Document:

Exhibit 10.1

 

 

 

 

 

 

STANDARD
INDUSTRIAL COMMERCIAL MULTI-TENANT LEASE – NET

AIR COMMERCIAL REAL ESTATE ASSOCIATION

1.         Basic Provisions (“Basic Provisions”)

1.1       Parties: This Lease (“Lease”), dated for reference
purposes only August 3, 2007 is made by and between Irvine Business
Properties, a California General Partnership                               

(“Lessor”) and Pro-Dex, Inc., a
Colorado corporation (“Lessee”), (collectively the “Parties”, or
individually a “Party”). 

1.2(a)   Premises: That certain portion of the Project (as
defined below), including all improvements therein or to be provided by Lessor
under the terms of this Lease, commonly known by the street address of  2361
McGaw Avenue (the “Building”), located in the City of Irvine, County
of Orange, State of California, with zip code 92614, as outlined
on Exhibit A attached hereto and consisting of (describe bristly the
nature of the Premises):  approximately 28,180 square feet of office and
industrial space in the Building (as depicted on the attached Exhibit A (the
“Premises”) together with a license to use ninety-nine (99) unreserved,
in-common within the parking areas on the parcel depicted on attached
Exhibit B3 (the “Parking License”) (See Addendum Paragraph 51.). In addition to
Lessee’s rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the any utility raceways of the building
containing the Premises (“Building”) and to the Common Areas (as defined in
Paragraph 2.7 below), but shall not have any rights to the roof or exterior
walls of the Building or to any other buildings in the Project. The Premises,
the Building, the Common Areas, the land upon which they are located, along
with all other buildings and improvements thereon, are herein collectively
referred to as the “Project.” (See also Paragraph 2)

1.2(b)   Parking: ninety-nine (99) unreserved vehicle
parking spaces. (See also Paragraph 2.6)

1.3       Term: ten (10)  years and zero (0) months
(“Original Term”) commencing on the Commencement Date (as defined in
Addendum Paragraph 53) and ending ten (10) years thereafter (“Expiration
Date”). (See also Paragraph 3)

1.4       Early Possession: immediately upon Lease execution
(“Early Possession Date”).  (See also Paragraphs 3.2 and 3.3)

1.5       Base Rent: $30, 998.00 per month (“Base Rent”),
payable on the first (lst) day of each month commencing on the
Commencement Date . (See also Paragraph 4)  þ If this box is checked, there are provisions in this Lease for the Base Rent to
be adjusted.

1.6       Lessee’s Share of Common Area Operating Expenses:  sixty-five 
percent (65%) (“Lessee’s Share”). Lessee’s Share has been calculated by
dividing the approximate square footage of the Premises by the approximate
square footage of the Project. In the event that the size of the Premises
and/or the Project are modified during the term of this Lease, Lessor shall
recalculate Lessee’s Share to reflect such modification.

1.7       Base Rent and Other Monies Paid Upon Execution:

(a)        Base Rent: $30,998.00 for the first thirty
(30) days of the Original Term.

(b)        Common Are Operating Expenses: $3,736.00 for
the first thirty 30) days of the Original Term.

(c)        Security Deposit: $40,297.00   (“Security
Deposit”). (See also Paragraph 5)

(d)        Other: $________ for  ____________________________________.

(e)        Total Due Upon Execution of this Lease: $75,031.00

 

 

 

 

 

 

 

 

 

 

1.8       Agreed Use: General business office, sales, training,
light assembly, metal and  plastic machine operations and associated processes,
warehouse, distribution, and other related lawful uses consistent with the
Existing Zoning and Paragraph 58 of the Addendum. (See also Paragraph 6)

1.9       Insuring Party. Lessor is the “Insuring Party”, (See
also Paragraph 8)

1.10     Real Estate Brokers: (See also Paragraph 15)

(a)        Representation: The following real estate brokers
(the “Brokers”) and brokerage relationships exist in this transaction (check
applicable boxes):

þGrubb & Ellis Company (Gary Allen) represents Lessor exclusively
(“Lessor’s Broker”);

þCresaPartners (Jeffrey Sheppard) represents Lessee exclusively
(“Lessee’s Broker”); or

o
___________________________ represents both Lessor and Lessee (“Dual Agency.

(b)        Payment to Brokers: Subject to paragraph 15, below,
upon execution and delivery of this Lease by both Parties, Lessor shall pay to
Lessor’s Broker the brokerage fee subject to the terms of a separate written
agreement for the brokerage services rendered by Lessor’s Broker.

1.11     Guarantor. The obligations of the Lessee under this
Lease are to be guaranteed by None (“Guarantor”). (See also Paragraph
37)

1.12     Attachments. Attached hereto are the following, all of
which constitute a part of this Lease:

þ
an Addendum consisting of Paragraphs 50 through 74;

þ
a site plan depicting the Premises; Exhibit A

þ
a site plan depicting the Project; Exhibit B

þ
a current set of the Rules and Regulations for the Project; Exhibit C

o
a current set of the Rules and Regulations adopted by the owners’ association;

þ
a Work Letter; Exhibit D;

þ
other (specify); Environmental Questionnaire and Disclosure Statement
(Exhibit E) Lease Rider No. 1 - Permitted Transfers

2.         Premises.

2.1       Letting. Lessor hereby leases to Lessee, and Lessee
hereby leases from Lessor, the Premises, for the term, at the rental, and upon
all of the terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of size set forth in this Lease, or
that may have been used in calculating Rent, is an approximation which the
Parties agree is reasonable and any payments based thereon are not subject to
revision whether or not the actual size is mom or less. NOTE: Lessee is advised
to verify the actual size prior to executing this Lease.

 

 

 

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2.2       Condition. Lessor shall deliver that portion of the
Premises contained within the Building (“Unit”) to Lessee broom clean and free
of debris on the Commencement Date or the Early Possession Date, whichever
first occurs (“Start Date”), and, so long as the required service contracts
described in Paragraph 7.1(b) below are obtained by Lessee and in effect within
thirty days following the Start Date, warrants that the existing electrical,
plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning
systems (“HVAC”), loading doors, sump pumps, if any, and all other such
elements in the Unit, other than those constructed by Lessee (or required to be
constructed by Lessee), shall be in good operating condition on said date, that
the structural elements of the roof, bearing walls and foundation of the Unit
shall be free of material defects, and that the Unit does not contain hazardous
levels of any mold or fungi defined es toxic under applicable state or federal
law. If a non-compliance with such warranty exists as of the Start Date, or it
one of such systems or elements should malfunction or fail within the
appropriate warranty period. Lessor shall, as Lessor’s sole obligation with
respect to such matter, except as otherwise provided in this Lease, promptly
after receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, malfunction or failure, rectify same
at Lessors expense. The warranty periods shall be as follows, (i) 6 months as
to the HVAC systems, and (ii) 30 days as to the remaining systems and other
elements of the Unit, commencing on the Start Date. If Lessee does not give
Lessor the required notice within the appropriate warranty period, correction
of any such non-compliance, malfunction or failure shall be the obligation of
Lessee at Lessee’s sole cost and expense (except for the repairs to the fire
sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7).

2.3       Compliance. Lessor warrants that to the best of its
actual knowledge the improvements on the Premises and the Common Areas comply
with the building codes that were in effect at the time that each such
improvement, or portion thereof, was constructed, and also with all applicable
laws. covenants or restrictions of record, regulations, and ordinances in
effect on the Start Date only, including Premises compliance with the ADA and
Title 24 without regard to Tenant’s intended use for the Premises without
regard to the applicability, enforcement or implementation of such requirements
in connection with the construction of the Tenant improvements or Tenant’s use
of the Premises (“Applicable Requirements”). Said warranty does not apply to the
use to which Lessee will put the Premises, modifications which may be required
by the Americans with Disabilities Act or any similar laws as a result of
Lessee’s use (see Paragraph 49), or to any Alterations or Utility Installations
(as defined in Paragraph 7.3(a)) made or to be made by Lessee or improvements
that may be required by laws, covenants, restrictions and regulations otherwise
applicable to or resulting from the Lessee improvements or Tenant’s use of the
Premises. NOTE: Lessee is responsible for determining whether or not the
Applicable Requirements and especially the zoning are appropriate for Lessee’s
intended use, and acknowledges that past uses of the Premises may no longer be
allowed. It the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
rectify the same at Lessor’s expense, provided, however, if Lessee does not
give Lessor written notice of a non-compliance with this warranty within 6
months following the Start Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee’s sole cost and expense. If the Applicable
Requirements are hereafter changed so as to require during the term of this
Lease the construction of an addition to or an alteration of the Unit, Premises
and/or Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Unit, Premises and/or
Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of
such work as follows:

(a)        Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last 2 years of this Lease and the cost
thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease
unless Lessor notifies Lessee, in writing, within 10 days after receipt of
Lessee’s termination notice that Lessor has elected to pay the difference
between the actual cost thereof and the amount equal to 6 months’ Base Rent. If
Lessee elects termination, lessee shall immediately cease the use of the
Premises which requires such Capital Expenditure and deliver to Lessor written
notice specifying a termination date at least 90 days thereafter. Such
termination date shall, however, in no event be earlier than the last day that
Lessee could legally utilize the Premises without commencing such Capital
Expenditure.

 

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(b)        If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor shall pay for such Capital
Expenditure and Lessee shall only be obligated to pay, each month during the
remainder of the term of this Lease, on the date that on which the Base Rent is
due, an amount equal to 144th of the portion of such costs reasonably
attributable to the Premises. Lessee shall pay interest on the balance but may
prepay its obligation at any time. If, however, such Capital Expenditure is
required during the last 2 years of this Lease or if Lessor reasonably
determines that it is not economically feasible to pay its share thereof,
Lessor shall have the option to terminate this Lease upon 90 days prior written
notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after
receipt of Lessor’s termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and deduct
same, with interest, from Rent until Lessor’s share of such costs have been
fully paid, if Lessee is unable to finance Lessors share, or if the balance of
the Rent due and payable for the remainder of this Lease is not sufficient to
fully reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon 30 days written notice to Lessor. In any case, the
parties agree that the Agreed Use defined in Paragraph 1.8 shall not be
considered a specific and unique use of the Premises.

(c)        Notwithstanding the above, the provisions concerning
Capital Expenditures are intended to apply only to non-voluntary, unexpected,
and new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use, change
in intensity of use, or modification to the Premises then, and in that event,
Lessee shall either: (i) immediately cease such changed use or intensity of use
and/or take such other steps as may be necessary to eliminate the requirement
for such Capital Expenditure, or (ii) complete such Capital Expenditure at its
own expense. Lessee shall not have any right to terminate this Lease.

2.4       Acknowledgements. Lessee acknowledges that: (a) it has
been advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC,
roof, and fire sprinkler systems, security, environmental aspects, and
compliance with Applicable Requirements and the Americans with Disabilities
Act), and their suitability for Lessee’s intended use, (b) Lessee has made such
investigation as it deems necessary with reference to such matters and assumes
all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any
oral or written representations or warranties with respect to said matters
other than as set forth in this Lease. In addition, Lessor acknowledges that:
(i) Brokers have made no representations, promises or warranties concerning
Lessee’s ability to honor the Lease or suitability to occupy the Premises, and
(ii) it is Lessor’s sole responsibility to investigate the financial capability
and/or suitability of all proposed tenants.

2.5       Intentionally Omitted.

 

 

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2.6       Vehicle Parking. Lessee shall be entitled to use the
number of parking spaces specified in Paragraph 1.2(b) on those portions of the
Common Areas designated from time to time by Lessor for parking. Lessee shall
not use more parking spaces than said number. Said parking spaces shall be used
for parking by vehicles no larger than full-size passenger automobiles or
pick-up trucks, herein called “Permitted Size Vehicles.” Lessor may regulate
the loading and unloading of vehicles by adopting Rules and Regulations as provided
in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked
in the Common Area without the prior written permission of Lessor. In addition:

(a)        Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee’s employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
in areas other than those designated by Lessor for such activities.

(b)        Lessee shall not service or store any vehicles in the
Common Areas.

(c)        If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee,
without any liability thereto, which cost shall be immediately payable upon
demand by Lessor.

2.7       Common Areas Definition. The term “Common Areas” is
defined as all areas and facilities outside the Premises and within the exterior
boundary line of the Project and interior utility raceways and installations
within the Unit that are provided and designated by the Lessor from time to
time for the general non-exclusive use of Lessor, Lessee and other tenants of
the Project and their respective employees, suppliers, shippers, customers,
contractors and invitees, including parking areas, loading and unloading areas,
trash areas, roadways, walkways, driveways and landscaped areas.
Notwithstanding the foregoing, Lessee shall be responsible for its own trash
service, water, utilities, electrical services, janitorial services and other
similar services as reasonably determined by Lessor, which shall not constitute
Common Areas.

2.8       Common Areas - Lessee’s Rights. Leaser grants to
Lessee, for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the
non-exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers,
and privileges reserved by Lessor under the terms hereof or under the terms of
any rules and regulations or restrictions governing the use of the Project.
Under no circumstances shall the right herein granted to use the Common Areas
be deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only by
the prior written consent of Lessor or Lessor’s designated agent, which consent
may be revoked at any time. In the event that any unauthorized storage shall
occur then Lessor shall have the right, without notice, and liability in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Lessee, which cost shall be immediately payable
upon demand by Lessor.

2.9       Common Areas - Rules and Regulations. Lessor or such
other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
establish, modify, amend and enforce reasonable rules and regulations (“Rules
and Regulations”) for the management safety, care, and cleanliness of the
grounds, the parking and unloading of vehicles and the preservation of good
order, as well as for the convenience of other occupants or tenants of the
Building and the Project and their invitees. Lessee agrees to abide by and
conform to all such Rules and Regulations, and shall use its best efforts to
cause its employees, suppliers, shippers, customers, contractors and invitees
to so abide and conform. Lessor shall not be responsible to Lessee for the
non-compliance with said Rules and Regulations by other tenants of the Project.

2.10     Common Areas - Changes. Lessor shall have the right, in
Lessor’s sole discretion, from time to time:

 

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

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

(c)        To designate other land outside the boundaries of the
Project to be a part of the Common Areas:

(d)        To change the number of buildings and improvements to
the Common Areas;

(e)        To use the Common Areas while engaged in making
additional improvements, maintenance, repairs or alterations to the Project, or
any portion thereof; and

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

3.         Term.

3.1       Term. The Commencement Date, Expiration Date and
Original Term of this Lease are as specified in Paragraph 1.3.

3.2 Early Possession, If Lessee totally or partially occupies the
Premises prior to the Commencement Date to construct the Lessee improvements
per Exhibit D, the obligation to pay Base Rent and Lessee’s Share of Common
Area Operating Expenses, Real Property Taxes and insurance premiums shall be
abated for the period of such early possession. Any such early possession shall
not affect the Expiration Date.

3.3       See Work Letter Agreement (Exhibit D).

3.4       Lessee Compliance. Lessor shall not be required to
tender possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5).  See Work
Letter Agreement (Exhibit D).

4.         Rent.

4.1       Rent Defined. All monetary obligations of Lessee to
Lessor under the terms of this Lease (except for the Security Deposit) are
deemed to be rent (“Rent”).

4.2       Common Area Operating Expenses. Lessee shall pay to
Lessor during the term hereof, in addition to the Base Rent, Lessees Share (as
specified in Paragraph 7.6) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:

(a)        “Common Area Operating Expenses” are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the Project, including. but not limited to, the
following:

            (i)         The operation, repair and maintenance,
in neat, clean, good order and condition and if necessary the replacement, of
the following:

                        (aa) The Common Areas and Common Area
improvements, including parking areas, loading and unloading areas, trash
areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers,
irrigation systems, Common Area lighting facilities, fences and gates,
elevators, roofs, and roof drainage systems.

                        (bb)      Exterior signs and any tenant
directories.

                        (cc)      Any fire sprinkler systems.

 

 

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            (ii)        The cost of water, gas, electricity and
telephone to service the Common Areas and any utilities not separately metered.

            (iii)       The cost of trash disposal, pest control
services, property management, security services, owners’ association dues and
fees, the cost to repaint the exterior of any structures and the cost of any
environmental inspections.

            (iv)       Reserves set aside for maintenance,
repair and/or replacement of Common Area improvements and equipment.

            (v)        Real Property Taxes (as defined in
Paragraph 10).

            (vi)       The cost of the premiums for the
insurance maintained by Lessor pursuant to Paragraph 8.

            (vii)      Any deductible portion of an insured loss
concerning the Building or the Common Areas.

            (viii)      Auditors’, accountants’ and attorneys’
fees and costs related to the operation, maintenance, repair and replacement of
the Project.

            (ix)       The cost of any capital improvement to
the Building or the Project not covered under the provisions of Paragraph 2.3
provided; however, that Lessor shall allocate the cost of any such capital
improvement over a 12 year period and Lessee shall not be required to pay more
than Lessee’s Share of 7/144th of the cost of such capital improvement in any
given month.

            (x)        The cost of any other services to be
provided by Lessor that are stated elsewhere in this Lease to be a Common Area
Operating Expense.

(b)        Any Common Area Operating Expenses and Real Property
Taxes that are specifically attributable to the Unit, the Building or to any
other building in the Project or to the operation, repair and maintenance thereof,
shall be allocated entirely to such Unit, Building, or other building. However,
any Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Project.

(c)        The inclusion of the improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Project already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.

(d)        Lessee’s Share of Common Area Operating Expenses is
payable monthly on the same day as the Base Rent is due hereunder. The amount
of such payments shall be based on Lessors estimate of the annual Common Area
Operating Expenses. Within 60 days after written request (but not more than
once each year) Lessor shall deliver to Lessee a reasonably detailed statement
showing Lessee’s Share of the actual Common Area Operating Expenses incurred
during the preceding year. If Lessee’s payments during such year exceed
Lessee’s Share, Lessor shall credit the amount of such over-payment against
Lessee’s future payments. If Lessee’s payments during such year were less than
Lessee’s Share. Lessee shall pay to Lessor the amount of the deficiency within
10 days after delivery by Lessor to Lessee of the statement. 

(e)        Common Area Operating Expenses shall not include any
expenses paid by any tenant directly to third parties, or as to which Lessor is
otherwise reimbursed by any third party, other tenant, or insurance proceeds.

 

 

 

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4.3       Payment. Lessee shall cause payment of Rent to be
received by Lessor in lawful money of the United States, without offset or
deduction (except as specifically permitted in this Lease), on or before the
day on which it is due. All monetary amounts shall be rounded to the nearest
whole dollar. In the event that any invoice prepared by Lessor is inaccurate
such inaccuracy shall not constitute a waiver and Lessee shall be obligated to
pay the amount set forth in this Lease. Rent for any period during the term
hereof which is for less than one full calendar month shall be prorated based
upon the actual number of days of said month. Payment of Rent shall be made to
Lessor at its address stated herein or to such other persons or place as Lessor
may from time to time designate in writing. Acceptance of a payment which is
less than the amount then due shall not be a waiver of Lessor’s rights to the
balance of such Rent, regardless of Lessor’s endorsement of any check so
stating. In the event that any check, draft, or other instrument of payment
given by Lessee to Lessor is dishonored for any reason. Lessee agrees to pay to
Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option.
may require all future Rent be paid by cashiers check. Payments will be applied
first to accrued late charges and attorney’s fees, second to accrued interest,
then to Base Rent and Common Area Operating Expenses, and any remaining amount
to any other outstanding charges or costs. See Addendum paragraph 56.

5.         Security Deposit. Lessee
shall deposit with Lessor upon execution hereof the Security Deposit as
security for Lessee’s faithful performance of its obligations under this Lease.
If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may
use, apply or retain all or any portion of said Security Deposit, as determined
solely by Lessor, for the payment of any amount due already due Lessor, for
Rents which will be due in the future, and/or to reimburse or compensate Lessor
for any liability, expense, loss or damage which Lessor may suffer or incur by
reason thereof. It Lessor uses or applies all or any portion of the Security
Deposit. Lessee shall within 10 days after written request therefor deposit
monies with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. If the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional
monies with Lessor so that the total amount of the Security Deposit shall at
all times bear the same proportion to the increased Base Rent as the Initial
Security Deposit bore to the initial Base Rent. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase
the Security Deposit to the extent necessary, in Lessor’s reasonable judgment,
to account for any increased wear and tear that the Premises may suffer as a
result thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessors reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on such change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within 90 days after the expiration or termination of this
Lease, Lessor shall return that portion of the Security Deposit not used or
applied by Lessor. No part of the Security Deposit shall be considered to be
held in trust, to bear interest or to be prepayment for any monies to be paid
by Lessee under this Lease. Lessee acknowledges and agrees that the Security Deposit
may be applied towards any rent or other sum in default or otherwise owing to
Lessor by Lessee following the expiration or earlier termination of this Lease
as allowed under Section 1951.2 of the California Civil Code, In connection
therewith, Lessee hereby waives ‘the provisions of Section 1950.7 of the
California Civil Code.

 

 

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6.         Use.

6.1       Use. Lessee shall use and occupy the Premises only for
the Agreed Use, or any other legal use which is reasonably related comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that is unlawful, creates damage, waste or a nuisance,
or that disturbs occupants of or causes damage to neighboring premises or
properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep
or allow in the Premises any pets, animals, birds, fish, or reptiles.  

6.2       Hazardous Substances.

(a)        Reportable Uses Require Consent. The term “Hazardous
Substance” as used in this Lease shall mean any product, substance. or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or erode oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in or
on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee’s expense) with all Applicable Requirements. “Reportable Use” shall mean
(i) the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be flied with, any
governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements requires
that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, ordinary office supplies (copier toner, liquid paper,
glue, etc.) and common household cleaning materials, so long as such use is in
compliance with all Applicable Requirements, is not a Reportable Use, and does
not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may condition its consent to any Reportable Use upon receiving
such additional assurances as Lessor reasonably deems necessary to protect
itself, the public, the Premises and/or the environment against damage,
contamination, injury and/or liability, including, but not limited to, the
installation (and removal on or before Lease expiration or termination) of
protective modifications (such as concrete encasements) and/or increasing the
Security Deposit.

 

 

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(b)        Duty to inform Lessor, if Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be located
in, on, under or about the Premises, other than as previously consented to by
Lessor (unless the content, concentration, or extent of the Hazardous Substance
has changed, in which event, notice thereof shall be given), Lessee shall immediately
give written notice of such fact to Lessor, and provide Lessor with a copy of
any report, notice, claim or other documentation which it has concerning the
presence of such Hazardous Substance. As of the Start Date, if Lessor has
actual knowledge (without undertaking or the duty to undertake any independent
investigation or inquiry) that a Hazardous Substance has come to be located in,
on under or about the Premises, other than as previously consented to, directly
or indirectly, by Lessee, Lessor shall immediately give written notice of such
fact to Lessee, and provide Lessee with a copy of any report notice, claim or
other documentation which it has concerning the presence of Such Hazardous
Substance.

(c)        Lessee Remediation. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee’s expense, comply with all Applicable Requirements and take
all investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance brought onto the Premises
during the term of this Lease, by or for Lessee, or any third party.

(d)        Lessee Indemnification: Lessee shall indemnify,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys’ and
consultants’ fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee, or any third party (provided, however, that
Lessee shall have no liability under this Lease with respect to underground
migration of any Hazardous Substance under the Premises front areas outside of
the Project not caused or contributed to by Lessee). Lessee’s obligations shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.

(e)        Lessor Indemnification. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages, including
the cost of remediation, which are suffered as a direct result of Hazardous
Substances on the Premises prior to Lessee taking possession or which are
caused by the gross negligence or willful misconduct of Lessor, its agents or
employees. Lessors obligations, as and when required by the Applicable
Requirements, shall include, but not be limited to, the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease. “Agents” of Lessor as used herein
shall not include any prior lessees, tenants or occupants of the Premises.

(f)         Investigations and Remediations. Lessor shall retain
the responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to the Lessee taking
possession, unless such remediation measure is required as a result of Lessee’s
use (including “Alterations”, as defined in paragraph 7.3(a) below) of the
Premises, in which event Lessee shall be responsible for such payment. Lessee
shall cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessors agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor’s investigative and remedial
responsibilities

 

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(g)        Lessor Termination Option. If a Hazardous Substance
Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless
Lessee is legally responsible therefor (in which case Lessee shall make the
investigation and remediation thereof required by the Applicable Requirements
and this Lease shall continue in full force and effect, but subject to Lessor’s
rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s
option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor’s expense, in which
event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to remediate such condition exceeds 12 times the then monthly
Base Rent or $100,000, whichever is greater, give written notice to Lessee,
within 30 days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition, of Lessors desire to terminate this Lease as of
the date 60 days following the date of such notice. In the event Lessor elects
to give a termination notice, Lessee may, within 10 days thereafter, give
written notice to Lessor of Lessee’s commitment to pay the amount by which the
cost of the remediation of such Hazardous Substance Condition exceeds an amount
equal to 12 times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within 30 days following such commitment. In such event, this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time provided, this Lease shall terminate as of
the date specified in Lessor’s notice of termination.

6.3       Lessee’s Compliance with Applicable Requirements.
Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole
expense, fully, diligently and in a timely manner, materially comply with all
Applicable Requirements (applicable to Lessee’s use of the Premises), the
requirements of any applicable fire insurance underwriter or rating bureau,
which relate in any manner to such Requirements, without regard to whether said
Requirements are now in effect or become effective after the State Commencement
Date. Lessee shall, within 10 days after receipt of Lessor’s written request,
provide Lessor with copies of all permits and other documents, and other
information evidencing Lessee’s compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt. notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or
involving the failure of Lessee or the Premises to comply with any Applicable
Requirements. Likewise, Lessee shall immediately give written notice to Lessor
of: (i) any water damage to the Premises and any suspected seepage, pooling,
dampness or other condition conducive to the production of mold, or (ii) any
mustiness or other odors that might indicate the presence of mold in the
Premises,

6.4       Inspection; Compliance. Lessor and Lessor’s “Lender’
(as defined in Paragraph 30) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times after reasonable notice, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease. The cost
of any such inspections shall be paid by Lessor, unless a violation of
Applicable Requirements, or a Hazardous Substance Condition (see Paragraph 9.1)
is found to exist or be imminent, or the inspection is requested or ordered by
a governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspection, so long as such inspection is reasonably
related to the violation or contamination. In addition, Lessee shall provide
copies of all relevant material safety data sheets (MSDS) to Lessor within 10
days of the receipt of written request therefor.

 

 

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7.         Maintenance;
Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1       Lessee’s Obligations.

(a)        In General. Subject to the provisions of Paragraph
2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable
Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises,
Utility Installations (intended for Lessee’s exclusive use, no matter where
located), and Alterations in good order, condition and repair (whether or not
the portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee’s use, any prior use, the
elements or the age of such portion of the Premises), including, but not
limited to, all equipment or facilities, such as plumbing, HVAC equipment,
electrical, lighting facilities, boilers, pressure vessels, fixtures, interior
walls, interior surfaces of exterior walls, ceilings, floors, windows, doors,
plate glass, and skylights but excluding any items which are the responsibility
of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the
service contracts required by Paragraph 7.1(b) below. Lessee’s obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair.

(b)        Service Contracts. Lessee shall, at Lessee’s sole
expense, procure and maintain contracts, terminable at will, with copies to
Lessor, in customary form and substance for, and with contractors specializing
and experienced in the maintenance of the following equipment and improvements,
if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler
and pressure vessels, (iii) clarifiers. and (iv) any other equipment, and (v)
roof drainage and maintenance, if reasonably required by Lessor. However,
Lessor reserves the right, upon notice to Lessee, to procure and maintain any
or all of such service contracts, and Lessee shall reimburse Lessor, upon
demand, for the cost thereof.

(c)        Failure to Perform. If Lessee falls to perform
Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the
Premises after 10 days’ prior written notice to Lessee (except in the case of
an emergency, in which case no notice shall be required), perform such
obligations on Lessee’s behalf, and put the Premises in good order, condition
and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the
cost thereof; provided, however, where the nature of such repair and/or
maintenance is such that same cannot be reasonably completed within such ten
(10) day period, Lessee shall have additional time to cure such default
provided that Lessee has commenced such repair and/or maintenance within such
ten (10) day period and diligently prosecutes such repair and/or maintenance to
completion within thirty (30) days after Lessee’s receipt of such notice.

 

 

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(d)        Replacement. Subject to Lessee’s indemnification of
Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of
liability resulting from Lessee’s failure to exercise and perform good
maintenance practices, if an item described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of
replacing such item, then such item shall be replaced by Lessor, and the cost
thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is 144 (i.e. 1/144th of the cost per
month). Lessee shall pay interest on the unamortized balance but may prepay its
obligation at any time.

7.2       Lessors Obligations. Subject to the provisions of
Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating
Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage or Destruction) and
14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2.
shall keep in good order, condition and repair the foundations, exterior walls,
structural condition of interior bearing walls, roof membrane, exterior roof,
fire sprinkler system, Common Area fire alarm and/or smoke detection systems,
fire hydrants, parking lots, walkways, parkways, driveways, landscaping,
fences, signs and utility systems serving the Common Areas and all parts
thereof, as well as providing the services for which there is a Common Area
Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to
paint the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.

7.3       Utility Installations;
Trade Fixtures; Alterations.

(a)        Definitions. The term “Utility Installations” refers
to all floor and window coverings, air and/or vacuum lines, power panels,
electrical distribution, security and fire protection systems, communication
cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the
Premises. The term “Trade Fixtures’ shall mean Lessee’s machinery and equipment
that can be removed without doing material damage to the Premises. The term
“Alterations” shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
“Lessee Owned Alterations and/or Utility Installations” are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a).

(b)        Consent. Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor’s prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls. will not
affect the electrical, plumbing, HVAC, and/or life safety systems, and the
cumulative cost thereof during this Lease as extended does not exceed a sum
equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s
Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make
or permit any roof penetrations and/or install anything on the root without the
prior written approval of Lessor. Lessor may, as a precondition to granting
such approval, require Lessee to utilize a contractor chosen and/or approved by
Lessor. My Alterations or Utility Installations that Lessee shall desire to
make and which require the consent of the Lessor shall be presented to Lessor
in written form with detailed plans. Consent shall be deemed conditioned upon
Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing
Lessor with copies of both the permits and the plans and specifications prior
to commencement of the work, and (iii) compliance with all conditions of said
permits and other Applicable Requirements in a prompt and expeditious manner.
Any Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon
completion furnish Lessor with as-built plans and specifications. For work
which costs an amount in excess of one month’s Base Rent, Lessor may condition
its consent upon Lessee providing a lien and completion bond in an amount equal
to 150% of the estimated cost of such Alteration or Utility Installation and/or
upon Lessee’s posting an additional Security Deposit with Lessor.

 

 

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(c)        Liens; Bonds. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanic’s or materialman’s lien against the Premises or any interest therein.
Lessee shall give Lessor not less than 10 days notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility. If Lessee shall contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof. If Lessor shall require, Lessee shall furnish a surety
bond in an amount equal to 150% of the amount of such contested lien, claim or
demand, indemnifying Lessor against liability for the same. If Lessor elects to
participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and
costs.

7.4       Ownership; Removal;
Surrender; and Restoration.

(a)        Ownership. Subject to Lessor’s right to require
removal or elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises,

(b)        Removal. By delivery to Lessee of written notice from
Lessor not earlier than 90 and not later than 30 days prior to the end of the
term of this Lease, Lessor may require that any or all Lessee Owned Alterations
or Utility Installations be removed by the expiration or termination of this
Lease. Lessor may require the removal at any time of all or any part of any
Lessee Owned Alterations or Utility Installations made without the required
consent.

(c)        Surrender; Restoration. Lessee shall surrender the
Premises by the Expiration Date or any earlier termination date, with all of
the improvements, parts and surfaces thereof broom clean and free of debris,
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. “Ordinary wear and tear shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Notwithstanding the foregoing, if this Lease is for 12 months or less, then
Lessee shall surrender the Premises in the same condition as delivered to
Lessee on the Steel Commencement Date with NO allowance for ordinary wear and
tear. Lessee shall repair any damage occasioned by the installation,
maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or
Utility Installations, furnishings, and equipment as well as the removal of any
storage tank installed by or for Lessee. Lessee shall also completely remove
from the Premises any and all Hazardous Substances brought onto the Premises by
or for Lessee, or any third party (except Hazardous Substances which were
deposited via underground migration from areas outside of the Project) even if
such removal would require Lessee to perform or pay for work that exceeds
statutory requirements. Trade Fixtures shall remain the property of Lessee and
shall be removed by Lessee. Any personal property of Lessee not removed on or
before the Expiration Date or any earlier termination date shall be deemed to
have been abandoned by Lessee and may be disposed of or retained by Lessor as
Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant
to this Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below,

 

 

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8.         Insurance;
Indemnity.

8.1       Payment of Premiums. The cost of the premiums for the
insurance policies required to be carried by Lessor, pursuant to Paragraphs
8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense. Premiums
for policy periods commencing prior to, or extending beyond, the term of this
Lease shall be prorated to coincide with the corresponding Start Date or
Expiration Date.

8.2       Liability Insurance.

(a)        Carried by Lessee. Lessee shall obtain and keep in
force a Commercial General Liability policy of insurance protecting Lessee and
Lessor as an additional insured against claims for bodily injury, personal
injury and property damage based upon or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto.
Such insurance shall be on an occurrence basis providing single limit coverage
in an amount not less than $2,000,000 per occurrence with an annual aggregate
of not less than $5,000,000. Lessee shall add Lessor as an additional insured
by means of an endorsement at least as broad as the Insurance Service
Organization’s “Additional Insured-Managers or Lessors of Premises” Endorsement
and coverage shall also be extended to include damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an “insured contract” for
the performance of Lessee’s indemnity obligations under this Lease. The limits
of said insurance shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. Lessee shall provide an endorsement on its
liability policy(ies) which provides that its insurance shall be primary to and
not contributory with any similar insurance carried by Lessor, whose insurance
shall be considered excess insurance only.

(b)        Carried by Lessor. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of,
the insurance required to be maintained by Lessee. Lessee shall not be named as
an additional insured therein.

8.3       Property Insurance -
Building, Improvements and Rental Value.

(a)        Building and Improvements. Lessor shall obtain and
keep in force a policy or policies of insurance in the name of Lessor, with
loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
insurable replacement cost of the Premises, as the same shall exist from time
to time, or the amount required by any Lender, but in no event more than the
commercially reasonable and available insurable value thereof. Lessee Owned
Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal
property shall be insured by Lessee under Paragraph 8.4. If the coverage is
available and commercially appropriate, such policy or policies shall insure
against all risks of direct physical loss or damage (except the perils of flood
and/or earthquake unless required by a Lender), including coverage for debris
removal and the enforcement of any Applicable Requirements requiring the
upgrading, demolition, reconstruction or replacement of any portion of the
Premises as the result of a covered loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located. If such insurance
coverage has a deductible clause, the deductible amount shall not exceed $5,000
per occurrence.

 

 

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(b)        Rental Value. Lessor shall also obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor
and any Lender, insuring the loss of the full Rent for one year with an
extended period of indemnity for an additional 180 days (“Rental Value
Insurance”). Said insurance shall contain an agreed valuation provision in lieu
of any coinsurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected Rent otherwise payable by Lessee, for the
next 12 month period.

(c)        Adjacent Premises. Lessee shall pay for any increase
in the premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Project if said increase is caused by Lessee’s
acts, omissions, use or occupancy of the Premises.

(d)        Lessee’s Improvements. Since Lessor is the Insuring
Party, Lessor shall not be required to insure Lessee Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.

8.4       Lessee’s Property;
Business Interruption Insurance.

(a)        Property Damage. Lessee shall obtain and maintain
insurance coverage on all of Lessee’s personal property, Trade Fixtures, and
Lessee Owned Alterations and Utility Installations. Such insurance shall be
full replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with written
evidence that such insurance is in force.

(c)        No Representation of Adequate Coverage. Lessor makes
no representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee’s property, business operations or
obligations under this Lease.

8.5       Insurance Policies. Insurance required herein shall be
by companies duly licensed or admitted to transact business in the state where
the Premises are located, and maintaining during the policy terra a ‘General
Policyholders Rating” of at least A-, VI XIV, as set forth in the most current
issue of “Best’s Insurance Guide”, or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Commencement Date,
deliver to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of the required insurance. No
such policy shall be cancelable or subject to modification except after 30 days
prior written notice to Lessor. Lessee shall, al least 10 days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
“insurance binders” evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee. which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fall to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.

8.6       Waiver of Subrogation. Without affecting any other
rights or remedies, Lessee and Lessor each hereby release and relieve the
other, and waive their entire right to recover damages against the other, for
loss of or damage to its property arising out of or incident to the perils
required to be insured against herein. The effect of such releases and waivers
is not limited by the amount of insurance carried or required, or by any
deductibles applicable hereto. The Parties agree to have their respective
property damage insurance carriers waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.

 

 

 

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8.7       Indemnity. Except for Lessor’s and Lessor’s partners,
agents, contractors’ and employees gross negligence or willful misconduct,
Lessee shall indemnity, protect, defend and hold harmless the Premises, Lessor
and its agents, Lessor’s master or ground lessor, partners and Lenders, from
and against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys’ and consultants’ fees, expenses and/or liabilities
arising out of, involving, or in connection with, the use and/or occupancy of
the Premises by Lessee. If any action or proceeding is brought against Lessor
by reason of any of the foregoing matters, Lessee shall upon notice defend the
same at Lessee’s expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be defended or indemnified.

8.8       Exemption of Lessor and its Agents from Liability.
Notwithstanding the negligence or breach of this Lease by Lessor or its agents,
neither Lessor nor its partners or agents shall be liable under any
circumstances for: (i) injury or damage to the person or goods, wares,
merchandise or other property of Lessee, Lessee’s employees, contractors, invitees,
customers, or any other person in or about the Premises, whether such damage or
injury is caused by or results from fire, steam, electricity, gas, water or
rain, indoor air quality, the presence of mold or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, HVAC or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Premises or upon
other portions of the Building, or from other sources or places, (ii) any
damages arising from any act or neglect of any other tenant of Lessor or from
the failure of Lessor or its agents to enforce the provisions of any other
lease in the Project, or WO injury to Lessee’s business or for any loss of
income or profit therefrom. Instead, it is intended that Lessee’s sole recourse
in the event of such damages or injury be to file a claim on the insurance
policy(ies) that Lessee is required to maintain pursuant to the provisions of
paragraph 8.

8.9       Failure to Provide Insurance. Lessee acknowledges that
any failure on its part to obtain or maintain the insurance required herein
will expose Lessor to risks and potentially cause Lessor to incur costs not
contemplated by this Lease, the extent of which will be extremely difficult to
ascertain. Accordingly, for any month or portion thereof that Lessee does not
maintain the required insurance and/or does not provide Lessor with the
required binders or certificates evidencing the existence of the required insurance,
the Base Rent shall be automatically increased, without any requirement for
notice to Lessee, by an amount equal to 10% of the then existing Base Rent or
$100, whichever is greater. The parties agree that such increase in Base Rent
represents fair and reasonable compensation for the additional risk/costs that
Lessor will incur by reason of Lessee’s failure to maintain the required
insurance. Such increase in Base Rent shall in no event constitute a waiver of
Lessee’s Default or Breach with respect to the failure to maintain such
insurance, prevent the exercise of any of the other rights and remedies granted
hereunder, nor relieve Lessee of its obligation to maintain the insurance
specified in this Lease.

9.         Damage
or Destruction.

9.1       Definitions.

 

 

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(a)        “Premises Partial Damage” shall mean damage or
destruction to the improvements on the Premises, other than Lessee Owned
Alterations and Utility Installations, which can reasonably be repaired in 3
months or less from the date of the damage or destruction, and the cost thereof
does not exceed a sum equal to 6 month’s Base Rent Lessor shall notify Lessee
in writing within 30 days from the date of the damage or destruction as to
whether or not the damage is Partial or Total. Notwithstanding the foregoing,
Premises Partial Damage shall not include damage to windows, doors, and/or
other similar items which Lessee has the responsibility to repair or replace
pursuant to the provisions of Paragraph 7.1.

(b)        “Premises Total Destruction” shall mean damage or
destruction to the improvements on the Premises, other than Lessee Owned
Alterations and Utility Installations and Trade Fixtures, which cannot
reasonably be repaired in 3 months or less from the date of the damage or
destruction and/or the cost thereof exceeds a sum equal to 6 month’s Base Rent.
Lessor shall notify Lessee in writing within 30 days from the date of the
damage or destruction as to whether or not the damage is Partial or Total.

(c)        “Insured Loss” shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.

(d)        “Replacement Cost” shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.

(e)        “Hazardous Substance Condition” shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on,
or under the Premises which requires repair, remediation, or restoration.

 

 

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9.2       Partial Damage - Insured Loss. If a Premises Partial
Damage that is an insured Loss occurs, then Lessor shall, at Lessor’s expense,
repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations
and Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor’s election, make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Lessor shall make
any applicable insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was not
in force or the insurance proceeds are not sufficient to effect such repair,
the Insuring Party shall promptly contribute the shortage in proceeds as and
when required to complete said repairs. In the event, however, such shortage
was due to the fact that, by reason of the unique nature of the improvements,
full replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within 10 days following receipt of written notice of such shortage and request
therefor. If Lessor receives said funds or adequate assurance thereof within
said 10 day period, the party responsible for making the repairs shall complete
them as soon as reasonably possible and this Lease shall remain in full force
and effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within 10 days thereafter to: (i) make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not
be entitled to reimbursement of any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
shall be subject to Paragraph 9.3, notwithstanding that there may be some
insurance coverage, but the net proceeds of any such insurance shall be made
available for the repairs if made by either Party.

9.3       Partial Damage - Uninsured Loss. If a Premises Partial
Damage that is not an Insured Loss occurs, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s
expense), Lessor may either: (i) repair such damage as soon as reasonably
possible at Lessor’s expense, in which event this Lease shall continue in full
force and effect, or (ii) terminate this Lease by giving written notice to
Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of
such damage. Such termination shall be effective 60 days following the date of
such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within 10 days after receipt of the termination notice to give
written notice to Lessor of Lessee’s commitment to pay for the repair of such
damage without reimbursement from Lessor. Lessee shall provide Lessor with said
funds or satisfactory assurance thereof within 30 days after making such
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not make the required
commitment, this Lease shall terminate as of the date specified in the
termination notice.

9.4       Total Destruction. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs, this Lease shall terminate
immediately upon 68-days such Destruction. If the damage or destruction was
caused by the gross negligence or willful misconduct of Lessee, Lessor shall
have the right to recover Lessors damages from Lessee, except as provided in
Paragraph 8.6.

9.5       Damage Near End of Term. If at any time during the last
6 months of this Lease there is damage for which the cost to repair exceeds one
month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective 60 days following the date of occurrence of such damage by
giving a written termination notice to Lessee within 30 days after the date of
occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time
has an exercisable option to extend this Lease or to purchase the Premises,
then Lessee may preserve this Lease by, (a) exercising such option and (b)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs on or before the earlier of (i) the date
which is 10 days after Lessee’s receipt of Lessor’s written notice purporting
to terminate this Lease, or (ii) the day prior to the date upon which such
option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor’s commercially
reasonable expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee falls to exercise such
option and provide such funds or assurance during such period, then this Lease
shall terminate on the date specified in the termination notice and Lessee’s
option shall be extinguished.

9.6       Abatement of Rent; Lessee’s Remedies.

(a)        In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee, commencing on the date
of such Premises Partial Damage, Premises Total Destruction or a Hazardous
Substance Condition, shall be abated in proportion to the degree to which
Lessee’s use of the Premises is materially impaired, but not to exceed the
proceeds received from the Rental Value insurance. All other obligations of
Lessee hereunder shall be performed by Lessee, and Lessor shall have no
liability for any such damage, destruction, remediation, repair or restoration
except as provided herein.

 

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(b)        Intentionally Omitted.

9.7 Termination; Advance Payments. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s
Security Deposit as has not been, or is not then required to be, used by
Lessor.

10.       Real Property Taxes.

10.1     Definition. As used herein, the term “Real Property
Taxes” shall include any form of assessment; real estate, general, special,
ordinary or extraordinary, or rental levy or tax (other than inheritance,
personal income or estate taxes); improvement bond; and/or license fee imposed
upon or levied against any legal or equitable interest of Lessor in the
Project, Lessors right to outer income therefrom, and/or Lessors business of
leasing, by any authority having the direct or indirect power to tax and where
the funds are generated with reference to the Project address and where the
proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Project is located. The
term “Real Property Taxes” shall also include any tax, fee, levy, assessment or
charge, or any increase therein: (i) imposed by reason of events occurring
during the term of this Lease, including but not limited to, a change in the
ownership of the Project, (ii) a change in the improvements thereon, and/or
(iii) levied or assessed on machinery or equipment provided by Lessor to Lessee
pursuant to this Lease. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.

10.2     Payment of Taxes. Except as otherwise provided in
Paragraph 10.3, Lessor shall pay The Real Property Taxes applicable to the
Project, and said payments shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.

10.3     Additional Improvements. Common Area Operating Expenses
shall not include Real Property Taxes specified in the tax assessors records
and work sheets as being caused by additional improvements placed upon the
Project by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2,
the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee’s request or by reason of any alterations or
improvements to the Premises made by Lessor subsequent to the execution of this
Lease by the Parties.

10.4     Joint Assessment. If the Building is not separately
assessed, Real Property Taxes allocated to the Building shall be an equitable
proportion of the Real Property Taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor’s work sheets or
such other information as may be reasonably available. 

 

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10.5     Personal Property Taxes. Lessee shall pay prior to
delinquency all taxes assessed against and levied upon Lessee Owned Alterations
and Utility Installations, Trade Fixtures, furnishings, equipment and all
personal property of Lessee contained in the Premises. When possible, Lessee
shall cause its Lessee Owned Alterations and Utility Installations, Trade
Fixtures, furnishings, equipment and all other personal property to be assessed
and billed separately from the real property of Lessor. If any of Lessee’s said
property shall be assessed with Lessor’s real property, Lessee shall pay Lessor
the taxes attributable to Lessee’s property within 10 days after receipt of a
written statement setting forth the taxes applicable to Lessee’s property. In
the event Lessee does not pay any such taxes in a timely manner, Lesser may,
but is not obligated to, pay on behalf of Lessee, and Lessee shall reimburse
Lessor within ten (10) days of such payment by Lessor, an administration fee of
15% of such tax amount paid by Lessee. Lessee shall indemnify, defend and hold
Lessor harmless from such taxes.

11.       Utilities and Services.
Lessee shall pay for all water, gas, heat, light, power, telephone, trash
disposal and other utilities and services supplied to the Premises, together
with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at
any time in Lessor’s sole judgment, Lessor determines that Lessee is using a
disproportionate amount of water, electricity or other commonly metered
utilities, or that Lessee is generating such a large volume of trash as to
require an increase in the size of the trash receptacle and/or an increase in
the number of times per month that it is emptied, then Lessor may increase
Lessee’s Base Rent by an amount equal to such increased costs. There shall be
no abatement of Rent and Lessor shall not be liable in any respect whatsoever
for the inadequacy, stoppage, interruption or discontinuance of any utility or
service due to riot, strike, labor dispute, breakdown, accident, repair or
other cause beyond Lessor’s reasonable control or in cooperation with
governmental request or directions.

12.       Assignment
and Subletting.

12.1     Lessor’s Consent
Required.

(a)        Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, “assign or assignment”)
or sublet all or any part of Lessee’s interest in this Lease or in the Premises
without Lessors prior written consent.

(b)        Unless Lessee is a corporation and its stock is
publicly traded on a national stock exchange, a change in the control of Lessee
shall constitute an assignment requiring consent. The transfer, on a cumulative
basis, of 50% or more of the voting control or equity interests of Lessee shall
constitute a change in control for this purpose.

(c)        

(d)        An assignment or subletting without consent shall, at
Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (3) upon 30 days
written notice, increase the monthly Base Rent to 110% of the Base Rent then in
effect. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to 110% of the price previously in effect, and
(ii) all fixed and non-fixed rental adjustments scheduled during the remainder
of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e)        Lessee’s remedy for any breach of Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.

(f)         Lessor may reasonably withhold consent to a proposed
assignment or subletting if Lessee is in Default at the time consent is
requested.

12.2     Terms and Conditions
Applicable to Assignment and Subletting.

(a)        Regardless of Lessor’s consent, no assignment or
subletting shall: (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, upon
terms and conditions acceptable to Lessor, (ii) release Lessee of any
obligations hereunder, or (iii) after the primary liability of Lessee for the
payment of Rent or for the performance of any other obligations to be performed
by Lessee.

 

 

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(b)        Lessor may accept Rent or performance of Lessee’s
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of Rent or performance shall constitute a waiver
or estoppel of Lessors right to exercise its remedies for Lessee’s Default or
Breach.

(c)        Lessor’s consent to any assignment or subletting
shall not constitute consent to any subsequent assignment or subletting.

(d)        In the event of any Default or Breath by Lessee,
Lessor may proceed directly against Lessee, any Guarantors or anyone else
responsible for the performance of Lessee’s obligations under this Lease,
including any assignee or sublessee, without first exhausting Lessor’s remedies
against any other person or entity responsible therefore to Lessor, or any
security held by Lessor.

(e)        Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to Lessor’s
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises.
Lessee shall reimburse Lessor the amount Lessor incurred in attorneys’ fees
(not to exceed $2,500 for each requested consent), plus all costs and fees of
third party consultants.  Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably requested.
(See also Paragraph 38) 

(f)         Any assignee of, or sublessee under, this Lease
shall, by reason of accepting such assignment, entering into such sublease, or
entering into possession of the Premises or any portion thereof, be deemed to
have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.

(g)        Lessors consent to any assignment or subletting shall
not transfer to the assignee or sublessee any Option granted to the original
Lessee by this Lease unless such transfer is specifically consented to by
Lessor in writing. (See Paragraph 39.2)

12.3     Additional Terms and Conditions Applicable to
Subletting. The following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be deemed included in all
subleases under this Lease whether or not expressly incorporated therein:

 

 

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(a)        Lessee hereby assigns and transfers to Lessor all of
Lessee’s interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee’s obligations under this Lease;
provided, however, that until a Breath shall occur in the performance of
Lessee’s obligations, Lessee may collect said Rent. In the event that the
amount collected by Lessor exceeds Lessee’s then outstanding obligations any
such excess shall be refunded to Lessee. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection
of Rent, be deemed liable to the sublessee for any failure of Lessee to perform
and comply with any of Lessee’s obligations to such sublessee. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee’s obligations under this Lease, to pay to Lessor directly all Rent due
and to become due under the sublease. Sublessee shall rely upon any such notice
from Lessor and shall pay all Rents to Lessor without any obligation or right
to inquire as to whether such Breach exists, notwithstanding any claim from
Lessee to the contrary.

(b)        In the event of a Breach by Lessee, Lessor may, at
its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however.
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to such sublessor or for any prior Defaults or Breathes of such
sublessor.

(c)        Any matter requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor.

(d)        No sublessee shall further assign or sublet all or
any part of the Premises without Lessor’s prior written consent.

13.       Default;
Breach; Remedies.

13.1     Default; Breach. A “Default” is defined as a failure by
the Lessee to comply with or perform any of the terms, covenants, conditions or
Rules and Regulations under this Lease, as may be amended from time to time. A
“Breach” is defined as the occurrence of one or more of the following Defaults,
and the failure of Lessee to cure such Default within any applicable grace
period:

(a)        The abandonment of the Premises, or the vacating of
the Premises without in either case providing a commercially reasonable level
of security, or where the coverage of the property insurance described in
Paragraph 8.3 is jeopardized as a result thereof, or without providing
reasonable assurances to minimize potential vandalism.

(b)        The failure of Lessee to make any payment of Rent or
any Security Deposit required to be made by Lessee hereunder, whether to Lessor
or to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of 5
business days following written notice to Lessee.

(c)        The commission of waste, act or acts constituting
public or private nuisance, and/or an illegal activity on the Premises by
Lessee, where such actions continue for a period of 5 business days following
written notice to Lessee.

(d)        The failure by Lessee to provide (i) reasonable
written evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or subletting,
(iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence
concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 41, (viii) material data safety sheets (MSDS), or (ix) any other
documentation or information which Lessor may reasonably require of Lessee
under the terms of this Lease, where any such failure continues for a period of
10 days following written notice to Lessee so long as, for purposes of
preceding clause (ix) only, the documentation submitted for Lessee’s signature
complies with the requirements of this Lease; provided, however, if the nature
of Lessee’s Default is such that more than 10 days are reasonably required for
its cure, then it shall not be deemed to be a breach if Lessee commences such
cure within said 10 day period and thereafter diligently prosecutes such cure
to completion, provided in all events such documentation will be provided
within 20 days.

 

 

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(e)        A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under Paragraph
2.9 hereof, other than those described in subparagraphs 13.1(5), (b), (c) or
(d), above, where such Default continues for a period of 30 days after written
notice: provided, however, that if the nature of Lessee’s Default is such that
more than 30 days are reasonably required for its cure, then it shat not be
deemed to be a Breach if Lessee commences such cure within said 30 day period
and thereafter diligently prosecutes such cure to completion, provided such
cure is completed in all events within ninety (90) days.

(f)         The occurrence of any of the following events: (i)
the making of any general arrangement or assignment for the benefit of
creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within 60 days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee’s assets
located at the Premises or of Lessee’s interest in this Lease, where possession
is not restored to Lessee within 30 days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee’s assets located at the
Premises or of Lessee’s interest in this Lease, where such seizure is not
discharged within 30 days; provided, however, in the event that any provision
of this subparagraph is contrary to any applicable law, such provision shall be
of no force or effect, and not affect the validity of the remaining provisions.

(g)        The discovery that any financial statement of Lessee
or of any Guarantor given to Lessor was materially false.

(h)        If the performance of Lessee’s obligations under this
Lease is guaranteed: (i) the death of a Guarantor. (ii) the termination of a
Guarantor’s liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the
guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an
anticipatory basis, and Lessee’s failure, within 60 days following written
notice of any such event, to provide written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.

13.2     Remedies. If Lessee fails to perform any of its
affirmative duties or obligations. within 10 days after written notice (or in
case of an emergency, without notice), Lessor may, at its option, perform such
duty or obligation on Lessee’s behalf, including but not limited to the
obtaining of reasonably required bonds, insurance policies, or governmental
licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to
115% of the costs and expenses incurred by Lessor in such performance upon receipt
of an invoice therefor. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:

 

 

 

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(a)        Terminate Lessee’s right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Lessee shall immediately surrender possession to Lessor. In such event Lessor
shall be entitled to recover from Lessee: (i) the unpaid Rent which had been
earned at the time of termination: (ii) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided: (iii) the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss that the Lessee proves
could be reasonably avoided: and (iv) any other amount necessary to compensate
Lessor for all the detriment proximately caused by the Lessee’s failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including but not limited to the
cost of recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys’
fees, and that portion of any teasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of the District within which the
Premises are located at the time of award plus one percent. Efforts by Lessor
to mitigate damages caused by Lessee’s Breach of this Lease shall not waive
Lessor’s right to recover damages under Paragraph 12. If termination of this
Lease is obtained through the provisional remedy of unlawful detainer, Lessor
shall have the right to recover in such proceeding any unpaid Rent and damages
as are recoverable therein, or Lessor may reserve the right to recover at or
any part thereof in a separate suit. If a notice and grace period required
under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or
to perform or quit given to Lessee under the unlawful detainer statute shall
also constitute the notice required by Paragraph 13.1. In such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.

(b)        Continue the Lease and Lessee’s right to possession
and recover the Rent as it becomes due, in which event Lessee may sublet or
assign, subject only to reasonable limitations. Acts of maintenance, efforts to
relet, and/or the appointment of a receiver to protect the Lessor’s interests,
shall not constitute a termination of the Lessee’s right to possession.

(c)        Pursue any other remedy now or hereafter available
under the laws or judicial decisions of the state wherein the Premises are
located. The expiration or termination of this Lease and/or the termination of
Lessee’s right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee’s occupancy of the Premises.

13.4     Late Charges. Lessee hereby acknowledges that late
payment by Lessee of Rent will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed upon Lessor by any Lender. Accordingly,
if any Rent shall not be received by Lessor within 5 business days after such
amount shall be due, then, without any requirement for notice to Lessee. Lessee
shall immediately pay to Lessor a one-time late charge equal to 10% of each such
overdue amount or $100, whichever is greater. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with
respect to such overdue amount, nor prevent the exercise of any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for 3 consecutive installments of
Base Rent, then notwithstanding any provision of this Lease to the contrary,
Base Rent shall, at Lessor’s option, become due and payable quarterly in
advance.

 

 

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13.5     Interest. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor, when due as to scheduled
payments (such as Base Rent) or within 30 days following the date on which it
was due for non-scheduled payment, shall bear interest from the date when due,
as to scheduled payments, or the 31st day after it was due as to non-scheduled
payments. The interest (“Interest”) charged shall be computed at the rate of
10% per annum but shall not exceed the maximum rate allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph
13.4.

13.6     Breach by Lessor.

(a)        Notice of Breach. Lessor shall not be deemed in
breach of this Lease unless Lessor falls within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this Paragraph,
a reasonable time shall in no event be less than 30 days after receipt by
Lessor, and any Lender whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor’s obligation is such that more than 30 days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such 30 day period and thereafter diligently pursued to
completion.

14.       Condemnation. If the
Premises or any portion thereof are taken under the power of eminent domain or
sold under the threat of the exercise of said power (collectively
“Condemnation”), this Lease shall terminate as to the part taken as of the date
the condemning authority takes title or possession, whichever first occurs. If
more than 10% of the floor area of the Unit, or more than 25% of the Project
Parking Area is taken by Condemnation, Lessee may, at Lessee’s option, to be
exercised in writing within 10 days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within 10 days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in proportion to the
reduction in utility of the Premises caused by such Condemnation. Condemnation
awards and/or payments shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold, the
value of the part taken, or for severance damages; provided, however, that
Lessee shall be entitled to any compensation paid by the condemner for Lessee’s
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.

15.       Brokerage Fees.

15.1     Intentionally Omitted.

15.2     Intentionally Omitted.

 

 

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15.3     Representations and Indemnities of Broker Relationships.
Lessee and Lessor each represent and warrant to the other that it has had no
dealings with any person, firm, broker or finder (other than the Brokers, if
any) in connection with this Lease, and that no one other than said named
Brokers is entitled to any commission or finders fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the Indemnifying Party, including any
costs, expenses, attorneys’ fees reasonably incurred with respect thereto.
Under no circumstances shall Brokers be considered third party beneficiaries to
this Lease.

16.       Estoppel
Certificates.

(a)        Each Party (as “Responding Party’) shall within 10
days after written notice from the other Party (the “Requesting Party”)
execute, acknowledge and deliver to the Requesting Party a statement in writing
in form similar to the then most current “Estoppel Certificate” form published
by the AIR Commercial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.

(b)        If the Responding Party shall fall to execute or
deliver the Estoppel Certificate within such 10 day period, the Requesting
Party may execute an Estoppel Certificate stating that: (i) the Lease is in
full force and effect without modification except as may be represented by the
Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s
performance, and (iii) if Lessor is the Requesting Party, not more than one
month’s rent has been paid in advance. Prospective purchasers and encumbrancers
may rely upon the Requesting Partys Estoppel Certificate, and the Responding
Party shall be estopped from denying the truth of the facts contained in said
Certificate.

(c)        If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including but not
limited to Lessee’s financial statements for the past 3 years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.

17.       Definition of Lessor. The
term “Lessor” as used herein shall mean the owner or owners at the time in
question of the fee title to the Premises, or, if this is a sublease, of the
Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title
or Interest in the Premises or this Lease, Lessor shall deliver to the
transferee or assignee (in cash or by credit) any unused Security Deposit held
by Lessor. Upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only
upon the Lessor as hereinabove defined.

18.       Severability. The
invalidity of any provision of this Lease, as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof.

19.       Days. Unless otherwise
specifically indicated to the contrary, the word “days” as used in this Lease
shall mean and refer to calendar days.

20.       Limitation on Liability.
The obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, or its partners, members, directors, officers or
shareholders, and Lessee shall look to the Premises and the Project (including,
without limitation, the net rents, profits, other income and proceeds from the
operation or sale of the Premises or the Project), and to no other assets of
Lessor, for the satisfaction of any liability of Lessor with respect to this
Lease, and shall not seek recourse against Lessors partners, members,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.

21.       Time of Essence. Time is of the essence with
respect to the performance of all obligations lobe performed or observed by the
Parties under this Lease.

 

 

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22.       No Prior or Other
Agreements. This Lease contains all agreements between the Parties with respect
to any matter mentioned herein, and no other prior or contemporaneous agreement
or understanding shall be effective. 

23.       Notices.

23.1     Notice Requirements. All notices required or permitted
by this Lease or applicable law shall be in writing and may be delivered in
person (by hand or by courier) or may be sent by nationally recognized
overnight courier (such as Federal Express).  The addresses noted adjacent to a
Party’s signature on this Lease shall be that Party’s address for delivery or
mailing of notices. Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee’s taking possession of
the Premises, the Premises shall constitute Lessee’s address for notice. A copy
of all notices to Lessor shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
in writing.

23.2     Date of Notice. Notice shall be deemed given only upon
actual receipt. If notice is received on a Saturday, Sunday or legal holiday,
it shall be deemed received on the next business day.

24.       Waivers.

(a)        No waiver by Lessor of the Default or Breach of any
term, covenant or condition hereof by Lessee, shall be deemed a waiver of any
other term, covenant or condition hereof, or of any subsequent Default or
Breach by Lessee of the same or of any other term, covenant or condition
hereof. Lessor’s consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Lessors consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent.

(b)        The acceptance of Rent by Lessor shall not be a waiver
of any Default or Breach by Lessee. Any payment by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor al or before the
time of deposit of such payment.

            (i)         THE PARTIES AGREE THAT THE TERMS OF THIS
LEASE SHALL GOVERN WITH REGARD TO ALL MATTERS RELATED THERETO AND HEREBY WAIVE
THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE TO THE EXTENT THAT SUCH STATUTE
IS INCONSISTENT WITH THIS LEASE.

25.       Disclosures
Regarding the Nature of a Real Estate Agency Relationship.

(a)        When entering into a discussion with a real estate
agent regarding a real estate transaction, a Lessor or Lessee should from the
outset understand what type of agency relationship or representation it has
with the agent or agents in the transaction. Lessor and Lessee acknowledge
being advised by the Brokers in this transaction, as follows:

 

 

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(i)         Lessor’s Agent. A Lessor’s agent under a listing
agreement with the Lessor acts as the agent for the Lessor only. A Lessor’s
agent or subagent has the following affirmative obligations: To the Lesser:
A fiduciary duty of utmost care, integrity, honesty, and loyally in dealings
with the Lessor. To the Lessee and the Lessor: (a) Diligent exercise of
reasonable skills and care in performance of the agents duties. (b) A duty of
honest and fair dealing and good faith. (c) A duty to disclose all facts known
to the agent materially affecting the value or desirability of the property
that are not known to, or within the diligent attention and observation of, the
Parties. An agent is not obligated to reveal to either Party any confidential
information obtained from the other Party which does not involve the
affirmative duties set forth above.

(ii)        Lessee’s Agent. An agent can agree to act as agent
for the Lessee only. In these situations, the agent is not the Lessor’s agent,
even if by agreement the agent may receive compensation for services rendered,
either in full or in part from the Lessor. An agent acting only for a Lessee
has the following affirmative obligations. To the Lessee: A fiduciary
duty of utmost care, integrity, honesty, and loyalty in dealings with the
Lessee. To the Lessee and the Lessor: (a) Diligent exercise of
reasonable skills and care in performance of the agents duties. (b) A duty of
honest and fair dealing and good faith. (c) A duty to disclose all facts known
to the agent materially affecting the value or desirability of the property
that are not known to, or within the diligent attention and observation of, the
Parties. An agent is not obligated to reveal to either Party any confidential
information obtained from the other Party which does not involve the
affirmative duties set forth above.

(iii)       Agent Representing Both Lessor and Lessee. A real
estate agent, either acting directly or through one or more associate licenses,
can legally be the agent of both the Lessor and the Lessee in a transaction,
but only with the knowledge and consent of both the Lessor and the Lessee. In a
dual agency situation, the agent has the following affirmative obligations to
both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other
duties to the Lessor and the Lessee as stated above in subparagraphs (i) or
(ii). In representing both Lessor and Lessee, the agent may not without the
express permission of the respective Party, disclose to the other Party that
the Lessor will accept rent in an amount less than that indicated in the
listing or that the Lessee is willing to pay a higher rent than that offered.
The above duties of the agent in a real estate transaction do not relieve a
Lessor or Lessee born the responsibility to protect their own interests. Lessor
and Lessee should carefully read all agreements to assure that they adequately
express their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advice is desired,
consult a competent professional.

26.       No Right To Holdover.
Lessee has no right to retain possession of the Premises or any part thereof
beyond the expiration or termination of this Lease. In the event that Lessee
holds over, then the Base Rent shall be increased to 150% for the first three
(3) months of such hold over, and thereafter 200%, of the Base Rent applicable
immediately preceding the expiration or termination, Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.

27.       Cumulative Remedies. No
remedy or election hereunder shall be deemed exclusive but shall, wherever
possible, be cumulative with all other remedies al law or in equity.

28.       Covenants and Conditions;
Construction of Agreement. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions. In construing this
Lease, all headings and titles are for the convenience of the Parties only and
shall not be considered a part of this Lease. Whenever required by the context,
the singular shall include the plural and vice versa. This Lease shall not be
construed as if prepared by one of the Parties, but rather according to its
fair meaning as a whole, as if both Parties had prepared it.

 

 

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29.       Binding Effect; Choice of
Law. This Lease shall be binding upon the parties, their personal
representatives, successors and assigns and be governed by the laws of the
State in which the Premises are located. Any litigation between the Parties
hereto concerning this Lease shall be initiated in the county in which the
Premises are located.

30.       Subordination;
Attornment; Non-Disturbance.

30.1     Subordination. This Lease and any Option granted hereby
shall be subject and subordinate to any ground lease, mortgage, deed of trust,
or other hypothecation or security device (collectively, “Security Device”),
now or hereafter placed upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices (in this Lease
together referred to as “Lender”) shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this
Lease and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.

30.2     Attornment. In the event that Lessor transfers title to
the Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of
the term hereof, or, at the election of the new owner, this Lease will
automatically become a new lease between Lessee and such new owner, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder and
such new owner shall assume all of Lessor’s obligations, except that such new
owner shall not: (a) be liable for any act or omission of any prior lessor or
with respect to events occurring prior to acquisition of ownership; (b) be
subject to any offsets or defenses which Lessee might have against any prior
lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be
liable for the return of any security deposit paid to any prior lessor.

30.3     Non-Disturbance. With respect to Security Devices
entered into by Lessor after the execution of this Lease. Lessee’s
subordination of this Lease shall be subject to receiving a commercially
reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the
Lender which Non-Disturbance Agreement provides that Lessee’s possession of the
Premises, and this Lease, including any options to extend the term hereof, will
not be disturbed so long as Lessee is not in Breach hereof and attorns to the
record owner of the Premises. Further, within 60 days after the execution of
this Lease, Lessor shall, if requested by Lessee, use its good faith efforts to
obtain a Non-Disturbance Agreement from the holder of any pre-existing Security
Device which is secured by the Premises. 

30.4     Self-Executing. The agreements contained in this
Paragraph 30 shall be effective without the execution of any further documents;
provided, however, that, upon written request from Lessor or a Lender in
connection with a sale, financing or refinancing of the Premises, Lessee and
Lessor shall execute such further writings as may be reasonably required to
separately document any subordination, attornment and/or Non-Disturbance
Agreement provided for herein.

 

 

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31.4     Attorneys’ Fees. If any Party brings an action or
proceeding involving, the Premises whether founded in tort, contract or equity,
or to declare rights hereunder, the Prevailing Party (as hereafter defined) in
any such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys’ fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term, “Prevailing Party” shall include, without limitation, a
Party or-Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party of its claim or defense. The attorneys’ fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys’ fees reasonably incurred. in addition, Lessor
shall be entitled to attorneys’ fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach ($500 is a reasonable minimum
per occurrence for such services and consultation).

32.       Lessor’s Access; Showing
Premises; Repairs. Lessor and Lessor’s agents shall have the right to enter the
Premises at any time, in the case of an emergency, and otherwise at reasonable
times after reasonable prior notice for the purpose of showing the same to
prospective purchasers, lenders, or tenants, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary
or desirable and the erecting, using and maintaining of utilities, services,
pipes and conduits through the Premises and/or other premises as long as there
is no material adverse effect on Lessee’s use of the Premises. All such
activities shall be without abatement of rent or liability to Lessee.

33.       Auctions. Lessee shall not
conduct, nor permit to be conducted, any auction upon the Premises without
Lessor’s prior written consent. Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to permit an auction.

34.       Signs. Lessor may place on
the Premises ordinary “For Sale” signs at any time and ordinary “For Lease”
signs during the last 6 months of the term hereof. Except for ordinary “For
Sublease” signs which may be placed only on the Premises, Lessee shall not
place any sign upon the Project without Lessor’s prior written consent. All
signs must comply with all Applicable Requirements.

35.       Termination; Merger. Unless
specifically stated otherwise in writing by Lessor, the voluntary or other
surrender of this Lease by Lessee, the mutual termination or cancellation
hereof, or a termination hereof by Lessor for Breach by Lessee, shall
automatically terminate any sublease or lesser estate in the Premises:
provided, however, that Lessor may elect to continue any one or all existing
subtenancies at its discretion. Lessor’s failure within 10 days following any
such event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor’s election to have such event
constitute the termination of such interest.

 

 

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36.       Consents. Except as
otherwise provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed or conditioned. Lessor’s actual reasonable
costs and expenses (including but not limited to architects’, attorneys’,
engineers’ and other consultants’ fees) incurred in the consideration of, or
response to, a request by Lessee for any Lessor consent, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting
documentation therefor. Lessor’s consent to any act, assignment or subletting
shall not constitute an acknowledgment that no Default or Breach by Lessee of
this Lease exists, nor shall such consent be deemed a waiver of any then
existing Default or Breach, except as may be otherwise specifically stated in
writing by Lessor at the time of such consent. The failure to specify herein
any particular condition to Lessor’s consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are
then reasonable with reference to the particular matter for which consent is
being given. In the event that either Party disagrees with any determination
made by the other hereunder and reasonably requests the reasons for such
determination, the determining party shall furnish its reasons in writing and
in reasonable detail within 10 business days following such request.

37.       Intentionally Omitted.

38.       Quiet Possession. Subject
to payment by Lessee of the Rent and performance of all of the covenants,
conditions and provisions on Lessee’s part lo be observed and performed under
this Lease, Lessee shall have quiet possession and quiet enjoyment of the
Premises during the term hereof.

39.       Intentionally Omitted.

40.       

41.       Reservations. Lessor
reserves the right: (i) to grant, without the consent or joinder of Lessee,
such easements, rights and dedications that Lessor deems necessary, (ii) to
cause the recordation of parcel maps and restrictions, and (iii) to create
and/or install new utility raceways, so long as such easements, rights,
dedications, maps, restrictions, and utility raceways do not unreasonably
interfere with the use of the Premises by Lessee or materially increase the
financial obligations of Lessee. Lessee agrees to sign any documents reasonably
requested by Lessor to effectuate such rights.

42.       Performance Under Protest. 
If at any time a dispute shall arise as to any amount or sum of money to be
paid by one Party to the other under the provisions hereof, the Party against
whom the obligation to pay the money is asserted shall have the right to make
payment “under protest” and such payment shall not be regarded as a voluntary
payment and there shall survive the right on the part of said Party to
institute sail for recovery of such sum. If it shall be adjudged that there was
no legal obligation on the part of said Party to pay such sum or any part
thereof, said Party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay. 

43.       Authority; Multiple
Parties; Execution.

(a)        If either Party hereto is a corporation, trust,
limited liability company, partnership, or similar entity, each individual
executing this Lease on behalf of such entity represents and warrants that he
or she is duly authorized to execute and deliver this Lease on its behalf. Each
Party shall, within 30 days after request, deliver to the other Party
satisfactory evidence of such authority.

(c)        This Lease may be executed by the Parties in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

44.       Conflict. Any conflict
between the printed provisions of this Lease and the typewritten or handwritten
provisions shall be controlled by the typewritten or handwritten provisions.

45.       Offer. Preparation of this
Lease by either party or their agent and submission of same to the other Party
shall not be deemed an offer to lease to the other Party. This Lease is not
intended to be binding until executed and delivered by all Parties hereto.

46.       Amendments. This Lease may
be modified only in writing, signed by the Parties in interest at the time of
the modification. As long as they do not change Lessee’s obligations hereunder,
Lessee agrees to make such reasonable non-monetary modifications to this Lease
as may be reasonably required by a Lender in connection with the obtaining of
normal financing or refinancing of the Premises.

47.       Intentionally Omitted.

 

 

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48.       Mediation and Arbitration
of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all
disputes between the Parties and/or Brokers arising out of this Lease £ is R
is not attached to this Lease.

49.       Americans with Disabilities
Act. Since compliance with the Americans with Disabilities Act (ADA) is
dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty
or representation, except as set forth in Paragraph 2.3, as to whether or not
the Premises comply with ADA or any similar legislation. In the event that
Lessee’s use of the Premises requires modifications or additions to the
Premises in order to be in ADA compliance, Lessee agrees, subject to Paragraph
2,3, to make any such necessary modifications and/or additions at Lessee’s
expense.

LESSOR AND LESSEE HAVE CAREFULLY READ
AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY
THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO.
THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF
THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF
LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY
BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1.         SEEK ADVICE OF COUNSEL AS
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.         RETAIN APPROPRIATE
CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID
INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF
HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE
CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH
DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED
IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO
BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE
LOCATED.

 

 

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The parties hereto have executed this Lease at the place and
on the dates specified above their respective signatures.

	

Executed at:                                                            

			

Executed at: Santa Ana, CA

		
	

On:                                                                         

			

On: 8-15-2007

		
	

 

			 
	
		By LESSOR:                                                          

			
		
		By LESSEE:

		
	

SEE LESSOR
SIGNATURE BLOCK

ATTACHED HERETO AND INCOR-
	Pro-Dex, Inc., 

		a Colorado corporation 
	

PORATED
HEREIN BY REFERENCE          

			 
	

 

			 
	

By:                                                                         

			

By:                                                                         

		
	

Name
Printed:                                                        

			Name Printed: Mark P. Murphy
	

Title:                                                                      

By:                                                                        
 

			Title:CEO

		

		By:                                                                        
	

Name
Printed:                                                        

			Name Printed: Jeffrey J. Ritchey
	

Title:                                                                      
 

Address:  3300 N. Harbor Blvd.                             

			Title:
                                                                     
		

Address:  2361 McGaw Avenue
	

Costa Mesa, CA 92626                                         

			Irvine, CA 92614
	

Telephone:  (714) 466-7104                                   

			Telephone:  (714) 546-1045
	

Facsimile
(___)                                                       

			Facsimile: (___)                                                      
		
	

Federal ID
No.                                                       

			Federal ID No.
                                                      
		
	

 

			 
	

BROKER:                                                              

			BROKER:
	

Grubb
& Ellis Company                                          

			CresaPartners
	

Attn:  Gary Allen                                                    
  

			Attn:  Jeffery Shepard                                           
		
	

Title:  Senior Vice President                                    

			Title:                                                                       
		
	

Address:
4675 MacArthur Court, Suite 1600          

			Address:  610 Newport Center Drive
	

Newport Beach, CA 92660                                   

			Newport Beach, CA 92660
	

Telephone: (949) 608-2111                                    

			Telephone: (949) 706-6600
	

Facsimile: (949) 608-2003                                     

			Facsimile: (949) 706-6565
	

Email: gary.allen@grubb-ellis.com                           

			Email:
                                                                    
		
	

Federal ID
No.                                                      
  

			Federal ID No.
                                                    
		

NOTICE: These forms are often modified to meet changing
requirements of law and industry needs. Always write or call to make sure you
are utilizing the most current form: AIR Commercial Real Estate Association,
800 W 6th Street, Suite 800, Los Angeles, CA 90017. Telephone No. (213) 687-8777.
Fax No.: (213) 687-8816.

©Copyright 1999 By AIR Commercial Real Estate Association.

All rights reserved.
No part of these works may be reproduced in

any form without permission in writing.

s:/WinAir/GAllen/2361
McGaw/Irvine Business-Pro-Dex/Irvine Business-Pro-Dex-LEASE

 

 

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LESSOR SIGNATURE BLOCK TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-

TENANT LEASE —NET DATED AUGUST 3, 2007 BETWEEN IRVINE BUSINESS

PROPERTIES AND PRO-DEX, INC.

By:       LESSOR:

IRVINE BUSINESS
PROPERTIES, a California

general partnership, General Partner

By: Brinderson
Holdings, L.P. a California

      limited partnership, General Partner

      By:  Brinderson Holdings Company, a

            California corporation, General

            Partner

By:                                                 

      Gary L. Brindeson, President

By:                                                 

      Atef A. Moussa, Assistant

      Secretary

By:                                                             

       Marty Jones, General Partner

 

 

 

 

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ADDENDUM TO AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE—NET

 

The terms of this Addendum are intended to modify, amend, and
supplement the terms and provisions of the lease. Unless otherwise defined
herein, capitalized terms used in this Addendum shall have the same meanings as
set forth in the Lease to which it is attached. In the event of any conflict or
inconsistency between this Addendum and the Lease, this Addendum shall control.

50.       Rent Adjustments: See
attached A.I.R. Addendum.

51.       Premises. The following is
added to Paragraph 1.2(e). “The Parking License shall be a license coupled with
an interest and shall be irrevocable by Lessor during the time the Lease is in
effect. The Parking License shall not be transferable by Lessee other than in
connection with an assignment or subletting of this Lease of the Premises
pursuant to Article 12, below.”

52.       Commencement Date.
“Commencement Date” shall be the later of: (a) the date of Substantial
Completion of Lessor’s Work (defined in the Work Letter Agreement attached as
Exhibit D) or (b) the earlier of (i) November l, 2007, or (ii) the date that is
seven (7) days after Substantial Completion of Lessee’s improvements (defined
in the Work Letter Agreement).”

53.       Common Areas- Rules and
Regulations. The following is added to Paragraph 2.9. “Lessor shall keep and
maintain the Common Areas in good order, condition and repair in accordance
with good and accepted practices and consistent with other similar commercial
centers located within the greater Irvine Business Complex.”

54.       Common Areas Changes.
Notwithstanding the provisions of Paragraph 2.10 of the Lease, Lessor shall not
utilize, modify, alter or rearrange the Project and/or the Common Areas in a
manner that materially and adversely affects access to the Premises or the
operation of Lessee’s business, as permitted under this Lease. Lessor shall use
commercially reasonable efforts to cause all repairs to the Common Areas to be
performed in a way that minimizes the effect on Lessee’s operations on the
Premises.

55.       Term. The following is added
to Paragraph 3 of the Lease:

 

 

 

 

 

 

 

 

3.5       Option to Terminate.
Provided there is no Breach either at the time of the exercise of this
Termination Option or on the Termination Effective Date, Lessee shall have the
one-time option to terminate this Lease in its entirety (the “Termination
Option”) effective on the first day of the month following the end of the
seventy second (72nd) full calendar month of the Original Term (the
“Termination Effective Date”) by delivering to Lessor and Lessor actually
receiving at any time on or before the two hundred seventieth (270th)
day before the Termination Effective Date (the “Termination Deadline”) (1) a
written unconditional notice of the exercise of the Termination Option (the
“Termination Notice”) and (2) termination consideration in the amount of One
Hundred Twenty-Five Thousand Dollars ($125,000.00) (the “Termination
Consideration”). If Lessor does not receive both the Termination Notice and the
Termination Consideration in full by the Termination Deadline, then the
Termination Option shall be automatically void. If Lessor does receive both the
Termination Notice and the Termination Consideration in full by the Termination
Deadline, then this Lease shall expire on the Termination Effective Date, and
Lessee shall on such date surrender the Premises to Lessor in accordance with
the terms of this Lease. Time is of the essence in the exercise of the Termination
Option.

56.       Common Area Operating
Expenses. Notwithstanding anything is Paragraph 4.2 of the Lease, the following
items shall be specifically excluded from Common Area Operating Expenses:

(a)        Any payments (such as
salaries or fees) to Lessor’s executive personnel, excluding any property
management fees;

(b)        Depreciation or interest
(unless it is related to an allowable capital item);

(c)        Taxes on Lessor’s business
(such as income, excess profits, franchise, capital stock, estate,
inheritance);

(d)        Leasing commissions;

(c)        Legal fees;

(d)        Expenses paid directly by
Lessee for any reason (such as for excessive utility use);

(e)        Costs for improving any
other tenant’s space;

(f)         Any repair or other work
necessitated by condemnation, fire, or other casualty, except for any
deductible amounts to be amortized under Paragraph 2.3(b); and

(g)        Any costs, fines, and the
like which are due to the Lessor’s violation of any governmental rule or
authority.

 

 

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Lessor shall keep separate books of
account and records covering all Common Area Operating Expenses for at least
two (2) years after the close of each calendar year. Notwithstanding any
paragraph of the Lease to the contrary, in the event of any dispute regarding
the amount due as Lessee’s Share of Common Area Operating Expenses and provided
that no Lessee Default exists under the Lease (or any facts or circumstances
that, but for the giving of notice or passage of time or both, would constitute
a Lessee Default), Lessee shall have the right within ninety (90) days
following Lessor’s delivery to Lessee of the reconciliation for the twelve (12)
month period in question (the “Audit Request Deadline”), after at least twenty
(20) business days prior written notice and during normal business hours
approved by Lessor, to inspect and photocopy, at Lessee’s sole cost and
expense, Lessor’s accounting records for the Building relevant to the
calculation and allocation of Common Area Operating Expenses at Lessor’s
office, or such other location as Lessor may designate.  If Lessor has not
received a written notice from Lessee to conduct an audit by the applicable
Audit Request Deadline, Lessee shall have no further right to conduct an audit
for such twelve (12) month period. Any such audit shall be completed within two
(2) weeks following the date Lessor provides Lessee’s auditor with access to
Lessor’s non-confidential Building documents reasonably required by Lessee to
complete its audit for the period in question. If, after such inspection and
photocopying, Lessee continues to dispute the amount of Lessee’s Pro Rata Share
of Common Area Operating Expenses, Lessee shall be entitled to retain an
independent, third-party company to audit and/or review Lessor’s records to
determine the proper amount of Lessee’s Pro Rata Share of Common Area Operating
Expenses. Such audit company shall be compensated only on a flat fee or hourly
basis. No such audit company shall be compensated in whole or in part on a
contingency fee basis. Any accounting firm selected by Lessee in connection with
the audit shall not already be providing primary accounting services to Lessee
or any Lessee affiliate, nor shall it have provided primary accounting services
to Lessee or any Lessee affiliate in the past three (3) years. If such audit or
review reveals that Lessor has overcharged Lessee, then, as Lessee’s sole and
exclusive remedy, within ten (10) days after the results of such audit are made
available to Lessor, Lessor shall reimburse Lessee the amount of such
overcharge. If the audit reveals that Lessee was undercharged, then within ten
(10) days after the results of the audit are made available to Lessee, Lessee
shall reimburse Lessor the amount of such undercharge, and any erroneous
billing practices will be discontinued. If Lessor desires to contest such audit
results, Lessor may do so by submitting the results of the audit to arbitration
to the American Arbitration Association (Orange County office) within thirty
(30) days of receipt of the results of the audit, and the arbitration shall be
final and binding upon Lessor and Lessee. During any such arbitration
proceedings, Lessee’s monetary obligations shall not be reduced, abated or
suspended, and Lessor’s obligation, if any, to pay any such overage shall be
abated during such arbitration proceedings. Lessee agrees to pay the cost of
such audit (and any arbitration), provided that, if the audit reveals that
Lessor’s determination of Lessee’s Pro Rata Share of Common Area Operating
Expenses as set forth in the reconciliation sent to Lessee was in error in
Lessor’s favor by more than six percent (6.0%), Lessor shall pay the cost of
such audit (and any arbitration), if funds are owed by Lessor to Lessee as
established pursuant to this Paragraph, then Lessor shall at its option, either
(i) pay Lessee such amount within ten (10) days from the date such amount is
established, or (ii) credit against the monthly Base Rent next coming due under
the Lease unless the Lease Term has expired, in which event Lessor shall refund
the appropriate amount to Lessee. There shall be no more than one (1) review by
Lessee of Lessee’s Pro Rata Share of Common Area Operating Expenses for any
twelve (12) month period. Lessee shall keep any information gained from its
review of Lessor’s records confidential and shall not disclose it to any other
party, except as required by law. If requested by Lessor, Lessee shall require
its employees or agents reviewing Lessor’s records to sign a confidentiality
agreement as a condition of Lessor. Lessee understands and agrees that the
confidentiality provision set forth herein is of material importance to Lessor
and that any violation thereof shall result in immediate and irreparable harm
to Lessor.

Lessor shall use its commercially
reasonable efforts to obtain competitive bids from qualified contractors and
providers for service, repair and maintenance contracts to be let by Lessor
pursuant to this Lease. Lessor makes no representation, express or implied,
that competitive bids for trades or services from qualified contractors or
providers will be available or that Lessor shall receive responses from
qualified contractors or providers in response to Lessor’s requests for bids.
Lessor shall select, in Lessor’s good faith business judgment, the lowest
responsible bid. Lessor shall provide Lessee with written notice if Lessor
determines that estimated Common Area Operating Expenses shall in the aggregate
exceed ten percent (10%) over the immediately preceding year, and Lessee shall
have the right to approve such increase, such approval not to be unreasonably
withheld.

 

 

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57.       Reportable Uses Require
Consent. Notwithstanding Paragraph 6.2(a) of the Lease, Lessee shall have the
right (without Lessors prior consent, provided Lessor promptly receives copies
of any required material data safety sheets) to use and store on the Premises
materials and products used in the operation of Lessee’s business, including
without limitation products regulated by various governmental agencies (whether
or not such use or storage constitutes a Reportable Use), so long as such use
and storage complies with the terms and conditions of this Lease, including,
without limitation, Paragraphs 6.2(b), (c), (d) and 6.3, and with all
Applicable Laws.

58.       Use Restrictions. The
following is added to Paragraph 6 of the Lease:

6.5       Change in
Agreed Use. Lessor shall have the right to withhold its consent to any
requested change in the Agreed Use in Lessor’s sole, subjective and absolute
discretion. “Existing Zoning” shall mean the zoning ordinances of the City of
Irvine in effect as of the date of this Lease; however Agreed Use shall not
include any uses that would otherwise be permitted by a conditional use permit,
variance or other modification to the Existing Zoning.

6.6       Additional
Restrictions on Use. Lessee shall not do or permit anything to be done in or
about the Premises which will in any way materially obstruct or interfere with
the rights of other tenants or occupants of the Project or materially injure,
annoy, or disturb them, or allow the Premises to be used for any improper,
immoral or unlawful purpose, or commit any waste. Lessee shall not do or permit
anything to be done on or about the Premises or bring or keep anything into the
Premises which will in any way increase the rate of, invalidate or prevent the
procuring of any insurance protecting against loss or damage to the Project or
any of its contents by fire or other casualty or against liability for damage
to property or injury to persons in or about the Project or any part thereof.

6.7       Lessee’s
Hazardous Substance Disclosures. Prior to the occupancy this Lease, Lessee
shall complete, execute and deliver to Lessor an Environmental Questionnaire
and Disclosure Statement (the “Environmental Questionnaire”) in the form of
Exhibit E attached to this Lease, and Lessee shall certify to Lessor all
information contained in the Environmental Questionnaire as true and correct to
the best of Lessee’s knowledge and belief. The completed Environmental
Questionnaire shall be deemed incorporated into this Lease for all purposes,
and Lessor shall be entitled to rely fully on the information contained
therein. On each anniversary of the Commencement Date (each such date is
hereinafter referred to as a “Disclosure Date”), until and including the first
Disclosure Date occurring after the expiration or sooner termination of this
Lease, Lessee shall disclose to Lessor in writing the names and amounts of all
Hazardous Substances, or any combination thereof, which were stored, generated,
used or disposed of on, under or about the Premises for the twelve-month period
prior to each Disclosure Date, and which Lessee intends to store, generate, use
or dispose of on, under or about the Premises through the next Disclosure Date.
At Lessor’s option, Lessee’s disclosure obligations hereunder shall include a
requirement that Lessee update, execute and deliver to Lessor the Environmental
Questionnaire, as the same may be modified by Lessor from time to time.

59.       Maintenance, Repairs. Utility
Installations, Trade Fixtures and Alterations.

Paragraph 7.2 of the Lease is supplemented
as follows:

 

 

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7.2       Lessor’s Obligations. At
Lessor’s option, upon written notice to Lessee, Lessor shall have the right to
elect to undertake any of the maintenance and repair obligations of Lessee
under Paragraph 7.1 above, in which event the same shall be governed by the
provisions hereof. All amounts incurred by Lessor in connection with any
contracts, maintenance and repairs under this Paragraph 7.2, and impounds, and
the supervision and management thereof, shall be payable by Lessee in the same
manner as set forth in Paragraph 4.2.

The following is added to Paragraph 7.3
of the Lease:

7.3(d)   Alterations-Risk/Indemnification.
If Lessee or any person with whom Lessee is engaged in business causes any
structural damage to the Premises during Alterations, Lessee assumes all risk
of such damages actually incurred by Lessor, including, without limitation,
invalidation of any warranties or guaranties and related damage to any
improvements; and Lessee shall upon demand promptly repair all such damage to
the reasonable satisfaction of Lessor. If Lessee fails to take any such
actions, Lessor may, but shall have no obligation to, take any such actions as
Lessor deems appropriate to protect Lessor and the Premises, and all costs
incurred by Lessor thereby (including Lessor’s reasonable attorneys’ fees) with
interest shall be paid by Lessee to Lessor as additional rent. Interest on
unpaid amounts shall accrue from the date due at the maximum rate permitted
under law.

60.       Maintenance. Repairs. Utility
Installations, Trade Fixtures and Alterations. Paragraph 7.4(b) of the Lease is
supplemented as follows:

7.4       Removal. Lessor and Lessee
agree that Lessor shall not require Lessee to remove (i) any tenant
improvements initially installed by Lessee pursuant to attached Exhibit D
(provided, however, Lessee shall at Lessee’s sole cost and expense remove the
Building mezzanine on or prior to the Lease expiration date, and to Lessor’s
satisfaction, restore to good condition and repair those portion’s of the
Building affected by the mezzanine removal), or (ii) any subsequent Alteration
made by Lessee that is approved by Lessor, unless Lessor requires in writing at
the time it approves such Alteration that such Alteration is either required to
be removed upon the expiration of the Term (or the earlier termination of this
Lease) or is not required to be removed; provided however, if Lessor does not
provide such notice to Lessee within five (5) business days after Lessor
approves such Alteration, Lessor shall be deemed to have elected not to require
the removal of such Alteration.

61.       Insurance: Indemnity.

(a)        Paragraph 8.1 of the Lease
is supplemented as follows:

8.1       Payment of Premiums.
Lessee’s obligation to pay for liability insurance maintained by Lessor shall
be the pro rata share of such cost that is reasonably allocated to the Premises
as determined by Lessor.

(b)        Paragraph 8.4 of the Lease
is supplemented as follows:

 

 

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8.4(d)   Property Insurance – Building
Improvements.  Whenever Lessee shall undertake any Alterations, additions or
improvements in, to or about the Premises, the insurance obtained by Lessee as
required under this Lease must extend to and include injuries to persons and
damage to property arising in connection with such Alterations, additions or
improvements, without limitation including liability under any applicable
structural work act, and such other insurance as Lessor shall reasonably
require; and the policies of or certificates evidencing such insurance must be
delivered to Lessor prior to the commencement of any such work.

8.4(e)   Lessee’s Other Insurance.
Lessee shall also be required to maintain, throughout the term of this Lease,
(a) Business Auto Liability covering owned, non-owned and hired vehicles with a
limit of not less than $1,000,000 per accident; (b) insurance protecting
against liability under Workers’ Compensation Laws with limits at least as
required by statute with Employers Liability with limits of $500,000 each
accident, $500,000 disease policy limit, $500,000 disease - each employee; and
(c) Business Interruption Insurance with limit of liability representing loss
of at least approximately six (6) months of income.

(c)        Paragraph 8.5 of the Lease
is supplemented to provide that the form and content of all insurance
certificates and binders shall be subject to the approval of Lessor.

(d)        Paragraph 8.6 of the Lease
is supplemented to provide that (i) nothing contained in such Paragraph shall
absolve Lessee of its obligations of maintenance and repair and payment of
insurance deductibles under the Lease, and (ii) in the event that any loss is
due to the act, omission or negligence or willful misconduct of Lessee or any
of its agents, employees, contractors, guests, invitees, assignees or
sublessees, Lessee’s liability insurance shall be primary and shall cover all
losses and damages prior to any other insurance.

(e)        The following is added to
Paragraph 8.7 of the Lease:

8.4(d)   Indemnity. None of Lessor or
its agents, employees, contractors, officers, partners and agents
(collectively, the “Lessor Entities”) shall be liable and Lessee hereby waives
all claims against them for any damage to any property or any injury to any
person in or about the Premises or the Project by or from any cause whatsoever
(including without limiting the foregoing, rain or water leakage of any
character from the roof, windows, walls, basement, pipes, plumbing works or
appliances, the Project not being in good condition or repair, gas, fire, oil,
electricity or theft), except to the extent caused by or arising from the gross
negligence or willful misconduct of Lessor or its agents, employees or
contractors. Lessee shall protect, indemnify and hold the Lessor Entities
harmless from and against any and all loss, claims, liability or costs
(including court costs and attorney’s fees) incurred by reason of (a) any
damage to any property (including but not limited to property of any Lessor
Entity) or any injury (including but not limited to death) to any person
occurring in, on or about the Premises or the Project to the extent that such
injury or damage shall be caused by or arise from any actual or alleged act,
neglect, fault, or omission by or of Lessee or any Lessee’s agents, employees,
contractors, officers, partners and agents to meet any standards imposed by any
duty with respect to the injury or damage; (b) the conduct or management of any
work or thing whatsoever done by the Lessee in or about the Premises or from
transactions of the Lessee concerning the Premises; (c) Lessee’s failure to
comply with any Applicable Requirements; or (d) any breach or default on the
part of Lessee in the performance of any covenant or agreement on the part of
the Lessee to be performed pursuant to this Lease. The provisions of this
Paragraph 8.4(d) shall survive the termination of this Lease with respect to
any claims or liability accruing prior to such termination.

 

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62.       Hazardous Substance
Conditions. Intentionally deleted.

63.       Damage or Destruction.

9.3       Partial Damage-Uninsured
Loss. Notwithstanding Paragraph 9.3 of the Lease, in the event Lessor’s
reasonable estimate for restoration of a Premises Partial Damage that is not an
Insured Loss (unless caused by a negligent act or willful act of Lessee, in
which case the first sentence of Paragraph 9.3 of the Lease shall control, is
less than Five Hundred Thousand Dollars ($500,000.00), which amount shall be
increased annually from the Commencement Date by the increase, if any, in the
Consumer Price Index for All Urban Consumers (base year 1982 84 = 100) for Los
Angeles Riverside-Orange County (“CPI”), published by the United States
Department of Labor Bureau of Labor Statistics as of the Reference Date, this
Lease shall remain in effect, and the parties shall equally share the
restoration costs. Lessor shall restore such Premises Partial Damage as soon as
reasonably possible after receipt of Lessee’s share of the restoration costs.

The following is added to Paragraph 9
of the Lease:

9.8       Limited Obligation to
Repair; Effect of Termination. Lessor’s obligation, should it elect or be
obligated to repair the Premises hereunder, shall be limited to the basic shell
and any Lessee improvements constructed by Lessor, and Lessee shall, at its
expense, replace or fully repair all Lessee’s personal property, Trade
Fixtures, Utility Installations and Lessee owned Alterations existing at the
time of such damage. If the Premises are to be repaired in accordance with the
foregoing, Lessee shall make available to Lessor any portion of insurance
proceeds its receives which are allocable to any Lessee Improvements installed
by Lessor. Lessee shall fully cooperate with Lessor in removing Lessee’s
personal property, Trade Fixtures, and any debris from the Premises to
facilitate the making of repairs. If the Lease is terminated pursuant to this
Paragraph 9, Lessor shall, subject to the rights of any Lenders, be entitled to
receive and retain all insurance proceeds resulting from or attributable to
such damage or destruction, except for proceeds payable under policies obtained
by Lessee which spec if/catty insure Lessee’s personal property and Trade
Fixtures.

 

 

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9.9       Outside Date to Repair or
Replace. If the damage or destruction is an Insured Loss and Lessor is
obligated to repair such damage pursuant to the terms herein, then Lessor’s
architect or contractor shall certify within thirty (30) days of the date of
the damage or destruction (i) whether or not the damage required to be repaired
by Lessor may be substantially repaired, reconstructed or restored within two
hundred seventy (270) days of the date (the “Permit Issuance Date”) of the
damage or destruction (the “Estimated Repair Date”), and Lessor shall cause a
copy of the certification to be delivered to Lessee. If Lessee does not receive
the certification on or before the 30th day after the date of the
damage or destruction, the time period for repair shall be deemed to be within
the foregoing 270-day period, and the Estimated Repair Date shall be deemed to
be the 270th day from the Permit Issuance Date. If this Lease is
then not terminated in accordance with the provisions herein, and Lessor fails
to substantially complete repair or restoration of the Premises within thirty
(30) days of the Estimated Repair Date plus any Force Majeure Delays (as
defined below) and/or Lessee Delays (as defined below) (the “Lessee Outside
Completion Date”), then Lessee shall have the right to terminate this Lease by
providing Lessor with written notice of such election to terminate (the “Lessee
Termination Notice”). Time is of the essence, if Lessor does not receive the
Lessee Termination Notice by the Lessee Outside Termination Date, then Lessee’s
right to terminate this Lease pursuant to this Paragraph 9.9 shall
automatically terminate, this Lease shall continue in full force, and, subject
to the following provisions of this Paragraph, Lessor shall continue to
complete repair and restoration in accordance with its obligations under this
Lease. Similarly, if this Lease is not terminated in accordance with the
provisions above, and Lessor is unable to substantially complete repair or
restoration of the Building and Premises with one (1) year of the Estimated
Repair Date as a result of any Force Majeure Delays and/or any Lessee Delays,
then Lessor may elect to terminate this Lease by providing written notice to
Lessee or continue to complete repair and restoration in accordance with its
obligations under this Lease and the Lease shall remain in full force and
effect. Force Majeure Delays” shall be any delays due to strikes, lockouts, or
other labor disturbance, civil disturbance, riot, sabotage, blockage, embargo,
inability to secure materials, supplies, or labor through ordinary sources by
reason of regulation or order of any government or regulatory body, delays in
procurement of labor, equipment or materials through ordinary means using
commercially reasonable efforts, delays in the procurement of required
governmental approvals, permits and/or licenses, (including, without
limitation, any delays in the approval of Lessee’s plans and specifications)
delays caused by third party legal or administrative claims or challenges,
delays caused by the insurance adjuster’s determination of loss and issuance of
insurance proceeds (which shall be a condition to commencing construction),
lightning, rain (including the time necessary for soil or concrete to dry properly
before resumption of construction), earthquake, fire, storm, hurricane,
tornado, flood, washout, explosion, or any other similar or dissimilar cause
outside of the performing party’s reasonable control. “Lessee Delays” shall
mean any delays caused in whole or in part by or through Lessee and/or Lessee’s
representatives or contractors, including, without limitation, Lessee’s failure
to cooperate with Landlord in the procurement of required licenses and permits,
and/or failure to approve any plans and specifications in a timely fashion to
the extent Lessee’s approval is reasonably required by Lessor, any unreasonable
interference by any of Lessee’s contractor, subcontractors, employees,
representatives and/or agents with any obligations to be performed on the part
of Lessor, requests for, changes or postponements in construction (including
postponements required by requested change orders), submission of inaccurate or
incomplete information to Landlord, failure to pay any fees or charges when
due, and/or failure to provide any required authorizations in a timely fashion
where such authorization is reasonably required by Lessor.

64.       Utilities. Lessee shall bear
the cost of water supplied to the Premises as a “Collation Area Operating
Expense” pursuant to Paragraph 4.2. Paragraph 11 of the Lease is supplemented
to provide that (i) Lessee shall cause all utilities (other than water) to be
placed in Lessee’s name and for all of such utility charges to be directly paid
by Lessee to the applicable utility providers, and (ii) Lessor shall have no
obligation, liability or responsibility for the provision of utility services
to the Premises or for any interruption in same, and Lessee hereby waives all
claims, damages and losses against Lessor arising therefrom.

65.       Additional Terms and
Conditions to Assignment and Subletting. 

Paragraph 12.2 of the Lease is
supplemented by the following:

 

 

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(h)        Lessee acknowledges and
agrees that it shall be reasonable for Lessor to withhold its consent to any
proposed assignment or subletting if such assignment or subletting is to either
an existing lessee of Lessor or to it prospective lessee of Lessor with whom
Lessor is discussing or has discussed leasing other space of Lessor.

(i)         Lessee agrees that fifty
percent (50%) of any amounts paid by the assignee or sublessee, however
described, in excess of the Base Rent payable by Lessee hereunder (or, in the
case of sublease of a portion of the Premises, in excess of the Base Rent
reasonably allocable to such portion), shall be the property of Lessor and such
amounts shall be payable directly to Lessor by the assignee or sublessee,
subject to Paragraph 12.3 of the Lease. At Lessor’s request, a written
agreement shall be entered into by and among Lessee, Lessor and the proposed
assignee or sublessee confirming the requirements hereof. The provisions of
this Paragraph 12.2(i) shall not apply to any Permitted Transfer to a Lessee
Affiliate pursuant to Paragraph 12.4 (i.e., Lessee shall be entitled to retain
one hundred percent (100%) of any amounts paid by a Lessee Affiliate if such
assignment or sublease was consummated pursuant to Paragraph 12.4 and all other
applicable provisions of this Lease).

The following is added as new Paragraph
12.4:

12. 4    Permitted Assignment or
Subletting to Lessee Affiliate. Notwithstanding any contrary provision of
Article 12, Lessor’s consent to any proposed assignment or subletting shall not
be required for any Permitted Transfer to a Lessee Affiliate as defined in and
pursuant to attached Lease Rider No. 1; provided, however, (A) as a condition
to any Permitted Transfer, Lessee shall have provided Lessor, at least thirty
(30) days before the effective date of the proposed Permitted Transfer, with
reasonable supporting documentation establishing that, as applicable, the
proposed assignee or sublessee qualifies as a Lessee Affiliate and/or the
proposed assignment qualities as a Proposed Transfer, and (B) notwithstanding
any Permitted Transfer, (1) Lessee shall at all times continue to remain
directly and primarily liable under this Lease, (2) the use by such Permitted
Transferee shall be the Agreed Use, and (3) no such Transfer otherwise
permitted by this Paragraph may be made by Lessee to a transferee that is then
insolvent or then involved in a bankruptcy proceeding.

66.       Estoppel Certificates.
Paragraph 16 of the Lease is supplemented by the following:

(d)        All factual statements in
the Estoppel Certificate may be limited to the Responding Party’s actual
knowledge. Any financial statements of Lessee, provided Lessee (or its parent)
is a publicly traded corporation, required by Lessor under Paragraph 16(c)
shall not be in excess of financial statements customarily prepared by Lessee.
Notwithstanding anything in Paragraph 16(c) to the contrary, so long as Lessee
(or its parent) is a publicly traded corporation, delivery of the most recent
annual report filed for Lessee (or its parent on a consolidated basis) shall
satisfy Lessee’s obligation under Paragraph 16(c).

67.       Additional Rights and
Remedies.

 

 

-9-

 

 

 

 

 

(a)        Any written notice given
under Paragraph 13.1 of the Lease shall be in lieu of, and not in addition to,
the notice requirements of California Code of Civil Procedure Section 1161 et
seq,

(b)        In the event Lessor conducts
any repair, maintenance, refurbishment or other work on behalf of Lessee either
during the Lease Term or after termination and surrender, Lessor shall be
authorized to charge Lessee, us addition to the cost of such work, a
construction management fee equal to fifteen percent (15%) of the cost of such
work.

(c)        Paragraph 20 of the Lease is
supplemented by the following:

20.       Limitation on Liability. If
Lessor shall fail to perform any covenant, term, or condition of the Lease upon
Lessor’s part to be performed, Lessee shall be required to deliver to Lessor
written notice of the same.

(d)        The following is added to
Paragraph 20 of the Lease:

20.1     Any claim, demand or right of
any kind by Lessee which is based upon or arises in connection with the Lease
shall be barred unless Lessee commences an action thereon within the earlier of
(i) six (6) months after the expiration of the Lease, or (ii) twelve (12)
months after the date that the act, omission, event or default upon which the
claim, demand or right arises, has occurred.

(e)        Any reference to “best
efforts” in this Lease shall mean “best commercially reasonable efforts.”

68.       Holdover Protections.
Paragraph 26 of the Lease is supplemented as follows:

Lessee indemnifies Lessor from all loss
or liability arising from any holding over by Lessee without Lessor’s express
written consent or failure of Lessee to surrender the Premises in accordance
with Paragraph 7.4(c), including, without limitation, claims made by succeeding
lessees or losses due to lost opportunities to lease to succeeding lessees.

69.       Mortgage Protections. The
following is added to Paragraph 30 of the Lease:

 

 

-10-

 

 

 

 

 

30.5     Mortgagee Protections. Once
Lessee has received written notice identifying the name and address of a Lender
holding a Security Device on the Premises, Lessee agrees to notify such Lender
by certified mail, return receipt requested, with postage prepaid, of any
default on the part of Lessor under this Lease, and Lessee further agrees that,
notwithstanding any provisions of this Lease, no cancellation or termination of
this Lease and no abatement or reduction of the rent payable hereunder shall be
effective unless the Lender has received notice of the same and shall have
failed within thirty (30) days after the time when it shall have become
entitled under the Security Devise to remedy the same, to commence to cure such
default and thereafter diligently prosecute such cure to completion, and if the
Lender needs to obtain possession of the Premises to cure such default, to
allow the Lender to obtain possession of the Premises provided the Lender commences
judicial or non-judicial proceedings to obtain possession within such period
and thereafter diligently prosecutes such efforts and cure to completion. It is
understood that the Lender shall have the right, but not the obligation, to
cure any default on the part of Lessor. Lessee agrees that if a Lender shall
succeed to the interest of Lessor under this Lease, neither the Lender nor its
successors or assigns shall be: bound by any assignment (except as otherwise
expressly permitted hereunder), surrender, release, waiver, amendment or
modification of this Lease made without such Lender’s prior written consent,
provided that Lessee shall have received notice of the existence, identity and
address of Lender prior to Tenant’s execution of such amendment or modification;
or obligated to make any payment to Lessee or other prepaid charge to Lessee
held by Lessor for any purpose unless the Lender shall have come into exclusive
possession of such charge. In addition, if a Lender shall succeed to the
interest of Lessor under this Lease, the Lender shall have no obligation, nor
incur any liability, relating to events occurring prior to succeeding to
Lessor’s interest. In the event that a Lender (or any person or entity to whom
the Security Device may subsequently be assigned) notifies Lessee of a default
under the Security Device and demands that Lessee pay its rent and all other
sums due under this Lease to the Lender, Lessee shall honor such demand without
inquiry and pay its rent and all other sums due under this Lease directly to
the Lender or as otherwise required pursuant to such notice and shall not
thereby incur any obligation or liability to Lessor.

70.       Signs. Paragraph 34 of the
Lease is supplemented to provide that Lessee shall have the right to install
one (i) sign on the front of the Building near Lessee’s entrance identifying
Lessee as the Lessee thereof, provided however, that the location, size,
design, graphics, material, color and other physical aspects of such sign shall
be subject to Lessor’s prior written approval, any covenants, conditions or
restrictions encumbering the Building, all permits and approvals of the City of
Irvine and any other applicable governmental authority and Applicable
Requirements, and otherwise in accordance with Paragraph 34. Lessee shall
further be responsible, at Lessee’s sole cost and expense, for the maintenance
of such sign and for its removal and the repair of any damage to the Building
upon the expiration or earlier termination of the Term.

71.       Rules and Regulations. Paragraph
40 of the Lease is supplemented to incorporate therein and into the Lease any
initial Rules and Regulations which are attached as Exhibit C to the Lease.

72.       Lessee Improvements/Lessor
Work. Lessee, at its cost, shall construct the Lessee improvements (defined in
the Work Letter Agreement) on the Premises in accordance with the Work Letter
Agreement which is attached as Exhibit D to the Lease. All Lessee Improvements
shall belong to and be the property of Lessor. Lessor, at its cost, shall
perform Lessor’s Work (defined in the Work Letter Agreement) in accordance with
the Work Letter Agreement.

73.       Confidentiality. Lessee
acknowledges and agrees that the terms of the Lease are confidential and
constitute proprietary information of Lessor. Disclosure of the terms could
adversely affect the ability of Lessor to negotiate other leases and impair
Lessor’s relationship with other tenants. Accordingly, Lessee agrees that it,
its employees, agents, attorneys and brokers shall not disclose the terms and
conditions of the Lease to any other person or entity, including without
limitation other brokers, attorneys, tenants or prospective tenants of Lessor,
without the prior written consent of Lessor, which may be withheld in Lessor’s
sole discretion, unless required by law.

 

 

-11-

 

 

 

 

 

74.       Consents. Paragraph 36 of the
Lease is supplemented as follows: “Notwithstanding the foregoing, Lessee’s
obligation to reimburse Lessor for Lessor’s costs and expenses in connection
with any single request for consent shall not exceed $2,500 for attorney’s fees
incurred by Lessor in connection with any single request for consent plus all
of Lessor’s actual out-of-pocket consultants’ fees.”

	

By
LESSOR:
	BY LESSEE:
	

IRVINE BUSINESS PROPERTIES, a California general partnership, General Partner

			 PRO-DEX, INC.

		a Colorado corporation
	

 

			 
	

      By: Brinderson
Holdings, L.P.

             a California
limited partnership,  General Partner 
	By:   /s/ Mark P. Murphy               
		

		Name Printed:  Mark P. Murphy

		Title:   Chief Executive Officer
	      By: Brinderson
		Holdings Company

             a California
		Corporation,  General Partner 	 
	

            By: /s/
Gary L. Brinderson          

                
Gary L. Brinderson, President 

			By: /s/ Jeffrey J. Ritchey                 
		

		Name Printed:  Jeffrey J. Ritchey

		Title: Chief Financial Officer
	

                                

			 
	

            By:
 /s/ Atef A. Moussa                         

	 
	

                 Atef A. Moussa, Assistant Secretary

			 
	 	 
	

      By:
/s/ Marty Jones                        

            Marty Jones, General Partner

			 

 

 

 

 

-12-Form 8-K Exhibit 10.1
--------------------------------------------------------------------------------

                            SHARE EXCHANGE AGREEMENT

     This SHARE EXCHANGE  AGREEMENT (this  "Agreement") is made and entered into
this 22nd Day of August 2007,  by and among,  those  individual  purchasers  set
forth on Schedule A (together,  the "Purchasers") and the Seller, Guohua Ku, one
of the major shareholders of China Recycling Energy Corporation.

                                    RECITALS:

     WHEREAS, the Seller Guohua Ku is a major shareholder China Recycling Energy
Corporation, a Nevada Corporation (the "CREG"), and

     WHEREAS, the Purchasers are,  collectively,  the owners of 1,870,230 shares
(the  "Yingfeng  Shares") of ownership  interest of Xi'an  Yingfeng  Science and
Technology Co, Ltd., a Chinese Corporation (the "Yingfeng"),  listed adjacent to
each of the Purchasers' names on Schedule A; and

     WHEREAS,  the  Seller has  determined  that it is in his best  interest  to
exchange,  subject to the terms and conditions set forth herein,  623,410 shares
of common stocks of CREG ("CREG shares") he owns with the Purchasers for all the
Yingfeng Shares owned by Purchasers; and

     WHEREAS,  the Purchasers have determined that it is in their best interests
that they exchange,  subject to the terms and  conditions set forth herein,  all
the Yingfeng  Shares owned by them with the Seller for 623,410 CREG shares owned
by the Seller; and

                                   AGREEMENT:

     NOW,  THEREFORE,  in  consideration  of the premises and the agreements set
forth herein, the Seller and the Purchasers agree as follows:

                                    ARTICLE I

                                 SHARE EXCHANGE

     Section 1.01. The Share  Excahange.  Subject to the terms and conditions of
this  Agreement,  the  Seller  agrees to  assign,  transfer  and  deliver to the
Purchasers,  at the  Closing,  623,410  CREG shares  owned by him. As  exchange,
Purchasers agree to assign,  transfer and deliver to the Seller, at the Closing,
all the Yingfeng shares owned by them.  Under the terms of this Agreement,  each
individual  Purchaser  receives  ONE CREG  Share  owned by the  Seller for THREE
Yingfeng Shares owned by Purchasers  prior to the  transaction,  at the Closing,
with the  restriction  that all  Purchasers  shall not trade or resell  the CREG
shares they acquired  within a period of one year  following the closing date of
this  transaction,  complying with the restrictions on re-sale of the securities
of Rules 903 (a) and (b)(3) of Regulation S.

     Section 1.02. Execution and Closing. The Share Exchange shall take place at
such other time and place as the Seller and the Purchasers  mutually agree upon,
orally or in writing (which time and place is designated as the "Closing").  The
Seller shall deliver to the Purchasers  either (i) a certificate or certificates
representing  the CREG Shares or (ii) instruments of assignment or transfer that
shall, in the reasonable  opinion of the Purchasers be necessary to transfer the
CREG Shares to each of the Purchasers.  The Purchasers shall also deliver to the
Seller either (i) a certificate or certificates representing the Yingfeng Shares
or (ii)  instruments  of assignment or transfer  that shall,  in the  reasonable
opinion  of the Seller be  necessary  to  transfer  the  Yingfeng  Shares to the
Seller.

<PAGE>

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

     Section 2.01. Representations and Warranties of the Purchasers. Each of the
Purchasers,  on a joint and several basis, represents and warrants to the Seller
as follows:

            (a) The Purchasers have all power and authority to execute,  deliver
and perform this Agreement.

            (b) This  Agreement is the valid and binding  obligation  of each of
the  Purchasers,  enforceable  against each of the Purchasers in accordance with
its terms.

            (c) The CREG Shares will be acquired for  investment for the account
of each of the Purchasers, and not as a nominee or agent, and not with a view to
the distribution or public offering thereof.  In connection  therewith,  each of
the Purchasers  confirms that he or she is neither a U.S Person, as such term is
defined in Rule 902(k) of  Regulation S, nor located  within the United  States,
and that the  transaction  will be  between  non-U.S.  Persons,  and take  place
outside of the United States.

            (d)  None of the  Purchasers  have  been  contacted  concerning  the
acquired CREG Shares or the matters set forth in this  Agreement by means of any
advertisement or other general solicitation.

            (e) Each of the  Purchasers  understands  that (i) the acquired CREG
Shares have not been  registered  under either the  Securities  Act of 1933,  as
amended (the "Securities  Act") or the securities laws of any state by reason of
specific  exemptions  therefrom  and that such  securities  may be resold in the
United States  without  registration  under the  Securities  Act only in certain
limited circumstances.

            (f) The Purchasers  have access to information  relating to the CREG
as the  Purchasers  deem  necessary to make an informed  investment  decision in
connection with the acquired CHDW Shares, and except as provided in Section 2.02
below,  the Seller is making no  representations  and warranties  concerning the
acquired CREG Shares or the business of the CREG.

            (g) Each of the Purchasers understands that Regulation S promulgated
under the  Securities  Act, is available only for offers and sales of securities
outside the United States, and will comply with Regulation S, attached hereto as
Exhibit  A,  specifically  complying  with the  restrictions  on  re-sale of the
securities of Rules 903 (a) and (b)(3) of Regulation S.

            (h) Legends.  The Purchasers  acknowledge  that the CREG Shares they
acquired will bear the following restrictive legend:

                                    THE SECURITIES  REPRESENTED  HEREBY HAVE NOT
                        BEEN REGISTERED  UNDER THE UNITED STATES  SECURITIES ACT
                        OF 1933,  AS  AMENDED  (THE  "SECURITIES  ACT"),  OR THE
                        SECURITIES  LAWS OF ANY STATE OF THE UNITED STATES.  THE
                        HOLDER   HEREOF,    BY   PURCHASING   THE    SECURITIES,
                        ACKNOWLEDGES  THAT SUCH SECURITIES MAY BE OFFERED,  SOLD
                        OR OTHERWISE  TRANSFERRED ONLY: (A) TO THE COMPANY,  (B)
                        OUTSIDE THE UNITED STATES IN AN OFFSHORE  TRANSACTION IN
                        COMPLIANCE  WITH  REGULATION S UNDER THE  SECURITIES ACT
                        AND IN COMPLIANCE  WITH  APPLICABLE  LOCAL OR STATE LAWS
                        AND  REGULATIONS,  (C) INSIDE THE UNITED STATES PURSUANT
                        TO (I) RULE 144A  UNDER THE  SECURITIES  ACT TO A PERSON
                        WHO  THE  SELLER  REASONABLY  BELIEVES  IS  A  QUALIFIED
                        INSTITUTIONAL  BUYER  THAT  IS  PURCHASING  FOR  ITS OWN
                        ACCOUNT  OR FOR THE  ACCOUNT  OF ONE OR  MORE  QUALIFIED
                        INSTITUTIONAL  BUYERS  TO WHOM  WRITTEN  NOTICE IS GIVEN
                        THAT  THE  OFFER,  SALE OR  TRANSFER  IS  BEING  MADE IN

<PAGE>

                        RELIANCE  ON  RULE  144A  OR  (II)  THE  EXEMPTION  FROM
                        REGISTRATION  UNDER THE  SECURITIES ACT PROVIDED BY RULE
                        144 THEREUNDER,  IF AVAILABLE,  AND ANY APPLICABLE STATE
                        SECURITIES  LAWS OR (D) IN A  TRANSACTION  THAT DOES NOT
                        REQUIRE  REGISTRATION  UNDER THE  SECURITIES  ACT OR ANY
                        APPLICABLE  UNITED  STATES  FEDERAL OR STATE  SECURITIES
                        LAWS,   AFTER   PROVIDING   AN  OPINION  OF  COUNSEL  OF
                        RECOGNIZED  STANDING  REASONABLY   SATISFACTORY  TO  THE
                        COMPANY TO THAT EFFECT.

            (i)  Each of the  Purchasers  acknowledge  that it is  aware  of its
respective  obligations  under the  Securities  Exchange  Act of 1934 (the "1934
Act"), including, but not limited to those filing obligations that are triggered
as a result  of the  consummation  of the sale of the Sale  Shares  pursuant  to
Sections 13 and 16 of the 1934 Act, together with filings required to be made by
the Company, under the control of the Purchasers,  after the consummation of the
sale of the Sale Shares.

     Section 2.02.  Representations  and  Warranties  of the Seller.  The Seller
represents and warrants to the Purchasers as

follows:

            (a) The Seller has all power and  authority to execute,  deliver and
perform this Agreement.

            (b) This  Agreement  is the  valid  and  binding  obligation  of the
Seller, enforceable against the Sellers in accordance with its terms.

            (c) The  Seller  is the  record  and  beneficial  owners of the CREG
Shares  acquired by Purchasers  and the CREG Shares  exchanged  pursuant to this
agreement  have not been  assigned,  pledged,  sold,  transferred  or  otherwise
conveyed.

                                   ARTICLE III

                                  MISCELLANEOUS

     Section 3.01.  Governing Law; Successors and Assigns.  This Agreement shall
be governed and construed in accordance  with the law of the State of Nevada and
applicable   federal  law  and  shall  be  binding  upon  the  heirs,   personal
representatives,  executors,  administrators,  successors  and  assigns  of  the
parties

     Section 3.02.  Entire  Agreement.  This  Agreement  constitutes  the entire
agreement  of  the  parties  with  respect  to the  subject  matter  hereof  and
supersedes  and  replaces  any prior  agreement  or  understanding  between  the
Purchasers  and the Seller  with  respect  to the  transfer  of the Sale  Shares
between the Seller and the Purchasers.

     Section 3.03. Headings.  The headings of the Sections of this Agreement are
for convenience and shall not by themselves determine the interpretation of this
Agreement.

     Section 3.04. Counterparts. This Agreement may be executed in any number of
counterpart  copies,  all of  which  copies  shall  constitute  one and the same
instrument.

     Section  3.05.  Independent  Counsel.  The  Purchasers  and the Seller each
acknowledge  that this  Agreement  has been  prepared on behalf of the Seller by
Bernard & Yam,  LLP,  counsel to the Seller and that  Bernard & Yam,  LLP is not
representing,  and is not acting on behalf of, the Purchasers in connection with
this Agreement. The Purchasers have been provided with an opportunity to consult
with their own counsel and their own business,  securities and tax advisors with
respect to this Agreement.

<PAGE>

     Section 3.06. Purchaser  Representative.  The Purchasers appoints Mr. Jihua
Wang as their  Representative to sign and execute this Share Exchange  Agreement
and each Purchaser  understands and acknowledges  that this appointed  Purchaser
Representative
          (1) Is not an affiliate,  director,  officer or other  employee of the
          issuer,  or beneficial owner of 10 percent or more of any class of the
          equity  securities or 10 percent or more of the equity interest in the
          issuer; and
          (2) Has such  knowledge  and  experience  in  financial  and  business
          matters  that he is capable of  evaluating,  alone,  or together  with
          other purchaser representatives of the purchaser, or together with the
          purchaser, the merits and risks of the prospective investment;
          (3) Is acknowledged by the purchaser in writing,  during the course of
          the transaction,  to be their purchaser  representative  in connection
          with  evaluating the merits and risks of the  prospective  investment;
          and
          (4) Discloses to the  purchaser in writing a reasonable  time prior to
          the sale of  securities to that  purchaser  any material  relationship
          between  himself or their  affiliates and the issuer or its affiliates
          that then exists, that is mutually  understood to be contemplated,  or
          that has existed at any time during the  previous  two years,  and any
          compensation   received  or  to  be  received  as  a  result  of  such
          relationship.

               THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGE FOLLOWS

         IN WITNESS WHEREOF, the parties hereto have signed this Share Exchange
Agreement as of the date first above written.

    ------------------------------------------------------------------------

                            Signature Page for Seller

SELLER

By

      /s/Guohua Ku
      ------------
         Guohua Ku

     -----------------------------------------------------------------------

                   Signature Page for Purchaser Representative

PURCHASER  REPRESENTATIVE

By

      /s/Jihua Wang
      -------------
         Jihua Wang

    ------------------------------------------------------------------------

<PAGE>

                          Signature Page for Purchasers

PURCHASERS

By

X ___________________________

                                   SCHEDULE A

<PAGE>

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