Document:

<PAGE>

                                                                   Exhibit 10.36

                           THIRD AMENDMENT TO LEASE

     THIS THIRD AMENDMENT TO LEASE ("Amendment") is entered into as of the 28
day of June, 2000, by and between RREEF AMERICA REIT II CORP. E, a Maryland
corporation ("Landlord"), and ASTROPOWER, INC., a Delaware corporation
("Tenant").

     1.   Recitals. This Amendment is made with reference to the following facts
          --------
and objectives:

          (a)  Liberty Property Limited Partnership ("Liberty") leased to
Tenant, and Tenant rented from Liberty, certain premises consisting of
approximately 60,300 square feet, Suite 3 ("Original Premises"), in the building
commonly known as 231 Lake Drive, Newark, Delaware (the "Building"), pursuant to
Lease Agreement dated June 19, 1998, as amended by First Amendment to Lease
Agreement dated January 26, 1999 (the "First Amendment") and Second Amendment to
Lease Agreement dated June 30, 1999 ("Second Amendment"; said Lease and First
and Second Amendments, as amended hereby, collectively, the "Lease").

          (b)  The Premises was increased to a total of 80,400 square feet
pursuant to the First Amendment, by adding the 20,100 square foot ("Additional
Space") to the Original Premises.

          (c)  Landlord acquired the Building by purchase on April 15, 1999 from
Liberty and, in connection therewith, was assigned all of Liberty's interest in
the Lease.

          (d)  Landlord and Tenant entered into the Second Amendment in order to
clarify the term and rent schedule of the Lease as amended by the First
Amendment.

          (e)  Landlord and Tenant now desire to again amend the Lease to
provide for the further expansion of the Premises and further extension of the
Term.

          (f)  All terms defined in the Lease retain their meaning herein,
unless specified herein to the contrary.

          (g)  Now, therefore, in consideration of the premises herein contained
and the detriments to be suffered by each of the parties, the parties hereby
agree as follows:

     2.   Second Additional Space. The "Second Additional Commencement Date," as
          -----------------------
used herein, is the date that Landlord delivers possession of the Second
Additional Space (defined below) to Tenant. Effective as of the Second
Additional Space Commencement Date, the Premises subject to the Lease shall be
expanded to include the "Second Additional Space." The "Second Additional Space"
consists of a portion of additional space in the Building totaling approximately
50,400 rentable square feet, as approximately depicted on Exhibit A attached
                                                          ---------
hereto, currently occupied by MAB. Accordingly, as of the Second Additional
Space

                                                               /S/ AMB
                                                                   Initials
<PAGE>

Commencement Date, the Premises shall consist of the Original Premises, plus the
Additional Space plus the Second Additional Space, totaling approximately
130,800 rentable square feet. The Second Additional Space shall be a part of the
Premises for all purposes of the Lease, except as specifically provided herein
to the contrary.

          3.  Proportionate Share: Operation of Property and Payment of Property
              ------------------------------------------------------------------
Expenses.  Effective as of the Second Additional Space Commencement Date,
--------
Tenant's Proportionate Share under Section 1(e) of the Lease shall be One
Hundred Percent (100%). Accordingly, as of the Second Additional Space
Commencement Date, Tenant shall be responsible for 100% of all Annual Operating
Expenses, Impositions, insurance costs and all other amounts payable by Tenant
under Section 7 of the Lease.

          4.  "As Is." The Second Additional Space will be delivered on an "AS
               -----
IS" basis. Landlord shall have no obligation to perform any construction or make
any additional improvements or alterations, or to afford any allowance to Tenant
for improvements or alterations, in connection with this Amendment, either in
the Original Premises, the Additional Space or in the Second Additional Space.
Except for Landlord's obligations under Exhibit B hereto, Tenant acknowledges
and agrees that all construction obligations of Landlord under the Lease
required as of the date hereof, including, without limitation, payment of any
tenant improvement allowances, have been performed in full and accepted.

          5.  Tenant Improvements and Allowance. See Exhibit B.
              ---------------------------------      ---------

          6.  Extension. The Lease Term is hereby extended for an additional one
              ---------
(1) year and three (3) months. Accordingly, the Expiration Date will be
September 30, 2010.

          7.  Annual Rent and Monthly Installment. Commencing as of the Second
              -----------------------------------
Additional Space Commencement Date ("SASCD" in the chart below), the Annual Rent
and Monthly Installment of Rent payable for the Extension Term pursuant to
Article 3 of the Lease shall be in the following amounts (with rent for any
partial month to be prorated accordingly):

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
         Period           Rentable Square          Rent           Annual Rent        Monthly Installment
                              Footage        Per Square Foot                               of Rent
-----------------------------------------------------------------------------------------------------------
<S>                       <C>                <C>                  <C>                <C>
 SASCD-05/31/2001             130,800             $4.65           $608,220.00            $50,685.00
-----------------------------------------------------------------------------------------------------------
 06/01/2001-05/31/2002        130,800             $4.75           $621,300.00            $51,775.00
-----------------------------------------------------------------------------------------------------------
 06/01/2002-05/31/2003        130,800             $4.85           $634,380.00            $52,865.00
-----------------------------------------------------------------------------------------------------------
 06/01/2003-05/31/2004        130,800             $4.95           $647,460.00            $53,955.00
-----------------------------------------------------------------------------------------------------------
 06/01/2004-05/31/2005        130,800             $5.00           $654,000.00            $54,500.00
-----------------------------------------------------------------------------------------------------------
 06/01/2005-05/31/2006        130,800             $5.05           $660,540.00            $55,045.00
-----------------------------------------------------------------------------------------------------------
 06/01/2006-05/31/2007        130,800             $5.15           $673,620.00            $56,135.00
-----------------------------------------------------------------------------------------------------------
 06/01/2007-05/31/2008        130,800             $5.20           $680,160.00            $56,680.00
-----------------------------------------------------------------------------------------------------------
 06/01/2008-05/31/2009        130,800             $5.25           $686,700.00            $57,225.00
-----------------------------------------------------------------------------------------------------------
 06/01/2009-05/31/2010        130,800             $5.25           $686,700.00            $57,225.00
-----------------------------------------------------------------------------------------------------------
 06/01/2010-09/30/2010        130,800             $5.25           $686,700.00            $57,225.00
-----------------------------------------------------------------------------------------------------------
</TABLE>

                                                                 /s/ AMB
                                                                     Initial
                                       2
<PAGE>

     8.   Letter of Credit/Security Deposit. Reference is made to Paragraph 30
of the Rider to the Lease. Pursuant to that paragraph, the amount of Letter of
Credit held by Landlord for security is to be reduced from time to time.
Effective immediately, said Paragraph 30 is amended by deleting everything after
the first full paragraph and substituting the following therefor:

     Provided Tenant is not then and has not been in default under the lease,
     the amount of the Letter of Credit shall be reduced to the following
     amounts at the indicated times:

          Upon payment of the monthly installment of Rent due for the month of
          June, 2001 -- $157,891.00.

          Upon payment of the monthly installment of Rent due for the month of
          June, 2002 -- $141,487.00.

          Upon payment of the monthly installment of Rent due for the month of
          June, 2003 -- $123,367.00.

          Upon payment of the monthly installment of Rent due for the month of
          June, 2004 -- $112,270.00.

          The Letter of Credit amount shall not be reduced further, and said
          Letter of Credit in the amount of $112,270.00 must remain effective,
          or be continually renewed, for the remainder of the Term of the Lease
          as extended hereby.

     9.   Commissions. Each of the parties represents and warrants that it has
          -----------
not dealt with any broker or finder in connection with this Amendment, other
than McConnell Development (the "Broker"). Landlord hereby agrees to pay the
fees and commissions of the Broker pursuant to separate agreement.

     10.  Right of First Offer. In the event Landlord shall, at any time during
          --------------------
the Term hereof from and after the Second Additional Space Commencement Date,
elect to place the Building on the market for sale, Tenant shall have a right of
first offer to purchase the Building on the following terms and conditions:

          (a)  Landlord shall first offer the right to purchase the Building to
Tenant on such terms and conditions as Landlord shall then find acceptable.

          (b)  Landlord shall give Tenant written notice of the terms and
conditions applicable to the sale of the Building and Tenant shall have ten (10)
business days from receipt of such written notice to inform Landlord, in
writing, of acceptance of the terms and conditions for such sale as stated in
Landlord's written notice to Tenant. If Tenant shall accept such terms and
conditions, the parties shall forthwith enter into escrow for consummation of
the sale pursuant to such terms and conditions. Close of escrow is to be on a
date determined by the

                                                               /s/ AMB
                                                                   Initials
                                       3
<PAGE>

parties, but in no event later than thirty (30) days after Tenant's notice of
acceptance. Tenant shall deposit into escrow, not later than two (2) business
days after Tenant's notice of acceptance, an earnest money deposit in the amount
of ten percent (10%) of the purchase price. If Tenant fails to timely close on
the purchase of the Building (time being of the essence hereof) for any reason
other than the default of Landlord, the earnest money deposit shall be forfeited
to Landlord as liquidated damages and Tenant's right to purchase the Building
shall forever terminate. The following additional provisions shall apply to
Tenant's purchase of the Building:

                    (i)    Deed. If Tenant exercises its Right of First Offer
Landlord shall convey title to the Building to Tenant by good and sufficient
special warranty deed, warranting title to be free and clear of all liens,
charges and encumbrances, clouds and defects, except for restrictions,
reservations, limitations, easements and conditions of record; zoning ordinances
and taxes and assessments, both general and special, which are a lien but not
due and payable; matters of survey; and other liens and encumbrances created,
assumed or suffered by Tenant (the foregoing, "Permitted Exceptions"). The deed
shall be deposited into escrow with the Escrow Agent on or before the closing
date. A copy of the deed shall be submitted to Tenant's counsel for approval
before it is deposited into escrow.

                    (ii)   Preliminary title report. As soon as Tenant notifies
Landlord that this Right of First Offer is exercised, it shall order from a
Title Company of its choice, authorized to issue title insurance in the State of
Delaware, a preliminary title report in the form of a commitment to issue a
title insurance policy in the amount of the purchase price, insuring good and
marketable title to Tenant, subject only to the Permitted Exceptions and the
general exceptions applicable to such policy, with instructions to deliver a
copy of the report to Landlord. Within seven days after Tenant receives the
title report, it shall notify Landlord and the Title Company of all
restrictions, reservations, limitations, easements, fens, and conditions of
record other than Permitted Exceptions (collectively, "title defects") disclosed
in the title report which are objectionable to Tenant. If Tenant so notifies
Landlord, Landlord shall have until the closing date to cure or remove such
title defects. If Tenant does not notify Landlord, Tenant shall be deemed to
have waived the title defects and such defects shall be set forth as exceptions
to be contained in the deed and the title insurance policy.

                    (iii)  Closing of title. Ten days prior to the closing date,
the Escrow Agent shall notify parties whether the Title Company will issue the
title insurance policy required under this Agreement. If the Escrow Agent
notifies the parties that:

                           (1)  The Title Company will issue such policy of
title insurance, this transaction shall be consummated in accordance with the
terms and provisions of this Agreement; or

                           (2)  The Title Company will not issue such policy of
title insurance, and if Landlord does not forthwith cure the title defects that
the Escrow Agent recites as preventing such issuance in the form required, or
Tenant does not waive the defects, this

                                                                 /s/ AMB
                                                                     Initials

                                       4
<PAGE>

transaction  shall be postponed for a reasonable period of time not to exceed 30
days until Landlord removes the title defects.  If Landlord is unable or refuses
to do  so,  this  transaction  shall  be  cancelled,  the  full  amount  of  the
consideration  deposited  with the Escrow Agent,  shall be promptly  refunded to
Tenant,  and the documents  deposited into escrow shall be returned to Landlord.
The parties shall be fully  released from any  liability  hereunder  except that
Landlord shall pay the cost of the escrow and the charges of the Title Company.

                      (3)  If Tenant waives the title defects preventing such
issuance by so notifying the Title Company and the Escrow Agent, or if the
Landlord cures the defects within the permitted time, the parties' obligations
hereunder shall not be affected by reason of such waiver or cure, the purchase
price shall not be abated or reduced, and this transaction shall be consummated
in accordance with the terms and conditions hereof. However, any title defects
waived by Tenant shall nevertheless be set forth as exceptions in the deeds and
in the title guaranty policy or title insurance, whichever applies.

               (iv)   Apportionments and Other Adjustments. Rent and expense
items paid by Landlord and reimbursed by Tenant, and reimbursement amounts
attributable thereto, shall be apportioned as of midnight of the day before the
day of Closing. Otherwise, since Tenant is responsible for all expenses of the
property, there shall be no other prorations.

               (v)    Charges to Landlord and Tenant. Landlord shall bear one-
half (1/2) of the transfer tax, and the cost of any brokerage commission payable
in connection with the transaction, engaged by or claiming through Landlord.
Unless specified otherwise in the agreed terms and conditions of sale, Tenant
shall bear any and all other costs of closing, including, without limitation:
(1) one-half (1/2) of any transfer tax; (2) the cost of any brokerage commission
payable in connection with the transaction, engaged by or claiming through
Tenant; (3) all escrow fees; (4) the cost of filing the deed for record; and (5)
all costs of survey and title insurance. Each party shall bear its own
attorneys' fees.

          (c)  In the event Tenant shall decline to purchase the Building on the
terms and conditions stated in Landlord's written notice or shall fail to
respond thereto within the required 10 business day period, Landlord shall then
have the right to enter into a written agreement with any third party purchaser
for the sale of the Building on such terms and conditions as are acceptable to
Landlord in its sole and absolute discretion. However, if, during the one-year
period following the expiration of such 10 business day period, Landlord
proposes to accept a purchase price which is less than 85% of the price set
forth in Landlord's original notice to Tenant, Landlord must then offer to sell
the Building to Tenant at such price by delivering a notice and following the
procedures of paragraph 10(b) above. After the expiration of the one-year
period, if the Building has not been sold, Tenant shall again be entitled to a
right of first offer, on all of the terms of this paragraph 10, before Landlord
can sell the Building to a third party.

                                                            /s/ AMB
                                                                Initials

                                       5
<PAGE>

          (d)  Notwithstanding anything in the foregoing to the contrary,
Tenant's right to purchase under this paragraph 10 shall not apply to the sale
or proposed sale by Landlord of the Building if the Building is packaged
together with one or more additional properties. However, Tenant's right of
first offer, if not then terminated, shall survive any such packaged or
portfolio sale.

          (e)  If the Building is sold to a third party after compliance with
this paragraph 10, Tenant's right of first offer shall terminate and be forever
void, and shall not be binding on such purchaser.

     11.  Contingency. The Second Additional Space is currently leased to MAB.
          -----------
The Landlord's obligation to deliver the Second Additional Space is conditioned
upon Landlord's obtaining possession of such space from MAB. If Landlord
determines that it will be unable to deliver the Second Additional Space,
Landlord may cancel this Amendment immediately upon notice to Tenant, whereupon
this Amendment shall be null and void and the Lease shall remain in full force
and effect without reference to this Amendment. Notwithstanding the foregoing,
if Landlord does not deliver the Second Additional Space by January 1, 2002, at
any time thereafter before delivery Tenant may give Landlord notice of its
intent to cancel this Amendment, and if Landlord does not deliver the Second
Additional Space within thirty (30) days after receipt of such notice, this
Amendment shall be cancelled, null and void and the Lease shall remain in full
force and effect without reference to this Amendment.

             [The rest of this page is intentionally left blank.]

                                                               /s/ AMB
                                                                   Initials

                                       6
<PAGE>

          12.  Limitation of Landlord's Liability. Redress for any claim against
               ----------------------------------
Landlord under the Lease as amended hereby shall be limited to and enforceable
only against and to the extent of Landlord's interest in the Building. The
obligations of Landlord under this Lease are not intended to and shall not be
personally binding on, nor shall any resort be had to the private properties of,
any of its trustees or board of directors and officers, as the case may be, its
investment manager, the general partners thereof, or any beneficiaries,
stockholders, employees, or agents of Landlord or the investment manager.

          IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first written above.

LANDLORD:                                  TENANT:

RREEF AMERICA REIT                         ASTROPOWER, INC., a Delaware
Maryland corporation                       corporation

Dated:___________

By: RREEF Management Company, a
Delaware corporation

By: /s/ Barbara J. Gillentine              By: /s/ Thomas S. Stiner
   -----------------------------------        ----------------------------------
        Barbara J. Gillentine              Title: Senior VP & CFO
        Vice President -- Asset                  -------------------------------
        Management

Dated: June 28, 2000                       Dated: June 27, 2000
      -------------------------------            ------------------------------

                                       7
<PAGE>

                                   EXHIBIT A

                            SECOND ADDITIONAL SPACE

                                 [FLOOR PLAN]

                                                                   --------
                                                                    A M B
                                                                   --------
                                                                   Initials
<PAGE>

                                   EXHIBIT B

                TENANT IMPROVEMENTS TO SECOND ADDITIONAL SPACE

1.   Delivery of Premises. Landlord shall deliver the Second Additional Space to
     --------------------
Tenant as and when provided for in this Amendment and subject to all of the
terms and conditions thereof. The Premises shall be delivered "as is" with no
additional improvements, repairs or alterations. Tenant acknowledges that it has
inspected the Premises and agrees to accept the Premises in its existing
condition and that Landlord shall have no obligation to construct any
improvements therein.

2.   Plans and Specifications.
     ------------------------

     2.1  Tenant shall employ such consultants designated by Tenant from time to
time, with the approval of Landlord, which shall not be unreasonably withheld or
delayed ("Consultants") for preparation of the necessary architectural,
mechanical and electrical plans, drawings and specifications pertaining to the
construction work which Tenant intends to perform in each Phase of the Premises
in connection with Tenant's initial occupancy thereof (the "Work"). Tenant, at
its expense, shall furnish Landlord with architectural and design plans and
specifications (the "Tenant's Plans") prepared first in preliminary form
("Preliminary Plans"), and thereafter in working form ("Working Drawings"), and
covering the Work. Tenant shall pay all costs and expenses relating to Tenant's
Plans.

     2.2  Upon submittal of any portion of Tenant's Plans, Landlord shall review
Tenant's Plans and shall either approve Tenant's Plans or advise Tenant in
writing of any aspect of the design, engineering, construction or installation
which is not acceptable to Landlord. Landlord shall advise Tenant of its
approval or comments on the Tenant's Plans within fifteen (15) business days
after Landlord's receipt of the Tenant's Plans. In the event that Landlord shall
disapprove of any portion of Tenant's Plans, Tenant shall have fifteen (15)
business days after Landlord's notification of its disapproval to revise
Tenant's Plans and resubmit them to Landlord. In the event Landlord fails to
approve or disapprove Tenant's Plans or any changes thereto within the time
period set forth above, and if such failure continues thereafter for five (5)
business days after Landlord's receipt of notice from Tenant requesting action
on Tenant's Plans, Tenant's Plans or the changes shall be deemed to be approved.

     2.3  After approval of Tenant's Plans or any portion thereof, Tenant shall
not in any way modify, revise or change such Plans without the prior written
consent of Landlord. If Landlord approves such request, the entire cost of such
change, including the cost of revising Tenant's Plans or preparing new plans,
shall be borne by Tenant.

                                                               /S/  A M B
                                                                   Initials

                                       B-1
<PAGE>

     2.4  Except for such matters, if any, as shall have been required by
Landlord and not requested by Tenant, it shall be Tenant's responsibility that
the Plans comply with all applicable governmental and municipal codes and
regulations and to procure and deliver to Landlord upon request all such
licenses, permits and approvals from all governmental authorities as are
necessary to permit the Work to be commenced and continued to completion and the
so constructed Premises to be occupied.

3.   Cost Estimates and Payment Protection: Allowance.
     ------------------------------------------------

     3.1  Prior to commencing any of the Work, Tenant shall submit to Landlord a
written estimate of the cost of the Work, based upon competitive bids or a
fixed-price contract (an "Estimate"). Landlord may require Tenant to deposit the
amount of the Estimate in excess of the Maximum TI Allowance (defined below)
with Landlord within five (5) days after Landlord's written request therefor.
Such deposit shall be held as security for the payment of the costs of the Work,
and shall be returned to Tenant, without interest, upon satisfactory completion
of the Work, as set forth in Paragraph 5 below.

     3.2  At Landlord's option, the deposit provided for in Paragraph 3.1,
together with the Maximum TI Allowance, may be disbursed through a construction
escrow at a title insurance company selected by Landlord. Each disbursement of
the proceeds of the escrow shall be subject to satisfaction of each of the
following conditions as of the time of such disbursement (any final disbursement
from the escrow will also be conditioned upon Tenant's satisfaction of its
obligations under Paragraph 5 below):

          3.2.1  Landlord's reasonable satisfaction that the Work completed as
of the date of such disbursement has an aggregate value at least equal to the
aggregate amount of proceeds then to be disbursed plus the total amount thereof
previously disbursed;

          3.2.2  Receipt by Landlord and the title insurer of sworn statements,
waivers of lien and other documents and assurances pertaining to the Work
sufficient to protect Landlord against mechanics' and other liens;

          3.2.3  Receipt of assurances satisfactory to Landlord that the amount
remaining on deposit in the escrow after such disbursement is adequate to
complete the remaining Work; and

          3.2.4  Tenant is then in full compliance with all the terms and
provisions of the Lease and has not committed or suffered any act or omission
which constitutes, or will constitute with the passage of time, an event of
default of Tenant under the Lease or a breach by Tenant of any term or provision
of this Agreement.

                                                               /S/  A M B
                                      B-2                          Initials
<PAGE>

     3.3 Landlord shall be entitled to deduct any sums properly due Landlord
from Tenant hereunder from the amounts held by Landlord or in escrow or from any
other sums due to Tenant under the Lease, but in such event Landlord shall
notify Tenant of such deduction and provide Tenant with appropriate information
substantiating Landlord's claim.

     3.4 Provided the Lease is in full force and effect and Tenant is not in
default thereunder, Landlord hereby agrees to pay to Tenant toward the cost of
the Work an amount equal to the lesser of: (i) the actual cost of the Work; or
(ii) $39,060.00 (the "Maximum TI Allowance"). Such amount will be paid to Tenant
either through the escrow provided for in Paragraph 3.2, or as a lump sum
payment within thirty (30) days after satisfaction of all of the covenants of
Paragraph 5 below.

4.   Contracts and Contractors for the Work. Tenant shall make all such
     --------------------------------------
contracts and arrangements as shall be necessary or desirable for the
construction and installation of the Work. Tenant agrees to retain contractors,
subcontractors and materialmen who are of good reputation and experienced in and
favorably known for the construction of space comparable to the Premises in the
metropolitan area where the Building is located and that are properly licensed
for the work they are to perform. Tenant shall provide Landlord with a list of
all contractors, subcontractors and materialmen to be utilized by or for Tenant
with respect to the Work and provide true, correct and complete copies of all
contracts relating to the Work. Such contractors, subcontractors, materialmen
and contracts must be satisfactory to Landlord in Landlord's reasonable
discretion, and shall not be employed or executed, as the case may be, without
Landlord's written approval first obtained. Tenant and Tenant's contractors
shall use qualified craftsmen and laborers who are compatible with the trade
unions operating in the Building (if any) and Tenant shall take promptly upon
Landlord's demand all measures necessary to avoid labor unrest in the Premises
and in the Building which is caused by Tenant or Tenant's contractors. At
Landlord's option, Tenant shall cause all major contractors to procure
performance bonds and shall provide Landlord with evidence thereof.

5.   Construction. Promptly upon Landlord's approval of the Plans, Tenant shall
     ------------
apply for, and supply to Landlord upon issuance, a building permit and any other
required governmental permits, licenses or approvals. Upon issuance of such
approvals, Tenant shall commence the Work and shall diligently prosecute the
Work to completion. Tenant agrees to cause the Work to be constructed in a good
and workmanlike manner using first-class quality materials, at its sole cost and
expense in accordance with the provisions of the Lease. Tenant shall reimburse
any costs incurred by Landlord in providing utilities, the use of the freight
elevator, supervision or other services needed for the accomplishment of the
Work to Landlord. Upon completion of the Work, Tenant shall provide to Landlord:
(i) an architect's certificate of final completion; (ii) copies of all necessary
governmental permits, including, but not limited to, a certificate of occupancy;
(iii) the sworn statement of the general contractor; (iv) final lien waivers
from all contractors, subcontractors and materialmen; and (v) any other
information or documentation

                                      B-3
<PAGE>

reasonably requested by Landlord to evidence lien-free completion of
construction and payment of all of the cost thereof. Landlord shall have the
right to observe the performance of the Work and Tenant shall take all such
actions with respect thereto as Landlord may, in its good faith determination,
deem advisable from time to time to assure that the Work and the manner of
performance thereof shall not be injurious to the engineering and construction
of the Building or the electrical, plumbing, heating, mechanical, ventilating or
air-conditioning systems of the Building and shall be in accordance with the
Plans and the provisions of this Lease.

6.   Tenant's Default. If Tenant shall fail to comply with any term,
     ----------------
provision or agreement hereunder, and if any such matter is not remedied or
resolved within fifteen (15) days following written notice to Tenant, then, in
addition to any other remedies granted Landlord under the Lease in the case of
default by Tenant and any other remedies available at law or equity, Landlord
may elect, upon notice to Tenant, to complete the construction of the Work
pursuant to the Plans, and Tenant shall immediately upon demand reimburse
Landlord, as additional rent, for Landlord's costs of completing the Work.

7.   Miscellaneous
     -------------

     7.1  All rights and remedies of Landlord herein created or otherwise
existing at law or equity are cumulative, and the exercise of one or more such
rights or remedies shall not be deemed to exclude or waive the right to the
exercise of any other rights or remedies. All such rights and remedies may be
exercised and enforced concurrently and whenever and as often as deemed
desirable.

     7.2  This Exhibit B shall not be deemed applicable to any additional space
added to the original Premises (but does apply to the entire Building, both
Phase I and Phase II) at any time or from time to time, whether by any options
under the Lease or otherwise, or to any portion of the original Premises or any
additions thereto in the event of a renewal or extension of the original term of
the Lease, whether by any options under the Lease or otherwise.

     7.3  Tenant shall, before commencing any of the Work, and for so long as
any Work shall continue, comply with the insurance requirements in Schedule I.
                                                                   ----------
In the event Tenant fails to so comply, Landlord shall have the option, but not
the obligation to procure the required insurance and charge Tenant the cost of
such compliance as additional rent.

                                      B-4
<PAGE>

                                   SCHEDULE I
                                   ----------

                             INSURANCE REQUIREMENTS

     1.   Tenant shall cause to be maintained for Landlord's benefit insurance
in an insurance company or companies which are "A" rated, Class VII or better in
Best's Key Rating Guide or such lesser standard as shall be acceptable to
Landlord and authorized to transact business in the state in which the Building
is located, protecting Landlord against liabilities arising out of the
operations of subcontractors and sub-subcontractors as well as Tenant's
contractor ("Contractor") with respect to all the Work, including at least and
in amounts not less than:

          (a)  Worker's Compensation & Employers Liability: Statutory limits
required by applicable Worker's Compensation Law and $500,000 per occurrence for
Employers Liability, without limitation including all liability arising under
any applicable structural work act and any other statute for the protection of
employees.

          (b)  Commercial or Comprehensive Liability including Landlord's and
Contractor's Protective, products, and completed operations coverage,
contractual liability including Contractor's indemnity agreements contained in
the Contract Documents, personal injury (employees" exclusion deleted)
$5,000,000 per occurrence Bodily Injury and Property Damage, $5,000,000 combined
single limit. Landlord may require deletion of the "x, c, u" exclusion, if
applicable.

          (c)  Comprehensive Auto Liability including owned, non-owned, or hired
vehicles coverage: $1,000,000 per occurrence Bodily Injury and Property Damage
Liability (Combined Single Limit).

          (d)  Builder's Risk in an "all risk" form covering the Tenant Work
against loss by fire and other casualty in an amount equal to the full insurable
value of the Tenant Work.

     2.   Contractor shall either have the Landlord added as an additional named
insured to the preceding Commercial or Comprehensive General Liability insurance
policy or shall supply a separate Landlord's Protective policy, with limits as
specified, naming the Landlord as named insured, and said General Liability or
Landlord's Protective policy shall be maintained in force until the completion
of the Work.

     3.   Each insurance policy shall be written to cover all claims arising out
of occurrences taking place within the period of coverage; insurance written to
cover only claims made within the policy period is not acceptable without the
express advance written consent of Landlord. To the extent the policy is not a
Landlord's Protective policy, it shall be endorsed to indicate that it is
primary as respects Landlord, not contributory with any other insurance
available to the Landlord and not subject to reduction of coverage as to
Landlord by reason of any claim asserted against Contractor other than in
connection with the Work or by reason of any

                                      B-5
<PAGE>

misstatement, act or omission of any party other than Landlord applying for or
insured by such insurance.

     4.   Each insurance policy and any certificate furnished in lieu of a
policy shall state that it will not be cancelled, reduced or materially changed
without twenty (20) days" prior written notice to Landlord. In the event Tenant
fails to provide replacement coverage at least fifteen (15) days prior to the
expiration of any policy of insurance, Landlord may at its option secure such
insurance and Tenant shall reimburse Landlord for the cost thereof as additional
rent; but Landlord shall not have any obligation to secure any such insurance.

     5.   If and so long as any monies shall be or be about to be owed to any
lender upon the security of an interest in the Premises or the Building, at
Landlord's request any insurance required hereunder for Landlord's protection
shall also protect Landlord's mortgagee and whenever Landlord is to be an
additional insured, Landlord's mortgagee shall also be so insured.

     6.   Each of the aforesaid insurance coverages shall be placed into effect
before any of the Work is commenced and shall be maintained in force at all
times while and for at least so long as any of the Work is carried on, including
without limitation, any and all activities performed in fulfillment of any
obligation of Contractor or any Subcontractor to correct defects in the Work or
under any other warranty. Before commencing any of the Work, and as often
thereafter as reasonably requested by Landlord, Tenant shall supply Landlord
with either the policies themselves or certificates of insurance satisfactory to
Landlord, evidencing compliance with all the foregoing requirements.

     7.   No insurance policy purporting to insure Landlord or Landlord's
lender, as the case may be, shall without the prior written consent of said
party be so written as to limit or condition any of the insurer's obligations to
said party with respect to any insured loss or liability by any condition or
requirement that said party bear, assume or pay any portion of such loss or
liability before the insurer's obligation to said party shall come into effect.

                                      B-6<PAGE>
                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT is made and entered into this 25th day of
April, 2000, by and between THE MED-DESIGN CORPORATION, a Delaware corporation
and Med-Design Research, Limited a California Corporation which is a wholly
owned subsidiary of The Med-Design Corporation (hereinafter collectively
referred to as "Employer"), and LAWRENCE D. ELLIS, an individual (hereinafter
referred to as "Employee"), with regard to the following facts:

WHEREAS, Employee has been working for The Med-Design Corporation and its wholly
owned California subsidiary, MDC Research, Limited and the term of his
Employment Agreement has expired; and

WHEREAS, Employee has performed valuable services for both the parent and
subsidiary Corporations that constitute the Employer; and

WHEREAS, Employer desires assurance of the continued association and services of
Employee in order to retain Employee's experience, skills, abilities, background
and knowledge, and is therefore willing to engage the services of the Employee
on the terms and conditions set forth below. Employee desires to continue in the
employ of Employer and hereby accepts and agrees to such employment, subject to
the provisions of this Agreement; and

WHEREAS, Employer now desires to continue the employment of Employee, and
Employee now desires to accept continued employment as Chief Financial Officer,
Executive Vice President, Treasurer and Assistant Secretary, principally
responsible for the day to day management of the Employer's financial and
accounting operations; and

WHEREAS, Employee will have the above-described positions in both Corporations,
but his salary and compensation will be solely as provided in this Agreement.

         NOW THEREFORE, IN CONSIDERATION of the mutual promises and other good
and valuable consideration, the parties hereto agree as follows:

1.       TERM

1.01 The Employer hereby employs the Employee and the employee hereby accepts
employment with the Employer for a period of two (2) years beginning on April
25, 2000 and terminating on April 24, 2002. This employment term is subject to
annual review by the employer on each anniversary date of this agreement and
employer may terminate employment after such review at its sole discretion with
no further obligation.
<PAGE>

1.02 This employment may be extended by mutual agreement of the parties. As used
herein, the phrase "employment term" refers to the entire period of employment
of the Employee by the Employer hereunder, whether for the period provided
above, or whether terminated earlier as hereinafter provided, or extended by
mutual agreement of the parties.

2.       DUTIES

2.01 The Employee shall serve as the Chief Financial Officer, Executive Vice
President, Treasurer and Assistant Secretary, principally responsible for the
day to day management of the Employer's financial and accounting operations. In
this capacity, he shall direct the planning, organizing, directing, and
controlling the financial, accounting, and control functions of the Employer and
its subsidiaries; general and cost accounting; SEC regulatory compliance and
reporting; investor relations; the conduct of the Employer's relationships with
banks and other lending institutions and the financial community; treasury
management; federal, state and local taxes, MIS; debt and lease negotiations;
preparation of short and long-range budgets and profit plans; liaison with
outside accounting firms; and other financial, accounting, and administrative
activities that affect the preparation and communications of timely, meaningful,
and accurate financial information to the board of directors, officers,
shareholders, and other interested parties and such other executive functions as
may be required as directed by the Employer's senior management. He shall do and
perform all services, acts, or things necessary or advisable to manage and
conduct the responsibilities of the Executive Vice President, and Chief
Financial Officer of the Employer, subject to the policies set by the Chief
Executive Officer and Board of Directors. The Employee shall perform the
specific functions and tasks as set forth above.

3.       LOCATION OF EMPLOYMENT

3.01 The aforesaid services shall be rendered primarily at Employer's facilities
in Ventura, California; provided, however, that Employee acknowledges that he
may be required to perform services on temporary assignments in other locations
from time to time and that he may be reassigned, from time to time, by Employer
for extended periods to other locations; provided, however, Employee consents,
in advance, to such temporary assignment in other locations.

4.       COMPENSATION

4.01 As compensation for his services hereunder, the Employee shall receive a
salary at the rate of one hundred forty thousand dollars ($140,000) per annum,
for full time employment of forty (40) hours per week, payable in accordance
with Employer's standard practices for payment of salary to its officers.

4.02 Employee shall receive a Warrant for sixty six thousand (66,000) shares of
the Employer's common stock at a per share price of $11.875, the closing price

                                       2
<PAGE>

on April 25, 2000. The Warrant shall be issued as of April 25, 2000 and will be
exercisable until April 24, 2005. Thirty three thousand (33,000) of the shares
shall be vested immediately upon the issue of the Warrant and thirty three
thousand (33,000) shares shall be vested on April 25, 2001. The Warrant shall
provide that vesting shall be immediate upon Employee's death or upon a change
of control of Employer, but the unvested shares shall not vest before the
vesting date in the event that Employee either voluntarily terminates his
employment or is terminated for cause by Employer.

5.       EMPLOYEE BENEFITS

5.01 Employee shall have and retain all benefits given to other officers and
Employees of Employer, as those benefits are from time to time determined by the
Board of Directors, including but not limited to health insurance, dental
insurance, life insurance, long term disability insurance, profit-sharing plan,
bonus plan, stock option plan, retirement plan, vacation, holidays and sick
leave. It is agreed by Employer that Employee shall be granted benefits that are
received by other executive officers of the Employer.

6.       BUSINESS EXPENSES

6.01 The services required by the Employer will require the Employee to incur
reasonable business expenses, including travel expenses on behalf of the
Employer. The Employer shall promptly reimburse the Employee for all reasonable
business expenses incurred by the Employee in connection with the business of
the Employer, which shall include, but not be limited to automobile mileage,
airfare, ground transportation, lodging and subsistence, entertainment and
promotional expenses, printing and reproduction, long distance telephone and
facsimile charges, and postage and freight costs.

7.       TERMINATION

7.01 The Employee's employment hereunder may be terminated by the Employer
without any breach of this Agreement or any obligation to make severance payment
except under the circumstances described below in 7.02:

                  A.       The Employee's employment hereunder shall terminate
                           upon Employee's death. In event of the death of the
                           Employee during the term of employment, the date of
                           termination shall be on the date of death.

                  B.       As a result of the Employee's incapacity due to
                           physical or mental illness, the Employer may
                           terminate the Employee's employment hereunder by
                           giving written notice to such effect to the Employee.
                           In the event of the termination of the Employee's
                           employment hereunder pursuant to this paragraph
                           7.01(b), the date of termination shall be the date on

                                       3
<PAGE>

                           which notice of termination is received by the
                           Employee or Employee's personal representative.

                  C.       The Employer may terminate the Employee's employment
                           under this Agreement at any time for cause. For
                           purposes of this Agreement, the term "cause" shall be
                           limited to the following: (i) acts by Employee
                           involving moral turpitude which reflect materially
                           and adversely on the Employer, its reputation, or its
                           assets; (ii) gross and continued neglect by the
                           Employee of Employee's duties, which neglect
                           continues for more than thirty (30) days after
                           written notice specifying the nature thereof is
                           received by the Employee; (iii) conviction of a crime
                           involving moral turpitude, including, without
                           limitation, theft or embezzlement; (iv) continuing
                           alcohol or drug abuse; or (v) a material breach of
                           this Agreement which breach remains uncured for a
                           period of sixty (60) after written notice specifying
                           the nature of such breach to the Employee; provided,
                           however, that if the nature of such breach is such
                           that more than sixty (60) days are reasonably
                           required for its cure, then the Employer shall not
                           have the right to terminate this Agreement if the
                           Employee commences such cure within such sixty (60)
                           day period and thereafter diligently prosecutes such
                           cure to completion. Termination pursuant to this
                           paragraph 7.01(c) shall be written notice to the
                           Employee which notice shall specify the cause for
                           termination.

7.02 If this employment is not terminated for cause, but rather as the result of
or subsequent to a change in control of the Employer as below defined, Employee
shall be paid a sum equal to one year's salary computed at his rate of pay at
the time of termination. This severance benefit shall be paid in lieu of and not
in addition to the salary which would have been paid to Employee had this
employment continued for the balance of the herein stated term.

              Change in control is defined as:

                  A.       The individuals who constitute the members of the
                           Board of Directors of the Employer on the date of
                           this Agreement cease for any reason to a majority
                           thereof;

                  B.       The Shareholders of the Employer approve a merger or
                           consolidation of the Employer conveying the majority
                           of the voting power of the issued and outstanding
                           securities of the Employer to individuals different
                           than the individuals constituting a majority of the
                           Shareholders on the date of this Agreement;

                                       4
<PAGE>

                  C.       The Shareholders of the Employer approve an Agreement
                           for the sale or disposition by the Employer of all or
                           substantially all of the Employer's assets.

8.       RIGHTS TO WORK

8.01 All inventions, new products, manufacturing processes and work product made
pursuant to this Agreement and Employee's contributions thereto (hereinafter
referred to as "Work") shall be the sole and exclusive property of Employer.
Employer shall have the perpetual and exclusive right to use, manufacture,
distribute, sell or license throughout the world any Work, or part thereof, in
which Employee's services are utilized in the medical device and equipment
industry which is now known or may hereafter exist, including, without
limitation, inventions, new product developments and designs, and the
development of manufacturing processes for the medical device and equipment
industry. All revenue that Employer derives from the distribution, sales or
licensing of such Work shall be the sole and exclusive property of Employer.

8.02 All processes, inventions, design, patents, copyrights, trademarks and
other intangible rights that Employee may conceive or develop, either alone or
with others, during the term of Employee's employment, in which the equipment,
supplies, facilities or trade secret information of Employer were used, or which
relate at the time of conception or reduction to practice of the invention to
the business of Employment or to Employer's actual or demonstrably anticipated
research and development, or which result from any work that Employee performed
for Employer, shall be the sole property of the Employer. Employee shall
disclose to Employer all inventions conceived during the term of employment,
whether or not the property of Employer under the terms of the preceding
sentence, provided that such disclosure shall be received by Employer in
confidence. Employee shall execute all documents, including patent applications
and assignments, that Employer requires to establish Employer's rights under
this Section.

8.03 The parties understand and agree that the rights granted to Employer in
this paragraph shall continue in effect after the termination or expiration of
this Agreement to the extent necessary for Employer's full enjoyment of such
rights.

9.       COVENANT NOT TO COMPETE

9.01 The Employee agrees that, during the term of employment, including any
renewal thereof, he will not act as an officer, director or consultant or
Employee of, or have any direct or indirect financial interest (excluding
financial interests in publicly traded corporations) in any business competing
with the business of the Employer or its successors. In addition, while Employee
is employed by Employer and for three (3) years after termination of that
employment, Employee will not, except on behalf of Employer, directly or
indirectly, solicit or accept business in competition with Employer from any
persons or entities which have been customers of Employer.

                                       5
<PAGE>

9.02 In the course of his employment, Employee may have access to confidential
information and trade secrets relating to the Employer's business. This
information includes confidential records and data pertaining to Employer's
customers, consultants, contractors and supplies, among others. Except as
required in the course of his employment with Employer, Employee will not,
without Employer's prior consent, during Employee's employment, either directly
or indirectly disclose to any third person such confidential information or
trade secrets. In addition, during and for three (3) years after termination of
his employment, Employee shall not induce or attempt to induce any Employee of
Employer to discontinue working for Employer for the purposes of working for any
competitor of Employer.

9.03 In the event that Employee is terminated without cause, the restrictions in
paragraph 9.01 are waived by Employer. The restrictions contained in paragraph
9.02 with respect to post-employment activities will remain in full force and
effect regardless of the time or reason for Employee's termination.

10.  NOTICES

10.01 All notices, requests, demands or other communications required to or
permitted to be given under this Agreement shall be in writing and shall be
conclusively deemed to have been duly given (1) when hand delivered to the other
party; (2) when received when sent by telex or facsimile at the address and
number set forth below (provided, however, that notices given by facsimile shall
not be effective unless either (a) a duplicate copy of such facsimile notice is
promptly given by depositing same in a United States post office with first
class postage prepaid and addressed to the parties as set forth below, or (b)
the receiving party delivers a written confirmation or receipt for such notice
either by facsimile or any other method permitted under this paragraph.
Additionally, any notice given by telex or facsimile shall be deemed received on
the next business day, if such notice is received after 5:00 p.m. (recipient's
time) or on a non-business day; (3) three business days after the same have been
deposited in a United States post office with first-class or certified-mail
return-receipt-requested postage prepaid and addressed to the parties as set
forth below; or (4) the next business day after same have been deposited with a
national overnight delivery service reasonably approved by the parties, postage
prepaid, addressed to the parties as set forth below with next-business-day
delivery guaranteed, provided that the sending party receives a confirmation of
delivery from the delivery service provider.

         To Employer:         The Med-Design Corporation
                              2810 Bunsen Avenue
                              Ventura, CA  93003
                              Facsimile:  (805) 339-9751
                              Attn:  James M. Donegan, Chief Executive Officer

                                       6
<PAGE>

         To Employee:        Lawrence D. Ellis
                             1050 Novato Drive
                             Oxnard, California 93035
                             Telephone:  (805) 984-4231

11.      ENTIRE AGREEMENT

         This Agreement supersedes any and all other agreements, either oral or
in writing, between the parties hereto with respect to the employment of the
Employee in the positions herein above-described and contains all of the
covenants and agreements between the parties with respect to such employment in
any manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding.

12.      MODIFICATION

         Any modification to this Agreement will be effective only if it is in
writing signed by the parties hereto.

13.      SEVERABILITY

         If any provision in this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
shall nevertheless continue in full force without being impaired or invalidated
in any way.

14.      CONSTRUCTION AND JURISDICTION

         This Agreement shall be interpreted, construed and enforced in
accordance with the laws of the State of California irrespective of such state's
choice-of-law principles. The parties hereto agree that all actions or
proceedings arising in connection with this Agreement shall be tried and
litigated exclusively in the State and Federal courts having jurisdiction over
Ventura California. The aforementioned choice of venue is intended by the
parties to be mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or arising out of
this Agreement in any jurisdiction other than that specified in this paragraph.

15.      ARBITRATION

         The parties shall submit any dispute concerning the interpretation of
or the enforcement of rights and duties under this Agreement to final and
binding arbitration pursuant to the American Arbitration Association Rules.
Arbitration shall be conducted by a neutral arbitrator or arbitrators appointed
in accordance with the American Arbitration Association Rules. Notwithstanding
the foregoing, a party may apply to a court of competent jurisdiction for relief

                                       7
<PAGE>

in the form of a temporary restraining order or preliminary injunction, or other
provisional remedy pending final determination of a claim through arbitration in
accordance with this paragraph.

16.      SUCCESSORS AND ASSIGNS

           Subject to the provisions of this Agreement regarding assignment,
this Agreement shall be binding upon the heirs, executors, administrators, legal
representatives, successors, and assigns of the respective contracting parties.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date and years first above written with full knowledge of the contents
and intending thereby to be legally bound.

ATTEST:                                     EMPLOYER:
                                            THE MED-DESIGN CORPORATION

                                            By:
--------------------------------               -------------------------------
Secretary                                      James M. Donegan
                                               Chief Executive Officer

ATTEST:                                     MDC RESEARCH, LIMITED

                                            By:
--------------------------------               ------------------------------
Secretary                                      James M. Donegan
                                               Chief Executive Officer

WITNESS:                                    EMPLOYEE:

--------------------------------            ---------------------------------
                                                   Lawrence D. Ellis

                                       8

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