**EXHIBIT 10.38**

 

**EXECUTION COPY**

 

**SUB-LEASE**

 

            THIS SUBLEASE is made and entered into by and	between Cohen Brothers of Lexington, Inc., a Kentucky corporation, located	at 740 Rockcastle Avenue, Lexington, Kentucky 40505 (the "Sublessee") and	Industrial Services of America, Inc., a Florida corporation, located at 7100	Grade Lane, Building 1, Louisville, KY 40213 (the "Sublessor").

 

            **WITNESSETH**:

 

1.         TERM - The Term of the Sublease shall	commence on March 1, 2007 and continue

through	January 31, 2012 (the "Term").

 

2.         DESCRIPTION OF PREMISES - The premises	subject to this Sublease consists of the premises generally described as "1	1/2 acres of 1-2 zoned land" located at 1400 Cahill Drive, located in	Lexington Kentucky as outlined on Exhibit "A" attached hereto and by	reference made a part hereof (hereinafter referred to as the "Premises")

 

3.         	[Intentionally Deleted].

 

4.         USE OF PREMISES - The Premises shall be	used and occupied by Sublessee as a scrap metal processing facility, as well	as any and all lawful uses related thereto.  Sublessee agrees to abide by	all applicable zoning regulations and not to commit or suffer waste; to	operate in a safe/sound manner and abide by all EPA and OSHA laws, not to	assign this lease, sublet or underlet the Premises or any part thereof, or	permit the sale of the interest therein by legal process, without the	written consent of the Sublessor.  Any licenses or permits necessary for	Sublessee to operate its business on the Premises will be procured at the	Sublessee's expense.  The Sublessee may not occupy or use the Premises for	any other purpose without the written consent of the Sublessor.  Sublessee	shall obey, observe and promptly comply with all valid present and future	laws, ordinances, rules, regulations, orders and requirements of the United	States of America, the Commonwealth of Kentucky, the City of Lexington,	Kentucky, and of any or all governmental authorities or agencies having	authority over said Premises and the occupancy thereof.  Sublessee shall not	use the Premises or permit same to be used for any unlawful or illegal	purpose.  Sublessee will not do, nor permit anything to be done, in, upon,	or about the subleased Premises that increases the fire hazard beyond that	which will exist by reason of the ordinary use or occupancy of the Premises	set forth above.  Sublessee will not do or permit to be done anything in,	about or upon the subleased Premises that interferes with the rights of, or	tends to annoy, other Sublessees of Sublessor; that conflict with the	regulations of the Fire Department or Board of Health; that creates a	nuisance; or that is dangerous to persons or property.  Sublessee shall not	use nor permit to be used on the Premises anything that will invalidate any	policies of insurance which may now or hereafter be carried on said Premises	or increase the rate of insurance thereon; and any increase in insurance	premiums on said Premises which may be caused by the use made thereof by	Sublessee shall be paid by Sublessee.

 

5.         ACCESS TO PREMISES - During the Term,	access to the property by the Sublessee shall be limited to the regular	hours of operation of the Sublessor unless Sublessor otherwise expressly	grants approval.  Sublessor and its duly authorized agents, employees,	officers and independent contractors shall have access to the Premises	during normal business hours for the purposes of ascertaining that Sublessee	is carrying out the terms, conditions and provisions hereof, and to properly	make any necessary repairs, improvements and alterations by reason of	Sublessee's default under the terms of this Lease or otherwise.

 

6.         	RENT -

 

            The rent for use of the Premises during the	Term shall be four thousand five hundred ($4,500) dollars per month.

 

            Notwithstanding anything to the contrary	contained elsewhere in this Agreement, the Sublessor hereby waives the	payment of rent for the first month of this sub-lease (i.e. March 1st, 2007	through March 31st, 2007).

 

            Monthly rental payments shall be due and	payable on the first day of each and every month.  In the event a monthly	rent payment is paid after the fifth day of a month, such payment shall be	deemed late and shall be subject to a 5% late fee (i.e., 5% of the monthly	rent payment) payable along with such payment.

 

7.         	SECURITY DEPOSIT - Intentionally Deleted.

 

8.         SUBJECT TO OVERLEASE - This Sublease is	subject to an Overlease (the "Overlease") entered into on February 15, 2005	between the Sublessor and the Landlord, C & R Asphalt ("Landlord").  The	Sublessee hereby acknowledges that it has read and agrees to be bound by the	terms of the Overlease.  Sublessee acknowledges that this Sublease is	contingent on the continuation of the Overlease.

 

9.         OVERTENANT'S DUTIES - The Overlease	describes the Landlord's duties.  The Sublessee, as a third party	beneficiary of the Overlease, shall have right to enforce the terms of the	Overlease in the event the Sublessor fails to enforce its rights under the	Overlease.  Such right shall be subject to Sublessee providing notice to the	Sublessor of the default specifying the particulars of such default; and	further subject to a thirty (30) day period for the Sublessor to cure such	default.

 

10.       QUIET ENJOYMENT AND TITLE - The	Sublessor covenants, warrants and represents that it has full right and	power to execute and perform the Sublease and this agreement and to grant	the estate demised herein, and covenants that the Sublessee, on paying the	rent herein and performing the covenants and agreements hereof, shall	peaceably and quietly have, hold and enjoy the Premises and all rights,	easements, appurtenances and privileges belonging or in anyway appertaining	thereto, during the term of the Sublease and any extension or renewal	thereof.

 

11.       IMPROVEMENTS - Sublessee acknowledges	that it is renting the Premises in an "as is" condition and shall provide	all improvements that it deems necessary or desirable, provided, however,	that no material improvements shall be made to the Premises without	Sublessor's prior written consent.  In the event Sublessee desires to make a	material improvement, Sublessee shall submit a plan to Sublessor outlining	such proposed change at least thirty (30) days prior to any proposed	construction.  If said plans are acceptable to the Sublessor, written	consent will be given to the Sublessee.  Any permission given by the	Sublessor to make structural changes or alterations shall be on the	condition that the work shall be at Sublessee's expense, unless otherwise	agreed in writing, and shall be in accordance with the building code and	zoning laws of the Lexington Metro.  All necessary approvals, consents, and	licenses necessary to perform the proposed improvements shall be the	responsibility of the Sublessee, performed at the cost of the Sublessee; and	shall be performed by licensed contractors.  All additions, fixtures and	improvements upon said Premises by the Sublessee shall thereafter be the	property of the Sublessor.  Sublessee may, at any time during the Term of	this Sublease or at its termination, sever and remove all of its mechanical	equipment and other personal property owned by it or placed on Premises by	Sublessee during the Term of this Sublease, provided, that (i) such removal	shall be done so as not to cause damage to the Premises, and (ii) at such	time all rental payments due to Sublessor are paid in full.  Sublessee shall	repair, at Sublessee's expense, any damages to the Premises caused by such	removal.

 

12.       LIENS - Sublessee shall keep the	property and premises free from any mechanic's, materialman's, or similar	liens or other such encumbrances in connection with any alterations on or	respecting the Premises and shall indemnify and hold Landlord and Sublessor	harmless from and against any claims, liabilities, judgments, or costs	(including attorney fees) arising out of the same or in connection	therewith.  Sublessee shall give Landlord and Sublessor notice at least	thirty (30) days prior to the commencement of any alterations on the	Premises (or such additional time as may be necessary under applicable laws)	to afford Landlord and Sublessor the opportunity of posting and recording	appropriate notices of nonresponsibility.  Sublessee shall remove any such	lien or encumbrance within ten (10) days after written notice by Landlord or	Sublessor, and if Sublessee shall fail to do so, Landlord or Sublessor may	pay the amount necessary to remove such lien or encumbrance, without being	responsible for making any investigation as to the validity thereof, and the	amount so paid shall be deemed additional rent due and payable upon demand	without limitation as to other remedies available to landlord under this	Sublease.  Any claim to a lien or encumbrance upon the Property or Premises	arising in connection with any alterations on or respecting the Premises not	performed by or at the request of Landlord or Sublessor, shall be null and	void, or at Landlord's or Sublessor's option shall attach only against	Sublessee's interest in the Premises and shall in all respects be	subordinate to Landlord's and/or Sublessor's title to the Property and	Premises.  The non-removal of a lien on the Premises within ten (10) days	after receipt of written notice from Landlord and/or Sublessee, which lien	was connected with acts and/or omissions of the Sublessee, shall be	considered a material default of this Sublease.

 

13.       UTILITIES - Sublessee, during the term	of the Sublease, shall pay all charges for utilities, including but not	limited to, gas, electricity, telephone, heat, sewage, and water supplied to	the Premises.  Sublesse agrees to place all utilities with respect to the	Premises in Sublessee's name and to pay the cost of the utilities directly	to the respective companies.  Sublessee covenants and agrees that at all	times the use of electric current shall never exceed the capacity of the	existing feeders to the building.

 

14.       REFUSE AND WASTE - Sublessee agrees not	to allow garbage or refuse or abandoned objects or equipment to accumulate	in or remain upon the Premises.  Sublessee shall be responsible for having	its garbage disposed of, at its own expense, and shall be responsible at its	own expense for any fines or assessments by the City of Lexington,	Commonwealth of Kentucky, related thereto.

 

15.       REPAIRS AND MAINTENANCE - Sublessee	accepts the Premises, buildings and improvements in "as in" condition. 	Sublessee shall keep and maintain in a clean and orderly condition the	Premises and make at its own expense all repairs and necessary replacements,	including, but without limitation, repairs or replacement of windows, doors,	glass (which shall be replaced with glass of the same size and quality),	electrical systems, plumbing, and sewage lines on the Premises, fixtures,	interior walls, floor covering, ceilings, and all appliances within the	Premises.  Sublessee shall keep all sidewalks clean and unobstructed and	free from ice and snow and shall maintain the grounds and landscaping. 	Sublessee shall, at its expense, make all repairs and additions to the	Premises as required by any governmental agency for health or safety. 	Should Sublessee, in Sublessor's sole reasonable opinion, fail to properly	maintain, repair, or replace those items for which Sublessee is responsible,	Sublessor may proceed to make said repairs or replacements and recover the	cost of same from Sublessee, as additional rent.

 

16.       SIGNS - Sublessee shall be entitled to	post one (1) sign at the front entrance of the Premises, subject to prior	approval of the Sublessor (which shall not to be unreasonably withheld). 	The posting of such sign and panel shall be in compliance with any	applicable laws, regulations and/or ordinances and

 

17.       	PROHIBITION OF CERTAIN ACTIVITIES AND USES

 

            (i)         Sublessee covenants and agrees	that it will not carry on or permit any use or process in or upon the	Premises in such manner as will emit noxious or offensive odors or result in	excessive noise or vibration, or which results in the discharge or release	of any hazardous wastes, hazardous substances, hazardous materials,	contaminates, pollutants, oil and fractions of oil, or chemicals into the	environment, (including without limitation, the sewer system).  Sublessee	further agrees not to treat, dispose, accumulate or store any hazardous	wastes, hazardous substances, hazardous materials, contaminates, pollutants,	oil and fractions of oil, or chemicals upon the Premises, unless such	treatment, disposal, storage or accumulation is permitted by all applicable	governmental and/or quasi governmental entities and has been agreed to by	Sublessor.  Sublessor, its agents and/or employees shall have the right to	enter upon the Premises to make inspections as may be necessary or desirable	to insure compliance by the Sublessee with the provisions of this	paragraph.  If the inspections identify noncompliance, arising from any act,	course of conduct or omission to act of the Sublessee, Sublessee's	employees, agents, contractors or customers or suppliers, then the Sublessee	shall reimburse Sublessor, without limitation, for the cost of such	inspections.

 

            (ii)        The Sublessee shall be solely	responsible for the removal, remediation and elimination of any hazardous	wastes, hazardous substances, hazardous materials, contaminates, pollutants,	oil and fractions of oil, or chemicals upon the Premises arising from any	act, course of conduct, or omission to act of Sublessee, Sublessee's	employees, agents, contractors, customers or suppliers and shall proceed	with due diligence with such removal, remediation and elimination on demand.

 

18.       SURRENDER OF PREMISES - Upon the	expiration or other termination of this Sublease, Sublessee shall quit and	surrender to Sublessor the Premises as well as all equipment contained	therein, in good working order and condition, ordinary wear and tear	excepted.

 

19.       HOLDING OVER - In the event Sublessee	remains in possession of the Premises after the expiration of the term of	this Sublease, such holding over shall not constitute a renewal or extension	of this Sublease.  The Sublessor may, at its option, elect to treat	Sublessee as one who has not vacated at the end of its term, and thereupon	be entitled to all the remedies provided to the Sublessor by law in that	situation, or the Sublessor may elect, at its option, to construe such	holding over as a tenancy from month-to-month, subject to all the terms and	conditions of this lease, except as to duration thereof, and in that event	the Sublessee shall pay monthly rent, at a rate equal to one and one-half	(1.5) times the monthly rent.  The foregoing provisions shall not serve to	extend the term or constitute waiver of the Sublessor's rights.  Sublessee	shall remain bound to comply with all provisions of this Sublease until	Sublessee vacates the Premises.

 

20.       TAXES - During the term of this Sublease	the Sublessor shall pay all ad valorem real estate taxes that may be	assessed against the Premises, including without limitations, any	improvements.

 

21.       LIABILITY INSURANCE - Sublessee shall,	at its own cost and expense, maintain and provide public liability insurance	on the Premises for occurrences where it is deemed legally liable naming	Sublessor and Landlord as an additional insured in the amount of $1,000,000	per occurrence, for injuries to or the death of one or more persons and/or	property damage and $5,000,000 in the aggregate.  Said public liability	policy, or certificate thereof, shall provide that it may not be canceled	without such insurance carrier giving Sublessor thirty (30) days notice of	its intention to do so.  Said certificate of insurance shall be delivered to	Sublessor together with proof of payment of premium therefore prior to, or	simultaneously with the signing of this agreement.  During the term of this	Sublease, Sublessee shall furnish, upon request, to Sublessor copies of the	policies or certificates evidencing such insurance.

 

22.       DAMAGE TO PREMISES - If the Premises are	destroyed or damaged by fire or other casualty, or damaged thereby to the	extent that Sublessee is deprived of occupancy of all or a significant	portion of the Premises, all rent shall be abated until the Premises are	repaired by Sublessor.  If the Premises are so substantially destroyed that	the Sublessor decides in its sole reasonable discretion not to repair or	rebuild, Sublessor, within thirty (30) days after the damage is incurred,	may terminate this Sublease by notice to the Sublessee.  If the Premises are	partially destroyed or damaged, whereby the Sublessee shall be deprived of	only a portion of said Premises, the Sublessor may cancel this Sublease or	rebuild at its option.  If Sublessor chooses to rebuild, a proportionate	allowance shall be made from the rent during the period required for such	repairs, in the proportion which the number of square feet of which the	Sublessee is deprived by such damage and the making of such repairs bears to	the total square feet of the Premises.  Upon restoration of the building and	Premises, Sublessee shall continue the operation of the business and rent	shall resume at its normal rate.

 

23.       INDEMNIFICATION - The Sublessee agrees	to and does hereby indemnify and hold harmless Sublessor, its divisions,	subsidiaries and assigns from any and all liability, loss, damage, cost or	expense (including legal expenses and reasonable counsel fees), arising out	of or in connection with (i) any breach or alleged breach of this agreement	asserted by a third party, (ii) any third party claim which is inconsistent	with any of the warranties or representations made by the Sublessee in this	agreement and/or (iii) any such damage or injury to person or property	caused by or resulting from negligence, willful misconduct or any wrongful	act or omission to act on part of the Sublessee, its employees and/or	agents, provided the said claim has been settled with Sublessee's consent	(which shall not be unreasonably withheld) or has been reduced to a final	judgment, and the Sublessee agrees to reimburse Sublessor its divisions,	subsidiaries and assigns on demand for any payment made at any time after	the date hereof in respect of any liability or claim in respect of which	Sublessor its divisions, subsidiaries and assigns are entitled to be	indemnified.  The Sublessee will receive prompt written notice of each claim	and shall have the right to participate in the defense thereof with counsel	of Sublessee's own choice and at Sublessee's own expense, provided, however,	that Sublessor shall have the right at all times to maintain control of the	conduct of the defense.  This indemnity shall survive any termination and/or	expiration of this Agreement.

 

24.       ASSIGNMENT - Sublessee shall not assign	this Sublease, in whole or in part, without the written consent of Sublessor. 	If such consent is granted, said assignment shall be subject to all of the	terms and conditions set forth herein.  In the event that the Premises are	sold to any purchaser other than the Sublessee, such sale shall be made	expressly subject to all of the terms, covenants, and conditions of this	Sublease.  Sublessee shall not sublease all or any part of the Premises.

 

25.       CONDEMNATION - In the event the Premises	are appropriated or otherwise taken or the use thereof is canceled or	materially impaired, not due to any act or omission on the part of Sublessee,	under the power of eminent domain or by paramount authority, the Sublessee	or Sublessor shall have the right and option to terminate this Sublease by	giving notice of such intention to the other within thirty (30) days after	Sublessor receives notice of condemnation from the condemning authority, the	termination date to be at least sixty (60) days after the date of such	termination notice.  If this Sublease is not so terminated, there shall be	an appropriate reduction of rent in the proportion by which the number of	square feet of which the Sublessee is deprived by such taking bears to the	total square feet in the Premises.

 

26.       DEFAULT - If Sublessee shall fail to pay	any installment of rent promptly on the day when the same shall become due,	and shall continue in default for a period of ten (10) business days after	receipt of written notice thereof by Sublessor, or if Sublessee shall fail:	(1) to promptly keep and perform any other material affirmative covenant,	term or condition of this Sublease; and (2) to commence such performance in	good faith in accordance with the terms of this Sublease; and shall continue	in default for a period of ten (10) business days after receipt of written	notice thereof by Sublessor, then and in any such event, and as often as any	such event shall occur, provided Sublessee has failed to cure such default	within ten (10) business days.  Sublessor may, at its sole election and in	addition to any and all other remedies provided by law or contained in this	Sublease, declare this Sublease terminated and enter into and upon the	Premises and take back same from Sublessee.  In such event, Sublessee shall	not be released from the rent past due, or future rent, or from the payment	of damages for the breach of this Sublease by Sublessee.  Furthermore, in	the event of a default of the terms of this Sublease, the Sublessor shall be	reimbursed by the Sublessee for all legal fees incurred by the Sublessor in	connection with the enforcement of the terms of this Agreement.  All	remedies of Sublessor shall be cumulative or alternate, and the exercise of	one remedy shall not waive the exercise of any other remedy.

 

27.       BROKERS - Sublessor and Sublessee	acknowledge neither party engaged a real estate broker or agent in	connection with this Sublease transaction.

 

28.       BANKRUPTCY - If at any time during the	term of this Lease, Sublessee is adjudged bankrupt or insolvent, either as a	result of voluntary or involuntary proceedings, by a court of competent	jurisdiction, or if Sublessee makes an assignment for the benefit of	creditors, or if a receiver is appointed for Sublessee, then, and in any of	such events, Sublessor may declare this lease forfeited, canceled, and	terminated without further action on the part of Sublessor or Sublessee, and	Sublessor may at once re-enter and take possession of the Premises, but in	no event shall Sublessee be relieved of any liability theretofore incurred	for rent or on account of the violation of any of the terms, conditions and	covenants of this Lease.

 

29.       WAIVER OF REQUIREMENTS - No forbearance	by Sublessor in the enforcement of any forfeiture or the breach of any	covenant by the Sublessee shall impair or waive the right to rely upon or	enforce such forfeiture or breach, or any subsequent forfeiture or breach,	and the acceptance by the Sublessor of a portion or of all of the rent which	may be due shall not constitute a waiver of any forfeiture or any breach or	of any damages or rent due to Sublessor by Sublessee.

 

30.       LEASE ACCEPTANCE - This agreement	contains all the oral and written agreements, representations and	arrangements between the parties hereto.  Any rights which the respective	parties hereto may have under any previous contracts or oral arrangements	are hereby canceled and terminated, and no representations or warranties are	made or implied other than as set forth herein.  This lease may not be	amended or modified except by a duly executed written instrument entered	into by the parties hereto.  All the covenants and agreements herein made	shall extend to and be binding upon the representatives, successors in	interest and assigns of Sublessor and of Sublessee.  In the event that, at	any future time, one or more clauses of this lease shall be held to be void	by any court of competent jurisdiction for any reason, such clauses shall be	deemed to be separable and the remainder of this lease shall be deemed to be	valid and in full force and effect.

 

31.       NON-COMPETE - Sublessor agrees that	during the Term of this Sub-Lease, Sublessor will not own and operate a	scrap metal processing facility within a twenty (20) mile radius of the	Premises.

 

32.       NOTICES - If at any time after the	execution of this Lease it shall become necessary for one of the parties	hereto to serve any notice, demand or communication upon the other party,	such notice, demand or communication shall be in writing signed by the party	serving the same delivered by the registered or certified United States	mail, return receipt requested; and

 

           	a)         If intended for Sublessee, shall be addressed to:

 

	                        Baker Iron and Metal, Company

	                        740 Rockcastle Avenue

	                        Lexington, Kentucky 40505

 

           	b)         If intended for Sublessor, shall be addressed to:

 

	                        ISA

	                        P.O. Box 32428

	                        Louisville, Kentucky 40232

 

           	c)         If intended for Landlord, shall be addressed to:

 

	                        C & R Asphalt Land Acquisition Company, LLC

	                        2136 Ladera Lane

	                        Lexington, Kentucky 40514

 

or to such other address as either party may have	furnished to the other in writing as the place for service of notice.  Any	notice so mailed shall be deemed to have been given as of the time the same	is received by the party to whom the notice is being sent.

 

33.       MISCELLANEOUS - This agreement shall be	governed by the laws of the Commonwealth of Kentucky.  The terms, conditions	and covenants of this Sub-Lease shall be binding upon and shall inure to the	benefit of each of the parties successors and assigns.  This agreement may	be executed in one or more counterparts, each of which together shall	constitute one instrument.

 

            **IN WITNESS WHEREOF**, the signatures of	the Sublessor and Sublessee, by their authorized respective officer or	parties, as of this 28th day of February, 2007.

 

**COHEN	BROTHERS OF LEXINGTON, INC.        INDUSTRIAL SERVICES OF AMERICA, INC.**

 

 

	By: /s/ Kenneth Cohen                           	                     By: /s/ Harry Kletter

 

	Name:    Kenneth Cohen                                             Name:  Harry Kletter

 

	Title: President                                                             Title:  CEO

 

 

**ACKNOWLEDGED AND CONSENTED TO:**

 

**C & R	ASPHALT LAND ACQUISITION COMPANY, LLC**

 

 

	By:______________________________

 

	Name:____________________________

 

	Title:_____________________________

 

 
 

 

**INDUSTRIAL SERVICES OF AMERICA, INC.**

7100 GRADE LANE, BUILDING #1

LOUISVILLE, KENTUCKY 40213

 

March 7, 2007

 

C & R Asphalt LandAcquisition Company, LLC

102 Furlong Trail

Nicholasville, KY40356

Attn: WilliamBlair

 

Re:      1400Cahill Drive, Lexington, Kentucky

 

Dear Mr. Blair.

 

           Reference is made to the Lease Agreement (the "Lease') dated February 15, 2005between Industrial Services of America, Inc. ("ISA") and C & R Asphalt LandAcquisition Company, LLC (the "Landlord").

 

            Thisshall confirm that the sub-tease of the Premises (as defined in the Lease) byISA to Cohen Brothers of Lexington, Inc. based in Lexington, Kentucky (the"Sub-Tenant") is hereby deemed consented to provided the terms of the underlyingLease remain in full force and effect.

 

           Without limiting the generality of the foregoing ISA agrees to remain liable tothe Landlord for compliance with all of the terms of the Lease.  Said liabilityshall be joint and several with the Sub-Tenant.

 

            If theforegoing meets with your approval, please sign in the space provided below andkindly return a copy to us.

 

                                                                       Sincerely,

 

**                                                                       INDUSTRIAL SERVICES OF AMERICA, INC.**

 

                                                                        By: /s/ Harry Kletter

                                                                                   Harry Kletter

                                                                                   President

 

**CONSENTED TOAND AGREED TO:**

 

**C & R ASPHALTLAND ACQUISITION COMPANY, LLC**

 

By: /s/ WilliamBlair

           William Blair

            Member