyer
 
Witness
   
GILLES MAZOYER
 

 
 
 
The Tenant has executed this Lease at the City of Montréal, Province of Québec,
as of the date first written above.
 
 
 

    BEMAG TRANSORMER INC.            
/s/ (not legible)
  per:
/s/ Nathan Mazurek
 
 
   
Nathan Mazurek
 

 
 
 
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SCHEDULE "A" PLAN OF
THE PREMISES
 
 
 

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SCHEDULE "B"
INSURANCE CERTIFICATE
 
 
 

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SCHEDULE "C"
TENANT’S RESOLUTION