Document:

Exhibit
10.2

 

INDUSTRIAL SPACE LEASE

 

THIS
LEASE is made as
of the 17th day of February, 2006, between METROAIR
PARTNERS, LLC, a Delaware limited liability company, hereinafter
referred to as “Landlord” and DJO LLC,
a Delaware limited liability company, qualified to do business in Indiana
hereinafter called “Tenant”.

 

ARTICLE I -
BASIC TERMS

 

1.01                           A.                                   Address of Landlord:

 

c/o
Horn Properties I, LLC

13025
Broad Street

Carmel,
Indiana 46032

 

B.                                     Address
of Tenant:

 

c/o DJ
Orthopedics

2985
Scott Street

Vista,
CA 92081

Attention:
General Counsel

 

or
such other address as may from time to time be designated by Landlord/Tenant in
writing.

 

C.                                     Premises:                                  The
single story building (the “Building”) comprising approximately 109,782 gross
square feet, together with the parcel of land (the “Land”) on which the
Building is situated in MetroAir Business Park, Plainfield, Indiana, as legally
described on Exhibit A attached hereto and made a part hereof, and any
parking areas, walkways, landscaped areas and other improvements appurtenant
thereto. The Land, the Building and all other improvements on the Land are
sometimes hereinafter referred to as the “Project”.

 

D.                                    Intentionally
Deleted.

 

E.                                      Intentionally
Deleted.

 

F.                                      Term:                                                      The
period of time commencing April 1, 2006 (the “Commencement Date”) and expiring
October 31, 2016 (the “Expiration Date”) unless sooner terminated as set forth
herein.

 

G.                                     Rent:                                                        All
sums, monies or payments required to be paid by Tenant to Landlord pursuant to
this Lease.

 

H.                                    Base
Rent:                           Base Rent for the Term
hereof is payable at an annual rate as follows:

 

1.                                       $5.12
per square foot per annum payable in advance in equal monthly installments of
$46,840.32 plus all Additional Rent (hereinafter defined) for the period from
April 1, 2006 through October 31, 2011; and

 

 

2.                                       $5.40
per square foot per annum payable in advance in equal monthly installments of
$49,401.90 plus all Additional Rent (hereinafter defined) for the period from
November 1, 2011 through October 31, 2016.

 

I.                                         Security
Deposit:                                                    N/A

 

J.                                        Tenant’s
Proportionate Share:  100%

 

K.                                    Permitted
Uses:             distribution, warehousing and ancillary
office

 

L.                                      Broker(s):                                            Colliers
Turley Martin Tucker

 

M.                                 Exhibits:                                                   A.                                   Legal
Description of Premises

B.                                     Site
Plan of Premises

C.                                     Rules
& Regulations

D.                                    Outline
Plans and Specifications

 

1.02                           Effect of Reference to Basic Terms. Each reference in this Lease to any of
the Basic Terms contained in Section 1.01 shall be construed to incorporate
into such reference all of the definitions set forth in Section 1.01.

 

ARTICLE II
- GRANT AND TERM/CONSTRUCTION

 

2.01                           In consideration of the rents, covenants,
agreements and conditions hereinafter provided to be paid, kept, performed and
observed, Landlord leases to Tenant and Tenant hereby hires from Landlord the
Premises described in Section 1.01 (C).

 

2.02                           Tenant shall have and hold the Premises
for and during the Term described in Section 1.01 (F), subject to the payment
of the Rent and to the full and timely performance by Tenant of the covenants
and conditions hereinafter set forth.

 

2.03                           In the event Tenant takes possession of
the Premises prior to the beginning of the Term hereof with Landlord’s consent,
such possession shall be in addition to the Term provided for herein and all
the provisions of this Lease shall be in full force and effect upon Tenant’s so
taking possession.

 

2.04                           Landlord agrees to construct the
leasehold improvements in the Premises as specified on the Outline Plans and
Specifications which are attached hereto and made a part hereof as Exhibit D.
Landlord agrees to cause final plans and specifications for the leasehold
improvements in the Premises to be prepared in accordance with the Outline
Plans and Specifications and to submit the same to Tenant for its approval. Tenant
agrees that it will not withhold its approval except for just and reasonable
cause and will not act in an arbitrary or capricious manner with respect to the
approval of the final plans and specifications. The final plans and
specifications shall be approved by Landlord and Tenant by affixing thereon the
signature or initials of an authorized officer or employee of each of the
respective parties hereto. Such final plans and specifications shall be in lieu
of and shall replace Exhibit “D” with respect to the leasehold improvements in
the Premises. The signature of an authorized officer or employee shall be
deemed conclusive evidence of the approval indicated by such signature. When
Landlord requests Tenant to specify details or layouts, Tenant shall specify
same promptly, subject to the provisions of the Outline Plans and
Specifications, so as not to delay completion of the leasehold improvements in
the Premises. Tenant shall pay to Landlord all reasonable increased costs or
damages, including lost rent, incurred by Landlord attributable to delays caused
by Tenant.

 

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2.05                           Landlord shall diligently proceed with
the construction of the leasehold improvements to the Premises (as well as the
construction of the Building, if it has not been completed as of the date of
this Lease) and use reasonable efforts to complete the same and deliver
possession thereof to Tenant at the beginning of the Term; provided, however,
if delay is caused or contributed to by act or neglect of Tenant, or those
acting for or under Tenant (each herein called a “Tenant Delay”), labor
disputes, casualties, acts of God or the public enemy, governmental embargo
restrictions, shortages of fuel, labor, or building materials, action or non-action
of public utilities, or of local, state or federal governments affecting the
work, or other causes beyond Landlord’s reasonable control, then the time of
completion of said construction shall be extended for the additional time
caused by such delay. Such delays are each hereinafter referred to as an “Excused
Delay.”  If the Premises are not
substantially complete with possession available to Tenant by the date
scheduled for substantial completion and delivery or possession, the Lease
shall remain in effect and the Term will commence upon such substantial
completion and delivery, with the dates for the commencement and expiration of
the Term to be adjusted accordingly. Notwithstanding the foregoing, if the
Premises are not substantially complete by the date which is sixty (60) days
after the Commencement Date (the “Outside Completion Date”), Tenant may, at its
option, by written notice to Landlord given within five (5) days of the Outside
Completion Date, terminate this Lease. The Outside Completion date shall be
extended, however, by the amount of any Tenant Delay.

 

2.06                           The Outline Plans and Specifications for
the leasehold improvements provide for tenant improvements which will be
amortized over the initial Term by the Base Rent provided for in this Lease. Any
tenant improvement requests which cause the tenant improvement cost amount to
increase above $330,914 will require payment of such excess amount in cash to
Landlord by Tenant upon Landlord’s request prior to the commencement of
construction of the leasehold improvements in the Premises. Landlord shall
provide a detailed estimate of any expected excess tenant improvement costs as
soon as such estimate is completed and no later than the commencement of
construction of the tenant improvements.

 

ARTICLE III
- INTENTIONALLY DELETED

 

ARTICLE IV
- USE

 

4.01                           Tenant agrees to use and occupy the
Premises for distribution and warehousing and ancillary office uses and for no
other purpose without Landlord’s prior written consent, which consent shall not
be unreasonably withheld. Tenant shall, at Tenant’s expense, promptly comply
with all applicable statutes, ordinances, rules, regulations, orders and
requirements in effect during the Term or any part thereof regulating the use
by Tenant of the Premises. Tenant shall not use or permit the use of the Premises
in any manner that will tend to create waste or a nuisance, or will tend to
unreasonably disturb other tenants in the Project, and shall keep its
mechanical apparatus free of noise and vibration which may be transmitted
beyond the confines of the Premises. No manufacturing operations may be
conducted from the Premises. Tenant shall not maintain, service, repair, fuel
or refuel any truck or vehicle of any kind on the Premises, the Building, or
the Land, except to replace propane tanks mounted on any propane-powered
forklifts.

 

4.02                           Tenant covenants throughout the Term, at
Tenant’s sole cost and expense, promptly to comply with all laws and ordinances
and the orders, rules and regulations and requirements of all federal, state
and municipal governments and appropriate departments, commissions, boards, and
officers thereof, and of any applicable insurance rating agency, or any other
body now or hereafter constituted exercising similar functions, foreseen or
unforeseen, ordinary as well as extraordinary, and whether or not the same
require structural repairs or

 

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alterations, which may be applicable to the Premises,
or the use or manner of use of the Premises; provided, however, that Tenant
shall not be responsible for structural repairs or alterations unless the
requirement for such structural repairs and alterations is caused by Tenant’s
particular use or occupancy (as distinguished from the general type of use or
occupancy permitted by the applicable zoning ordinance). Tenant will likewise
observe and comply with the requirements of all policies of public liability,
fire and all other policies of insurance at any time in force with respect to
the buildings and improvements on the Premises and the equipment thereof.

 

ARTICLE V -
RENT

 

5.01                           Base Rent. Tenant covenants to pay without notice, deduction,
set-off or abatement to Landlord the Base Rent specified in Section 1.01 (H) in
lawful money of the United States in advance on the first day of each month
during the Term. Rent for any partial month shall be prorated on a per diem
basis. Rent shall be payable to Landlord at Landlord’s address shown at Section
1.01 (A) above or such other place as Landlord may designate from time to time
in writing. Tenant shall pay the first full month’s Base Rent upon execution of
this Lease. Notwithstanding anything contained in this Lease to the contrary,
(i) so long as Tenant is not in default under this Lease, Base Rent and
Additional Rent for April through October, 2006 shall be abated and (ii) Base
Rent for November, 2006 shall be paid to Landlord upon execution of this Lease
and applied to Base Rent on November 1, 2006. All Base Rent and all other sums,
charges and payments required to be paid by Tenant to Landlord under this Lease
shall be paid without relief from valuation or appraisement laws.

 

5.02                           Real Estate Taxes. During the Term of the Lease and any
renewals, extensions or holding over, Tenant shall pay to Landlord, as
Additional Rent, Tenant’s Proportionate Share of the increase in the Real
Estate Taxes levied against the Building and becoming due and payable in each
year of the Term (or portion thereof) over the Real Estate Taxes which become
due and payable during the calendar year 2006 (the “Base Year”), paid monthly in
advance in an estimated amount.

 

“Real Estate Taxes” shall mean: (a) all ad valorem
Real Estate Taxes on the Project (adjusted after protest or litigation, if any)
for any part of the Term of this Lease, exclusive of penalties, (b) any taxes
which shall be levied in lieu of any such ad valorem real estate taxes, (c) any
special assessments for benefits on or to the Building paid in annual
installments by Landlord, (d) occupational taxes or excise taxes levied on
rentals derived from the operation of the Building or the privilege of leasing
property, and (e) the expense of protesting, negotiating or contesting the
amount or validity of any such taxes, charges or assessments, such expense to
be applicable to the period of the item contested, protested or negotiation.

 

If the Term of the Lease shall begin or end during a
tax calendar year (tax calendar year shall mean each annual period for which ad
valorem real estate taxes are due and payable, as opposed to assessed) of which
part only is included in the Term hereof, the amount of such Additional Rent
shall be prorated on a per diem basis and with respect to the year in which the
Term ends shall be paid on or before the last day of the Term. If the Term ends
in any tax calendar year before the amount to be payable by Tenant has been
determined under the provisions of this Section, an amount payable for the
portion of the Term during the tax calendar year shall be reasonably estimated
by the Landlord and the estimated amount shall be promptly paid by Tenant. As
soon as the amount properly payable by the Tenant for the partial period has
finally been determined, the amount shall be adjusted between Landlord and
Tenant.

 

5.03                           Insurance Premiums. During the Term of this Lease and any
renewals, extension or holding over thereof, Tenant shall pay to Landlord, as
Additional Rent, Tenant’s Proportionate Share of the increase in Insurance
Premiums for each calendar year (or portion thereof) of the Lease over the
Insurance Premiums incurred during the Base Year, paid monthly in advance in an
estimated amount.

 

“Insurance Premiums” shall mean the total cost and
expense incurred by Landlord for fire, flood, extended coverage, rent loss,
umbrella, public liability, property damage insurance and such other

 

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insurance as Landlord may deem prudent or advisable to
carry on the Building in each year of the Term, including, without limitation,
Landlord’s cost of any self-insurance deductible or retention.

 

5.04                           Heating, Ventilation and Air Conditioning
Maintenance. Tenant,
at its own cost and expense shall enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor reasonably
acceptable to Landlord for servicing all hot water, heating and air
conditioning systems and equipment within the Premises. The service contract
must include all services suggested by the equipment manufacturer in its
operations/maintenance manual and an executed copy of such contract must be
provided to the Landlord prior to the date Tenant takes possession of the
Premises. If such maintenance herein described is not undertaken, Landlord
shall have the right to undertake and/or coordinate all repairs and maintenance
and Tenant shall reimburse Landlord for all costs, including overhead, upon
demand.

 

5.05                           Common Area Expenses. During the Term of this Lease and any
renewals, extensions or holding over thereof, Tenant will pay to Landlord, as
Additional Rent, Tenant’s Proportionate Share of the increase in Common Area
Expenses (as those expenses are defined below) for each year (or portion
thereof) of the Lease over the Operating Costs incurred during the Base Year,
paid monthly in advance in an estimated amount.

 

For the purpose of this Lease the “Common Area
Expenses” means Landlord’s total cost and expense incurred in owning,
operating, maintaining and repairing the Common Areas as defined in Section
17.01 below, as well as the structure of the Building and the mechanical
equipment and facilities appurtenant thereto, including but without limitation
by enumeration, costs for all electricity, gas, water or fuel used in
connection with the operation, maintenance and repair of the Common Areas; the
amount paid for all labor and/or wages and other payments including costs to Landlord
of workmen’s compensation and disability insurance, payroll taxes, welfare and
fringe benefits made to janitors, employees, contractors and subcontractors of
the Landlord involved in the operation and maintenance of the Common Areas;
managerial, administrative, and telephone expenses related to operation and
maintenance of the common facilities; the total charges for management fees and
charges of any independent contractors employed in the care, operation,
maintenance, cleaning and landscaping; the amount paid for all supplies, tools,
replacement parts of components, equipment and necessities which are occasioned
by everyday wear and tear; the amount paid for premiums for all insurance
required from time to time by Landlord or Landlord’s mortgagees (which will
include, without limitation, the premiums described in Section 5.03, but only
to the extent that Tenant has not paid such premiums pursuant to Section 5.03);
and the pro rata costs of machinery and equipment purchased or leased by
Landlord to perform its common area maintenance obligations. To the extent that
Landlord elects to provide services which are not separately metered or
directly billed to the Tenant, such as water and trash hauling, the costs of
such services shall be included in Common Area Expenses. Common Area Expenses
shall not, however, include interest on debt, capital retirement of debt,
depreciation, costs properly chargeable to the capital account, except for
capital expenditures which reduce other operating expenses or such capital
expenditures that are required by changes in any governmental law or regulation
in which case such expenditures, plus interest on the unamortized principal
investment at ten percent (10%) per annum, shall be amortized over the life of
the improvements, and such costs shall be directly chargeable by Landlord to
Tenant in the Tenant’s Proportionate Share. All charges, allocations and
calculations hereunder shall be made pursuant to generally accepted accounting
principles.

 

5.06                           Estimates of Additional Rent. In order to provide for current
payments of Additional Rent, Landlord may give Tenant, upon execution of this
Lease and from time to time during the Term hereof, written notice of its
estimate of Additional Rent which will be due in the calendar year for which
written notice of such estimate is given. Tenant shall pay to Landlord, as an
Additional Rent deposit, in monthly installments commencing on the first day of
the Term of this Lease, and/or the first day of the calendar

 

5

 

month following that month in which Landlord notifies
Tenant of the estimated Additional Rent, one-twelfth (1/12) of the Additional
Rent due in any said calendar year as estimated by Landlord. If at any time it
appears to Landlord that the Additional Rent due Landlord for any calendar year
will vary from its estimate thereof by more than ten percent (10%), Landlord
may, by written notice to Tenant, revise its estimate for such year. Subsequent
Additional Rent deposits by Tenant for such year shall be based on the revised
estimate. Tenant shall pay Landlord the Additional Rent deposit in the same
manner as Base Rent beginning on the first day of the calendar month following
that calendar month in which this Lease commences.

 

Within sixty (60) days of the end of the calendar year
for which estimates of Additional Rent were made, actual Additional Rent due
for such year shall be calculated. If Tenant’s Proportionate Share of actual
Additional Rent exceeds the deposits paid by Tenant based on Landlord’s
estimates, Landlord shall bill Tenant for the excess amount and Tenant shall
pay to Landlord said amount within ten (10) days of billing. If Tenant’s
Proportionate Share of actual Additional Rent is less than the deposits paid by
Tenant based on Landlord’s estimate thereof, Tenant shall, at the option of
Landlord, be given a credit for the excess amount against the next Additional
Rent deposit due for any subsequent year or receive from Landlord a refund of
the excess so paid by Tenant.

 

If the Term of this Lease commences on any day other
than the first day of January, or if the Term of this Lease ends on any day
other than the last day of December, any Additional Rent due Landlord shall be
pro-rated, based on a 365 day year. Upon expiration or termination of this
Lease, Tenant shall pay such pro-rated amount within thirty (30) days of
billing. This covenant shall survive the expiration or termination of this
Lease.

 

5.07                           Service Charge. Tenant’s failure to make any monetary
payment required of Tenant hereunder within ten (10) days of the due date
therefor shall result in the imposition of a service charge for such late
payment in the amount of five percent (5%) of the amount due. In addition, any
sum not paid within thirty (30) days of the due date therefor shall bear
interest at the rate of eighteen percent (18%) per annum (or such lesser
percentage as may be the maximum amount permitted by law) from the date due
until paid.

 

ARTICLE VI
- UTILITIES AND SERVICES

 

6.01                           Tenant shall contract in its own name and
timely pay for all charges for electricity, gas, water, fuel, sewer charges,
telephone, trash hauling, and any other services or utilities used in,
servicing or assessed against the Premises, unless otherwise herein expressly
provided.

 

ARTICLE VII
- QUIET ENJOYMENT

 

7.01                           Landlord covenants that Tenant, on paying
the Rents herein provided and keeping, performing and observing the covenants,
agreements and conditions herein required of Tenant, shall peaceably and
quietly hold and enjoy the Premises for the Term aforesaid, subject, however,
to the terms of this Lease.

 

ARTICLE VIII
- ASSIGNMENT AND SUBLETTING

 

8.01                           Tenant shall not assign or hypothecate
this Lease nor sublet or otherwise transfer its interest in all or any part of
the Premises without the prior written consent of Landlord; which consent shall
not be unreasonably withheld or delayed. If Tenant wishes to assign this Lease
or sublet all or any part of the Premises it shall give notice in writing (by
certified mail or by personal delivery) of such intention to Landlord,
furnishing Landlord with a copy of the proposed assignment or sublease document
and full information as to the identity and financial status of the proposed
assignee or subtenant. Landlord shall

 

6

 

have, within thirty (30) days of receipt of such
notice, the right to terminate this Lease or to approve or reject such
assignment or subletting by written notice to Tenant. If no such response is
given, Landlord shall be deemed to have elected to approve the assignment or
subletting. Notwithstanding any assignment or sublease, Tenant shall remain
liable hereunder and shall not be released without the express written
agreement of Landlord to such release. If a subletting is so approved and the
rents under such a sublease are greater that the rents provided for herein,
then Landlord shall have the further option either (a) to convert the sublease
into a prime lease and receive all of the rents, in which case Tenant will be
relieved of further liability hereunder and under the Proposed sublease; or (b)
to require Tenant to remain liable under this Lease, in which event Tenant
shall be entitled to retain one-half of such excess rents. The consent by
Landlord to any assignment or subletting shall not constitute a waiver of the
necessity for such consent to any subsequent assignment or subletting. Any
transfer of this Lease by operation of law and any change in control, merger,
consolidation or liquidation of Tenant shall constitute an assignment for
purposes of this Lease.

 

ARTICLE IX
- DAMAGE OR DESTRUCTION

 

9.01                           If the Premises or the Building or any
part thereof is damaged by fire or other casualty, cause or condition
whatsoever as to be substantially untenantable and the Landlord shall determine
not to restore same, Landlord may, by written notice to Tenant given within
sixty (60) days after such damage, terminate this Lease as of the date of the
damage. If this Lease is not terminated as above provided and if the Premises
are made partially or wholly untenantable as aforesaid, Landlord, at its
expense shall restore the same with reasonable promptness to the condition in
which Landlord furnished the Premises to Tenant at the commencement of the Term
of this Lease but only as to those items that were provided at Landlord’s
expense without any reimbursement by Tenant. Landlord shall be under no
obligation to restore any alterations, improvements or additions to the
Premises made by Tenant or paid for by Tenant, including, but not limited to,
any of the initial tenant finish done or paid for by Tenant or any subsequent
changes, alterations or additions made by Tenant.

 

9.02                           If, as a result of fire or other
casualty, cause or condition whatsoever the Premises are made partially or
wholly untenantable and, if Landlord has not given the sixty (60) day notice
above provided for and fails within one hundred twenty (120) days after such
damage occurs to eliminate substantial interference with Tenant’s use of the
Premises or substantially to restore same, Tenant may terminate this Lease as
of the end of said one hundred twenty (120) days by notice to Landlord given
not later than five (5) days after expiration of said one hundred twenty (120)
day period. If the Premises are rendered totally untenantable but this Lease is
not terminated, all Rent shall abate from the date of the fire or other
relevant cause or condition until the Premises are ready for occupancy and
reasonably accessible to Tenant. If a portion of the Premises is untenantable,
Rent shall be prorated on a per diem basis and apportioned in accordance with
the portion of the Premises which is usable by the Tenant until the damaged
part is ready for the Tenant’s occupancy. In all cases, due allowance shall be
made for reasonable delay caused by adjustment of insurance loss, strikes,
labor difficulties or any cause beyond Landlord’s reasonable control. For the
purposes of this Lease, the Premises shall be considered tenantable so long as
and to the extent that the Premises are occupied. In any event, Tenant shall be
responsible for the removal, or restoration, when applicable, of all its
damaged property and debris from the Premises, upon request by Landlord or
reimburse Landlord for the cost of removal.

 

ARTICLE X -
LANDLORD’S RIGHTS

 

10.01                     Landlord
reserves the following rights:

 

(a)                                  To
change the name of the Building without notice or liability to Tenant;

 

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(b)                                 To
exhibit the Premises to others and to display “For Lease” signs on the Premises
during the last six months of the Term or any extension thereof;

 

(c)                                  To
remove abandoned or unlicensed vehicles and vehicles that are unreasonably
interfering with the use of the parking lot by others and to charge the
responsible tenant for the expense of removing said vehicles;

 

(d)                                 To
take any and all measures, including making inspection, repairs, alterations,
additions and improvements to the Premises or to the Building as may be
necessary or desirable for the safety, protection or preservation of the
Premises or the Building or Landlord’s interests, or as may be necessary or
desirable in the operation thereof (In exercising the rights reserved in this
subsection (d), Landlord shall use reasonable efforts to avoid any unreasonable
interference with Tenant’s operations in the Premises (but shall not be
required to conduct such operations on an overtime basis).

 

Landlord may enter upon the Premises at any reasonable
time for the purpose of exercising any or all of the foregoing rights hereby
reserved without being deemed guilty of an eviction or disturbance of Tenant’s
use or possession and without being liable in any manner to Tenant.

 

ARTICLE XI
- HOLDING OVER

 

11.01                     Tenant shall pay to Landlord the Base
Rent and Additional Rent computed on a per month basis for each month or part
thereof (without reduction for any such partial month) Tenant retains
possession of the Premises or any part thereof after the expiration of the
Term, by lapse of time or otherwise, at double the amount such rents then required
by the terms hereof for the last monthly period prior to the date of such
expiration and also pay all damages, direct or indirect, sustained by Landlord
by reason of such retention, or, if Landlord gives notice in writing to Tenant
(and not otherwise), such holding over shall constitute renewal of this Lease
at Landlord’s election for one (1) year at either (i) two hundred percent
(200%) of the then current Rent (including Base Rent and Additional Rent); or
(ii) that amount set forth in a written notice from Landlord to Tenant prior to
the holding over, but acceptance by Landlord of any rent or other payment from
Tenant after such expiration shall not constitute a renewal or extension nor
waive Landlord’s right of re-entry or any other right of Landlord. Notwithstanding
the foregoing, Landlord agrees that the provisions of this Article 11 shall not
apply during the first month of any such hold over period.

 

ARTICLE XII
- SIGNS AND ADVERTISEMENTS

 

12.01                     Landlord shall, at Landlord’s cost and
expense (up to a maximum allowance of $3,000), identify Tenant on any monument
and/or entry signage installed by Landlord on the Site. Tenant shall not put
upon nor permit to be put upon any part of the Premises or the Building, any
signs, billboards or advertisements without the prior written consent of
Landlord, which consent shall not be unreasonably withheld, delayed or
conditioned provided that such sign or signs (a) do not cause any structural
damage or other damage to the Building; (b) do not violate applicable governmental
laws, ordinances, rules or regulations; (c) do not violate any existing
restrictions affecting the Premises; and (d) are compatible with the
architecture of the Building and the landscaped area adjacent thereto.

 

12.02                     Tenant shall, not later than the
termination date (or earlier expiration date, if applicable) of this Lease, at
Tenant’s sole cost and expense, remove any signage erected by Tenant on the
façade of the Building in a good, workmanlike manner, repairing and restoring
the Building to the condition existing prior to the erection of such signage
free and clear of all liens and encumbrances. In the event damage to

 

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the Building shall be caused by the removal of such
signage, said damage shall be promptly repaired at the cost of Tenant.

 

ARTICLE XIII
- MORTGAGE AND SUBORDINATION/ESTOPPEL CERTIFICATE

 

13.01                     Except as provided in Section 13.03 below
with respect to mortgage subordination, this Lease and all rights of Tenant
hereunder are and shall be subject and subordinate to the lien of any first
mortgage, deed to secure debt, deed of trust, or other instrument in the nature
thereof which may now or hereafter affect Landlord’s interest in the premises
and to any other instrument encumbering the Landlord’s interest in the premises
and to any modifications, renewals, consolidations, extensions, or replacements
thereof.

 

13.02                     Section 13.01 above shall be self-operative,
and no further instrument of subordination shall be required by the holder of
any such instrument. In confirmation of such subordination, Tenant shall, upon
demand, at any time or times, execute, acknowledge, and deliver to Landlord or
the holder of any such mortgage, deed to secure debt, deed of trust, or other
such instrument without expense, a subordination, non-disturbance and
attornment agreement in such holder’s customary form, and if Tenant shall fail
at any time, within ten (10) days following the giving of written request
thereof, to execute, acknowledge, and delivery any such instrument, Landlord or
such holder, in addition to any other remedies available to it in consequence
thereof, may execute, acknowledge, and deliver the same as the attorney-in-fact
of Tenant and in Tenant’s name, place, and stead, and Tenant hereby irrevocably
makes, constitutes, and appoints Landlord or such holder, and their respective
successors and assigns, such attorney-in-fact for that purpose.

 

13.03                     Tenant shall, upon demand, at any time or
times, execute, acknowledge, and deliver to Landlord or to the holder of any
mortgage, deed to secure debt, deed of trust, or other instrument affecting or
encumbering the Landlord’s interest in the Premises, without expense, any and
all instruments that may be necessary to make this Lease superior to the lien
of any such mortgage, deed to secure debt, deed of trust or other instrument,
and each renewal, modification, consolidation, replacement, and extension
thereof, and if Tenant shall fail at any time, within ten (10) days following
the giving of a written request thereof, to execute, acknowledge, and deliver
any such instrument, Landlord or such holder, in addition to any other remedies
available to it in consequence thereof, may execute, acknowledge, and deliver
the same as the attorney-in-fact of Tenant and in Tenant’s name, place, and
stead, and Tenant hereby irrevocably makes, constitutes, and appoints Landlord
or such holder, and their respective successors and assigns, such attorney-in-fact
for that purpose.

 

13.04                     If the holder of any mortgage, deed to
secure debt, deed of trust or other instrument affecting or encumbering
Landlord’s interest in the Premises, shall hereafter succeed to the rights of
Landlord under this Lease, whether through possession or foreclosure action or
delivery of a new lease, Tenant shall, at the option of such holder, attorn to
and recognize such successor as Tenant’s landlord under this Lease and shall
promptly execute and deliver a subordination, non-disturbance and attornment
agreement in such holder’s customary form, and Tenant hereby irrevocably
appoints Landlord or such holder the attorney-in-fact of Tenant to execute and
deliver such instrument on behalf of Tenant should Tenant refuse and fail to do
so within ten (10) days after Landlord or such holder shall have given notice
to Tenant requesting the execution and delivery of such instrument. Upon such
attornment, this Lease shall continue in full force and effect as a direct
lease between such successor landlord and Tenant, subject to all the terms,
covenants, and conditions of this Lease.

 

13.05                     At any time and from time to time,
Tenant, on or before the date specified in a request therefor made by Landlord,
which date shall not be earlier than ten (10) days from the making of such
request, shall execute, acknowledge, and deliver to Landlord a certificate
evidencing whether or not (i) this Lease is in full force and effect, (ii) this
Lease has been amended in any way, (iii) there are any existing defaults

 

9

 

on the part of Landlord hereunder to the knowledge of
Tenant and specifying the nature of such defaults, if any, and (iv) the date to
which rent, and other amounts due hereunder, if any, have been paid. Each
certificate delivered pursuant to this Paragraph may be relied on by any
prospective purchaser or transferee of Landlord’s interest hereunder or of any
part of Landlord’s property or by any mortgagee of Landlord’s interest
hereunder or of any part of Landlord’ property or by an assignee of any such
mortgagee.

 

ARTICLE XIV
- EMINENT DOMAIN

 

14.01                     If the Premises or such substantial part
thereof as reasonably renders the remainder unfit for the intended uses shall
be taken by any competent authority under the power of eminent domain or be
acquired for any public or quasi-public use or purpose, the Term of this Lease
shall cease and terminate upon the date when the possession of said Premises or
the part thereof so taken shall be required for such use or purpose and without
apportionment of the award and Tenant shall have no claim for the value of any
unexpired Term of this Lease. If any condemnation proceeding shall be
instituted in which it is sought to take any part of the Building or change the
grade of any street or alley adjacent to the Building and such taking or change
of grade makes it necessary or desirable to remodel the Building to conform to
the changed grade, Landlord shall have the right to terminate this Lease upon
not less than ninety (90) days prior notice to Tenant. In either of said
events, Rent at the then current rate shall be apportioned as of the date of
the termination. No money or other consideration shall be payable by the
Landlord to the Tenant for the right of termination and the Tenant shall have
no right to share in the condemnation award or in any judgment for damages
caused by the taking or the change of grade. Nothing in this paragraph shall
preclude an award being made to Tenant for loss of business or depreciation to
and cost of removal of equipment or fixtures.

 

ARTICLE XV
- LANDLORD’S INABILITY TO PERFORM

 

15.01                     If by reason of inability to obtain and
utilize labor, materials or supplies; circumstances directly or indirectly the
result of a state of war or national or local emergency; any laws, rules,
orders, regulations or requirements of any governmental authority now or
hereafter in force; strikes or riots; accident in, damage to or the making or
repairs, replacements, or improvements to the Premises or any of the equipment
thereof; or by reason of any other cause beyond the reasonable control of
Landlord, Landlord shall be unable to perform or shall be delayed in the
performance of any covenant to supply any service, such nonperformance or delay
in performance shall not render Landlord liable in any respect for damages to
either person or property, constitute a total or partial eviction, constructive
or otherwise, or relieve Tenant from the fulfillment of any covenant or
agreement contained in this Lease, except that if such nonperformance shall
render the Premises untenantable in whole or in part, the Rent payable by
Tenant under this Lease shall be abated on an equitable basis for such period
of time as all or a portion of the Premises is rendered untenantable. If such
nonperformance shall render a majority of the Premises untenantable for more
than ninety (90) days, then Tenant may, at its option, by written notice to
Landlord given within five (5) days of the expiration of such 90 day period,
terminate this Lease.

 

ARTICLE XVI
- BANKRUPTCY OR INSOLVENCY

 

16.01                     It is understood and agreed that the
following shall apply in the event of the bankruptcy or insolvency of Tenant:

 

(A)                  If
a petition is filed by, or an order for relief is entered against Tenant under
Chapter 7 of the Bankruptcy Code and the trustee of Tenant elects to assume this
Lease for the purpose of assigning it, such election or assignment, or both,
may be made only if all of the terms and conditions of subparagraphs (B) and
(D) below are satisfied. To be

 

10

 

effective,
an election to assume this Lease must be in writing and addressed to Landlord,
and in Landlord’s business judgment, all of the conditions hereinafter stated,
which Landlord and Tenant acknowledge to be commercially reasonable, must have
been satisfied. If the trustee fails so to elect to assume this Lease within
sixty (60) days after such filing or order, this Lease will be deemed to have
been rejected, and Landlord shall then immediately be entitled to possession of
the Premises without further obligation to Tenant or the trustee, and this
Lease shall be terminated. Landlord’s right to be compensated for damages in
the bankruptcy proceeding, however, shall survive such termination.

 

(B)                    If
Tenant filed a petition for reorganization under Chapters 11 or 13 of the
Bankruptcy Code, or if a proceeding filed by or against Tenant under any other
chapter of the Bankruptcy Code is converted to a chapter 11 or 13 proceeding
and Tenant’s trustee or Tenant as debtor-in-possession fails to assume this
Lease within sixty (60) days from the date of the filing of such petition or
conversion, then the trustee or the debtor-in-possession shall be deemed to
have rejected this Lease. To be effective, any election to assume this Lease
must be in writing addressed to Landlord and, in Landlord’s business judgment,
all of the following conditions, which Landlord and Tenant acknowledge to be
commercially reasonable, must have been satisfied:

 

(1)                                  The
trustee or the debtor-in-possession has cured or has provided to Landlord
adequate assurance, as defined in this subparagraph (B), that:

 

(a)                                  It
will cure all monetary defaults under this Lease within ten (10) days from the
date of assumption; and

 

(b)                                 It
will cure all nonmonetary defaults under this Lease within thirty (30) days
from the date of assumption; and

 

(2)                                  The
trustee or the debtor-in-possession has compensated Landlord, or has provided
Landlord with adequate assurance, as hereinafter defined, that within ten (10)
days from the date of assumption Landlord will be compensated for any pecuniary
loss it has incurred arising from the default of Tenant, the trustee, or the
debtor-in-possession, as recited in Landlord’s written statement of pecuniary
loss sent to the trustee or debtor-in-possession.

 

(3)                                  The
trustee or the debtor-in-possession has provided Landlord with adequate
assurance of the future performance of each of Tenant’s obligations under this
Lease; provided, however, that:

 

(a)                                  From
and after the date of assumption of this Lease, it shall pay all monetary
obligations, including the Base and Additional Rents payable under this lease
in advance in equal monthly installments on each date that such Rents are
payable.

 

(b)                                 It
shall also deposit with Landlord, as security for the timely payment of Rent,
the amount set forth in Section 1.01 I;

 

(c)                                  If
not otherwise required by the terms of this Lease, it shall also pay in
advance, on each day that any installment of Base Rent is payable,

 

11

 

one-twelfth
of Tenant’s annual tax, escalation and other obligations under this Lease; and

 

(d)                                 The
obligations imposed upon the trustee or the debtor-in-possession will continue
for Tenant after the completion of bankruptcy proceedings.

 

(4)                                  For
purposes of this subparagraph (B), “adequate assurance” means that:

 

(a)                                  Landlord
determines that the Tenant, trustee or the debtor-in-possession has, and will
continue to have, sufficient unencumbered assets, after the payment of all
secured obligations and administrative expenses, to assure Landlord that the
trustee or the debtor-in-possession will have sufficient funds timely to
fulfill Tenant’s obligations under this Lease and to keep the Premises properly
staffed with sufficient employees to conduct a fully operational, actively
promoted business in the Premises; and

 

(b)                                 An
order shall have been entered segregating sufficient cash payable to Landlord
and/or valid and perfected first lien and security interest shall have been
granted in property of Tenant, trustee, or debtor-in-possession which is
acceptable in value and kind to Landlord, to secure to Landlord the obligation
of Tenant, trustee or debtor-in-possession to cure all monetary and nonmonetary
defaults under this Lease within the time periods set forth above.

 

(C)                    In
the event this Lease is assumed by a trustee appointed for Tenant or by Tenant
as debtor-in- possession under the provisions of subparagraph (B) above and,
thereafter, Tenant is either adjudicated a bankrupt or files a subsequent
petition for arrangement under Chapter 11 of the Bankruptcy Code, then Landlord
may, at its option, terminate this Lease and all the Tenant’s rights under it,
by giving written notice of Landlord’s election so to terminate.

 

(D)                   If
the trustee or the debtor-in-possession has assumed this Lease, pursuant to
subparagraph (A) or (B) above, to assign or to elect to assign Tenant’s
interest under this Lease or the estate created by that interest to any other
person, such interest or estate may be assigned only if the intended assignee
has provided adequate assurance of future performance, as defined in this
subparagraph (D), of all of the terms, covenants, and conditions of this Lease.
For the purposes of this subparagraph (D), “adequate assurance of future
performance” means that Landlord has ascertained that each of the following
conditions has been satisfied:

 

(1)                                  The
assignee has submitted a current financial statement, audited by a certified
public accountant, which shows a net worth and working capital in amounts
determined by Landlord to be sufficient to assure the future performance by the
assignee of the tenant’s obligations under this Lease;

 

(2)                                  If
requested by Landlord, the assignee will obtain guarantees, in form and
substance satisfactory to Landlord, from one or more persons who satisfy
Landlord’s standards of creditworthiness; and

 

(3)                                  Landlord
has obtained consents or waivers from any third parties which may be required
under any lease, mortgage, financing arrangement, or

 

12

 

other
agreement by which Landlord is bound, to enable Landlord to permit such
assignment.

 

(E)                     When,
pursuant to the Bankruptcy Code, the trustee or the debtor-in-possession is
obligated to pay reasonable use and occupancy charges for the use of all or
part of the Premises, it is agreed that such charges will not be less than the
Base Rent as defined in this Lease, plus additional rent and other monetary
obligations of Tenant included herein.

 

(F)                     Neither
Tenant’s interest in this Lease nor any estate of Tenant created in this Lease
shall pass to any trustee, receiver, assignee for the benefit of creditors, or
any other person or entity, nor otherwise by operation of law under the laws of
any state having jurisdiction of the person or property of Tenant, unless
Landlord consents in writing to such transfer. Landlord’s acceptance of rent or
any other payments from any trustee, receiver, assignee, person, or other
entity will not be deemed to have waived, or waive, either the requirement of
Landlord’s consent or Landlord’s right to terminate this Lease for any transfer
of Tenant’s interest under this Lease without such consent.

 

ARTICLE XVII
- COMMON AREAS

 

17.01                     The term “Common Areas” means all the
areas and facilities of MetroAir Business Park not intended for renting and,
instead, designed for the common use and benefit of Landlord and all or
substantially all of the Tenants, their employees, agents, customers and
invitees. The Common Areas include, but not by way of limitation, parking lots,
rail spurs, truck courts, landscaped and vacant areas, driveways, walks and
curbs with facilities appurtenant to each as such areas may exist from time to
time. Landlord shall operate and maintain the Common Areas, the proportionate
cost of which shall be reimbursed by Tenant to Landlord as provided for herein.
Landlord hereby grants to Tenant the non-exclusive revocable use of the Common
Areas by Tenant, Tenant’s employees, agents, customers and invitees, which use
shall be subject at all times to such reasonable, uniform and non-discriminatory
rules and regulations as may from time to time be established by Landlord.

 

17.02                     Tenant shall not use any part of the
Building exterior to the Premises for outside storage. No trash, crates,
pallets or refuse shall be permitted anywhere outside the Building by Tenant
except in enclosed metal containers to be located as directed by Landlord. Tenant
shall insure that the parking lot is not damaged by placement or movement of
trash containers, trucks or otherwise and Tenant shall be responsible for the
repair of same during the Term of the Lease and upon termination thereof.

 

17.03                     Tenant shall not park any cars except in
the designated car parking lot along the office frontage of the Building or at
the rear of the Building in the truck court area (each as designated on the
Site Plan). Tenant shall not park any trucks or trailers, loaded or empty,
except in front of the docks on the concrete apron provided for such purposes. Tenant
shall not park or permit parking of vehicles overnight anywhere about the
Building’s parking areas without the prior written consent of Landlord.

 

ARTICLE XVIII
- ACCEPTANCE OF PREMISES, MAINTENANCE AND CARE

 

18.01                     Completion and Acceptance. Tenant acknowledges that it will
examine the Premises before taking possession hereunder. Unless Tenant
furnishes Landlord with a notice in writing specifying any defect in the
construction of the Premises within ten (10) days after taking possession, such
taking of possession shall be conclusive evidence as against Tenant that at the
time thereof the Premises were in good order and satisfactory condition. Notwithstanding
the foregoing, Tenant shall have a period of one year after taking possession
of the Premises within which to notify Landlord of any latent defects in the
construction of the Premises that were not apparent during Tenant’s inspection
of the Premises, and the

 

13

 

provisions of the second sentence of this Paragraph
18.01 will not be effective as to any such latent defect, provided Tenant serves
notice of such latent defect upon Landlord within such one year period.

 

18.02                     Maintenance and Repair by Tenant. Tenant shall be responsible for all
maintenance, repair and replacement to the Premises of whatsoever kind or
nature that is not hereinafter set forth specifically as the obligation of
Landlord. Tenant shall take good care of the Premises and fixtures, and keep
them in good repair and free from filth, overloading, danger of fire or any
pest or nuisance, and repair and/or replacement any damage or breakage done by
Tenant or Tenant’s agents, employees or invitees, including damage done to the
Building by Tenant’s equipment or installations. Tenant shall be responsible
for the repair and replacement of all glass and plate glass on the Premises. Tenant
shall furnish and pay for the upkeep, maintenance, repair, replacement and
periodic servicing of the heating, ventilation and air conditioning system
servicing the Premises, by entering into and keeping in effect during a
contract for such services with a well qualified professional contractor which
contract shall provide inter alia for not less than four (4) inspections
annually and for the replacement of defective parts. Evidence of such contracts
will be delivered to Landlord prior to the commencement of the Term of this
Lease and from time to time thereafter not less than thirty (30) days prior to
expiration of the then existing contract. At the end of the Term of this Lease
or any renewal hereof, Tenant shall quit and surrender the Premises broom clean
in as good condition as when received by Tenant, normal wear and tear excepted.
In the event Tenant fails to maintain the Premises as provided for herein
Landlord shall have the right, but not the obligation, to perform such
maintenance, repair and replacement as is required of Tenant in which event
Tenant shall promptly reimburse Landlord for its costs in providing such
maintenance or repairs together with a ten percent (10%) charge for Landlord’s
overhead.

 

18.03                     Maintenance and Repair by Landlord. During the Term of this Lease, Landlord
shall keep and maintain the roof, foundation, exterior walls (excluding glass
or plate glass), gutters and downspouts of the Building in good condition and
repair (and such repairs shall be solely within Landlord’s control and the cost
thereof shall constitute a Common Area Expense to the extent otherwise so
provided in Section 5.05). Landlord shall be under no obligation and shall not
be liable for any failure to make repairs that are Landlord’s responsibility
herein until and unless Tenant notifies Landlord in writing of the necessity
therefor, in which event Landlord shall have a reasonable time thereafter to
make such repairs. If any portion of the Premises which Landlord is obligated
to maintain or repair is damaged by the negligence of Tenant, its agents,
employees or invitees, then repairs necessitated by such damage shall be paid
for by Tenant.

 

ARTICLE XIX
- ALTERATIONS AND ADDITIONS, MECHANICS’ LIENS

 

19.01                     Alterations and Additions. Tenant shall not make any alterations,
improvements, or additions to the Premises without the prior written consent
and approval of plans therefor by Landlord. The work necessary to make any
alterations, improvements or additions to the Premises shall be done at Tenant’s
expense by employees of, or contractors hired by, Landlord, except to the
extent Landlord gives its consent to Tenant hiring its own contractors. Tenant
shall promptly pay the cost of all such work. Alterations, improvements or
additions so made by either of the parties upon the Premises, except moveable
furniture and equipment placed in the Premises at the expense of Tenant, shall
be and become the property of Landlord and shall remain upon and be surrendered
with the Premises as a part thereof at the termination of this Lease, without
disturbance, molestation, injury or damage, unless Landlord elects to require
Tenant to remove any or all such alterations or improvements from the Premises,
in which event Tenant, at Tenant’s sole cost and expense, shall not later than
the termination of the Lease remove all such designated alterations or
improvements in a good, workmanlike manner, repairing and restoring the
Premises to the condition existing therein prior to the construction of such
alterations or improvements free and clear of all liens and encumbrances. In
the event damage to the Premises or the

 

14

 

Building shall be caused by moving said furniture and
equipment in or out of the Premises, said damage shall be promptly repaired at
the cost of Tenant.

 

19.02                     Mechanic’s Liens. Tenant shall not cause nor permit any
mechanic’s liens or other liens to be placed upon the Premises or the Building
and in case of the filing of any such lien or claim therefor, Tenant shall
promptly discharge same; provided, however, that Tenant shall have the right to
contest the validity or amount of any such lien upon its prior posting of
security with Landlord, which security, in Landlord’s sole reasonable judgment,
must be adequate to pay and discharge any such lien in full plus Landlord’s
reasonable estimate of its legal fees. Tenant agrees to pay all legal fees and
other costs incurred by Landlord because of any mechanic’s or other liens
attributable to Tenant being placed upon the Premises or the Building.

 

ARTICLE XX
- INSURANCE

 

20.01                     Public Liability, Property Damage
Insurance. Tenant
covenants and agrees to maintain on the Premises at all times during the Term
of this Lease, or any renewal thereof, a policy or policies of comprehensive
public liability and property damage insurance with not less than $3,000,000.00
combined single limit for both bodily injury and property damage which policy
or policies shall name Landlord, and its property manager, all as additional
insured.

 

20.02                     Fire and Extended Coverage Insurance. Landlord shall, throughout the Term of
this Lease, or any extension thereof, maintain fire and extended coverage
insurance on the property owned by Landlord located in and about the Premises
in such amounts and with such deductibles as Landlord shall determine. Landlord
shall not be obligated in any way or manner to insure any property of Tenant or
any property that may be in the Premises but not owned by Landlord. Landlord
agrees that if permitted by the insurer thereunder, such insurance policy shall
contain a waiver of subrogation with respect to claims against Tenant for
losses insured and compensated under such insurance policy. If permitted by
Tenant’s insurer, Tenant shall obtain for the benefit of Landlord a similar
waiver of subrogation with respect to insurance maintained by Tenant on its
property.

 

20.03                     Indemnification of Landlord. Except for claims arising out of the
negligence of Landlord, or out of the breach by Landlord of the terms of this
Lease, or for which Landlord is compensated under the insurance described in
Section 20.02 (and to the extent of such compensation) and for which a waiver
of subrogation is in effect, Tenant indemnifies and shall hold Landlord, and
its affiliates, partners, representatives, directors, trustees, officers,
employees, lenders, successors and assigns (collectively, “the Affiliates”) and
its property manager harmless from and defend Landlord and the Affiliates and
its property manager against any and all claims or liabilities for any injury
or death to any person or damage to any property whatsoever:

 

1.                           Either
(i) occurring in, on, or about the Premises, or (ii) occurring in, on, or about
any facilities including, without limitation, elevators, stairways, passageways
or hallways the use of which Tenant may have in conjunction with other tenants
of the Building, when such injury, death or damage shall be caused in part or
in whole by the act, neglect or fault of, or omission of any duty with respect
to the same by Tenant, its agents, employees, contractors, invitees, licensees,
tenants, or assignees;

 

2.                           Arising
from any work or thing whatsoever done by or benefitting the Tenant in or about
the Premises or from transactions of the Tenant concerning the Premises (which
indemnification shall be proportionate to the benefit to Tenant with respect to
matters done by other parties which benefit Tenant and other tenants of the
Building);

 

15

 

3.                           Arising
from any breach or default on the part of the Tenant in the performance of any
covenant or agreement on the part of the Tenant to be performed pursuant to the
terms of this Lease; or

 

4.                           Otherwise
arising from any act or neglect of the Tenant, or any of its agents, employees,
contractors, invitees, licensees, tenants or assignees; and

 

5.                           From
and against all costs, expenses, counsel fees, and court costs incurred or
assessed in connection with any or all of the foregoing.

 

Furthermore, in case any action or proceeding be
brought against Landlord and/or Landlord’s property manager by reason of any
claims or liability as set forth above, Tenant agrees to cause such action or
proceeding to be defended at Tenant’s sole expense by counsel reasonably
satisfactory to Landlord. The provisions of this Lease with respect to any
claims or liability occurring or caused prior to any expiration or termination
of this Lease shall survive expiration or termination.

 

ARTICLE XXI
- DEFAULT AND REMEDIES

 

21.01                     In
the event:

 

(a)                      Tenant
shall at any time fail to pay any item of Rent when due, and such failure shall
continue for more than two (2) days after Landlord’s written notice to Tenant
of such failure—except in the case that Tenant has failed on two occasions,
within the previous twelve calendar months to make timely payments of Rent, in
which case no such notice and cure period shall be required; or

 

(b)                     Tenant
shall fail to keep, perform or observe any other covenant, agreement, condition
or undertaking hereunder and shall fail to remedy such default within ten (10)
days after written notice thereof to Tenant; or if such default is one that
will take longer than ten (10) days to remedy, Tenant fails to commence curing
such default within ten (10) days and/or fails diligently to pursue such cure
to completion; or

 

(c)                      The
Premises shall be vacated by Tenant for any period for which Tenant has not
paid its Rent;

 

Landlord
shall have the right, without further notice to or demand, to re-enter and take
exclusive possession of the Premises in accordance with applicable law, with or
without force or legal process, and to refuse to allow Tenant to enter the same
or have possession thereof; to change the locks on the doors to the Premises;
take possession of any furniture or other property in or upon the Premises
(Tenant hereby waiving the benefit of all exemptions by law), sell the same at
public or private sale without notice and apply the proceeds thereof to the
costs of sale, payment of damages and payment of the rent due under this Lease;
and pursue any other remedy permitted by law; all without being liable to
Tenant for any damages or to any prosecution therefor; and

 

(i)                                     To
terminate Tenant’s right of possession of the Premises, in which event Landlord
may, but shall be under no obligation (except to the extent required by
applicable law) to, act as agent of Tenant to relet the Premises for the
balance of the Term or for a shorter or longer term and receive the rents
therefor, applying them first to the payment of damages suffered to the
Premises and rents due and

 

16

 

to
become due under this Lease, Tenant remaining liable for and hereby agreeing to
pay Landlord any deficiency; or

 

(ii)                                  To
cancel and terminate the remaining Term of this Lease, re-enter and take
possession of the Premises free of this Lease and thereafter this Lease shall
be null and void and the rents in such case shall be apportioned and paid on
and up to the date of such entry. Thereafter both parties shall be released and
relieved from any of any and all obligations thereafter to accrue hereunder. Tenant
shall be liable for all loss and damage resulting from such breach or default. In
the event that Landlord at any time terminates this Lease for any default by
Tenant, in addition to any other remedies Landlord may have, Landlord may
recover from Tenant all damages Landlord may incur by reason of such default,
including costs of recovery in the Premises, making alterations or repairs for
the purpose of re-letting, reasonable attorneys’ fees, and the value at the
time of such termination of the excess, if any, of the amount of rent and
charges equivalent to rent reserved in this Lease for the remainder of the Term
over the then reasonable rental value of the Premises for the remainder of the
Term less any reasonably anticipated vacancy.  All such amounts shall
immediately be due and payable from Tenant to Landlord; or

 

(iii)                               To
treat such default as an anticipatory breach of this Lease and, as liquidated
damages for such default, be entitled to the difference, if any, between the
sum which, at the time of such termination for anticipatory breach represents
the then present worth (computed at seven percent per year) of the excess
aggregate rents and additional rents payable hereunder that would have accrued
over the balance of the Term including extensions, had such Term not been
prematurely terminated, over the aggregate market rental value of the Premises
over the Term (including extensions) that the Lease would have run had it not
been prematurely terminated.

 

21.02                     Landlord’s Right to Cure. Landlord may, but shall not be
obligated to, cure any default by Tenant (specifically including, but not by
way of limitation, Tenant’s failure to obtain insurance, make repairs, or
satisfy lien claims); and whenever Landlord so elects, all costs and expenses
paid by Landlord in curing such default, including without limitation
reasonable attorneys’ fees, shall be so much Additional Rent due on the next
rent date after such payment, together with interest (except in the case of
said attorneys’ fees) at the highest legal rate then payable by Tenant in the
state in which the Leased Premises are located or in the absence of such a
maximum rate at the rate of eighteen percent (18%) per annum, from the date of
the advance to the date of repayment by Tenant to Landlord.

 

21.03                     Remedies Cumulative. All rights and remedies provided in
this Lease for Landlord’s protection shall be cumulative and in addition to any
other rights and remedies provided by law. Landlord shall be entitled to recover
from Tenant its reasonable attorneys’ fees incurred in enforcing its rights
hereunder.

 

21.04                     No Waiver. A waiver by Landlord of a breach or default by
Tenant under the terms and conditions of this Lease shall not be construed to
be a waiver of any subsequent breach or default nor of any other term or
condition of this Lease, and the failure of Landlord to assert any breach or to
declare a default by Tenant shall not be construed to constitute a waiver
thereof so long as such breach or default continues unremedied.

 

21.05                     No Reinstatement. No receipt of money by Landlord from
Tenant after the expiration or termination of this lease or after the
commencement of any suit, or after final judgment for possession of

 

17

 

the Premises shall reinstate continue or extend the
Term of this Lease or affect any such notice, demand or suit.

 

ARTICLE XXII
- DEFINITION OF LANDLORD/SALE/LANDLORD’S ASSIGNMENT OF LEASE

 

22.01                     The words “Landlord” and “Tenant” as used
herein shall include the respective contracting party, whether singular or
plural, and whether an individual, masculine or feminine, or a partnership,
joint venture, business trust, or corporation. The provisions of this Lease
shall inure to the benefit of and be binding upon Landlord and Tenant, and
their respective successors, heirs, legal representatives, and assigns,
subject, however, in the case of Tenant to the provisions of Section 8.01
hereof. It is understood and agreed that the term “Landlord,” as used in this
Lease means only the owner(s), or the lessee(s), from time to time of the
Building and/or the land underlying the Building so that in the event of any
sale or sales of the Building and/or the land underlying the Building, or of
any lease thereof, the Landlord named herein shall be and hereby is entirely
freed and relieved of all covenants and obligations of Landlord hereunder
accruing thereafter to the extent of such sale or lease, and it shall be deemed
without further agreement that the purchaser, or the lessee, as the case may
be, has assumed and agreed, to the same extent, to carry out any and all
covenants and obligations of Landlord hereunder during the period such party
has possession of all or such portion of the Building and/or the land underlying
the Building which it has purchased or leased. Should all of the land
underlying the Building and the entire Building be severed as to ownership by
sale and/or lease, then, unless the Tenant is otherwise notified to the
contrary in writing, either the owner of the entire Building or the lessee of
the entire Building, as the case may be, that has the right to lease space in
the Building to tenants shall be deemed the “Landlord.” Tenant shall be bound
to any succeeding landlord for all the terms, covenants, and conditions hereof
and shall execute any attornment agreement not in conflict herewith at the
request of any succeeding landlord.

 

ARTICLE XXIII
- NOTICES

 

23.01                     Except as otherwise herein provided,
whenever by the terms of this Lease notice shall or may be given either to
Landlord or to Tenant, such notice shall be in writing and shall be deemed to
have been properly served if hand-delivered, sent by commercial courier, or
sent by certified mail, return receipt requested, postage prepaid, at the
address set forth at Sections 1.01(A) and (B) above. The date of such hand-delivery
or deposit with a commercial courier shall be deemed the date of service; if
mailed by certified mail, the date of delivery indicated on the Return Receipt
shall be deemed the date of service.

 

ARTICLE XXIV
- INTENTIONALLY DELETED

 

ARTICLE XXV
- MISCELLANEOUS

 

25.01                     Persons Bound. The agreements, covenants and
conditions of this Lease shall be binding upon and inure to the benefit of the
heirs, legal representatives, successors and assigns of each of the parties
hereto, except that no assignment, encumbrance or subletting by Lessee, unless
permitted by the provisions of this Lease, shall vest any right in the
assignee, encumbrancee or sublessee of Tenant. If there be more than one Tenant
herein named, the provisions of the Lease shall be applicable to and binding
upon such Tenant jointly and severally, as well as their heirs, legal
representatives, successors and assigns.

 

25.02                     Partial Invalidity. If any term, covenant, condition or
provision of this Lease or the application thereof to any person or
circumstance shall, to any extent be invalid, unenforceable or violate a party’s
legal rights, then such term, covenant, condition or provision shall be deemed
to be null and void and unenforceable, however, all other provisions of this
Lease, or the application of such term or provision to

 

18

 

persons or circumstances other than those to which are
held invalid, unenforceable or violative of legal rights, shall not be affected
thereby, and each and every other term, condition, covenant and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.

 

25.03                     Captions. The headings and captions used throughout this Lease
are for convenience and reference only and shall in no way be held to explain,
modify, amplify, or aid in the interpretation, construction or meaning of any
provisions in this Lease. The words “Landlord” and “Tenant” wherever used in
this Lease shall be construed to mean plural where necessary, and the necessary
grammatical changes required to make the provisions hereof apply either to
corporation, partnerships, or individuals, men or women, shall in all cases be
assumed as though in each case fully expressed.

 

25.04                     No Option. Submission of this instrument for examination does
not constitute a reservation of nor option for the Premises. The instrument
does not become effective as a lease or otherwise until execution and delivery
by both Landlord and Tenant.

 

25.05                     Brokers. Tenant represents that it has dealt directly with
and only with the broker or brokers set forth at Section 1.01(L) above, and
that Tenant knows of no other broker who negotiated this Lease or is entitled
to any commission in connection herewith. Tenant agrees to indemnify, defend
and hold harmless Landlord from and against any commissions or claims by any
other broker or brokers pertaining to Tenant’s having entered into this Lease.

 

25.06                     Applicable Law. This Lease, its interpretation and
enforcement shall be governed by the laws of the state in which the Premises
are located.

 

25.07                     Tenant’s Compliance with Laws and
Ordinances. Tenant
covenants throughout the Term, at Tenant’s sole cost and expense, promptly to
comply with all laws and ordinances and the orders, rules and regulations and
requirements of all federal, state and municipal governments and appropriate
departments, commissions, boards, and officers thereof, and of any applicable
insurance rating agency, or any other body now or hereafter constituted
exercising similar functions, foreseen or unforeseen, ordinary as well as
extraordinary, and whether or not the same require structural repairs or
alterations, which may be applicable to the Premises, or the use or manner of
use of the Premises, and only to the extent applicable to the Premises or
Tenant’s use or occupancy of the Premises; provided, however, that Tenant shall
not be responsible for structural repairs or alterations unless the requirement
for such structural repairs and alterations is caused by Tenant’s particular
use or occupancy (as distinguished from the general type of use or occupancy
permitted by the applicable zoning ordinance). Tenant will likewise observe and
comply with the requirements of all policies of public liability, fire and all
other policies of insurance at any time in force with respect to the buildings
and improvements on the Premises and the equipment thereof.

 

25.08                     Waiver of Jury. Landlord and Tenant agree that, to the
extent permitted by law, each shall and hereby does waive trial by jury in any
action, proceeding or counterclaim brought by either against the other on any
matter whatsoever arising out of or in any way connected with this Lease.

 

25.09                     Allocation of Rent. Landlord and Tenant agree that no
portion of the Base Rent paid by Tenant during the portion of the Term of this
Lease occurring after the expiration of any period during which such rent was
abated shall be allocated by Landlord or Tenant to such rent abatement period,
nor is such rent intended by the parties to be allocable to any abatement
period.

 

25.10                     Financial Information. If Landlord shall request financial
information from Tenant in connection with a proposed sale or financing of the
Building, for the purpose of satisfying the due diligence

 

19

 

investigation requirements of a proposed purchaser or
lender, Tenant will provide such information as will allow Landlord to satisfy
the reasonable requirements of such proposed purchaser or lender.

 

ARTICLE XXVI
- HAZARDOUS SUBSTANCES AND MATERIALS

 

26.01                     A.                                   During the Term of this Lease, Tenant
shall not suffer, allow, permit or cause:

 

1.                                       The installation of any underground
storage tanks for the purpose of holding petroleum products or hazardous
substances either on the Premises or at any other location in the Building or
the Land.

 

2.                                       The accumulation of tires, spent
batteries, debris or other solid wastes either on the Premises or any other
part of the Building or the Land except rubbish placed in designated containers
scheduled for normal, scheduled disposal in accordance with all applicable law;

 

3.                                       The generation, accumulation, storage,
possession, release or threat of release of “hazardous substances”, “pollutants”,
“hazardous waste”, or “toxic materials” [as those terms are used in the
Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”),
42 U.S.C. §§9601 et seq., as amended, the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. 6901, et seq., as amended, the Toxic
Substance Control Act (or any regulations promulgated under the foregoing) or
any other present or future federal, state or local law, ordinance, rule or
regulation], including extremely flammable substances, explosives, radioactive
materials and petroleum/petroleum products (collectively, “Hazardous Substances”);
provided, however, the foregoing prohibition shall not be applicable to (i)
Hazardous Substances which are present at the Premises prior to the date hereof,
(ii) normal and reasonable amounts of cleaning and pest control supplies
reasonable necessary for maintenance of the Premises so long as such materials
are properly, safely, and lawfully stored and used by Tenant and the quantity
of same does not equal or exceed a “reportable quantity” as defined under 40
C.F.R. 302 and 305, as amended, or (iii) de minimis amounts of leaked or
spilled petroleum products from the normal operation of motor vehicles; and

 

4.                                       The use of the Premises for industrial,
manufacturing or landfill purposes, except as may be provided for herein.

 

B.                         Tenant
shall notify Landlord immediately upon learning that any duty of Tenant
described in paragraph A of this Section 26.01 has been violated, that there
has been a release, discharge or disposal of any Hazardous Substances on a part
of the Premises or the Building or Land, that radon gas or urea formaldehyde
has been detected on or in the Premises, or that the Premises are subject to
any third party claim or action, or threat thereof, because of any
environmental condition in or originating from the Premises or arising in
connection with Tenant’s operations at the Premises or at the Building or Land.
Tenant shall promptly provide Landlord with copies of all correspondence to or
from third parties regarding such claims or actions or regarding environmental
conditions in or originating from Tenant’s operations in the Premises or at the
Building or Land.

 

C.                         In
the event of a release, leaking, spilling or deposit (collectively “Leak”) of
any Hazardous Substances on, in or from the Premises, Tenant shall immediately
cause complete remediation of such leak and restore the Premises to the
condition that existed prior to commencement of this Lease or the date Tenant
took possession of the Premises, whichever is earlier. Landlord shall have the
right, but not the obligation, to enter the Premises and remediate any
environmental condition on the Premises to

 

20

 

comply with all laws,
regulations and ordinances during which time Tenant shall not be entitled to
any abatement of rent.

 

D.                        Tenant
shall indemnify and hold harmless Landlord (as well as Landlord’s officers,
directors, shareholder, employees, partners, servants and agents, including the
property manager) [the “Indemnified Parties”] of and from any and all
liabilities (including strict liabilities), penalties, demands, actions, costs
and expenses (including without limitation legal fees), remediation and
response costs, remediation plan preparation costs and any continuing
monitoring or closure costs, incurred or suffered by the lndemnified Parties,
or asserted by a third party against the Indemnified Parties, directly or
indirectly arising due to the breach of Tenant’s obligations set forth in this
Article. Such indemnification shall survive expiration or earlier termination
of this Lease.

 

E.                          At
the expiration or sooner termination hereof, Tenant shall return the Premises
to Landlord in substantially the same condition as existed on the date of commencement
hereof or the date Tenant took possession of the Premises, whichever is
earlier, free of any leaked Hazardous Substances in, on or from the leased
Premises.

 

ARTICLE XXVII - OPTION
TO EXTEND

 

27.01                     Tenant shall have the option
to extend the Term of the Lease for two (2) periods of five (5) years (each, a “Renewal
Period”) upon all of the terms, covenants and conditions contained in the Lease
except that Base Rent for the Renewal Period shall be equal to the Renewal Rate
(as defined below). Tenant shall be entitled to exercise its option to extend
hereunder so long as (i) Tenant shall have delivered to Landlord written notice
of its election to exercise such option not less than six (6) months prior to
the commencement date of the applicable Renewal Period, and (ii) Tenant shall
not be in default under this Lease.

 

27.02                     Within thirty (30) days of
its receipt of notice from Tenant of Tenant’s election to exercise its renewal
option, Landlord shall notify Tenant of the Renewal Rate to be charged as Base
Rent for the Renewal Period. As used herein, the term “Renewal Rate” shall mean
the rental rates then being charged to tenants of comparable size to Tenant in
comparable buildings in the area. Tenant shall have thirty (30) days to notify
Landlord in writing of its desire to accept the Renewal Rate or object to the
Renewal Rate. If Tenant rejects the Renewal Rate, Landlord and Tenant shall
attempt to negotiate a mutually acceptable Renewal Rate. If, after thirty (30)
days, Landlord and Tenant are unable to reach agreement on the Renewal Rate,
then this Lease shall terminate on the last day of the initial Term and the
Term of the Lease shall not be extended pursuant to this Article 27.

 

ARTICLE XXVIII
- ENTIRE AGREEMENT

 

28.01                     This Lease contains the entire agreement
between the parties and no modification of this Lease shall be binding upon the
parties unless evidenced by an agreement in writing signed by the Landlord and
the Tenant after the date hereof. If there be more than one Tenant named
herein, the provisions of this Lease shall be applicable to and binding upon
such tenants jointly and severally.

 

ARTICLE XXIX
- EXHIBITS

 

29.01                     Reference is made to the Exhibits listed
at Section 1.01(M) above, which exhibits are attached hereto and incorporated
herein by reference.

 

21

 

IN
WITNESS WHEREOF, the parties have signed quintuplicate counterparts hereof as
of the date and year hereinabove set forth.

 

	
  TENANT:

  	
   

  	
  LANDLORD:

  
	
   

  	
   

  
	
  DJO
  LLC,

  	
  METROAIR
  PARTNERS, LLC,

  
	
  A Delaware
  limited liability company

  	
   

  	
  an Indiana
  limited liability company

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  HORN
  PROPERTIES I, LLC

  
	
  By:

  	
  /s/ Luke T.
  Faulstick

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ R. Horn

  	
   

  
	
  Its:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
   

  
										

 

22

 

EXHIBIT
A

 

LEGAL DESCRIPTION

 

23

 

EXHIBIT
B

 

SITE PLAN

 

24

 

EXHIBIT
C

 

1.                                       All exterior signs shall be in accordance
with Landlord’s sign specifications.

 

2.                                       Tenant
shall not place unsightly objects against glass partitions or doors, nor cover
any glass window or door with interior sign or signs.

 

3.                                       Blinds,
shades, awnings (except awning frames), window ventilators and other similar
equipment visible from outside of the Building shall be installed by Tenant
only in accordance with the prior written approval of Landlord.

 

4.                                       Tenant
shall not use any space in the Building for living quarters, whether temporary
of permanent.

 

5.                                       Tenant
shall not keep inflammables, such as gasoline, kerosene, naphtha and benzine,
or explosives, or any other articles of an intrinsically dangerous nature on
the Premises. Tenant may, however, keep on the Premises such chemicals and
other materials as are usual and customary for the type of business to be
operated by Tenant, provided that all such chemicals and other materials shall
be kept in such containers and in such manner as may be required by Landlord’s
policies of insurance, and further provided that the keeping of such chemicals
or materials shall not increase the rate of insurance of any such policies of
the Landlord.

 

6.                                       Tenant
shall place all trash and garbage in containers. If excess trash accumulates,
Tenant shall arrange for special pickup.

 

7.                                       All
loading and unloading of goods shall be done only at such times in the areas
and through the entrances designated for such purpose by Landlord. All vehicles
shall use driveways in accordance with designated traffic pattern.

 

8.                                       Tenant
shall have full responsibility for protecting the Premises and the property located
therein from theft and robbery, and shall keep all doors, windows and transoms
securely fastened when not in use.

 

9.                                       Tenant
shall keep the Premises free and clear from rodents, bugs and vermin, and will
at Tenant’s sole cost and expense use exterminating services when so requested
by Landlord.

 

10.                                 Tenant
shall keep the Building at a temperature sufficiently high to prevent freezing
of water in pipes and fixtures.

 

11.                                 The
outside areas of the Premises shall be kept clean by the Tenant, and the Tenant
shall not place or permit any obstructions, merchandise or machines of any kind
in such areas.

 

25

 

EXHIBIT D

 

TENANT
IMPROVEMENTS

 

Landlord will turnkey the
space based on the following allowances totaling $330,914:

 

 

	
  6,500 square
  feet of office space at $40/SF

  	
   

  	
  $

  	
  260,000

  	
   

  
	
  89 light
  fixtures at $500/ea.

  	
   

  	
  $

  	
  44,500

  	
   

  
	
  Paint warehouse

  	
   

  	
  $

  	
  20,664

  	
   

  
	
  Paint columns

  	
   

  	
  $

  	
  2,750

  	
   

  
	
  Monument sign
  allowance

  	
   

  	
  $

  	
  3,000

  	
   

  
	
  TOTAL

  	
   

  	
  $

  	
  330,914

  	
   

  

 

In addition to the above
allowances, Landlord will pay Tenant a cash allowance of $165,800 upon the
Commencement Date in consideration for Tenant’s moving costs, improvement
upgrades and lease termination costs.

 

26Exhibit 10.1

POLYMER GROUP, INC.

EXECUTIVE EMPLOYMENT AGREEMENT

THIS AGREEMENT is entered into on March 24, 2006,
between Polymer Group, Inc., a Delaware corporation (the “Company”), and
James L. Schaeffer (“Executive”).

In consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

1.             Employment Period. The Company shall employ
Executive, and Executive hereby accepts employment with the Company, upon the
terms and conditions set forth in this Agreement for the period beginning on
and as of April 1, 2006 and ending on March 31, 2009, unless
otherwise terminated earlier as provided in paragraph 4 hereof (the “Employment
Period”).

2.             Position and Duties.

(a)           During the
Employment Period, Executive shall serve as the Chief Executive Officer of the
Company and shall have the normal duties, responsibilities, functions and
authority of the Chief Executive Officer, subject to the power and authority of
the Board to expand or limit such duties, responsibilities, functions and
authority within the scope of duties, responsibilities, functions and authority
associated with the position of Chief Executive Officer and to overrule actions
of officers of the Company. During the Employment Period, Executive shall
render such executive and managerial services to the Company and its
Subsidiaries which are consistent with Executive’s position and as the Board
may from time to time direct.

(b)           During the
Employment Period, Executive shall report to the Board and shall devote his
best efforts and his full business time and attention (except for permitted
vacation periods and reasonable periods of illness or other incapacity)
exclusively to the business and affairs of the Company and its Subsidiaries. Executive
shall perform his duties, responsibilities and functions to the Company and its
Subsidiaries hereunder to the best of his abilities in a diligent, trustworthy,
professional and efficient manner and shall comply with the Company’s and its
Subsidiaries’ policies and procedures in all material respects. In performing
his duties and exercising his authority under the Agreement, Executive shall
support and implement the business and strategic plans approved from time to
time by the Board and shall support and cooperate with the Company’s and its
Subsidiaries’ efforts to expand their businesses and operate profitably and in
conformity with the business and strategic plans approved by the Board. So long
as Executive is employed by the Company, Executive shall not, without the prior
written consent of the Board, accept other employment or perform other services
for compensation. Notwithstanding the foregoing, it shall not be considered a
violation of this Agreement if during the Employment Period Executive (i) agrees
to serve on the board of directors of one other company with operations related
to the nonwovens field which would not be considered to be a competitor of the
company and devotes a reasonable amount of time to performing his duties as an
outside director of such company, or (ii) serves on civic or charitable

 

boards or committees consistent with his status as a
full-time executive officer, so long as such activities do not significantly
interfere with his performance of his responsibilities as an executive officer
of the Company.

(c)           For purposes of this
Agreement, “Subsidiaries” shall mean any corporation or other entity of
which the securities or other ownership interests having the voting power to
elect a majority of the board of directors or other governing body are, at the
time of determination, owned by the Company, directly or through one of more
Subsidiaries.

3.             Compensation and Benefits.

(a)           During the
Employment Period, Executive’s base salary shall be $650,000 per annum,
effective on and after April 1, 2006, or such higher rate as the Board may
determine from time to time (as adjusted from time to time, the “Base Salary”),
which salary shall be payable by the Company in regular installments in
accordance with the Company’s general payroll practices (in effect from time to
time). The Board shall undertake an annual review of Executive’s Base Salary,
and shall approve such increases to such Base Salary by such amounts, if any,
as the Board determines to be appropriate. In addition, during the Employment
Period, Executive shall be entitled to participate in all of the Company’s
employee benefit programs for which senior executive employees of the Company
and its Subsidiaries are generally eligible, and Executive shall be entitled to
four weeks of paid vacation each calendar year in accordance with the Company’s
policies, which if not taken during any year may not be carried forward to any
subsequent calendar year and no compensation shall be payable in lieu thereof. During
the Employment Period, the Company shall provide Executive with a car
comparable to that which he is using on the date of this Agreement (“Car”). The
Employee shall take good care of the Car and ensure that the provisions and
conditions of any policy of insurance relating thereto are observed (including
the provision with respect to protection of the Car), and in the event that the
Employee’s employment terminates for whatever reason, he shall forthwith return
the Car with the keys and all licenses and other documentation relating to the
Car, to the Company. The Employee shall not have any lien right in the Car or
in any document or property relating thereto.

(b)           During the
Employment Period, the Company shall reimburse Executive for all reasonable
business expenses incurred by him in the course of performing his duties and
responsibilities under this Agreement which are consistent with the Company’s
policies in effect from time to time with respect to travel, entertainment and
other business expenses, subject to the Company’s requirements with respect to
reporting and documentation of such expenses.

(c)           In addition to the
Base Salary, the Board may, in its sole discretion, award a bonus to Executive
following the end of each fiscal year during the Employment Period based upon
Executive’s performance and the Company’s operating results during such year; provided,
that Executive shall be entitled to a minimum performance bonus opportunity
each year of not less than 50% of his Base Salary, which bonus shall be payable
upon the achievement by the Company of certain performance target levels
established by the Board for Executive and the other senior executive officers
of the Company. In addition, Executive may be eligible for specific bonuses as
may be determined by the Board from time to time relating to certain
extraordinary corporate events, such as acquisitions or dispositions.

 2
 

 

(d)           In addition to the
Base Salary and any bonuses payable to Executive pursuant to this paragraph, Executive
shall be entitled to health insurance and disability insurance of such coverage
as reasonably determined by the Board and term life insurance in an amount
equal to two times Executive’s Base Salary.

(e)           During the
Employment Period, Executive shall also be entitled to reasonable periods of
sick leave (without loss of pay) in accordance with the Company’s policies as
in effect from time to time.

(f)            All amounts payable
to Executive as compensation hereunder shall be subject to all required and
customary withholding by the Company.

4.             Term.

(a)           Unless renewed by
the mutual agreement of the Company and Executive, the Employment Period shall
end on March 31, 2009. The Employment Period shall terminate prior to such
date (i) immediately upon Executive’s resignation (with or without Good
Reason, as defined below), death or Disability and (ii) the Employment
Period may be terminated by the Company at any time prior to such date for
Cause (as defined below) or without Cause. Except as otherwise provided herein,
any termination of the Employment Period by the Company shall be effective as
specified in a written notice, or oral notice later confirmed in writing, from
the Company to Executive.

(b)           If the Employment
Period is terminated by the Company without Cause or upon Executive’s
resignation with Good Reason during the term of this Agreement, Executive shall
be entitled to receive from the Company as special severance payments an amount
equal to (i) his Base Salary, as in effect immediately prior to the date of
his termination, for the period equal to the 36 month anniversary of the date
of termination (the “Severance
Period”), and (ii) his target bonus opportunity for the fiscal year in
which the termination date occurs, multiplied by a fraction equal to the number
of days of employment completed by Executive during the fiscal year in which
the termination date occurs divided by 365, in each case if and only if
Executive has executed and delivered to the Company the General Release
substantially in form and substance as set forth in Exhibit A
attached hereto and only so long as Executive has not breached the provisions
of paragraphs 5, 6 and 7 hereof and does not apply for unemployment
compensation chargeable to the Company during the Severance Period, and Executive
shall not be entitled to any other salary, compensation or benefits after
termination of the Employment Period, except as specifically provided for in
the Company’s employee benefit plans or as otherwise expressly required by
applicable law. The Base Salary payable pursuant to this paragraph 4(b) for
the first six months of the Severance Period and the target bonus opportunity
shall be paid to Executive in a lump sum on the first day of the calendar month
following the six month anniversary of the termination date, and the Base
Salary payable pursuant to this paragraph 4(b) for the remainder of the
Severance Period shall be payable in regular monthly installments. The amounts
payable pursuant to this paragraph 4(b) shall not be reduced by the amount
of any compensation Executive receives with respect to any other employment
during the Severance Period.

 3
 

 

(c)           If the Employment
Period is terminated by the Company for Cause or is terminated pursuant to
clause (a)(i) above (other than termination with Good Reason) or expires
and is not renewed hereunder, Executive shall only be entitled to receive his
Base Salary through the date of termination or expiration and shall not be
entitled to any other salary, compensation or benefits from the Company or its
Subsidiaries thereafter, except as otherwise specifically provided for under
the Company’s employee benefit plans or as otherwise expressly required by
applicable law.

(d)           For twelve months
following the date of Executive’s termination, the Company shall, at its expense,
continue on behalf of the Executive and his dependants and beneficiaries, the
life insurance, disability, medical, dental and hospitalization benefits
provided to the Executive immediately prior to the date of termination. The
coverage and benefits (including deductibles and costs) provided in this Section 4(d) shall
be no less favorable to the Executive and his dependants and beneficiaries,
than the coverage and benefits provided to Executive immediately prior to his
termination. The Company’s obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that the Executive obtains any such
benefits pursuant to a subsequent employer’s benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to provide the
Executive hereunder so long as the aggregate coverage and benefits of the
combined benefit plans is no less favorable to the Executive than the coverages
and benefits required to be provided hereunder. This subsection (d) shall
not be interpreted so as to limit any benefits to which the Executive, his
dependants or beneficiaries may otherwise be entitled under any of the Company’s
employee benefit plans, programs or practices following the termination of
employment of the Executive, including without limitation, any applicable
retiree medical and life insurance benefits. Except as otherwise expressly
provided herein, all of Executive’s rights to salary, bonuses, employee
benefits and other compensation hereunder which would have accrued or become
payable after the termination or expiration of the Employment Period shall
cease upon such termination or expiration, other than those expressly required
under applicable law (such as COBRA); provided, that for purposes of
determining Executive’s rights under COBRA, the date of the later to occur of (x) the
date of the termination or expiration of the Employment Period or (y) the
date of the final payment of any severance payments made pursuant to Section 4(b) above,
shall be deemed to be the qualifying event for such purpose. The Company may
offset any amounts Executive owes it or its Subsidiaries against any amounts it
or its Subsidiaries owes Executive hereunder.

(e)           For purposes of this
Agreement, “Cause” shall mean with respect to Executive one or more of
the following:  (i) a material
breach of this Agreement by Executive; provided, that if such breach is capable
of being cured, Executive shall be provided 15 days notice to cure such breach,
(ii) a breach of Executive’s duty of loyalty to the Company or any of its
Subsidiaries or any act of dishonesty or fraud with respect to the Company or
any of its Subsidiaries, (iii) the commission by Executive of a felony, a
crime involving moral turpitude or other act or omission causing material harm to
the standing and reputation of the Company and its Subsidiaries, (iv) reporting
to work under the influence of alcohol or illegal drugs, the use of illegal
drugs (whether or not at the workplace) or other repeated conduct causing the
Company or any of its Subsidiaries substantial public disgrace or disrepute or
economic harm, or (v) any act or omission aiding or abetting a competitor,
supplier or customer of the Company or any of its Subsidiaries to the material
disadvantage or detriment of the Company and its Subsidiaries.

 4
 

 

(f)            For purposes of
this Agreement, “Disability” shall mean Executive’s inability to perform
the essential duties, responsibilities and functions of his position with the
Company and its Subsidiaries as a result of any mental or physical disability
or incapacity even with reasonable accommodations of such disability or
incapacity provided by the Company and its Subsidiaries or if providing such
accommodations would be unreasonable, all as determined by the Board in its
reasonable good faith judgment. Executive shall cooperate in all respects with
the Company if a question arises as to whether he has become disabled
(including, without limitation, submitting to an examination by a medical
doctor or other health care specialists selected by the Company and authorizing
such medical doctor or such other health care specialist to discuss Executive’s
condition with the Company).

(g)           For purposes of this
Agreement, “Good Reason” shall mean if Executive resigns from employment
with the Company and its Subsidiaries prior to the end of the Employment Period
as a result of one or more of the following reasons:  (i) the Company reduces the amount of
the Base Salary as set forth in paragraph 3(a) or the target annual bonus
opportunity payable to Executive (assuming achievement of the relevant
performance goals) as set forth in paragraph 3(c), (ii) the Company
changes Executive’s title or reduces his responsibilities inconsistent with the
positions he holds or (iii) Executive and the Company are unable to agree
upon the proper reporting of any financial matter which Executive reasonably
believes is appropriate in order to comply with the rules and regulations
of the United States Securities and Exchange Commission or in order for the
Company’s financial statements to be prepared in conformity with generally
accepted accounting principles; provided that written notice of Executive’s
resignation for Good Reason must be delivered to the Company within 30 days
after the occurrence of any such event in order for Executive’s resignation
with Good Reason to be effective hereunder.

5.             Confidential Information.

(a)           Obligation to
Maintain Confidentiality. Executive acknowledges that the continued success
of the Company and its Subsidiaries, depends upon the use and protection of a
large body of confidential and proprietary information. All of such
confidential and proprietary information existing prior hereto, now existing or
to be developed in the future will be referred to in this Agreement as “Confidential
Information.”  Confidential
Information will be interpreted as broadly as possible to include all
information of any sort (whether merely remembered or embodied in a tangible or
intangible form) that is (i) related to the Company’s or its Subsidiaries’
current or potential business and (ii) is not generally or publicly known.
Confidential Information includes, without specific limitation, the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its Subsidiaries, information concerning acquisition opportunities
in or reasonably related to the Company’s or its Subsidiaries’ business or
industry of which Executive becomes aware during the Employment Period, the
persons or entities that are current, former or prospective suppliers or
customers of any one or more of them during Executive’s course of performance
under this Agreement, as well as development, transition and transformation
plans, methodologies and methods of doing business, strategic, marketing and
expansion plans, including plans regarding planned and potential sales,
financial and business plans, employee lists and telephone numbers, locations
of sales representatives, new and existing 

 5
 

 

programs and services, prices and terms, customer
service, integration processes, requirements and costs of providing service,
support and equipment. Therefore, Executive agrees that he shall not disclose
to any unauthorized person or use for his own account any of such Confidential
Information without both Board’s prior written consent, unless and to the
extent that any Confidential Information (i) becomes generally known to
and available for use by the public other than as a result of Executive’s acts
or omissions to act or (ii) is required to be disclosed pursuant to any
applicable law or court order. Executive agrees to deliver to the Company at
the end of the Employment Period, or at any other time the Company may request
in writing, all memoranda, notes, plans, records, reports and other documents
(and copies thereof) relating to the business of the Company or its
Subsidiaries (including, without limitation, all Confidential Information) that
he may then possess or have under his control.

(b)           Ownership of
Intellectual Property. Executive agrees to make prompt and full disclosure
to the Company or its Subsidiaries, as the case may be, of all ideas,
discoveries, trade secrets, inventions, innovations, improvements,
developments, methods of doing business, processes, programs, designs,
analyses, drawings, reports, data, software, firmware, logos and all similar or
related information  (whether or not
patentable and whether or not reduced to practice) that relate to the Company’s
or its Subsidiaries’ actual or anticipated business, research and development,
or existing or future products or services and that are conceived, developed,
acquired, contributed to, made, or reduced to practice by Executive (either
solely or jointly with others) while employed by the Company or its
Subsidiaries and for a period of one (1) year thereafter (collectively, “Work
Product”). Any copyrightable work falling within the definition of Work
Product shall be deemed a “work made for hire” under the copyright laws of the
United States, and ownership of all rights therein shall vest in the Company or
its Subsidiary. To the extent that any Work Product is not deemed to be a “work
made for hire,” Executive hereby assigns and agrees to assign to the Company or
such Subsidiary all right, title and interest, including without limitation,
the intellectual property rights that Executive may have in and to such Work
Product. Executive shall promptly perform all actions reasonably requested by
the Board (whether during or after the Employment Period) to establish and
confirm the Company’s or such Subsidiary’s ownership (including, without
limitation, providing testimony and executing assignments, consents, powers of
attorney, and other instruments).

(c)           Third Party
Information. Executive understands that the Company and its Subsidiaries
will receive from third parties confidential or proprietary information (“Third
Party Information”) subject to a duty on the Company’s and its Subsidiaries’
part to maintain the confidentiality of such information and to use it only for
certain limited purposes. During the Employment Period and thereafter, and
without in any way limiting the provisions of Section 5(a) above,
Executive will hold Third Party Information in the strictest confidence and
will not disclose to anyone (other than personnel of the Company or its
Subsidiaries who need to know such information in connection with their work
for the Company or such Subsidiaries) or use, except in connection with his
work for the Company or its Subsidiaries, Third Party Information unless
expressly authorized by a member of the Board in writing.

 6

 

6.     Non-Compete, Non-Solicitation.

(a)           In further
consideration of the compensation to be paid to Executive hereunder, Executive
acknowledges that during the course of his employment with the Company and its
Subsidiaries he shall become familiar with the Company’s trade secrets and with
other Confidential Information concerning the Company and its predecessors and
its Subsidiaries and that his services shall be of special, unique and
extraordinary value to the Company and its Subsidiaries, and therefore, Executive
agrees that, during the Employment Period and for twelve months thereafter (the
“Noncompete Period”), he shall not directly or indirectly own any
interest in, manage, control, participate in, consult with, render services
for, or in any manner engage in any business competing with the businesses of
the Company or its Subsidiaries, as such businesses exist or are in process
during the Employment Period on the date of the termination or expiration of
the Employment Period, within any geographical area in which the Company or its
Subsidiaries engage or plan to engage in such businesses. Nothing herein shall
prohibit Executive from being a passive owner of not more than 2% of the
outstanding stock of any class of a corporation which is publicly traded, so
long as Executive has no active participation in the business of such
corporation.

(b)           During the
Noncompete Period, Executive shall not directly or indirectly through another
person or entity (i) induce or attempt to induce any employee of the
Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company
or any Subsidiary and any employee thereof, (ii) hire any person who was
an employee of the Company or any Subsidiary at any time during the Employment
Period or (iii) induce or attempt to induce any customer, supplier,
licensee, licensor, franchisee or other business relation of the Company or any
Subsidiary to cease doing business with the Company or such Subsidiary, or in
any way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any Subsidiary (including,
without limitation, making any negative or disparaging statements or
communications regarding the Company or its Subsidiaries).

(c)           If, at the time of
enforcement of this paragraph 6, a court shall hold that the duration, scope or
area restrictions stated herein are unreasonable under circumstances then
existing, the parties agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area and that the court shall be allowed to revise the restrictions contained
herein to cover the maximum period, scope and area permitted by law. Executive
acknowledges that the restrictions contained in this paragraph 6 are reasonable
and that he has reviewed the provisions of this Agreement with his legal
counsel.

(d)           In the event of the
breach or a threatened breach by Executive of any of the provisions of this
paragraph 6, the Company would suffer irreparable harm, and in addition and
supplementary to other rights and remedies existing in its favor, the Company
shall be entitled to specific performance and/or injunctive or other equitable
relief from a court of competent jurisdiction in order to enforce or prevent
any violations of the provisions hereof (without posting a bond or other
security). In addition, in the event of an alleged breach or violation by
Executive of this paragraph 6, the Noncompete Period shall be tolled until such
breach or violation has been

 7
 

 

duly cured. Executive acknowledges that the
restrictions contained in paragraph 6 are reasonable and that he has reviewed
the provisions of this Agreement with his legal counsel.

7.     Executive’s Representations. Executive
hereby represents and warrants to the Company that (i) the execution,
delivery and performance of this Agreement by Executive do not and shall not
conflict with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Executive is a party or by which
he is bound, (ii) Executive is not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any other
person or entity and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms. Executive
hereby acknowledges and represents that he has consulted with independent legal
counsel regarding his rights and obligations under this Agreement and that he
fully understands the terms and conditions contained herein.

8.     Survival. Paragraphs 4 through 27
shall survive and continue in full force in accordance with their terms
notwithstanding the expiration or termination of the Employment Period.

9.     Notices. Any notice provided for in
this Agreement shall be in writing and shall be either personally delivered,
sent by reputable overnight courier service or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:

Notices to Executive:

James L. Schaeffer

8 Ripplemoor Lane

Charleston, S.C. 29404

With a copy to:

William H. Sturges

Partner

Shumaker, Loop & Kendrick, LLP

128 South Tryon Street

Suite 1800

Charlotte, NC  28202

Notices to the Company:

Polymer Group, Inc.

4055 Faber Place Drive

North Charleston, S.C. 29405

Attn:  General Counsel

 8
 

 

With a copy to:

H. Kurt von Moltke, P.C.

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, IL  60601

or such other address or to the attention of such
other person as the recipient party shall have specified by prior written
notice to the sending party. Any notice under this Agreement shall be deemed to
have been given when so delivered, sent or mailed.

10.   Severability. Whenever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any action in any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.

11.   Complete Agreement. This Agreement,
those documents expressly referred to herein and other documents of even date
herewith, including the Change in Control Severance Compensation Agreement
referred to in Section 12, embody the complete agreement and understanding
among the parties and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.

12.   Construction with Change in Control
Severance Compensation Agreement. The Company and Executive are entering
into a Change in Control Severance Compensation Agreement dated as of March 24,
2006, concurrently with entering into this Agreement. For the avoidance of
doubt, the Change in Control Severance Compensation Agreement is to be read as
additive to this Agreement solely in the circumstances following a Change in
Control of the Company, so that the provisions of Sections 4 and Section 6
of the Change in Control Severance Compensation Agreement are in addition to
the provisions of Sections 4 and 6 of this Agreement; provided, that the
amounts payable to Executive under Section 4(a) of the Change in
Control Severance Agreement and the amounts payable to Executive under Section 4(b) of
this Agreement shall in no event exceed the total amounts payable to Executive
under Section 4(b) of this Agreement.

13.   No Strict Construction. The language
used in this Agreement shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction
shall be applied against any party.

14.   Counterparts. This Agreement may be
executed in separate counterparts, each of which is deemed to be an original
and all of which taken together constitute one and the same agreement.

 9
 

 

15.   Successors and Assigns. This Agreement
is intended to bind and inure to the benefit of and be enforceable by
Executive, the Company and their respective heirs, successors and assigns,
except that Executive may not assign his rights or delegate his duties or
obligations hereunder without the prior written consent of the Company.

16.   Choice of Law. All issues and
questions concerning the construction, validity, enforcement and interpretation
of this Agreement and the exhibits and schedules hereto shall be governed by,
and construed in accordance with, the laws of the State of South Carolina,
without giving effect to any choice of law or conflict of law rules or
provisions (whether of the State of South Carolina or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of South Carolina.

17.   Amendment and Waiver. The provisions
of this Agreement may be amended or waived only with the prior written consent
of the Company (as approved by the Board) and Executive, and no course of
conduct or course of dealing or failure or delay by any party hereto in enforcing
or exercising any of the provisions of this Agreement (including, without
limitation, the Company’s right to terminate the Employment Period for Cause)
shall affect the validity, binding effect or enforceability of this Agreement
or be deemed to be an implied waiver of any provision of this Agreement.

18.   Insurance. The Company may, at its
discretion, apply for and procure in its own name and for its own benefit life
and/or disability insurance on Executive in any amount or amounts considered
advisable. Executive agrees to cooperate in any medical or other examination,
supply any information and execute and deliver any applications or other
instruments in writing as may be reasonably necessary to obtain and constitute
such insurance. Executive hereby represents that he has no reason to believe
that his life is not insurable at rates now prevailing for healthy men of his
age.

19.   Indemnification and Reimbursement of
Payments on Behalf of Executive. The Company and its respective
Subsidiaries shall be entitled to deduct or withhold from any amounts owing
from the Company or any of its Subsidiaries to Executive any federal, state,
local or foreign withholding taxes, excise tax, or employment taxes (“Taxes”)
imposed with respect to Executive’s compensation or other payments from the
Company or any of its Subsidiaries or Executive’s ownership interest in the
Company (including, without limitation, wages, bonuses, dividends, the receipt
or exercise of equity options and/or the receipt or vesting of restricted equity).
In the event the Company or any of its Subsidiaries does not make such
deductions or withholdings, Executive shall indemnify the Company and its
Subsidiaries for any amounts paid with respect to any such Taxes.

20.   Waiver of Jury Trial. AS A SPECIFICALLY
BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS
AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY
HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING
RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS
CONTEMPLATED HEREBY.

 10
 

 

21.   Executive’s Cooperation. During the
Employment and thereafter, Executive shall cooperate with the Company and its
Subsidiaries in any internal investigation or administrative, regulatory or
judicial proceeding as reasonably requested by the Company (including, without
limitation, Executive being available to the Company upon reasonable notice for
interviews and factual investigations, appearing at the Company’s request to
give testimony without requiring service of a subpoena or other legal process,
volunteering to the Company all pertinent information and turning over to the
Company all relevant documents which are or may come into Executive’s
possession, all at times and on schedules that are reasonably consistent with
Executive’s other permitted activities and commitments). In the event the
Company requires Executive’s cooperation in accordance with this paragraph, the
Company shall reimburse Executive solely for reasonable travel expenses
(including lodging and meals, upon submission of receipts).

22.   Arbitration. Except with respect to
disputes or claims under paragraphs 5 and 6 hereof (which may be pursued in any
court of competent jurisdiction as specified below and with respect to which
each party shall bear the cost of its own attorney’s fees and expenses except
as otherwise required by applicable law), each party hereto agrees that the
arbitration procedure set forth in Exhibit B hereto shall be the sole and
exclusive method for resolving any claim or dispute (“Claim”) arising out of or
relating to the rights and obligations acknowledged and agreed to in this
Agreement and the employment of Executive by the Company and its Subsidiaries
(including, without limitation, disputes and claims regarding employment
discrimination, sexual harassment, termination and discharge), whether such
Claim arose or the facts on which such Claim is based occurred prior to or
after the execution and delivery of adoption of this Agreement. The parties
agree that the result of any arbitration hereunder shall be final, conclusive
and binding on all of the parties. Nothing in this paragraph shall prohibit a
party hereto from instituting litigation to enforce any Final Determination (as
defined in Exhibit B hereto). Each party hereto hereby irrevocably
submits to the jurisdiction of any United States District Court or South
Carolina state court of competent jurisdiction sitting in Charleston County,
South Carolina, and agrees that such court shall be the exclusive forum with
respect to disputes and claims under paragraphs 5 and 6 and for the enforcement
of any Final Determination, and irrevocably and unconditionally waives (i) any
objection to the laying of venue of any such action, suit or proceeding in such
court or (ii) any argument, claim, defense or allegation that any such
action, suit or proceeding brought in such court has been brought in an
inconvenient forum. Each party hereto irrevocably consents to service of
process by registered mail or personal service and waives any objection on the
grounds of personal jurisdiction, venue or inconvenience of the forum.

23.   Section and Headings. The
division of this Agreement into sections and the insertion of headings are for
the convenience of reference only and shall not affect the construction or
interpretation of this Agreement. The terms “this Agreement”, “hereof”, “hereunder”
and similar expressions refer to this Agreement and not to any particular
section or other portion hereof. Unless something in the subject matter or
context is inconsistent therewith, references to sections and clauses are to
sections and clauses of this Agreement.

24.   Number. In this Agreement, words
importing the singular number only shall include the plural and vice versa, and
words importing the masculine gender shall include

 11
 

 

the feminine and neuter genders and vice versa, and
words importing persons shall include individuals, partnerships, associations,
trusts, unincorporated organizations and corporations.

25.   Independent Advice. The Company and
the Executive acknowledge and agree that they have each obtained independent
legal advice in connection with this Agreement and they further acknowledge and
agree that they have read, understand and agree with all of the terms hereof
and that they are executing this Agreement voluntarily and in good faith.

26.   Copy of Agreement. The Executive
hereby acknowledges receipt of a copy of this Agreement duly signed by the
Company.

27.   Termination Prior to Effective Date. In
the event of a termination of employment of the Executive prior to the
Effective Date, this Agreement shall be terminated and shall have no further
force or effect.

28.   Currency. All dollar amounts set forth
or referred to in this Agreement refer to U.S. currency.

29.   Effectiveness. Once this Agreement has
been duly executed and delivered by each party hereto, all of the provisions
shall become effective as of April 1, 2006, as if this Agreement had been
entered into at such time, including the compensation provisions contained in Section 3.

    *   
*    *    *

 12
 

 

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

Polymer
Group, Inc.

By:                                                                                                          

Its:                                                                                                          

 

 

__________________________________________________

James L. Schaeffer

 13

 

Exhibit A

GENERAL RELEASE

I, James L. Schaeffer, in  consideration of and subject to the
performance by Polymer Group, Inc., a Delaware corporation (together with
its subsidiaries, the “Company”), of its obligations under the Employment
Agreement, entered into on March 24, 2006, (the “Agreement”), do
hereby release and forever discharge as of the date hereof the Company and its
affiliates and all present and former directors, officers, agents,
representatives, employees, successors and assigns of the Company and its
affiliates and the Company’s direct or indirect owners (collectively, the “Released
Parties”) to the extent provided below.

1.                                       I
understand that any payments or benefits paid or granted to me under paragraph
4(b) of the Agreement represent, in part, consideration for signing this
General Release and are not salary, wages or benefits to which I was already
entitled. I understand and agree that I will not receive the payments and
benefits specified in paragraph 4(b) of the Agreement unless I execute
this General Release and do not revoke this General Release within the time
period permitted hereafter or breach this General Release. Such payments and
benefits will not be considered compensation for purposes of any employee
benefit plan, program, policy or arrangement maintained or hereafter
established by the Company or its affiliates. I also acknowledge and represent
that I have received all payments and benefits that I am entitled to receive
(as of the date hereof) by virtue of any employment by the Company.

2.                                       Except
as provided in paragraph 4 below and except for the provisions of my Employment
Agreement which expressly survive the termination of my employment with the
Company, I knowingly and voluntarily (for myself, my heirs, executors,
administrators and assigns) release and forever discharge the Company and the
other Released Parties from any and all claims, suits, controversies, actions,
causes of action, cross-claims, counter-claims, demands, debts, compensatory
damages, liquidated damages, punitive or exemplary damages, other damages,
claims for costs and attorneys’ fees, or liabilities of any nature whatsoever
in law and in equity, existing or hereafter arising, based in whole or in part
upon any act or omission, transaction, agreement, event or other occurrence
taking place from the beginning of time through the date this General Release
becomes effective and enforceable and whether known or unknown, suspected, or
claimed against the Company or any of the Released Parties which I, my spouse,
or any of my heirs, executors, administrators or assigns, may have, which arise
out of or are connected with my employment with, or my separation or
termination from, the Company (including, but not limited to, any allegation,
claim or violation, arising under: Title VII of the Civil Rights Act of 1964,
as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment
Act of 1967, as amended (including the Older Workers Benefit Protection Act);
the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of
1990; the Family and Medical Leave Act of 1993; the Worker Adjustment
Retraining and Notification Act; the Employee Retirement Income Security Act of
1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or
their state or local counterparts; the South Carolina Human Affairs Law, S.C.
Code

 ExA-1
 

 

sections 1-13-10
et seq.; S.C. Code sections 41-10-10 et seq. or under any other
federal, state or local civil or human rights law, or under any other local,
state, or federal law, regulation or ordinance; or under any public policy,
contract or tort, or under common law; or arising under any policies, practices
or procedures of the Company; or any claim for wrongful discharge, breach of
contract, infliction of emotional distress, defamation; or any claim for costs,
fees, or other expenses, including attorneys’ fees incurred in these matters)
(all of the foregoing collectively referred to herein as the “Claims”).

3.                                       I
represent that I have made no assignment or transfer of any right, claim,
demand, cause of action, or other matter covered by paragraph 2 above.

4.                                       I
agree that this General Release does not waive or release any rights or claims
that I may have under the Age Discrimination in Employment Act of 1967 which
arise after the date I execute this General Release. I acknowledge and agree
that my separation from employment with the Company in compliance with the
terms of the Agreement shall not serve as the basis for any claim or action
(including, without limitation, any claim under the Age Discrimination in
Employment Act of 1967).

5.                                       In
signing this General Release, I acknowledge and intend that it shall be
effective as a bar to each and every one of the Claims hereinabove mentioned or
implied. I expressly consent that this General Release shall be given full
force and effect according to each and all of its express terms and provisions,
including those relating to unknown and unsuspected Claims (notwithstanding any
state statute that expressly limits the effectiveness of a general release of
unknown, unsuspected and unanticipated Claims), if any, as well as those
relating to any other Claims hereinabove mentioned or implied. I acknowledge
and agree that this waiver is an essential and material term of this General
Release and that without such waiver the Company would not have agreed to the
terms of the Agreement. I further agree that in the event I should bring a
Claim seeking damages against the Company, or in the event I should seek to
recover against the Company in any Claim brought by a governmental agency on my
behalf, this General Release shall serve as a complete defense to such Claims.
I further agree that I am not aware of any pending charge or complaint of the
type described in paragraph 2 as of the execution of this General Release.

6.                                       I
agree that neither this General Release, nor the furnishing of the
consideration for this General Release, shall be deemed or construed at any
time to be an admission by the Company, any Released Party or myself of any
improper or unlawful conduct.

7.                                       I
agree that I will forfeit all amounts payable by the Company pursuant to the
Agreement if I challenge the validity of this General Release. I also agree
that if I violate this General Release by suing the Company or the other Released
Parties, I will pay all costs and expenses of defending against the suit
incurred by the Released Parties, including reasonable attorneys’ fees, and
return all payments received by me pursuant to the Agreement.

 ExA-2
 

 

8.                                       I
agree that this General Release is confidential and agree not to disclose any
information regarding the terms of this General Release, except to my immediate
family and any tax, legal or other counsel I have consulted regarding the
meaning or effect hereof or as required by law, and I will instruct each of the
foregoing not to disclose the same to anyone.

9.                                       Any
non-disclosure provision in this General Release does not prohibit or restrict
me (or my attorney) from responding to any inquiry about this General Release
or its underlying facts and circumstances by the Securities and Exchange
Commission (SEC), the National Association of Securities Dealers, Inc.
(NASD), any other self-regulatory organization or governmental entity.

10.                                 I
agree to reasonably cooperate with the Company in any internal investigation or
administrative, regulatory, or judicial proceeding. I understand and agree that
my cooperation may include, but not be limited to, making myself available to
the Company upon reasonable notice for interviews and factual investigations;
appearing at the Company’s request to give testimony without requiring service
of a subpoena or other legal process; volunteering to the Company pertinent
information; and turning over to the Company all relevant documents which are
or may come into my possession all at times and on schedules that are
reasonably consistent with my other permitted activities and commitments. I
understand that in the event the Company asks for my cooperation in accordance
with this provision, the Company will reimburse me solely for reasonable travel
expenses, including lodging and meals, upon my submission of receipts.

11.                                 I
agree not to disparage the Company, its past and present investors, officers,
directors or employees or its affiliates and to keep all confidential and proprietary
information about the past or present business affairs of the Company and its
affiliates confidential unless a prior written release from the Company is
obtained. I further agree that as of the date hereof, I have returned to the
Company any and all property, tangible or intangible, relating to its business,
which I possessed or had control over at any time (including, but not limited
to, company-provided credit cards, building or office access cards, keys,
computer equipment, manuals, files, documents, records, software, customer data
base and other data) and that I shall not retain any copies, compilations,
extracts, excerpts, summaries or other notes of any such manuals, files,
documents, records, software, customer data base or other data.

12.                                 Notwithstanding
anything in this General Release to the contrary, this General Release shall
not relinquish, diminish, or in any way affect any rights or claims arising out
of any breach by the Company or by any Released Party of the Agreement after
the date hereof.

13.                                 Whenever
possible, each provision of this General Release shall be interpreted in, such
manner as to be effective and valid under applicable law, but if any provision
of this General Release is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or any other jurisdiction, but this General Release

 ExA-3
 

 

shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.

BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE
THAT:

(a)                                  I
HAVE READ IT CAREFULLY;

(b)                                 I
UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS,
INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED;
THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;

(c)                                  I
VOLUNTARILY CONSENT TO EVERYTHING IN IT;

(d)                                 I
HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE
DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT TO DO SO
OF MY OWN VOLITION;

(e)                                  I
HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE
SUBSTANTIALLY IN ITS FINAL FORM ON                
  ,      TO CONSIDER IT AND THE CHANGES MADE
SINCE THE                
  ,      VERSION OF THIS RELEASE ARE NOT MATERIAL
AND WILL NOT RESTART THE REQUIRED 21-DAY PERIOD;

(f)                                    THE
CHANGES TO THE AGREEMENT SINCE                
  ,      EITHER ARE NOT MATERIAL OR WERE MADE AT
MY REQUEST.

(g)                                 I
UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE
IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE
REVOCATION PERIOD HAS EXPIRED;

(h)                                 I
HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE
OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND

(i)                                     I
AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED,
WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

DATE:                                                                                                    ____________________________________

 ExA-4

 

Exhibit B

ARBITRATION PROCEDURE

1.             Notice of Claim. A party asserting a Claim (the “Claimant”)
shall deliver written notice to each party against whom the Claim is asserted
(collectively, the “Opposing Party”), with a copy to the persons
required to receive copies of notices under the Agreement (the “Additional
Notice Parties”), specifying the nature of the Claim and requesting a
meeting to resolve same. The Additional Notice Parties shall be given
reasonable notice of and invited and permitted to attend any such meeting. If
no resolution is reached within 10 business days after delivery of such notice,
the Claimant or the Opposing Party may, within 45 days after giving such
notice, invoke the arbitration procedure provided herein by delivering to each
Opposing Party and the Additional Notice Parties a notice of arbitration which
shall specify the Claim as to which arbitration is sought, the nature of the
Claim, the basis for the Claim and the nature and amount of any damages or
other compensation or relief sought (a “Notice of Arbitration”). Each
party agrees that no punitive damages may be sought or recovered in any
arbitration, judicial proceeding or otherwise. Failure to file a Notice of
Arbitration within 45 days shall constitute a waiver of any right to relief for
the matters asserted in the notice of Claim. Any Claim shall be forever barred,
and no relief may be sought therefor, if written notice of such Claim is not
made as provided above within one year of the date such Claim accrues.

2.             Selection of Arbitrator. Within 20 business days
after receipt of the Notice of Arbitration, the Executive and a duly authorized
representative of the Company shall confer, whether in person, by telephone or
in writing, and attempt to agree on an arbitrator to hear and decide the Claim.
If the Executive and the Board cannot agree on an arbitrator within ten
business days, then they shall request the American Arbitration Association
(the “AAA”) in Charleston, South Carolina to appoint an arbitrator
experienced in the area of dispute who does not have an ongoing business
relationship with any of the parties to the dispute. If the arbitrator selected
informs the parties he cannot hear and resolve the Claim within the time-frame
specified below, the Executive and the Board shall request the appointment of
another arbitrator by the AAA subject to the same requirements.

3.             Arbitration Procedure. The following procedures
shall govern the conduct of any arbitration under this section. All procedural
matters relating to the conduct of the arbitration other than those specified
below shall be discussed among counsel for the parties and the arbitrator. Subject
to any agreement of the parties, the arbitrator shall determine all procedural
matters not specified herein.

(a)           Within 30 days after
the delivery of a Notice of Arbitration, each party shall afford the other, or
its counsel, with reasonable access to documents relating directly to the
issues raised in the Notice of Arbitration. All documents produced and all
copies thereof shall be maintained as strictly confidential, shall be used for
no purpose other than the arbitration hereunder, and shall be returned to the
producing party upon completion of the arbitration. There shall be no other
discovery except that, if a reasonable need is shown, limited depositions may
be allowed in the discretion of the arbitrator, it being the expressed
intention and agreement of each

 ExB-1
 

 

party to have the arbitration proceedings conducted
and resolved as expeditiously, economically and fairly as reasonably
practicable, and with the maximum degree of confidentiality.

(b)           All written
communications regarding the proceeding sent to the arbitrator shall be sent
simultaneously to each party or its counsel, with a copy to the Additional
Notice Parties. Oral communications between any of the parties or their counsel
and the arbitrator shall be conducted only when all parties or their counsel
are present and participating in the conversation.

(c)           Within 20 days after
selection of the arbitrator, the Claimant shall submit to the arbitrator a copy
of the Notice of Arbitration, along with a supporting memorandum and any
exhibits or other documents supporting the Claim.

(d)           Within 20 days after
receipt of the Claimant’s submission, the Opposing Party shall submit to the
arbitrator a memorandum supporting its position and any exhibits or other
supporting documents. If the Opposing Party fails to respond to any of the
issues raised by the Claimant within 20 days of receipt of the Claimant’s
submission, then the arbitrator may find for the Claimant on any such issue and
bar any subsequent consideration of the matter.

(e)           Within 20 days after
receipt of the Opposing Party’s response, the Claimant may submit to the
arbitrator a reply to the Opposing Party’s response, or notification that no
reply is forthcoming.

(f)            Within 10 days
after the last submission as provided above, the arbitrator shall confer with
the parties to select the date of the hearing on the issues raised by the Claim.
Scheduling of the hearing shall be within the sole discretion of the
arbitrator, but in no event more than 30 days after the last submission by the
parties, and shall take place within 50 miles of the corporate headquarters of
the Company at a place selected by the arbitrator or such other place as is
mutually agreed. Both parties shall be granted substantially equal time to
present evidence at the hearing. The hearing shall not exceed one business day,
except for good cause shown.

(g)           Within 30 days after
the conclusion of the hearing, the arbitrator shall issue a written decision to
be delivered to both parties and the Additional Notice Parties (the “Final
Determination”). The Final Determination shall address each issue disputed by
the parties, state the arbitrator’s findings and reasons therefor, and state
the nature and amount of any damages, compensation or other relief awarded.

(h)           The award rendered
by the arbitrator shall be final and non-appealable, except as otherwise
provided under the Federal Arbitration Act, and judgment may be entered upon it
in accordance with applicable law in such court as has jurisdiction thereof.

4.             Costs of Arbitration. Each party shall bear its
own costs of conducting the arbitration, and administrative fees shall be
shared equally among the parties.

5.             Satisfaction of Award. If any party fails to pay
the amount of the award, if any, assessed against it within 30 days after the
delivery to such party of the Final Determination,

 ExB-2
 

 

the unpaid amount shall bear interest from the date of
such delivery at the lesser of (i) prime lending rate announced by
Citibank N.A. plus three hundred basis points and (ii) the maximum rate
permitted by applicable usury laws. In addition, such party shall promptly
reimburse the other party for any and all costs or expenses of any nature or
kind whatsoever (including attorneys’ fees) reasonably incurred in seeking to
collect such award or to enforce any Final Determination.

6.             Confidentiality of Proceedings. The parties
hereto agree that all of the arbitration proceedings provided for herein,
including any notice of claim, the Notice of Arbitration, the submissions of
the parties, and the Final Determination issued by the arbitrator, shall be
confidential and shall not be disclosed at any time to any person other than
the parties, their representatives, the arbitrator and the Additional Notice
Parties; provided, however, that this provision shall not prevent the party
prevailing in the arbitration from submitting the Final Determination to a
court for the purpose of enforcing the award, subject to comparable
confidentiality protections if the court agrees; and further provided that the
foregoing shall not prohibit disclosure to the minimum extent reasonably
necessary to comply with (i) applicable law (or requirement having the
force of law), court order, judgment or decree, including, without limitation,
disclosures which may be required pursuant to applicable securities laws, and (ii) the
terms of contractual arrangements (such as financing arrangements) to which the
Company or any Additional Notice Party may be subject so long as such
contractual arrangements were not entered into for the primary purpose of
permitting disclosure which would otherwise be prohibited hereunder.

 ExB-3

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