LEASE AGREEMENT

 

        THIS LEASE made and entered into as of the20th day of October, 2005 by andbetween **Peter L. Krog** having offices at 4 Centre Drive Orchard Park, NY14127 (hereinafter referred to as "LANDLORD"); and **Minrad Inc.** havingoffices at 847 Main Street; Buffalo, NY 14203 (hereinafter referred to as("TENANT").

WITNESSETH:

        WHEREAS, LANDLORD is the equitable owner of an approximately 6.83 acre parcelof land (the "Land") and a building to be constructed on the Land, both locatedat 50 Cobham Drive; Orchard Park, NY 14127 (hereinafter referred to as the"Building");

        WHEREAS, the Land is depicted with more particularity on **Exhibit A**attached hereto;

        WHEREAS, the particulars of the Building are depicted with more particularityon **Exhibits B and C**attached hereto;

        WHEREAS, TENANT desires to take and hire from LANDLORD and LANDLORD desiresto demise and lease to TENANT the Land and the Building subject to the terms andconditions hereinafter stated; 

        NOW, THEREFORE, in consideration of the foregoing premises and of thecovenants and agreements hereinafter set forth, the LANDLORD and TENANT dohereby covenant and agree as follows:

        1. Demised Property. LANDLORD does hereby demise and lease to TENANT,its successors and assigns, and TENANT does hereby take and hire from LANDLORD,the Land and the Building (hereinafter referred to as the "Leased Premises").The floor space located in the Building shall aggregate not less than 37,400square feet of office, lab and warehouse space, all as set forth on the floorplan attached hereto as **Exhibit B** and made a part hereof and all theimprovements located thereon. Effective upon Delivery of Possession (ashereinafter defined) and further provided TENANT is not in default in thepayment of rent under the 847 Main Lease (hereinafter defined), LANDLORD agreesthat the Lease Agreement between LANDLORD and TENANT, dated December 13, 2001,with respect to the real property and improvements commonly know as 847 MainStreet; Buffalo, New York (the "847 Main Lease") shall cease to be of anyfurther force and effect and TENANT shall be released from and against any andall liability for rent and other charges of any kind and nature thereafterbecoming due under the terms of the 847 Main Lease. Notwithstanding suchtermination, LANDLORD and TENANT acknowledge and agree that TENANT shall havethe right to occupy the premises leased pursuant to the 847 Main Lease for notmore than thirty (30) days following Delivery of Possession. LANDLORD furtheragrees to deliver to TENANT on Delivery of Possession, the sum of Twenty-FiveThousand Dollars ($25,000), which sum shall be utilized by TENANT for moving andsimilar transitional expenses related to its relocation from 847 Main Street tothe Leased Premises.

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        2. Warranty of Title. LANDLORD warrants to TENANT that it has a goodand legal right to execute and deliver this Lease and to grant and convey toTENANT the leasehold estate herein provided for the term, at the property, andupon the conditions herein set forth. The LANDLORD also warrants and agrees todefend the title to the Building and the Leased Premises and covenants thatTENANT, so long as it shall not be in default hereunder, shall peaceably andquietly have, hold, and enjoy the Leased Premises for the full term.

        3. Warranty of Compliance. LANDLORD covenants and agrees to constructthe Building in accordance with the floor plan attached hereto as **Exhibit B**(including building partitions) and the specifications attached hereto as **Exhibit C**. LANDLORD hereby warrants and represents to TENANT that whenpossession of the Leased Premises shall be delivered to TENANT in accordancewith **Exhibit C**, the construction of the Leased Premises and the Buildingand the use of the same for business offices shall be in full compliance withall laws, ordinances, codes and regulations of the Governmental Authorities (ashereinafter defined) and insurance rating bureaus having jurisdiction(including, without limitation, zoning and building codes) and shall not violatethe rights of any third parties. As used in this Lease the term "GovernmentalAuthority" shall mean the United States, State of New York and any politicalsubdivision thereof, and any agency, department, commission, board, bureau orinstrumentality of any of them.

        4. Term. 

        (A) The initial term of this Lease shall be ten (10) years commencing		on the date on which "Delivery of Possession" shall occur. The Parties		intend that Delivery of Possession" shall occur on or before June 1,		2006. However, the Parties recognize and agree that such target date is		a best guess estimate, which is and shall be subject to change, based		upon numerous factors and conditions beyond LANDLORD's control. In any		event, Delivery of Possession shall be deemed to occur when LANDLORD		delivers to TENANT a certificate of occupancy from the Town of Orchard		Park evidencing completion of the Leased Premises in accordance with **Exhibits B and C**. 

        TENANT shall have the option to extend this Lease, at a base rentalequivalent to a 3% increase per year, for one (1) period of 5 years. The optionto extend this Lease for such period shall be exercised in writing by TENANT notlater than one hundred eighty (180) days prior to the expiration of the initialterm. In the event the option is exercised, all references herein to the leaseterm, other terms of the lease, occupancy hereunder and like words shall bedeemed to refer to the term of the lease as so extended and no new leaseagreement need be executed and delivered to evidence the lease agreement betweenLANDLORD and TENANT. TENANT shall have the option, commencing after the end ofyear seven (7) of the initial term of this Lease and continuing during theremainder of such initial term of this Lease only, to purchase the Land andBuilding for the sum of Four Million Two Hundred Sixty Thousand Dollars($4,260,000 ), such option shall be exercisedin writing by TENANT no later than one hundred eighty (180) days prior to theexpiration of the initial term. Upon the exercise of such option, the terms andconditions of the purchase contract attached hereto as **Exhibit E** shallapply.

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TENANT shall have the option at any time after the initial term of this Leaseand continuing during any and all renewal terms, if any, of this Lease topurchase the Land and the Building for the sum of Three Million Nine HundredFifty Thousand Dollars ($3,950,000), such option shall be exercised in writingby TENANT ninety (90) days prior to the intended closing date for acquisition oftitle. Upon exercise of such option, the terms and conditions of the purchasecontract attached hereto as **Exhibit E** shall apply.

        5. Fixed Rent. The fixed rent which shall be paidby TENANT during Years One (1) through Five (5) of this Lease shall be $11.65per square foot or an aggregate $435,710.00 per annum, payable at the rate of$36,309.17 per month, The fixed rent which shall be paid by TENANT duringYears Six (6) and Seven (7) of this Lease shall be $12.25 per square foot or anaggregate $ 458,150.00 per annum, payable at the rate of $ 38,179.17 per month;The fixed rent which shall be paid by TENANT during Year Eight (8) of this Leaseshall be $12.50 per square foot or an aggregate $467,500.00 per annum, payableat the rate of $ 38,958.33 per month; The fixed rent which shall be paid byTENANT during Year Nine (9) of this Lease shall be $12.75 per square foot or anaggregate $ 476,850.00 per annum, payable at the rate of $39,737.50 per month;The fixed rent which shall be paid by TENANT during Year Ten (10) of this Leaseshall be $13.00 per square foot or an aggregate $ 486,200.00 per annum, payableat the rate of $40,516.67 per month, together with a "Late Charge" of 5% permonth if the month rent is not received by the 10th day from the due datethereof. The term "Lease Year" is defined to mean the twelve (12) calendar monthperiod commencing on Delivery of Possession and each twelve (12) calendar monthperiod thereafter. All rent payable hereunder shall be payable in advance inmonthly installments to LANDLORD at its address hereinabove set forth, or tosuch other party or at such other place as the LANDLORD may from time to time inwriting designate.

        6. Deposit. Concurrently with the execution of this Lease Agreement,TENANT shall deposit with LANDLORD a sum equal to the amount of the last month'srent ($40,516.67), to be held by LANDLORD in an interest-bearing account assecurity for the performance by TENANT of its obligations hereunder.. Should an"Event of Default" as per Article 20 of this Lease Agreement occur, LANDLORDshall be entitled to withdraw from such account the amount necessary to correctsuch Event of Default.

        7. Condition of Premises.

        (A) Upon Delivery of Possession and at all times during the Term of		this Lease Agreement, LANDLORD shall at its sole cost and expense cause		the Leased Premises to be connected to the electric, gas, water, storm		and sewer systems serving the Town of Orchard Park. LANDLORD warrants		that at Delivery of Possession, the electrical, plumbing, heating,		ventilation, air conditioning systems and related fixtures of each such		system in the Building shall be in new and in first class working		condition, adequate for TENANT's use of the Leased Premises. LANDLORD		warrants that for a period of one (1) year from Delivery of Possession		the electrical, plumbing, heating, ventilation, air conditioning systems		and related fixtures of each such system shall be free of defects		(including any defects in the installation thereof), merchantable and		otherwise fit for its intended purposes. TENANT acknowledges that it		will be responsible for all repairs, required subsequent to the		expiration of such one-year warranty, to such electrical, 

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plumbing,		heating, ventilation, air conditioning systems and related fixtures of		such systems, and all necessary maintenance, repairs, alterations and		replacements to such systems and related fixtures, irrespective of the		cost thereof. LANDLORD agrees to extend to TENANT the benefit of any		manufacturer's warranty which may apply to any such system.
        (B) Throughout the Term, LANDLORD at its sole cost and expense shall		make necessary repairs to the Building, and the exterior foundations,		downspouts, gutters and roof of the Building.

 

        8. Utilities. TENANT shall be responsible for paying for all chargesfor gas, electricity, light, heat, water, sewerage, trash disposal, power andtelephone or other communications services used, rented or supplied to TENANTupon, on or in connection with the Leased Premises, and shall indemnify LANDLORDagainst any liability or damages for usage charges on account of any suchutility service supplied to the Leased Premises.

        9. Parking Lot Use, Landscaping and Maintenance. LANDLORD will at alltimes during the term of this Lease (i) maintain adequate illumination of theparking area during all twilight and night hours, (ii) maintain and keep theparking area in good condition with a hard-top surface pavement and (iii)maintain and keep the parking area in an orderly and clean manner, including theremoval of snow and ice and any trash, rubbish or debris which accumulates onand around such area. TENANT shall be responsible for all grass cutting andlandscape maintenance following the initial seeding and installation oflandscaping by LANDLORD in accordance with the specifications attached hereto as**Exhibit C**.

        10. Operating Costs.

        (A) TENANT agrees to pay as additional rent during the term of this		Lease upon receipt of written notice, together with copies of paid		bills, from LANDLORD, fire and liability insurance premiums; repair and		maintenance of the parking lot, and sidewalks as specified in **Section		9**, real property taxes and assessments as outlined in **Section 11**;		and administrative expenses in an amount equal to 5% of the operating		expenses paid by LANDLORD, together with a "Late Charge" of 5% per month		if the additional rent is not received by the 30th day from the invoice		date.

        (B) TENANT shall have the right, at its own cost and expense (except		as provided below), to audit or inspect LANDLORD's records with respect		to the operating costs and real property taxes, as well as all other		additional rent payable by TENANT hereunder for any Lease Year. TENANT		shall give LANDLORD not less than thirty (30) days prior written notice		of its intention to conduct any such audit. LANDLORD shall cooperate		with TENANT during the course of such audit, which shall be conducted		during normal business hours in LANDLORD's office. LANDLORD agrees to		make such personnel 

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available to TENANT as is reasonably necessary for TENANT, or for		TENANT's employees or agents to conduct such audit. If such audit		discloses that the amount paid by TENANT as TENANT's operating expenses		and/or real estate taxes, or of other additional rental payable by		TENANT hereunder, has been overstated by more than three and one half		percent (3.5%), then, in addition to immediately repaying such		overpayment to TENANT with interest, LANDLORD shall also pay the		reasonable costs incurred by TENANT in connection with such audit.
        (C) Notwithstanding anything to the contrary in the Lease, operating		costs shall not include (1) any costs of items considered capital		repairs, replacements, improvements and equipment under generally		accepted accounting principles consistently applied or otherwise or (2)		costs incurred in connection with upgrading the Building and/or parking		areas to comply with the current interpretation of disability, life,		fire and safety codes, ordinances, statutes, or other laws, including,		without limitation, the ADA, and including penalties or damages incurred		due to such non-compliance.

        11. Taxes and Obligations. TENANT shall be responsible to pay allapplicable taxes on its trade fixtures and equipment. LANDLORD shall make allpayments required to be made under the terms of any payment in lieu of taxarrangement and shall pay all applicable taxes, assessments (whether general orspecial) and other obligations which are or may become a lien on or leviedagainst the Building and the Leased Premises as they may become due and payableduring the term of TENANT's occupancy thereof and make all payments required tobe made under the terms of any deed of trust or mortgage which may at any timebe a lien on the Leased Premises (the "Taxes"). TENANT shall thereafterreimburse LANDLORD for all such Taxes, in the manner and in the time frameprovided herein. TENANT shall have the right to contest any tax or assessmentagainst the Land or the Building in good faith, at its own cost and expense,provided, however, that notwithstanding such contest, TENANT shall not take anyaction which would adversely affect, threaten or jeopardize the interest of theLANDLORD in the Building or the Land; and TENANT shall promptly pay, indemnifyand save LANDLORD harmless from, all penalties and interest which may be chargedor imposed as a result of or during the pendency of, any such contest. In theevent of any such contest by TENANT, LANDLORD agrees to reasonably cooperatewith TENANT, provided, however, that such cooperation shall be without any costor expense to LANDLORD and shall not be construed so as to require LANDLORD towithhold the payment of any tax, interest or penalty otherwise due and owing to,or charged by, any taxing authority.

        LANDLORD shall submit copies of paid tax bills to TENANT as soon aspracticable after payment of such Taxes by LANDLORD and TENANT shall reimburseLANDLORD therefor within thirty (30) days after submission.

        It is further agreed that for the first and last lease years of the Term, theportion of all taxes, other than such as result from assessments attributable toTENANT, to be paid by TENANT shall be pro rated, depending on the proportionwhich each such Lease Year shall bear to the tax year in which it falls.

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        Notwithstanding anything to the contrary contained herein LANDLORD shall passthrough to TENANT all real property tax savings realized by LANDLORD by virtueof The Erie County Industrial Development Agency's involvement with theconstruction of the Building.

        12. Fire Insurance. LANDLORD, at all times during the initial andextended terms hereof shall procure and keep in force, insurance on the Buildingincluding the Leased Premises, insuring the same against loss or damage by fireand such other hazards, casualties and contingencies as are customarily includedunder policies of fire insurance with extended coverage. The fire insuranceshall be such amount as shall comply with the applicable co-insurance clause ofsuch insurance policy but not less than 80% of the replacement cost of theinsured property. Such insurance shall further contain an agreement by theinsurance company that the policy or policies will not be canceled or thecoverage changed without thirty (30) days prior written notice to LANDLORD andTENANT. LANDLORD covenants that TENANT shall not be liable for damage to ordestruction of the Leased Premises by any fire or other casualty from any causewhatsoever and LANDLORD shall obtain and maintain in effect, a waiver ofsubrogation in favor of TENANT from its fire and casualty insurer, a copy ofwhich shall be delivered to TENANT. TENANT, all times during the initial andextended term hereof, at its sole cost and expense, shall procure and keep inforce, insurance on TENANT's property, insuring the same against loss or damageby theft, fire or such other hazards, casualties and contingencies as arecustomarily included under policies of fire and theft insurance with extendedcoverage. TENANT covenants that LANDLORD shall not be liable for damage to ordestruction of TENANT's property by fire or other casualty from any causewhatsoever and TENANT shall obtain and maintain in effect, a waiver ofsubrogation in favor of LANDLORD from its fire and casualty insurer, a copy ofwhich shall be delivered to LANDLORD. To the extent that any activitiesconducted by TENANT at the Leased Premises result in an insurance surcharge toLANDLORD, TENANT shall promptly reimburse LANDLORD for the cost thereof.

        13. Liability Insurance.

        (A) TENANT shall defend LANDLORD against, and shall be responsible		for, and shall save LANDLORD harmless from and against, any and all		claims for damages to persons or property resulting from or arising out		of TENANT'S negligent acts or omissions at the Leased Premises		throughout the term of this Lease. TENANT, at all times during the term		hereof, at its sole cost and expense, shall procure, or cause to be		procured, and keep in force comprehensive liability insurance, including		personal injury and property damage, insuring against all claims and		liability arising out of the use or occupancy of the Lease Premises by		TENANT, with limits of liability of not less then Two Million Dollars		($2,000,000.00). The policy or policies of insurance shall be in		standard form and shall name LANDLORD therein as an additional insured,		together with TENANT. If so required, certificates evidencing such		insurance coverage shall be furnished to LANDLORD by TENANT promptly		upon the issuance of each such policy or renewal thereof.

        (B) LANDLORD, at all times during the term hereof, shall procure or		cause to be procured, and keep enforce comprehensive liability		insurance, including personal injury and property damage, covering the		parking area, the Common Areas and all other public 

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areas in and around		the Building with limits of liability of not less than Two Million		Dollars ($2,000,000.00). The policy or policies of insurance shall be		standard form and shall name TENANT therein as an additional insured,		together with LANDLORD, and shall be issued by insurers acceptable to		TENANT. Premiums for all policies of insurance herein referred to and		all renewals thereof shall be paid by LANDLORD on or before the		beginning date of the next annual policy or renewal period and, if so		requested, certificates thereof shall be furnished to TENANT by LANDLORD		promptly upon the issuance of each such policy or renewal thereof.
        14. Signs and Advertising. TENANT may erect such signs on or about theLeased Premises or the improvements thereof as shall conform to applicablegovernmental ordinances; provided same are approved and consented to in writingand in advance by LANDLORD, such approval and consent not to be unreasonablywithheld, conditioned or delayed.

        15. Ordinances. In the event any public authority shall requirecorrection of violations of any statute, ordinance, regulation, or buildingcode, corrections shall be made by LANDLORD at LANDLORD's expense except as tosuch violations arising from any alterations or additions made by TENANT, inwhich event TENANT's violations shall be corrected by TENANT at TENANT'sexpense. TENANT shall comply with all statutes, ordinances and regulations ofgovernment authorities now in effect or hereafter enacted relating to anyalterations or improvements made by it, keeping the Leased Premises in anorderly condition, the use of the Leased Premises and the method of conductingTENANT's business thereon. Under no circumstances, however, shall the foregoingobligation of compliance be construed in such a way as to impose upon TENANT anyobligation to make structural changes to the Leased Premises.

        16. Subletting and Assigning. 

        (A) TENANT may not (except as hereinafter stipulated) assign this		Lease and/or sublet the Leased Premises, or any part thereof, without in		each instance obtaining the written permission of LANDLORD, which		permission shall not be unreasonably withheld. TENANT may, without		LANDLORD's permission, assign this lease and/or sublet the Leased		Premises, or any part thereof, to an affiliated, subsidiary, reorganized		corporation or any organization which acquires a majority of the shares		or assets of the TENANT, a successor entity or the parent or parents of		TENANT for the purpose of continued operation hereunder of the business		conducted on said Leased Premises in substantially the same manner as		before, provided, however, that written notice of such assignment or		sublease shall be given to the LANDLORD. No assignment or subletting		shall relieve TENANT of the obligations imposed upon it by the terms of		this Lease.

        (B) LANDLORD reserves the right to transfer and/or assign this Lease		at any time while this Lease is in effect. TENANT will be provided with		written notice that such an assignment has occurred. Upon such transfer,		the LANDLORD, will have no further obligation or liability to the TENANT		for obligations thereafter arising or accruing under 

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the terms and		conditions of this Lease Agreement. No such assignment shall relieve		LANDLORD from any then-accrued obligations hereunder.
        17. Destruction of Building by Fire or Other Casualty. In the event ofa partial or total destruction of the Leased Premises, whether by fire,unavoidable casualty, act of God, or otherwise, then LANDLORD shall forthwithrepair the same; said partial destruction shall in no way annul or void thisLease, except that TENANT shall be entitled to a proportionate reduction of rentfrom the time of the casualty until such repairs are fully completed, suchproportionate reduction to be based upon the extent to which the damage andmaking of Premises. If during the last Lease Year of the Term, the LeasedPremises are totally destroyed or rendered substantially untenantable by anyfire, unavoidable casualty, act of God or otherwise, and thereby rendered unfitfor use, then and in that event, this Lease shall terminate and the TENANT shallbe relieved of any further rental payments provided for herein from the date ofsuch destruction.

        18. Alterations. TENANT shall not make any structural improvements oradditions in or to the Premises without the prior written consent of LANDLORD,such consent not to be unreasonably withheld, conditioned or delayed. TENANTshall have the right from time to time and at any time, without LANDLORD'sconsent but with reasonable prior written notice to LANDLORD, to perform thefollowing work within the Premises, provided that such following work does notmaterially interfere or materially adversely effect the Building HVAC orelectrical systems: (i) install, remove and relocate nonstructural officepartitioning, (ii) paint and install wall coverings, (iii) install and removeoffice furniture, (iv) relocate electrical outlets, (v) install and removeworkstations, (vi) install and remove carpeting and other floor coverings and(vii) make interior, non-structural alterations. 

        TENANT agrees that LANDLORD shall have the first right to bid on any and allTENANT required alterations and that LANDLORD shall perform all such TENANTrequired alterations; provided that LANDLORD's services, price and schedule forsuch TENANT required alterations are comparable to other bids, asreasonably determined by TENANT.
        19. Use and Occupancy. TENANT, at all times during the term of thisLease, shall have sole and exclusive control and right of use and occupancy ofthe Leased Premises and all improvements thereon, including the right torestrict access to the Leased Premises for security purposes. LANDLORD, or itsrepresentatives, shall have the right, however, to enter the Leased Premises, atany reasonable time, after reasonable notice, for the purpose of inspection ofthe Leased Premises or performing any work which LANDLORD elects to undertake oris required to perform under the provisions of this Lease. TENANT shall use theLeased Premises solely for the purpose of medical equipment research anddevelopment, and for no other purpose without the prior written consent ofLANDLORD; but TENANT shall not use or occupy or permit the Leased Premises to beused or occupied, nor do or permit anything to be done on the Leased Premises,which is unlawful or which shall make void or voidable the appropriate insurancethen contemplated by this Lease to be in force with respect thereto, or whichwill cause any part thereof, or which will constitute a public or privatenuisance.

        20. Events of Default / Remedies & Damages/ Waiver. 

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        (A) The following shall constitute Events of Default:

        (1) In the event TENANT shall be in default in the payment of any		fixed rent, additional rent or charges required to be paid by TENANT (a		"Payment") to LANDLORD under this Lease, and such default continues for		a period of ten (10) days after written notice thereof. 

        (2) In the event TENANT shall be in default in the performance of any		other covenants, terms, conditions, provisions, rules and regulations of		this Lease excepting those items listed in the above section (a) above		(a "Non-Monetary Default") and if such Non-Monetary Default is not cured		within twenty (20) days after written notice thereof given by LANDLORD,		excepting such Non-Monetary Default that cannot be cured completely		within such twenty (20) day period providing TENANT, within such twenty		(20) day period, has promptly commenced to proceed with diligence and in		good faith to remedy such Non-Monetary Default.

        (3) Subject to Section 365 of the Bankruptcy Reform Act of 1978 as		amended, in the event of the filing of a petition proposing the		adjudication of TENANT as a bankrupt or insolvent or the reorganization		of TENANT or an arrangement by TENANT with its creditors, whether		pursuant to the Federal Bankruptcy Act or any similar federal or state		proceeding and such action is not dismissed within sixty (60) days after		the date of its filing. 

        (B) Remedies and Damages:

        (1) If any Event of Default occurs, LANDLORD individually and/or by		and through its agent (Duke, Holzman, Yaeger & Photiadis LLP) may, at		its option and in addition to any and all other rights or remedies		provided LANDLORD in this Lease or at law or equity, immediately, or at		any time thereafter, and without demand or notice (except as provided		herein):

(a) without waiving the Event of Default, apply all						or part of the security deposit, if any, to cure the						Event of Default and TENANT shall on demand restore the						security deposit to its original amount;

(b) without waiving such Event of Default, apply						thereto any overpayment of rents to curing the Event of						Default in lieu of refunding or crediting the same to						TENANT;

(c) if the Event of Default pertains to work or other						obligations (other than the payment of rent or						additional rent) to be performed by TENANT, without						waiving such Event of Default, enter upon the Leased						Premises and perform such work or other obligation, or						cause such work or other obligation to be performed, for						the account of TENANT; and TENANT shall on demand pay to						LANDLORD the cost of performing such work or other						obligation plus five percent (5%) thereof as						administrative costs;

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d) issue a written notice declaring TENANT in						monetary default for nonpayment of fixed rent,						additional rent and/or late charges and providing TENANT						with seven (7) days from the issuance of said written						notice to cure all monetary default(s). In the event all						monetary defaults are not cured within the seven (7) day						cure period, LANDLORD may issue a written notice stating						that the term of this Lease will expire on a date at						least five (5) days thereafter, in which case the term						of this Lease shall automatically expire on the date so						fixed in such notice as fully and completely as if it						were the date herein definitely fixed for the expiration						of the term, and all right, title and interest of the						TENANT hereunder shall thereupon cease and expire, and						the TENANT shall thereupon quit and surrender the Leased						Premises to LANDLORD, it being the intention of the						parties hereto to create hereby a conditional						limitation.
        (2) Notwithstanding any termination of this Lease or termination of		TENANT's rights to possession, TENANT shall pay and be liable for (on		the days fixed herein for the payment thereof) the several installments		of rent and additional rent as and when due, as if this Lease had not		been terminated and as if LANDLORD had not entered and whether the		Leased Premises are relet or remain vacant in whole or in part, but in		the event the Leased Premises are relet by LANDLORD, TENANT shall be		entitled to a credit in the net sum of rent and additional rent received		by the LANDLORD in reletting after deduction of all expenses (other than		fit out or remodeling) incurred in reletting the Leased Premises, and in		collecting such rents and additional rent. In the event of any		termination of this Lease or termination of TENANT's right to possession		following the occurrence of an Event of Default, LANDLORD shall use		commercially reasonable efforts to mitigate its damages by reletting the		Leased Premises.

        (3) In the event of a reletting, LANDLORD may apply the rent		therefrom first to the payment of LANDLORD's reasonable expenses		including but not limited to attorney's fees incurred, reasonable		expense of reletting, repairs, brokerage fees, subdividing and then to		the payment of rent and all other sums due from TENANT hereunder, and		TENANT shall remain liable for any deficiency. 

        (C) Waiver of Rights of Redemption. TENANT hereby expressly		waives any and all rights of redemption granted by or under any present		or future laws in the event of TENANT's being evicted or dispossessed		for any cause, or in the event of LANDLORD's obtaining possession of the		Leased Premises by reason of the violation, by TENANT, of any of the		covenants or conditions of this Lease, or otherwise. 

        21. Notices. Any notice to LANDLORD provided for herein shall bedeemed to have been served only when such notice in writing addressed toLANDLORD, or to the party to whom rent was last paid, has been deposited in aregular receptacle of the U.S. Postal Service by registered or certified mail,addressed to the address hereinabove set forth. Any notice to TENANT as providedfor herein, may be issued by LANDLORD and/or its agent (Duke, Holzman, Yaeger &Photiadis LLP) and shall be deemed to have been served only when such notice inwriting has been deposited in a regular receptacle of the U.S. Postal Service by

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registered or certified mail addressed to TENANT at the Leased Premises, with acopy at the same time and in the same manner to TENANT's attorneys, Hodgson RussLLP, One M&T Plaza, Suite 2000, Buffalo, New York 14203 Attention: Robert B.Fleming, Jr., Esq. 

        22. Legal Fees**.**TENANT agrees to pay all fees incurred byLANDLORD, including without limitation, all reasonable attorney fees, costs, anddisbursements, related to the enforcement of any provision of this Lease.

        23. Interference. Should an adjudication of a competent court orregulation of any government authority prohibit TENANT from establishing itsbusiness on said Leased Premises, or order TENANT to discontinue, in whole or inpart, its business thereon, then TENANT may terminate this Lease, unless suchorder results from willful negligence of TENANT in its use of the LeasedPremises.

        24. Condemnation. In the event during the term of this Lease or anyextension thereof, the entire Lease Premises are acquired by the exercise of thepower of eminent domain, or so much thereof as shall render the same notreasonably suitable to TENANT's uses, this Lease shall terminate at the timepossession must be surrendered, and the TENANT shall be relieved of all futurerental payments provided for herein. 

        25. Subordination. This Lease shall be subject and subordinate at alltimes to the lien of any mortgage or deed of trust which may now be or hereaftermay be made a lien on the Leased Premises by LANDLORD or its assigns. Althoughno instrument or act on the part of TENANT shall be necessary to effectuate suchsubordination, TENANT will, nevertheless, execute such further instrumentssubordinating the Lease to the lien of any such mortgage or deed of trust as maybe reasonably required by the lender, provided, however, and notwithstandinganything herein contained to the contrary, that as long as the said TENANT, itssuccessors and assigns, shall fully perform the covenants and conditionscontained herein, including the payment of all rentals hereunder, any successorto LANDLORD by virtue of the foreclosure of such mortgage or deed of trust (ordeed in lieu thereof) shall be bound by the terms and conditions of this Lease,including, without limitation, the options to purchase the Building and the Landas set forth in Paragraph 4 of this Lease and TENANT shall have the right topeaceably occupy and possess the Leased Premises under this Lease withoutinterruption or disturbance by the purchaser at a foreclosure sale. To theextent, the Building or the Land are encumbered by a mortgage at the time ofexecution and delivery hereof, as a condition to the effectiveness of thisLease, LANDLORD shall deliver to TENANT a non-disturbance agreement in form andcontent acceptable to TENANT in TENANT's sole discretion. 

        26. Holding Over. LANDLORD shall give TENANT at least thirty (30) daysprior written notice if LANDLORD shall expect or demand that TENANT vacate theLeased Premises upon the expiration of this Lease or any renewal thereof. IfTENANT should continue to occupy the Leased Premises without having exercisedits option to renew (if any) or without an Agreement in writing as to the termsof such continued possession, then such additional tenancy shall be on amonth-to-month basis at 125% of the previous existing rental and under the sameterms and conditions as provided in this Lease or the renewal thereof. In caseof such 

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continued possession, the month-to-month tenancy created thereby may becanceled at the end of any calendar month by not less than thirty (30) daysprior written notice from either party.

        27. Notices. Any notice to LANDLORD provided for herein shall bedeemed to have been served only when such notice in writing addressed toLANDLORD, or to the party to whom rent was last paid, has been deposited in aregular receptacle of the U.S. Postal Service by registered or certified mail,addressed to the address hereinabove set forth, with a copy at the same time andin the same manner to LANDLORD's attorneys, Duke, Holzman, Yaeger & PhotiadisLLP, 1800 Main Place Tower, Buffalo, New York 14202, Attention: Robert L.Bencini, Esq. Any notice to TENANT as provided for herein shall be deemed tohave been served only when such notice in writing has been deposited in aregular receptacle of the U.S. Postal Service by registered or certified mailaddressed to TENANT at the Leased Premises, with a copy at the same time and inthe same manner to TENANT's attorneys, Hodgson Russ LLP, One M&T Plaza, Suite2000, Buffalo, New York 14203 Attention: Robert B. Fleming, Jr., Esq..

        28. Captions. The captioned appearing at the beginning of each of thesections of this Lease are for reference only and are not to be considered apart of this Lease.

        29. Binding. This Lease shall inure to the benefit of and be bindingupon the heirs, devisees, executors, administrators, successors and assigns ofthe parties hereto.

        30. Modification. This Lease constitutes the whole agreement betweenthe parties. There are no terms, obligations, covenants, or conditions otherthan contained herein. No modification or variation hereof shall be deemed validunless evidenced by an agreement in writing and signed by the duly authorizedrepresentatives of the respective parties.

        31. Recording. TENANT may in its discretion cause a memorandum of thisLease to be recorded in the Office of the Clerk of Erie County, New York.

        32. Quiet Enjoyment. LANDLORD covenants that for so long as TENANT isnot in default hereunder, TENANT shall quietly enjoy the Leased Premises.

        33. Situs. This Lease Agreement shall be governed by the Laws of theState of New York as the same may exist during the term hereof.

        34. ECIDA Required Provisions. The following provisions are requiredby the Erie County Industrial Development Agency to be included in allsubleases, and are agreed to by LANDLORD and TENANT:

        (A) The Premises have been or will be acquired by the Erie County		Industrial Development Agency (the "Agency") and will be leased by the		Agency to Peter L. Krog (or a legal entity to be formed by him) (the		"Sublessor") pursuant to a lease agreement dated as of ________________		(the "Agency Lease Agreement").

        (B) The Sublessee (hereinabove previously referred to as "TENANT")		shall operate the demised premises in accordance with the sublease and		as a qualified "project" in accordance with and as defined in the New		York State Industrial Development Agency 

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Act (Title 1 of Article 18-A of		the General Municipal Law), as amended, and Chapter 293 of the 1970 Laws		of New York, as amended.
        (C) The Sublessee shall furnish to the Agency, upon request, such		information as the Agency shall reasonably request regarding the leased		premises and employment by the Sublessee (past, present, and future) at		the leased premises.

        (D) Neither the Sublease, nor any interest therein, shall be		assigned, modified or amended without the prior written consent of the		Agency, as set forth in the Agency Lease Agreement. Any of the foregoing		notwithstanding, to the extent the Sublessee is permitted to		sub-sublease the demised premises or assign its interest in the Sublease		without the prior written consent or the Sublessor, no consent of the		Agency shall be required provided that any sub-sublease or assignment is		consistent with, and includes appropriate provisions relating to ,		Agency ownership of the Premises.

        (E) The Sublessee and Sublessor represent, warrant and covenant that		facilities or property that are primarily used in making retail sales to		customers who personally visit such facilities constitute less than		on-third of the total cost of the project, as that term is defined in		the Agency Lease Agreement. For purposes of this **Paragraph 8**,		retail sales shall mean: (i) sales by a registered vendor under Article		28 of the Tax Law of the State of New York primarily engaged in the		retail sale of tangible personal property, as defined in Section 1101		(b) (4) (I) of the Tax Law of the State of New York; or (ii) sales of a		service to such customers.

        (F) Except as is otherwise provided by collective bargaining		contracts or agreements, and except for skilled laboratory or scientific		positions, new employment opportunities for positions with annual		salaries of $50,000 or less created by the Sublessee at the Premises		shall be listed by the Sublessee with the New York State Department of		Labor Community Services Division, and with the administrative entity of		the service delivery area created by the Federal Job Training		Partnership Act (P.L. NO.97-300) in which the Premises are located.		Except as is otherwise provided by collective bargaining contracts or		agreements and except for skilled laboratory or scientific positions,		the Sublessee agrees, where practicable, to first consider for positions		with annual salaries of $50,000 or less persons eligible to participate		in the Federal Job Training Partnership (P.L. NO. 97-300) programs who		shall be referred by administrative entities of service delivery areas		created pursuant to such act or by the Community Services Division of		the New York State Department of Labor for such new employment		opportunities.

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        IN WITNESS WHEREOF, LANDLORD and TENANT have each caused this Lease Agreementto be executed and delivered, all as of the day and year first above written.
**LANDLORD****TENANT** **MINRAD INC.**   
/s/ Peter L. Krog                      
By:/s/ William H. Burns, Jr.                           		
Peter L. Krog 
 William H. Burns, Jr., President
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STATE OF NEW YORK )                                            :ss.COUNTY OF ERIE )

        On the 20th day of October, in the year 2005, before me, the undersigned,personally appeared **PETER L. KROG**, personally known to me or proved to meon the basis of satisfactory evidence to be the individual(s) whose name(s) is(are) subscribed to the within instrument and acknowledged to me thathe/she/they executed the same in his/her/their capacity(ies), and that byhis/her/their signature(s) on the instrument, the individual(s), or the personupon behalf of which the individual(s) acted, executed the instrument.

                                                                                                   /s/ Richard P. Tamulski                                                                                                                                           Notary Public

                                                                                                                   RICHARD P. TAMULSKI                                                                                                          NOTARY PUBLIC, STATE OF NY,                                                                                                          QUALIFIED IN ERIE COUNTY, MY                                                                                                           COMMISSION EXPIRES 3/30/2006

STATE OF NEW YORK )                                            :ss.COUNTY OF ERIE )

On the _____ day of October, in the year 2005, before me, the undersigned,personally appeared **WILLIAM H. BURNS, JR.**, personally known to me orproved to me on the basis of satisfactory evidence to be the individual(s) whosename(s) is (are) subscribed to the within instrument and acknowledged to me thathe/she/they executed the same in his/her/their capacity(ies), and that byhis/her/their signature(s) on the instrument, the individual(s), or the personupon behalf of which the individual(s) acted, executed the instrument.

                                                                                                  /s/ Richard P. Tamulski                                                                                                                                           Notary Public

                                                                                                                   RICHARD P. TAMULSKI                                                                                                          NOTARY PUBLIC, STATE OF NY,                                                                                                          QUALIFIED IN ERIE COUNTY, MY                                                                                                           COMMISSION EXPIRES 3/30/2006

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