Exhibit 10.2


 


AGREEMENT
REGARDING TERMINATION OF LEASES


 


This Agreement regarding Termination of Leases (the “Agreement”)
is entered into this 20th day of October, 2004, by and among PROFESSIONAL REAL
ESTATE SERVICES, INC., a California corporation (“PRES”), SMITH & NEPHEW,
INC., a Delaware corporation (“Smith & Nephew”) and dj ORTHOPEDICS, LLC, a
Delaware limited liability company (“dj Orthopedics”) with reference to the
following:


 


A.                                   dj
Orthopedics is the ground lessee under that certain ground lease between STETMAN &
MORRIS PROPERTIES, a California general partnership (“Stetman & Morris”),
as ground lessor, dated January 12, 2001 (the “Ground Lease”), whereby dj
Orthopedics leases from Stetman & Morris real property containing
approximately two hundred eighty-five thousand (285,000) net square feet
located at the intersection of Business Park Drive and Scott Street in the City
of Vista, California, more particularly described in the attached Exhibit “A”
(the “Ground Leased Premises”).  The
Ground Lease has been amended by a Modification of Lease dated June 30, 2001
and a Modification of Lease No. 2 dated July 26, 2001.  A Memorandum of Lease evidencing the Ground
Lease was recorded on July 27, 2001 as Document No. 2001-0527433 in the
Official Records of San Diego County, California.


 


B.                                     Smith
& Nephew is the tenant under an Amended and Restated Lease Agreement
between Stetman & Morris as landlord and Professional Care Products, Inc.,
a California corporation, as tenant, dated September 21, 1995 by which Professional
Care Products, Inc. leased from Stetman & Morris real property and
improvements located thereon known as 2985 and 3105 Scott Street, Vista,
California (the “2985 and 3105 Scott Lease”). 
A Memorandum of Lease evidencing the 2985 and 3105 Scott Lease was
recorded on October 6, 1995 as Document No. 1995-0451246 in the Official
Records of San Diego County, California. 
Professional Care Products Inc. assigned its interest in the 2985 and
3105 Scott Lease to Smith & Nephew DonJoy, Inc. by Assignment of Lease,
Consent and Estoppel Certificate dated as of September 21, 1995, which was
recorded on November 16, 1995, as Document No. 1995-0522114 in the Official
Records of San Diego County, California. 
Smith & Nephew DonJoy, Inc. was merged into Smith & Nephew
effective as of November 30, 1996.  As a
result of the assignment and merger, Smith & Nephew is the current tenant
under the 2985 and 3105 Scott Lease.  The
2985 and 3105 Scott Lease has been amended by Amendment No. 1 to Amended and
Restated Lease Agreement dated June 9, 1997.


 


C.                                     Pursuant
to a Sublease dated June 30, 1999 between dj Orthopedics and Smith &
Nephew, dj Orthopedics subleases 2985 and 3105 Scott Street, Vista, California
from Smith & Nephew (the “2985 and 3105 Scott Sublease”).


 


D.                                    Smith
& Nephew is the tenant under a Lease Agreement between Stetman &
Morris, as landlord, and Smith & Nephew, as tenant, dated June 9,
1997 by which Smith & Nephew leases from Stetman & Morris
real property and improvements located thereon known as 2980 Scott Street,
Vista, California (the “2980 Scott Lease”). 
A Memorandum of Lease evidencing the 2980 Scott Lease was recorded on
April 8, 1998 as Document No. 1998-0198211 in the Official Records of San
Diego County, California.  The 2980 Scott
Lease was amended by 


 





















 


a First Amendment to Lease Agreement dated November 17, 1997, and by a
Second Amendment to Lease Agreement and Agreement Regarding Lease Terms dated
February 21, 1998.


 


E.                                      Pursuant
to a Sublease dated June 30, 1999 between dj Orthopedics and Smith &
Nephew, dj Orthopedics subleases 2980 Scott Street from Smith & Nephew (the
“2980 Scott Sublease”).


 


F.                                      PRES
has entered into a Purchase and Sale Agreement and Joint Escrow Instructions
with Stetman & Morris dated June 30, 2004, as amended (the “Purchase
Agreement”), whereby PRES has agreed to buy from Stetman & Morris, and
Stetman & Morris has agreed to sell to PRES, the Ground Lease Premises and
2980, 2985 and 3105 Scott Street, and, upon consummation of the purchase and
sale, the Ground Lease, the 2985 and 3105 Scott Lease and 2980 Scott Lease will
be assigned to PRES.


 


G.                                     As
of October 20, 2004, PRES and dj Orthopedics have entered into a new lease for
the Ground Leased Premises and certain improvements to be constructed thereon
by PRES (the “New Lease”), which New Lease shall be effective upon satisfaction
of the condition precedent set forth in Section 18.19 of the New Lease (the “New
Lease Condition Precedent”).


 


H.                                    Subject
to certain conditions hereinafter described having occurred, PRES, Smith & Nephew
and dj Orthopedics desire to terminate the Ground Lease, the 2985 and 3105
Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease and the
2980 Scott Sublease on the terms and conditions herein contained.


 


NOW, THEREFORE, it is hereby agreed as follows:


 


1.                                       Termination
of Ground Lease.  In the event that
PRES acquires the Ground Lease Premises, PRES and dj Orthopedics agree to
terminate the Ground Lease on the later of (a) the acquisition by PRES of the
Ground Lease Premises or (b) the execution of the New Lease.  From and after such termination, dj
Orthopedics shall have no further obligation to pay rent under the Ground
Lease.


 


2.                                       Forgiveness
of Payment.  In the event that the
Ground Lease is terminated as hereinabove provided in Section 1, the payment
described in Section 2.2.a of the Ground Lease in the amount of Two Hundred
Fifty Thousand Dollars ($250,000.00) shall be forgiven and need not be paid by
dj Orthopedics to PRES.


 


3.                                       Termination
of 2985 and 3105 Scott Lease and 2980 Scott Lease.  Upon termination of the 2985 and 3105 Scott
Sublease, as hereinafter provided in Section 4, PRES and Smith & Nephew
agree that the 2985 and 3105 Scott Lease shall terminate.  Upon termination of the 2980 Scott Sublease,
as hereinafter provided in Section 4, PRES and Smith & Nephew agree
that the 2980 Scott Lease shall terminate. 
Neither PRES nor Smith & Nephew shall owe anything to the other
as a result of such terminations.  From
and after such termination, Smith and Nephew shall have no further obligation
under the 2985 and 3105 Scott Lease or the 2980 Scott Lease, except for
obligations that survive the termination of the applicable lease pursuant to
the terms of such lease.


 


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4.                                       Termination
of 2980 and 3105 Scott Sublease and 2985 Scott Sublease.  In the event that PRES acquires 2980, 2985
and 3105 Scott Street from Stetman & Morris, PRES, Smith & Nephew and
dj Orthopedics agree that the 2980 and 3105 Scott Sublease and the 2985 Scott
Sublease shall terminate on the later of the “Commencement Date” of the New
Lease or the date that dj Orthopedics vacates 2980, 2985 and 3105 Scott Street
and leaves the buildings in broom-clean and good condition, as described in
Section 5 hereafter (the “Termination Date”). 
The term “Commencement Date” is defined in Paragraph 5 of the
Fundamental Lease Provisions of the New Lease, which definition is incorporated
herein by reference.  From and after the
Termination Date, dj Orthopedics shall have no further obligation to pay rent
under the 2985 and 3105 Scott Sublease or the 2980 Scott Sublease.  Upon the Termination Date, PRES shall refund
the $50,000 security deposit, which was paid pursuant to Section 4.4 of the
2985 and 3105 Scott Lease, in accordance with written instructions signed by
both dj Orthopedics and Smith & Nephew. 
Upon the Termination Date, each party hereby releases each of the other
parties hereto from any and all liabilities arising under the Ground Lease, the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease, except for obligations that survive the
termination of the applicable lease or sublease pursuant to the terms of such
lease or sublease.


 


5.                                       Vacation
of 2980, 2985 and 3105 Scott Street. 
dj Orthopedics agrees to vacate 2980, 2985 and 3105 Scott Street within
thirty (30) days following the Commencement Date of the New Lease.  As part of such vacation, dj Orthopedics
shall remove all of its personal property, furniture and trade fixtures and
shall leave the buildings broom-clean and in good condition, subject to
reasonable wear and tear.  To the extent
that dj Orthopedics vacates all or a portion of 2980, 2985 and 3105 Scott
Street early as set forth in the last sentence of Section 7, the 2985 and 3105
Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease or the 2980
Scott Sublease, as applicable, shall be amended effective as of the date of
vacation to exclude therefrom, and terminate as to, the portion of 2980, 2985
or 3105 Scott Street so vacated.  Other
than excluding the vacated portion of 2980, 2985 or 3105 Scott Street, all
other terms and conditions of the 2985 and 3105 Scott Lease, the 2980 Scott
Lease, the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease shall
remain in full force and effect until the Termination Date without amendment,
including the provisions therein pertaining to the payment of rent.  Notwithstanding the vacation of all or any
portion of 2980, 2985 and/or 3105 Scott Street and the termination of the
applicable sublease and lease, until the Termination Date, dj Orthopedics shall
continue to pay rent, real property taxes, insurance premiums and all other
amounts payable by dj Orthopedics under the 2985 and 3105 Scott Sublease and
the 2980 Scott Sublease to Smith & Nephew and Smith & Nephew
shall continue to pay the same under the 2985 and 3105 Scott Lease and the 2980
Scott Lease to PRES or its successors. 
Notwithstanding the above, (a) dj Orthopedics shall pay such amounts
directly to PRES or its successors and any amount so paid to PRES or its
successors shall be credited against any amounts owing by Smith & Nephew
under the preceding sentence, (b) Smith & Nephew shall have no obligation
to pay any amount under the 2985 and 3105 Scott Lease and the 2980 Scott Lease
unless dj Orthopedics pays the corresponding amount to Smith & Nephew under
the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease and (c) Smith
& Nephew shall have no obligations or liability whatsoever with respect to
the vacated space of any type, including, without limitation, obligations or
liabilities (i) to PRES under the 2985 and 3105 Scott Lease or the 2980 Scott
Lease, (ii) to dj Orthopedics under the 2985 and 3105 Scott Sublease and the
2980 Scott Sublease, or (iii) to the New Tenant, 


 


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except, in the case of (i) and (ii) above, for obligations that survive
the expiration of the applicable lease or sublease pursuant to the terms of
such lease or sublease.


 


6.                                       Lump
Sum Rent.  dj Orthopedics has agreed
to make an initial payment of rent (the “Lump Sum Rent”) under Section 5.9 of
the New Lease and Smith & Nephew shall have no obligations to make any
payment or any other consideration or contribute to the Lump Sum Rent.


 


7.                                       Refund
of All or a Portion of the Lump Sum Rent. 
Under the circumstances described in this Section and in the event the
Lump Sum Rent has been paid under the New Lease, on February 20, 2008, or as
soon thereafter as is reasonably necessary to make a final accounting, PRES (or
its successors in interest as to the 2980, 2985 and 3105 Scott Street, Vista,
California) shall refund the “Excess Lump Sum Rent” (as hereinafter defined),
if any, to dj Orthopedics.  As used
herein, the term “Excess Lump Sum Rent” means the Lump Sum Rent paid pursuant
to Section 5.9 of the New Lease after modifying the Lump Sum Rent as follows:


 


(a)                                  There
shall be deducted from such amount PRES’ or its successors’ reasonable and
customary out-of-pocket expenses (other than expenses with respect to tenant
improvements) in leasing the buildings, or space within the buildings, located
on 2980, 2985 and 3105 Scott Street. 
Such reasonable expenses shall include an “Equitable Portion” of any
brokerage commission paid in connection with the obtaining of any new lease,
license agreement or other agreement providing for use and occupancy (“Occupancy
Agreement”).  The Equitable Portion shall
be a portion of the total brokerage commission paid as to any such Occupancy
Agreement (including payment to an affiliate of PRES or its successors as long
as the total commission paid is commercially reasonable), such portion being
the amount allocated to the period between the commencement date of such new
Occupancy Agreement and February 20, 2008, the total commission being
allocated proportionately over the base term of such Occupancy Agreement
(without regard to options to extend the base term).


 


(b)                                 There
shall be deducted from such amount a portion of any tenant improvements or any
tenant improvement allowance paid by PRES or its successors, such portion being
the amount thereof allocated to the period between the commencement date of the
Occupancy Agreement and February 20, 2008, the total tenant improvements being
allocated proportionately over the longer of (1) ten (10) years or (2) the base
term of such Occupancy Agreement (without regard to options to extend the base
term).


 


(c)                                  There
shall be deducted from such amount “Lost Rent”, “Lost Taxes” and “Lost
Insurance Premiums” suffered by PRES or its successors for the period between
the Termination Date and February 20, 2008. 
“Lost Rent” means the excess of (1) the rent that would have been paid
by dj Orthopedics under the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease for such period; over (2) the rent or other consideration in lieu of
rent (including key money and bonus money and any payment in excess of fair
market value for services rendered by PRES to New Tenant (as defined below) or
assets, fixtures, inventory, equipment, or furniture transferred by New Tenant
(as defined below) to PRES in connection with the Occupancy Agreement) that
PRES or its successors receives from any new tenant, licensee or occupant
(each, a “New Tenant”) under an Occupancy Agreement(s) for such period.  Any “free rent” payable under an Occupancy
Agreement shall be amortized over the base term (without regard to options to
extend the base term) under any such Occupancy Agreement.  PRES agrees 


 


4





















 


that rental increases, if any, under any such Occupancy Agreement shall
be commercially reasonable such that an artificially low rent is not charged
during the portion of the term of the Occupancy Agreement prior to
February 20, 2008 and an artificially high rent is charged for the period
after the Termination Date.  “Lost Taxes”
means the excess of (1) the real property taxes and general and special
assessments payable on 2980, 2985 and 3105 Scott Street that dj Orthopedics
would have paid under the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease for such period; over (2) the real property taxes and general and
special assessments paid on 2980, 2985 and 3105 Scott Street paid by New
Tenant(s) for such period.  “Lost
Insurance Premiums” means the excess of (1) the insurance premiums that dj
Orthopedics would have paid under the 2985 and 3105 Scott Sublease and the 2980
Scott Sublease for such period; over (2) the insurance premiums paid on 2980,
2985 and 3105 Scott Street by New Tenant(s) for such period.


 


(d)                                 There
shall be added to such amount (1) to the extent not credited in the calculation
of the Lump Sum Rent pursuant to Section 5.9 of the New Lease, if dj
Orthopedics vacates all or a portion of 2980, 2985 or 3105 Scott Street early
as set forth in the last sentence of this Section 7, the amount of any rent or
other consideration in lieu of rent (including key money and bonus money and
any payment in excess of fair market value for services rendered by PRES to New
Tenant or assets, fixtures, inventory, equipment, or furniture transferred by
New Tenant to PRES in connection with the Occupancy Agreement) that PRES or its
successors earns from New Tenant(s) under an Occupancy Agreement(s) (such
amounts being calculated by allocating the amount to be paid under such
Occupancy Agreement evenly over the term of such Occupancy Agreement) with
respect to all or a portion of 2980, 2985 or 3105 Scott Street for period
before the Termination Date and (2) the amount of any “Excess Rent”, “Excess
Taxes” and “Excess Insurance Premiums;” provided, however, that
in no event will the amounts credited pursuant to this Section 7(d) exceed the
amount of the Lump Sum Rent.  “Excess
Rent” means the excess of (1) the rent or other consideration in lieu of rent
(including key money and bonus money and any payment in excess of fair market
value for services rendered by PRES to New Tenant or assets, fixtures,
inventory, equipment, or furniture transferred by New Tenant to PRES in
connection with the Occupancy Agreement) that PRES or its successors earns from
New Tenant(s) under an Occupancy Agreement(s) for the period between the
Termination Date and February 20, 2008 (such amounts being calculated by
allocating the amount to be paid under any Occupancy Agreement evenly over the
term of such Occupancy Agreement); over (2) the rent that would have been paid
by dj Orthopedics under the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease.  “Excess Taxes” means the
excess of (1) the real property taxes and general and special assessments payable
on 2980, 2985 and 3105 Scott Street paid by New Tenant(s) for the period
between the termination of the 2985 and 3105 Scott Sublease and the 2980 Scott
Sublease and February 20, 2008; over (2) the real property taxes and general
and special assessments payable on 2980, 2985 and 3105 Scott Street that dj
Orthopedics would have paid under the 2985 and 3105 Scott Sublease and the 2980
Scott Sublease for such period.  “Excess
Insurance Premiums” means the excess of (1) the insurance premiums paid by New
Tenant(s) for the period between the termination of the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease and February 20, 2008; over (2) the
insurance premiums that dj Orthopedics would have paid under the 2985 and 3105
Scott Sublease and the 2980 Scott Sublease tenants for such period.


 


5





















 


(e)                                  The Adjusted
Base Rent (as defined in the New Lease) shall be recalculated to equal the rent
that would have been paid under the “2985 and 3105 Scott Sublease” and the “2980
Scott Sublease” based on the escalation in rent amounts that actually would
have occurred.  If (1) the Adjusted Base
Rent as recalculated is less than (2) the Adjusted Base Rent as originally
calculated in determining the Lump Sum Rent, then the
Excess Lump Sum Rent shall be reduced by the difference
between (2) and (1).  If (1) the Adjusted
Base Rent as recalculated is greater than (2) the Adjusted Base Rent as
originally calculated in determining the Lump Sum Rent, then the
Excess Lump Sum Rent shall be increased by the
difference between (1) and (2).


 


By way
of example, assume that the Lump Sum Rent is Two Million Dollars
($2,000,000.00).  Assume further that
PRES (or its successors) incur reasonable and customary expenses in leasing the
buildings (other than brokerage commission) in the amount of Twenty-Five
Thousand Dollars ($25,000.00).  Further
assume that brokerage commission paid to obtain the new leases is Two Hundred
Thousand Dollars ($200,000.00) and that Fifty Thousand Dollars ($50,000.00) of
such amount is allocated to the period of time between the commencement date of
the new leases and February 20, 2008 (as provided in paragraph (a)
above).  Assume further that the tenant
improvements and tenant improvement allowances paid by PRES (or its successor)
as landlord under the new leases is Five Hundred Thousand Dollars ($500,000.00)
and that One Hundred Thousand Dollars ($100,000.00) of such amount is allocated
to the period of time between the commencement date of the new leases and February
20, 2008 (as provided in paragraph (b) above). 
Assume further that the “Lost Rent” is One Million Dollars
($1,000,000.00) (based upon rent payable by dj Orthopedics from the termination
of the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease to February 20,
2008 being Four Million Dollars ($4,000,000.00) and the rent paid by the new
tenants under their leases for such period being Three Million Dollars
($3,000,000.00)).  Assume further that
Landlord pays real property taxes and insurance premiums during such period for
which it is not reimbursed by tenants in the amount of One Hundred Thousand
Dollars ($100,000.00). Assume further that the Adjusted Base Rent (as
recalculated as provided in paragraph (e) above) is $10,000 less than the
Adjusted Base Rent as originally calculated in determining the Lump Sum
Rent.  As a result of these assumptions,
the total deduction from the Lump Sum Rent to determine the Excess Lump Sum
Rent is One Million Two Hundred Sixty-Five Thousand Dollars ($1,265,000.00) and
the Excess Lump Sum Rent is Seven Hundred Thirty-Five Thousand Dollars
($735,000.00).


 


In no
event shall the Excess Lump Sum Rent exceed the Lump Sum Rent.


 


If a
proposed Occupancy Agreement is (1) not on an arm’s length basis or (2) with an
affiliate of PRES or its successors, PRES shall not enter into such Occupancy
Agreement without the prior consent of dj Orthopedics, which consent shall not
be unreasonably withheld.  dj Orthopedics
shall have the right to audit the books and records of PRES or its successors
relating to the calculation of the Excess Lump Sum Rent, including a right to
review any Occupancy Agreements, any brokers agreement(s) relating to such
lease, real property tax bills and records relating to payment of insurance
premiums.  In the event that dj
Orthopedics desires to audit the books and records of PRES or its successors,
it shall give written notice thereof to PRES or its successor within one
hundred twenty (120) days following receipt of the Excess Lump Sum Rent or a
statement from PRES or its successors that no Excess Lump Sum Rent is
owing.  If dj Orthopedics fails to give
such notice, it shall be deemed to have waived its right to 


 


6





















 


audit the books and records.  Any
such audit shall be conducted within thirty (30) days after dj Orthopedics’
notice at the principal place of business of PRES or its successors and at a
time mutually agreed to by the parties.


 


dj
Orthopedics agrees to cooperate with PRES or its successors in their releasing
efforts by making available (and vacating) any unused space within the 2980,
2985 and 3105 Scott Street buildings at the earliest date that is consistent
with dj Orthopedics’ space needs as determined by dj Orthopedics in good faith.


 


8.                                       Waiver
of Certain Rights.  Smith &
Nephew and dj Orthopedics waive and relinquish any and all rights of first
offer, rights of first refusal, options to purchase or similar rights, if any,
under the Ground Lease, the 2985 and 3105 Scott Lease, the 2980 Scott Lease,
the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease, as applicable.


 


9.                                       Representations
and Warranties of dj Orthopedics.  dj
Orthopedics represents and warrants to PRES and Smith & Nephew the
following, each of which shall survive the termination of the Ground Lease, the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease contemplated hereby:


 


(a)                                  dj
Orthopedics is the current ground lessee under the Ground Lease.


 


(b)                                 dj
Orthopedics has not assigned, transferred or hypothecated all or any portion of
its ground leasehold interest under the Ground Lease.


 


(c)                                  dj
Orthopedics is the current subtenant under the 2985 and 3105 Scott Sublease and
the 2980 Scott Sublease.


 


(d)                                 dj
Orthopedics has not assigned, transferred or hypothecated all or any portion of
its subleasehold interest under the 2985 and 3105 Scott Sublease or the 2980
Scott Sublease.


 


(e)                                  dj
Orthopedics has the right and authority to enter into this Agreement and to
carry out the transactions contemplated hereby including the termination of the
Ground Lease, the 2985 and 3105 Sublease and the 2980 Scott Sublease.


 


(f)                                    All
necessary consents and approvals for dj Orthopedics to enter into this
Agreement and to carry out the transactions contemplated hereby, including the
termination of the Ground Lease, the 2985 and 3105 Sublease and the 2980 Scott
Lease, have been obtained.


 


(g)                                 This
Agreement has been duly executed and validly entered into by dj Orthopedics and
is enforceable against dj Orthopedics in accordance with its terms.


 


(h)                                 To
the best of dj Orthopedics’ current actual knowledge without investigation,
there is no zoning law violation, building code violation or other violation of
any law, ordinance or regulation with regard to the improvements located on
2980, 2985 and 3105 Scott Street and it has received no notice of any such
violation.


 


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(i)                                     To
the best of dj Orthopedics’ knowledge, there is no pending or threatened
condemnation action with regard to the Ground Leased Premises or 2980, 2985 or
3105 Scott Street.


 


(j)                                     To
the best of dj Orthopedics’ knowledge, there are no “Hazardous Materials” (as
defined below) stored, used, generated, released, disposed of or discharged on,
under or about the Ground Leased Premises, or 2980, 2985 or 3105 Scott Street
in violation of any applicable law, rule or regulation.  The term “Hazardous Materials” includes,
without limitation, any material or substance which is (i) defined or listed as
a “hazardous waste”, “extremely hazardous waste”, “restrictive hazardous waste”
or “hazardous substance” in, or considered a waste, condition of pollution or
nuisance under, any federal, state or local law, statute, ordinance or
regulation pertaining to health, industrial hygiene or environmental
conditions; (ii) defined as hazardous material or hazardous substance in
California Health and Safety Code Section 25501; (iii) petroleum or a petroleum
product or fraction thereof; (iv) asbestos; (v) lead in water, paint or
elsewhere; and/or (vi) known by the State of California to cause cancer and/or
reproductive toxicity.  Notwithstanding
the foregoing, the presence and/or use of the following substances shall not be
deemed a violation of this Section if stored, formulated, used or tested at or
on the Ground Leased Premises, or 2980, 2985 or 3105 Scott Street in accordance
with all applicable laws, rules and regulations:  office supplies, cleaning supplies,
construction supplies, herbicides, insecticides, fertilizers, and other garden
products, rodenticides, chemicals and specimens used in biological or
pharmaceutical research, pharmaceuticals and pharmaceutical supplies and
chemicals, in each case stored, fabricated, used or tested at or on the Ground
Leased Premises, or 2980, 2985 or 3105 Scott Street in the ordinary course of
dj Orthopedics’ business.


 


10.                                 Representations
and Warranties of Smith & Nephew. 
Smith & Nephew hereby represent and warrant to PRES and dj
Orthopedics as follows, each of which shall survive the termination of the 2985
and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease
and the 2980 Scott Sublease contemplated hereby:


 


(a)                                  Smith
& Nephew is the current lessee under the 2985 and 3105 Scott Lease and the
2980 Scott Lease and the current sublessor under the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease.


 


(b)                                 Smith
& Nephew has not assigned, transferred or hypothecated all or any portion
of its interest under the 2985 and 3105 Scott Lease, the 2980 Scott Lease, the
2985 and 3105 Scott Sublease or the 2980 Scott Sublease and has made no
assignment, transfer or hypothecation of any of the rents owing to it under the
2985 and 3105 Scott Sublease and the 2980 Scott Sublease.


 


(c)                                  Smith
& Nephew has the right and authority to enter into this Agreement and to
carry out the transactions contemplated hereby including the termination of the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease.


 


(d)                                 All
necessary consents to the execution of this Agreement and the carrying out of
the transactions by Smith & Nephew, including the termination of the 2985
and 3105 


 


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Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease and
the 2980 Scott Sublease have been obtained.


 


(e)                                  This
Agreement has been duly executed and delivered by Smith & Nephew and is
enforceable against Smith & Nephew in accordance with its terms.


 


(f)                                    To
the best of Smith & Nephew’s current actual knowledge, without
investigation, Smith & Nephew has received no notice of any zoning law
violation, building code violation or other violation of any law, ordinance or
regulation with regard to the improvements located on 2980, 2985 and 3105 Scott
Street.


 


(g)                                 To
the best of Smith & Nephew’s knowledge, Smith & Nephew has received no
notice of any pending or threatened condemnation action with regard to 2980,
2985 or 3105 Scott Street.


 


11.                                 Representations
and Warranties of PRES.  PRES hereby
represents and warrants to Smith & Nephew and dj Orthopedics as
follows, each of which shall survive the termination of the Ground Lease, the
2985 and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott
Sublease and the 2980 Scott Sublease contemplated hereby:


 


(a)                                  PRES
has entered into a Purchase Agreement to acquire the Ground Lease Premises and
2980, 2985 and 3105 Scott Street.


 


(b)                                 PRES
has the right and authority to enter into this Agreement and to carry out the
transactions contemplated hereby including, upon acquisition of the Ground
Leased Premises, the termination of the Ground Lease, and upon acquisition of
2980, 2985 and 3105 Scott Street, the termination of the 2985 and 3105 Scott
Lease and the 2980 Scott Lease.


 


(c)                                  All
necessary consents and approvals for PRES to enter into this Agreement and to
carry out the transactions contemplated hereby have been obtained.


 


(d)                                 This
Agreement has been duly executed and delivered by PRES and is enforceable
against PRES in accordance with its terms.


 


12.                                 PRES
Affiliate.  PRES has disclosed to
Smith & Nephew and dj Orthopedics that prior to the consummation of the
acquisition of the Ground Leased Premises and 2980, 2985 and 3105 Scott Street,
it is likely that it will assign its rights under the purchase agreement and
the resulting escrow to an affiliate of PRES and that such affiliate will
acquire such real property.  In such
event PRES agrees that it shall cause such affiliate to assume its obligations
under this Agreement.  Such assignment
shall not relieve PRES of its obligations hereunder.


 


13.                                 Ground
Lease, Leases and Subleases to Remain in Effect.  Until the applicable termination thereof as
herein provided occurs, the Ground Lease, the 2985 and 3105 Scott Lease, the
2980 Scott Lease, the 2985 and 3105 Scott Sublease and the 2980 Scott Sublease
shall remain in full force and effect. 
In the event that the Ground Lease has not terminated at the time PRES
acquires the Ground Leased Premises, dj Orthopedics agrees to recognize PRES
(or its successor) as the landlord (ground lessor) under the Ground Lease and
to attorn to PRES (or its successor) in accordance with the terms of the Ground
Lease.  In the event that the 2985 and 


 


9





















 


3105 Scott Lease and the 2980 Scott Lease have not terminated as of the
time PRES acquires 2980, 2985 and 3105 Scott Street, such leases shall remain
in full force and effect and Smith & Nephew shall recognize PRES (or its
successor) as the landlord under such leases and agrees to attorn to PRES (or
its successor) in accordance with the terms of such leases.


 


14.                                 Termination
of Memoranda.  The memoranda of the
Ground Lease, the 2985 and 3105 Scott Lease and the 2980 Scott Lease described
in the recitals of this Agreement shall terminate effective as of the
termination of the leases which they evidence, and at such time the appropriate
party or parties agree to execute any instruments necessary to remove same from
the official records.  The parties agree
that Smith & Nephew shall not be responsible for any recording fees in
connection with such instruments.


 


15.                                 Holding
Over.  In the event that dj
Orthopedics does not vacate 2980, 2985 or 3105 Scott Street within thirty (30)
days following the Commencement Date of the New Lease as hereinabove provided
in Section 5, dj Orthopedics shall be deemed a holdover tenant from and after
such date and shall pay to Smith & Nephew as a holdover tenant one
hundred fifty percent (150%) of the monthly rent otherwise payable hereunder
and Smith & Nephew agree that such holdover rent, if received from dj
Orthopedics, shall be passed on and paid to PRES (or its successor).


 


16.                                 Prorations.  In the event that the Ground Lease, the 2985
and 3105 Scott Lease, the 2980 Scott Lease, the 2985 and 3105 Scott Sublease or
the 2980 Scott Sublease is terminated on a day other than the last day of a
calendar month, rent payable thereunder and any real or personal property taxes
or assessments payable thereunder shall be appropriately prorated.


 


17.                                 Effectiveness;
Termination.  It is a condition
precedent to the effectiveness of this Agreement (except for Section 18(a) and
this Section 17, which shall be in full force and effect as of the date hereof)
that the New Lease Condition Precedent shall have been satisfied.  If dj Orthopedics or PRES terminates the New
Lease pursuant to and in accordance with Section 18.19 of the New Lease, then
this Agreement shall terminate effective upon the termination of the New Lease.


 


18.                                 Miscellaneous.


 


(a)                                  Attorneys’
Fees.  In the event that a dispute
arises under this Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party(ies) its reasonable attorneys’ fees and
out-of-pocket costs and expenses.


 


(b)                                 Waiver.  No waiver of any breach of the terms,
covenants, agreements, restrictions or conditions of this Agreement shall be
construed as a waiver of any succeeding breach of the same or other covenants,
agreements, restrictions and conditions hereof. 
Any waiver to be effective shall be in writing and signed by the party
against whom such waiver is sought.


 


(c)                                  Notices.  Whenever in this Agreement, it shall be
required or permitted that notice or demand be given or served by any party to
this Agreement to any other party, such notices or demands shall be given or served,
and shall not be deemed to have been duly given or served unless said notice or
demand is in writing and is either personally served upon the person 


 


10





















 


for whom intended, sent by overnight courier to the address set forth
for said party below, mailed by registered or certified mail, with postage
prepaid, addressed to the party for whom intended at the address set forth
below or sent by facsimile transmission to the facsimile for said party set forth
below for said party with an additional copy sent on the same day by registered
or certified mail as above provided.  Any
party may change its address or facsimile number by notifying the other party
in writing as to such new address and/or facsimile number as such party may
desire to use which new address and/or facsimile number shall continue as the
address and/or facsimile number until further written notice.  Any party may require an additional copy of
any notice or demand be sent by notifying the other parties in writing of the
name of the person or entity to receive such copy and the address and facsimile
number where it is to be sent.  Any notice or
demand shall be deemed given or served upon actual receipt or attempted
delivery thereof and refusal to accept same by personal delivery, mail or
nationally recognized overnight courier at the location at which they are to be
sent pursuant to this Section 18(c).  Any notice or demand served on a party shall
be served concurrently on all parties. 
The addresses and facsimile numbers for notices and demands are as
follows:


 


	
  PRES:

  	
   

  	
  Professional Real Estate Services, Inc.

  
	
   

  	
   

  	
  1201 Dove Street, Suite 100

  
	
   

  	
   

  	
  Newport Beach, California, 92660

  
	
   

  	
   

  	
  Attention: John W. Fitzgibbon, Executive Vice
  President

  
	
   

  	
   

  	
  Fax: (909) 442-1925

  
	
   

  	
   

  	
   

  
	
  dj Orthopedics:

  	
   

  	
  dj Orthopedics, LLC

  
	
   

  	
   

  	
  2985 Scott Street

  
	
   

  	
   

  	
  Vista, CA 92081

  
	
   

  	
   

  	
  Attn: Don Roberts, General Counsel

  
	
   

  	
   

  	
  Facsimile Number: (760) 734-7536

  
	
   

  	
   

  	
   

  
	
  Smith & Nephew:

  	
   

  	
  Smith & Nephew, Inc.

  
	
   

  	
   

  	
  1450 Brooks Road

  
	
   

  	
   

  	
  Memphis, TN 38116

  
	
   

  	
   

  	
  Attention: General Counsel

  
	
   

  	
   

  	
  Fax: (901) 399-1174

  



 


(d)                                 Entire
Agreement.  This Agreement is and
shall be considered to be the only agreement among the parties hereto on the
subject matter hereof, and all negotiations or oral agreements are included
herein.


 


(e)                                  Inurement.  Each of the covenants, conditions and
agreements herein contained shall inure to the benefit of and shall apply to
and be binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, or any person who may
come into possession of any portion of the real property or any part thereof in
any manner whatsoever.


 


(f)                                    Captions.  The captions of the Sections of this
Agreement are for convenience only and are not a part of this Agreement and do
not in any way limit or amplify the terms and provisions hereof.


 


11





















 


(g)                                 Time
of the Essence.  Time is of the
essence of each and every provision of this Agreement.


 


(h)                                 Business
Day.  As used herein, a business day
is any day other than a Saturday or Sunday or legal holiday in the State of
California.


 


(i)                                     Counterparts.  This Agreement may be executed in any number
of counterparts which when taken together shall constitute one fully executed
instrument as though all signatures appeared on one copy thereof.


 


(j)                                     Indemnity.  dj Orthopedics hereby agrees to indemnify,
defend and hold harmless Smith & Nephew from any and all losses, claims,
damages or liabilities arising out of or caused by any breach by dj Orthopedics
of any of its obligations under this Agreement.


 


(k)                                  Assignment.  This Agreement may not be assigned by any
party hereto; provided  however that PRES may assign this
Agreement to a successor purchaser to which PRES assigns the Purchase Agreement.


 


(l)                                     Third
Party Beneficiaries.  This Agreement
is made solely and specifically between and for the benefit of the parties
hereto, and their respective successors and permitted assigns subject to the
express provisions hereof relating to successors and assigns, and no other
person or party shall have any rights, interest, or claims hereunder or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise


 


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


 


	
   

  	
  PROFESSIONAL
  REAL ESTATE SERVICES, INC.,

  
	
   

  	
  a California
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
					



 


12





















 


	
   

  	
  dj ORTHOPEDICS,
  LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SMITH &
  NEPHEW, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  
						



 


13





















 


EXHIBIT “A”


 


LEGAL DESCRIPTION
OF GROUND LEASE PREMISES


 


 


[SEE ATTACHED]


 


 


EXHIBIT “A”