Document:

CC Filed by Filing Services Canada Inc. 403-717-3898

1867 YONGE STREET INC.

AND

Peace Arch Entertainment Group Inc.

1867 YONGE STREET

TORONTO, ONTARIO

December 5th, 2006

TABLE OF CONTENTS

Page

ARTICLE 1

SUMMARY PROVISIONS

1

ARTICLE 2

INTENT AND INTERPRETATION

3

2.1

Net Lease

3

2.2

Reasonableness

3

2.3

Entire Agreement

3

2.4

Collateral Rights

3

ARTICLE 3

LEASE OF PREMISES

3

3.1

Lease of Premises

3

3.2

Measurement of Premises and Rent Adjustment

4

3.3

Common Areas

4

3.4

Condition of Premises

4

3.5

Relocation of Premises

4

ARTICLE 4

RENT

4

4.1

Rent

4

4.2

General

5

ARTICLE 5

TAXES

6

5.1

Landlord’s Responsibility to Pay Taxes

6

5.2

Tenant’s Share of Taxes

6

5.3

Contestation of Taxes

7

5.4

Sales Taxes

7

5.5

Tax Indemnification

7

ARTICLE 6

OPERATING EXPENSES AND UTILITIES

7

6.1

Tenant’s Proportionate Share of Operating Expenses

7

6.2

Utilities

7

ARTICLE 7

SERVICES AND OPERATION OF BUILDING

7

7.1

Services to Premises

7

7.2

Services to Building

8

7.3

Control of Building

8

7.4

Interruption of Services

8

ARTICLE 8

USE OF PREMISES

8

8.1

Use

8

8.2

No Warranty of Use

8

8.3

Continuous Operation

9

			
	 
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TABLE OF CONTENTS

(continued)

Page

ARTICLE 9

INSURANCE AND NON-LIABILITY

9

9.1

Tenant’s Insurance

9

9.2

Increased Risk and Remedies

10

9.3

Loss or Damage

11

9.4

General Indemnification of Landlord

11

9.5

Benefit of Exculpatory and Indemnity Provisions

11

ARTICLE 10

TENANT RESPONSIBILITIES

12

10.1

Maintenance and repairs

12

10.2

Landlord’s Approval of Tenant’s Improvements

12

10.3

Ownership of Improvements

13

10.4

Tenant to Discharge All Liens

13

10.5

Tenant Not to Overload Utilities and Services

13

10.6

Termination of Lease

13

10.7

Exterior Appearance of Premises

14

10.8

Obligation Towards Other Tenants and Users of the Building

14

10.9

Fire Protection

14

10.10

Telephone and Computer Systems

14

ARTICLE 11

DAMAGE, DESTRUCTION, EXPROPRIATION

15

11.1

Damage or Destruction of Premises

15

11.2

Destruction of Building

15

11.3

Insurance Proceeds

16

11.4

Tenant’s Property

16

11.5

Negligence of Tenant

16

11.6

Expropriation

16

ARTICLE 12

LANDLORD’S RIGHT OF ENTRY

16

12.1

Entry by Landlord

16

12.2

Right to Show Premises

17

ARTICLE 13

ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS

17

13.1

Transfer

17

13.2

Landlord’s Consent

17

13.3

Public Corporations

18

13.4

Landlord’s Termination Right

18

13.5

Acceptance of Rent

18

			
	 
	-ii-

	 

TABLE OF CONTENTS

(continued)

Page

13.6

Conditions of Consent

19

13.7

Advertising of Premises

19

ARTICLE 14

SUBORDINATION AND STATUS STATEMENT

19

14.1

Subordination

19

14.2

Status Statement

20

ARTICLE 15

DEFAULT AND RECOURSES

20

15.1

Default

20

15.2

Interest and Costs

21

15.3

Right to Re-Enter

21

15.4

Right to Relet

21

15.5

Legal Expenses

22

15.6

Landlord May Perform Covenants

22

15.7

Landlord May Follow Chattels

22

15.8

Waiver of Exemptions

22

ARTICLE 16

MISCELLANEOUS

23

16.1

Rules and Regulations

23

16.2

Timeliness

23

16.3

No Tacit Renewal

23

16.4

Successors

23

16.5

Tenant Partnership

23

16.6

No Partnership

23

16.7

No Waiver

23

16.8

Compliance With Laws

24

16.9

Force Majeure

24

16.10

Decision of Expert

24

16.11

Notices

24

16.12

Registration

24

16.13

Assignment by Landlord

25

16.14

No Broker

25

16.15

Governing Law

25

16.16

Authorization to obtain credit information

25

16.17

Schedules

25

			
	 
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TABLE OF CONTENTS

(continued)

Page

16.18

Application of Payments

25

16.19

Liability of Landlord

25

16.20

Demolition

26

ARTICLE 17

SPECIAL CONDITIONS

26

17.1

Fixturing Period

26

17.2

Free Minimum Rent

26

17.3

Measurement

26

17.4

Tenant’s Work

26

17.5

Landlord’s Work

26

17.6

Option to Extend

27

17.7

Tenant Access to Building and Premises

27

17.8

Signage

27

17.9

Parking

27

17.10

Restoration

27

17.11

Right of First Offer

28

17.12

Right to Reassign or Sublet

28

17.13

Building HVAC Hours

28

17.14

Environment

28

			
	 
	-iv-

	 

AGREEMENT OF LEASE FOR OFFICE PREMISES made on the 13th day of December, 2006.

BETWEEN:

1867 Yonge Street Inc.

(the “Landlord”)

AND:

Peace Arch Entertainment Group Inc.

(the “Tenant”),

In consideration of the rents and agreements hereinafter contained, the parties agree to lease the Premises on the following terms:

			
	ARTICLE 1

SUMMARY PROVISIONS

	LEASE SECTIONS

	1.1

Premises:  That certain office space currently identified as “Suite 600 and Suite 700” on the sixth (6th) and seventh (7th) floor in the building known as “1867 Yonge Street”, located in the City of Toronto, Province of Ontario, containing approximately Fifteen Thousand, Three Hundred and Eighty-Four (15,384) square feet of Gross Rentable Area representing the entire seventh (7th) floor and a portion of the sixth (6th) floor. The Premises are shown in that approximate location outlined in red on Schedule ”A”.

	3.1

	1.2

Term:  Seven (7) Years

	3.1

	1.3

Commencement Date:  AUGUST 1, 2007

	 

	1.4

Expiration Date:  July 31, 2014

	 

	1.5

Minimum Rent:

Years 1 – 2  Thirteen Dollars ($13.00) per square foot of Gross Rentable Area, and representing an annual rent of One Hundred and Ninety-Nine Thousand, Nine Hundred and Ninety-Two Dollars ($199,992.00), payable in equal consecutive monthly installments of Sixteen Thousand and Six Hundred and Sixty-Six Dollars ($16,666.00) each payable in advance on the first (1st) day of each month, commencing on the Commencement Date and continuing throughout the first (1st), and second (2nd) years of the Term of the Lease.

Years 3 – 5 Fifteen Dollars and Fifty Cents ($15.50) per square foot of Gross Rentable Area, and representing an annual rent of Two Hundred and Thirty-Eight Thousand, Four Hundred and Fifty-Two Dollars ($238,452.00), payable in equal consecutive monthly installments of Nineteen Thousand, Eight Hundred and Seventy-One Dollars ($19,871.00) each payable in advance on the first (1st) day of each month, commencing on August 1, 2009 and continuing throughout the third (3rd), fourth (4th) and fifth (5th) years of the Term of the Lease.

Year 6 Sixteen Dollars and Fifty Cents ($16.50) per square foot of Gross Rentable Area, and representing an annual rent of Two Hundred and Fifty-Three Thousand, Eight Hundred and Thirty-Six Dollars ($253,836.00), payable in equal consecutive monthly installments of Twenty-One Thousand, One Hundred and Fifty-Three Dollars ($21,153.00) each payable in advance on the first (1st) day of each month, commencing on August 1, 2012 and continuing throughout the sixth (6th) year of the Term of the Lease.

Year 7 Seventeen Dollars ($17.00) per square foot of Gross Rentable Area, and representing an annual rent of Two Hundred and Sixty-One Thousand, Five Hundred and Twenty-Eight Dollars ($261,528.00), payable in equal consecutive monthly installments of Twenty-One Thousand, Seven Hundred and Ninety-Four Dollars ($21,794.00) each payable in advance on the first (1st) day of each month, commencing on August 1, 2013 and continuing throughout the seventh (7th) year of the 

	 
	 

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	Term of the Lease.

	4.1

	1.6

Proportionate Share of Operating Expenses:  14.71% in accordance with BOMA 1996 standards.

For purposes of information and without representation or guarantee, the estimated annual rate for Operating Expenses for the 2006 operating year is Eight Dollars and Forty Cents ($8.40) per square foot of Gross Rentable Area of the Premises, subject to adjustments by Landlord.

	4.1, 6.1

	1.7

Proportionate Share of Taxes: 14.71% in accordance with BOMA 1996 standards.

For purposes of information and without representation or guarantee, the estimated annual rate for Taxes for the 2006 operating year is Six Dollars and Thirty-Seven Cents ($6.37) per square foot of Gross Rentable Area of the Premises, subject to adjustments by Landlord.

	4.1, 5.2

	1.8

Charge for Utilities:  Two Dollars and Thirteen Cents ($2.13) per square foot of the Gross Rentable Area of the Premises, per year, subject to Landlord’s adjustment.

	4.1, 6.2

	1.9

Authorized Use:  The Premises shall be used primarily as a business office for the purpose of operating a film, programming and television business.  The Premises may also be used for general office purposes.

	8.1

Schedule “C”

sub-para. 2

	1.10

Addresses for Notices:

to Landlord:

Crown Property Management Inc

45 Sheppard Avenue East

Suite 302

Toronto, ON.  M2N 5W9

Attention:  Les Miller, Chief Operating Officer

Fax:  (416) 222-0910

to Tenant:

Peace Arch Entertainment Group Inc.

c/o Cushman & Wakefield LePage

33 Yonge Street, Suite 1000

Toronto, ON, M5E 1S9

Attention: Lee Billinkoff

Fax:  (416) 359-2613

	16.11

	1.11

Broker:  The Broker is Cushman &Wakefield LePage.

	16.14

	1.12

Security Deposit:  Seventy-Nine Thousand, Nine Hundred and Four Dollars and Fifty Cents ($79,904.50) deposit of Two (2) months Basic and Additional Rent (the “Deposit”) will be submitted to Landlord’s Agent “In Trust”, as a deposit and is to be applied in payment of the first (1st) two (2) months’ rent following the completion of the Rent Free Period (August 2008 and September 2008).

	

	1.13

Special conditions:

Fixturing Period

Free Minimum Rent

	 
	 

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	Measurement

Tenant’s Work

Landlord’s Work

Option to Extend

Tenant Access to Building and Premises

Signage

Parking

Restoration

Right of First Offer

Right to Assign or Sublet

Building HVAC Hours

Environment

	Art. 17

17.1

17.2

17.3

17.4

17.5

17.6

17.7

17.8

17.9

17.10

17.11

17.12

17.13

17.14

	The provisions of this Article 1 summarize certain terms of the Lease which are more fully described in the balance of the Lease and form an integral part of the Lease.  In the event of a conflict or inconsistency between the provisions of Article 1 and the balance of the Lease, the provisions of the balance of the Lease shall prevail.  Capitalized terms shall have the meanings set forth in Schedule “C” or otherwise defined in the body of the Lease.

ARTICLE 2

INTENT AND INTERPRETATION

2.1

Net Lease

This Lease is intended by the parties to be an absolutely net lease to Landlord, except as otherwise expressly provided herein.  Any amounts, charges, impositions and outlays which are not expressly declared herein to be that of Landlord related to the Premises shall be deemed to be an obligation of Tenant to be paid for by Tenant.

2.2

Reasonableness

Landlord and Tenant shall act reasonably in the performance of their obligations and the exercise of their rights (including the giving of a Notice, consent or approval) pursuant to the Lease, unless a right is stated herein to be exercisable at the sole discretion of a party.  The strict enforcement of time limits provided for in the Lease shall be considered to be acting reasonably.

2.3

Entire Agreement

This Lease is the entire agreement between Landlord and Tenant.  Tenant further acknowledges that the execution of this Lease shall constitute a conclusive presumption that all agreements and representations, written or verbal, previously entered into or made by the parties or their agents shall be solely those set forth in the Lease and may be amended only by an agreement in writing signed by both Landlord and Tenant.  Landlord shall prepare any amendment of the Lease as aforesaid and Tenant shall pay to Landlord Landlord’s Costs of such preparation, unless such amendment is requested by Landlord.

2.4

Collateral Rights

[INTENTIONALLY DELETED]

ARTICLE 3

LEASE OF PREMISES

3.1

Lease of Premises

Tenant shall lease the Premises for the Term.

3.2

Measurement of Premises and Rent Adjustment

Subject to Section 17.3, Landlord may at any time during the Term calculate the GRA in accordance with its measurement of the Premises based on BOMA 1996 methodology.

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Where the GRA as certified by Landlord or the Expert (in this case, the Expert being a surveyor or an architect) is different from the GRA set forth in Section 1.1, such certificate of GRA shall be conclusively binding on the parties and the Rent shall be adjusted accordingly as and from the Commencement Date.

3.3

Common Areas

Tenant shall have the right to use the Common Areas in common with the others entitled thereto, for:

(a)

the purposes for which they are intended; and

(b)

during such hours as they may be available (which shall be not less than Normal Business Hours), as determined by Landlord.

This right shall not be transferable except to a permitted subtenant, assignee or user pursuant to Article 13 of the Lease.

3.4

Condition of Premises

[INTENTIONALLY DELETED]

3.5

Relocation of Premises

[INTENTIONALLY DELETED]

ARTICLE 4

RENT

4.1

Rent

Throughout the Term, Tenant shall pay to Landlord the following Rent:

(a)

the Minimum Rent;

(b)

the Proportionate Share of Operating Expenses;

(c)

the Proportionate Share of Taxes;

(d)

the Sales Taxes payable to Landlord in accordance with Section 5.4; and

(e)

the aggregate of:

(i)

the charges for utilities in accordance with Section 6.2;

(ii)

the charges for any additional services provided by Landlord at the request of Tenant; and

(f)

such other costs, charges, amounts and expenses as are required to be paid by Tenant to Landlord under the Lease.

4.2

General

(a)

Tenant shall pay the Rent to Landlord immediately when due, without Notice or demand, and without deduction, set-off, compensation, or abatement, except as expressly provided in this Lease, in lawful money of Canada, at the address mentioned in Section 1.10, or such other address in Canada as may be designated by Landlord;

(b)

Tenant shall pay items of Rent of a recurring nature (including without limitation the Minimum Rent, the Proportionate Share of Operating Expenses, the Proportionate Share of Taxes and the charges for utilities) in advance on the first day of each month of the Term, subject to the provisions of Sections 4.2 (g), 5.2, 6.1 and 6.2; Tenant shall pay all other items of Rent within 5 business days of the delivery of an invoice therefor;

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(c)

Tenant shall pay interest at the Prime Rate, applicable at the date of Tenant’s default, plus three percent (3%) per annum on all arrears of Rent for the period of time any Rent remains unpaid;

(d)

In the event that Tenant fails to pay any item of Rent within five (5) days of receipt of notice of late payment from the Landlord for any 2 months (which do not have to be consecutive) during any Rental Year, Tenant agrees to pay to Landlord for such delay, in addition to the interest owed pursuant to Section 4.2 (c), a sum equivalent to fifteen percent (15%) of any such amounts then in default, which amount the parties agree is a genuine pre-estimate of the damages that may be reasonably anticipated to be suffered by the Landlord as a result of such default.  Such amount shall be payable by Tenant whether or not such default is remedied prior to the claim for such liquidated damages;

(e)

Tenant shall upon Landlord’s request, make all payments under this Lease by way of electronic funds transfer from Tenant’s bank account and shall execute and deliver either concurrently with this Lease or from time to time within three (3) days excluding Saturday, Sunday and any statutory holiday following the request therefore, such documentation as may be required by Landlord and its bank in order to effect all payments under this Lease by electronic funds transfer;

(f)

Landlord shall determine Operating Expenses and Taxes without duplication in accordance with generally accepted accounting principles consistently applied for the real estate industry;

(g)

Landlord may estimate items of Additional Rent of a recurring and variable nature and advise Tenant in writing thereof.  Tenant shall pay to Landlord the amounts so estimated in equal consecutive monthly installments in advance over each Rental Year or a portion thereof; in the case of Taxes, however, Tenant shall pay to Landlord the full amount of such estimate in equal consecutive monthly installments commencing with the first month following such estimate and terminating on the tax due date or Specified Date;

(h)

Within 180 days after the expiry of each Rental Year, Landlord shall deliver to Tenant audited statements of Operating Expenses, Taxes, Tenant’s Proportionate Share of Operating Expenses and Tenant’s Proportionate Share of Taxes.  If Tenant has paid more than such statement specifies, Landlord shall, at the time it delivers the statements refund the excess (unless Tenant is then in monetary default under any term or condition of this Lease) without interest or if Tenant has paid less than such statement specifies, Tenant shall pay the deficiency, any such adjustment amounts to be applied or paid within thirty (30) days after delivery of Landlord’s statement;

(i)

The obligations of the parties to pay any amount of Rent or to adjust pursuant to the preceding sub-paragraph (h) for the final Rental Year shall survive the expiration of the Term;

(j)

If the Commencement Date is not the first day of a calendar month or if the Expiration Date is not the last day of a calendar month, Rent for the relevant part of the month shall be prorated on a per diem basis;

(k)

Notwithstanding any contrary provisions of the Lease, if, at any time during a Rental Year, the Building is not at least one hundred percent (100%) occupied and operational, the Landlord shall have the right to increase those items of Operating Expenses which vary with the extent of the occupancy or use of the rentable premises in the Building (including without limitation, cleaning costs, supplies, garbage removal, etc.) to such an amount, as in the reasonable estimation of Landlord, would have been incurred if the Building were one hundred percent (100%) occupied and operational for the entire Rental Year and the amount of such increase shall be included in the Operating Expenses.  In no event however, shall Tenant have to pay an amount higher than it would have paid if the Building had been fully occupied and operational;

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(l)

Landlord shall in its determination of Operating Expenses and Taxes make such allocations and attributions in respect to various components of the Building as may be necessary and reasonable; and

(m)

Tenant may only dispute a statement issued by Landlord of the items of Additional Rent and claim a readjustment if it gives written notice to Landlord within six (6) months after the delivery of the statement to Tenant.

ARTICLE 5

TAXES

5.1

Landlord’s Responsibility to Pay Taxes

Subject to Section 5.2, Landlord shall pay all Taxes to the competent tax authorities.

5.2

Tenant’s Share of Taxes

Tenant shall pay to Landlord, as Additional Rent, its Proportionate Share of Taxes.  Landlord may, based on a reasonable standard for commercial buildings, determine, allocate and adjust Taxes as among tenants and occupants of the Building.  Landlord shall not be required to adjust, continue to adjust or make the same determination or allocation of Taxes from year to year.  Payment on account of Taxes shall be made not later than on the tax due date or on the Specified Date, subject to Sections 4.2 (b), (g) and (h).

5.3

Contestation of Taxes

Tenant shall pay to Landlord, as part of Operating Expenses, its proportionate share of all fees and expenses reasonably incurred by Landlord with respect to the contestation of the Taxes or of the assessment of the Building, including without limitation legal, appraisal, administration and overhead expenses.  The Taxes which shall be contested by Landlord shall nevertheless be paid by Tenant in accordance with Section 5.2 of this Lease, provided however that if Tenant has paid its share of such contested Taxes and that Landlord receives as a result of such contestation a reimbursement of those Taxes, Landlord shall reimburse to Tenant an appropriate portion of such reimbursement, after having deducted those expenses which shall not have been already charged to Tenant.  Landlord shall have no obligation to contest, object to or to litigate the levying or imposition of any Taxes and may settle, compromise, consent to, waive or otherwise determine in its discretion any Taxes without notice to, consent or approval of Tenant.

5.4

Sales Taxes

Tenant shall pay to Landlord any Sales Taxes at the same time as the amounts to which such Sales Taxes apply and which are payable to Landlord under the Lease.  Although Sales Taxes are not considered to be Rent, Landlord shall have the same recourses for recovery of such amounts as it has for non-payment of Rent under the Lease or at law.

5.5

Tax Indemnification

Tenant shall indemnify and save Landlord harmless from all losses, costs, charges, penalties, and expenses arising from Tenant’s non-payment of Taxes, business taxes (if any) or Sales Taxes, as well as of any taxes that are imposed in lieu of same, whether against Landlord or Tenant.

ARTICLE 6

OPERATING EXPENSES AND UTILITIES

6.1

Tenant’s Proportionate Share of Operating Expenses

Tenant shall pay to Landlord, as Additional Rent, the Proportionate Share of Operating Expenses.

6.2

Utilities

Tenant shall pay to Landlord, as Additional Rent, the costs of all electricity and other utilities supplied to or used or consumed in the Premises as set forth in Schedule “D”.  Landlord 

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may require Tenant to install a check meter, at Tenant’s expense, for the purpose of determining the costs of such utilities.  The cost of electricity to Tenant for the Premises shall not exceed the amount which the authority providing the same would charge to Tenant if Tenant were directly metered and billed by the competent authority.

ARTICLE 7

SERVICES AND OPERATION OF BUILDING

7.1

Services to Premises

Landlord shall provide the following services to the Premises, subject to the further provisions set forth in Schedule “D”:

(a)

heating, ventilation and air-conditioning as required for the comfortable use and occupancy of the Premises during Normal Business Hours; such services to the Premises outside of Normal Business Hours shall be available in two (2) hours increments, at Tenant’s sole expense and in accordance with Landlord’s prevailing rates; notwithstanding the foregoing, the Tenant shall pay to the Landlord, as Additional Rent, the cost of all chilled or condenser water supplied to the Premises, at the rate established from time to time by the Landlord, at its discretion;

(b)

cleaning services; and

(c)

utilities for lighting and equipment.

7.2

Services to Building

Landlord shall provide the following services to the Building (not including the Premises):

(a)

elevators as set forth in Schedule “D”;

(b)

washroom facilities;

(c)

heating, ventilation, air-conditioning, lighting and cleaning in the appropriate interior portions of the Common Areas;

(d)

snow removal and landscape maintenance for the appropriate exterior portions of the Common Areas;

(e)

exterior window washing;

(f)

replacement of tubes and ballasts; and

(g)

garbage removal.

7.3

Control of Building

Landlord shall perform any acts which it determines to be advisable for the more efficient and proper operation of the Building.  More particularly and without limiting the generality of the foregoing, Landlord shall be entitled to do the following:

(a)

obstruct or close off all or any part of the Building for the purpose of maintenance, repair, alteration or construction;

(b)

regulate the delivery or shipping of supplies and fixtures to the Premises;

(c)

construct other buildings, structures or Improvements in the Building and make alterations and additions to the Building and its Common Areas; and

(d)

relocate or modify Common Areas.

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7.4

Interruption of Services

Landlord may elect at its sole discretion, without any obligation or liability to Tenant, and without such action constituting an eviction of Tenant, to discontinue or modify any services required of it as a result of Landlord’s exercise of the rights conferred under Section 7.3, provided that access to the Premises and Common Areas is not materially interfered with.

ARTICLE 8

USE OF PREMISES

8.1

Use

The Premises shall be used and occupied by Tenant for the purpose of carrying on the Authorized Use and for no other purpose.  Tenant shall not permit any part of the Premises to be occupied by any Person other than Tenant or a permitted assignee or subtenant and their respective employees.

8.2

No Warranty of Use

Landlord does not make any representation or warranty whatsoever to Tenant in respect of the use of the Premises which is permitted under applicable Laws during the Term or is permitted by any applicable zoning by-laws during the Term.  Nothing herein shall be interpreted so as to imply that the Lease is conditional upon the Tenant obtaining any permit for the carrying on of its business from any municipal or other authority.  Tenant shall be solely responsible to obtain, at its own cost, all permits, consents and authorizations required for its occupation of the Premises and the operation of its business therein.

8.3

Continuous Operation

Tenant shall occupy the Premises throughout the Term and shall continuously and actively conduct in the whole of the Premises the business permitted by the Authorized Use.  Tenant acknowledges that its continued occupancy of the Premises and the continuous and active conduct of its business in the Premises are of the utmost importance to Landlord in:

(a)

avoiding the appearance and impression generally created by vacant space;

(b)

facilitating the leasing of vacant space in the Building and the lease renewals of existing tenants;

(c)

maximizing the rents payable to the Landlord both by existing tenants and new tenants of the Building; and

(d)

maintaining the character, quality and image of the Building.

Notwithstanding the foregoing, if Tenant fails to operate continuously in the Premises as of the Commencement Date as provided in this section 8.3 but continues to pay all Rent as and when due it shall not be considered to be a default hereunder.

ARTICLE 9

INSURANCE AND NON-LIABILITY

9.1

Tenant’s Insurance

Tenant shall maintain during the Term and any renewal thereof or later occupation of the Premises insurance with respect to its interest in the Premises, the fixtures and Improvements made by or on behalf of Tenant in the Premises, and all operations of Tenant in and from the Premises.

Tenant’s insurance shall be in amounts equal to those maintained by prudent tenants of similar premises and shall, without limiting the foregoing, cover the following risks:

(a)

“all risks” (including flood and earthquake) coverage for property of every kind owned by Tenant or for which Tenant is legally liable or installed by or on behalf of Tenant and which is located within the Building, including, without limitation, 

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all of Tenant’s furniture and movable equipment and all leasehold improvements and other Improvements, in an amount not less than the full replacement cost thereof;

(b)

“all risks” Tenant’s legal liability insurance in an amount not less than the full replacement cost of the Premises, including loss of their use;

(c)

comprehensive general liability insurance including, but not limited to property damage, public liability, personal injury liability, contractual liability, non-owned automobile liability and contractor’s protective insurance coverage, all on an occurrence basis with respect to the use, occupancy, activities or things on the Premises and with respect to the use and occupancy of any other part of the Building by Tenant or any of its employees, agents, contractors or persons for whom Tenant is in law responsible with coverage of not less than Five Million Dollars ($5,000,000.00) for each occurrence involving bodily injury, death or property damage (or for such higher limits as Landlord may reasonably require from time to time);

(d)

business interruption insurance in such amounts as will reimburse Tenant for direct and indirect loss of earnings attributable to the perils insured against in subparagraph 9.1 (a) and other perils commonly insured against by prudent tenants; and

(e)

such other coverage as Landlord or the Mortgagee may require having regard to the risks which are customarily insured against by prudent tenants of like premises.

Such insurance shall include:

(A)

Landlord and any Mortgagee designated by Notice from Landlord together with those for whom they are in law responsible as named insureds as their respective interests may appear;

(B)

a severability of interests and cross-liability clauses protecting Landlord in respect  of claims by Tenant as if Landlord was separately insured;

(C)

a provision prohibiting the insurer from materially altering or canceling the coverage without first giving Landlord at least 30 days prior Notice thereof; and

(D)

a waiver of any subrogation rights which Tenant’s insurers may have against Landlord and against those for whom Landlord is in law responsible.

Tenant shall provide Landlord with certificates of such insurance and any renewals thereof and, at Landlord’s request, with a certified copy of its insurance policy(ies). 

9.2

Landlord’s Insurance

Subject to general availability on reasonable commercial terms, the Landlord shall effect and maintain during the Term:

(a)

“all risks” insurance which shall insure the Building for an amount not less than the replacement cost thereof from time to time (excluding foundations at the Landlord’s option), against loss or damage by perils now or hereafter from time to time embraced by or defined in a standard all risks insurance policy;

(b)

broad form boiler and machinery insurance on objects defined in a standard broad form boiler and machinery policy against accidents as defined therein, with limits of not less than ten million dollars ($10,000,000), which coverage shall include, without limitation, loss or damage of whatsoever kind or nature by reason of explosion or collapse by vacuum or cracking, burning, or bulging of any steam or hot water boilers, pipes and accessories and loss of rental income;

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(c)

“all risks” rent and rental value insurance in an amount sufficient to replace all Minimum Rent and Additional Rent payable under the provisions of this Lease for an indemnity period of one (1) year or such other period as the Landlord may determine;

(d)

comprehensive general liability insurance against claims for bodily injury (including death); personal injury and property damage arising out of all operations in connection with the management and administration of the Building, in an amount not less than five million dollars ($5,000,000) inclusive of any one occurrence; and

(e)

such other coverage, or increases in the amount of coverage specified above in this Section 9.2, as any Mortgagee may require from time to time or as the Landlord may deem prudent from time to time;

with such deductibles and exclusions as the Landlord deems appropriate from time to time. Notwithstanding the Landlord’s obligation to insure as set out above and the Tenant’s contribution to the cost of the Landlord’s insurance premiums, (i) the Tenant is not relieved of any liability arising from or contributed to by its negligence or its wilful acts or omissions, (ii) no insurable interest is conferred upon the Tenant under the Landlord’s insurance policies, and (iii) the Tenant has no right to receive proceeds from the Landlord’s insurance. Landlord’s insurance shall contain a waiver of subrogation rights which Landlord’s insurers may have against Tenant, Tenant’s insurers and persons under Tenant’s care and control. 

9.3

Increased Risk and Remedies

Tenant shall not do or commit any act upon the Premises or bring into or keep upon the Premises any Article which will affect the fire risk or increase the rate of fire insurance or other insurance on the Building.  Without limiting the foregoing, in no event shall any inflammable materials, except for kinds and quantities required for ordinary office occupancy and permitted by the insurance policies covering the Building, or any explosives whatsoever, be taken into the Premises or retained therein.

Tenant shall comply with the rules and requirements of Landlord’s insurers’ inspection service and with the requirements of all insurance companies having policies of any kind whatsoever in effect covering the Building, including policies insuring against contractual and extra-contractual liability.

Should the rate of any type of insurance on the Building be increased by reason of any violation of the Lease by Tenant, Landlord, in addition to all other remedies, may pay the amount of such increase, and the amount so paid shall become due and payable immediately by Tenant and collectible as Additional Rent.

Should any insurance policy on the Building be cancelled or threatened to be cancelled by the insurer by reason of the use and occupation of the Premises or any part thereof by Tenant or by any permitted assignee, subtenant, concessionaire or licensee of Tenant, or by anyone permitted by Tenant to be upon the Premises, Landlord may at its option terminate the Lease by leaving at the Premises a Notice of its intention to do so and thereupon Rent and other payments for which Tenant is liable hereunder shall be apportioned and paid in full to the effective date of termination under such Notice and Tenant shall forthwith deliver vacant possession of the Premises to Landlord.  Landlord may also, at its option and at the expense of Tenant, enter upon the Premises and rectify the situation causing such cancellation or threatened cancellation.

9.4

Loss or Damage

Notwithstanding any other provisions in this Lease or the Laws, Landlord shall not be liable for damage to or loss, theft, or destruction of property at any time in or on the Premises or in or about the building, regardless of the cause therefor (except where such cause is Landlord’s gross negligence).

Save as set out in Article 11 and without limiting the generality of the foregoing, there shall be no abatement from or reduction of Rent nor shall Tenant be entitled to damages, costs, losses or disbursements from Landlord regardless of the cause therefor (except where such cause is Landlord’s gross negligence) on account of fire or other casualty.  Neither shall there be any 

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claim of any nature whatsoever by Tenant against Landlord, nor any abatement nor reduction of Rent, nor recovery by Tenant from Landlord on account of partial or total failure of, damage caused by, lessening of supply of, or stoppage of, heat, air-conditioning, electric light, power, water, plumbing, sewerage, elevators, escalators or any other service, nor on account of any damage or annoyance occasioned by water, snow, or ice being upon or coming through the roof, skylight, trapdoors, windows, or otherwise, or by any defect or break in any pipes, tanks, fixtures, or otherwise whereby steam, water, snow, smoke or gas, leak, issue or flow into the Premises, nor on account of any damage or annoyance occasioned by the condition or arrangements of any loading docks or of any electric or other wiring, nor on account of any damage or annoyance arising from any acts, omissions, or negligence of co-tenants or other occupants of the Building, or of owners or occupants of adjacent or contiguous property, nor on account, directly or indirectly, of the making of Improvements, or structural changes to the Building, or any thing or service therein or thereon or contiguous thereto.

Notwithstanding the foregoing, liability of Landlord shall under no circumstances extend to any property other than normal office furniture which term, without limiting its normal meaning, shall not include securities, specie, papers, typewriters, electrical computers, or machines or similar items.

9.5

General Indemnification of Landlord 

(a)

Tenant shall indemnify Landlord and save it harmless from and against all claims and costs arising from this Lease, or any occurrence in, upon or at the Premises, or occasioned wholly or in part by any act or omission of Tenant or by anyone permitted to be on the Premises or in the Common Areas by Tenant, or by a failure by Tenant or by anyone permitted to be on the Premises by Tenant to comply with Laws, unless any such claim, cost or occurrence results from the gross fault of Landlord or of those for whom it is in law responsible.  If Landlord, without gross negligence on its part, is made a party to any litigation commenced by or against Tenant, Tenant shall indemnify and hold Landlord harmless and shall pay all costs, expenses and legal fees (judicial and extra-judicial) incurred or paid by Landlord in connection with such litigation.

(b)

Landlord shall indemnify Tenant and save it harmless from and against all claims and costs arising from this Lease, or any occurrence in, upon or at the Premises, or occasioned wholly or in part by any act or omission of Landlord or by anyone permitted to be on the Premises or in the Common Areas by Landlord, or by a failure by Landlord or by anyone permitted to be on the Premises by Landlord to comply with Laws, unless any such claim, cost or occurrence results from the gross fault of Tenant or of those for whom it is in law responsible.  If Tenant, without gross negligence on its part, is made a party to any litigation commenced by or against Landlord, Landlord shall indemnify and hold Tenant harmless and shall pay all costs, expenses and legal fees (judicial and extra-judicial) incurred or paid by Tenant in connection with such litigation.

9.6

Benefit of Exculpatory and Indemnity Provisions

For the purpose of every exculpatory clause and indemnity included in this Lease in favour of Landlord, the word “Landlord” will be considered to include also any property management company employed to manage the Building, the owner or owners from time to time of the Building and the officers, directors, employees, agents and contractors of Landlord, and each of the management company and the owner or owners from time to time respectively, and Landlord for the purpose of enabling each of those other persons and entities to enforce the benefit of the exculpatory clause or indemnity as the case may be, acts as agent for or trustee for the benefit of each of them.

ARTICLE 10

TENANT RESPONSIBILITIES

10.1

Maintenance and repairs

(a)

Tenant shall, at all times, at its expense, maintain and repair, subject to Section 10.2, the whole of the Premises including without limitation, all Improvements, 

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interior partitions, doors, electrical, lighting, wiring, plumbing fixtures and equipment and the heating, ventilating and air-conditioning systems and equipment within or exclusively serving the Premises in good order and repair as would a prudent owner.  Tenant will make all needed repairs and replacements with due diligence and dispatch.

Tenant shall promptly notify the Landlord in writing of any accident to or defect in the water pipes, steam pipes, heating or air conditioning equipment, electric lights, elevators, wires or other services or equipment to any portion of the Premises.

For greater clarity, Tenant shall be solely responsible for and shall pay for all repairs or replacements of every nature and kind to the Premises other than those which are the responsibility of the Landlord hereunder.

(b)

The Landlord covenants to keep or cause to be kept in good repair the following as would a prudent owner of a comparable development of similar age, size and location in the City of Toronto:

(i)

the footings, foundations, structural columns and beams, structural subfloors, bearing walls, exterior walls, windows and roofs of the Building;

(ii)

the Building systems including the elevators, escalators, HVAC systems and other systems serving the Building; and

(iii)

the Common Areas and facilities.

10.2

Landlord’s Approval of Tenant’s Improvements

Tenant shall not make any Improvements to the Premises without obtaining Landlord’s prior written consent which shall not be unreasonably or arbitrarily withheld, conditioned or delayed.  Landlord shall not be obliged to consider any request for such approval unless and until Tenant has submitted to Landlord details of the proposed Improvements, including drawings and specifications prepared by qualified architects or engineers and conforming to good architectural and engineering practice and unless Tenant shall also deliver with respect to the Improvements: 

(a)

such indemnification against liens, costs, damages and expenses and waivers by persons who participate in the Improvements (including the renunciation by such Person of any rights to register liens against the Building or any part thereof) as Landlord requires, failing which Tenant shall furnish adequate security in an amount and form required by Landlord to indemnify against liens, costs, damages, and expenses resulting from such Improvements; and

(b)

evidence satisfactory to Landlord that Tenant has obtained all necessary consents, permits, licences and inspections from all governmental and regulatory authorities.

All Improvements made by Tenant to the Premises shall be at Tenant’s sole expense and, if approved by Landlord, shall be performed:

(i)

by such contractor(s), or sub-contractor(s) as Tenant may select and Landlord may approve, provided however that Landlord shall not be liable for any damage or other loss or deficiency arising from or through such work.  Each such contractor and sub-contractor shall be Tenant’s contractor and sub-contractor and shall not be deemed to be Landlord’s mandatory.  Tenant hereby undertakes that there shall be no conflict caused with any union or other contract to which Landlord, its contractor(s), or any sub-contractor(s) may be a party, and in the event of any such conflict Tenant shall forthwith remove from the Building Tenant’s conflicting contractor(s) or sub-contractor(s).

(ii)

in a good and workmanlike manner and in compliance with the highest standards including those set by Landlord;

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(iii)

in accordance with the drawings and specifications approved by Landlord; and

(iv)

subject to the reasonable regulations, controls and inspection of Landlord.

If any payment in respect of the Tenant’s Improvements shall be made by Landlord, the same shall be immediately repayable to Landlord by Tenant and collectible as Additional Rent.

Immediately upon being invoiced by Landlord, Tenant shall pay to Landlord, as Additional Rent, an administrative and supervisory fee equal to ten percent (10%) of the cost of any Improvements made to the Premises.

Moreover, if any such Improvements may in the Expert’s opinion affect the structure of the Premises or any other part of the Building (namely, the electrical, mechanical, or other base building systems), such work, or the appropriate part thereof, shall be performed only by Landlord, in which case Tenant shall, upon completion thereof, pay to Landlord, upon demand, Landlord’s Costs thereof.  No such Improvements shall be permitted which may weaken or endanger the structure or adversely affect the condition or operation of the Premises or the Building or diminish the value thereof.

Any Improvement made by Tenant without the prior written consent of Landlord or which is not in accordance with the drawings and specifications approved by Landlord shall, if required by Landlord, promptly be removed by Tenant at its expense and the Premises restored to their previous condition.

10.3

Ownership of Improvements

Any fixtures or Improvements installed by Tenant, or by Landlord on Tenant’s behalf, shall immediately upon installation become the property of Landlord without compensation to Tenant.  Except in the circumstances specifically described in Section 10.6, such fixtures or Improvements shall not be removed from the Premises either during or at the expiration or earlier termination of the Term.  Landlord is under no obligation to repair, maintain or insure the Improvements.

10.4

Tenant to Discharge All Liens

If any mechanics’ construction or similar lien is made, filed or registered against title to the Building or Lands or against the Tenant’s leasehold interest as a result of any work, materials or services supplied or performed by or on behalf of the Tenant or otherwise in respect of the Premises, the Tenant will discharge it forthwith at the Tenant’s expense.  If the Tenant fails to discharge the lien, then in addition to any other right or remedy of the Landlord, the Landlord may elect to discharge the lien by paying the amount claimed to be due and any additional amounts as may be required at law or otherwise, into Court or directly to the lien claimant and the amount paid by the Landlord and all costs and expenses including all solicitor’s fees (on the basis of a solicitor and his own client) incurred as a result of the lien including, without limitation, procuring and registering its discharge will be immediately paid by the Tenant to the Landlord.

10.5

Tenant Not to Overload Utilities and Services

Tenant shall not install any equipment which will exceed or overload the capacity of any utilities and services in the Building.

10.6

Termination of Lease

Subject to Section 17.10, at the expiration or earlier termination of the Lease for whatever reason or upon Tenant vacating the Premises with the permission of Landlord prior to the expiration hereof, Tenant shall, if so required by Landlord, remove all or Improvements (except those that Landlord directs Tenant not to remove) including, without limitation, all Improvements installed by Landlord or Tenant in the Premises, pursuant to the terms of this Lease or any prior lease of the Premises and regardless of whether Landlord or Tenant is or was responsible for the cost thereof.  Tenant shall thereupon become obligated to restore the Premises to their original condition, save for such Improvements as Landlord permits to remain.  Should Tenant not be required to remove any of such Improvements, they shall, upon the expiration or 

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earlier termination of this Lease for any other reason, remain in the Premises as the property of Landlord without any compensation being paid therefor to Tenant.

Moreover, all obligations of Tenant under the Lease which have arisen on or before its expiration or earlier termination, all obligations to pay amounts due hereunder and/or pursuant to adjustment provided for by the Lease shall survive the expiration or earlier termination of the Lease.

10.7

Exterior Appearance of Premises

Tenant shall keep the exterior appearance of the Premises tidy and business-like and shall not erect any sign or other like object within the Premises which is visible from the exterior of the Premises, subject to Section 17.8.

10.8

Obligation Towards Other Tenants and Users of the Building

Tenant shall act in such a way as not to disturb the peaceful enjoyment of the other tenants or users of the Building.

10.9

Fire Protection

Tenant shall install and maintain in the Premises, at its sole cost, such fire protection or equipment, including without limitation, emergency lighting as is deemed necessary or desirable by Landlord or by any governmental and/or insurance body.  If so required by Landlord or any aforesaid body, Tenant shall appoint a warden to coordinate with the fire protection authorities and Landlord’s personnel.

10.10

Telephone and Computer Systems

Tenant may utilize a telecommunication service provider of its choice with Landlord’s prior written consent which Landlord may withhold in its discretion, subject to the provisions of this Lease, including but not limited to the following:

(a)

the service provider shall execute and deliver Landlord’s standard form of license agreement which shall include a provision for Landlord to receive compensation for the use of the space for the service provider’s equipment and materials;

(b)

Landlord shall incur no expense or liability whatsoever with respect to any aspect of the provision of telecommunication services, including without limitation, the cost of installation, service, materials, repairs, maintenance, interruption or loss of telecommunication service;

(c)

Landlord must first reasonably determine that there is sufficient space in the risers of the Building for the installation of the service provider’s equipment and materials; and

(d)

Tenant shall indemnify and hold harmless Landlord for all losses, claims, demands, expenses, and judgments against Landlord caused by or arising out of, either directly or indirectly, any acts or omissions by the service provider or Tenant or those for whom they are responsible at law.

Tenant shall be responsible for the costs associated with the supply and installation of telephone, computer and other communication equipment and systems and related wiring within the Premises to the boundary of the Premises for hook up or other integration with telephone and other communication equipment and systems of a telephone or other communication service provider, which equipment and systems of the service provider are located or are to be located in the Building pursuant to Landlord’s standard form of license agreement.

Landlord shall supply space in risers in the Building and space on floor(s) of the Building in which the Premises are located, the location of which shall be designated by Landlord in its discretion, to telecommunication service providers who have entered into Landlord’s standard form of license agreement for the purpose, without any cost or expense to Landlord therefor, of permitting installation in such risers and on such floor(s) of telephone and other communication 

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services and systems (including data cable patch panels) to the Premises at a point designated by Landlord.

Landlord shall have the right to assume control of cables and other telecommunication equipment in the Building and may designate them as part of the Common Areas.

ARTICLE 11

DAMAGE, DESTRUCTION, EXPROPRIATION

11.1

Damage or Destruction of Premises

In the event that the Premises shall be destroyed or damaged by fire or other casualty insurable under fire and all risks insurance coverage, then:

(a)

if in the opinion of Landlord the damage or destruction is such that the Premises are rendered wholly unfit for occupancy or it is impossible or unsafe to use and occupy them, and if in either event the damage, in the further opinion of Landlord (which shall be given by Notice to Tenant within a reasonable delay of the happening of such damage or destruction) cannot be repaired with reasonable diligence within 180 days from the happening of such damage or destruction, Landlord may within 5 days next succeeding the giving of Landlord’s opinion as aforesaid, terminate this Lease by giving to the Tenant Notice of such termination, in which event the Term shall cease and be at an end as the date of such damage or destruction and the Rent shall be apportioned and paid in full to the date of such damage or destruction.  In the event that the Landlord does not so terminate this Lease, Rent shall abate from the date of the happening of the damage until the damage shall be made good to the extent of enabling Tenant to use and occupy the Premises; or

(b)

if the damage be such that the Premises are wholly unfit for occupancy, or if it is impossible or unsafe to use or occupy them but if in either event the damage, in the opinion of Landlord (which shall be given by Notice to Tenant within 30 days from the happening of such damage) can be repaired with reasonable diligence within 180 days of the happening of such damage, or if the Landlord does not elect to terminate this Lease where the damage would take more than 180 days after the happening of the damage to repair, Rent shall abate from the date of the happening of such damage until the damage shall be made good to the extent of enabling Tenant to use and occupy the Premises; or

(c)

if in the opinion of Landlord, the damage can be made good as aforesaid within 180 days of the happening of such damage or destruction, or if the Landlord does not elect to terminate this Lease where the damage would take more than 180 days after the happening of the damage to repair, and the damage is such that the Premises are capable of being partially used for the purposes for which leased, until such damage has been repaired, Rent shall abate in the proportion that the part of the Premises rendered unfit for occupancy bears to the whole of the Premises.

11.2

Destruction of Building

In the event that the Building is partially destroyed or damaged so as to affect twenty percent (20%) or more of the Gross Rentable Area of the Building, or in the opinion of Landlord the Building is rendered unsafe, and whether or not the Premises are affected, and in the opinion of Landlord (which shall be given by Notice to Tenant within 30 days of the happening of such damage or destruction), cannot be repaired with reasonable diligence within 180 days from the happening of such damage or destruction, Landlord may within 5 days next succeeding the giving of Landlord’s opinion as aforesaid, terminate this Lease by giving to Tenant Notice of such termination, in which event the Term shall cease and be at an end as of the date of such damage or destruction and the Rent and all other payments for which Tenant is liable under the terms of this Lease shall be apportioned and paid in full to the date of such damage or destruction.

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11.3

Insurance Proceeds

In the event of the termination of the Lease as hereinabove provided, all Landlord’s insurance proceeds, excluding those relating to Tenant’s property (but not excluding Tenant’s interest in the Premises and Improvements) to the extent Tenant is not indebted to the Landlord under the provisions of the Lease, shall be and remain the absolute property of Landlord.

11.4

Tenant’s Property

Nothing herein contained shall oblige Landlord to repair or reconstruct any property of Tenant or Improvements.

11.5

Negligence of Tenant

If any damage or destruction by fire or other cause to the Building or Premises, whether partial or not, is due to the fault or negligence of Tenant, its officers, agents, employees, servants, or visitors without prejudice to any other rights and remedies of Landlord and without prejudice to the rights of subrogation of Landlord’s insurer:

(a)

Tenant shall be liable for all costs and damages;

(b)

the damages may be repaired by Landlord at Tenant’s expense;

(c)

Tenant shall forfeit its right to terminate the Lease as provided in Section 11.1 (a); and

(d)

Tenant shall forfeit any abatement of Rent provided in this Article 11 and Rent shall not abate.

11.6

Expropriation

Landlord and Tenant shall cooperate in respect of any expropriation of the Premises or any part thereof so that, subject to the following rights of Landlord (which include, without limitation, the rights of Landlord to receive compensation for Tenant’s leasehold improvements), Tenant may receive the maximum award to which it is entitled in law for relocation costs, business interruption and such other costs (including any required increased rent in new premises) that it may be entitled to receive from the expropriating authority and so that Landlord may receive the maximum award for all other compensation arising from or relating to such expropriation (including all compensation for the value of Tenant’s Improvements and Tenant’s rights (if any) to such compensation are hereby assigned to Landlord).  If the whole or any part of the Premises is expropriated, the respective rights and obligations of Landlord and Tenant shall continue until the day on which the expropriating authority takes possession thereof. Landlord shall have the option, to be exercised by written notice to Tenant, to terminate this Lease effective on the day the expropriating authority takes possession of the whole or the portion of the expropriated Premises.  Rent shall be adjusted as of the date of such termination and Tenant shall, on the date of such taking of possession, vacate the Premises and surrender the same to Landlord, with Landlord having the right to re-enter and re-possess the Premises discharged of the Lease and to remove all persons therefrom.

ARTICLE 12

LANDLORD’S RIGHT OF ENTRY

12.1

Entry by Landlord

Landlord and its agents and contractors may enter the Premises, upon 24 hours’ prior notice to Tenant (except in an emergency when no Notice shall be required) for the following purposes:

(a)

to examine the Premises;

(b)

to make such repairs as Landlord, acting reasonably, considers necessary;

(c)

to have access to underfloor ducts and access panels to mechanical shafts;

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(d)

to check, calibrate, adjust and balance controls and other parts of the heating or air-conditioning systems;  and

(e)

for any other purpose necessary to enable Landlord to perform its obligations or exercise its rights under the Lease.

In exercising its rights, Landlord shall use reasonable efforts to minimize interference with Tenant’s use and enjoyment of the Premises.

Tenant shall not alter any locks on any doors of the Premises without obtaining Landlord’s prior written consent which may be conditional namely on Tenant providing keys to Landlord for any new locks installed.

12.2

Right to Show Premises

Landlord and its agents shall have the right to enter the Premises during Normal Business Hours upon reasonable prior Notice to show them to prospective purchasers, or Mortgagees or prospective Mortgagees, and, during the last 12 months of the Term (or the last 12 months of any renewal term if this Lease is renewed), to prospective tenants.

ARTICLE 13

ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS

13.1

Transfer

“Transfer” means all or any of the following, whether by conveyance, written agreement or otherwise, and whether or not by operation of law: an assignment of this Lease by Tenant or any interest in this Lease, in whole or in part, any mortgage, charge, debenture (floating or otherwise), or encumbrance of this Lease or Tenant’s interest in this Lease, in whole or in part, a sublease, or sharing or parting with possession of all or any part of the Premises, a change in a partnership if the change results in a change in the effective control of Tenant and, a transfer or other dealing in respect of all or part of the corporate shares of Tenant or an affiliate of Tenant that results in a change in the effective voting control of Tenant.  “Transferor” and “Transferee” have meanings corresponding to this definition of “Transfer” and in the case of a Transfer involving corporate shares, or partnership interests, the “Transferor” is the person or entity with effective control, or voting control before the Transfer and the Transferee is the person or entity with effective control, or voting control after the Transfer.

13.2

Landlord’s Consent

Subject to Section 17.12, Tenant will not effect or attempt to effect a Transfer without the prior written consent of Landlord which shall not be unreasonably withheld unless Landlord elects to terminate the Lease pursuant to Section 13.4. Landlord shall be deemed to be acting reasonably in withholding its consent if:

(a)

the Transfer would violate any covenant or restriction given to any other tenant of the Building;

(b)

in Landlord’s opinion:

(i)

either the financial background or the business history and capability of the proposed Transferee is not satisfactory;

(ii)

the nature or character of the proposed business of the proposed Transferee is such that it might harm Landlord’s business or reputation or reflect unfavourably on the Building, Landlord, or other tenants of the Building, or the image of any of them, or is unethical, immoral or illegal;

(c)

the proposed Transferee or any principal of the proposed Transferee or any principal shareholder of the proposed Transferee has a history of defaults under other commercial leases or does not have a satisfactory history of compliance with laws;

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(d)

the proposed Transfer is in favour of any existing tenant or occupant of the Building provided Landlord has alternative space that the accommodates the requirements of the existing tenant;

(e)

the proposed Transfer is a mortgage, charge or other encumbrance of Tenant’s rights or interest under this Lease;

(f)

an event of default on the part of Tenant hereunder has occurred and is continuing;

(g)

there is any other reasonable ground not stated above for withholding consent; or

(h)

Landlord does not receive reasonably sufficient information to enable it to make a determination concerning the matters set out above.

13.3

Public Corporations

A Transfer that occurs as the result of a change in control of a Tenant will not require the consent of Landlord if the shares are listed and traded on any recognized stock exchange in Canada or the United States.

13.4

Landlord’s Termination Right

If Tenant requests Landlord’s consent to a Transfer it will provide full particulars concerning the Transfer including without limitation, copies of any written offer, agreement or draft agreement pertaining to the Transfer, payments and any other consideration to be made or provided by the proposed Transferee in consideration for the Transfer, and any other information concerning the proposed Transfer or the financial and business history of the proposed Transferee that Landlord may require.  Landlord will within fifteen (15) days after its receipt of the request for consent and all the information, notify Tenant that either (i) it consents to the Transfer, or (ii) it elects to cancel this Lease as to the whole of the Premises affected by the proposed Transfer, or (iii) it does not consent to the Transfer.  If Landlord elects to terminate this Lease, Tenant may, by notice to Landlord given within seven (7) days after receipt of Landlord’s notice, withdraw its request for Landlord’s consent.  In that case, Landlord’s election to terminate this Lease will be void.  If Tenant fails to withdraw its request for Landlord’s consent, Tenant will deliver, in accordance with the provisions of this Lease, vacant possession of the whole or the part, as the case may be, of the Premises affected by the termination on the date of the proposed Transfer.  If Tenant is required to deliver possession of a part only of the Premises, Tenant will pay all costs incurred in connection with rendering that part functionally separate and suitable for separate use and occupancy, including partitioning and providing entrances and services.

13.5

Acceptance of Rent

After a Transfer, Landlord may collect Rent from the Transferee and apply the net amount collected to the Rent payable hereunder but no acceptance by Landlord of any payments by a Transferee constitutes a waiver of the requirement for Landlord’s consent to the Transfer or an acceptance of the Transferee nor will it release Tenant from its covenants and obligations under this Lease.  Any documents evidencing a Transfer may, at Landlord’s option, be prepared by Landlord or its solicitors.

13.6

Conditions of Consent

Subject to Section 17.12, any consent by Landlord to a Transfer will be subject to the following conditions:

(a)

Tenant will pay to Landlord any money or other consideration (including without limitation, any amount payable by the Transferee to Tenant in excess of the Minimum Rent payable by Tenant under Section 4.1 (b)) from time to time paid by any Transferee to Tenant in connection with the Transfer.

(b)

If Landlord requires, the Transferee (other than a subtenant) shall execute an agreement directly with Landlord agreeing to be bound by this Lease, and in the case of a sublease the Transferee shall waive any right to obtain relief from 

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forfeiture, to obtain a direct lease from Landlord or to become the tenant of Landlord notwithstanding any statute or law that would otherwise give those rights to sub-tenants.

(c)

Tenant shall pay any legal costs incurred by Landlord in connection with documents relating to a Transfer or Landlord’s consent together with Landlord’s reasonable administrative charge for considering a request to consent and, as a condition of considering a request for consent, Landlord may require payment of a reasonable deposit of at least $500.00 on account of its costs.

(d)

If this Lease is disaffirmed, disclaimed, terminated, repudiated, or surrendered (each of these transactions being referred to as an “Early Termination”) by any trustee in bankruptcy of a Transferee, by any court appointed officer, or by a Transferee in connection with any insolvency proceedings, Tenant and any Transferee (except the bankrupt or insolvent Transferee) will be considered, on notice from Landlord given within thirty (30) days after the Early Termination, to have entered into a lease with Landlord on the same terms and conditions as are contained in this Lease except that the term of the lease shall commence on the date of the Early Termination and shall expire on the date this Lease would have expired but for the Early Termination.

(e)

No consent to a Transfer will be considered as a waiver of the requirement for Landlord’s consent in respect of a subsequent Transfer.

13.7

Advertising of Premises

Tenant shall not advertise or allow any agent, broker, or other person to advertise the Premises as being available for lease without the approval by Landlord of the form and content of such advertisement which shall not mention any financial terms, which approval shall not be unreasonably withheld.

ARTICLE 14

SUBORDINATION AND STATUS STATEMENT

14.1

Subordination

The Lease and all rights of Tenant hereunder shall at request of Landlord or its mortgagees be subject and subordinate to any and all underlying leases, mortgages, hypothecs or trust deeds affecting the Building or the Land which have been executed or which may at any time hereafter be executed, and any and all extensions and renewals thereof and substitutions therefor.

Tenant agrees that, if by reason of a default upon the part of Landlord as lessee under any underlying lease in the performance of any of the terms or provisions of such underlying lease or by reason of a default under any mortgage, hypothec or trust deed to which this Lease is subject or subordinate, Landlord’s estate is terminated, it will attorn to the lessor under such underlying lease or the acquirer of the Building or any mortgagee in possession pursuant to any action taken under any such mortgage hypothec or trust deed and will recognize such lessor or such acquirer, or mortgagee as Tenant’s landlord under this Lease.

Tenant agrees to execute and deliver, at any time and from time to time, upon the request of Landlord or of the lessor under any such underlying lease, or of the holder of any such mortgage or hypothec, or trust deed any instrument which may be necessary or appropriate to evidence such subordination of the Lease to any or all leases, mortgages, hypothecs or trust deeds as aforementioned on such attornment.

14.2

Status Statement

Tenant, upon not less than 10 days’ prior Notice from Landlord, shall execute, acknowledge and deliver to Landlord and, at Landlord’s request, addressed to any prospective purchaser, ground or underlying lessor or creditor under a mortgage, charge, hypothec, or trust deed of the Building or the Land, a certificate of Tenant stating:

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(a)

that Tenant has accepted the Premises, or, if Tenant has not done so, that Tenant has not accepted the Premises and specifying the reasons therefor;

(b)

the Commencement Date and Expiration Date of the Lease;

(c)

that the Lease is unmodified and in full force and effect, or if there have been modifications, that the same is in full force and effect as modified, and stating the modifications;

(d)

whether or not there are then existing any known defenses against the enforcement of any of the obligations of Tenant under the Lease and, if so, specifying the same;

(e)

whether or not there are then existing any known defaults by Landlord in the performance of its obligations under the Lease, and, if so, specifying the same;

(f)

the dates, if any, to which the Rent and other charges under the Lease have been paid; and

(g)

any other information which may reasonably be required by any such persons.

It is intended that any such certificate of Tenant delivered pursuant to this Section 14.2 may be relied upon by any person or entity to which it is addressed.

ARTICLE 15

DEFAULT AND RECOURSES

15.1

Default

The occurrence of any of the following events shall constitute a default by Tenant:

(a)

if any item of Rent is not paid within five (5) days of receipt of Notice of default from the Landlord;

(b)

if Tenant effects, or attempts to affect a Transfer, except in a manner permitted in this Lease;

(c)

subject to Section 8.3, if Tenant vacates or abandons the Premises prior to the expiry of the Lease or fails to take possession of the Premises as required by this Lease;

(d)

if the whole or a substantial portion of the property of Tenant on the Premises is seized before or after judgment or taken in execution or attachment by a creditor of Tenant or any third party;

(e)

if Tenant or the Indemnifier (if any) makes an assignment for the benefit of creditors; if a receiver-manager is appointed to control the conduct of the business on or from the Premises; if Tenant or the Indemnifier (if any) becomes bankrupt or insolvent or takes the benefit of any act now or hereafter in force for bankrupt or insolvent debtors; or if an order is made for the winding-up of Tenant or the Indemnifier (if any) and such order remains uncontested for 5 days excluding Saturday, Sunday, and statutory holidays; or

(f)

if Tenant fails to perform any of its other obligations under the Lease and fails to cure the default prior to expiration of the time period (which shall be not less than thirty (30) days) set out in the Notice of default sent by Landlord.

15.2

Interest and Costs

Tenant shall pay monthly to Landlord interest at the Prime Rate plus three percent (3%) on all Rent required to be paid hereunder from the due date for payment thereof until the same is fully paid and satisfied.  Tenant shall indemnify Landlord against all costs and charges (including legal fees) lawfully and reasonably incurred in enforcing payment thereof and in obtaining possession of the Premises after an event of default, or upon expiration or earlier 

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termination of the Term of this Lease or in enforcing any covenant, proviso or agreement of Tenant herein contained.

15.3

Right to Re-Enter

Whenever there is an event of default, then and in any of such cases, the then current month’s Rent, together with the Rent for the three (3) months next ensuing shall immediately become due and payable and at the option of Landlord, the Term shall become forfeited and void, and Landlord may without notice or any form of legal process whatsoever forthwith re-enter upon the Premises or any part thereof in the name of the whole and repossess and enjoy the same as of its former estate, anything contained in any statute or law to the contrary notwithstanding.  Notwithstanding such forfeiture Landlord shall have the right to recover arrears of Rent or damages for any prior default by Tenant of its covenants, obligations or agreements under this Lease or any term or condition of this Lease and provided further that notwithstanding any such forfeiture Landlord shall have the right to recover from Tenant damages including damages for loss of future Rent suffered by reason of this Lease having been prematurely determined.

15.4

Right to Relet

In case of an event of default, Landlord may from time to time without terminating this Lease relet the Premises or any part thereof as agent for Tenant.  In the case of any such reletting:

(a)

Landlord may make such alterations and repairs as may be necessary in order to relet the Premises;

(b)

Landlord may relet the Premises for such term or terms (which may be for a term extending beyond the Term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable;

(c)

all rentals received by  Landlord from such reletting shall be applied:

(i)

first, to the payment of any indebtedness other than Rent due hereunder from  Tenant to  Landlord;

(ii)

second, to the repayment of any costs and expenses of such reletting, including brokerage fees and solicitors’ fees and the costs of such alterations and repairs;

(iii)

third, to the payment of Rent due and unpaid hereunder; and

(iv)

the residue, if any, shall be held by  Landlord and applied in payment of future Rent as the same may become due and payable hereunder.

If the rentals received from such reletting during any month are less than the Rent to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord.  Such deficiency shall be calculated and paid monthly.  Notwithstanding such reletting, Landlord shall have the right to recover from Tenant all damages incurred by Landlord as a result of Tenant’s breach including all costs of recovering and reletting the Premises.  No such re-entry or taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction.  Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach.  Should Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering and reletting the Premises and damages for loss of future Rent.

15.5

Legal Expenses

In case suit shall be brought for recovery of possession of the Premises, for the recovery of Rent or any other amount due under the provisions of this Lease, or because of the breach of 

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any other covenant herein contained on the part of Tenant to be kept or performed and a breach shall be established, Tenant shall pay to Landlord all expenses incurred therefor, including reasonable solicitors’ and counsel fees on a solicitor/client basis.

15.6

Landlord May Perform Covenants

If Tenant shall fail to perform any of its covenants or obligations under or in respect of this Lease, Landlord may from time to time at its discretion, perform or cause to be performed any of such covenants or obligations, or any part thereof, and for such purpose may do such things upon or in respect of the Premises or any part thereof as Landlord may consider requisite or necessary.

All expenses incurred and expenditures made by or on behalf of Landlord under this section shall be forthwith paid by Tenant and if Tenant fails to pay the same, Landlord may add the same to the Rent and recover the same by all remedies available to Landlord for the recovery of Rent in arrears.

15.7

Landlord May Follow Chattels

Provided that in the case of removal by Tenant of the goods and chattels of Tenant from the Premises, Landlord may follow the same for thirty (30) days in the same manner as is provided for in the Commercial Tenancies Act (Ontario), as amended, or in any other Statute which may hereafter be passed to take the place of the said Act or to amend the same.

15.8

Waiver of Exemptions

Tenant hereby covenants and agrees with Landlord in consideration of the premises and of the leasing and letting by Landlord to Tenant of the Premises for the Term hereby created (and it is upon that express understanding that these presents are entered into) that notwithstanding anything contained in the Commercial Tenancies Act (Ontario) as, amended, or in any other Statute which may hereafter be passed to take the place of the said Act or to amend the same, none of the goods or chattels of the said Tenant at any time during the continuance of the Term hereby created on the Premises shall be exempt from levy by distress for Rent in arrears by Tenant as provided for by any section or sections of the said Act, or any amendment or amendments thereto, and that upon any claim being made for such exemption by Tenant or on distress being made by Landlord this covenant and agreement may be pleaded as an estoppel against Tenant in any action brought to test the right to the levying upon any such goods as are named as exempted in said section or sections or amendment or amendments thereto, Tenant waiving as Tenant hereby does, all and every benefit that could or might have accrued to Tenant under and by virtue of the said section or sections of the said Act or any amendment or amendments thereto but for this covenant.

ARTICLE 16

MISCELLANEOUS

16.1

Rules and Regulations

Tenant shall comply with all Rules and Regulations, and reasonable amendments thereto, adopted by Landlord for the more efficient and proper operation of the Building, including those set out in Schedule “E”.  Landlord shall give Tenant Notice of any amendment to the Rules and Regulations.  Such Rules and Regulations may differentiate between different types of businesses in the Building.  Landlord shall have no obligation to enforce any rule or regulation or the provisions of any other lease against any other tenant, and Landlord shall have no liability to Tenant with respect thereto.  Such Rules and Regulations may regulate Tenant’s conduct, but shall not materially interfere with Tenant’s ability to conduct its business in an efficient and effective manner and its other rights under this Lease.

16.2

Timeliness

Landlord and Tenant may, unless expressly stated otherwise, exercise and enforce their respective rights under the Lease at any time and from time to time.

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16.3

No Tacit Renewal

If Tenant remains in possession of the Premises after the end of the Term with or without the consent of Landlord but without having executed and delivered a new lease, there shall be no tacit renewal of this Lease notwithstanding any statutory provisions or legal presumption to the contrary, and Tenant shall be deemed to be occupying the Premises as a tenant from month to month at a monthly Minimum Rent payable in advance on the first day of each month equal to twice the amount of Minimum Rent payable during the last month of the Term and otherwise, upon the terms and conditions set forth in this Lease (including Additional Rent), so far as these are applicable to a monthly tenancy.

16.4

Successors

All rights and liabilities herein granted to or imposed upon the respective parties hereto extend to and bind the successors and assigns of Landlord and the heirs, executors, administrators and permitted successors and assigns of Tenant, as the case may be.  If there is more than one Tenant, each one of them shall be bound jointly and severally with the others towards Landlord for the performance of and shall be subject to all of the terms, obligations and conditions herein.

16.5

Tenant Partnership

If Tenant is a partnership, each Person who is presently a member of the partnership and each Person who becomes a member of any successor partnership hereafter shall be and continue to be bound jointly and severally for the performance of and shall be and continue to be subject to all of the terms, obligations and conditions of this Lease, whether or not such Person ceases to be a member of such partnership or successor partnership.

16.6

No Partnership

Notwithstanding any provisions of the Lease, nothing in the Lease shall be construed as constituting any partnership, joint venture or any other relationship other than the relationship of landlord and tenant.

16.7

No Waiver

Failure of Landlord or Tenant to insist upon the performance of any obligation under the Lease and to exercise any right contained in the Lease shall not be construed as a waiver or relinquishment of any such obligation or right.  Landlord’s acceptance of Rent or a partial payment thereof after a default is not a waiver of any preceding or ensuing default under this Lease even if Landlord knows of the preceding or ensuing default at the time of acceptance of the Rent.

16.8

Compliance With Laws

Tenant shall comply with the requirements of all applicable Laws, relating to the Premises or their use, occupation, repair or alteration, and also with the requirements of any company which insures Landlord or Tenant.

16.9

Force Majeure

Notwithstanding anything to the contrary contained in the Lease, if either party hereto is bona fide delayed or hindered in or prevented from the performance of any term, obligation or act required hereunder by reason of strikes, labour troubles, inability to procure materials or services, power failure, restrictive governmental Laws or regulations, riots, insurrection, sabotage, rebellion, war, act of God or other reason which is beyond the control of the party so delayed, hindered or prevented, then performance of such term, obligation or act shall be excused for the period of the delay and the party shall be entitled to perform such term, obligation or act within the appropriate time period after the expiration of the period of such delay.  However, the provisions of this Section are not meant to excuse Tenant from the prompt payment of Minimum Rent or Additional Rent or from any other payments required by the Lease.

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16.10

Decision of Expert

The decision of any Expert whenever provided for under this Lease and any certificate related thereto shall be final and binding upon the parties.

16.11

Notices

For the purposes of this Lease, the term “Notice” means any notice, request, demand, or other instrument given pursuant to this Lease.

Any Notice shall be in writing and may be delivered in person or sent by registered mail, messenger or bailiff with proof of delivery and shall be addressed:

(a)

if to Landlord, at the address set out in Section 1.10;

or to such other Person or at such other address as designated by Landlord’s Notice, and

(b)

if to Tenant, at the Premises.

Any such Notice shall be conclusively deemed to have been given or made on the day upon which such Notice is delivered in person or if sent by registered mail, messenger of bailiff, at the date appearing on the proof of delivery.  Either party may at any time give Notice to the other of any change of address of the party giving such Notice and from and after the giving of such Notice, the address therein specified shall be deemed to be the address of such party for the giving of Notices hereunder.

16.12

Registration

Tenant may register notice of this Lease with the approval of Landlord which Landlord may in its discretion withhold in which case either Tenant may register a caveat without attaching a copy, or disclosing any financial terms, of this Lease, or Landlord and Tenant shall enter into a short form lease prepared by Landlord and Tenant shall pay Landlord’s cost on account thereof.  Such short form shall be for the purpose only of enabling notice of this Lease to be registered and shall not affect the respective rights and obligations of the parties hereunder.  Landlord may limit such registration to one or more parts of the Land.  Upon the expiration or other termination of the Term Tenant shall forthwith discharge or otherwise vacate any such notice. If any part of the Land which in the opinion of Landlord is surplus is transferred, Tenant shall forthwith at the request of Landlord discharge or otherwise vacate any such notice as it relates to such part.  If any part of the Land is made subject to any easement or right-of-way, Tenant shall forthwith at the request of Landlord postpone its registered interest to such easement or right-of-way.

16.13

Assignment by Landlord

In the event of the sale or lease by Landlord of the Building, or of any part thereof, or the assignment by Landlord of this Lease or any interest of Landlord hereunder, Landlord shall be released of all liability with respect to all obligations of Landlord pursuant to the Lease.

16.14

No Broker

Tenant represents and warrants to Landlord that no broker or agent negotiated or was instrumental in consummating the Lease, other than the Broker mentioned in Section 1.11 of the Summary Provisions (if any), whose fees or commissions shall be paid by Landlord.  Any other brokerage commission shall be paid by the Tenant.

16.15

Governing Law

This Lease shall be construed and governed by the laws of the Province of Ontario and any federal Laws applicable therein.  Should any provisions of this Lease or of its conditions be illegal or not enforceable under the Laws of such province it or they shall be considered severable and the Lease and its conditions shall remain in force and be binding upon the parties as though the said provision or provisions had never been included.  Any dispute arising out of the interpretation or application of any provisions of this Lease shall be decided by the appropriate tribunals located in the province of Ontario.

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16.16

Authorization to obtain credit information

Tenant shall, upon written request from Landlord, provide Landlord with such information regarding Tenant’s financial standing as Landlord may reasonably request.  Landlord shall have the right to investigate the creditworthiness of Tenant and Tenant consents to such investigation and Landlord may from time to time give any credit and other information or request such information from any credit bureau or reporting agency.  If Tenant fails to provide the requested financial information within five (5) business days of such request in writing or if Landlord is not satisfied, in its sole discretion, with the information or results of its investigations, Tenant shall be deemed to be in default under the terms of this Lease.

16.17

Schedules

The schedules set out at length in the following pages form an integral part of the Lease and consist of the following:

Schedule “A” -

Floor plan

Schedule “B” -

Legal Description of the Lands

Schedule “C” -

Defined Terms

Schedule “D” -

Utilities and Services

Schedule “E” -

Rules and Regulations

Schedule “F” - 

Parking License

16.18

Application of Payments

Regardless of any instruction from Tenant, or any written direction or any endorsement on any cheque, transmittal letter or any other form of communication purporting to direct otherwise, Landlord may apply any payment which it receives from Tenant against any amount owed to it by Tenant and if Landlord does not notify Tenant otherwise, each payment will be considered to be a payment on account of the Rent or Sales Taxes that have been unpaid the longest.

16.19

Liability of Landlord

In addition to the limitation on liability elsewhere in this Lease, the liability of Landlord hereunder shall be limited to its interest in the Building from time to time.  If there is more than one person constituting Landlord, the liability of each said person hereunder shall be several and be limited to its percentage interest in the Building.

ARTICLE 17

SPECIAL CONDITIONS

The provisions of this Article 17 supersede any other terms of this Lease.

17.1

Fixturing Period

The Tenant shall be granted exclusive access to Premises for a period of 180 days, commencing February 1, 2007 and ending July 31, 2007.  Tenant shall not be responsible for Minimum Rent and Additional Rent during this period, but all other terms and conditions of the lease shall apply. Premises may be used by the Tenant to complete its leasehold improvements, install its trade fixtures and otherwise to commence operation of its business.

17.2

Free Minimum Rent

The Tenant shall not be responsible for the payment of Minimum Rent for the first twelve (12) months of the Term (the “Free Rent Period”) from August 1st 2007 through to July 31st 2008 inclusive. All other terms and conditions of the Lease shall apply during the Free Rent Period.

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17.3

Measurement

The Landlord shall provide to the Tenant at the Landlord’s expense a Certificate of Measurement from the Landlord’s independent architect or space planner verifying the Rentable Area of the Premises prior to the Commencement Date in accordance with BOMA 1996 method of measurement for office buildings in Canada. If required, the Lease shall be amended to reflect the corrected Rentable Area and Basic Rent and Additional Rent shall be adjusted accordingly.

17.4

Tenant’s Work

The Tenant agrees to accept the premises on an “as is” condition basis subject to the Landlord’s work described herein and modification of Premises at Tenant’s own expense.

17.5

Landlord’s Work

The Landlord shall, at its sole cost and expense, complete or cause to be completed the Tenant’s leasehold improvements (“Landlord’s Work”) in accordance with the Tenant’s space plan and leasehold finishes plan detailing the layout, quality and colour of finishes, to be mutually agreed to between Tenant and Landlord during the conditional period.

The Landlord and Tenant have agreed that the Landlord’s scope of work does not include the following items; voice and data cabling, core drilling floor slab, removal of sliding doors and replacing with new doors and glass side lights and furniture.

The budget will include all costs associated with completing the Landlord’s Work, including but not limited to the cost of constructing the leasehold improvements, the associated design, engineering, consulting and permit fees.  The Landlord’s Work will be complete no later than February 1, 2007, subject to delays caused by the Tenant and/or delays resulting from events that are outside the Landlord’s control.

The Landlord represents and warrants that the heating, existing fire alarm systems, existing smoke detector, ventilating, air conditioning, plumbing, electrical and mechanical systems serving the Premises are, or will, be in good clean, working order and condition as of the Commencement Date.  It further represents and warrants that all Landlord’s Work shall be completed in accordance with the fire and life safety requirements of applicable by-laws, laws and regulations.

17.6

Option to Extend

Tenant shall have the option to extend the Term of this Lease with respect to the Premises, and any Additional Premises, for one (1) additional period of five (5) years on the same terms and conditions, (the “Extension Period”) save only for Term and Minimum Rent as the lease.  The Minimum Rent during such Extension Period shall be equal to fair Market Rent, as defined below.  To exercise each extension option, Tenant shall give to Landlord written notice of Tenant’s intention to extend the Term no later than nine (9) months and no earlier than fifteen (15) months prior to the expiry of the original Term.  If the Minimum Rent for such Extension Period has not be determined by agreement or arbitration prior to the expiry of the original Term, Tenant shall continue to pay annual Minimum Rent payable during the last year of the original Term until such determination is made.  Such Minimum Rent shall be retroactively adjusted to the commencement of the Extension Period upon the final determination of the Minimum Rent for the Extension Period.

“Market Rent” means the rate of Rent per square foot per annum based on a five (5) year term for comparable sized premises similar to the Premises located in buildings similar to the Building in a comparable location as the Building with companies with comparable covenant.  Market Rent shall also take into consideration any inducements, and free rent being offered by other landlords in said buildings.

If, by the date sixty (60) days following the date on which Notice is delivered to the Landlord to exercise the right to renew, the Landlord and the Tenant have been unable to agree in writing upon the Market Rent for the Premises, the Fair Market Rent for the Premises (“the Issue”) shall be determined by arbitration and the following shall apply:

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(1)

Upon notice by either party to the other, the parties shall meet and attempt to appoint a single arbitrator.  If the parties are unable to agree on a single arbitrator, then upon notice given by either party and within five (5) days of such notice, each party shall name an arbitrator and the two arbitrators so named shall promptly thereafter choose a third.  If either party shall fail to name an arbitrator, then the second arbitrator shall be appointed by a Judge of the Superior Court of Justice pursuant to Section 8 of the Arbitration Act, 1991 (Ontario) upon application of the other party.  If the two arbitrators shall fail within five (5) days from their appointment to agree upon and appoint the third arbitrator then, upon application of either party, such third arbitrator shall be appointed by a Judge of the Superior Court of Justice pursuant to Section 8 of the Arbitration Act, 1991 (Ontario).  The provisions of the Arbitration Act, 1991 (Ontario) shall apply to any such application;

(2)

The single arbitrator or the arbitrators shall forthwith hear and determine the Issue.  The decision of the single arbitrator, or if more than one arbitrator, then of a majority of them, shall be made within thirty (30) days after the appointment of the single arbitrator, if that is the case, or the appointment of the third arbitrator, subject to any reasonable delay due to unforeseen circumstances;

(3)

The decision of the single arbitrator or of a majority of them shall be signed and shall be final and binding upon the parties hereto;

(4)

The arbitrator or arbitrators will have the power to obtain the assistance of any expert and to act upon such assistance; and

(5)

The compensation and expenses of the single arbitrator or the arbitrators shall be paid in equal proportions by the parties hereto unless the arbitrator or arbitrators determine otherwise.

17.7

Tenant Access to Building and Premises

During the Term and any Extension Period(s) thereof, the Tenant will be permitted access to the Premises and Common Areas twenty-four (24) hours per day, seven (7) days per week and three hundred and sixty-five (365) days per year.  The Landlord to provide the Tenant and all its employees with sufficient keys or access cards as may be required to accommodate all employees at 1867 Yonge Street on or before the Commencement Date.

17.8

Signage

The Landlord, at its expense, shall install base building signage for the Tenant’s corporate name(s) to all present and planned internal directory boards used for displaying the Building’s tenant roster and suite numbers.  The Landlord shall also allow the Tenant to install, at is expense, signage in the elevator lobby on the 6th and 7th floor of the Building.  Further, should the Landlord erect a podium outside the front of the Building, then the Tenant shall have the right, at no cost, to install Tenant’s corporate name on podium.

17.9

Parking

During the Term and any Extension Period(s) thereof, Landlord shall provide and the Tenant shall take Ten (10) unreserved parking stalls in the parking facility serving the Building. The Landlord shall, subject to availability, provide the Tenant with an additional Two (2) unreserved parking stalls on a month to month basis.

The Tenant or its employees shall sign Landlord’s standard form of parking agreement, which provides for market parking rates as they prevail from time to time.  The current unreserved parking rate is One Hundred and Sixty Dollars ($135.00) per stall per month, plus applicable taxes.

17.10

Restoration

Provided the Tenant is not in default under the Lease, it is understood that the Tenant, at the expiry of the Lease, or Extension Period(s) thereof, as the case may be, will surrender the Premises is substantially the condition in which the Tenant is required to maintain the Premises, reasonably wear and tear excepted, and in accordance to the Lease, without compensation and free from any obligation to remove or demolish or restoring then existing leasehold 

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improvements to a base building condition.  The Tenant shall have the right to remove its trade fixtures, trade equipment, furniture, workstations, telephone switches and security systems such right not to be construed as an obligation.  The Tenant shall be responsible to repair any damages, which may be caused to the Premises or the Building by the removal thereof.

17.11

Right of First Offer

The Tenant shall have an ongoing Right of First Offer, subject to existing rights of other tenants, on any space that becomes available in the Building throughout the Term and any Extension Period(s) (“ROFO Space”).  The Landlord will notify the Tenant, in writing, of the date of availability of the ROFO Space and the terms and conditions upon which the Landlord is prepared to lease such space to the Tenant.  The Tenant will then have ten (10) business days within which to accept the Landlord’s offer and if accepted the parties will enter into a lease amending agreement on the aforesaid terms and conditions and otherwise on the same terms and conditions of the Lease.  The Landlord and the Tenant agree to negotiate reasonably and in good faith during such ten (10) business day period and if the parties fail to execute an offer to lease for the ROFO Space, then the Landlord shall be free thereafter to lease the ROFO Space to any other third party on terms and conditions no more favourable to the Landlord than those offered to the Tenant.

17.12

Right to Assign or Sublet

It is agreed and understood that the Tenant shall have the right to assign the Lease or sublet all or part of the Premises provided that it has received the prior written approval from the Landlord, such approval not to be unreasonably withheld, conditioned, or delayed and in accordance with terms or be agreed in the Lease.  Notwithstanding the above, and provided Tenant is in compliance with the terms and conditions of assigning to a Permitted Transferee, as defined hereafter, no consent shall be required, but Tenant shall provide thirty (30) days prior written notice, for transfers to any corporation which is an affiliate (within the meaning of the Canada Business Corporations Act) of Tenant (“Affiliate”) but only so long as such company remains an Affiliate; or a corporation formed as a result of a merger or amalgamation (within  the meaning of the Canada Business Corporations Act) of Tenant with another corporation or corporations, provided the resulting entity has the same or greater financial capacity as that of the Tenant on the Commencement Date of this Lease (the “Permitted Transferees”).  Any assignee signs an acknowledgement in the Landlord’s standard form that it will abide by all the terms and conditions of the Lease, and provided further that the Tenant remains fully liable for all its covenants and obligations under the Lease.  Further, the Tenant shall have the right to recover the costs involved with the assignment or subletting of the Premises such as, commissions, free rent periods, carrying costs, allowances, demising costs, administrative costs, etc. but all other monies in excess of the Basic Rent shall be paid to Landlord.

17.13

Building HVAC Hours

The Landlord and the Tenant acknowledge that the Building hours of operation are 7:00 a.m. to 6:00 p.m. Monday to Friday, excluding statutory holidays, inclusive. Heating, ventilation and air conditioning shall be provided during the “Building Operating Hours”. Should the Tenant choose to operate its business outside the “Building Operating Hours” the Landlord will make available heating, ventilation and air conditional (HVAC ) to the Tenant, by arrangement with the Landlord’s property management for the building.

It is understood and agreed that HVAC services provided outside of Building Operating Hours will be provided at a cost of Twenty-Five Dollars ($25.00) per hour, per floor.

17.14

Environment

Should it be shown that the Premises (other than by virtue of the Tenant’s acts) contain any such Hazardous Substances, the Landlord shall forthwith remove same, or deal with same in accordance with all applicable laws, in good and proper manner, and certify via independent environmental engineers as to completion of same, all such work to be carried out by the Landlord at its sole cost (and which shall not be included in Operating Expenses).

To the best of the Landlord’s knowledge and belief, without investigation, as at the date hereof, the Building does not contain any toxic of hazardous substances in amounts, forms of 

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proximities that are in contravention of any applicable laws (“Hazardous Substances”).  In the event a valid and enforceable order is made by any competent authority having jurisdiction requiring the removal of Hazardous Substance from the Building, the Landlord will comply with same, or use all reasonable efforts to cause same to be removed, in compliance with applicable laws regarding containment or removal.

IN WITNESS WHEREOF the parties hereto have executed this Lease.

	
	1867 Yonge Street Inc.

Per:__/s/ Les Miller_____________

Name:  Les Miller

Position:  Authorized Signing Officer

I have authority to bind the Corporation.

Per:_/s/ Stephan von Buttlar_______

Name:  Stephan von Buttlar

Position:  Authorized Signing Officer

I have authority to bind the Corporation.

Peace Arch Entertainment Group Inc.

Per:___/s/ Gary Howsam______

Name: Gary Howsam

Position: CEO

I have authority to bind the Corporation.

Per:__/s/ Gary Howsam_______

Name: Gary Howsam

Position: CEO

I have authority to bind the Corporation.

	 

SCHEDULE A

FLOOR PLAN

SCHEDULE B

LEGAL DESCRIPTION OF THE LAND

ALL AND SINGULAR that certain parcel or tract of land situate, lying and being in the City of Toronto, in the Municipality of Metropolitan Toronto, and being composed of the whole of Lot 6, according to a Plan filed in the Office of Land Titles at Toronto as Number M-5, being the whole of the said parcel.

SCHEDULE C

DEFINED TERMS

“Additional Rent” means all sums of money, other than Minimum Rent, payable by Tenant pursuant to the Lease.

“Authorized Use” means offices used for carrying on business activities relating to office business as set forth in section 1.9, and, as a further limitation to the specific purpose herein set forth, Tenant further agrees that the Premises shall not be used for the operation of any of the following:

(a)

any business which is or is similar to the business carried on by a bank, or by a trust, acceptance or loan corporation, or by a corporation or organization engaged in the business of accepting money or deposit or lending money; or

(b)

a restaurant, cafeteria, or cocktail lounge business or the sale or delivery of food or beverages;

(c)

any other activities restricted by the Rules and Regulations;

(d)

a call centre;

(e)

governmental offices or agencies; or

(f)

a communications hub, network node, switch hotel, or central communications base.

“Broker” means the broker set forth in Section 1.11 of the Summary Provisions.

“Building” shall refer to the Land and to the whole of the buildings, structures, improvements, machinery, equipment and Common Areas erected or installed on the Land, including the buildings currently bearing the civic addresses of 1867 Yonge Street, Toronto.

“Capital Taxes” means the amount determined by multiplying each of the “Applicable Rates” by the Capital and totalling the products.  “Capital” is the amount of capital which Landlord determines, without duplication, is invested from time to time by Landlord, the owner(s) of the Building and the Land, any company related to Landlord or the owner(s) within the meaning of the Income Tax Act (Canada), or all of them, in doing all or any of the following: acquiring, developing, expanding, redeveloping and improving the Building and the Land.  Capital will not be increased by any financing or re-financing except to the extent that the proceeds are invested in doing all or any of the foregoing.  “Applicable Rate” is the capital tax rate specified from time to time under any law which imposes a tax in respect of the capital of corporations and for greater certainty includes Large Corporations Tax levied under the Income Tax Act (Canada) as amended from time to time. Each Applicable Rate will be considered to be the rate that would apply if each of Landlord, the owner(s) of the Building and the Land and the related companies referred to above were taxable corporations that employed no capital outside the Province in which the Land is located.

“Commencement Date” means the date specified at Section 1.3 of the Lease;

“Common Areas” means all areas, facilities, systems, improvements or equipment which Landlord provides or designates to service the Building or which are intended for the common use or enjoyment of the tenants of the Building.  Common Areas may or may not be located in the Building and shall include, without limitation, roadways, walkways, sidewalks, landscaped areas, plazas, lobbies, washrooms available for use of tenants and/or public, open or enclosed pedestrian malls, courts, arcades, tunnels, bridges, truck courts, common loading areas and delivery facilities, driveways, customers and service ramps, parking facilities, whether above ground or underground, stairways, escalators and elevators available for use by the public or by tenants generally, fire detection, fire prevention and communication facilities, common pipes, electrical, plumbing and other common mechanical and electrical installations, equipment, and services, public seating facilities, and all other areas and facilities from time to time provided, designated, or made available by Landlord for the use of Tenant and other tenants or members of the public, Landlord expressly reserving the right to eliminate, substitute or rearrange any or all 

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of the areas so provided and designated without claim by Tenant in respect of any such elimination, substitution or rearrangement.

“Environmental Laws” means the Laws exclusively or partially governing the environment and its protection or conservation.

“Expert” means any professional consultant appointed by Landlord who, in the reasonable opinion of Landlord, is qualified to perform the specified function and where necessary is licensed to perform a specified function in the Province of Ontario.

“Expiration Date” means the date set forth in Section 1.4 of the Summary Provisions.

“Gross Rentable Area” or “GRA” means, in connection with the Premises, the area of the Premises expressed in square feet (or square meters) and measured in accordance with BOMA 1996 methods.  Gross Rentable Area in connection with the Building means the total of the Gross Rentable Areas of all leased and leasable space (excluding space comprising Common Areas in the Building), measured and calculated for each particular space as mentioned above.

“Improvements” means any alterations, repairs, works, replacements, changes, additions or improvements, including, without limitation any connection of apparatus to the electrical system (other than a connection to an existing duplex receptacle), to the plumbing lines, to the heating, the air-conditioning or the sprinkler system or any installation of electrical sub-meters.

“Indemnifier” means a person or entity that signs an indemnity agreement in respect of Tenant’s obligations under this Lease.

“Land” shall refer to the land described in Schedule “B”,

“Landlord’s Costs” means with respect to any cost incurred by Landlord, the actual amount thereof plus fifteen percent (15%) thereof on account of management and overhead.

“Laws” means:

(a)

constitutions, treaties, acts, codes, ordinances, orders, decrees, edicts, rules, by-laws and regulations, whether municipal, provincial, federal, national, international, foreign or other;

(b)

judgments, orders, writs, injunctions, rulings, decrees, ordinances and sentences of a tribunal, court, a government agency or a regulation department;

(c)

policies, voluntary restraints, practices or guidelines of a government agency; and

(d)

all provisions of the foregoing,

which bind or affect the party or Person mentioned therein. The term “Laws” includes Environmental Laws.

“Lease” refers to this lease.

“Minimum Rent” means the minimum rent set forth in Section 1.5 and subject to adjustment as set forth in Section 3.2.

“Mortgagee” means a mortgagee (including a trustee for bondholders) of the Landlord having a mortgage registered against the Building or part of it or a ground or underlying lessor.

“Normal Business Hours” means such hours on such days as Landlord determines and being, on the date hereof, from 7:00 A.M. to 6:00 P.M. of each business day (Saturday, Sunday and holidays excluded).

“Notice” has the meaning set forth in Section 17.12.

“Operating Expenses” shall mean all costs incurred by Landlord in the management, operation, maintenance, repair, replacement, insurance, or supervision of the Building and the Common Areas, including without limitation, the following:

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(a)

amounts paid to, or reasonably attributable to the remuneration of, all personnel (whether on or off-site and whether employed by Landlord or a management company), involved in the ownership, administration, operation, management, maintenance, repair, replacement, security, supervision or cleaning of the Building, including reasonable fringe benefits and other employment costs;

(b)

telephone, telecopier and stationary;

(c)

cleaning, building and cleaning supplies, uniforms and dry cleaning, cleaning of windows and exterior curtain wall;

(d)

snow removal, landscaping, and lighting in the Common Areas;

(e)

garbage waste collection and disposal;

(f)

electricity, water, steam and other utilities, except as chargeable separately to Tenant under the Lease, and any taxes on utilities which are not recoverable from Tenant under other provisions of the Lease;

(g)

policing, security, daycare, concierge and other tenant services;

(h)

rental of any equipment, signs and decorations;

(i)

heating, ventilating and air-conditioning the Building, including without limitation the cost of operating, repairing, maintaining, replacing and inspecting the machinery, equipment and other facilities, and the cost of providing condenser water from cooling towers or chilled water for the HVAC equipment;

(j)

insurance as may be carried by Landlord, such costs to include without limitation premiums, deductibles and other related charges, in respect of or attributable to the Building or related thereto including without limitation all risk insurance against fire and other perils and liabilities regarding casualties, injuries and damages, boiler and machinery insurance and rental income insurance;

(k)

conservation of energy programs referred to in Schedule “D”;

(l)

depreciation or amortization (over the useful life or such other period as reasonably determined by Landlord) of the costs of:

(i)

all capitalized machinery, equipment, or supplies owned by Landlord;

(ii)

replacements of all facilities serving or comprising the Building which by their nature require periodic replacement and which are not charged fully in the Rental Year in which they are incurred; and

(iii)

repairs, modifications and Improvements which are not charged fully during the Rental Year in which they are incurred.

(m)

interest calculated at three percentage (3%) points above the average Prime Rate upon the unamortized portion of the cost of all such items being amortized or depreciated;

(n)

repairs, replacements, modernization, additional equipment or Improvements required by law or by Landlord’s insurers or which, in Landlord’s reasonable opinion, may reduce Operating Expenses or are for the benefit or safety of Building users, including, without limitation, the cost of communications equipment installed for the potential benefit of the tenants in general and not for exclusive use by a particular tenant;

(o)

professional fees except as they relate to the leasing of the Building;

(p)

Capital Taxes;

(q)

any Taxes not otherwise charged directly to Tenant;

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(r)

repairs, maintenance and replacements of every nature to the Building; and

(s)

market rentals on all areas utilized by Landlord or its manager for the operation and management of the Building

Operating Expenses shall exclude the following:

(a)

wages, salaries and payroll costs of anyone not doing work associated with maintaining, repairing, operating, administering and managing the Building;

(b)

damage claims or legal fees arising from unjust dismissal or wrongful termination of employees or contracts of service by the Landlord;

(c)

fees for advisory services incurred by the Landlord not directly attributable to the maintenance, repair, operation, management and insuring of the property, such as asset management fees and annual property valuation or appraisal fees;

(d)

market research fees;

(e)

charitable, civic or political donations of any kind whatsoever, direct or indirect;

(f)

board of directors’ fees or related expenses;

(g)

all association fees and dues paid by the Landlord in respect of membership in professional organizations or corporations;

(h)

Landlord’s general corporate overhead;

(i)

Landlord’s taxes, limited to, any income taxes, large corporations taxes, capital taxes, business taxes (other than those business taxes payable by the Tenant, if any) or any other similar taxes imposed or levied by any governmental authority whatsoever, and any penalties relating to the late payment of Landlord’s taxes;

(j)

all fines, suits, claims, demands, actions, costs, charges and expenses of any kind or nature for which the Landlord is or may become liable by reason of any neglect or wilful act or omission on the part of the Landlord or those for whom it is in law responsible, or by reason of any breach, violation or non-performance by the Landlord of any of the covenants, terms or provisions contained in the Lease;

(k)

costs or expenses incurred in the repair of defects in the original construction or expansion of any part of the Building;

(l)

costs or expenses arising from the negligence of the Landlord or any person for whom the Landlord is at law responsible;

(m)

any costs or expenses incurred by the Landlord as a result of any default of other tenants in the Building;

(n)

any costs or expenses incurred to satisfy the renewal or extension requirements of the Tenant;

(o)

all late payment penalties, and interest in respect of amounts otherwise included in Operating Expenses;

(p)

any leasing commissions, demolition or construction costs, tenant inducements, tenant allowance and leasehold improvement costs;

(q)

promotion and advertising costs related to the leasing of premises in the Building;

(r)

promotion and advertising costs and any merchants’ association contributions by the Landlord relating to the retail components of the Building;

(s)

any profit or mark-up by the Landlord or any affiliate of the Landlord in providing any service or goods or supplies the cost of which is included in 

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Operating Expenses, or any amount paid by the Landlord to any affiliate in excess of competitive market rates;

(t)

professional fees (including legal fees) for negotiating, enforcing or interpreting the Landlord’s rights under leases for any tenants or occupants of the Building;

(u)

costs incurred by the Landlord to correct work done in the Building which was initially completed by or on behalf of the Landlord but not completed in compliance with then-current applicable laws;

(v)

any bad debt loss, rent loss or reserves for bad debts or rent loss;

(w)

any costs or expenses related to the testing for, removal, transportation or storage of any hazardous substances where in each case, such testing, removal, transportation or storage is required as a result of non-compliance with applicable laws in existence prior to the commencement date;

(x)

any shortfalls resulting from a less than one hundred percent (100%) recovery of the operating costs due to any arrangement entered into by the Landlord and any other tenant in the Building pursuant to which such tenant is responsible for a lesser proportion of operating costs or other charges attributable to such tenant in relation to the premises occupied by such tenant than the Tenant is responsible for in relation to the Premises;

(y)

except as specifically provided in this Lease, any administrative or management fees;

(z)

the cost of Landlord’s work which the agreement between the parties expressly provides is to be performed at the expense of the Landlord;

(aa)

any ownership related (as distinct from operational) business restructuring or re-organization costs relating to changes in the ownership of the Building; and

(bb)

Goods and Services Tax paid by the Landlord on goods and services acquired by the Landlord in connection with the maintenance, repair, replacement, operation, management and insuring of the Building.

In computing Operating Expenses, if less than one hundred percent (100%) of the rentable area of the Building is occupied during any period for which a computation must be made, the amount of Operating Expense may be increased to reflect the additional costs and recoveries that would have been incurred or received had one hundred percent (100%) of the rentable area of the Building been occupied during that period provided that such increase does not result in profit to the Landlord.  The foregoing shall apply only to those costs and recoveries which vary with occupancy of rentable premises in the Building such as cleaning costs, garbage removal costs and utility costs (provided the Landlord will not adjust those premises costs that it recovers directly from tenants).

(cc)

.

“Person” includes any individual, firm, partnership, corporation or other entity or any combination thereof.

“Premises” means those certain premises described in Section 1.1, with all Improvements, installations and equipment which are attached thereto at the Commencement Date or during the Term.  The boundaries of the Premises shall extend vertically, from the upper surface of the structural subfloor to the lower surface of the suspended ceiling vertically, and horizontally from the inside face of the glass in the permanent exterior building walls (whether or not the glass extends to the floor), or to the inside finish of those walls where they contain no glass, to the face of permanent interior walls and to the centre line of demising partitions.

“Prime Rate” means the rate of interest announced by the Royal Bank of Canada as its prime rate for commercial corporate borrowers of demand loans in Canadian dollars.

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“Proportionate Share of Operating Expenses” means the percentage set forth in Section 1.6, subject to Landlord’s adjustment, and is based on a proportion established by Landlord between Gross Rentable Area for the Premises and the Gross Rentable Area for the Building.

“Proportionate Share of Taxes” means the percentage set forth in Section 1.8, subject to Landlord’s adjustment and is based on a proportion established by Landlord between Gross Rentable Area for the Premises and the Gross Rentable Area for the Building.

“Rent” means all sums of money payable by Tenant pursuant to the Lease.

“Rental Year” means the calendar year.  However, the first Rental Year shall mean the period from the Commencement Date to December thirty-first, and the final Rental Year shall mean the period from the end of the next-to-last Rental Year to the date of termination of this Lease. Landlord may by written Notice to Tenant specify an annual date upon which each subsequent Rental Year will commence, in which event the then current Rental Year for such purposes will terminate on the day preceding such date.

“Rules and Regulations” means the rules and regulations adopted by Landlord pursuant to Section 17.1.  The Rules and Regulations in force on the Commencement Date of the Lease are those set out in Schedule ”E”.

“Sales Taxes” means any and all goods and services, sales, value-added, multi-stage consumption, use Taxes (such as, without limitation, the Goods and Services Tax (G.S.T.) or any other similar taxes imposed on Landlord or Tenant with respect to Rent, to the Lease, to the goods and services provided by Landlord under the Lease including without limitation the rental of the Premises or administrative services provided to Tenant or to tenants generally.

“Specified Date” means such date as may be specified by Notice from Landlord to Tenant.

“Taxes” means all real estate taxes, water or services taxes, rates and assessments, and other taxes, charges, duties, levies or fees imposed by any lawful authority (whether municipal, provincial, parliamentary or otherwise) against the Building or any part thereof (including any accessories and Improvements), or in respect of the Common Areas, or upon Landlord in respect thereof, including, where applicable, all taxes, surtaxes, rates, assessments, duties, levies, fees, charges and impositions, general and special, levied or imposed for schools, public betterment, general or local improvements, save and except for Landlord’s Capital Taxes (which are included in Operating Expenses) and income taxes.

If the system of taxation now in effect is altered and any new tax, surtax, or levy whatsoever is imposed or levied on the Building or its owner(s) or on revenues from the Building, in substitution for or in addition to Taxes presently levied or imposed on immovables in the City where the Building is located, the term “Taxes” shall include such new tax, surtax or levy.

Landlord shall have the right from time to time to allocate and re-allocate Taxes among areas within the Building, provided such allocations are reasonable and, Landlord may exclude from the denominator in the proportionate share fraction, the Gross Rentable Area of any space that is not taxable or is exempt from Taxes.  In calculating Taxes for the Building, the Landlord will be entitled to include all amounts that would have been included as Taxes if the Building were fully occupied and fully taxable throughout the Rental Year in respect of which Taxes are calculated as commercial property.

“Term” means the period starting on the Commencement Date and terminating on the Expiration Date, subject to the terms and conditions set forth herein.

SCHEDULE D

UTILITIES AND SERVICES

1.

Cleaning

Landlord shall, Monday through Friday except holidays in each week, cause the office portion of the Premises, excluding storage areas and private washrooms, to be adequately cleaned, provided the same are kept in order by Tenant.  Such cleaning may be done between the hours of 5:00 P.M. and 6:00 A.M.  Windows shall be cleaned as Landlord shall determine.

2.

Elevators

(a)

Landlord shall provide and maintain in working order automatic passenger elevators for operation during Normal Business Hours and limited elevator service at other times.  Landlord shall be under no obligation to provide operators for any such passenger elevators and the fact that Landlord may in its discretion provide operators shall in no way obligate Landlord to continue such provision.

(b)

Freight service will be provided at such hours as Landlord may designate, and shall be subject to a charge as determined by Landlord.

(c)

Tenant shall have the use of the elevators in common with others but Landlord shall not be liable for any damage caused to Tenant and its officers, agents, employees, servants, visitors or licensees by such others using the elevators in common.

3.

Electric Current

(a)

Landlord, subject to its ability to obtain the same from its principal supplier and to the needs of Landlord and co-tenants, shall cause the Premises to be supplied with electric current for lighting and power.  Landlord shall permit its wires and conduits, (being normal office lighting and duplex receptacles) to be used for such purpose.

The obligation of Landlord hereunder shall be subject to any rules or regulations to the contrary of the authority providing electricity or any other municipal or governmental authority.

(b)

As an alternative to the foregoing and at Landlord’s discretion, Tenant shall arrange at its expense, directly from the authority providing the same, for the supply of electric current which Tenant shall pay for directly to such authority.  Subject to the needs of Landlord and co-tenants, Landlord shall permit its wires and conduits, (being normal office lighting and duplex receptacles) to be used for such purpose.

(c)

Tenant’s use of electric current shall never exceed the safe capacity of existing electrical wiring in the Premises.  Any special wires and conduits for Tenant’s special equipment and any required sub-meters shall be supplied and installed by Tenant at its expense.

(d)

At Landlord’s option, Tenant shall purchase from Landlord all lamps, bulbs and ballasts used in the Premises, and to pay for such lamps, bulbs and ballasts and the cost of installation thereof.  Any such payment by Tenant shall constitute final acceptance by Tenant of the price therefor and shall be final and binding and without return for any reason.

4.

Energy Conservation

Tenant shall co-operate with Landlord and shall participate in the implementation of programs relating to the conservation of energy and recycling of any materials in the Building.

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5.

Drinking Water, Towels and Other Services

At Landlord’s option, Landlord shall be the sole supplier of drinking water, towels and any other services or materials, the right to furnish any such services or materials being hereby expressly reserved to Landlord.  When such services or materials shall be furnished by Landlord, prices shall be competitive and accounts therefor shall be rendered by Landlord at such time as it may elect and shall be immediately payable by Tenant as Additional Rent.  Any such payment by Tenant shall constitute final acceptance by Tenant of the price therefor and shall be final and binding and without return for any reason.

In the event that Landlord should elect not to furnish any such services or materials, only persons authorized by Landlord will be permitted to furnish them to Tenant at Tenant’s sole cost and expense, and only at hours and under regulations fixed by Landlord.

6.

Heating or Air-conditioning

(a)

Landlord shall provide during Normal Business Hours a constant supply of air that is filtered and humidified and either heated or cooled as conditions may require.

(b)

Landlord shall be under no obligation to operate the air-conditioning system in excess of what may be, in its opinion, reasonable and normal in the circumstances, provided always, however, that the obligations of Landlord hereunder shall be conditional upon the following:

(i)

Tenant keeping all exterior windows closed at all times and blinds fully drawn on all windows exposed to the sun during the cooling cycle, and keeping all registers free from obstruction so as to permit the proper flow and circulation of air therefrom.

(ii)

the average amount of electrical energy consumed by lights and machines in the Premises not exceeding two (2) Watts per square foot; and

(iii)

the occupancy of the Premises not exceeding one person per hundred square feet of space.

(c)

All individual controls required by Tenant shall be installed at Tenant’s expense.

(d)

In case Landlord deems it necessary to run portions of the system through the Premises in order to serve other tenants, Tenant shall permit Landlord and its agents and contractors to perform such work in the Premises.

(e)

Nothing contained in this Schedule or in the Lease shall be deemed to create any obligation of Landlord to furnish electricity, heating, air-conditioning or any other services to Tenant to the extent these are required by the use in the Premises of special equipment such as computers or other electrical or similar equipment or by the existence in the Premises of electrical, computer, storage or equipment rooms.

SCHEDULE E

RULES AND REGULATIONS

1.

Tenant shall not perform any acts or carry on any practices which may, in the reasonable opinion of Landlord, tend to lower the character of the Building, damage or injure the Premises or be a nuisance or menace to other tenants or users of the Building or make or permit any improper noises, odors, smoke or vibrations in the Building or in the Premises and shall forthwith upon request by Landlord discontinue all acts or practices in violation of this clause and repair any damage or injury caused thereby.  Without limiting the generality of the foregoing, Tenant shall utilize no medium which can be heard or experienced outside the Premises.

2.

Tenant shall not cause unnecessary labour by reason of carelessness and indifference to the preservation of good order and cleanliness in the Premises and in the Building.

3.

No animals shall be brought or kept in or about the Building.

4.

Canvassing, soliciting and peddling in the Building is prohibited and Tenant shall co-operate to prevent the same.

5.

The sidewalks, entries, passages, escalators, elevators and staircases shall not be obstructed or used by Tenant or its clerks, servants, agents, visitors or licensees for any other purpose than ingress to and egress from the Premises.  Nothing shall be thrown by Tenant, its clerks, servants, agents, visitors or licensees, out of the windows or doors, or into the entries, passages, escalators, elevators or staircases of the Building.  Landlord reserves entire control of the sidewalks, entries, passages, escalators, elevators, staircases, and corridors which are not expressly included within this Lease, and shall have the right to make such repairs, replacements, alterations, additions, decorations and improvements and to place such signs and appliances therein, as it may deemed advisable, provided that ingress to and egress from the Premises is not unduly impaired thereby.

6.

Tenant shall use and cause any third party to use the facilities designated by Landlord to receive, deliver, or move any material, furniture or equipment within, in or out of the Premises or the Building, as the case may be.

7.

Landlord shall have the right to prohibit any advertising of or by Tenant, which in its opinion, tends to impair the reputation of the Building or its desirability as a building for offices or for financial, insurance and other institutions and businesses of a like nature.  Upon written Notice from Landlord, Tenant shall refrain from or discontinue such advertising.

8.

No sign, advertisement or notice shall be inscribed, painted or affixed on any part of the outside or inside of the Building, except on the directories and doors of offices, and then only of such size, colour and style as Landlord shall determine and approve.

9.

The sashes, sash-doors, windows, glass doors and the lights and skylights that reflect or admit light into the halls or other places in the Building shall not be covered or obstructed, nor shall anything, whether books, packages, flower pots or any other articles whatsoever, be placed upon or hung from the window sills.  Without limiting the generality of the foregoing, Tenant shall not apply or attach to the windows of the Premises any material, substance or thing, of any nature whatsoever and shall specifically refrain from applying any film, solar or otherwise, to the said windows.

10.

Tenant shall not sell or permit the sale at retail, of newspapers, magazines, periodicals, theatre tickets, lottery tickets or such articles as are customarily sold in tobacco shops, soda fountains or lunch counters, or any other goods, wares or merchandise whatsoever, in or from the Premises.  Tenant shall not carry on or permit or allow any employee or other person to carry on the business of a restaurant, a cafeteria, a cocktail lounge, or food or beverages delivery or sale, or any business other than that specifically provided for in this lease.

11.

Tenant shall not allow smoking in the interior Common Areas (including without limitation in staircases, washrooms, and emergency exits), except in areas, if any, expressly designated by Landlord for such purpose.  Tenant is encouraged to adopt a 

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similar non-smoking policy in respect of the Premises. If Tenant allows smoking in the Premises, Tenant shall be responsible for complying with all applicable Laws and for the installation, at its cost, of an adequate ventilation system, to Landlord’s satisfaction.

12.

The workmen of Landlord must be employed by Tenant at Tenant’s expense for repairs, painting, lettering, interior moving and other similar work that may be done on the Premises.

13.

Tenant shall not mark, paint, drill into or in any way deface the walls, ceilings, partitions, floors, woods, stone or iron work, or any other appurtenance to the Premises.

14.

Tenant shall not install window shades of any colour other than the typical colours from time to time approved by Landlord.  Tenant shall not install curtains or venetian blinds without the approval of Landlord.

15.

Tenant shall not lay linoleum, rubber, cork or other floor covering so that the same shall come in direct contact with the floor, and if linoleum, rubber, cork or other floor covering is desired to be used, an interlining of builder’s deadening felt shall be first affixed to the floor by a paste or other adhesive which may be readily removed with water.

16.

The water and wash closets and urinals shall not be used for any other purpose than the purposes for which they were respectively constructed, and the expense of any breakage, stoppage, or damage resulting from a violation of this rule by Tenant or its clerks, agents, servants, visitors or licensees, shall be borne by Tenant.

17.

If any apparatus used or installed by Tenant requires a permit as a condition for installation, Tenant must file such permit with Landlord.

18.

All persons entering and leaving the Building between the hours of 7:00 P.M. and 8:00 A.M. on business days, and all persons entering and leaving the Building on Saturdays, Sundays and holidays, shall register with Landlord in a manner established from time to time by Landlord.  Between the hours of 7:00 P.M. and 8:00 A.M. on business days, and on Saturdays, Sundays and holidays, Landlord will have the right to prevent any person from entering or leaving the Building unless provided with a key or an electronic pass to the Premises to which such person seeks entrance, or a pass issued and signed by Tenant upon the letterhead of Tenant and countersigned by Landlord.  Any persons found in the Building at such times without such keys or passes will be subject to the surveillance of the employees and agents of Landlord.  This rule is made for the protection of Tenant, but Landlord shall be under no responsibility for failure to enforce it.

19.

Landlord shall have power to prescribe the weight and position of safes and other heavy equipment, which shall be placed and stood only on such plank strips or skids or element of the structure, as Landlord may prescribe, to distribute the weight properly.  All damage done to the Building by taking in or moving out a safe or any other Article of Tenant’s equipment or merchandise, or due to its being on the Premises, shall be repaired at the expense of Tenant.  The moving of safes shall occur only during such hours as Landlord may from time to time establish and upon previous Notice to Landlord, and the persons employed to move the safes in and out of the Building must be acceptable to Landlord.  Safes will be moved through the halls and corridors only upon steel bearing plates.  No freight or bulky matter of any description will be received into the Building or carried in the elevators, except during hours approved by Landlord.

20.

Notice shall be given by Tenant to Landlord with respect to Tenant’s intention to place any heavy material or thing within the Premises and all details and specifications thereof shall be supplied to Landlord’s structural engineers for its approval.  Any and all engineer’s costs for consultation shall be borne by Tenant.

21.

Tenant agrees to observe all reasonable Rules and Regulations regarding the security and protection of the Building and the tenants thereof including without limitation the right of Landlord to search the Person of and/or any Article carried by any Person entering or leaving the Building.

22.

The Tenant shall not bring into or store in the Premises any inflammable liquid or dangerous or explosive materials, or cleaners, solvents or other chemicals or matters 

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which may be considered as pollutants or contaminants or as hazardous wastes under any laws, by-laws, ordinances or regulations, or any items or fixtures that, by reason of their nature, weight, size or use, may constitute a nuisance (including, without limitation, noises, vibrations or offensive odours) or damage or endanger any part of the Building.

23.

Tenant agrees that the Rules and Regulations hereinabove stipulated, and such other and further Rules and Regulations as Landlord may make, being in its judgment needful for the reputation, safety, care or cleanliness of the Building and Premises, or the operation, maintenance or protection of the Building and its equipment, or the comfort of tenants, shall be faithfully observed and performed by Tenant, and by its clerks, servants, agents, visitors and licensees.  Landlord shall have the right to change said rules and to waive in writing or otherwise, any or all of the said rules in respect of any one or more tenants, and Landlord shall not be responsible to Tenant for non-observance or violation of any of said Rules and Regulations by any other tenant or other Person.  The provisions of the Rules and Regulations shall not be deemed to limit any obligation or provision of this Lease to be performed or fulfilled by Tenant.

SCHEDULE F

PARKING LICENSE – 1867 YONGE STREET, TORONTO

THIS AGREEMENT MADE the 20th day of October, 2006.

BETWEEN:

1867 YONGE STREET INC.

(herinafter referred to as the “Landlord”)

OF THE FIRST PART

PEACE ARCH ENTERAINMENT GROUP INC.

(herinafter referred to as the “Licensee”

OF THE SECOND PART

WHEREAS the Landlord and the Licensee have entered into a Lease dated the 20th day of October, 2006, (hereinafter referred to as the “Lease”) pursuant to which the Landlord leased to the Licensee Premises at 1867 Yonge Street in the City of Toronto (the “Development/ Building”);

WHEREAS the Licensee is desirous of securing Ten (10) unreserved parking spaces located in the Development/Building;

NOW WITNESSETH THERFOR  that in consideration of the covenants herein contained and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto covenant and agree as follows:

1.

The Landlord grants a license to the Licensee permitting the Licensee to use Ten (10) unreserved parking spaces in the underground parking area of the Development (the “Parking Area”) on a month-to-month basis commencing on the 1st day of August, 2007.  This license may be terminated by either party at the end of any month by such party giving the other party thirty (30) days written notice of its intention to terminate the license.

2.

If during the Term the Tenant leases additional space in the Development/Building (other than storage space), whether by option or otherwise, it shall have the option of increasing the number of such underground unreserved parking spaces to which it is entitled to use by that number which is obtained when the Rentable Area of such additional space is divided by the building square feet and the result thereof is rounded to the nearest whole number, provided that such parking spaces are available.

3.

The Licensee shall pay to the Landlord (or to the parking operator if the Landlord so directs) throughout the Term for such parking spaces a parking fee at the prevailing rates being charged for parking permits in the Parking Area from time to time, which parking fee is at the present rate of One Hundred and Thirty-Five Dollars ($135.00) per month plus applicable taxes per unreserved space.  Non-payment therof shall be treated as non-payment of Rent (as defined in the Lease) under the Lease.

4.

The parking fee payable pursuant to this Agreement shall be paid monthly in advance on the first (1st) day of each and every month.

5.

It is understood and agreed that the use of each such parking space by the Licensee is subject to and qualified by the following provisions:

(a)

the parking spaces are for the use of one (1) vehicle per space by the Licensee and accordingly the Licensee will be issued with one (1) parking permit per parking space by the Landlord or the operator of the Parking Area, which permit shall remain the property of the Landlord or the operator of the Parking Area, as the case may be, if the Landlord exercises its right to revoke the Licensee’s privileges to which that permit relates;

- 2 -

(b)

the Licensee shall not be entitled to assign, sub-license or part with possession of its right to use any or all or any of the said parking spaces;

(c)

the Licensee’s use of the Parking Area shall be subject to all rules and regulations established from time to time;

(d)

the use by the Licensee of the Parking area is subject to the exclusive control of the Landlord;

(e)

the Licensee agrees to indemnify the Landlord against all liability, claims, damages or expenses due to or arising out of any action or omission or neglect by the Licensee, its agents, servants, invitees or licensees on or about the Parking Area or due to or arising out of any breach by the Licensee of the provisions of this Agreement or any rules or regulations established from time to time by the Landlord or the operator of the Parking Area;

(f)

the Licensee shall use the Parking Area at is sole risk, and the Landlord will not be liable for any loss, injury or damage caused to persons using the Parking Area or to automobiles or their contents or any other property, the responsibility for insuring against any such loss, injury or damage being that of the Licensee who hereby waives on behalf of itself and its insurers any rights of subrogation against the Landlord; and

(g)

the Licensee shall pay to the Landlord (or to the operator of the Parking Area) a replacement fee for each and every access card that is lost or misplaced or damaged. This replacement fee is currently Twenty-Five Dollars ($25.00) and is subject to change from time to time.

6.

All rights and liabilities herein granted to, or imposed upon the respective parties hereto, extend to and bind the successors and assigns of the Landlord and the Licensee, as the case may be. No rights, however, shall enure to the benefit of any assignee of the Licensee unless the assignment to such assignee has been consented to by the Landlord in writing. If there is more than one licensee, they are all bound jointly and severally by the terms, covenants and conditions herein.

IN WITNESS WHEREOF the parties hereto have executed this Agreement.

		
	LANDLORD:

	1867 YONGE STREET INC.

Per: /s/ Les Miller

Name: Les Miller

Position:COO

I have authority to bind the Corporation.

	LICENSEE:

	PEACH ARCH ENTERTAINMENT GROUP INC.

Per: /s/ Gary Howsam

Name: Gary Howsam

Position:CEO

I have authority to bind the Corporation.

Per: /s/ Gary Howsam

Name: Gary Howsam

Position:CEO

I have authority to bind the Corporation.CC Filed by Filing Services Canada Inc. 403-717-3898

 

PEACE ARCH LA, INC.

MARINA TOWERS – NORTH

TABLE OF CONTENTS

LEASE

1.

BASIC LEASE PROVISIONS

1

2.

TERM

3

3.

BASIC MONTHLY RENT

4

4.

TAX RENT

4

5.

OPERATING EXPENSE RENT

5

6.

CAPITAL EXPENSE RENT

9

7.

SECURITY DEPOSIT

10

8.

USE

11

9.

UTILITIES & SERVICES

11

10.

PARKING

12

11.

REPAIR

13

12.

CONDITION OF PREMISES

13

13.

ENTRY BY LANDLORD

14

14.

ALTERATIONS

14

15.

HAZARDOUS MATERIALS

15

16.

LIENS

16

17.

BROKERS

16

18.

INSURANCE

16

19.

INDEMNITY

17

20.

DAMAGE & DESTRUCTION

18

21.

EMINENT DOMAIN

19

22.

INTERRUPTION OF USE

19

23.

SUBORDINATION

20

24.

ESTOPPEL CERTIFICATE

21

25.

BUILDING PLANNING

21

26.

TENANT TRANSFERS

22

27.

BANKRUPTCY & INVOLUNTARY ASSIGNMENT

24

28.

FINANCIAL STATEMENTS

24

29.

HOLDING OVER

25

30.

DEFAULT

25

31.

REMEDIES

26

32.

ATTORNEYS’ FEES

26

33.

WAIVER OF JURY TRIAL

26

i

34.

NOTICE

27

35.

MISCELLANOUS

27

36.

OPTION TO RENEW

29

EXHIBIT A – LOCATION PLAN

EXHIBIT B – LEGAL DESCRIPTION

EXHIBIT C – RULES AND REGULATIONS

EXHIBIT D – NOTICE OF ACM

EXHIBIT E –
WORK LETTER

ii

LEASE

Landlord hereby leases to Tenant the Premises, together with the nonexclusive right to use the Common Areas, upon and subject to the following terms, covenants and conditions:

1.

BASIC LEASE PROVISIONS

1.1

For purposes of this Lease, these certain provisions are defined as follows:

  
							
	(a)

	Date:

	November
    21, 2006.

	(b)

	Landlord:

	Marina Airport Building, Ltd., a California limited partnership.

	(c)

	Tenant

	Peace Arch LA, Inc., a California corporation.

	(d)

	Building:

	4640 Admiralty Way, Marina Del Rey, California, deemed to contain:

	 
	 
	184, 540 RSF

	(e)

	Premises:

	Suite 710, located on the 7th floor of the Building and deemed to contain:

4,192 RSF

	(f)

	Use:

	General administrative non-governmental office use consistent with that of a first-class office building.

	(g)

	Scheduled Term:

	Sixty-one  (61) months, plus one Renewal Option, as set forth in Article 36.

	(h)

	Scheduled Commencement Date:

	November 1, 2006

	(i)

	Basic Monthly Rent:

	The following amounts, payable in accordance with Article 3:

	 
	Months

	Basic Monthly Rent

	Basic Monthly Rent/RSF

	Basic Annual Rent

	Basic Annual Rent/RSF

	 
	1 – 12

	$11,318.40

	$2.70

	$135,820.80

	$32.40

	 
	13 – 24

	$11,657.25

	$2.78

	$139,887.04

	$33.37

	 
	25 – 36

	$12,006.59

	$2.86

	$144,079.04

	$34.37

	 
	37 – 48

	$12,366.40

	$2.95

	$148,396.80

	$35.40

	 
	49 – 61

	$12,740.19

	$3.04

	$152,882.24

	$36.47

  

It is provided that if Tenant is not in default, no Basic Monthly Rent or charges for Tenant’s Parking Allotment shall be due for month 1 (the “Abatement Period”), provided further that Tenant shall pay any charges for extra utilities and services, Late Charges, and all other amounts due under this Lease during the Abatement Period.

  
				
	 
	 
	 

	(j)

	Proportional Share:

	2.27%

	(k)

	Base Year:

	The calendar year 2007.

	(l)

	Initial Deposit:

	$12,740.19

	(m)

	Procuring Broker:

	Studley, Inc.

	(n)

	Parking Allotment:

	12 passes, 2 of which shall be for reserved spaces.

	(o)

	Liability Limit:

	$2 million for any one accident or occurrence.

  

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1

  
				
	(p)

	Business Hours:

	8:00 a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. to 1:00 p.m. on Saturdays excepting holidays generally recognized in the State of California.

	(q)

	Construction Allowance:

	$107,300.00

	(r)

	Notice Address for Landlord:

	Marina Airport Building, Ltd.

601 South Figueroa Street, Suite 2650

Los Angeles, California 90017

Attention:  Vice President

	 
	

	With a copy to:

Marina Airport Building, Ltd.

4640 Admiralty Way, Suite 701

Marina del Rey, California 90292

Attention:  Property Manager

	(s)

(t)

	Rent Payment Address:

Notice Address for

Tenant:

	Please send all rent payments to:

Marina Airport Building, Ltd.

Marina Building File 50181

Los Angeles, California 90074-0181

(Prior to occupancy):

Peace Arch

228 Main Street, Suite 14

Venice Beach, California 90291

Attention: John Flock

With a copy to:

Advisors LLP

11911 San Vicente Boulevard, Suite 206

Los Angeles, California 90049

Attention: Robert Plotkowski

(Following occupancy):

Peace Arch

4640 Admiralty Way, Suite 710

Marina del Rey, California 90292

Attention: John Flock

With a copy to:

Advisors LLP

11911 San Vicente Boulevard, Suite 206

Los Angeles, California 90049

Attention: Robert Plotkowski

  

1.2

Land means the site upon which the Building, Common Areas and other related improvements, facilities, service areas and equipment are located (as legally described in Exhibit B attached hereto).

1.3

Common Areas means those interior and exterior portions of the Building and such other areas, facilities and equipment serving the Building, that are designated by Landlord for the common use or benefit of tenants, tenants’ employees, customers and invitees, and/or members of the general public.  Such areas, facilities and equipment includes, without limitation:  entrances; exits; lobbies; elevators; stairways; corridors; passageways; public washrooms; parking 

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2

facilities; loading areas; plazas; private sidewalks; landscaped areas; walkways; mechanical, electrical and telephone rooms; utilities and related facilities; electrical, mechanical, sprinkler, fire detection or prevention equipment, security equipment, and related facilities; duct shafts; operating, maintenance and storage areas; and service areas, equipment and facilities.

1.4

Leasehold Improvements means all non-structural improvements in and to the Premises, including, without limitation:  partitions within the interior of the Premises and the interior one-half of partitioning demising the Premises from adjacent premises (whether slab-to-slab, ceiling-height or a lesser height), and the fixtures, doors, interior windows, openings and finishes installed therein or thereon; the interior drywall on exterior walls and partitions demising the Premises from Common Areas; cabinetry, railings, paneling, and woodwork; integrated ceiling systems (including grid, panels and lighting); carpeting and other floor finishes; kitchen facilities (including sinks, appliances and other fixtures) or other similar facilities; rest rooms located within and intended to exclusively serve the Premises (including showers, toilets, basins and other fixtures); the components of the mechanical, heating, ventilation, air-conditioning, electrical, fire/life safety and plumbing systems (collectively “Mechanical Systems”) from the common point of distribution on the floor for each such system to and throughout the Premises; any Mechanical Systems or intra-Building telephone network cabling that are independent of the base-Building Mechanical Systems and exclusively serve the Premises (whether or not such system is contained entirely within the Premises); and, Alterations that Landlord has not required Tenant to remove as a condition of making such Alterations.  The Leasehold Improvements include all of the foregoing improvements in or to the Premises regardless of whether such improvements either:  existed in the Premises prior to Tenant’s having entered into this Lease; were paid for by either Landlord or Tenant (or a prior tenant); were installed by either Tenant or Landlord as a condition of this Lease; were installed by Landlord during the Term of this Lease to comply with the requirements or directives of a government, quasi-government or regulatory agency or authority; were installed by Landlord during the Term of this Lease with the intent of reducing Operating Expenses; were installed by Landlord during the Term of this Lease to maintain the quality, integrity and/or character of the Land, Building, Common Areas and/or the machinery, equipment and facilities related thereto; or, were installed by Tenant as an Alteration.

2.

TERM

2.1

The  “Commencement Date” of this Lease is that date that is the earlier of:

(a)

The date that Tenant first occupies the Premises for the conduct of business; or

(b)

The later of:

(1)

The Scheduled Commencement Date; or

(2)

The date that the tenant improvements (the “Tenant Improvements”) required to be constructed by Landlord as Landlord’s Work (if any) pursuant to the Work Letter attached hereto as Exhibit E (the “Work Letter”) are substantially complete (or would have been substantially complete had Tenant Delay [defined in addenda hereto] not taken place) and Tenant has been provided the opportunity to move into the Premises over a weekend.

The terms “substantially complete”, and “substantial completion” mean the availability of the Premises for the use and occupancy of Tenant, evidenced by the installation of all permanent Tenant Improvements, if any, required to be installed by Landlord.  Subject to subparagraph (2), above, the Premises will be deemed substantially complete regardless of Tenant’s completion of installation of Tenant’s trade fixtures, work stations, furnishings, and telephone, communication or computer systems.

2.2

The “Initial Term” of this Lease will commence on the Commencement Date and continue for the Scheduled Term, plus so many additional days as are necessary such that the Lease terminates on the last day of a calendar month (the “Termination Date”), unless sooner terminated as otherwise provided herein.  The “Term” of this Lease will include the Initial Term and any other period of Tenant’s occupancy resulting either from Tenant’s holding over with Landlord’s consent (pursuant to §29.2), or from Tenant’s exercise of an express option to renew, re-lease or extend the Term, or other express agreement to extend the Term, all made in accordance with this Lease (or a modification or addendum thereto made in accordance with this Lease).  Unless expressly stated to the contrary herein, any and all references herein to 

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3

“months” during the Term means full calendar months of the Term, beginning the Commencement Date (if the Commencement Date is the first day of a calendar month) or the first day of the first full calendar month after the Commencement Date (if the Commencement Date is not the first day of a calendar month).

2.3

After Landlord tenders possession of the Premises to Tenant, Landlord will notify Tenant of the Commencement Date by means of a Notice of Lease Term Commencement Date (“NLT”).  If Tenant agrees with the Commencement Date set forth in the NLT, then Tenant will acknowledge the same by executing and returning the NLT to Landlord within 7 days after receipt of the NLT; otherwise, Tenant will notify Landlord of Tenant’s objection to the Commencement Date, setting forth a reasonable basis therefor, within such 7 day period.  If Tenant fails to either timely object to the Commencement Date or specify a reasonable basis therefor, then the Commencement Date as specified in the NLT will be deemed conclusive as between Landlord and Tenant. 

3.

BASIC MONTHLY RENT

3.1

The first installment of Basic Monthly Rent is due on or before the execution of this Lease.  All other installments of Basic Monthly Rent are payable in advance on the first day of each calendar month, together with any monthly installments of estimated Tax Rent, Operating Expense Rent and Capital Expense Rent (collectively “Total Monthly Rent”).  Except as provided in Article 29, if the Commencement Date is not the first day of the calendar month or the Termination Date is not the last day of the calendar month, then Total Monthly Rent will be prorated based upon a 30 day month.

3.2

All amounts due or relating to Tenant’s occupancy under this Lease, other than Total Monthly Rent, are due and payable within 10 days of receipt of Landlord’s invoice for same.  Such amounts include, without limitation:  annual reconciliations and retroactive charges of Tax Rent, Operating Expense Rent or Capital Expense Rent; Orders for Extra Work; charges for extra utilities and services; and Late Charges (collectively “Additional Rent”).  All amounts due under this Lease or relating to Tenant’s occupancy are deemed to be rent, receivable as such, and subject to all remedies of Landlord for nonpayment of rent.  Tenant’s obligation to pay all amounts owing under this Lease will survive Tenant’s relinquishment of possession to Landlord, or the expiration or early termination of this Lease.

3.3

Tenant agrees that Tenant’s late payment of any sum due under this Lease will cause Landlord to incur costs not contemplated hereunder, the exact amount of which is impracticable or extremely difficult to fix.  Therefore, if all or any portion of any installment of Total Monthly Rent is not received by Landlord by the 5th day of the month in which it is due more than once in any calendar year, or if all or any portion of any item of Additional Rent is not received by Landlord when due pursuant to §3.2, then Tenant will pay to Landlord a “Late Charge” of 5% of the overdue amount.  Landlord and Tenant agree that the Late Charge represents a fair and reasonable estimate of costs that Landlord will incur by reason of any late payment by Tenant.  Landlord’s acceptance of a Late Charge does not waive Tenant’s default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord under this Lease or pursuant to law.  The Late Charge is in addition to, and not in lieu of, any interest that may accrue pursuant to §35.11 of this Lease.

3.4

All amounts due Landlord will be paid by Tenant, without deduction or offset except as expressly provided in this Lease, in lawful money of the United States of America that is legal tender at the time of payment.  Payments will be made at the office of Landlord or to such other person or at such other place as Landlord notifies Tenant.  Landlord reserves the right to require that payments be made by certified check or cash.  No receipt by Landlord of an amount less than the full amount due will be deemed to be other than a payment on account, and no endorsement or statement on any check or any accompanying writing effect or evidence an accord and satisfaction; and, Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance or pursue any other right or remedy of Landlord.

4.

TAX RENT

4.1

For each successive calendar year of the Term after the Base Year (“Comparison Year”), Tenant will pay to Landlord “Tax Rent,” which is the Proportional Share of the amount, if any, that the aggregate annual Property Taxes for the Comparison Year exceeds the Property Taxes for the Base Year.  Tax Rent is payable in the manner set forth in §4.3.  If this Lease terminates on a day other than the last day of the Comparison Year, then Tax Rent for the Comparison Year will be prorated.

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4.2

“Property Taxes” is defined for purposes of this Lease as:  all costs and expenses that Landlord or Landlord’s managing agent has incurred or will incur for real and personal property taxes, or any other assessments upon Landlord’s legal or equitable interest in the Land, Building, Common Areas and all or any related facilities and improvements (including, without limitation, leasehold taxes or other taxes or assessments levied in lieu thereof or in addition thereto), whether imposed by a government authority or agency, or by a special assessment district; any taxes resulting from a reassessment of the Building occasioned by any cause whatsoever, including, without limitation, any reassessment resulting from a conveyance of Landlord’s interest in the Land, Building or Common Areas (whether or not such transfer occurs before or after the Commencement Date), or by the determination by a court that any law, regulation, statute, or constitutional provision purporting to limit tax increases is invalid in whole or in part; any non-progressive tax on or measured with respect to gross receipts from the rental of space in the Building; any user fees or charges assessed for any government services that were provided without cost prior to the imposition of Proposition 13; any assessment, tax, fee, charge or levy for any transportation plan, fund or system within the general geographic area of the Building; and, any reasonable out-of-pocket expenses of Landlord in contesting any of the foregoing or the assessed valuation of the Land, Building or Common Areas.  Notwithstanding the foregoing, the definition of “Property Taxes” excludes any net income, franchise, capital stock, estate or inheritance taxes.  Notwithstanding the foregoing, in the event that in a Comparison Year Landlord incurs any tax on or measured with respect to gross receipts from the rental of space in the Building which tax did not exist in the Base Year, in calculating Tax Rent for such Comparison Year, Property Taxes for the Base Year shall be increased by the amounts that Landlord reasonably determines that Landlord would have incurred during the Base Year with respect to such tax on or measured by gross receipts had the same been included in Property Taxes during the entire Base Year.

4.3

As soon as practical after the beginning of each Comparison Year, Landlord will provide Tenant with Landlord’s estimate of Property Taxes and Tax Rent for the Comparison Year.  During the Comparison Year, Tenant will pay Landlord’s estimated Tax Rent in equal monthly installments on the first day of each month.  If the estimated Tax Rent for the Comparison Year is not determined until after the beginning of the Comparison Year, then Tenant will continue to pay the monthly installments for the prior Comparison Year, if any, and will retroactively pay any underpayment of estimated Tax Rent payable for the period from the beginning of the Comparison Year until the estimate was provided.  As soon as practical after the end of each Comparison Year, Landlord will determine the Property Taxes incurred in the Comparison Year.  If Tenant has underpaid its Tax Rent for the Comparison Year, then Tenant will pay to Landlord the full amount of such deficiency as Additional Rent.  If Tenant has overpaid its Tax Rent for the Comparison Year, then Landlord will either credit the overpayment toward Tenant’s next installment(s) of Total Monthly Rent or, if this Lease has terminated and Tenant is not in default, refund the overpayment to Tenant within 30 days of determination.

4.4

If the value of the improvements in the Premises (regardless of whether such improvements were installed or paid for by Landlord or Tenant, or have been affixed to the real property to become a part thereof) exceed Forty Dollars ($40.00) per RSF of the Premises, then Tenant will pay to Landlord as Additional Rent all Property Taxes levied on such excess value.  If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining such excess value, then such records will be binding on Landlord and Tenant; otherwise, the actual cost of construction will be determinative.

4.5

Tenant will directly pay the taxing authority any tax levied against the personal property or trade fixtures of Tenant in or about the Premises.  If Tenant fails to pay such tax before delinquency, then Landlord may pay such tax on behalf of Tenant, and the amount paid will constitute Additional Rent due Landlord.

4.6

The calculation and payment of Tax Rent is separate, distinct and will not be affected by the calculation and payment of either Basic Monthly Rent, Operating Expense Rent or Capital Expense Rent.  Any item of cost or expense included as Property Taxes will not be included as either Operating Expenses or Capital Expenses.

5.

OPERATING EXPENSE RENT

5.1

For each Comparison Year, Tenant will pay to Landlord “Operating Expense Rent,” which is the Proportional Share of the amount, if any, that the aggregate annual Operating Expenses for the Comparison Year exceeds the Operating Expenses for the Base Year.  Operating Expense Rent is payable in the manner set forth in §5.4.  If this Lease terminates on a day other than the last day of the Comparison Year, then Operating Expense Rent for the Comparison Year will be prorated.

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5.2

“Operating Expenses” is defined for purposes of this Lease as all costs and expenses, calculated as if the Building is 100% occupied and all services were provided to the entire Building, that Landlord or Landlord’s managing agent has incurred in the operation, maintenance, repair, improvement, management and administration of the Land, Building and Common Areas, plus a management fee equal to 4.5% of gross Building and Common Areas revenue.

5.3

“Operating Expenses” includes, without limitation, costs and expenses for:  all wages, salaries, benefits, payroll taxes, other similar government charges and other direct costs of personnel rendering services to the Building, whether or not situated in the Building, including, without limitation, Building managers and their assistants and supervisors, clerical, accounting, and technical services personnel; utility charges and surcharges; janitorial, mechanical, security, landscaping, elevator, waste disposal, alarm maintenance and other Building services; parking facility operation, maintenance and management; labor; lighting; fire/life safety systems; intra-Building telephone network cabling; air-conditioning; heating; ventilating; water and sewage charges; supplies; materials; tools; equipment; uniforms; operation, maintenance and repair of systems and facilities; structural and non-structural repair; business licenses or similar licenses or taxes; insurance premiums, deductibles and related charges, whether required pursuant to this Lease or by any lienholder or encumbrancer; professional fees and other expenses; and the expenses of maintaining a Building management office, with rent imputed at Landlord’s scheduled rate for the building containing the office.  Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a)

Any ground lease rental;

(b)

Without affecting the definition of Capital Expenses under Article 6, costs of repairs, replacements, improvements and equipment required to be capitalized under generally accepted accounting principles consistently applied (or otherwise) (“Capital Items”), except as expressly provided herein;

(c)

Without affecting the definition of Capital Expenses under Article 6, rentals for items (except when needed in connection with normal repairs and maintenance of permanent systems) which if purchased, rather than rented, would constitute a Capital Item;

(d)

Without affecting the definition of Capital Expenses under Article 6, costs incurred by Landlord for the repair of damage to the Building, to the extent that Landlord is reimbursed by insurance proceeds, and costs of all Capital Items, regardless of whether such repairs are covered by insurance;

(e)

Costs, including permit, license and inspection costs, incurred to install tenant or other occupants' improvements in the Building or incurred to renovate or otherwise improve, decorate, paint or redecorate vacant space for tenants or other occupants of the Building;

(f)

Depreciation, amortization and interest payments, except as expressly provided herein;

(g)

Marketing costs including, without limitation, leasing commissions, attorneys' fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building;

(h)

Costs incurred by Landlord to provide services or other benefits which are not offered to Tenant or for which Tenant is charged for directly, but which are provided to another tenant or occupant of the Building free of change;

(i)

Overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in or to the Building to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis, excepting management fees;

(j)

Interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering the Building, excepting in connection with the leasing of equipment permitted under (c), above;

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(k)

Landlord's general corporate overhead and general and administrative expenses;

(l)

Any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord (excepting the parking facility, if operated directly by Landlord);

(m)

Advertising and promotional expenditures, and costs of signs in or on the Building identifying the owner of the Building or other tenants' signs;

(n)

The cost of any electric power for which any tenant directly contracts with the local public service company or for which any tenant is separately metered or submetered and pays Landlord directly, provided, however, that if any tenant in the Building contracts directly for electric power service or a tenant’s entire premises is separately metered or submetered during any portion of the relevant period (as opposed to the metering or submetering of special facilities or equipment), the total electric power costs for the Building shall be "grossed up" to reflect what those costs would have been had each tenant in the Building used the Building-standard amount of electric power;

(o)

Tax penalties incurred as a result of Landlord's negligence, inability or unwillingness to make payments and/or to file any tax or informational returns when due;

(p)

Notwithstanding any contrary provision of the Lease, including, without limitation, any provision relating to capital expenditures, any and all costs to remove, manage, or abate hazardous materials or substances (as defined by applicable laws in effect as of the date of this Lease) in or about the Building including, without limitation, hazardous substances in the ground water or soil, unless placed in the Premises or Building by Tenant;

(r)

Costs arising from Landlord’s charitable or political contributions; 

(s)

Costs of purchasing or leasing sculpture, paintings or other objects of art;

(t)

Costs associated with the operation of the business of the partnership or entity which constitutes Landlord as the same are distinguished from the costs of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord's interest in the Building, costs of any disputes between Landlord and its employees (if any) not engaged in Building operation, disputes of Landlord with Building management, or outside fees paid in connection with disputes with other tenants;

(u)

Costs incurred in removing and storing the property of former tenants or occupants of the Building;

(v)

Costs incurred by Landlord in connection with rooftop communications equipment of Landlord or other persons, tenants or occupants on the Building;

(w)

Premiums for insurance to the extent Landlord is reimbursed for some or all of such premiums as a result of any reduction in insurance premium costs during a calendar year when the higher premium shall have been included in Operating Expenses;

(x)

The wages and benefits of any employee who does not devote substantially all of his or her employed time to the Building unless such wages and benefits are prorated to reflect time spent on operating and managing the Building vis-a-vis time spent on matters unrelated to operating and managing the Building; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Building manager;

(y)

Any costs expressly excluded from Operating Expenses elsewhere in this Lease;

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(z)

Costs incurred due to Landlord’s violation of laws or any provision of this Lease, but only to the extent that such costs exceed the cost that Landlord would have incurred to voluntarily comply with the law or lease; and

(aa)

The entertainment expenses and travel expenses of Landlord, its employees, agents, partners and affiliates.

Notwithstanding the foregoing, if in a Comparison Year Landlord incurs expenses for services which were not provided or for a category of expense that did not exist in the Base Year, in calculating Operating Expense Rent for such Comparison Year, Operating Expenses for the Base Year shall be increased by the amounts that Landlord reasonably determines that Landlord would have incurred during the Base Year with respect to such expenses had these new services, products or category of liability been included in Operating Expenses during the entire Base Year.

5.4

As soon as practical after the beginning of each Comparison Year, Landlord will provide Tenant with Landlord’s estimate of Operating Expenses and Operating Expense Rent for the Comparison Year.  During the Comparison Year, Tenant will pay Landlord’s estimated Operating Expense Rent in equal monthly installments on the first day of each month.  If the estimated Operating Expense Rent for the Comparison Year is not determined until after the beginning of the Comparison Year, then Tenant will continue to pay the monthly installments for the prior Comparison Year, if any, and will retroactively pay any underpayment of estimated Operating Expense Rent payable for the period from the beginning of the Comparison Year until the estimate was provided.  As soon as practical after the end of each Comparison Year, Landlord will determine the Operating Expenses incurred in the Comparison Year and provide Tenant with a statement of Operating Expense Rent, detailed to show the amount incurred in each major category of Operating Expenses for the Comparison Year.  If Tenant has underpaid its Operating Expense Rent for the Comparison Year, then Tenant will pay to Landlord the full amount of such deficiency as Additional Rent.  If Tenant has overpaid its Operating Expense Rent for the Comparison Year, then Landlord will either credit the overpayment toward Tenant’s next installment(s) of Total Monthly Rent or, if this Lease has terminated and Tenant is not in default, refund the overpayment to Tenant within 30 days of determination.

5.5

The calculation and payment of Operating Expense Rent is separate, distinct and will not be affected by the calculation and payment of either Basic Monthly Rent, Tax Rent or Capital Expense Rent.  Any item of cost or expense included as Operating Expenses will not be included as either Property Taxes or Capital Expenses.

5.6

Right to Audit.  Each calendar year that Operating Expense Rent, Tax Rent or Capital Expense Rent (collectively “Escalations”) is payable by Tenant, Tenant may audit Landlord’s calculation of Escalations on the following terms and conditions:

(a)

Procedure for Review.

(1)

To exercise this right to audit Escalations for a calendar year, Tenant must notify Landlord in writing (“Audit Notice”) of Tenant’s election to audit within 120 days after Landlord gives Tenant the annual statement of Escalations for that calendar year.

(2)          

The audit will take place where Landlord’s accounting of Escalations is performed (which shall be in a major U.S. city or metropolitan area) at a time mutually convenient to Landlord and Tenant within 60 days after Tenant gives Landlord the Audit Notice, provided that Landlord shall make available to Tenant at Landlord’s offices in the County of Los Angeles, California, those accounting records or portions thereof, which are located in such office.  The portion of the audit taking place in Landlord’s offices will be completed within 10 consecutive business days after commencing (such period to be extended to the extent that accounting records are not made readily available for Tenant’s inspection).  Tenant may not copy or remove any of Landlord’s books or records.  

(3)         

Tenant may perform the audit with Tenant’s own employees, or may engage a national or regional public accounting firm or other lease auditor to perform the audit that is reasonably acceptable to Landlord (“Tenant’s Auditor”), provided that Landlord shall not be required to accept any Tenant’s Auditor that is a national or regional public accounting firm and does not meet all of the following qualifications:

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(A)     

Tenant’s Auditor must agree in writing not to solicit any other tenant in the Building or project of which the Building is a part to audit Escalations for the calendar year that is the subject of this audit; and

               (B)

Tenant’s Auditor may not be a tenant of Landlord in the Building or project of which the Building is a part.

(4)       

Before commencing any review of Landlord’s books and records, Tenant and Tenant’s Auditor must each agree in writing to keep confidential and not to disclose to any other person Landlord’s books and records that are the subject of review and any negotiation and settlement of any dispute that may arise from the audit.  But, Tenant may disclose the information Tenant is required to keep confidential to the extent reasonably required (A) by law, (B) in a court proceeding or arbitration to resolve any dispute arising out of the audit, or (C) to Tenant’s attorneys, accountants and other professionals related to the performance of the audit or resolution of any dispute arising out of the audit, and that agree in writing to be bound by Tenant’s confidentiality agreement.

(5)

To make a claim for refund of any overpayment of Escalations disclosed by the audit, Tenant must notify Landlord in writing of the claim (“Audit Claim”) within 30 days after completion of Tenant’s Auditor’s review under (2), above.  The Audit Claim must state in reasonable detail the basis for, and calculation of the claim, and further include a copy of any written audit or report furnished to the Tenant.

(6)

Tenant’s failure to timely give Landlord the Audit Notice or Audit Claim, or to otherwise adhere to the procedures set forth above shall constitute:

              (A)

A waiver of Tenant’s right to audit or otherwise dispute Landlord’s calculation of Additional Rent for the applicable calendar year, including any action that Tenant may be entitled to pursue under law; and 

              (B)

A full release of Landlord for any claim by Tenant of overpayment of Additional Rent for the applicable calendar year.

             (7)         

No subtenant may conduct and audit.  No assignee (except a Permitted Transferee) may conduct an audit of Additional Rent for any part of the Term prior to the calendar year in which the assignment occurred. 

             (b)        

Tenant’s rights under this Article are at all times conditioned and contingent upon Tenant neither being in default of this Lease (after notice and failure to cure) or delinquent in the payment of Rent (including the Escalations that are the subject of the audit).  No Audit Notice or Audit Claim will be effective if, when given, Tenant is in default of this Lease (after notice and failure to cure) or delinquent in the payment of Rent (including the Escalations that are the subject of the audit).

             (c)

The parties will attempt in good faith to resolve any Audit Claim for a period of not less than 90 days after Tenant gives Landlord the Audit Claim.

6.

CAPITAL EXPENSE RENT

6.1

During the Term, Tenant will pay to Landlord “Capital Expense Rent,” which is the Proportional Share (or any other proportion, in Landlord’s reasonable discretion, that equitably distributes either Capital Expenses or Capital Expense Rent among tenants) of any Capital Expenses incurred during the Term subject to amortization as set forth in §6.5, below.  Capital Expense Rent is payable in the manner set forth in §6.3.  If this Lease commences or terminates on a day other than the first or last day of a calendar year, Capital Expense Rent for the year will be prorated.

6.2

“Capital Expenses” is defined for purposes of this Lease as all costs and expenses that Landlord or Landlord’s managing agent has incurred or will incur (without offset for any revenue derived from any source whatsoever) in 

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the making or installation of capital improvements, modifications or additions to the Land, Building, Common Areas and/or the machinery, equipment and facilities related thereto, either:

(a)

Required by directive of an insurer or a government, quasi-government or regulatory agency or authority; pursuant to either (i) a law or statute enacted after the execution of this Lease, or (ii) an interpretation of an existing law or statute, which interpretation is promulgated after the execution of this Lease; or

(b)

Made with the reasonable intent of reducing Operating Expenses; or

(c)

Deemed reasonably necessary by Landlord to protect the health and safety of tenants of the Building or other occupants or users of the Common Areas.

6.3

As soon as practical after the beginning of each calendar year (or the Term, as the case may be), Landlord will provide Tenant with Landlord’s estimate of the Capital Expenses and Capital Expense Rent for the calendar year.  During the calendar year, Tenant will pay Landlord’s estimated Capital Expense Rent in equal monthly installments on the first day of each month.  If the estimated Capital Expense Rent for the calendar year is not determined until after the beginning of the calendar year, then Tenant will continue to pay the monthly installments for the prior calendar year, if any, and will retroactively pay any underpayment of estimated Capital Expense Rent payable for the period from the beginning of the calendar year until the estimate was provided.  As soon as practical after the end of each calendar year, Landlord will determine the Capital Expenses incurred, allocated or amortized in the calendar year.  If Tenant has underpaid its Capital Expense Rent for the calendar year, then Tenant will pay to Landlord the full amount of such deficiency as Additional Rent.  If Tenant has overpaid its Capital Expense Rent for the calendar year, then Landlord will either credit the overpayment toward Tenant’s next installment(s) of Total Monthly Rent or, if this Lease has terminated and Tenant is not in default, refund the overpayment to Tenant within 30 days of determination.

6.4

The calculation and payment of Capital Expense Rent is separate, distinct and will not be affected by the calculation and payment of either Basic Monthly Rent, Tax Rent or Operating Expense Rent.  Any item of cost or expense included as Capital Expenses will not be included as either Property Taxes or Operating Expenses.

6.5

Notwithstanding anything to the contrary contained in Article 6, Capital Expenses and Capital Expense Rent shall be computed and payable as follows:

(a)

Capital Expenses defined in §6.2(a) shall be amortized in equal annual installments, with interest and the “Amortization Rate” (defined below), over the “Useful Life” (defined below).

(b)

Capital Expenses defined in §6.2(b) shall only be included in the computation of Capital Expense Rent to the extent of the savings in Operating Expense reasonably projected by Landlord to result therefrom, and such projected savings shall be amortized in equal annual installments, with interest at the “Amortization Rate” (defined below), over the pay-back period for each such Capital Expense (determined using Landlord’s reasonable good faith projections of the same).

The term “Useful Life” for purposes of this Article 6, means that period of time that the subject capital improvement, modification or addition is reasonably projected by Landlord to be productive or useful, without replacement, for the purpose required and intended at the time of installation, assuming that such capital improvement, modification or addition is repaired and maintained as provided in this Lease and will be subject to the elements of nature or any other condition beyond the reasonable control of Landlord.  “Amortization Rate” means the prime rate of Citibank, N.A. (or a comparable financial institution selected by Landlord), plus 3%.

7.

SECURITY DEPOSIT

7.1

On or before execution of this Lease, Tenant will deposit with Landlord the Initial Deposit.  The Initial Deposit and any other sums deposited with Landlord pursuant to this Article (collectively “Security Deposit”) will be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be 

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kept or performed by Tenant.  Landlord is not required to segregate the Security Deposit from its general funds, refund any Security Deposit except as provided in §7.3, or pay Tenant any interest thereon.

7.2

If Tenant defaults on any obligation hereunder beyond applicable notice and cure periods, Landlord may (but is not required to) use, apply or retain all or any part of the Security Deposit for the payment of rent or any other sum in default, or to compensate Landlord for any loss or damage that Landlord has suffered or may suffer due to Tenant’s default.  Tenant will, upon demand, restore any Security Deposit so used, applied or retained to the amount held by Landlord immediately prior thereto.

7.3

If Tenant has fully and faithfully performed every provision of this Lease to be performed by Tenant, then, within 30 days of the later of the termination of this Lease or delivery of possession of the Premises to Landlord, Landlord will return to Tenant (or, at Landlord’s option, the last assignee of Tenant hereunder) any Security Deposit that has not been so used, applied or retained.  Notwithstanding the foregoing, Landlord may retain a reasonable portion of the Security Deposit for a period not to exceed 90 days to secure any remaining obligations of Tenant hereunder (including, without limitation, Tenant’s obligations pursuant to Articles 4, 5 and 6, which Tenant acknowledges cannot be fully ascertained until as soon as practical after the end of the calendar year).  Tenant waives application of the provisions of California Civil Code §1950.7 in respect hereto.

7.4

If Landlord transfers, assigns or conveys its interest in the Premises, then Landlord will be discharged from any liability for the return of Tenant’s Security Deposit, provided Landlord transfers all Security Deposit that has not been used, applied or retained to Landlord’s successor in interest.

8.

USE

8.1

Tenant agrees that the Permitted Use is a material provision of this Lease.  Tenant may use the Premises only for the Permitted Use and will not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord.  Any consent by Landlord to a change of use by Tenant does not waive Landlord’s right to withhold its consent to any subsequent proposed change of use.

8.2

Tenant will, at Tenant’s sole cost and expense, comply with all certificates, rules, directives, orders and regulations of any public authority (including Federal, State, County and Municipal authorities) that concern either the Leasehold Improvements or Tenant’s particular use of the Premises.  Tenant will not use or occupy the Building, Common Areas or Premises in violation of any law, certificate of occupancy, or covenant, condition or restriction and will discontinue the violating use upon Landlord’s demand.

8.3

Tenant will not do or permit to be done anything that will invalidate or increase the cost of any insurance policy covering the Land, Building, Common Areas, or equipment, property and facilities therein.  Tenant will comply with all rules, orders, regulations and requirements of any insurance fire rating bureau or any other organization performing a similar function.  Tenant will, upon Landlord’s demand, reimburse Landlord for any additional insurance premium that may be incurred due to Tenant’s failure to comply with this Lease.

8.4

Tenant will not do or permit to be done anything that will constitute a nuisance, or unreasonably obstruct, injure, annoy or unreasonably interfere with the rights of other tenants or occupants of the Building.  The Premises may not be used for lodging, sleeping, improper, unlawful or objectionable purpose.  Tenant may not commit waste.

9.

UTILITIES & SERVICES

9.1

During the Term, Landlord will provide Tenant with:

(a)

24-hour access to the Premises, including automated elevator service;

(b)

Subject to future governmental restrictions, 24 hour electric current for reasonable quantities of standard fluorescent lighting, and receptacles and water for lavatory, galley and drinking purposes;

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(c)

Heat, ventilation, or air conditioning as may be required for the comfortable use and occupation of the Premises during Business Hours;

(d)

Reasonable access and 24 hour use of Landlord’s intra-Building telephone network cabling;

(e)

Janitorial and security services to the extent and during such times as are customary for comparable buildings in the area in which the Building is located;

(f)

24 hour elevator access; and

(g)

Replacement of building standard fluorescent bulbs and lighting fixture ballasts.

9.2

Notwithstanding the provisions of §9.1, Landlord may, provided that Tenant’s use of the Premises during Business Hours is not materially impaired: restrict access to the Premises while making any repairs, alterations or improvements to the Premises, Common Areas or Building; make reasonable nondiscriminatory changes to the access, utilities and services Landlord is obligated to provide hereunder; make such changes in the access, utilities and services Landlord is obligated to provide hereunder as may be reasonable and necessary to comply with any government restriction, requirement or standard relating thereto; or prevent access, or curtail utilities or services to the Land, Building, Common Areas or Premises during any invasion, mob, riot, public excitement or other circumstances rendering such action advisable, in Landlord’s reasonable opinion.

9.3

If Tenant either:

(a)

Requires or uses more utilities or services than generally used by other tenants in the Building;

(b)

Requires utilities or services that are not generally provided to the Building during non-Business Hours (except as provided in Section 9.1); or

(c)

Has special water, electric, cooling or ventilation needs due to concentration of personnel, or the use of office equipment, devices or machines that consume power or generate heat in excess of typical office equipment;

then Tenant will pay, as Additional Rent, the charge for such use, as determined by Landlord.  Landlord’s current charge for HVAC service during non-Business Hours is $76.00 per hour.  Should Tenant’s usage of electrical service exceed four (4) watts per RSF demand load over a thirty (30) day period, Landlord may further require Tenant, at Tenant’s sole cost and expense, to install separate circuitry, cabling or meters to accommodate and/or measure Tenant’s demand.

9.4

Except as expressly provided elsewhere in this Lease, Landlord will not be liable for any loss or damage to Tenant or Tenant’s employees, or their respective property or business.  Except as expressly provided elsewhere in this Lease, Tenant will not be entitled to any abatement or reduction of rent as a result of Landlord’s failure to provide access, utilities or services that Landlord is required to provide hereunder, when such failure is due to any cause beyond Landlord’s reasonable control (including, without limitation, accident, breakage, repairs, shortage of materials or supplies, strike, lockout, boycott, labor dispute, fire, earthquake, acts of God, rioting, insurrection, war, government action, and acts of public enemy).

10.

PARKING

10.1

During the Term, Tenant may purchase up to Tenant’s Parking Allotment of unreserved parking passes to park insured, registered passenger motor vehicles in the parking facilities of the Building, subject to the following:

(a)

Tenant will pay Landlord or Landlord’s agent, the regularly scheduled parking rates at such time and in such manner as Landlord or Landlord’s agent may, from time to time, establish for tenants of the Building.  Landlord’s current monthly parking rates are $190.00 for reserved parking passes and $99.00 for unreserved parking passes;

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(b)

Tenant will not be in default under any Term or condition of this Lease beyond applicable notice and cure periods;

(c)

Tenant will abide by any rules and regulations for use of the parking facilities that Landlord or Landlord’s agent establishes from time to time, and otherwise use the parking facility in a safe and lawful manner;

(d)

Tenant and Tenant’s employees, contractors and invitees may be required to use attended or tandem parking;

(e)

No bailment will be created hereunder or by any use of the parking facility;

(f)

Tenant on behalf  of iteself and its agents, servants, employees, successors or assigns hereby releases Landlord and Landlord’s agents, servants, employees and independent contractors from all claims for loss or damage (including, without limitation, vandalism and theft) arising out of or related to use of the parking facility; and

(g)

Tenant will have only this revocable license, and no estate is conveyed to Tenant under this Article.

If any employee of Tenant violates any of the terms and conditions of this Article, or fails to use the parking facility in accordance with the terms of this Article and this Lease, then Landlord may revoke this license as to such employee, to the extent that Landlord deems reasonable and necessary, without liability to Tenant.  Tenant’s license will otherwise be revoked and terminate concurrently with the termination of this Lease.

11.

REPAIR

11.1

Except as provided in §11.2, Tenant will, at Tenant’s sole cost and expense, keep the Leasehold Improvements in good condition and repair.  Tenant will exclusively use Landlord or Landlord’s reasonably approved contractors for all work related to the Mechanical Systems or intra-Building telephone network cabling that are a part of the Leasehold Improvements.

11.2

Landlord will repair and maintain all parts of the Land, Building or Common Areas and Mechanical Systems that do not constitute the Leasehold Improvements, and (a) those portions of the heating, ventilation, air-conditioning system from the common point of distribution on the floor to but excluding the mixing boxes (provided that the mixing boxes shall be in working order as of the Commencement Date), and (b) the plumbing system from the common point of distribution on the floor to the point of entry to the Premises, in each case except as to damage caused by Tenant.  Notwithstanding the foregoing, if any such maintenance or repair is caused in part or in whole by the negligence or willful misconduct of Tenant, its agents, servants, employees, licensees or invitees, then Tenant will directly reimburse Landlord (as Additional Rent) the reasonable cost for such maintenance and repairs.  If damage to the Land, Building or Common Areas is being caused by Tenant, its agents, servants, employees, licensees or invitees (whether an isolated incident or a continuous course of conduct, and whether by an individual or group), then upon receipt of written notice from Landlord, Tenant will take reasonable action to prevent any additional or future damage and Tenant’s failure to do so will be a material breach of this Lease.

12.

CONDITION OF PREMISES

12.1

Subject to any provisions of this Lease concerning the making of Leasehold Improvements in the Premises (if any), including, but not limited to, the Tenant Improvements to be constructed by Landlord pursuant to the Work Letter, by taking possession of the Premises hereunder, Tenant accepts the Premises as being in good order, condition and repair (excepting only latent defects and items noted on a punch-list executed by both Landlord and Tenant prior to occupancy), and otherwise as is, where is and with all faults.  Except as may be expressly set forth in this Lease, Tenant acknowledges that neither Landlord, nor any employee, agent or contractor of Landlord has made any representation or warranty concerning the Land, Building, Common Areas or Premises, or the suitability of either for the conduct of Tenant’s business.

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12.2

Upon the expiration of the Term or earlier termination of this Lease, Tenant will relinquish possession of the Premises to Landlord inclusive of all Leasehold Improvements and Alterations (unless Landlord has either permitted removal of the same in writing, or required removal of an Alteration as a condition of making such Alteration pursuant to Section 14.1) and otherwise in the same condition as received, ordinary wear and tear, casualty and Landlord’s maintenance and repair obligations excepted, free of all trash and rubbish, and in broom clean condition.  Landlord may dispose of any personal property remaining in the Premises in accordance with California Civil Code §1980, et seq., and will be entitled to recover all costs and expenses provided therein, including Landlord’s reasonable attorneys’ fees and costs.

13.

ENTRY BY LANDLORD

13.1

Provided Landlord uses commercially reasonable efforts to minimize interference with Tenant’s business and advises Tenant an appropriate period in advance of same, Landlord will have the right to enter the Premises to inspect the Premises, show the Premises to prospective purchasers or during the last nine (9) months of the Term to tenants, and make alterations, improvements or repairs (including construction required by the character of the work).  No advance notice will be required for Landlord to supply janitorial services or to post legal notices.

13.2

Notwithstanding the provisions of §13.1, Landlord will be entitled to enter the Premises without advising Tenant in advance when Tenant is in default of this Lease, or in an “Emergency” (which is any circumstance that may threaten or endanger the Building, or health or property of Landlord, other tenants, occupants or the general public, or result in a liability or loss to Landlord).

13.3

Landlord will at all times have a key to unlock all of the doors in and to the Premises, excepting Tenant’s vaults and safes.  If Tenant changes locks on any doors without Landlord’s prior written consent, Landlord will have the right to enter the Premises, change, remove and/or replace such locks, repair any damage and restore the Premises, and charge Tenant as Additional Rent all expenses incurred in accomplishing the foregoing.

13.4

Except as expressly provided elsewhere in this Lease, there will be no abatement of rent and no liability of Landlord by reason of any injury to, or interference with Tenant’s business arising from any entry performed by Landlord in a good faith attempt to comply with the terms of this Article.  Any such good faith entry by Landlord will not constitute an eviction, or a forcible or unlawful entry or detainer of the Premises.

14.

ALTERATIONS

14.1

All alterations, additions, decorations or improvements made by or on behalf of Tenant in or to the Premises except Tenant Improvements (“Alterations”), will require Landlord’s prior written consent, not to be unreasonably withheld or delayed; provided, however, that Landlord’s consent will not be required for Alterations that are cosmetic, non-structural alterations to the Premises in accordance with the terms of this Lease, provided that such alterations do not (i) affect the exterior of the Premises or the Building, (ii) affect the Building’s electrical, ventilation, plumbing, elevator, mechanical, air conditioning or any other systems therein, or (iii) exceed $25,000 in the aggregate per job.  Tenant will give Landlord 10 days’ prior written notice of Tenant’s desire to make Alterations.  Landlord may impose any reasonable condition upon issuing Landlord’s consent (including, without limitation:  requiring Tenant to remove Alterations which are not customary office improvements at the end of the Term and restore the Premises to the condition prior to Alterations having been made [reasonable wear and tear excepted]; obtaining the consent of any mortgagee, encumbrancer, lender or ground lessee; providing Landlord with working drawings, as-built CAD drawings, specifications, and estimated costs; providing Landlord with verification of all required permits or approvals; and, obtaining a lien and completion bond).

14.2

Tenant will use Landlord’s designated contractors for all Alterations affecting basic Building mechanical, electrical, plumbing, fire/life safety, intra-Building telephone network cabling, heating, ventilation and air-conditioning systems, provided that such contractors will perform work at competitive costs; and, will otherwise use licensed, qualified contractors and subcontractors that carries course of construction, products liability, completed operations, worker’s compensation and public liability insurance in amounts satisfactory to Landlord, naming Landlord as an additional insured.  Alterations will be performed at the times and in the manner approved by Landlord, and will not interfere with access or use of the Common Areas or other premises.  Alterations will be performed in full compliance with all laws, rules and/or directives of any government or regulatory agency or authority; and, if any such government or regulatory agency or 

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authority requires any improvements, modifications, additions or alterations to any part of the Base Building, as a result of the Alterations, then the same will be made by Tenant at Tenant’s sole cost and expense.

14.3

All permanent improvements to the Premises, Leasehold Improvements and Alterations (including, without limitation, floor and wall coverings, blinds, drapes, cabinets, shelving, doors, locks, paneling and the like) that Landlord has not required or permitted Tenant to remove at the end of the Term will become the property of Landlord upon the termination of this Lease and will be relinquished with the Premises.

14.4

Landlord may require Tenant to immediately remove any Alterations not made in accordance with this Article, and restore the Premises to the condition immediately prior to the Alterations’ having been made (reasonable wear and tear excepted); provided, however, that Landlord will not arbitrarily require Tenant to remove any Alterations made without Landlord’s prior written consent if such Alterations otherwise meet the requirements of this Article 14 and a prudent landlord would have consented to such Alterations.  If Tenant either fails to remove Alterations not made in accordance with this Article and restore the Premises within 10 days after Landlord’s demand, or fails at the end of the Term to remove Alterations that Landlord required to be removed at the end of the Term as a condition of issuing Landlord’s consent to the making of such Alterations, then Landlord may perform such removal and restore the Premises, at Tenant’s sole cost and expense, to the condition immediately prior to the Alterations having been made (reasonable wear and tear excepted).

14.5

All Alterations, removal of Alterations and restoration of the Premises that Landlord is reasonably required to perform or supervise are subject to Landlord’s charge, as Additional Rent, for all costs and expenses of such performance and supervision (including, without limitation, review of plans or work by Landlord’s architect, engineer or other consultant), plus a supervision fee payable to Landlord in the amount of 15% of the cost of such work.  

14.6

During the Term, Landlord may renovate, improve, alter, or modify the Building or the Common Areas (“Renovations”), although nothing herein obligates Landlord to make such Renovations, except as expressly set forth in this Lease.  In connection with any Renovations, Landlord may erect scaffolding or other necessary structures, limit or eliminate access to portions of the Building, Common Areas or Premises, or perform work that may create noise, dust or debris.  Tenant hereby agrees that, except as expressly provided in this Lease, such Renovations will not constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of rent, and Landlord will have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Renovations, nor will Tenant be entitled to  any compensation or damages from Landlord for the loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Renovations, or for any inconvenience or annoyance occasioned by the Renovations.  Notwithstanding the forgoing, Landlord shall use its reasonable efforts to assure that its performance of any Renovations will not unreasonably interfere with Tenant’s use of or access to the Premises.

15.

HAZARDOUS MATERIALS

15.1

Tenant may not create, bring into nor store in the Building, Common Areas or Premises any hazardous waste or hazardous materials (defined as any substance, material, emission, discharge or waste defined as “hazardous,” “toxic,” or a “pollutant” or “contaminant” under any local, state or federal government law, statute, code, order or regulation for the protection of health, safety or the environment).  Tenant will comply with all laws, regulations, recommendations or orders promulgated by any government, quasi-government or regulatory agency or authority, or the manufacturer of hazardous waste or materials with regard to maintenance of records, and its handling, storage and disposal.  Upon Landlord’s request, Tenant will supply Landlord with a copy of any record or certificates required to be maintained by Tenant concerning hazardous materials or waste.

15.2

Tenant will comply with California Health and Safety Code §25915, et seq. (as may be amended from time to time) that, at the time of making this Lease, requires Landlord to provide Tenant with the notice attached hereto as Exhibit D, and Tenant to provide a copy of said notice to Tenant’s employees or contractors working in the Building, and to subtenants, assignees, or new employees of Tenant within 15 days of the earlier of (a) commencing work in the Building, or (b) contracting with Tenant to sublease or assign all or a portion of the Premise.  This provision does not limit Tenant’s duties under common law or statute, nor is Tenant excused from compliance with the entirety of California Health and Safety Code §25915, et seq., or any other provisions applicable to Tenant during the Term.

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15.3

Landlord represents that it has removed all accessible ACM in the Premises and in other areas on the 7th floor of the Building.

16.

LIENS

16.1

Tenant will keep the Land, Building and Premises free from any liens resulting from work performed, materials furnished or obligations incurred by, or on behalf of Tenant.  Tenant will promptly discharge any such lien by bond or otherwise.  If Tenant fails to promptly discharge any such lien after Landlord’s demand, then Landlord may discharge the lien and charge Tenant as Additional Rent all costs and expenses reasonably incurred by Landlord to do so, including attorneys’ fees and costs.

17.

BROKERS

17.1

Tenant warrants that no broker, agent, finder, person or entity, other than Procuring Broker, was instrumental in negotiating or consummating this Lease, or might be entitled to a commission or compensation in connection with the execution of this Lease.  Tenant will indemnify and hold Landlord harmless from any claim, damages, costs and expenses, including attorneys’ fees and costs, resulting from any claim that may be asserted against Landlord by any broker, agent, finder, person or entity other than Procuring Broker that is not disclosed by Tenant to Landlord in writing prior to entering into this Lease, or who claims a right to compensation through Tenant.  Tenant shall have no liability for, and Landlord shall be solely responsible for the payment of any commission due to, the Procuring Broker, pursuant to a separate agreement between Landlord and the Procuring Broker.

18.

INSURANCE

18.1

Throughout the Term, Landlord will provide, maintain and keep in force:

(a)

Commercial general liability insurance for personal injury, bodily injury (including death), and property damage in such amounts as Landlord from time to time determines is reasonable and sufficient;

(b)

All risk insurance or fire insurance (with standard extended coverage endorsement perils, leakage from fire protection devices and water damage) covering the Building, Common Areas and all fixed improvements therein, except those fixtures, furnishings, Leasehold Improvements, equipment and other property that Tenant is required to insure pursuant to subparagraphs (b), (c), (d), and (e) of §18.2;

(c)

Insurance for loss of rental income or insurable gross profits covering such perils set forth in subparagraph (b) in such amounts as Landlord prudently elects to maintain;

(d)

Boiler and machinery insurance in such amounts as Landlord prudently elects to maintain; and

(e)

Such other insurance (including earthquake or other change in condition) as Landlord elects, in its sole discretion, to obtain.

Each policy of insurance provided or maintained by Landlord hereunder may contain such deductibles, uninsured gaps, exclusions or such other terms and conditions as Landlord prudently determines to be commercially reasonable and sufficient, provided such terms are generally available at a commercially reasonable price in the area that the Building is located.

18.2

Throughout the Term, Tenant will provide, maintain and keep in force:

(a)

Commercial general liability insurance for personal and bodily injury, including death and property damage, with respect to Tenant’s use and occupancy of the Premises, Common Areas and Building, and the business carried on by Tenant therein, with limits of not less than the Liability 

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Limit for any accident or occurrence, with Landlord named as an additional insured, containing cross-liability and severability of interests clauses, and on an occurrence (and not claims made) form;

(b)

All risk or fire insurance (with standard extended coverage endorsement perils, theft, vandalism, explosion, falling plaster, steam, gas, electricity, water, rain, elements of nature, water damage or dampness, and leakage from any part of the Building or Land [including fire protection devices, pipes, appliances and other plumbing]) covering the full replacement cost of the Leasehold Improvements and Tenant’s fixtures, furnishings, equipment, inventory, stock-in-trade;

(c)

Insurance covering those items set forth in subparagraph (b) against loss or damage due to earthquake (or change in condition);

(d)

Insurance for loss of income or insurable gross profits covering such perils set forth in subparagraphs (b) and (c), in such amounts as Tenant prudently determines is commercially reasonable and sufficient; and

(e)

Any insurance that may be required pursuant to any local, state or federal government law, statute or regulation (including, without limitation, workers’ compensation insurance).

Notwithstanding the foregoing, Tenant may elect to self-insure the coverage required pursuant to subparagraphs (c) and (d), above; however, Tenant’s election to self-insure such coverage will not impair the waivers of subrogation and recovery set forth in §18.4, below.  Notwithstanding the above, Landlord may reasonably and prudently change the insurance requirements set forth herein (including, without limitation, requiring additional coverage or types of insurance), provided that insurance to meet such changed requirements is generally available at a commercially reasonable price in the area that the Building is located.

18.3

On or before Tenant’s use or occupancy of the Premises for any purpose and from time to time during the Term, Tenant will provide Landlord with certificates or other proof reasonably necessary for Landlord to verify that the required insurance coverage has been obtained, is in full force and effect and that the premiums have been paid thereon.  All policies will contain an undertaking by the insurer to notify Landlord (and any mortgagees or ground lessors designated by Landlord) in writing not less than 10 days prior to any material change, reduction, cancellation or other termination of coverage required hereunder.  Replacement policies or certificates will be furnished to Landlord not less than 30 days prior to the expiration of any such policy or policies.  Landlord’s failure to request evidence of coverage does not waive any of Landlord’s rights hereunder or Tenant’s obligation to so insure.

18.4

Insurance to be provided and maintained by either party pursuant to §18.1, subparagraphs (b), (c) and (d) (and [e], to the extent of earthquake and other change of condition insurance), and §18.2, subparagraphs (b), (c) and (d) must include a clause or endorsement whereby the insurer waives its right of subrogation against the other party; and Landlord and Tenant each waive any rights of recovery against the other for injury or loss due to hazards required to be covered by insurance that is required to contain such a waiver of subrogation, to the extent of the injury or loss required to be covered thereby.

19.

INDEMNITY

19.1

Subject to the waivers of subrogation and liability set forth in §18.4, Tenant will indemnify and hold Landlord harmless from and against any and all liability, loss, claims, demands, damages or expenses, including attorneys’ fees, whether for personal injury, theft, property damage or otherwise, due to or arising from:

(a)

Any accident, act or omission (whether or not related to Tenant’s use of the Premises or conduct of business therein) occurring in, or originating or emanating from the Premises, except as may be caused by the negligence or willful misconduct, or breach or non-performance described in §19.2, subparagraph (b) or (c);

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(b)

The negligence or willful misconduct of Tenant, its servants, employees, agents, contractors, invitees, concessionaires or licensees, or those over whom Tenant would normally be expected to exercise control, whether in or about the Land, Building, Common Areas, Premises, or parking facility; or

(c)

Tenant’s breach or non-performance of any provision of this Lease.

If any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon notice from the Landlord, will defend the same at Tenant’s expense by counsel reasonably satisfactory to Landlord.

19.2

Subject to the waivers of subrogation and liability set forth in §18.4, Landlord will indemnify and hold Tenant harmless from and against any and all liability, loss, claims, demands, damages or expenses, including attorneys’ fees, whether for personal injury, theft, property damage or otherwise, due to or arising from:

(a)

Any accident, act or omission in or about the Land, Building, and Common Areas, except as may be caused by any accident, act or omission, negligence or willful misconduct, or breach or non-performance described in §19.1, subparagraphs (a) through (c);

(b)

The negligence or willful misconduct of Landlord, its servants, employees, agents, contractors, invitees, concessionaires or licensees, or those over whom Landlord would normally be expected to exercise control, whether in or about the Land, Building, Common Areas, Premises, or parking facility; or

(c)

Landlord’s breach or non-performance of any provision of this Lease.

If any action or proceeding is brought against Tenant by reason of any such claim, then Landlord, upon notice from Tenant, will defend the same at Landlord’s expense by counsel reasonably satisfactory to Tenant.

20.

DAMAGE & DESTRUCTION

20.1

If the Leasehold Improvements are damaged or destroyed by any cause, then Tenant will, at Tenant’s sole cost and expense, promptly repair, replace and restore the Leasehold Improvements to at least the condition existing prior to the damage (reasonable wear and tear excepted) during which time this Lease will remain in full force and effect, subject to Article 22.

20.2

If any portion of the Land, Building or Common Areas (excepting the Leasehold Improvements) reasonably necessary for Tenant’s access, use or occupancy of the Premises is damaged or destroyed by any cause, then:

(a)

Within 30 days after the event of damage or destruction, Landlord will assess the damage, determine how long repairs will take and promptly thereafter advise Tenant of the same (however, if more than 30 days are reasonably required to so assess the damage and determine the length of time for repair, then Landlord will not be in default hereunder if Landlord commences such assessment and determinations within said 30 day period and otherwise diligently proceeds with such assessment and determinations, and promptly advises Tenant of the same).

(b)

If the event such damage or destruction either:

(1)

Is uninsured by Landlord (and not required to be insured by Landlord pursuant to §18.1), or

(2)

Cannot, in Landlord’s reasonable opinion, be repaired within 180 days after the occurrence of such damage or destruction,

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then Landlord may terminate this Lease upon at least 30 days’ prior written notice to Tenant, the Lease to remain in full force and effect through the specified termination date, subject to Article 22.2; otherwise, Landlord will proceed with repairs during which time this Lease will remain in full force and effect, subject to §20.3 and §22.2.

20.3

Notwithstanding anything to the contrary contained herein, Landlord will have no obligation to repair or restore damage or destruction described under §20.2 when it occurs during the last 12 months of the Term; however, if Landlord so elects not to repair or restore and the damage or destruction either: 

(a)

Substantially adversely affects Tenant’s use of all or a material part of the Premises, or 

(b)

Prevents Tenant’s reasonable access to the Premises,

then, in addition to Tenant’s rights under Article 22, Tenant will have the right to terminate this Lease upon at least 30 days’ prior written notice to Landlord, which notice must be given within 15 days after receipt of Landlord’s election not to repair or restore.

20.4

If the damage or destruction is insured (or required to be insured or self-insured) by Tenant pursuant to §18.2 and either Landlord or Tenant elect to terminate this Lease pursuant to §20.2(b), §20.3 or §22.3, then Tenant will assign to Landlord its right to receive the benefits under such insurance for the repair and restoration of the Leasehold Improvements to the extent of the value of building standard tenant improvements and directly pay Landlord any deductible under such policy (and any other uninsured amounts), and Tenant may retain the balance of any such benefits.

20.5

Tenant hereby waives the application of California Civil Code §1932(2) and §1933(4), to the extent contrary to the provisions of Articles 20 and 22 of this Lease.

21.

EMINENT DOMAIN

21.1

If all or any portion of the Land, Building, Common Areas or Premises is taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain (or sold in lieu of such taking), then:

(a)

If such taking or sale substantially interferes with Tenant’s use and occupancy of the Premises, then this Lease will terminate on the date of surrender or sale to said authority; or

(b)

If such taking or sale does not substantially interfere with Tenant’s use and occupancy of the Premises, then Landlord may either terminate this Lease or restore the Premises to substantially the same condition prior to such partial taking, and Tenant’s Total Monthly Rent will be abated with respect to that portion of the Premises rendered unusable for the conduct of Tenant’s business therein as a result of the taking or sale, for the period of time that such portion is so rendered unusable.

21.2

Tenant will not assert any claim for the taking of any interest in this Lease, the Land, Building, Common Areas or Premises and Landlord will be entitled to receive the entire amount of any award without deduction or offset for any estate or interest of Tenant; however, Tenant will be entitled to bring a separate action for relocation expenses, and damages to Tenant’s personal property, trade fixtures and goodwill.  Tenant hereby waives the application of California Code of Civil Procedure §1265.130.

22.

INTERRUPTION OF USE

22.1

If either use of the Premises is substantially adversely affected or reasonable access to the Premises is prevented as a result of:

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(a)

An event of damage or destruction as described in §20.1 and §20.2, excepting only damage or destruction caused by the gross negligence or willful misconduct of Tenant;

(b)

A Taking (as defined in §21.1);

(c)

The failure of Landlord to repair or maintain the Building or Common Areas to the extent required pursuant to §11.2;

(d)

The failure of Landlord to provide utilities or services that Landlord is obligated to provide pursuant to §9.1 (provided that such failure is not caused by the public utility providing service to the Building); or

(e)

Renovations.

then, such event will constitute an “Interruption” hereunder.

22.2

If an Interruption occurs and continues for a period of at least 3 consecutive business days, then Tenant’s Total Monthly Rent will be abated from the commencement of the Interruption until use of the Premises is no longer so substantially and adversely affected and reasonable access to the Premises exists, provided, however, that:

(a)

Any abatement of rent hereunder will be prorated to reflect that portion of the Premises that is actually rendered unusable for the conduct of business therein for the period of time such portion is so rendered unusable, and will not be afforded Tenant to the extent that Tenant uses the Premises for the conduct of business therein;

(b)

No abatement of rent hereunder will be afforded Tenant for any period of time that Tenant has not complied with its obligations under §20.1, provided that abatement of rent is solely available under the provisions of §20.1; and

(c)

Notwithstanding the Permitted Use, no abatement of rent will result from any inability of Tenant to use the Premises because of Tenant’s unique use of the Premises as other than general administrative offices.

The period during which Tenant is entitled to abatement of Total Monthly Rent hereunder is the “Interruption Period.”  Landlord will advise Tenant of Landlord’s reasonable estimate of the Interruption Period (based upon taking commercially reasonable action in response to such Interruption), as soon as reasonably practicable or as otherwise required under this Lease.

22.3

In addition to Tenant’s rights under §22.2, if the Interruption Period is reasonably estimated by Landlord to continue for a period exceeding 180 days, then Tenant may, within 15 days after receipt of Landlord’s estimate, elect to terminate the Lease upon 30 days’ prior written notice.  Notwithstanding the foregoing, this Lease will not be terminated if Landlord elects to take such additional action not otherwise required under this Lease within said 30 day period that will result in the restoration of Tenant’s reasonable access to, and use of the Premises within said 180 day period.  If Tenant does not elect to terminate this Lease within such 15 day period, Landlord will not be liable to Tenant and Tenant will not be entitled to terminate this Lease if such repairs and restoration are not in fact completed within the estimated Interruption Period, provided that the Interruption Period was reasonably estimated by Landlord and Landlord diligently commenced and pursues such repairs and restoration to completion.

23.

SUBORDINATION

23.1

This Lease will be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, and to any and all renewals, modifications, consolidations, replacements, substitutions and extensions thereof, as if the mortgage, trust deed or other encumbrance and all of its renewals, modifications, 

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consolidations, replacements, substitutions and extensions had been executed, delivered and recorded prior to execution of this Lease.

23.2

In the event of the termination of any ground lease or underlying lease, or the foreclosure of any mortgage, trust deed or other encumbrance, or upon a transfer or conveyance in lieu of such foreclosure, then at the request of the lessor of such ground or underlying lease, the purchaser at any such foreclosure or the transferee in a transfer or conveyance in lieu of such foreclosure (as applicable), Tenant agrees to attorn to and accept any such successor owner as lessor under the Lease and to be bound by and perform all of the obligations imposed by the Lease.

23.3

Tenant will, within 5 business days after receipt of Landlord’s written request, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination of this lease, including, without limitation, any subordination, nondisturbance and attornment agreement requested by any ground lessor, underlying lessor or mortgage holder.  Tenant waives the provisions of any current or future statute, rule or law contrary to the provisions of this Article that may give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any the foreclosure of any mortgage, trust deed or other encumbrance, or upon a transfer or conveyance in lieu of such foreclosure.

23.4

Tenant acknowledges that this Lease is subordinate to the terms and provisions of that certain Amended and Restated Lease Agreement by and between the County of Los Angeles, as Lessor, and Landlord, as Lessee, as amended (the “Ground Lease”), and Tenant shall comply with all the terms, covenants and conditions of the Ground Lease applicable to the Premises.  

24.

ESTOPPEL CERTIFICATE

24.1

Upon either party’s request, the other party will execute, acknowledge and deliver to the requesting party a statement in writing setting forth the certification of the following:  that this Lease is unmodified (or, if modified, the nature of such modification) and is in full force and effect; the extent that rental or other charges have been prepaid; and that the requesting party, to the certifying party’s knowledge, has not failed to cure any default of the requesting party of this Lease (or specifying such uncured defaults, if any are claimed).  The certifying party’s failure or refusal to execute and deliver such a statement within 10 days after receipt of a request will be conclusive upon the certifying party that:  this Lease is in full force and effect, without modification (except as may be represented by the requesting party); except as provided in this Lease, not more than 1 month of rent has been paid in advance, and not more than 1 month of security deposit is being held by Landlord; and, there are no uncured defaults of the requesting party.  Each party acknowledges that such statement may be relied upon, in the case of a statement by Tenant, by a prospective purchaser or encumbrancer of all or any portion of the Land, Building or Premises, or, in the case of a statement by Landlord, of Tenant’s business.

25.

BUILDING PLANNING

25.1

If Landlord, in its sole discretion, requires the use of the Premises to make repairs, modifications or additions to the Building or other premises, to use in conjunction with other premises, or for any other Building planning purpose (whether such use will be by Landlord, another tenant, or any other person or entity), then Landlord will have the right to relocate Tenant to other premises in the Building (the “Relocation Premises”), no more than once during the Term (including both the Initial Term and Renewal Term), upon the following terms and conditions:

(a)

The Relocation Premises will be comparably sized as the Premises, not below the 4th Floor of the Building, have a comparable amount of northern exposure and a comparable north and west facing corner office, and be subject to comparable configuration by Landlord to provide a comparable number and size of work and storage spaces as are in the Premises.

(b)

Landlord will give Tenant notice of its intent to relocate Tenant to the Relocation Premises at least 60 days prior to the proposed relocation, and if Tenant contends that the proposed Relocation Premises are not in reasonable conformance with the requirements set forth in subparagraph (a), above, then Tenant will have 10 days after receipt of the relocation notice to notify Landlord of its intention not to relocate (specifying the alleged nonconformity.

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(c)

If the Relocation Premises are in reasonable conformance with the requirements of subparagraph (a), above, then Tenant will be relocated as follows:

(1)

Landlord will construct, at Landlord’s expense, permanent improvements in the Relocated Premises of a comparable quality and configuration as those existing in the Premises at the time notice of relocation is given.  Tenant will cooperate and participate in determining the configuration, type and finish of said improvements in order that the improvements may be completed and Tenant may take possession of the Relocated Premises at the end of said 60 day period, or as soon thereafter as possible.

(2)

Landlord will pay the reasonable direct costs, if any, of moving Tenant’s furnishings and trade fixtures to the Relocated Premises (by either Landlord or by licensed and qualified movers), printing a reasonable quantity of Tenant’s stationery (not to exceed the inventory at the time notice to relocate is given), fabricating new door and directory signs, and relocating Tenant’s existing communications and computer system or installing (but not purchasing or leasing) a comparable new communications or computer system.

(d)

If the usable area of the Relocated Premises is less than the usable area of the Premises, then Tenant’s Total Monthly Rent will be proportionally reduced.  Under no circumstances will Tenant’s Total Monthly Rent for the Relocation Premises exceed that which would have been payable in the Premises.

(e)

Except as expressly provided in this Article, all terms and conditions of this Lease will apply to the Relocated Premises, which will, after relocation, be referred to as the Premises.

25.2

Except as expressly provided in this Article, Landlord will not be liable to Tenant for any costs, expense or damage that may arise from Landlord’s relocation of Tenant, including, without limitation, costs related to time spent by Tenant or Tenant’s agent in cooperating in the design and construction of improvements; loss of productivity, business or income due to relocation; or any task, cost or expense voluntarily undertaken by Tenant in relation to the relocation without Landlord’s consent or approval.

26.

TENANT TRANSFERS

26.1

 Unless Tenant has obtained the prior written consent of Landlord (which will not be unreasonably withheld, conditioned or delayed, subject to §26.4), Tenant may not pledge, sell, transfer, hypothecate, encumber or assign this Lease or Tenant’s interest therein, sublet all or any part of the Premises, or permit occupancy or the conduct of business in any or all of the Premises by anyone other than Tenant.  Any assignment, sublease, sale, mortgage, pledge, encumbrance or transfer by Tenant or such other party made in contravention of this Article will be void and of no force or effect.

26.2

If Tenant proposes to assign this Lease or to sublet all or any portion of the Premises, then Tenant must give Landlord written notice of Tenant’s intent to so assign or sublet at least 20 days’ prior to the proposed effective date of the assignment or sublease.  The notice will include, with respect to each proposed assignee or subtenant:  name and address; terms and conditions of the proposed assignment or sublease; a detailed statement of facts about the nature of the proposed use of the Premises and the proposed assignee’s or subtenant’s business experience; a balance sheet showing financial condition as of a date within 90 days prior to the date of the notice; statements of income, profit and loss for the last 2 complete fiscal years, if such records exist; bank and credit references; and, such other and further information as Landlord may reasonably require.

26.3

This §26.3 will not apply to any sublease of less than fifty percent (50%) of the Premises.  During the 30 day period immediately following Landlord’s receipt of Tenant’s notice pursuant to §26.2, Landlord may terminate this Lease either in its entirety or with respect to only that portion of the Premises that Tenant has proposed to sublet (the “Proposed Portion”), after which Tenant will have no further obligation to Landlord under this Lease with respect to the terminated Proposed Portion, except for matters occurring or obligations arising prior to the effective date of termination.  Landlord will exercise Landlord’s right to terminate by giving Tenant written notice of same, such notice to specify whether 

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Landlord is terminating this Lease in its entirety or with respect to only the Proposed Portion, and the effective date of termination (which will be the later of either:  the effective date of the assignment or sublease proposed by Tenant if such effective date is specified by Tenant; or a date specified by Landlord that is no less than 30 days, but no more than 60 days after Tenant’s receipt of Landlord’s notice to terminate).  If Landlord elects to terminate Tenant’s Lease with respect to only the Proposed Portion, then Tenant’s Total Monthly Rent will be proportionally reduced as of the effective date specified by Landlord to reflect the reduction in the Premises resulting from such termination; furthermore, Landlord will make such permanent improvements as may be reasonably necessary to separate the remaining Premises from the Proposed Portion and restore the finishes in the interior of the remaining Premises to the condition immediately prior to making such permanent improvements.  Landlord reserves the right, after electing to terminate as provided herein, to acquire the Premises for its own use, or enter into a Lease with another tenant or the proposed assignee or subtenant on such terms and conditions as in Landlord’s sole discretion, without Tenant being entitled to any portion of the profit that Landlord may realize as a result of such termination and reletting.

26.4

If Landlord does not exercise its termination right set forth in §26.3, then Landlord will, within such 20 day period following receipt of Tenant’s notice pursuant to §26.2, notify Tenant that Landlord either grants or denies its consent for Tenant to proceed to assign or sublet on the terms and conditions contained in Tenant’s notice.  Landlord’s failure to timely exercise its termination rights pursuant to §26.3 or timely deny consent will be deemed approval to assign or sublet on the terms and conditions contained in Tenant’s notice, but only to the extent that the represented terms and conditions do not conflict with the terms and conditions of this Lease.  Landlord may deny consent to assign or sublet upon any commercially reasonable ground, including, but not limited to, the following:

(a)

The proposed assignee or subtenant is an existing Tenant of Landlord in the Building and such existing tenant has an unexpired right or other option to lease space in the Building that is, or within six (6) months thereafter, will be available for leasing to such existing tenants;

(b)

The financial strength of the proposed assignee or subtenant, in Landlord’s opinion, is insufficient to enable it to meet its proposed financial obligations;

(c)

The proposed use, or reputation or character of the proposed assignee or subtenant is not in keeping with the nature of the Building or may adversely affect the operation, insurability, or reputation of the Building;

(d)

The proposed use of the Premises is materially different than the Permitted Use;

(e)

The proposed use of the Premises conflicts with any other existing agreements between Landlord and other tenants concerning the Land, Building, Common Areas or Premises.

If Landlord denies consent to assign or sublet, Tenant waives the right to terminate this Lease pursuant to California Civil Code §1995.310(b).

26.5

Fifty percent (50%) of any consideration, including rents, received by or on behalf of Tenant from such assignment or sublease in excess of Total Monthly Rent will be payable to Landlord upon receipt by Tenant as Additional Rent.  Notwithstanding the foregoing, Tenant will be entitled to recapture from any such excess consideration Tenant’s costs and expenses for brokerage commissions, architectural or space planning fees, legal fees, advertising to sublet or assign and shared services (including, without limitation, expenses of a shared receptionist, library, telephone system, photocopier, or other similar office expense), free rent, and tenant improvements, whether granted as an allowance or a rent credit.

26.6

Any allowances, concessions, rights to acquire additional Premises, rights to extend or renew, options, parking discounts or any other similar concessions or consideration set forth in this Lease and any addenda or amendments thereto are expressly understood to be solely for the benefit of the original Tenant and will be null, void and of no force or effect as of the effective date of any assignment or subletting; however, this will not be deemed to retroactively nullify or void any allowances, concessions, rights or options actually disbursed, made or exercised prior to such effective date.

26.7

Any advertisement, publicity or other public solicitation of any assignment or subletting of the Premises which identifies the Building or the Project, or which makes any representation with respect to the Building or the Project, 

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requires Landlord’s prior written approval, which shall not be unreasonably withheld.  Notwithstanding the foregoing, no failure of Tenant to obtain Landlord’s prior approval of such advertising materials will give Landlord the right to terminate this Lease or to disapprove any resulting assignment or subletting of the Premises solely based on Tenant’s failure to obtain such Landlord approval.

26.8

No assignment or subletting of the Premises will release Tenant or any subsequent assignor or sublessor from any liability under this Lease, and Tenant will cause any assignee to execute an agreement with Landlord upon a form furnished by Landlord binding the assignee or sublessee to all the terms of this Lease without relieving Tenant of any liability hereunder.  As security for Tenant’s obligations under this Lease, Tenant assigns to Landlord the right to collect all rent resulting from any assignment or sublease of the Premises in the event of Tenant’s default; and Landlord (as assignee and attorney-in-fact for Tenant, or as a receiver for Tenant appointed on Landlord’s application, may upon written notice to Tenant and subtenant or assignee, thereafter collect and apply such rent toward the satisfaction of Tenant’s obligations under this Lease.  Tenant will pay a reasonable processing fee to Landlord for each assignment or sublease submitted to Landlord, not to exceed $500.

26.9

Unless Tenant is a corporation whose stock is traded through a recognized United States exchange, any of the following will be deemed to be a voluntary assignment requiring Landlord’s consent:  a change in business status or organization, dissolution, merger, consolidation or other reorganization of Tenant (either voluntarily or pursuant to any provision of the Bankruptcy Act); the sale or other transfer of a controlling share of the voting capital stock of Tenant; or, the sale of 51% or more of the interests of Tenant.  However, if Tenant is a corporation or a wholly owned subsidiary of a corporation whose stock is traded through a recognized United States exchange, then, provided Tenant is not in default hereunder, Tenant may assign this Lease or sublet the Premises to a corporation into or with which Tenant is merged or consolidated, or to which all or substantially all of Tenant’s assets are transferred, or to any corporation or other entity that controls or is controlled by the Tenant or is under common control or affiliated with the Tenant (an “Affiliate Transferee”).  Tenant will notify Landlord of any such assignment or sublease in accordance with §34 of this Lease and concurrently provide Landlord with the same financial information as required in §26.2 with respect to any proposed assignee or sublessee.  The provisions of this Section 26.9 shall not be applicable to Peace Arch LA, Inc., so long as any such change, dissolution, merger, consolidation or other reorganization, sale or transfer is not undertaken as a subterfuge to avoid the liability of the Tenant under this Lease.

27.

BANKRUPTCY & INVOLUNTARY ASSIGNMENT

27.1

Any of the following acts or occurrences with respect to either Tenant or any guarantor of this Lease will constitute an involuntary assignment:  filing a petition under Chapter 7, 10, 11 or any other provision of the Bankruptcy Act now or hereafter in effect; making an assignment for the benefit of creditors; being adjudicated bankrupt in involuntary bankruptcy proceedings, unless the judgment is vacated within 60 days from entry; becoming insolvent (reflected by either a written admission of inability to meet current obligations, actual inability to meet current obligations, or liabilities exceeding assets); appointment of a receiver or trustee for any property, unless the appointment is set aside or vacated within 60 days after entry; attachment or execution upon any property (including, without limitation, this Lease) unless the attachment or execution is removed within 60 days after levy; or transfer or assignment of this Lease by operation of law (including, without limitation, transfer by will or intestacy).

27.2

An involuntary assignment will constitute a default by Tenant and Landlord will have the right to terminate this Lease.  This Lease will not be treated as an asset of Tenant and neither Tenant nor any person claiming through or under Tenant (or by virtue of any statute or order of any court) will be entitled to possession of the Premises, which will be forthwith surrendered to Landlord.  Landlord will be entitled to recover damages at least in the amounts set forth in Article 31 of this Lease; however, nothing herein will limit or prejudice the right of Landlord to seek any other damages allowed by any applicable statute or rule of law.

28.

FINANCIAL STATEMENTS

28.1

If Tenant is in default of this Lease, or Landlord is proposing to convey, finance or refinance Landlord’s interest in the Land, Building or Common Areas, and Tenant is not a publicly traded entity whose financial statements are readily available to the public, then Landlord will have the right to require Tenant to furnish Landlord with financial showing 

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Tenant’s financial condition as of a date not more than 90 days prior to submission to Landlord.  Landlord shall not make request more than once a year.

29.

HOLDING OVER

29.1

Tenant may not hold over after the expiration of the Term or earlier termination of this Lease without the prior written consent of Landlord (which is not subject to §35.1).  Tenant agrees that Tenant’s failure to surrender possession of the Premises at the end of the Term can and will cause actual damage to Landlord that is impracticable or extremely difficult to ascertain (including, without limitation, lost opportunities to lease the Premises, increase in the cost of improvements, lost rent and liability for Landlord’s inability to deliver timely possession of the Premises to another tenant).  Therefore, if Tenant holds over after the Term without the prior written consent of Landlord, then Tenant will become a Tenant at sufferance only and will continue to perform each and every term, condition and covenant of this Lease during any such period of holding over; except that, in lieu of damages to which Landlord may be entitled hereunder, Landlord may elect to have Tenant pay Landlord liquidated damages in an amount equal to 150% of the Total Monthly Rent payable by Tenant to Landlord in the last complete month of the Term, for each month or portion thereof that Tenant so holds over.

29.2

If Landlord consents to Tenant’s holding over after the expiration of the Term or earlier termination of this Lease, then the tenancy will continue from month-to-month upon the same terms, conditions and covenants contained in this Lease, except that for each month or portion thereof that Tenant so holds over, Tenant will pay to Landlord rent equal to 150% of the Total Monthly Rent payable by Tenant in the last complete month of the Term.

29.3

The foregoing provisions of this Article are in addition to any other rights of Landlord hereunder, or as otherwise provided by law, including, without limitation, the right to bring an action for unlawful detainer.  Landlord’s acceptance of rent after expiration or earlier termination of this Lease, or during any such period of holding over will not be construed as a renewal or extension of this Lease.  Notwithstanding anything to the contrary contained in this Lease, Tenant will not be entitled to any parking discounts during any such period of holding over.

30.

DEFAULT

30.1

The occurrence of any of the following events will constitute a default of this Lease by Tenant:

(a)

Tenant’s failure to pay when due any Basic Monthly Rent, Tax Rent, Operating Expense Rent, Capital Expense Rent, Additional Rent or any other payment within 10 days following the date due Landlord under this Lease;

(b)

Any default set forth in Article 27 of this Lease; or

(c)

Tenant’s failure to observe or perform any express or implied covenant or provision of this Lease, other than those specified in subparagraphs (a) and (b), above, within 30 days after receipt of notice from Landlord; however, if more than 30 days are reasonably required to so observe or perform, then Tenant will not be in default so long as Tenant commences observance or performance within said 10 day period and diligently prosecutes same to completion.

30.2

Any notice of default Landlord is required to give Tenant hereunder and any notice Landlord may be required to give pursuant to California Code of Civil Procedure §1161, et seq. (or any similar law now or hereafter in effect) may be satisfied by a single notice inclusive of the requirements of both this Article and statutory law.

30.3

Landlord will be in default of this Lease if Landlord fails to observe or perform any material covenant or provision of this Lease that Landlord is required to so observe or perform within 30 days after receipt of written notice from Tenant to Landlord specifying the nature of such failure; however, if more than 30 days are reasonably required to so observe or perform, then Landlord will not be in default so long as Landlord commences observance or performance within said 30 day period and diligently prosecutes same to completion.  Tenant acknowledges that the Premises do not constitute a “Dwelling Unit” or “Dwelling” as the term is used in California Civil Code §1940, et seq.  Tenant waives any right to make repairs at Landlord’s expense pursuant to California Civil Code §1942 or any similar law, statute or ordinance.

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31.

REMEDIES

31.1

If Tenant is in default of this Lease, then Landlord may avail itself of any remedies under law, Landlord’s election of any particular remedy to be at Landlord’s sole discretion, without obligation under §35.1.  Landlord may elect to avail itself of the remedy described in California Civil Code §1951.4, in which case this Lease will continue in full force and effect after Tenant’s breach and abandonment, and notwithstanding anything to the contrary contained in Article 26, Tenant will thereafter have the right to sublet or assign this Lease subject only to reasonable limitations.  If Landlord does not elect to avail itself of the remedy described in California Civil Code §1951.4 and Tenant either breaches this Lease and abandons the Premises before the end of the Term, or Tenant’s right to possession is terminated by the Landlord because of a breach of this Lease, then this Lease will terminate, and Landlord will recover from Tenant the following:

(a)

The worth at the time of award of the unpaid rent which had been earned at time of termination;

(b)

The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided;

(c)

The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and

(d)

Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom (including, without limitation, any costs of obtaining mitigating rental income, such as excused rent, brokerage commissions, Tenant improvements, parking concessions, lease takeovers, cash payments, advertising, moving costs or any other cost or Tenant concession related to the re-leasing of the Premises upon the default of Tenant).

The “worth at the time of award” of the amounts referred to in subparagraphs (a) and (b), above, will be computed by allowing interest at the rate specified in §35.11 of this Lease, compounded monthly; and the “worth at the time of award” of the amounts referred to in subparagraph (c), above, will be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus 1%.

31.2

Tenant waives any equity of redemption and any right to relief from forfeiture as provided by California Code of Civil Procedure §1179 (or any other similar applicable statute, regulation or law now or hereafter in effect).

31.3

Any liability for damages, breach or nonperformance by Landlord, or arising out of the subject matter of or the relationship created by, this Lease, will be collectible only out of Landlord’s interest in the Building and no personal liability is assumed by or will at any time be asserted against Landlord, its parent and affiliated corporations, its and their partners, venturers, directors, officers, agents, servants and employees, or any of its or their successors or assigns; all such liability, if any, being expressly waived and released by Tenant.

32.

ATTORNEYS’ FEES

32.1

In any action brought by either Landlord or Tenant against the other to enforce or interpret any provision of this Lease (including any claim in a bankruptcy or an assignment for the benefit of creditors), the prevailing party will recover from the other party all reasonable costs and attorneys’ fees of such action (including those incurred either prior to such action in the proposed resolution or contemplation of such action, in a prior unlawful detainer action rendered moot by Tenant’s vacancy, in the maintenance or enforcement of any judgment resulting from said action, or in the appeal from any such judgment), whether such costs were incurred or services were performed by in-house or outside counsel.

33.

WAIVER OF JURY TRIAL

33.1

To the fullest extent now or hereafter permitted by law, Landlord and Tenant each hereby waive their respective rights to trial by jury of any cause of action, claim, counterclaim or cross-complaint in any action, proceeding 

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and/or hearing brought by either Landlord against Tenant, or Tenant against Landlord, as to any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the Premises, any claim of injury or damage, or the enforcement of any remedy under any law, statue, or regulation, emergency or otherwise, now or hereafter in effect.  Notwithstanding the foregoing, Landlord and Tenant agree that this waiver will not be effective where the legal effect of such waiver would be to invalidate in whole or in part, or to limit or impair in any manner any policy of insurance in force for the benefit of Landlord or Tenant or to limit or impair any rights, remedies or coverage afforded thereunder.

34.

NOTICE

34.1

Notice will be given to Tenant at the Premises.  Notice will be given to Landlord at the Notice Address for Landlord.  Either party may, by written notice to the other, specify a different address for notice purposes.

34.2

In order to prevent disputes concerning the giving of notice, if any provision of this Lease (or addenda or amendments thereto) requires “notice” to be given, for either party to “notify” the other, or otherwise refers to “notification,” then such notice will be made in writing and be given by either personal delivery, certified mail or a nationally recognized overnight courier service, in each case delivery to be evidenced by a signed receipt therefor.  Notice may also be given by facsimile transmission, provided the party to whom the transmission is addressed acknowledges actual, legible receipt by executing a copy of the transmission (or a receipt for same) and returning a copy of same to the sender, by facsimile transmission or otherwise.  Notices will be deemed effective at the time of delivery, as confirmed by said signed receipts.  If either party fails or refuses to accept delivery by certified mail or overnight courier service, or refuses to execute a receipt evidencing delivery, then notice may be given by first-class mail and will be deemed effective 2 business days after mailing.

34.3

The term “notice” does not include any bills, invoices, rent statements or statement of any other charges or sums due from Tenant to Landlord.

35.

MISCELLANOUS

35.1

Reasonableness.  Except as may be otherwise specifically provided in this Lease, wheresoever and whenever Landlord’s or Tenant’s discretion or consent is required under this Lease, Landlord and Tenant agree that such discretion will be reasonably exercised and that such consent will not be unreasonably withheld or delayed.

35.2

Rules and Regulations.  Tenant will faithfully observe and comply with the Rules and Regulations attached hereto as Exhibit C, and all reasonable and nondiscriminatory modifications or additions thereto made by Landlord from time to time.

35.3

Conflict of Laws.  This Lease is governed by and construed under the laws of the State of California.

35.4

Venue.  Any lawsuit brought by Tenant against Landlord will be filed in a court of competent jurisdiction for the county in which the Building is located.

35.5

Joint and Several Liability.  If more than one person or entity are defined as “Tenant,” each will be jointly and severally liable for keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant.  Notice from or to any one person or entity defined as Tenant given in compliance with Article 34 will be deemed to be effective with respect to every other person or entity defined as Tenant, with the same force or effect as if each such person or entity had so given or received such notice.  Any act or signature by any one person or entity executing this Lease as Tenant concerning the tenancy under this Lease (including, without limitation, any renewal, extension, expiration, termination or modification of this Lease) will be binding upon every other person or entity defined as Tenant with the same force and effect as if each person or entity had so acted or signed.  Any refund to any one person or entity defined Tenant will be deemed given to every other person or entity defined as Tenant, as if each such refund had been collectively made to all persons or entities defined as Tenant.

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35.6

Successors and Assigns.  Except as otherwise provided in this Lease, each covenant, condition and provision of this Lease will be binding upon and will inure to the benefit of the parties hereto, their respective heirs, personal representatives, successors and permissible assigns.

35.7

Relinquishment of Possession.  The voluntary or involuntary relinquishment of possession of the Premises by Tenant to Landlord, or a mutual cancellation of this Lease by both Tenant and Landlord, will at the option of Landlord operate as an assignment to Landlord of any or all subleases or subtenancies and no merger will be effected.

35.8

Performance by Tenant.  If Tenant fails to perform any act to be performed by Tenant hereunder other than payment of money to Landlord and such failure continues for 10 days after Tenant’s receipt of notice thereof from Landlord, Landlord may, without waiving or releasing Tenant from any obligation, perform any such act and all costs incurred by Landlord, together with interest thereon at the rate specified in §35.11 of this Lease from the date of such payment by Landlord, will be payable by Tenant to Landlord.

35.9

Definition of Landlord.  The term “Landlord” as used in this Lease will be limited to mean and include only the owner at the time in question of the fee or leasehold interest under a ground lease of the Land.  If Landlord transfers, assigns or otherwise conveys any such title or leasehold, Landlord will be automatically freed and relieved of all liability with respect to the performance of any covenants or obligations in this Lease to be performed from and after the date of such transfer, assignment or conveyance, except as may be provided in §7.3.

35.10

Waiver.  The waiver by Landlord of any breach of any term, covenant or condition of this Lease will neither be deemed a waiver of any concurrent or subsequent breach of the same or any other term, covenant or condition of this Lease, nor will any custom or practice that may develop between the parties in the administration of the terms hereof be deemed a waiver of, or in any way affect the right of Landlord to require strict performance by Tenant.  The acceptance of rent or any sum hereunder by Landlord does not waive any breach by Tenant of any term, covenant or condition of this Lease other than the failure of Tenant to pay such rent or sum, regardless of Landlord’s knowledge of such breach at the time of acceptance.

35.11

Interest.  Wheresoever required in this Lease, and in lieu of the legal rate to be used in the computation of any interest owed Landlord in any judgment or award of the court, interest will be compounded monthly and charged at a rate equal to 10% per annum.  Tenant hereby agrees that the use of such interest rate herein will not be deemed to be interest upon a loan or forbearance of money, for goods or things in action for use primarily for personal, family or household purposes within the meaning of the California Constitution, Article 15, §1.

35.12

Terms, Headings and Print.  The words “Landlord” and “Tenant” include the plural as well as the singular.  Words used in any gender include other genders.  The article and section headings are not a part of this Lease, and such headings and any use of boldface, italics or underlining are for convenience only, and will not affect the construction or interpretation of this Lease.

35.13

Time.  Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

35.14

Entire Agreement.  This Lease contains the entire agreement of the parties hereto with respect to any matter covered or mentioned in this Lease and no prior agreement or understanding, oral or written, expressed or implied, pertaining to any such matter will be effective for any purpose.  No provision of this Lease may be amended or added to except by an agreement in writing executed by both Landlord and Tenant or their respective successors in interest.  The parties acknowledge that all prior agreements, representations and negotiations concerning the subject matter of this Lease, or collateral thereto, are deemed superseded by the execution of this Lease to the extent they are not incorporated herein and that this agreement will be deemed to be integrated.

35.15

Severability.  Any provision of this Lease that proves to be invalid, void or illegal will not affect, impair or invalidate any other provisions hereof, and such other provisions will remain in full force and effect.

35.16

Recording.  Tenant may not record this Lease or a short form memorandum thereof without the written consent of Landlord.  Any recording without Landlord’s written consent is a material breach of this Lease.

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35.17

Duplicate Originals.  If there is any variation or discrepancy between duplicate original documents held by Landlord and Tenant, then the duplicate original held by Landlord will be deemed controlling.

35.18

Building Name.  Tenant will not use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises.  Landlord may, without liability to Tenant for any damage or injury, whatsoever, to change the name or street address of the Building.

35.19

Quiet Possession.  Except as otherwise provided in this Lease, Tenant, upon paying the rents reserved hereunder and observing and performing all of the covenants, conditions and provisions on Tenant’s part to be observed and performed hereunder, will have quiet possession of the Premises for the entire Term.

35.20

Cumulative Remedies.  No remedy or election hereunder will be deemed exclusive and, wherever possible, each remedy will be cumulative with all other remedies.

35.21

Examination and Delivery of Lease.  Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, or option to Lease and is not effective as a Lease or otherwise, or a binding legal instrument until execution and delivery by all parties.  Prior to execution and delivery by all parties, this Lease is neither legally binding nor effective.

35.22

Confidentiality.  Tenant agrees to keep the terms of this Lease confidential and will not disclose same to any other person not a party hereto without the prior written consent of Landlord; however, Tenant may disclose the terms hereof to Tenant’s accountants, attorneys, managing employees, and others in privity with Tenant to the extent reasonably necessary for Tenant’s business purposes.  Tenant agrees that a breach of this Article will cause irreparable injury to Landlord and Landlord will be entitled, together with all other remedies in law or equity available to Landlord, to injunctive relief to restrain such breach.

35.23

Agreed Figures.  All figures set forth in this Lease represent negotiated sums and percentages and are conclusive as between Landlord and Tenant.

35.24

Measurement of Premises.  The usable area of the Premises has been measured consistent with the American National Standard Institute Publication ANSI Z65.1 - 1996 (“BOMA”).  The rentable area of the Premises and Building include a factor of 15.63% for those Common Areas on the floor containing the Premises and for those Common Areas that generally serve rentable areas of the Building (such as the Ground Floor Lobby), and exclude those areas designated exclusively as storage space.  The Premises shall not be remeasured during the Term.

36.

OPTION TO RENEW

36.1

Tenant shall have one (1) option (the “Renewal Option”) to renew this Lease for the entire Premises for one (1) additional term of five (5) years (the “Renewal Term”) upon the following express terms and conditions:

(a)

Tenant shall not be in default of this Lease notwithstanding any applicable cure periods or notices;

(b)

Tenant shall have provided Landlord with a written notice of Tenant’s intent to exercise the Renewal Option no less than nine (9) months nor more than twelve  (12) months prior to the expiration of the Initial Term;

(c)

Tenant shall continue in the Premises upon the same terms, covenants, conditions, provisions and agreements as in this Lease, except that: 

(i)

Tenant’s Basic Monthly Rent shall be that be that amount determined by multiplying the rentable square footage of the Premises by the “Fair Market Rate” per rentable square foot, including annual escalations, for the leasing of comparable space in the Comparable Buildings (as defined below).

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(ii)

Tenant shall continue in the Premises in its then “AS IS” condition, and Landlord shall not be required to make any improvements to the Premises as a condition to the exercise of the Renewal Option.

(iii)

The Base Year shall be adjusted to calendar year 2012 effective as of the commencement of the Renewal Term.

(d)

If Tenant exercises its Renewal Option, then on or before six (6) months prior to the expiration of the Initial Term Landlord shall provide to Tenant Landlord’s determination of the Fair Market Rate.  If Tenant does not agree with Landlord’s determination of the Fair Market Rate, Tenant shall so notify Landlord, which notice shall specify Tenant’s determination of the Fair Market Rate, and the parties shall negotiate the Fair Market Rate until the parties reach agreement or the date (the “Outside Agreement Date”) which is five (5) months prior to the expiration of the Initial Term.  If the parties have not reached agreement by the Outside Agreement Date, then within five (5) days after the Outside Agreement Date, each of the parties shall submit its final determination of the Fair Market Rate, and such final determination shall be deemed to constitute each of Landlord’s and Tenant’s proposed Fair Market Rate for purposes of the arbitration of the Fair Market Rate in accordance with this § 36, and the determination of Fair Market Rate shall then be resolved by arbitration in accordance with this § 36.

(e)

Tenant’s exercise of this Renewal Option will be documented in an amendment to this Lease prepared by Landlord and to be executed and delivered by each party; however, completion of this amendment is not a condition of the effectiveness of this Option.

36.2

The right to extend the Lease by exercising the Renewal Option is personal to Tenant and may only be exercised by the original Tenant named in §1.1(c) or an Affiliate Transferee of such Tenant who is still in possession of the entire Premises.

36.3

For purposes of this Lease, the term “Fair Market Rate” shall mean the Basic Monthly Rent per rentable square foot that a landlord would accept in a lease transaction from a renewing non-equity tenant (that is not affiliated with Landlord) of comparable credit-worthiness, for comparably sized, comparably located, non-subleased, non-encumbered, non-expansion space of comparable quality that is improved (or will be improved to the extent required herein), for a comparable use for a comparable term commencing within six (6) months before or after the commencement of the applicable Renewal Term (“Comparable Transactions”), subject to the following:  

(a)

If there are at least two (2) Comparable Transactions in the Project, then the Fair Market Rate shall be determined considering only those Comparable Transactions in the Project.

(b)

If there are not at least two (2) such Comparable Transactions in the Project, then such determination shall be made further considering what comparable landlords of "Comparable Buildings" have accepted in Comparable Transactions.  “Comparable Buildings" means those commercial office buildings of a comparable size and class, and located in the Marina del Rey, West Los Angeles, Howard Hughes Center and Playa Vista areas (the "Market Area").

(c)

Although determination of Fair Market Rate shall be limited to determination of the Basic Monthly Rent per rentable square foot, in comparison of Comparable Transactions appropriate consideration shall be given to, and the Fair Market Rate shall be adjusted accordingly for, all of the following:  the ratio of rentable to usable area; whether rent is based upon usable or rentable area; whether additional rent is determined on a net or gross basis and, if gross, whether such increases are determined according to an expense stop or a base year; the extent to which the premises that are the subject of Comparable Transactions are or have been obligated to be improved (or whether the landlords in the Comparable Transactions have provided construction allowances therefor), as compared to the extent to which the Premises are or will be improved by Landlord (or whether Landlord will be providing to Tenant a construction allowance therefor), below; free or reduced rent, construction allowances; and, all other relevant economic terms in the Comparable Transactions that are of a type customarily granted by landlords to tenants of Comparable Buildings, but excluding any consideration of the extent to which a brokerage commission was payable.

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(d)

The Fair Market Rate as determined after considering those factors set forth in subparagraph (c) may be a single rate applicable to the entire term or include such increases or indexing during the term as may be appropriate; provided, however, that the Fair Market Rate as determined after considering those factors set forth in subparagraph (c) shall result in Basic Monthly Rent that is payable in each and every month during the applicable term, without any periods of full or partially excused rent.

36.4

If arbitration is required to determine the Fair Market Rate, then the parties shall proceed as follows:

(a)

Each arbitrator appointed hereunder shall be a licensed real estate professional who shall have been active over the ten (10) year period immediately prior to the date of such appointment in the leasing of comparably sized first-class commercial office properties in the Market Area and who does not then represent or act and has not in the prior three (3) years represented or acted directly on behalf of either of the parties or their respective Affiliates.  Nothing herein shall be deemed to disqualify any licensed broker or salesperson that has solely represented a tenant in a transaction in which Landlord or any of its Affiliates was the landlord (notwithstanding any fiduciary duties owed the landlord in such transaction), provided that such broker or salesperson is not then actively negotiating on behalf of a tenant for the leasing of premises from Landlord or any of its Affiliates.

(b)

If Landlord and Tenant cannot agree to a single arbitrator within ten (10) business days, then Landlord and Tenant shall each appoint one (1) arbitrator within such ten (10) business day period; however, if one (1) party fails to timely appoint an arbitrator, then the determination shall be made by the sole appointed arbitrator.

(c)

If a sole arbitrator is not agreed upon or deemed selected, then the two (2) qualified arbitrators so appointed shall, within ten (10) business days thereafter, appoint a third (3rd) arbitrator having the same minimum required qualifications; however, if the two (2) arbitrators fail to agree upon and appoint a third (3rd) arbitrator within said ten (10) business day period, then upon application thereafter by either Landlord or Tenant prior to any appointment thereof, the third (3rd) arbitrator shall be appointed by application to the nearest geographically located office of JAMS, subject to such arbitrator having the qualifications set forth in subparagraph (a), above.

(d)

The determination of the arbitrator(s) shall be limited solely to the issue of whether Landlord’s or Tenant’s proposed Fair Market Rate is closer to the actual Fair Market Rate for the premises in question.  The arbitrator(s) shall have no authority to issue any decision other than the selection of either Landlord’s or Tenant’s proposed Fair Market Rate.

(e)

Within ten (10) business days after the appointment of the last arbitrator, Landlord and Tenant may each submit to the arbitrators in writing (with a copy thereof to the other party) any facts or arguments supporting their respective proposed Fair Market Rate.  Within five (5) business days after the expiration of said ten (10) business day period, either party may submit to the arbitrators in writing (with a copy thereof to the other party) any rebuttal to the other party’s submitted facts and arguments.  Nothing herein shall be deemed to restrict the arbitrators from consideration of facts and/or arguments in addition to those submitted by each party that are within the personal knowledge of the arbitrator.

(f)

A majority of the arbitrator(s) shall, within thirty (30) days after the receipt of any such rebuttals, reach a decision consistent with subparagraph (d), above, and shall notify Landlord and Tenant thereof in writing.  The decision of the arbitrator(s), if consistent with subparagraph (d), shall be binding upon both Landlord and Tenant.

(g)

Each party shall bear the costs and fees of any arbitrator appointed solely by such party (unless such arbitrator is the sole appointed arbitrator), and each party shall otherwise bear one-half of the costs and fees of any other arbitrators.

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[2/21/2007] (ver.4)

ex0424.doc 

31

Peace Arch REG

[2/21/2007] (ver.4)

ex0424.doc 

32

LANDLORD AND TENANT EXECUTE THIS LEASE AS FOLLOWS.

PEACE ARCH LA, INC., A CALIFORNIA CORPORATION

By:                   /s/ John Flock

Print:                  John Flock

Title:                   President

 

MARINA AIRPORT BUILDING, LTD.,

BY:  TRIZEC HOLDINGS, INC.,

By:              /s/ Anthony J. Manos

Print:              Anthony J. Manos

Title:               Sr. Vice President

By:                  /s/ Mark C. Phillips

Print:                    Mark C. Phillips

Title:             Assistant Secretary

BY:  ALTA GROUP GP, LLC

By:                      /s/ Jona Goldrich

Print:                          Jona Goldrich

Title: 

			
	FOR LANDLORD’S OFFICE USE, ONLY – NOT A PART OF THIS DOCUMENT

	Sequence No. 1: ______________________

	Sequence No. 2: ______________________

	Sequence No. 3: ______________________

Peace Arch REG

[2/21/2007] (ver.4)

ex0424.doc 

33

EXHIBIT A – LOCATION PLAN

EXHIBIT B – LEGAL DESCRIPTION

The real property commonly known as 4640 through 4676 Admiralty Way, Marina Del Rey, California, and more particularly described as:

That real property constituting those portions of parcels 692 to 698 inclusive, in the County of Los Angeles, State of California, as shown on Los Angeles County Assessor’s Map No. 88, filed in Book 1 Pages 53 to 70 inclusive of Assessor’s Maps, in the Office of the County Recorder of said County.

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EXHIBIT C – RULES AND REGULATIONS

1.

The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors or halls may not be obstructed or used for any purpose other than ingress and egress.  The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into halls, passageways or other public places in the Building may not be covered or obstructed by Tenant, nor may any bottles, parcels or other items be placed on the windowsills.  Tenant may not throw anything out of doors, windows or skylights or down the passageways.

2.

No awnings or other projection will be attached to the outside walls of the Building.  No sign, advertisement or notice will be exhibited, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord.  Tenant may not place any radio or television antenna on the roof or on any part of the inside or the outside of the Building, other than the inside of the Premises, without the prior written consent of the Landlord.  

3.

No curtains, blinds, shades or screens will be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord’s approved window coverings.  Neither the interior nor exterior of any windows will be coated or otherwise sun-screened without the express written consent of Landlord.  All electric ceiling fixtures hung in offices or spaces along the perimeter of the Buildings must be fluorescent, of a quality type, design and bulb color approved by Landlord.  Tenant will keep all window coverings closed when the Building air conditioning, heating and ventilation systems are in operation, and Landlord will not be responsible for variance in room temperatures caused by Tenant’s failure to comply with this Rule.

4.

Signs on doors that are in the Common Areas or visible from the Common Areas, and directory tablets or listings in the lobby or other Common Areas of the Building are: (a) provided exclusively for the display of a single business name for Tenant, only, and Landlord reserves the right to exclude any other names therefrom, (b) will be inscribed, painted or affixed for Tenant by the Landlord at the expense of Tenant, and (c) will be of a number (at least two directory strips for Tenant), size, color and style prescribed by Landlord.  All doors opening onto public corridors will be kept closed, except when in use for ingress and egress.

5.

The water and wash closets and other plumbing fixtures may not be used for any purpose other than those for which they were constructed and no sweepings, rubbish, rags or other substances will be thrown therein.

6.

Tenant may not mark, paint, bore or drill into, or in any way deface any part of the Premises or the Building, or string any wires.

7.

The laying of linoleum or other similar floor coverings will be permitted only with the prior written consent of the Landlord and as the Landlord may direct.  Tenant will place particle boards or plastic chair mats under all desk or secretarial chairs.  Said mats will be provided and maintained at Tenant’s cost and expense.

8.

No bicycles or vehicles of any kind may be brought into, stored or kept in or about the Premises.  There may not be used in any space, or in the Common Areas of the Building, either by Tenant or others, any hand trucks except those equipped with rubber tires and rubber side guards or such other material handling equipment as Landlord may approve.

9.

No birds, pets or animals of any kind may be brought into or kept in or about the Premises, except for service animals assisting Tenant’s employees or visitors.

10.

No cooking may be done or permitted by Tenant on the Premises, except that the preparation of coffee, tea, hot chocolate and similar items for Tenant and its employees will be permitted, provided the power requirement does not exceed that amount that can be provided by a 30 amp circuit.  Tenant may not cause or permit any unusual or objectionable odors to be produced or permeate the Premises or the Building.  No vending or similar machines may be installed, maintained or operated upon the Premises without the written consent of Landlord.

11.

The Premises may not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the use of the Premises for general office purposes or Tenant’s use of the Premises as set forth in this 

1

Lease.  Tenant may not occupy or permit any portion of its Premises to be occupied as an office for a public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau.

12.

Tenant may not use the Premises as a location to pay employees working outside the Premises, or advertise for laborers giving an address at the Premises.

13.

The Premises may not be used for lodging or sleeping or for any illegal purposes.

14.

Tenant may not make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of the Building, or neighboring buildings or Premises, or those having business with them, whether by the use of any musical instrument, radio, phonograph, unusual noise, or any other way.  Tenant may not operate or permit to be operated any musical or sound producing instrument or device inside or outside the Premises that may be heard outside the Premises, or operate any electrical device from which may emanate electrical waves that may interfere with or impair radio or television broadcasting or reception from or in the Building or elsewhere, without the Landlord prior written consent.

15.

No additional locks or bolts of any kind may be placed upon any of the doors or windows by Tenant, and no change may be made to existing locks or the mechanism thereof.  Tenant must, upon the termination of its tenancy, restore to the Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by Tenant.  If Tenant loses any keys, then Tenant will pay to the Landlord the cost of replacing the keys or changing locks, if Landlord deems it necessary.

16.

All moving of safes, freight, furniture, or bulky matter of any description requiring the use of the Building’s elevators must take place between the hours of 9:00 - 11:30 a.m. and 1:30 - 4:15 p.m. Monday through Friday (exclusive of holidays).  The moving of safes, other fixtures, equipment or bulky matter of any kind must be made upon previous notice to the management of the Building and under its supervision, and the persons employed by Tenant for such work must be acceptable to the Landlord.  If additional expenses are incurred by Landlord by reason of moving Tenant’s safes, other fixtures, equipment or bulky matter of any kind, such expenses will be borne by Tenant.  The scheduling of moves of Tenant’s furniture and equipment into or out of the Building is subject to the reasonable discretion of Landlord.  The person employed to move such equipment in or out of the Building must be acceptable to Landlord.  Landlord will not be responsible for loss of, or damage to any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property will be repaired at the expense of Tenant.

17.

Tenant may not place a load upon any floor of the Premises that exceeds the load per square foot which such floor was designed to carry and that is allowed by law.  Landlord will have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building.  Heavy objects will, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight.  Business machines and mechanical equipment belonging to Tenant that cause noise or vibration that may be transmitted to the structure of the Building, or to any space therein, to such a degree as to be objectionable to Landlord, or to any tenants in the Building, will be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration.  The Landlord reserves the right to inspect all safes, freight or other bulky items to be brought into the Building and to exclude from the Building all safes, freight or bulky items that violate any of these Rules and Regulations or this Lease.

18.

Tenant may not purchase janitorial, maintenance or other like services from any company or persons not approved by the Landlord, so long as the company or persons approved by Landlord provide such services at a reasonable cost.  Any persons employed by Tenant to do janitorial work, will, while in the Building and outside of the Premises, be subject to and under the control and direction of the management of the Building (but not as an agent or servant of the Landlord), and Tenant will be responsible for all acts of such persons.  No such person will be allowed in the Building between 6:00 p.m. and 8:00 a.m. on Mondays through Fridays and at all hours on Saturdays, Sundays and legal holidays.

19.

Landlord will have the right to prohibit any advertising by Tenant that, in Landlord’s opinion, tends to impair the reputation of the Building or its desirability as an office Building and, upon written notice from Landlord, Tenant will refrain from or discontinue such advertising.

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20.

The Landlord reserves the right to exclude from the Building on Mondays through Fridays between the hours of 6:00 p.m. and 8:00 a.m. and at all hours on Saturdays, Sundays and legal holidays all persons who have not received clearance as a result of a written request from Tenant or who do not present a pass to the Building signed by the Landlord.  The Landlord will furnish passes or, at Landlord’s option, clearances to persons for whom Tenant requests the same in writing.  Landlord will not be liable for damages caused by any error with regard to any person’s admission to or exclusion from the Building.  

21.

The requirements of Tenant will be attended to only upon appropriate application to the office of the Building by an authorized individual.  Employees of Landlord may not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.

22.

Canvassing, soliciting and peddling in the Building are prohibited and Tenant will cooperate to prevent the same.

23.

No air conditioning unit or other similar apparatus may be installed or used by Tenant without the written consent of Landlord.  Tenant may not connect any apparatus, device, conduit or pipe to the Building’s chilled or hot water supply lines or to the air conditioning system.  Tenant’s use of electric current may never exceed the electrical capacity of the floor or Building or cause such capacity to be exceeded.  Tenant will close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before Tenant and its employees leave the Premises.  Tenant will be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this Rule.

24.

The location of telephones, call boxes and other office equipment affixed to the Premises will be subject to the prior written approval of Landlord.  Neither Tenant nor Tenant’s servants, employees, agents, visitors, licensees or contractors may, at any time, enter the mechanical installations or facilities of the Building or adjust, tamper with, touch or otherwise in any manner affect said installation or facilities.

25.

Landlord reserves the right to exclude or expel from the Building and the Premises any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who acts in violation of these Rules and Regulations.

26.

Tenant will comply with all rules and regulations applicable to the parking garage established from time to time by the Landlord or Landlord’s parking garage operator.

27.

Tenant will store all its trash and garbage within its Premises.  Tenant may not place in any trash box or receptacle any material that cannot be disposed of in the ordinary and customary manner of trash and garbage disposal.  Tenant will be solely responsible for the disposition of any hazardous or infectious waste brought onto or generated by Tenant in the Premises.  All garbage and refuse disposal will be made in accordance with directions issued from time to time by Landlord.

28.

The word “Tenant,” as used herein, includes any subtenant or other permitted occupant of the Premises.

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EXHIBIT D – NOTICE OF ACM

4640 Admiralty Way, Marina Del Rey, California

This will serve to notify Tenant, its subtenants, employees and contractors working in the Building that an Asbestos Building Materials Survey Report has been received by Landlord that confirms the presence of ACM in the Building.

Airborne asbestos levels in buildings are much lower than those in industrial work places where serious health effects such as lung cancer and asbestosis have been observed.  However, it is important for employees to follow proper work practices to minimize the potential for disturbing ACM.  

In the office areas of the Building, ACM is enclosed above the ceiling.  Normal activities may be carried on without potential of disturbing ACM.  Certain occasional activities, such as telephone installation, computer cable installation, electrical work, air conditioning maintenance, as well as many space remodeling tasks require entry into the ceiling plenum, and should only be performed by Landlord's authorized personnel who have been properly trained in procedures for working around ACM.  All other unauthorized persons should refrain from removing ceiling tiles or performing work in the above-ceiling space.

In other locations where ACM may be present, such as fire evacuation stairways and the sprayed on acoustical ceiling in the main lobby, the ACM is generally out of reach and thus unlikely to be damaged or disturbed.  If you find ACM that has been damaged, report it to your supervisor or Landlord's Building Management.  Do not disturb damaged asbestos material or debris.  Landlord has developed procedures and trained and equipped our maintenance employees to safely remedy such a condition.

ACM pose no threat to your health unless fibers become airborne due to material aging, deterioration or as the result of some damage.  Asbestos conditions may vary, and where ACM were identified in the building surveys they were generally in good condition, enclosed, encapsulated or of a type not likely to release fibers unless disturbed.  Specific locations where ACM have been found are listed below.  Any employee may review the Asbestos Material Survey Report, results of bulk sampling or air monitoring conducted in this building.  All asbestos related data is available during normal business hours at Landlord's Building Management Office.

		
	location

	TYPE of ACM

	Floor 1

	Fireproofing in Suite 101 and above ceiling in Main Lobby: all accessible ACM removed from Suite 102

	Mezzanine

	All Accessible ACM Removed

	Floor 2

	All accessible ACM removed, except above ceiling in corridor, elevator lobby and restrooms

	Floor 3

	Fireproofing in Suites 301, 302, 306, 306A, 310, and 318; all accessible ACM removed above ceiling in corridor, elevator lobby, restrooms and from Suite 303

	Floor 4

	Fireproofing in Suites 409, 417 and 430; all accessible ACM removed from Suites 401, 402, 402A, 406, 410 and 423 and above ceiling in corridor, elevator lobby and restrooms

	Floor 5

	All Accessible ACM Removed

	Floor 6

	All Accessible ACM Removed

	Floor 7

	All Accessible ACM Removed

	Floor 8

	All Accessible ACM Removed

	Floor 9

	All Accessible ACM Removed

	Floor 10

	All Accessible ACM Removed

	Floor 11

	All Accessible ACM Removed

	Floor 12

	All Accessible ACM Removed

	Penthouse

	All Accessible ACM Removed

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	Asbestos Type:

	Chrysotile

	Fireproofing

	1% - 10% ACM Content

	Acoustic Ceiling

	1% - 10% ACM Content

	Boiler Brick

	11% - 50% ACM Content

2

EXHIBIT E – WORK LETTER

This Work Letter is attached to and made a part of the Lease executed concurrently herewith by and between the Landlord and Tenant. Except as otherwise provided herein, all capitalized terms not otherwise defined herein shall have the same meanings ascribed to them in the Lease.

1. 

CONSTRUCTION REPRESENTATIVES

1.1

With respect to matters covered by this Work Letter, Landlord shall be represented by either the Director of Construction or Senior Project Manager of Landlord’s Construction Department (“Landlord's Representative”), subject to certain limitations in such representation set forth herein.

1.2

With respect to matters covered by this Work Letter, Tenant hereby designates John Flock to be Tenant's representative (“Tenant's Representative”).

1.3

All inquiries, requests, instructions, authorizations and other communications with respect to the matters covered by this Work Letter shall be made between Landlord's Representative and Tenant's Representative; including any inquiries, requests, instructions or authorizations to any employee, contractor or agent of the other. Either party may change its respective representative by giving written notice to the other.

2. 

LANDLORD'S WORK

2.1

Tenant shall acquire the Premises in its "as is" condition, inclusive of all defects, imperfections, mars, stains, blemishes and flaws in the existing Leasehold Improvements, and Landlord shall not be required to perform any improvements or corrections to the same, excepting to correct any latent defects in the Base Building that either: (a) are required to be corrected by governing authorities, (b) materially increase Work Costs, or (c) materially adversely affect Tenant’s enjoyment of the Premises for the Permitted Use.

2.2

All work shown on the Construction Drawings or otherwise required as a condition of obtaining permits, approvals and certificates from governing authorities necessary for construction of the work and Tenant's use and occupancy of the Original Premises or Additional Premises, shall be performed and constructed by Landlord on behalf of Tenant ("Landlord’s Work") in accordance with the provisions of this Work Letter and the Lease. Landlord’s Work shall be performed, constructed, installed, inspected and supervised in a good and workmanlike manner, free from Hazardous Materials (as currently defined in §15 of the Lease), and in compliance with all laws, and otherwise in accordance with the provisions of this Work Letter. All Landlord’s Work shall conform to the Construction Drawings and any approved modifications thereto.

3. 

PERFORMANCE SCHEDULE AND DELAYS

3.1

All Work to be performed pursuant to this Work Letter (including, without limitation, preparation, review and revision of Space Plans and Working Drawings, bidding, obtaining permits, and Landlord’s Work) shall proceed and be performed in accordance with the "Construction Schedule" attached hereto as Schedule 1.

3.2

“Tenant Delay” is defined as any delay in the performance of Landlord’s Work caused by Tenant's (or its employee's, contractor's or agent's) act or failure to act, including without limitation: failure to complete any item on the Construction Schedule for which Tenant is responsible, on or before the date specified therein; changes to Space Plans or Construction Drawings after submission to Landlord for Landlord's approval; specification of a material, finish or installation which is unavailable or requires a lead time substantially exceeding that of comparable products; failure to cooperate with Landlord or government authorities having jurisdiction over Landlord’s Work; or failure to timely make payments required hereunder. Notwithstanding the foregoing, Tenant Delay shall be excused to the extent caused by or aggravated by Landlord Delay or Force Majeure Delay.

3.3

“Landlord Delay” is defined as any delay in the performance of Landlord’s Work caused by Landlord's (or its employee's, contractor's or agent's) act or failure to act, including without limitation: failure to complete any item on the 

3

Construction Schedule for which Landlord is responsible, on or before the date specified therein; misrepresentation of the accuracy of base building plans furnished to Tenant’s architect; changes to the Space Plans or Construction Drawings after issuing Landlord’s approval of the same; failure to cooperate with Tenant or government authorities having jurisdiction over Tenant’s Work; or failure to timely make payments required in this Lease.  Notwithstanding the foregoing, Landlord Delay will be excused to the extent caused by or aggravated by Tenant Delay or Force Majeure Delay.

3.4

“Force Majeure Delay” is defined as any delay in the performance of Landlord’s Work resulting from an occurrence beyond the reasonable control of either Landlord or Tenant (or their respective employees, contractors or agents), including (without limitation): an act of God or the elements of nature; fire or other casualty; war, riot, insurrection, or public disturbance; a black-out or other interruption of utility service from the provider to the Building; a strike or other labor disturbance (except to the extent caused by an illegal act of Landlord); changes in government codes or regulations (or the interpretation of same); the unavailability of government permits or approvals within the time customarily available; or a general shortage of materials or supplies.  Force Majeure Delay does not include the inability of either Landlord or Tenant to meet their monetary obligations either under this Lease or in any other respect.

3.5

A claim for delay for the failure of a party to timely complete any item on the Construction Schedule for which the party is responsible will be presumed and established without any requirement of written notice; however, in all other cases (including the claim that the failure to adhere to the Construction Schedule was a result of delay of the other party or Force Majeure Delay), the party claiming delay will promptly notify the other party in writing of such claim and the nature of the delay within three (3) business days of discovery of the delay, or the delay will not be deemed effective until the 3rd business day prior to the date such notice is given.

4.

PLANS & PERMITS

4.1

Tenant has engaged View Design Studio, an architect approved by Landlord (“Tenant’s Architect”) to prepare plans showing the architectural design of the Premises, including partition layout, location of receptacles, location of major trade fixtures, and reflective ceiling plans (the “Space Plans”).  Tenant has submitted the Space Plans to Landlord for review and approval and Landlord has conditionally approved the Space Plans.  Any revisions or supplements to the Space Plans after initial approval by Landlord (and before initial submittal to Landlord of the Construction Drawings) will be subject to Landlord’s review and approval/disapproval within five (5) business days of receipt.  

4.2

After the Space Plans are fully approved by Landlord and in accordance with Schedule 1, Tenant’s Architect shall prepare complete architectural plans, drawings and specifications, in a form and in such detail as is reasonably necessary to accurately construct Landlord’s Work ("Construction Drawings") in accordance with all applicable codes; including, without limitation, layout, finish and decorative work (including carpeting and other floor coverings), any proposed improvement affecting the base Building structural, mechanical, electrical, intra-Building telephone network cabling, plumbing, fire/life safety, heating, ventilation and air conditioning systems, exhaust systems, and any item will require installation of conduit, plumbing or other improvements within Common Areas or other premises. Landlord shall review and approve/disapprove of the Construction Drawings within five (5) business days of receipt. If Landlord disapproves of any portion of the Construction Drawings, Landlord shall advise Tenant of the same and the reason therefor, and Tenant shall revise the Construction Drawings accordingly and resubmit the same to Landlord for review and approval. Landlord shall review and approve/disapprove of revised Construction Drawings within three (3) business days of receipt. Review, revision and resubmission shall continue until the Construction Drawings are fully approved by Landlord.

4.3

Notwithstanding anything to the contrary contained in §4.1 and §4.2, neither Tenant nor Tenant’s Architect may include in the Space Plans or Construction Drawings any requirement that will, in Landlord’s reasonable opinion:

(a)

Be incompatible with the design, construction and equipment of the Building (including floor loading requirements); 

(b)

Differ in quality or quantity from the Building standards unless said quality or quantity or exceeds the Building standards; 

(c)

Impair the exterior appearance of the Building;

4

(d)

Impair Landlord’s ability to maintain, operate, alter, modify or improve the Building Structure or Mechanical Systems;

(e)

Violate any applicable laws, ordinances and/or the rules and regulations of any governmental authority having jurisdiction; 

(f)

Violate any applicable insurance regulations, including but not limited to any such regulation for a fire resistive Class A Building; or 

(g)

Locate any of Tenant’s fixtures, furnishings or equipment (including, without limitation, communications systems) in the Common Areas (including, without limitation, telecommunications closets), and all such fixtures, furnishings and equipment will be located entirely within the Premises.

4.4

If permits are required, Landlord shall (with Tenant’s and Tenant’s Architect’s prompt cooperation and assistance) secure such permits and approvals as may be required from any governmental authority having jurisdiction. If any government authority requires alterations, modifications or supplements to the Construction Drawings, Tenant hereby agrees to promptly make such alterations, modifications or supplements necessary to obtain any required permits.

4.5

Upon completion of Landlord’s Work, Tenant’s Architect (with the assistance of Landlord’s Contractor) shall furnish Landlord with a complete set of "as-built" drawings depicting all permanent improvements in the Premises (including all Mechanical Systems), as actually constructed or installed (“As-Built Drawings”).

4.6

Landlord’s Representative’s review and approval/disapproval of Space Plan and Construction Drawings under §4.1 and §4.2, above, and any cooperation and assistance of Landlord’s Representative in the preparation thereof, is solely for the protection of Landlord’s interests in the Land, Building and Premises, and should not be construed as a waiver of any of Tenant’s or the Tenant’s Architect’s obligations under this Work Letter to prepare and modify the Space Plans and Construction Drawings in accordance with §4.3 and §4.4.  In the event any changes to the Space Plan or Construction Drawings are required due to errors or non-compliance with code requirements as a result of changes to the Space Plan or Construction Drawings required by Landlord following preparation of the same by Tenant’s Architect, then Landlord shall be responsible for the cost of further revisions to the Space Plan or Construction Drawings, as applicable.  The provisions of this §4 will apply equally to any modifications of approved and/or permitted drawings required under this Work Letter.

5.

SELECTION OF CONTRACTOR

5.1

Landlord shall submit the approved Construction Drawings to no less than three (3) independent general contractors subject to Tenant’s reasonable approval (which approval shall be provided within five (5) business days of such request) for bidding on Landlord’s Work.  Landlord may require that each contractor use Landlord’s designated subcontractors for all work pertaining to the fire and life safety and heating, ventilation, air-conditioning systems (Landlord to provide a list of said designated subcontractors in response to the written request of each such contractor), and with each subcontractors’ charges being reasonably competitive in the marketplace.  

5.2

Subject to Tenant’s reasoanble approval which shall be provided within five (5) business days of such request, Landlord will select a contractor (“Landlord’s Contractor”) and enter into a written contract with Landlord’s choice of contractor, providing for payment on a progress payment basis, and otherwise on such terms and conditions as are commercially reasonable and do not otherwise violate the terms of the Lease and this Work Letter, to include a retention of not less than 10% of the total contract price (the “Retention”).  Tenant will be provided a copy of the fully executed construction contract prior to Tenant being required to furnish any access to the Premises for the performance of any of Landlord’s Work.

6.

ACCESS TO PREMISES

6.1

Tenant will provide Landlord, Landlord’s Contractor and its subcontractors with reasonable access to the Premises in order that Landlord may perform Landlord’s Work in a timely manner.  During the performance of Landlord’s Work, Tenant may install Tenant’s furnishings, fixtures and equipment (including wiring for telecommunications and computers) in the Premises (“Tenant’s Work”) subject to the following:

5

(a)

Access shall be subject to, and coordinated with, the reasonable activities and construction schedules of Landlord and Landlord's Representative.

(b) 

Tenant, Tenant’s contractor and its subcontractors (collectively, Tenant’s Construction Personnel”) shall comply with all reasonable rules and regulations which Landlord may, from time-to-time, establish for the performance of Tenant’s Work or other improvements in the Building, and shall otherwise be subject to the reasonable direction of Landlord or Landlord's Representative.

(c) 

If the presence and/or activities of Tenant or its subcontractors unreasonably interferes with:

(i) 

Landlord’s Work,

(ii) 

The normal operations of the Building, or

(iii) 

Causes labor difficulties,

then Landlord shall have the right to have Tenant’s Construction Personnel immediately cease work and vacate the Building, Common Areas, Original Premises or Additional Premises of personnel, equipment, materials and supplies to the extent reasonably required to eliminate any such interference.

(d)

Tenant’s Construction Personnel shall comply with all applicable laws, regulations, permits and other government approvals applicable to such entry and work in the Original Premises and Additional Premises.

(e)

Prior to any access to the Premises to perform Tenant's Work, Tenant’s Construction Personnel shall furnish Landlord with:

(i) 

Certificates or other proof reasonably required by Landlord to establish that Tenant’s Construction Personnel are in compliance with the Insurance Requirements set forth in Schedule 2, attached hereto;

(ii) 

A copy of the fully executed construction contract between Tenant and its contractor and subcontractors (or other written authorization from Tenant for any subcontractor to proceed with work); and

(iii) 

A copy of the contractor's license for each of Tenant’s contractor and subcontractors.

(f)

Neither Landlord’s Contractor nor Tenant’s contractor (and their respective subcontractors) shall be subject to charge for parking, utilities, heating, ventilation, and air-conditioning (during business hours), security (unless access to other tenants’ premises is required) or use of the freight elevator in the performance of their respective work; provided, however, that if in Landlord’s reasonable opinion the moving of any bulky or heavy items that may exceed the size or weight capacity of the freight elevator reasonably requires the assistance of or monitoring by Landlord’s elevator service provider, then the costs incurred by Landlord’s Contractors shall be a Work Cost. Each party’s respective contractors shall furnish trash removal as part of their services, which removal for Landlord’s Contractor shall be a Work Cost.

7. WORK COSTS

7.1

As used in this Work Letter, the term "Work Costs" means:

(a)

All design and engineering fees incurred in connection with the preparation and review of the Space Plans, Construction Drawings and the processing of the same by governing authorities;

(b)

Any reasonable fees incurred by Landlord in having Landlord's architect and/or engineer review, test or inspect the Space Plans, Construction Drawings or Landlord’s Work;

(c)

Governmental agency plan check, permit and other fees applicable to Landlord’s Work;

(d)

Increased costs to Landlord’s Work (if any) caused by changes in the approved Space Plans or approved Construction Drawings by Tenant;

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(e)

The cost of any improvements, modifications, additions or alterations to Fire and Life Safety Systems within the Premises required by any government or regulatory agency or authority having jurisdiction over Landlord’s Work.

(f)

Sales and use taxes applicable to Landlord’s Work;

(g)

Material and labor costs incurred in making Landlord’s Work;

(h)

General conditions and contractor’s fees; and

(i)

A Supervision Fee payable to Landlord in accordance with Schedule 3, attached hereto.

7.2

The Construction Allowance, if any, will be first applied toward items (d) and (i) of Work Costs, and then applied toward the payment of any other items that are Work Costs.  If the Work Costs are estimated to exceed the Construction Allowance or the Construction Allowance has been exhausted, then Tenant shall pay all such excess Work Costs on a progress payment basis, as follows.  On or before the performance of any Work, Tenant shall deposit with Landlord any Work Costs to the extent that such Work Costs are reasonably estimated to exceed the Construction Allowance (if any) (“Tenant’s TI Contribution”).  Landlord shall retain Tenant’s TI Contribution and promptly disburse the same to Landlord’s Contractor, subject to the remaining provisions of this §7.  Any Tenant’s TI Contribution deposited by Tenant with Landlord which remain unused after completion of the Work, and which are not subject to any claim by Landlord, Landlord’s Contractor, or any subcontractor (or their respective providers of any labor or materials used or expended in the performance of the Work), shall be promptly returned to Tenant.

7.3

No payment of any Work Costs shall be made by Landlord (from the Construction Allowance, if any, or funds deposited by Tenant) unless and until Landlord has received factually correct invoices for the same, Landlord has confirmed that such work has been performed in accordance with this Work Letter and the Lease, and Landlord has received appropriate lien releases from Landlord’s Contractor and all subcontractors and suppliers (including a conditional lien release for any current application for payment, accompanied by an unconditional lien release for any prior application for payment for which payment has been made).

7.4

Under no circumstances will Landlord be required to pay any Retention to Tenant or Tenant’s contractors unless and until Tenant or Tenant’s contractor furnishes Landlord with:

(a)

The permit card with all final inspector sign-offs completed;

(b)

A certificate of occupancy (if required by law);

(c)

A copy of the recorded Notice of Completion;

(d)

The As-Built Drawings;

(e)

The air balance report;

(f)

The punchlist showing Tenant has approved all corrections set forth therein;

(g)

Guarantees, warrantees and operation manuals for all Mechanical Systems or other trade fixtures installed in the Premises; and

(h)

All unconditional lien releases.

8.

PUNCHLIST REPAIRS

8.1

Within 30 days after the completion of Landlord’s Work, Tenant shall give Landlord written notice of any claimed deficiencies in the Leasehold Improvements. Within 10 business days after receipt of such notice (or upon any other mutually agreeable date), Landlord shall cause corrective work that is required to be begun, and diligently prosecute same to 

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completion. Notwithstanding the foregoing, Landlord shall not be responsible for correcting any damage caused to the Leasehold Improvements by Tenant or its employees, contractors or agents in connection with the Tenant's move into the Additional Premises or any other reason other than the fault of Landlord, Landlord's Representative or Landlord’s Contractor (and their respective employees, contractors or agents). Except for latent defects in the materials and workmanship of Landlord's Work (which are subject to Landlord’s Contractor’s 1-year warranty that Landlord will use commercially reasonable efforts to enforce for the benefit of Tenant), if Tenant fails to give Landlord notice of any patent deficiency as provided herein, then Tenant shall be deemed to have accepted the Leasehold Improvements inclusive of such deficiency and waived any right to corrective work with respect to the same.

8.2

The repair of punch-list items while Tenant is in occupancy of the Premises is a normal and foreseeable event in the course of construction, and there shall be no liability of Landlord or Landlord's Representative for abatement of rent or injury to or interference with Tenant's business, fixtures, appurtenances, or equipment, which commonly occurs as a result of the normal making of any of the repairs or corrections contemplated herein.

SCHEDULE 1 – CONSTRUCTION SCHEDULE

Each party shall perform the following on or before the dates indicated:

		
	TASK

	DUE DATE

	Tenant delivers proposed Space Plans to Landlord:

	Completed

	Tenant delivers proposed Construction Drawings to Landlord:

	October 31, 2006

	Landlord submits approved Construction Drawings to contractors for bidding:

	November 2, 2006

	Landlord reviews bids with Tenant:

	November 15, 2006

	Tenant selects contractor

	November 16, 2006

	Landlord commences construction:

	5 business days after the later of (i) receipt of permits or (ii) the full execution and delivery of this Lease by Landlord and Tenant

SCHEDULE 2 –INSURANCE REQUIREMENTS

The following are the standard types, amounts and forms of insurance required under the General Subcontract Conditions.  The policies of insurance will be in such form and will be issued by such company or companies as may be satisfactory to Landlord’s Representative.

WORKERS COMPENSATION

As required by any applicable law or regulation or statute and to include coverage for the state in which the project is located and the states in which any subcontractor is domiciled.

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GENERAL LIABILITY

Tenant’s contractor and each subcontractor will carry comprehensive general liability insurance, including personal injury, owner’s and contractor’s protective liability, explosion, collapse and underground damage liability endorsement (commonly called S, C and U hazard), products, completed operations, blanket contractual and broad form property damage coverage, naming Landlord (and Landlord’s property manager and Landlord’s Representative, if not Landlord) as additional insureds, providing primary (and not contributing) coverage, and containing cross-liability and severability of interest clauses, of not less than the following limits:

(a)

If the total cost of the contract (or subcontract, as applicable) is $20,000 or less, coverage in an amount of not less than $1 million combined single limit per occurrence;

(b)

If the total cost of the contract (or subcontract, as applicable) is more than $20,000, but not more than $150,000, coverage in an amount of not less than $2 million combined single limit per occurrence; and

(c)

If the total cost of the contract (or subcontract, as applicable) is $150,000 or more, coverage in an amount of not less than $5 million combined single limit per occurrence.

Notwithstanding the foregoing, coverage required under subparagraphs (b) or (c), above, may be satisfied by a combination of not less than $1 million primary coverage, plus excess insurance up to the applicable limit.

AUTOMOBILE LIABILITY

Tenant’s contractor and each subcontractor will carry automobile liability insurance, including owned, non-owned, leased and hired car coverage, naming Landlord (and Landlord’s property manager and Landlord’s Representative, if not Landlord) as additional insureds, providing primary (and not contributing) coverage, and containing cross-liability and severability of interest clauses, in an amount of not less than $1 million combined single limit per occurrence.

GENERAL REQUIREMENTS

Prior to commencement of work Tenant’s contractor and each subcontractor will submit to Landlord certificates of insurance showing the required insurance.  If the coverage expires prior to completion of the work, then Tenant’s contractor and each subcontractor will submit replacement certificates of insurance to Landlord prior to the expiration of such coverage.  All certificates will provide that there will be no cancellation, material modification or reduction of coverage without reasonable written notice to Landlord.

SCHEDULE 3 – SUPERVISION FEE

The Supervision Fee will be two percent (2%) of items (g) and (h) of the Work Costs (excluding this Supervision Fee). 

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