Document:

Exhibit 10.28

 

A. 2

 

OFFICE/LIGHT MANUFACTURING LEASE

 

599 Cardigan Road

Shoreview, Minnesota

 

 

	
  Landlord:

  	
  Cardigan
  Investments Limited Partnership

  
	
   

  	
   

  
	
   

  	
   

  
	
  Tenant:

  	
  EMPI, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  June 14, 1996

  

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
  ARTICLE
  I DEMISING CLAUSE AND DEFINED TERMS

  	
  1

  
	
  1.1

  	
  Demising
  Clause

  	
  1

  
	
  1.2

  	
  Defined Terms

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II PREMISES AND TERM

  	
  3

  
	
  2.1

  	
  The Premises, Common Areas and Parking

  	
  3

  
	
  2.2

  	
  Term

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III RENT

  	
  4

  
	
  3.1

  	
  Base Rent

  	
  4

  
	
  3.2

  	
  Adjustment
  for Operating Expenses

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV CONSTRUCTION

  	
  7

  
	
  4.1

  	
  Leasehold
  Improvements by Tenant

  	
  7

  
	
  4.2

  	
  Alteration by
  Tenant

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  V LANDLORD’S COVENANTS

  	
  11

  
	
  5.1

  	
  Services
  Furnished by Landlord

  	
  11

  
	
  5.2

  	
  Repairs and
  Maintenance

  	
  11

  
	
  5.3

  	
  Quiet
  Enjoyment

  	
  11

  
	
  5.4

  	
  Insurance

  	
  12

  
	
  5.5

  	
  Access to Premises

  	
  12

  
	
  5.6

  	
  Right to
  Cease Providing Services

  	
  12

  
	
  5.7

  	
  Excise Tax

  	
  13

  
	
  5.8

  	
  ADA
  Compliance  

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI TENANT’S COVENANTS

  	
   14

  
	
  6.1

  	
  Repair and
  Surrender of Premises

  	
  14

  
	
  6.2

  	
  Use; Waste;
  Nuisance

  	
  14

  
	
  6.3

  	
  Assignment; Sublease

  	
  15

  
	
  6.4.

  	
  Indemnity

  	
  16

  
	
  6.5

  	
  Tenant’s
  Insurance

  	
  17

  
	
  6.6

  	
  Payment of
  Taxes

  	
  17

  
	
  6.7

  	
  Environmental
  Compliance

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII DEFAULT

  	
  20

  
	
  7.1

  	
  Events of Default

  	
  20

  
	
  7.2

  	
  Remedies Upon
  Default

  	
  21

  
	
  7.3

  	
  Damages

  	
  21

  
	
  7.4

  	
  Cumulative Remedies

  	
  22

  
					

 

i

 

	
  ARTICLE VIII
  CASUALTY AND EMINENT DOMAIN 

  	
  22

  
	
  8.1

  	
  Casualty

  	
  22

  
	
  8.2

  	
  Eminent Domain

  	
  24

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX
  RIGHTS OF PARTIES HOLDING PRIOR INTERESTS

  	
  25

  
	
  9.1

  	
  Subordination

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE X 

  	
  MISCELLANEOUS

  	
  26

  
	
  10.1

  	
  Representations by Tenant
  and by Landlord  

  	
  26

  
	
  10.2

  	
  Notices

  	
  26

  
	
  10.3

  	
  No Waiver or Oral
  Modification

  	
  26

  
	
  10.4

  	
  Partial Invalidity

  	
  26

  
	
  10.5

  	
  Self-Help

  	
  27

  
	
  10.6

  	
  Tenant’s Estoppel
  Certificate

  	
  27

  
	
  10.7

  	
  Waiver of
  Subrogation

  	
  28

  
	
  10.8

  	
  All Agreements; No
  Representations

  	
  28

  
	
  10.9

  	
  Brokerage

  	
  28

  
	
  10.10

  	
  Successors and
  Assigns  

  	
  28

  
	
  10.11

  	
  Construction of
  Document

  	
  29

  
	
  10.12

  	
  Disputes Provisions

  	
  29

  
	
  10.13

  	
  Holdover  

  	
  29

  
	
  10.14

  	
  Late Payment

  	
  29

  
	
  10.15

  	
  Force Majeure

  	
  29

  
	
  10.16

  	
  Limitation on
  Liability

  	
  30

  
	
  10.17

  	
  Lease not to be
  Recorded

  	
  30

  
	
  10.18

  	
  Option to Extend

  	
  30

  
	
  10.19

  	
  Option to Terminate

  	
  31

  
	
  10.20

  	
  Right of First Offer
  to Purchase the Premises  

  	
  31

  
	
  10.21

  	
  Reasonable Consent

  	
  32

  
	
  10.22

  	
  Prior Lease
  Terminated

  	
  33

  

 

ii

 

EXHIBITS

 

There are attached hereto
and incorporated as a part of this Lease:

 

	
  EXHIBIT
  A

  	
  Site
  Plan of Premises

  
	
   

  	
   

  
	
  EXHIBIT
  B

  	
  Legal
  Description of Lot

  
	
   

  	
   

  
	
  EXHIBIT
  C

  	
  Notice
  of Lease Term Dates

  
	
   

  	
   

  
	
  EXHIBIT
  D

  	
  Plans
  for Tenant Improvements

  
	
   

  	
   

  
	
  EXHIBIT
  E

  	
  Liens
  and Encumbrances

  
	
   

  	
   

  
	
  EXHIBIT
  F

  	
  Non-Disturbance
  and Attornment Agreement

  

 

iii

 

ARTICLE I DEMISING CLAUSE AND DEFINED TERMS

 

1.1           Demising Clause.

 

This lease
(the “Lease”) is made and entered into by and between Landlord and Tenant, as
defined below, as of the Date of Lease. In consideration of the mutual
covenants made herein, Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the Premises as defined below, on all of the terms and
conditions set forth herein.

 

1.2           Defined Terms.

 

The terms
listed below shall have the following meanings throughout this Lease:

 

	
   

  	
   

  	
  Section in which

  Definition First

  Appears

  
	
   

  	
   

  	
   

  
	
  “LANDLORD”:
  

  	
  Cardigan Investments Limited Partnership

  	
  1.1

  
	
   

  	
   

  	
   

  
	
  “MANAGING
  AGENT”:

  	
  Wellington Management, Inc.

  	
  3.1

  
	
   

  	
   

  	
   

  
	
  “MANAGING
  AGENT’S ADDRESS”:

  	
  413
  Wacouta Street, Suite 350

  St. Paul, Minnesota 55101

  	
  3.1

  
	
   

  	
   

  	
   

  
	
  “TENANT”:

  	
  EMPI, Inc.

  	
  1.1

  
	
   

  	
   

  	
   

  
	
  “TENANT’S
  ADDRESS”: 

  	
  5255
  East River Road

  	
   

  
	
   

  	
  Minneapolis, Minnesota
  55421

  	
  3.1

  
	
   

  	
   

  	
   

  
	
  “BUILDING”:
  

  	
  599 Cardigan
  Road

  	
   

  
	
   

  	
  Shoreview, Minnesota

  	
  2.1

  
	
   

  	
   

  	
   

  
	
  “PREMISES”:

  	
  Approximately 93,666 rentable square feet
  constituting the entire Building and as more particularly shown on Exhibit A attached hereto and the Property.

  	
  2.1

  
	
   

  	
   

  	
   

  
	
  “PROPERTY”:

  	
  The land (the “Lot”) on which the Building
  is situated. The Lot is legally described in Exhibit B attached hereto.

  	
  2.1

  

 

1

 

	
  “PERMITTED USES”:

  	
  Office,
  warehouse, light manufacturing and uses permitted by the City of Shoreview
  consistent with Section 6.3 and 6.8.

  	
  6.3

  
	
   

  	
   

  	
   

  
	
  “TENANT’S PERCENTAGE”:

  	
  100%

  	
  3.2

  
	
   

  	
   

  	
   

  
	
  “PARKING SPACES”:

  	
  Tenant
  will have exclusive access to and use of all of the parking spaces on the
  Property. See
  Exhibit A.

  	
  2.1

  
	
   

  	
   

  	
   

  
	
  “SCHEDULED
  COMMENCEMENT

  	
   

  	
   

  
	
  DATE”:

  	
  November 1,
  1996, or first day Tenant occupies and conducts business from the Building, whichever
  comes first.

  	
  2.2

  
	
   

  	
   

  	
   

  
	
  “TERM”:

  	
  Ten
  (10) years, with two (2) options to renew for five (5) years
  each.

  	
  2.2

  
	
   

  	
   

  	
   

  
	
  “BASE
  RENT”:

  	
   

  	
   

  

 

	
   

  	
  Years

  	
   

  	
  Term

  	
   

  	
  Annual

  Base Rent

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Years
  1 - 10

  	
   

  	
  Initial

  	
   

  	
  $

  	
  327,831

  	
   

  	
   

  
	
   

  	
  Years
  11 - 15

  	
   

  	
  1st
  Renewal

  	
   

  	
  $

  	
  421,497

  	
   

  	
   

  
	
   

  	
  Years
  16 - 20

  	
   

  	
  2nd
  Renewal

  	
   

  	
  $

  	
  515,163

  	
   

  	
  3.1

  

 

	
  “ESTIMATE
  OF

  	
   

  	
   

  	
   

  	
   

  
	
  TENANT’S
  OPERATING

  	
   

  	
   

  	
   

  	
   

  
	
  EXPENSES”:

  	
   

  	
  $228,545.04
  (1995 budget) plus 100% of utilities. These are estimates only.

  	
   

  	
  3.2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “SECURITY
  DEPOSIT”:

  	
   

  	
  None

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “BROKER(S)”:

  	
   

  	
  Woodbridge
  Partners, Inc.

  	
   

  	
  10.9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “DATE OF LEASE”:

  	
   

  	
  The date on which both
  parties have executed the
  Lease.

  	
   

  	
  1.1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “PUBLIC
  LIABILITY

  	
   

  	
   

  	
   

  	
   

  
	
  INSURANCE
  AMOUNTS”:

  	
   

  	
  Combined
  Single Limit-$3,000,000 which includes umbrella coverage per occurrence and in the aggregate.

  	
   

  	
  6.6

  

 

2

 

	
  “TENANT IMPROVEMENT COSTS”:

  	
  All
  costs Tenant incurs relating to constructing the Tenant Improvements as
  defined in Section 4.1(a), including, without limitation, costs related
  to materials, equipment, labor, electrical costs, permits and all fees paid to
  architects and other consultants.

  
	
   

  	
   

  
	
  “AMORTIZATION
  OF TENANT IMPROVEMENT COSTS”:

  	
  The
  amortization of the Tenant Improvement Costs over a ten (10) year period at
  interest of ten percent (10%) per annum.

  

 

ARTICLE
II PREMISES AND TERM

 

2.1           The Premises, Common
Areas and Parking.

 

(a)           Premises. The Premises leased hereby are comprised of
the entire Building which presently contains approximately 93,666 rentable
square feet as more particularly shown on Exhibit A, which will be expanded as part of the Tenant
Improvements and the Property.

 

(b)           Parking. Tenant shall be entitled to use all of the
parking spaces in the Building’s parking area(s). Tenant acknowledges that its
use of the parking spaces shall be solely for Tenant’s employees, agents and
visitors and Landlord and its agents. Landlord shall not be liable to Tenant,
and this Lease shall not be affected, if any parking rights of Tenant hereunder
are impaired by any law, ordinance or other governmental regulation imposed
after the Date of Lease.

 

(c)           Parking Lot
Repairs. Landlord shall make any necessary
repairs or replacement to the parking lot throughout the Term. Tenant and
Landlord agree that Landlord shall include the costs of any and all such
repairs or replacements in Tenant’s Share of Operating Expenses as defined in Section 3.2
below and only to the extent provided therein.

 

2.2           Term.

 

(a)           Commencement. The Commencement Date shall be the
earlier of November 1,
1996 or the date Tenant occupies and conducts business in any portion of the
Premises. Notwithstanding the foregoing to the contrary, Tenant shall have the
right of access to and use of the Premises for the period commencing on the
Date of Lease through the date prior to the Commencement Date for the purpose
of constructing the Tenant Improvements to the

 

3

 

Premises as provided in this
Lease. This Lease shall be in full force and effect from and after the Date of
Lease, except that (other than as provided in Section 3.3) Tenant shall
not have any obligation prior to the Commencement Date to pay Base Rent, Tenant’s
Share of Operating Expenses (except for electricity) or any other amounts due
under the terms of this Lease by Tenant to Landlord.

 

ARTICLE III  RENT

 

3.1           Base Rent.

 

Tenant shall
pay the Base Rent each month in advance on the first day of each calendar month
during the Term and a proportionate part of such monthly installment shall be
payable for any fraction of a calendar month occurring at the beginning or end
of the Term. All payments shall be made to Landlord c/o Managing Agent at
Managing Agent’s Address or such other place as Landlord may designate in
writing, without prior demand and without abatement, deduction or offset,
except as hereinafter provided. All charges to be paid by Tenant hereunder,
other than Base Rent, shall be considered additional rent for the purposes of
this Lease, and the words “rent” or “Rent” as used in this Lease shall mean
both Base Rent and such additional rent unless the context specifically or
clearly indicates that only the Base Rent is referenced.

 

3.2           Adjustment for
Operating Expenses.

 

(a)           Tenant’s Share of
Operating Expenses. For each calendar year Tenant shall pay Landlord as additional
rent, one hundred percent (100%) of the Operating Expenses for the Building (“Tenant’s
Share of Operating Expenses”). Tenant’s Share of Operating Expenses as of 1995
was estimated to be $228,545.04 per year plus utilities. For any partial Fiscal
Year at the beginning or end of the Term, Tenant’s Share of Operating Expenses
shall be adjusted proportionately for the part of the Fiscal Year falling
within the Term.

 

(b)           Operating Expenses
Estimate.
Before each Fiscal Year, and from time to time as Landlord deems
appropriate, Landlord shall give Tenant an estimate of the expected Operating
Expenses for the Property for the coming Fiscal Year, and a calculation of the
estimated amount of Tenant’s Share of Operating Expenses. Tenant shall pay
one-twelfth of the estimated amount of Tenant’s Share of Operating Expenses
with each monthly payment of Base Rent. No later than ninety (90) days after
the end of each Fiscal Year, Landlord shall give Tenant a statement (the “Operating
Expense Statement”) showing the actual Operating Expenses for that Fiscal Year,
a calculation of the actual amount of Tenant’s Share of Operating Expenses, and
a summary of amounts already paid by Tenant pursuant to this Section 3.2.
Any underpayment by Tenant shall be made up by cash payment to Landlord within
thirty (30) days after delivery of the Operating Expense Statement; any
overpayment shall be paid to Tenant within thirty (30) days after delivery of
the Operating Expense Statement or, at Landlord’s option, shall be credited
against the Base Rent next due under this Lease, provided that any overpayment
shall be paid in cash to Tenant within thirty (30)

 

4

 

days if the Term has ended. No
delay by Landlord in providing any Operating Expense Statement shall be deemed
a waiver of Tenant’s obligation to pay Tenant’s Share of Expenses.
Notwithstanding anything in this paragraph to the contrary, Landlord waives all
rights to collect additional rent under the provisions of this paragraph if Landlord
fails to provide the Operating Expense Statement within six (6) months
after the end of the Fiscal Year. Tenant and its agents have the right of
access to and review of the portion of Landlord’s books and records relating to
the Building’s Operating Expenses.

 

Landlord shall
employ Wellington Management, Inc. (“WMI”) as the property manager during
the Term and any renewal term of this Lease. Tenant shall have the right to
require the Landlord to terminate WMI, or successor property manager, upon
sixty (60) days’ prior written notice from Tenant to Landlord if Stephen B.
Wellington, Jr. (i) no longer holds a controlling interest in WMI or
the successor property manager or (ii) is not actively involved in the day
to day operations of WMI or the successor property manager. In such event,
Tenant shall have the right, together with the Landlord to interview
prospective property managers and negotiate the services and fees to be
provided by such property managers. Landlord may appoint the new property
manager, subject to the approval of Tenant, which approval shall not be
unreasonably withheld or delayed.

 

(c)           Definitions. As used herein, the following terms used in this Subsection
3.2 shall have the following meanings for purposes of this Lease:

 

(i)            The term “Fiscal Year”
means a calendar year.

 

(ii)           The
term “Operating Expenses” means the total cost of operation of the Property,
including, without limitation: (i) Taxes, as defined below; (ii) premiums
for insurance carried with respect to the Property; (iii) all costs of
supplies, materials, equipment, and utilities including all electricity used in
or related to the operation, maintenance, and repair of the Property or any
part thereof excepting those items used in the construction or installation of
capital improvements (improvements that must be capitalized for federal income
tax purposes); (iv) all labor costs, including without limitation,
salaries, wages, payroll and other taxes, unemployment insurance costs and
employee benefits excepting those used for capital improvements; (v) all
maintenance, management, janitorial, legal, accounting, and service agreement
costs related to the Property or any part thereof, including, without
limitation, service contracts with independent contractors; (vi) the
annual portion of the amortization of the costs (including interest of ten
(10%) percent per annum) of improvements to the Property that are designed only
to increase safety or reduce Operating Expenses or are required to comply with
legal requirements imposed after the initial completion of the Building, all
such improvements to be amortized over the useful life of the improvement,
subject to the limitations as hereinafter provided.

 

5

 

Furthermore,
if said improvements are undertaken to reduce operating expenses, the amount
passed through to Tenant as an Operating Expense shall be the lesser of the
annual reduction in Operating Expenses or the annual portion of the
amortization of the cost of said improvement over its useful life. Any of the
above services may be performed by Landlord or its affiliates, provided that
fees for the performance of such services shall be reasonable and competitive
with fees charged by unaffiliated entities for the performance of such services
in comparable buildings in the area. Operating Expenses must be reasonably
necessary for the operation of the Property, commercially reasonable and market
competitive. Tenant will have the right to participate in the development and
review of the annual budget for Operating Expenses before it is finalized.

 

Notwithstanding
the foregoing to the contrary, Operating Expenses shall not include the
Excluded Expenses, as hereinafter defined. The term “Excluded Expenses” shall include
any Landlord overhead (property management fees to affiliates excepted), costs
and expenses relating to defective design or construction of the Building,
Landlord’s negligence or that of its employees, agents, or contractors, real
estate taxes based on a minimum assessment agreement to the extent such taxes
are greater than they would otherwise be assessed, leasing commissions, repair
costs paid by insurance proceeds or by any tenant or third party, any and all
depreciation expense, any debt service, cost of capital improvements except as
specifically set forth above, any and all repairs and improvements related to
structural portions of the Building, repair and improvements to the exterior
walls, replacement of HVAC units, including new units installed by Tenant, and
roof repair or maintenance costs in excess of $1,800 per Fiscal Year (adjusted
upward three percent (3%) annually beginning in 1997) (the “Roof Repair Cap”).

 

(iii)                             The term “Taxes” means any form of
assessment, rental tax, license tax, business license fee, levy, charge, tax or
similar imposition imposed by any authority having the power to tax including
any city, county, state or federal government, or any school, agricultural,
lighting, library, drainage or other improvement or special assessment
district, as against the Property or any part thereof or any legal or equitable
interest of Landlord therein, or against Landlord by virtue of its interest
therein, and any reasonable costs incurred by Landlord in any proceeding for
abatement thereof, including, without limitation, attorneys’ and consultants’
fees, and regardless of whether any abatement is obtained. Landlord’s income
and franchise taxes shall not be included in “Taxes”. All assessments must be
amortized over the

 

6

 

longest term
permitted by the local government authority and only the current amortization
of such assessment is to be included in Operating Expenses. If Landlord or
Tenant decides to proceed with a tax protest relating to the abatement of
taxes, the other party’s approval shall be required, said approval to be timely
and not unreasonably withheld. Landlord will be responsible for any and all
special assessments relating to the construction of the proposed railroad crossing
project. Landlord shall exercise reasonable efforts to promote and encourage
the construction of such project.

 

3.3           Payment for October, 1996.

 

In addition to
the Base Rent and Operating Expenses payable with respect to the Term, Tenant
shall pay to Landlord with respect to that portion of the month of October,
1996 preceding the Commencement Date an amount equal to one-half (1/2) of the
Base Rent and Operating Expenses which would have been payable by Tenant with
respect to such portion of the month of October, 1996 preceding the
Commencement Date, had the Commencement Date occurred on October 1, 1996.
On or prior to October 1, 1996, Tenant shall pay to Landlord an amount
equal to one-half (1/2) of the monthly Base Rent and estimated Operating
Expenses for the full month of October, 1996. Upon occupying and conducting
business from the Premises, Tenant shall pay to Landlord the balance of the
Base Rent and estimated Operating Expenses payable for the portion of the month
of October, 1996 falling within the Term (being an additional amount equal to
one-half (1/2) of the Base Rent and estimated Operating Expenses attributable
on a pro-rata basis to the portion of the month of October, 1996 falling on and
after the Commencement Date).

 

ARTICLE IV CONSTRUCTION

 

4.1           Leasehold Improvements by Tenant.

 

(a)           Tenant’s Work. At its expense, Tenant shall cause the Premises to be
built-out substantially in accordance with final plans (the
design development drawings and specifications relating to the Tenant Improvements)
to be signed by the Landlord and Tenant and attached hereto as Exhibit D (the “Final
Plans”). The work to be constructed in accordance with the Final Plans is
hereinafter referred to as the “Tenant Improvements” and shall be at a total
cost, including all soft costs relating to the Tenant Improvements, including,
without limitation, architect fees, legal fees and permits, to Tenant of no
less than One Million Dollars ($1,000,000). Tenant shall pay all of the costs
associated with preparing such Final Plans. Landlord shall not be responsible
for interior design costs including, e.g., furniture, office systems, etc., all
of such costs shall be the sole responsibility of Tenant. Tenant shall cause
the Tenant Improvements to be installed with all due diligence in accordance
with the Final Plans by Kraus-Anderson Construction, Inc. in a first-class
workmanlike manner. Tenant shall use reasonable efforts to substantially
complete

 

7

 

the Tenant Improvements as soon
as possible after the date it receives possession of the Property, which in no
event shall be later than the Date of Lease. Once installed, the Tenant
Improvements shall be part of the Premises and the sole property of Landlord,
except that Tenant may remove from the Premises its personal property,
equipment, trade fixtures, furniture and moveable partitions. Landlord shall
have no obligation to improve the Premises prior to the Commencement Date,
except as hereinbefore provided, and, thereafter, only as specifically required
by this Lease.

 

Except to the extent attached
hereto as Exhibit D and hereby
approved, Tenant shall submit the Final Plans to the Landlord as soon as they
are completed for Landlord’s approval, which approval shall not be unreasonably
withheld or delayed. In the event the Landlord fails to approve or object to
such plans by written notice to Tenant within five (5) days of Landlord’s
receipt of such Final Plans, then the Landlord shall have been deemed to have
approved such Final Plans.

 

Tenant shall enter into a
construction contract with Kraus-Anderson Construction, Inc. (the
“Construction Contract”) and shall perform all of its obligations thereunder in
timely fashion. Tenant agrees to indemnify, defend and hold harmless Landlord
from and against any and all claims for amounts due Kraus-Anderson Construction, Inc.
under the Construction Contract, including, without limitation, Landlord’s
reasonable attorneys’ fees.

 

Tenant will cause the architect
to certify to Landlord upon completion of the Tenant Improvements, that such
Tenant Improvements have been constructed substantially in accordance with the
Final Plans, as modified by change orders pursuant to subparagraph (c) hereof.

 

Tenant agrees
to assign to Landlord Tenant’s rights under the Construction Contract and any
warranties relating to equipment which is a part of the Tenant Improvements (if
they are assignable) to the extent such assignment is necessary in Landlord’s
reasonable opinion to protect the Landlord with regard to any condition of the
Building which involves the Tenant Improvements constructed pursuant to the
Construction Contract. Tenant will cooperate with Landlord in its pursuit of
any claims under the Construction Contract or the Warranties.

 

(b)           Tenant Improvement Cost. Tenant agrees to pay all costs
associated with constructing the Tenant Improvements pursuant to the terms of
the Construction Contract. Tenant shall pay all costs incurred as a result of
any change orders signed by Tenant affecting the Final Plans. Tenant agrees
that the Tenant Improvements and all other costs Tenant incurs relating to such
improvements, including, without limitation, architectural and legal fees,
permits and insurance shall not be less than One Million Dollars ($1,000,000).

 

Notwithstanding
the foregoing to the contrary, Landlord agrees to reimburse Tenant for the
following amounts paid by Tenant to Kraus-Anderson Construction, Inc.: (i) $35,350.00
for improvements to the parking lot as specified in Northwest Asphalt’s
proposal dated April 29, 1996 and (ii) $28,195.00 for upgrades to
mechanical and HVAC systems and

 

8

 

removal
of abandoned equipment. Landlord shall reimburse Tenant for such amounts within
ten (10) days after Tenant’s payment of such amounts and notice to
Landlord requesting reimbursement. If Landlord fails to so reimburse Tenant,
Tenant shall be entitled to offset the amounts due to it from Landlord pursuant
to this paragraph 4.1(c) against the next ensuing rent payment(s) due
under the Lease.

 

(c)           Changes in Final
Plans. It is
anticipated that changes may need to be made to the Final Plans and Tenant may
make such changes without the Landlord’s consent, unless such changes reduce
the total costs of the Tenant Improvements and other costs as provided in
subparagraph (b) above to less than One Million Dollars ($1,000,000),
affect the structural integrity of the Building, reduce the size or change the
configuration of the Premises, or affect the mechanical, electrical, or HVAC systems
serving the Building, in which event the Landlord’s consent shall be required,
which consent will not be unreasonably withheld or delayed. Any changes to the
Final Plans must be in compliance with all building codes and local ordinances.
Tenant shall pay any additional costs required to implement any such changes,
including without limitation, architectural fees and construction cost
increases. If Tenant’s request for changes in the Final Plans results in a
delay of the Commencement Date beyond October 1, 1996, Tenant shall agree
to start paying Base Rent and additional rent as of October 1, 1996.

 

(d)           Interior Furnishings. Landlord shall not be required to
furnish professional interior design services to Tenant and shall not be
required to pay for professional interior design services engaged by Tenant.
Further, Tenant’s interior furnishings, i.e., telephones, and moveable
equipment, shall be the sole responsibility of Tenant.

 

(e)           Landlord Responsibility.
Landlord shall reimburse Tenant for any increases in the cost of Tenant
Improvements which result from conditions in the Building which were known to
or should have been known by the Landlord and Landlord failed to disclose such
conditions to Tenant or Landlord’s contractor prior to Landlord entering into
the Construction Contract. For example, such increased costs could result from
a failure to disclose information relating to the design of the Building,
problems with the Building or the mechanical, electrical or HVAC systems
serving the Building, the structural integrity of any component of the
Building, condition of the roof, or existence of certain types of environmental
conditions, such as the presence of asbestos in the Building. Landlord agrees
that it will be responsible for and reimburse Tenant for any increases in the
cost of Tenant Improvements which result from the existing asbestos conditions
in the Building and, if necessary, Landlord, at its sole cost and expense, will
cause the asbestos conditions to be addressed appropriately, including, without
limitation, the removal or encapsulation of the asbestos. If Landlord fails to
so reimburse Tenant, Tenant shall be entitled to offset the amounts due to it
from Landlord pursuant to this paragraph 4.1(c) against the next ensuing
rent payment(s) due under the Lease. Tenant agrees to direct its
contractor to use reasonable and diligent efforts not to disturb or expose any
asbestos-containing materials which do not pose any health danger unless
disturbed or exposed.

 

9

 

4.2           Alteration by Tenant.

 

(a)           Landlord’s Consent. Tenant shall not make any alterations,
decorations, additions, installations, substitutes or improvements after the
Commencement Date (hereinafter collectively called “Alterations”) in and, to
the Premises, without first obtaining Landlord’s written consent. Landlord
shall not unreasonably withhold or delay its consent; provided, however, that
Landlord shall have no obligation to consent to Alterations of a structural
nature that would violate the Certificate of Occupancy for the Premises or any
applicable law, code or ordinance or the terms of any superior lease or
mortgage affecting the Property. Tenant shall pay Landlord’s reasonable costs
of reviewing or inspecting any proposed Alterations.

 

(b)           Workmanship. All work on any Alterations shall be
done at reasonable times in a first-class workmanlike manner, by contractors
approved by Landlord, according to plans and specifications previously approved
by Landlord, which approval will not be unreasonably withheld or delayed. All
work shall be done in compliance with all applicable laws, regulations, and rules of
any government agency with jurisdiction, and with all regulations of the Board
of Fire Underwriters or any similar insurance body or bodies. Tenant shall be
solely responsible for the effect of any Alterations on the Building’s
structure and systems, notwithstanding that Landlord has consented to the
Alterations, and shall reimburse Landlord on demand for any costs incurred by
Landlord by reason of any faulty work done by Tenant or its contractors. Upon
completion of any Alterations, Tenant shall provide Landlord with a complete
set of “as-built” plans.

 

(c)           Liens. Tenant shall keep the Property and
Tenant’s leasehold interest therein free of any liens or claims of liens, and
shall discharge any such liens within ten days of their filing. Before
commencement of any work, if the contractor is other than Kraus- Anderson
Construction, Inc., Tenant’s contractor shall provide any payment, performance
and lien indemnity bond reasonably required by Landlord, and Tenant shall
provide evidence of such insurance as Landlord and Tenant may reasonably
require, naming Landlord and Tenant as an additional insured. Tenant shall
indemnify and defend Landlord and hold it harmless from and against any cost,
claim, or liability arising from any work done by or at the direction of
Tenant. Notwithstanding the foregoing to the contrary, Tenant will have the
right to contest the validity of any liens so long as Tenant provides Landlord
with adequate security against said liens, Tenant first notifies the Landlord
in writing immediately upon the imposition of the lien and at least fifteen
(15) days before Tenant commences any such contest, Tenant proceeds promptly
and diligently with regard to such contest and there is no danger of Tenant’s
or Landlord’s interest in the Premises being forfeited or lost.

 

(d)           Removal. All Alterations affixed to the Premises
by Tenant with Landlord’s consent shall, become part thereof and remain therein at the end of the
Term unless at the time Landlord consents to the Alterations Landlord requires
Tenant to remove such Alterations at the end of the Term. If Landlord requires
Tenant to remove any Alterations, Tenant shall do so and shall pay the cost of
removal and any repair required by such

 

10

 

removal. All of Tenant’s personal property,
trade fixtures, equipment, furniture, movable partitions, and any Alterations
not affixed to the Premises shall remain Tenant’s property.

 

ARTICLE V LANDLORD’S
COVENANTS

 

5.1           Services Furnished
by Landlord.

 

(a)           Services; Heating;
Cooling. Landlord shall furnish services, utilities, facilities and
supplies equal in quality to those customarily provided by landlords in
buildings of a similar design in the area in which the Property is located.

 

(b)           Electricity.
Tenant’s use of electrical energy in the Premises shall not at any time exceed the
capacity of any of the electrical conductors or equipment in or otherwise
serving the Premises. In the event Landlord consents to any additional
electrical use, Tenant shall be responsible for any and all costs associated
with such additional use.

 

(c)           Graphics and Signage.
Landlord shall provide, at Tenant’s expense, identification of Tenant’s name at the main
entrance door to the Premises. In addition, Tenant will have the right to
install and maintain, at its expense, exterior signage which is in compliance
with all local ordinances, including, without limitation, payment of all
permits.

 

5.2           Repairs and
Maintenance.

 

Landlord shall
repair and maintain, at its sole cost and expense and not as a part of
Operating Expenses, the structural portions of the Building and the exterior
walls of the Building (excluding exterior windows and glazing). Landlord shall
also, at its sole cost and expense and not as a part of Operating Expenses,
replace all or any portion of the roof that needs to be replaced rather than to
be repaired and replace the heating, ventilating and air conditioning systems
servicing the Premises, including the systems installed as part of Tenant
Improvements. Landlord agrees to enter into an HVAC contract with a contractor
mutually satisfactory to both Landlord and Tenant. Notwithstanding the
foregoing, if any maintenance, repair or replacement is required because of any
act, omission or neglect of duty by Tenant or its agents, employees, or
contractors (excluding Kraus-Anderson Construction, Inc. relating to the
Tenant Improvements if the architect’s certificate has been provided to
Landlord as provided in paragraph 4.1(a)) the cost thereof shall be paid by
Tenant to Landlord as additional rent within thirty (30) days after billing
therefor, subject to the waiver of subrogation provided in Section 10.7.

 

5.3           Quiet Enjoyment.

 

Upon Tenant’s
paying the rent and performing its other obligations, Landlord shall permit
Tenant to peacefully and quietly hold and enjoy the Premises, subject to the
provisions hereof.

 

11

 

5.4                                 Insurance.

 

Landlord shall insure on an all-risk basis the full replacement cost of
the Property, including the Building (including, without limitation the Tenant
Improvements and alteration), against damage by fire and standard extended
coverage perils, and shall carry public liability insurance on the Premises,
all in such reasonable amounts with such reasonable deductibles as would be
carried by a prudent owner of a similar building in the area and with such
higher limits, broader coverage or smaller deductibles as may be requested by
Tenant. Landlord shall cause Tenant to be named as an additional insured under
the foregoing insurance required to be maintained by the Landlord. Landlord may
carry any other forms of insurance as it or its mortgagee may deem advisable.
Tenant shall have no right to any proceeds from such policies, except to the
extent of the unamortized Tenant Improvement Costs as determined pursuant to
the amortization of Tenant Improvement Costs as of the date of a casualty if
such proceeds are not used to restore such Tenant Improvements as provided in
paragraph 8.1 hereof. Landlord shall not carry any insurance on any of Tenant’s
personal property, furniture, fixtures, equipment and moveable partitions and
shall not be obligated to repair or replace any of such property, unless said
repair or replacement is caused by LandLord’s negligence or that of its
employees or agents.

 

5.5                                 Access to Premises.

 

Landlord shall have reasonable access to the Premises to inspect
Tenant’s performance hereunder and to perform any acts required of or permitted
to Landlord herein, including without limitation, the right to make any repairs
or replacements Landlord deems necessary and the right to show the Premises to
prospective tenants during the last nine months of the term. Landlord shall at
all times have a key to the Premises, and Tenant shall not change any existing
lock, nor install any additional lock without Landlord’s prior consent. Except
in the case of any emergency, any entry into the Premises by Landlord shall be
on reasonable advance notice, and  shall be
scheduled in such a manner so as to cause the least amount of interference with
Tenant’s business as possible.

 

5.6                                 Right to Cease Providing Services.

 

In connection with any repairs, alterations or additions to the
Property or the Premises, or any other acts required of or permitted to
Landlord herein, Landlord may suspend service of the Building’s utilities,
facilities or supplies, provided that Landlord shall use reasonable diligence
to restore such services, facilities or supplies as soon as possible and
subject to Force Majeure as defined in Section 10.15 below. If Landlord
suspends any such services for more than two (2) business days, Tenant’s
Rent obligation shall be proportionately reduced during the time of such
reduction or suspension. No such reduction or suspension permitted by this Section 5.6
shall constitute an actual or constructive eviction or disturbance of Tenant’s
use or possession of the Premises which shall give Tenant the right terminate
this Lease by written notice to Landlord, unless such reduction or suspension

 

12

 

exceeds sixty (60) days and results in more than twenty-five (25%)
percent of the Premises being unusable.

 

5.7                                 Excise Tax.

 

If at any time during the Lease term, under the laws of the State in
which the Property is located, any political subdivision thereof, or any other
governmental authority, a tax or excise on rents or other tax (excluding income
tax), however described, including but not limiting to assessments, charges or
fees required to be paid, by way of substitution for or as a supplement to real
estate taxes, or any other tax on rent or profits is substitution for or as a
supplement to a tax levied against the property, building, or the personal
property, shall be levied or assessed against Landlord on account of the rental
expressly reserved hereunder, then Tenant will pay to Landlord as additional
rent said tax or excise so due on the rent.

 

5.8                                 ADA Compliance.

 

Landlord and Tenant acknowledge that, in accordance with the provisions
of the Americans with Disabilities Act (the “ADA”), responsibility for
compliance with the terms and conditions of Title III of the ADA may be
allocated as between Landlord and Tenant. Notwithstanding anything to the
contrary contained in the Lease, Landlord and Tenant agree that the
responsibility for compliance with the ADA shall be allocated as follows: (i) Tenant
shall be responsible for compliance with the provisions of Title III of the ADA
for any and all alterations made within the Building if Tenant constructs such
alterations, without the assistance of the Landlord, regardless of whether
Landlord consents to such alterations; and (ii) Landlord shall be
responsible for compliance with the provisions of Title III of the ADA for the Property
and exterior of the Building, unless such compliance is required as a result of
Tenant Improvements, in which event Tenant shall be responsible for such
compliance. Landlord and Tenant each agree to indemnify, defend and hold each
other harmless from and against any claims, damages, costs and liabilities
arising out of Landlord’s or Tenant’s failure, or alleged failure, as the case
may be, to comply with Title III of the ADA within the areas for which each is
responsible hereunder, which indemnification obligation shall survive the
expiration or termination of this lease, Landlord and Tenant each agree that
the allocation of responsibility for ADA compliance shall not require Landlord
or Tenant to supervise, monitor or otherwise review the compliance activities
of the other with respect to its assumed responsibilities for ADA compliance as
set forth herein. The foregoing allocation of responsibility for ADA compliance
between Landlord and Tenant, and the obligations of Landlord and Tenant
established by such allocations, shall supersede any other provisions of the
lease that may contradict or otherwise differ from the requirements of this
Section.

 

13

 

ARTICLE VI TENANT’S COVENANTS

 

6.1           Repair
and Surrender of Premises.

 

Tenant
shall keep the Premises in good order and condition, and shall promptly repair
any damage to the Premises or the rest of the Property (including all glass in
windows and  in exterior
walls) caused by the negligent or unintentional acts or omissions of Tenant or
its agents, employees, or invitees, licensees or independent contractors,
subject to the waiver of subrogation as provided in paragraph 10.7. At the end
of the Term, Tenant shall peaceably yield up the Premises in good order, repair
and condition, except for reasonable wear and tear and insurable casualty.
Tenant shall remove its own property and (if required by Landlord) any
Alterations, repairing any damage caused by such removal and restoring the
Premises and leaving them clean and neat. Any property not so removed shall be
deemed abandoned and immediately shall become the property of Landlord which
may be retained by Landlord or may be removed and disposed of by Landlord in
such manner as Landlord shall determine and Tenant shall pay Landlord the
entire cost and expense incurred
by Landlord in effecting such removal and disposition and in making any
incidental repairs and replacements to the Premises.

 

6.2           Use; Waste; Nuisance.

 

(a)           General Use. Tenant shall
use the Premises only for the Permitted Uses, and shall not use or permit the Premises to be
used in violation of any law or ordinance or any certificate of occupancy
issued for the Building or the Premises. Tenant shall not cause, maintain or
permit any nuisance in, on or about the Premises, or commit or allow any waste
in or upon the Premises.

 

(b)           Obstructions. Tenant shall
not obstruct any portion of the Property outside the Premises, and shall not, except as
otherwise previously approved by Landlord, place or permit any signs, curtains,
blinds, shades, awnings, aerials or flagpoles, or the like, visible from
outside the Premises. Landlord’s approval will not be unreasonably withheld or
delayed.

 

(c)           Floor Load. Tenant shall
not place a load upon the floor of the Premises exceeding the load per square foot such floor
was designed to carry, as determined by Landlord or its structural engineer.

 

(d)           Compliance
with Insurance Policies. Tenant shall not keep or use any article in the Premises, or permit any activity
therein, which is prohibited by any insurance policy covering the Building and
Leasehold Improvements, or would result in an increase in the premiums
thereunder; provided, however, that Landlord’s insurance shall cover Tenant’s
Permitted Uses.

 

14

 

6.3           Assignment; Sublease.

 

Tenant
shall not assign its rights under this Lease or sublet the whole or any part of
the Premises without Landlord’s prior written consent. Landlord’s consent will
not be unreasonably withheld or delayed. In addition, Landlord acknowledges
that its consent to an assignment or sublease shall not be conditioned upon (i) the
duration of the proposed sublease so long as said term does not extend beyond
the term of this Lease and any applicable renewal term, (ii)  the financial condition or ability of the
proposed sublessee, or (iii) the economic terms and conditions of such
sublease. In the event that Landlord grants such consent, Tenant shall remain
primarily liable to Landlord for the payment of all rent and for the full
performance of the obligations under this Lease. Any assignment or subletting
which does not conform with this Section 6.3 shall be void and a default
hereunder. Notwithstanding the foregoing, Tenant may, without Landlord’s
consent, assign or sublet the Premises to its parent corporation or any
subsidiary thereof, if any, or assign or sublet the Premises to any entity that
acquires all or substantially all of Tenant’s assets or controlling interest in
the stock or is the surviving entity after merging with Tenant. Such an
assignment or sublease shall be referred to herein as a “Permitted Transfer.”

 

Except
for a Permitted Transfer, if Tenant, after exercise of its option to extend the
initial Term of this Lease, shall enter into a sublease or assignment that (x) extends
past the expiration of the tenth (10th) anniversary of the Commencement Date
and (y) covers forty percent (40%) or more of the Building, then Tenant
shall pay to Landlord, on an annual basis, seventy-five percent (75%) of the
“transfer premium”, if any, as hereinafter defined, existing from and after the
tenth (10th) anniversary of the Commencement Date. The transfer premium shall
mean the annual amount of all base rent and additional rent payable by such
sublessee or assignee to Tenant under the sublease or assignment (the “Sublease
Rental”) in excess of the Base Rent and additional rent payable by Tenant under
this Lease during the corresponding annual period of the sublease or assignment
(the “Lease Rental”), calculated on a pro rata basis if less than the entire
Premises is assigned or sublet, less the following:

 

(i)                                    An amount equal to the annual amortized
amount of all costs incurred by Tenant
to secure the sublease or assignment, including, without limitation, all
attorneys’ fees, brokerage fees, remodeling costs and tenant inducements or
allowances. Such costs shall be amortized over the term of the sublease or
assignment at a rate equal to ten percent (10%) per annum; and

 

(ii)                                 An amount equal to the annual Amortized
Tenant Improvement Cost for the applicable
year during the term of the sublease or assignment, calculated on a pro rata
basis if less than the entire Premises is assigned or sublet.

 

In
the event the transfer premium is a negative number in any year during the term
of the sublease or assignment, then the negative balance shall be carried
forward and applied to the succeeding year for the purpose of calculating the
transfer premium (i.e. no transfer premium

 

15

 

shall
be payable unless the difference between the Sublease Rental and the Lease
Rental  in any one year of
the sublease or assignment exceeds the total of (a) the sum of the amounts
set forth in (i) and (ii) above in any one year and (b) the
cumulative total of all unapplied negative transfer premiums applicable to
previous years during the term of the sublease or assignment). The transfer
premium shall be calculated as of each anniversary of the commencement date of the sublease or the
assignment. Any transfer premium determined to be due shall be payable by
Tenant to Landlord within thirty (30) days after each such anniversary date.

 

If the provisions of the second paragraph of
this paragraph 6.3 shall apply, then Landlord, at its option, by written notice
to Tenant within ten (10) days after Tenant’s written notice to Landlord
of such sublease, elect to receive one hundred percent (100%) of the difference
between the Sublease Rental and the Lease
Rental. If Landlord elects such option, then in order for such election by
Landlord to be valid, Landlord shall pay Tenant within ten (10) days of
Tenant’s demand therefore, the amounts set forth in subpart (i) and
subpart (ii) as provided in the second paragraph above.

 

A condition of any assignment or sublease shall
be that the assignee or subleasee shall affirmatively assume all obligations of
the Tenant under the terms and conditions of this Lease and such assignment and
sublease shall not relieve Tenant of its obligations under this Lease.

 

6.4.          Indemnity.

 

Tenant, at its expense, shall defend (with
counsel satisfactory to Landlord), indemnify and hold harmless Landlord and its
agents, employees, invitees, licensees and contractors from and against any
cost, claim, action, liability or damage of any kind arising from (i) Tenant’s
use and occupancy of the Premises and the Property or any activity done or
permitted by Tenant in, on, or about the Premises or the Property, (ii) any
breach or default by Tenant of its obligations under this Lease, or (iii) any
negligent, tortious, or illegal act or omission of Tenant, its agents,
employees, or contractors; provided, however, that Tenant shall not be
responsible for any cost, claim, action, liability or damage arising from
Landlord’s negligence or that of Landlord’s agents, employees or contractors.

 

Landlord, at its expense, shall defend (with counsel
satisfactory to Tenant), indemnify and hold harmless Tenant and its agents,
employees, invitees, licensees and contractors from and  against any cost, claim, action, liability or
damage of any kind by a third party arising from (i) any breach or default
by Landlord of its obligations under this Lease or (ii) any negligence,
tortious or illegal act or omission of Landlord, its agents, employees or
contractors; provided, however, that Landlord shall not be responsible for any
cost, claim, action, liability or damage arising from Tenant’s negligence or
that of its agents, employees, or contractors.

 

16

 

The
respective indemnifications and hold harmless provisions set forth above are
subject to the waiver of subrogation as provided in Section 10.7.

 

6.5           Tenant’s
Insurance.

 

Tenant
shall maintain in responsible companies qualified to do business, in good
standing in the state in which the Premises are located and at its sole expense
the following insurance: comprehensive general liability insurance covering the
Premises insuring Landlord as well as Tenant with limits which shall, at the
commencement of the Term, be at least equal to the Public Liability Insurance
Amounts stated in Section 1.2 and from time to time during the Term shall
be for such higher limits, if any, as are customarily carried in the area in
which the Premises are located with respect to similar properties, and workers’
compensation insurance with statutory limits covering all of Tenant’s employees
working in the Premises, and to deposit promptly with Landlord certificates for
such insurance, and all renewals thereof, bearing the endorsement that the
policies will not be canceled until after ten (10) days’ written notice to
Landlord. All policies shall be taken out with insurers with a rating of A-IX
by Best’s and otherwise acceptable to Landlord.

 

6.6           Payment of
Taxes.

 

Tenant
shall pay before delinquency all taxes levied against Tenant’s personal
property or trade fixtures in the Premises. If any such taxes are levied
against Landlord or its property, or if the assessed value of the Premises is
increased by the inclusion of a value placed on Tenant’s property, Landlord may
pay such taxes, and Tenant shall upon demand repay to Landlord the portion of
such taxes resulting from such increase.

 

6.7           Environmental
Compliance.

 

(a)           General. Tenant shall not cause any hazardous or toxic
wastes, hazardous or toxic substances or hazardous or toxic
materials (collectively, “Hazardous Materials”) to be used, generated, stored
or disposed of on, under or about, or transported to or from, the Property
(collectively, “Hazardous Materials Activities”), except for normal amounts of
such Hazardous Materials as are used in the ordinary course of Tenant’s
business and which are used in compliance with all laws, ordinances, rules and
regulations (the “Permitted Chemicals”). Tenant will not engage in any
Hazardous Material Activity in violation of any law, ordinance, rule or
regulation relating to hazardous materials. Landlord shall not be liable to
Tenant for any Hazardous Materials Activities by Tenant, Tenant’s employees,
agents, contractors, licensees or invitees, whether or not consented to by
Landlord. Tenant shall not install or permit the installation of any
underground storage tank. Tenant shall indemnify, defend with counsel
acceptable to Landlord and hold Landlord harmless from and against any claims,
damages, costs and liabilities arising out of Tenant’s Hazardous Materials
Activities, including, without limitation, court costs and reasonable
attorneys’ and consultant’s fees; provided, however, that Tenant shall not be
responsible for any claims,

 

17

 

damages, costs or
liabilities arising from negligence from Landlord or Landlord’s agents,
employees or contractors.

 

(b)           Remediation. Without
limiting the foregoing, if Tenant permits the presence of any Hazardous
Materials on or in the Property, Tenant, at its sole cost and expense, shall
promptly take any and all actions necessary or required to return the Premises
to the condition existing prior to the presence of any Hazardous Materials by
Tenant on the Property. Tenant shall obtain Landlord’s written consent prior to
commencing any Such remedial action. Tenant shall remove and properly dispose
of all of the Permitted Chemicals prior to the end of the Term. Landlord and
Tenant shall each give written notice to the other as soon as reasonably
practicable of (i) any communication received from any governmental
authority concerning Hazardous Materials which relates to the Property, and (ii) any
contamination of the property by Hazardous Materials which constitutes a
violation of any Regulations.

 

(c)           Inspection. Tenant shall
permit Landlord to enter and inspect the Premises and conduct any necessary
testing necessary to ensure that Tenant is in compliance hereunder at any time
during the Term provided that Landlord gives Tenant reasonable advance notice
and provided that Landlord conducts such inspection in a manner so as to cause
the least amount of interference as possible with Tenant’s use of the Premises.
Tenant shall also permit any necessary inspection and testing prior to the end
of the Term upon such advanced written notice and conducted in a manner as
hereinbefore provided.

 

(d)           Tenant’s
Occupancy. Notwithstanding the foregoing, Tenant shall not be responsible for any Hazardous Materials
Activities prior to Tenant’s occupancy of the Premises.

 

(e)           Hazardous
Materials. For purposes hereof, Hazardous Materials shall include but not be
limited to substances defined as “hazardous substances”, “toxic substances”, or
“hazardous wastes” in the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; the federal Hazardous
Materials Transportation Act, as amended; and the federal Resource Conservation
and Recovery Act, as amended (“RCRA”); those substances defined as “hazardous
substances”, “materials”, or “wastes” under the law of the state in which the
Premises are located; and as such substances are defined in any regulations
adopted and publications promulgated pursuant to said laws (collectively,
“Regulations”). If Tenant’s activities violate or create a risk of violation of
any Regulations, Tenant shall cease such activities immediately upon notice
from Landlord. Tenant shall immediately notify Landlord both by telephone and
in writing of any spill or unauthorized discharge of Hazardous Materials or of
any condition constituting an “imminent hazard” under any Regulations.

 

(f)            Landlord’s Environmental Representations. Landlord, to the best of its knowledge and without a duty of inquiry,
represents and warrants to Tenant that except as disclosed in the Environmental
Site Assessment for Cardiac Pacemakers, Inc. and prepared

 

18

 

by DPRA Incorporated dated June 1, 1993, no toxic or hazardous wastes,
pollutants or contaminants (including, without limitation, asbestos, urea
formaldehyde, the group of organic compounds known as polychlorinated
biphenyls, petroleum products including gasoline, fuel oil, crude oil and
various constituents of such products, any hazardous substance as defined in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (“CERCLA”), 42 U.S.C. § 9601-9657, as amended, or included as a hazardous
material, substance or related material in the Hazardous Materials
Transportation Act, 40 U.S.C. § 1801 et  seq., as amended.
(“Hazardous Substances”) have been generated, treated, stored, released or
disposed of, or otherwise placed, deposited in or located on the Leased  Premises, nor has any activity
been undertaken on the Premises that would cause or contribute to (i) the
Premises to become a treatment, storage or disposal facility within the meaning
of, or otherwise bring the property within the ambit of, the Resource
Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. § 6901 eq  seq.,
or any similar state law or local ordinance, (ii) a release or threatened
release of Hazardous Substances from the Premises within the meaning of, or
otherwise bring the Premises within the ambit of, CERCLA or any similar state
law or local ordinance, or (iii) the discharge of pollutants or effluents
into any water source or system, the dredging or filling of any waters or the
discharge into the air of any emissions, that would require a permit under the
Federal Water Pollution Control Act, 33 U.S.C. § 1251 et  seq., or
the Clean Air Act, 42 U.S.C. § 7401 et  seq., or any similar state
law or local ordinance. There are no substances or conditions in or on the
Premises that may support a claim or cause of action under RCRA, CERCLA or any
other federal, state or local environmental statutes, regulations, ordinances
or other environmental regulatory requirements. Landlord shall indemnify
Tenant, its successors and assigns, against, and shall hold Tenant, its
successors and assigns, harmless from any and all liabilities, obligations,
damages, fines, penalties, claims, demands, costs, charges, judgments and
expenses, including reasonable attorneys’ fees, that Tenant incurs by reason of
any of the foregoing representations or warranties being untrue.

 

(g)           Tenant’s Environmental Representations. Tenant, to the best of its knowledge,
represents and warrants to Landlord that (a) as a result of the conduct of
its business on the Premises, no toxic or hazardous wastes, pollutants or
contaminants (including, without limitation, asbestos, urea formaldehyde, the
group of organic compounds known as polychlorinated biphenyls, petroleum
products including gasoline, fuel oil, crude oil and various constituents of
such products, any hazardous substance as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), 42
U.S.C. § 9601-9657, as amended, or included as a hazardous material, substance
or related material in the Hazardous Materials Transportation Act, 40 U.S.C. §
1801 et  seq., as amended. (“Hazardous Substances”) will be
generated, treated, stored, released or disposed of, or otherwise placed,
deposited in or located on the Premises, in violation of any federal, state or
local environmental statute, regulation or ordinance and (b) without a
duty of inquiry as to the existing condition of the Premises, nor has any
activity been undertaken or will be undertaken by Tenant on the Premises (based
on Landlord’s representation regarding the condition of the Premises) that
would cause or contribute to (i) the Premises to become a treatment,
storage or disposal facility within the meaning of, or

 

19

 

otherwise bring the property within the ambit of, the Resource
Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. § 6901 eq  seq.,
or any similar state law or local ordinance, (ii) a release or threatened
release of Hazardous Substances from the Premises within the meaning of, or
otherwise bring the Premises within the ambit of, CERCLA or any similar state
law or local ordinance, or (iii) the discharge of pollutants or effluents
into any water source or system, the dredging or filling of any waters or the
discharge into the air of any emissions, that would require a permit under the
Federal Water Pollution Control Act, 33 U.S.C. § 1251 et  seq., or the Clean Air Act, 42 U.S.C. § 7401 et  seq.,
or any similar state law or local ordinance. There will be no substances or
conditions in or on the Premises resulting solely from Tenant’s use and
occupancy of the Premises that may support a claim or cause of action under
RCRA, CERCLA or any other federal, state or local environmental statutes,
regulations, ordinances or other environmental regulatory requirements. Tenant shall
indemnify and defend Landlord, its successors and assigns, against, and shall
hold Landlord, its successors and assigns, harmless from any and all
liabilities, obligations, damages, fines, penalties, claims, demands, costs,
charges, judgments and expenses, including reasonable attorneys’ fees, that
Landlord incurs by reason of any of the foregoing representations or warranties
being untrue.

 

(h)           Survival. The obligations of Landlord and Tenant under this Section 6.8
shall survive the expiration or earlier termination of the Term.

 

ARTICLE VII DEFAULT

 

7.1           Events of Default.

 

The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:

 

(i)                                    The
failure by Tenant to make any payment of Base Rent or additional rent or any
other payment required hereunder, as and when due, where such failure shall continue
for a period of five (5) days after written notice thereof from Landlord
to Tenant; provided, that Landlord shall not be required to provide such notice
more than twice during the Term with respect to non-payment of Rent. In the
event Landlord is no longer obligated to provide written notice of a payment
default, Tenant shall not be deemed to be in default under this paragraph
thereafter unless Tenant fails to make such payment within five (5) days
of the due date of any such payment;

 

(ii)                                 The
failure by Tenant to observe or perform any of the express or implied covenants
or provisions of this Lease to be observed or performed by Tenant, other than
as specified in clause (i) above, where such failure shall continue for a
period of more than fifteen (15) days after written notice thereof from
Landlord to Tenant; provided, however, that if the nature of Tenant’s default

 

20

 

is
such that more than fifteen (15) days are reasonably required for its cure,
then Tenant shall not be deemed to be in default if Tenant shall commence such
cure within said ten-day period and thereafter diligently prosecute such cure
to completion, which completion shall occur not later than seventy-five (75)
days from the date of such notice from Landlord and subject to force majeure;

 

(iii)                              The failure by Tenant of all or any portion
of Tenant’s obligations under this Lease to pay its debts as they become due,
or Tenant becoming insolvent, filing or having filed against it a petition
under any chapter of the United States Bankruptcy Code, 11 U.S.C. Section 101
et seq. (or any similar petition under any insolvency law of any jurisdiction)
and such petition is not dismissed within forty-five (45) days thereafter,
proposing any dissolution, liquidation, composition, financial reorganization
or recapitalization with creditors, making an assignment or trust mortgage for
the benefit of creditors, or if a receiver, trustee, custodian or similar agent
is appointed or takes possession with respect to any property or business of
Tenant or of Guarantor; or

 

(iv)                             If the leasehold estate under this Lease or
any substantial part of the Property or assets of Tenant of this leasehold is taken by execution, or by
other process of law, or is attached or subjected to any involuntary
encumbrance if such attachment
or other seizure remains undismissed or undischarged for a period of ten (10) business
(10) days after the levy hereof.

 

7.2           Remedies Upon Default.

 

In
the event of any such default by Tenant, whether or not the Term shall have
begun, in addition to any other remedies available to Landlord at law or in
equity, Landlord shall have the option without further notice to terminate this
Lease and all rights of Tenant hereunder by notice to Tenant and this Lease
shall thereupon come to an end as fully and completely as if the date such
notice is given were the date originally fixed for the expiration of the Term,
and Tenant shall then quit and surrender the Premises to Landlord, but Tenant
shall remain liable as hereinafter provided. Landlord shall have the right to
terminate Tenant’s right to possession of the Premises and re-enter the
Premises and take possession thereof without terminating this Lease.

 

7.3           Damages.

 

(a)           Calculation of Damages. In the event that this Lease is terminated under any
of the provisions contained in Section 7.1, Tenant covenants to pay
forthwith to Landlord, as compensation, the present value of excess of the
total rent reserved for the residue of the Term over the fair market rental
value of the Premises for said residue of the Term. In calculating the rent
reserved and the fair market value of the Premises there shall be

 

21

 

included,
in addition to the Base Rent and all additional rent, the value of all other
considerations agreed to be paid or performed by Tenant for said residue. If
the Lease is not terminated and only Tenant’s right of occupancy is terminated,
then Tenant further covenants as an additional and cumulative obligation after
any such termination to pay punctually to Landlord all the sums and perform all
the obligations which Tenant covenants in this Lease to pay and to perform in
the same manner and to the same extent and at the same time as if Tenant’s
occupancy had not been terminated. In calculating the amounts to be paid by
Tenant under the immediately preceding sentence Tenant shall be credited with
any amount paid by Tenant to Landlord and also with the net proceeds of any
Rent obtained by Landlord by reletting the Premises, after deducting the
monthly portion of the amortization at ten percent (10%) interest per annum of
all Landlord’s reasonable expenses incurred in connection with such reletting
over the term of such new lease,  including, without limitation, all repossession costs, brokerage
commissions, fees for legal services and expenses of preparing the Premises for
such reletting. Landlord is obligated to exercise its best efforts to mitigate
Tenant’s damages and to re-let the Premises on terms that are commercially
reasonable.

 

(b)           No Limitations. Nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove for and obtain in
proceedings for bankruptcy or insolvency by reason of the termination of this
Lease, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, the
damages are to be provided, whether or not the amount be greater, equal to, or
less than the amount of the loss or damages referred to above.

 

7.4           Cumulative Remedies.

 

Landlord’s
remedies under this Lease are cumulative and not exclusive of any other
remedies to which Landlord may be entitled in case of Tenant’s breach or
threatened breach of this Lease. Landlord shall be entitled to the remedies of
injunction and specific performance with respect to any such breach.

 

ARTICLE VIII CASUALTY AND EMINENT DOMAIN

 

8.1           Casualty.

 

(a)           Casualty in General. If, during the term of this Lease, the Premises, the
Building or the Lot, are wholly or partially damaged or destroyed by fire or
other casualty, and the casualty renders the Premises totally or partially
inaccessible or unusable by Tenant in the ordinary conduct of Tenant’s
business, then Landlord shall, within thirty (30) days of the date of the
damage, give Tenant a notice (“Damage Notice”) stating whether, according to
Landlord’s good faith estimate, the damage can be repaired and the Premises
restored to their condition prior to the casualty within one hundred eighty
(180) days from the date of damage (“Repair Period”), without the payment of
overtime or other premiums. If the

 

22

 

Damage Notice states that the repairs can be completed within the
Repair Period without the  payment of
overtime or other premiums, then Landlord shall, at its cost and expense,
promptly proceed to make the repairs and to restore the Premises to their
condition prior to the casualty, this Lease shall remain in full force and
effect, and Base Rent and all additional rent shall be reduced, during the
period between the casualty and completion of the repairs, in proportion to the
portion of the Premises that is inaccessible, unusable during that period and
which is, in fact, not utilized by Tenant, or usable during that period, but
not utilized by Tenant as a result of the damage to other portions of the
Premises. If the Damage Notice states that the repairs cannot, in Landlord’s
good faith estimate, be completed within the Repair Period without the payment
of overtime or other premiums, then either party may, by written notice to the
other, terminate this Lease as of the date of the occurrence of such damage or
destruction, by notice given to the other within thirty (30) days after the
giving of the Damage Notice. If either party elects to terminate this Lease,
Tenant shall be automatically released from its obligations under this Lease.
If neither party so terminates, then this Lease shall remain in effect, Landlord
shall promptly proceed to make repairs and restore the Premises to their
condition prior to the casualty, and Base Rent shall be proportionately reduced
as set forth above during the period when the Premises is inaccessible,
unusable or usable and is not used by Tenant.

 

(b)           Casualty within final six months of Term. Notwithstanding anything to the contrary contained in this Section 8.1,
if the Premises or the Building are wholly or partially damaged or destroyed
within the final six (6) months of the Term of this Lease, Landlord shall
not be required to repair such casualty and either Landlord or Tenant may elect
to terminate this Lease, unless Tenant elects to extend the Term of this Lease,
in which event the provisions of subparagraph (a) above shall apply.

 

(c)           Tenant’s Personal Property. Under no circumstances shall Landlord be required to repair any damage
to, or make any repairs to or replacements of, Tenant’s personal property. As
part of Operating Expenses, Landlord shall insure the Premises, including,
without limitation, the Building, Tenant Improvements and any Alterations that
are not Tenant’s personal property and of which Landlord has received notice
and approved, and shall cause the Building, including, without limitation, the
Tenant Improvements and Alterations to be repaired and restored to their
condition prior to the casualty, at Landlord’s sole expense; provided, however,
that no portion of any deductible amount shall be included in Operating Costs
or otherwise paid by Tenant. Landlord shall have no responsibility for any
contents placed or kept in or on the Premises or the Building by Tenant or
Tenant’s agents, employees, invitees or contractors.

 

(d)           Payment of Unamortized Tenant
Improvement Cost Upon Termination.
In the event that Landlord
terminates this Lease following a casualty as set forth in this Section 8.1
or Landlord defaults in its obligation to restore the Premises as provided in
this paragraph 8.1 and the Lease is terminated as a result thereof, then
Landlord shall pay to Tenant, within thirty (30) days following such
election to terminate, an amount equal to the unamortized portion of the Tenant
Improvement Cost as of the day of the casualty as

 

23

 

determined pursuant to the Amortization of Tenant Improvement Cost. In
the event Tenant terminates this Lease following a casualty as set forth in Section 8.1,
then Landlord shall be obligated to pay to Tenant only that portion of said
unamortized Tenant Improvement Cost which only relates to the Tenant
Improvements damaged or destroyed by such casualty.

 

(e)           Exclusive Remedy. This Section 8.1 shall be
Tenant’s sole and exclusive remedy in the event of damage or destruction to the
Premises or the Building. No damages, compensation or claim shall be payable by
Landlord for any inconvenience, any interruption or cessation of Tenant’s
business, or any annoyance, arising from any damage to or destruction of all or
any portion of the Premises or the Building, regardless of the cause.

 

8.2           Eminent
Domain.

 

(a)           Eminent Domain in General. If the whole of the Building shall
be taken or appropriated under the power of eminent domain or condemnation
(hereinafter, a “Taking”), this Lease shall automatically terminate as of the
effective date of the Order of Taking, or as of the date possession is taken by
the Taking authority, whichever is earlier. If (i) any part of the
Building or (ii) more than twenty percent (20%) of parking area serving
the Building is the subject of a Taking, then Tenant may elect to terminate
this Lease upon sixty (60) days written notice to Landlord. Such notice must be
delivered to Landlord within thirty (30) days following the effective date of
the Order of Taking, or as of the date possession is taken by the Taking
authority, whichever is earlier. No award for any partial or entire Taking
shall be apportioned except as provided in subparagraph (b) below.
Landlord shall receive and Tenant hereby assigns to Landlord any award which
may be made and any other proceeds in connection with such Taking, together
with all rights of Tenant to such award or proceeds, including, without
limitation, any award or compensation for the value of all or any part of the
leasehold estate except for the amount due by Landlord to Tenant as provided in
subparagraph (b) below. Notwithstanding the foregoing to the contrary,
nothing contained in this Section 8.2(a) shall be deemed to give
Landlord any interest in or to require Tenant to assign to Landlord any
separate award made to Tenant for (a) the taking of Tenant’s personal
property, (b) interruption of or damage to Tenant’s business, (c) Tenant’s
moving and relocation costs or (d) the unamortized portion of the Tenant
Improvement Costs, except to the extent paid by Landlord as provided in
subparagraph (b) below.

 

(b)           Payment of Unamortized Tenant Improvement
Cost Upon Termination.
In the event that this Lease is terminated following a Taking of the whole
Building as set forth in this Section 8.2, then Landlord shall pay over to
Tenant, within ten (10) days of receipt of the Landlord’s condemnation
award, that portion of Landlord’s condemnation award or proceeds equal to the
unamortized portion of the Tenant Improvement Cost as of the date the Lease is
terminated as determined pursuant to the Amortization of Tenant Improvement
Cost. If the Taking affects only a portion of the Premises, then Landlord shall
be obligated to pay to Tenant only that portion of said unamortized Tenant
Improvement Cost which relates only to the Tenant Improvements subject to the
Taking.

 

24

 

Notwithstanding
the foregoing to the contrary, Tenant agrees to allow any separate award for
the Tenant Improvements to be included as part of the Landlord’s award if
Landlord agrees and instructs the condemning authority that the check for the
Landlord’s award shall be made payable to Landlord and Tenant. Tenant agrees to
endorse such check to Landlord upon receipt of the amount due Tenant pursuant
to this subparagraph (b).

 

Additionally,
Landlord shall provide Tenant with copies of all pleadings, documents, notices
of meetings and appraisals relating to the condemnation. Tenant shall have a
right to attend all hearings, proceedings and meetings.

 

(c)           Reduction in Base Rent/Restoration.
In the event of a Taking which does not result in a termination of the Lease, Base Rent shall be
proportionately reduced based on the portion of the Premises rendered unusable,
and Landlord, at its sole cost and expense, shall restore the Premises and the
Building including, without limitation, the Tenant Improvements and
Alterations, as promptly as possible, to a complete architectural structure
and, as nearly as possible, to the condition existing immediately prior to the
Taking. Landlord shall not be required to repair or restore any damage to
Tenant’s personal property.

 

(d)           Sole Remedies.
This Section 8.2 sets forth Tenant’s and Landlord’s sole remedies for any Taking. Upon termination of
this Lease pursuant to this Section 8.2, Tenant and Landlord hereby agree
to release each other from any and all obligations and liabilities with respect
to this Lease except such obligations and liabilities which arise or accrue
prior to such termination.

 

ARTICLE IX RIGHTS OF PARTIES HOLDING PRIOR
INTERESTS

 

9.1           Subordination.

 

This
Lease shall be subject and subordinate to any and all mortgages, deeds of trust
and other instruments in the nature of a mortgage, which now or at any time
hereafter encumber the Property so long as the holder of such mortgage, deed of
trust or other instruments in the nature of a mortgage, enters into an
attornment agreement with Tenant and a non-disturbance agreement with Tenant
whereby such holder agrees not to interfere with Tenant’s possession of the
Premises and agrees to recognize all of Tenant’s rights under the Lease,
including the rights of renewal, right of termination and right of first offer
to purchase. Tenant shall, within twenty (20) days of Landlord’s request,
execute and deliver to Landlord such recordable written instruments as shall be
necessary to show the subordination of this Lease to said mortgages, deeds of
trust or other such instruments in the nature of a mortgage, provided that such
recordable written instruments contain the attornment and non-disturbance
protection as provided above and as generally set forth in the attached Exhibit F.
In the event that any holder of a mortgage, deed of trust or other instrument
in the nature of a mortgage shall succeed to the interests of Landlord under
this Lease, then, at the option of such holder, this Lease shall continue in
full force and effect

 

25

 

and Tenant shall and does hereby agree to atom to such holder and to
recognize such holder as its landlord.

 

ARTICLE X MISCELLANEOUS

 

10.1         Representations by
Tenant and by Landlord.

 

Tenant represents and warrants that any financial statements provided
by it to Landlord were true, correct and complete when provided, and that no
material adverse change has occurred since that date that would render them
inaccurate or misleading. Tenant represents and warrants that those persons
executing this Lease on Tenant’s behalf are duly authorized to execute and
deliver this Lease on its behalf, and that this Lease is binding upon Tenant in
accordance with its terms, and simultaneously with the execution of this Lease,
Tenant shall deliver evidence of such authority to Landlord in form
satisfactory to Landlord. Landlord represents and warrants to Tenant that those
persons executing this Lease on behalf of Landlord are duly authorized to execute
and deliver this Lease on its behalf, that this Lease is binding upon Landlord
in accordance with its terms and that it is the fee owner of the Property and
that to the best of Landlord’s knowledge title to the Property is subject only
to the liens and encumbrances contained in Exhibit E.

 

10.2         Notices.

 

Any notice required or permitted hereunder shall be in writing.
Communications shall be addressed to Landlord c/o Managing Agent at Managing
Agent’s Address and to Tenant at Tenant’s Address. Any communication so
addressed shall be deemed duly given when delivered by hand, the day sent by
fax, one day after being sent by Federal Express (or other guaranteed one day
delivery service) or three days after being sent by registered or certified
mail, return receipt requested. Either party may change its address by giving
notice to the other.

 

10.3         No Waiver or Oral Modification.

 

No provision of this Lease shall be deemed waived by Landlord or Tenant
except by a signed written waiver. No consent to any act or waiver of any
breach or default, express or implied, by Landlord
or Tenant, shall be construed as a consent to any other act or waiver of any
other breach or default.

 

10.4         Partial Invalidity.

 

If any provision of this Lease, or the application thereof in any
circumstances, shall to any extent be invalid or unenforceable, the remainder
of this Lease shall not be affected thereby, and each provision hereof shall be
valid and enforceable to the fullest extent permitted by law.

 

26

 

10.5         Self-Help.

 

If ten (10) days after written notification from Landlord, Tenant
fails to commence performing and continues to perform any obligation hereunder,
Landlord may enter the Premises and perform it on Tenant’s behalf. In so doing,
Landlord may make any payment of money or perform any other act. All
out-of-pocket sums so paid by Landlord which are reasonably necessary to
perform Tenant’s obligations under this Lease shall be considered additional
rent under this Lease and shall be payable to Landlord immediately on demand,
together with interest from the date of demand to the date of payment at the
“Interest Rate”. For purposes of this Lease, the Interest Rate shall mean four (4) percentage
points above the prime rate published in the Wall Street Journal,  it being
understood that in no event shall such Interest Rate exceed the maximum
interest rate permitted by any applicable state law.

 

If thirty (30) days after written notification from Tenant, Landlord
fails to commence performing and continuing to perform any obligation
hereunder, and then ten (10) business days thereafter after written notice
by Tenant to Landlord’s first mortgagee, said mortgagee has failed to commence
so performing, Tenant may perform it on Landlord’s behalf. In so doing, Tenant
may make any reasonable payment of money or perform any other reasonable act.
All out-of-pocket sums so paid by Tenant which are reasonably necessary to
perform Landlord’s obligations under this Lease shall be payable to Tenant
immediately on demand, together with interest from the date of demand to the
date of payment at the “Interest Rate”. For purposes of this Lease, the
Interest Rate shall mean four (4) percentage points above the prime rate published
in the Wall
Street Journal,  it being
understood that in no event shall such Interest Rate exceed the maximum
interest rate permitted by any applicable state law. To the extent Landlord
fails to pay such amount upon Tenant’s demand, Tenant shall have the right to
set off against Rent the amount due by Landlord to Tenant under this paragraph.
Notwithstanding the foregoing to the contrary, if within the thirty (30) days
following Tenant’s notice to Landlord, Landlord gives notice to Tenant that
Landlord disputes Tenant’s claim that a default exists by Landlord or within
ten (10) days of Tenant’s demand for payment, Landlord objects to the
amount of the set-off, then if the amount of the set-off is more than Twenty
Thousand Dollars ($20,000), the amount in excess thereof shall be paid into an
escrow account mutually agreed to by Tenant and Landlord or, if they cannot
agree, then into Ramsey County District Court until the dispute as to Tenant’s
rights under this paragraph has been resolved.

 

10.6         Tenant’s Estoppel Certificate.

 

Within ten (10) days after written request by Landlord, Tenant
shall execute, acknowledge and deliver to Landlord a written statement
certifying (a) that this Lease is  unmodified and in
full force and effect, or is in full force and effect as modified and stating
the modifications; (b) the amount of Base Rent and the date to which Base
Rent and additional rent have been paid in advance; (c) the amount of any
security deposited with Landlord; and (d) that Landlord is not in default
hereunder or, if Landlord is claimed to be in default, stating the nature of
any claimed default, and (e) such other matters as may be

 

27

 

reasonably requested by Landlord. Any such statement may be relied upon
by a purchaser, assignee or lender. Tenant’s failure to execute and deliver
such statements within the time required shall be a default under this Lease
and shall also be conclusive upon Tenant that (i) this Lease is in full force
and effect and has not been modified except as represented by Landlord; and (ii) there
are no uncured defaults in Landlord’s performance and Tenant has no right of
offset, counterclaim or deduction against rent.

 

10.7         Waiver of Subrogation.

 

Landlord and Tenant each hereby waive all rights of recovery against
the other and against the officers, employees, agents, and representatives of
the other, on account of loss by or damage to the waiving party or its property
or the property of others under its control, to the extent that such loss or
damage is insured against under any insurance policy that either may have in
force at the time of the loss or damage or would have been insured against
under the insurance policies required to be maintained by each party under this
Lease. Each party shall notify its insurers that the foregoing waiver is
contained in this Lease.  Landlord and
Tenant shall cause each insurance policy obtained by each of them to provide
that the insurer waives all right of recovery by way of subrogation against
either Landlord or Tenant and their respective officers, employees, agents and
representatives in connection with any loss or damage covered by such policy.

 

10.8         All Agreements; No Representations.

 

This Lease contains all of the agreements of the parties with respect
to the subject matter hereof and supersedes all prior dealings between them
with respect to such subject matter. Each party acknowledges that the other has
made no representations or warranties of any kind except as may be specifically
set forth in this Lease.

 

10.9         Brokerage.

 

Landlord will pay to Woodbridge Partners, Inc., a brokerage
commission of $257,581.50, which is $2.75/s.f. times 93,666 s.f. Payment of the
commission will be due one hundred percent (100%) upon the Commencement Date.
In the event the commission is not paid by Landlord, Tenant may pay such amount
to Woodbridge Partners, Inc. and set off such amount plus interest at the
“Interest Rate” as defined in Section 10.5 applied on the unpaid balance
of such amount which remains from time to time against Rent. Landlord and
Tenant acknowledge that Woodbridge Partners, Inc. is the agent for and
acting solely on behalf of the Tenant with regard to this Lease.

 

10.10       Successors and Assigns.

 

This Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that only the original Landlord named herein shall be liable for obligations
accruing before the beginning of the Term, and

 

28

 

thereafter
the original Landlord named herein and each successive owner of the Premises
shall be liable only for obligations accruing during the period of their
respective ownership.

 

10.11       Construction of Document.

 

This
Lease shall be construed, governed and enforced according to the laws of the
state in which the Property is located. In construing this Lease, section
headings shall be disregarded. Any recitals herein or exhibits attached hereto
are hereby incorporated into this Lease by this reference. Time is of the
essence of this Lease and every provision contained herein. The parties
acknowledge that this Lease was freely negotiated by both parties, each of whom
was represented by counsel; accordingly, this Lease shall be construed according
to the fair meaning of its terms, and not against either party.

 

10.12       Disputes Provisions.

 

If
either Landlord or Tenant institutes any action to enforce the provisions of
this Lease or to seek a declaration of rights hereunder, the prevailing party
shall be entitled to recover its reasonable attorneys’ fees and court costs as
part of any award.

 

10.13       Holdover.

 

If
Tenant holds over in occupancy of the Premises after the expiration of the
Term, Tenant shall become a tenant at sufferance only, at a rental rate equal
to one hundred sixty-five percent (165%) of the Base Rent in effect at the end of the Term, plus the amount of
Tenant’s Share of Operating Expenses then in effect, and otherwise subject to
the terms and conditions herein specified, so far as applicable, and shall be
liable for all damages sustained by Landlord on account of such holding over.

 

10.14       Late Payment.

 

Tenant
acknowledges that the late payment by Tenant to Landlord of any sums due under
this Lease will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of such costs being extremely difficult and impractical to
ascertain. Therefore, if any Base Rent or other sum due hereunder is not paid
after the date the same was due, it shall bear interest from the due date at
the Interest Rate as defined in Section 10.5, the payment of which
interest shall be additional rent hereunder.

 

10.15       Force Majeure.

 

If
Landlord or Tenant is prevented from or delayed in performing any act required
of it hereunder, and such prevention or delay is caused by strikes, labor
disputes, inability to obtain labor, materials, or equipment, inclement
weather, acts of God, governmental restrictions, regulations, or controls,
judicial orders, enemy or hostile government actions, civil commotion, fire or
other casualty, or other causes beyond such party’s reasonable

 

29

 

control (collectively, “Force Majeure”), the performance of such act
shall be excused for a period equal to the period of prevention or delay. A
party’s financial inability to perform its obligations shall in no event
constitute Force Majeure.

 

10.16       Limitation on Liability.

 

The obligations of Landlord and Tenant under this Lease do not
constitute personal obligations of the individual partners, directors,
officers, shareholders, trustees or  beneficiaries of
Landlord or Tenant, and neither Landlord or Tenant shall seek recourse against
the partners, directors, officers, shareholders, trustees or beneficiaries of
the other party, or any of their personal assets for satisfaction of any
liability with respect to this Lease.

 

10.17       Lease not to be Recorded.

 

Tenant agrees that it will not record this Lease. Both parties shall,
upon the request of either, execute and deliver a notice or short form of this
Lease in recordable form which sets forth the general information with regard
to the parties, the Property, the initial term, the renewal terms, and the
right of first offer to purchase the Property. If this Lease is terminated before
the Term expires the parties shall execute, deliver and record an instrument
acknowledging such fact and the actual date of termination of this Lease.

 

10.18       Option to Extend.

 

Tenant is hereby given the option to extend the Term hereunder (the
“Initial Term”) for two (2) periods of five (5) years each (the
“Extension Terms”) provided that at the time such options to extend are
exercised Tenant shall not be in default under any of the terms of this Lease.
Tenant shall give notice in writing to Landlord of its exercise of each option
at least nine (9) months prior to the termination of the Initial Term or
the first option term. Prior to the exercise by Tenant of such option, the
expression “Term” shall mean the Initial Term, and after the exercise by Tenant
of each option, the expression “Term” shall mean the original Term as it has
been then extended by the Extension Term. Such extension shall be upon the same
terms, covenants and conditions as are contained in this Lease except that the
Base Rent for the extension period shall be $421,497.00 per annum for the first
option term and $515,163.00 per annum for the second option term. If Tenant
shall give notice of its exercise of said option to extend in the manner and
within the time period provided aforesaid, the Term shall be extended upon the
giving of such notice without the requirement of any further action on the part
of either Landlord or Tenant. If Tenant shall fail to give timely notice of the
exercise of such option as aforesaid, Tenant shall have no right to extend the
Term of this Lease, time being of the essence of the foregoing provision.

 

30

 

10.19       Option to Terminate.

 

Tenant
shall have the right to terminate this Lease at any time after the fifth (5th)
anniversary of the Commencement Date. Such termination shall be effective no
earlier than six (6) months after Tenant’s delivery of written notice to
Landlord. Said termination right shall only be exercised if Tenant provides
documentation reasonably satisfactory to Landlord evidencing the sale of fifty
percent (50%) of the stock of EMPI, Inc. to a single purchaser, Tenant’s
participation in a merger, or the sale of all or substantially all of Tenant’s
assets. Tenant will have the right to continue to occupy the Premises pursuant
to the terms of this Lease after the written notice of termination until the
earlier of (i) the date Tenant elects to vacate the Premises or (ii) the
date Landlord requests possession of the Premises from Tenant based on
Landlord’s written notification. Said notification from Landlord will provide
Tenant with a minimum of three (3) months from date of said notification until
complete vacation of the Premises by Tenant. If Tenant elects to exercise its
Option to Terminate, Tenant will be required to pay a $500,000 termination
penalty to Landlord as follows: $250,000 of this termination penalty will be
due upon receipt of the termination notice by Landlord and the balance will be
paid upon termination of Tenant’s occupancy. Said termination penalty will be
reduced by the difference between $500,000 and Landlord’s actual out-of-pocket
costs for re-leasing the Premises, which costs shall include all “lost rental
income”, as defined below, all lost operating expense reimbursements (including
taxes and insurance), all reasonable brokerage commissions and all reasonable
tenant improvements required of Landlord to re-let the Premises (“Termination
Fee Credit”), which difference is referred to herein as “Tenant’s Refund.”
“Lost rental income” shall equal the Base Rent payable under this Lease from
the effective date of termination over the balance of the Term of the Lease
(not including unexercised renewal terms), less all rent payable under the
lease with the replacement tenant. As soon as said Termination Fee Credit has
been calculated, but in no event later than two (2) months after the
commencement date of a lease by a replacement tenant, Landlord will send to
Tenant a statement outlining the calculation of the Termination Fee Credit in
reasonable detail along with Tenant’s Refund, if due.

 

10.20       Right of First Offer to Purchase the
Premises.

 

Prior
to Landlord initiating efforts to sell the Premises, Landlord must first
provide Tenant with written notice of its desire to sell the Premises along
with an outline of the specific terms and conditions upon which Landlord would
agree to sell. Tenant will have thirty (30) days after receipt of this written
notice to negotiate the purchase of the Premises from Landlord.  During the thirty (30) day period, Landlord
shall not enter into any written agreements with regard to the sale of the
Premises to a party other than Tenant. In the event of an unsolicited bona fide
offer to purchase the Premises, which the Landlord is willing to accept,
Landlord agrees to provide Tenant with a copy of the offer and a written
confirmation from Landlord to Tenant that Landlord is willing to accept the
terms and conditions of such offer for the sale of the Premises. Tenant will
then have ten (10) business days in which to offer to purchase the
Premises upon the same terms and conditions as the unsolicited offer or to
submit a competing offer. If Tenant offers to purchase the Premises

 

31

 

upon the same terms and conditions by submitting a duly executed
written offer, Landlord shall be obligated to accept such offer and sell the
Premises to Tenant upon such terms and conditions. If Tenant offers different
terms and conditions, Landlord is free to negotiate with all parties and to
sell to whomever Landlord selects, but not on terms and conditions which are
more favorable than those initially offered to Tenant. If Landlord fails to
execute a purchase agreement for the Premises within one hundred eighty (180)
days after first providing Tenant with an outline of the specific terms and
conditions or the offer upon which Landlord would agree to sell, then Landlord
shall again be obligated to provide Tenant with such an outline or the offer
before again initiating efforts to sell the Premises or closing on a sale of
the Premises pursuant to the terms of the offer. Tenant’s right of first offer
to purchase the Premises shall be a continuing right during the Term of the
Lease, including the renewal terms. Notwithstanding any provisions of this
paragraph, transfers of partnership interests in Landlord among partners,
admission of additional partners, and transfer of the Premises to a limited
liability company, the members of which include some or all of the existing
partners, shall not be subject to the terms and conditions of this paragraph
and shall not trigger the requirements of first offer set forth herein so
long as the existing partners of Landlord continue to hold not less than a
majority of the beneficial interest, and Stephen B. Wellington, Jr.
continues to hold not less than a twenty-five percent (25%) interest, in
Landlord or such transferee limited liability company. Notwithstanding the
foregoing, a transfer of Stephen B. Wellington’s interest in Landlord or such
transferee limited liability company by reason of his death or disability or
pursuant to any other involuntary transfer shall not be subject to the terms and
conditions of this paragraph and shall not trigger the requirements of first
offer set forth herein so long as the existing partners of Landlord continue to
hold not less than a majority of the beneficial interest in Landlord or such
transferee limited liability company. In the event of any transfer of interests
in Landlord or of the Premises which does not conform to the requirements of
the preceding two sentences, such transfer shall be deemed to be a sale of the
Premises and such sale of the Premises shall be subject to the terms and
conditions of this paragraph.

 

In the event the Landlord transfers such interest in violation of the
preceding paragraph, such transfer shall be subject to the terms of this
paragraph and shall be deemed to be the Landlord initiating efforts to sell the
Premises and subject to the requirements of this Section with regard to
the Landlord initiating efforts to sell the Premises.

 

10.21         Reasonable
Consent.

 

Wherever consent or approval is required by the Landlord or Tenant pursuant
to the terms of this Lease, such consent or approval shall not be unreasonably
withheld or delayed by the party required to give such consent or approval.

 

32

 

10.22    Prior Lease Terminated.

 

This Lease supersedes that certain Office/Light Manufacturing Lease
dated May 1, 1996 between Landlord and Tenant with respect to the
Premises, as amended, which prior lease has been terminated and is of no
further force or effect.

 

EXECUTED as a sealed instrument in two or more counterparts as of the
date first above written.

 

	
   

  	
  “LANDLORD”

  
	
   

  	
   

  
	
   

  	
  CARDIGAN
  INVESTMENTS LIMITED

  PARTNERSHIP

  
	
   

  	
   

  
	
   

  	
   

  	
  CARDIGAN
  INVESTMENTS, INC.

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Stephen
  B. Wellington, Jr.

  
	
   

  	
   

  	
   

  	
  Stephen
  B. Wellington, Jr.

  
	
   

  	
   

  	
   

  	
  Its
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “TENANT”

  
	
   

  	
   

  
	
   

  	
  EMPI,
  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  ILLEGIBLE

  
	
   

  	
   

  	
  Its:

  	
  ILLEGIBLE

  
						

 

33

 

Date:  January 23, 2006

 

FIRST LEASE
AMENDMENT

 

Between

 

Cardigan Investments, LLC
 (formerly known as Cardigan Investments Limited
Partnership),

Landlord

 

and

 

EMPI Corp.,
 Tenant

 

WHEREAS:

 

Landlord and Tenant entered into an original Lease Agreement dated June 14,
1996 (the “Lease”), for the Premises located at 599 Cardigan Road,
Shoreview, MN 55126, consisting of 93,666 rentable square feet.

 

WHEREAS:

 

Tenant has given timely, written notice of its intent to exercise the
option to renew provided in the Lease, dated June 14, 1996 to
extend the term by a five (5) year period at the rental rates provided in
the Lease.

 

THEREFORE:

 

1.                                       The term is
extended for five (5) years commencing 12:01 a.m. on November 1,
2006 and terminating 11:59 p.m. on October 31, 2011.

 

2.             The base rental rates will be as follows:

 

	
  Term

  	
   

  	
  Per Sq.Ft.

  	
   

  	
  Annual Base Rent

  	
   

  	
  Monthly Base Rent

  	
   

  
	
  11/1/2006—10/31/2011

  	
   

  	
  $

  	
  4.50

  	
   

  	
  $

  	
  421,497.00

  	
   

  	
  $

  	
  35,124.75

  	
   

  
											

 

3.                                       In
addition to the rental payments as outlined above, Tenant will continue to pay
its percentage share, 100%,  of
“Operating Costs”, to include common area maintenance costs, insurance and real
estate taxes, as provided for in the Lease and or subsequent Lease Amendments
2006 estimated Operating Costs are $3.49 per square foot.

 

4.                                       Tenant
is accepting this space in an “as-is”, “where-is” condition. Landlord will not
be

 

 

providing any
additional improvements, an allowance toward improvements, rent concessions
and/or HVAC warranties.

 

Except as modified herein, all other terms,
conditions and covenants of the Lease shall remain in full force and effect.

 

READ, UNDERSTOOD, AND ACCEPTED
BY:

 

	
  Landlord:

  	
   

  	
  Tenant:

  
	
  Cardigan Investments, LLC

  	
   

  	
  EMPI Corp.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  

  	
   

  	
  By:

  	
  ILLEGIBLE

  
	
   

  	
   

  	
   

  	
   

  	
  Name Printed

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Chief Manager

  	
   

  	
  By:

  	
  ILLEGIBLE

  
	
   

  	
   

  	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   2/14/07

  	
   

  	
  Its:

  	
  [ILLEGIBLE]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   January 23, 2006

  
						

 

 

Date: February 12, 2007

 

SECOND LEASE AMENDMENT

Between

 

Cardigan Investments, LLC

(formerly known as Cardigan Investments Limited Partnership),

Landlord

 

and

 

EMPI Corp.

Tenant

 

WHEREAS:

 

Landlord and Tenant entered into an original Lease Agreement dated June 14,
1996 (the “Lease”), for the Premises located at 599 Cardigan Road,
Shoreview, MN 55126, consisting of 93,666 rentable square feet, and

 

WHEREAS:

 

Landlord and Tenant amended the Lease with an amendment dated January 23,
2006, which exercised Tenant’s first option to renew the Lease for a period
of five years at rents specified in the Lease, and

 

WHEREAS:

 

Tenant has requested that Landlord enter into a land lease (the “Land
Lease”) with the Canadian Pacific Railroad for land contiguous to the property
that is the subject of the Lease for the purposes of expanding the existing
parking lot of the Premises to provide additional employee parking for Tenant’s
employees (the “Parking Lot Improvements”); and Landlord is willing to enter
into the
Land Lease and construct the Parking Lot Improvements in exchange for an
increase in base rent to fully amortize the costs of the Parking Lot
Improvements over the remaining term of the Lease

 

THEREFORE:

 

1                                          Landlord will
enter into the Land Lease with the Canadian Pacific Railroad on the terms attached
as Exhibit A ato this
Amendment for the land needed to construct the Parking Lot Improvements for the
Premises in accordance with the plans (the “Plans”) which are attached to this
Second Lease Amendment as Exhibit B. Tenant has reviewed the terms of the Land Lease and has no dispute with
its terms or requirements

 

 

2                                          The Parking
Lot Improvements will be constructed by Landlord with its contractors and suppliers
at its sole discretion in accordance with the Plans in a good and workmanlike
manner using all reasonable efforts to be competed with construction by July 1,
2007

 

3                                          Tenant has
agreed to reimburse Landlord for the costs of the Parking Lot Improvements through
an increase in base rent for the remaining term of the Lease. Assuming that the
Parking Lot Improvements are completed and ready for Tenant’s use by July 1,
2007, the new rent for the Premises as of July 1, 2007 shall be as
follows:

 

	
  Term

  	
   

  	
  Rate Per SF

  	
   

  	
  Annual Base Rent

  	
   

  	
  Monthly Base Rent

  	
   

  
	
  7/1/2007-10/31/2011

  	
   

  	
  $

  	
  5.10

  	
   

  	
  $

  	
  477,696.60

  	
   

  	
  $

  	
  39,808.05

  	
   

  
											

 

Should the Parking Lot Improvements not be ready for Tenant’s use on July 1,
2007, then the above rental rates will not go into affect until the first month
after the Parking Lot Improvements are ready for Tenant’s use

 

4                                          In addition
to the rental payments as outlined above, Tenant will continue to pay its
percentage share, 100%, of “Operating Costs”, to include common area
maintenance costs, insurance and real estate taxes, as provided for in the
Lease, as amended It is agreed and understood that the 2007 estimated Operating
Costs are $4.03 per square foot

 

Except as modified herein, all other terms, conditions and covenants of
the Lease shall remain in full force and effect

 

READ,
UNDERSTOOD, AND ACCPEPTED BY:

 

	
  Landlord:

  	
   

  	
  Tenant:

  
	
  Cardigan
  Investments, LLC

  	
   

  	
  EMPI
  Corp.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Stephen B. Wellington,
  Jr.

  	
   

  	
  By:

  	
  /s/
  Harry L. Zimmerman

  
	
   

  	
   Stephen
  B. Wellington,
  Jr.

  	
   

  	
   

  	
   Harry L.
  Zimmerman

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Chief
  Manager

  	
   

  	
  Its:

  	
  Executive
  Vice President – General Counsel

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  2/14/07

  	
   

  	
  Date:

  	
  2-12-07Exhibit 10.29

 

200,000 sq ft.

 

LEASE AGREEMENT

 

LEASE AGREEMENT ENTERED INTO BY AND BETWEEN BBVA BANCOMER SERVICIOS, S.A. AS TRUSTEE OF
“SUBMETRÓPOLI DE TIJUANA” TRUST, REPRESENTED HEREIN BY MS. BERTHA LETICIA DEL RÍO
MARTÍNEZ (HEREINAFTER REFERRED TO AS “LESSOR”),
AND DJ ORTHOPEDICS DE MÉXICO, S.A. DE C.V.,
REPRESENTED HEREIN BY MR. JUAN JOSE LOPEZ BOJORQUEZ HEREINAFTER REFERRED TO AS “LESSEE”), PURSUANT TO THE FOLLOWING
RECITALS AND CLAUSES:

 

RECITALS:

 

1.             LESSOR, through its
representative, hereby states:

 

1.1.          That her principal
is a Mexican banking institution duly organized in accordance with the laws of
the United Mexican States.

 

1.2.          That
under public instrument number 112,091 dated September 18, 1975, granted
before Mr. Mario Monroy Estrada, Notary Public Number 31 for Mexico City,
which was recorded at the Public Registry of Property and Commerce for the city
of Tijuana, Baja California, Mexico, under record number 39,965 page 242
of Volume 123 of the First Section, it was formalized in public instrument the
Trust called “Submetrópoli de Tijuana”.

 

1.3.          That
under public instrument number 3,705 dated June 17, 1997, granted before
Mr. Gabriel Moreno Lozano, then Notary Public Number 7 for the city of
Tijuana, Baja California, Mexico, recorded at the Public Registry of Property
and Commerce of Tijuana, Baja California, Mexico, under record number
5’110,624, Civil Section, dated July 7, 1997, it was granted the trustee
substitution of “Submetrópoli de Tijuana” Trust, under which LESSOR was designated
a trustee of aforementioned trust, and received all the patrimony of the trust
which included among others the real estate property subject matter hereof.

 

1.4.          That
it is duly represented herein by Ms. Bertha Leticia Del Río Martínez, who
has full power and authority to execute this Agreement on its behalf, as
evidenced by the public instrument attached hereto as
Exhibit “A”. Furthermore, Ms. Bertha
Leticia Del Río Martínez hereby represents that such authority has not been
limited nor revoked in any manner whatsoever.

 

1.5.          That under official
letter number SD-616/03 dated September 8, 2003, issued by the Direction
of Urban Administration of the City of Tijuana, which was recorded at the
Public Registry of Property and Commerce of Tijuana, under record number
5’335,178, Civil Section, dated September 1st, 2003, it was
authorized the subdivision of Lot 2-T3 of “Colonia El Florido” of the city of
Tijuana, Baja California, into several plots of land among which the subject
matter hereof was included.

 

1

 

1.6.          That it wishes to enter into this lease agreement subject to the terms
and conditions herein set forth in order to lease to LESSEE the LEASED
PREMISES, as such term is hereinafter defined, being part of such LEASED
PREMISES the following tracks of land that resulted from the subdivision of Lot
2-T3 of “Colonia El Florido” of the city of Tijuana, Baja California:

 

1.6.1.       Fraction
2-TX of “Colonia El Florido” of the city of Tijuana, Baja California, Mexico,
with a surface area of 14,918.565 square meters;

 

1.6.2.       Fraction
2-TY of “Colonia El Florido” of the city of Tijuana, Baja California, Mexico,
with a surface area of 13,993.406 square meters; and

 

1.6.3.       Fraction
2-TZ of “Colonia El Florido” of the city of Tijuana, Baja California, Mexico,
with a surface area of 14,055.144 square meters.

 

Above mentioned tracks of land will be hereinafter
jointly referred to as the “Lots”. A drawing that describes the Lots and their
metes and bounds and the Expansion Area is attached hereto as Exhibit “B”.

 

1.7.          That it intents to construct certain improvements over the Lots,
consisting of an industrial facility with an approximate construction area of 200,000 (two hundred thousand) square feet (hereinafter the “Industrial Facility”). Such Industrial Facility and the Lots are
herein jointly referred to as the “LEASED
PREMISES”. The preliminary
drawings, specifications and work schedule of the Industrial Facility that will
form part of the “LEASED PREMISES” are attached hereto as Exhibit “C”.

 

2.             LESSEE, through its representative, hereby
states:

 

2.1.          It is a corporation duly incorporated under the laws of the United
Mexican States, as evidenced in public instrument number 4,565 of volume 65
dated November 21st, 1994, granted before Notary Public Number 2
for the city of Tecate, Baja California, Mexico, which was recorded at the
Public Registry of Property and Commerce of Tijuana, Baja California, under
record number 5017824, Commerce Section.

 

2.2.          That it is duly represented herein by Mr. Juan Jose Lopez
Bojorquez, who has full power and authority to execute this Agreement on its
behalf, as evidenced by the public instrument attached hereto as Exhibit “D”. Furthermore, Juan Jose Lopez Bojorquez hereby represents that such
authority has not been limited nor revoked in any manner whatsoever.

 

2.3.          That prior to the execution hereof it invited LESSOR to participate in
its request of an industrial building made under Bid Number 90301-1.

 

2

 

2.4.          That
the winner of its request for an industrial building made under Bid Number
90301-1, was LESSOR. A  copy of the Bid requirements is
attached hereto as Exhibit “E”.

 

2.5.          That
it wishes to execute this agreement in accordance with the terms and conditions
herein set forth.

 

Having
stated the foregoing, the parties hereto agree to the following:

 

C L A U S E S:

 

FIRST.                   LEASE.

 

Subject to the terms and conditions herein set
forth, the LESSOR hereby leases to LESSEE and LESSEE hereby leases from LESSOR
the LEASED PREMISES, which are integrated by the plots of land known as Fractions
“2-TY”, “2-TZ” and “2-TX” which
resulted from the subdivision of Lot 2-T3 of “Colonia El Florido” of the city
of Tijuana, Baja California, which are described in Exhibit “B” hereof, and by the Industrial Facility to be
constructed thereon by LESSOR pursuant to this Agreement.

 

SECOND.              QUIET ENJOYMENT.

 

2.1.          Subject
to the timely performance of each and all of LESSEE’s obligations hereunder,
LESSOR guarantees that LESSEE shall have the quiet enjoyment of the LEASED
PREMISES without hindrance, ejection or molestation by LESSOR.

 

2.2.          This
lease shall survive any foreclosure of any lien or any mortgage of LESSOR and
any default in payment of any such lien or mortgage shall in no way prejudice the terms of this Lease or any extensions thereof.

 

2.3.          LESSEE
acknowledges that a set of protective covenants have been established as
mandatory and legally binding on all occupants and tenants of the development
that the LEASED PREMISES form part. Such restrictive covenants are attached to
this lease as Exhibit “F” and
LESSEE declares to know them and accept to their binding nature.

 

THIRD.                  PERMITS.

 

LESSOR
agrees to obtain and pay for the corresponding construction permits and
licenses required to construct the Industrial Facility and improvements which
will form part of the LEASED PREMISES, subject matter hereof.

 

3

 

FOURTH.              IMPROVEMENTS.

 

4.1.          The LESSOR, at it’s own cost and expense shall
construct the LEASED PREMISES in compliance with all general construction laws,
ordinances, regulations and other governmental authorizations applicable within
the City of Tijuana, Baja California, Mexico, and shall perform all work,
furnish all materials, and obtain all permits necessary to bring the LEASED
PREMISES into compliance with requirements of the Lease, in accordance with the
Final Drawings, Specifications, Schedule of Work and Construction Terms to be
prepared based on the preliminary and general specifications attached hereto as
Exhibit “C” and LESSEE’s Bid
90301-1 requirements attached hereto as Exhibit “E”.

 

4.2.          For the preparation of the Final
Drawings, Specifications, Schedule of Work and Construction Terms, the parties,
prior to the execution hereof, have begun to follow this schedule:

 

4.2.1.       On January 19,
2004, an initial draft of drawings and designs for construction of
the Industrial Facility (the “Architectural
Project”), will be delivered to LESSEE;

 

4.2.2.       By January 27,
2004, LESSEE shall review and, in its case, approve the
Architectural Project; within eight (8) calendar days after LESSEE receives
such final architectural project, informing LESSOR thereof.

 

4.3.          Once the Final Drawings, Specifications,
Schedule of Work and Construction Terms have been completed and accepted by the
parties, as set forth herein, all documents relative thereto shall be included
in Exhibit “C” hereof, and
shall form an integral part of this Lease Agreement.

 

4.4.          As agreed by the parties and will be
established in the Final Specifications, Schedule of Work and Construction
Terms, LESSOR shall diligently complete the Industrial Facility to be
constructed on the LEASED PREMISES in order that LESSEE may occupy such
Industrial Facility pursuant to the following preliminary schedule:

 

4.4.1.       Preferential Occupancy. Understood as such date when LESSOR
advises LESSEE, that LESSEE may begin to initiate the installation of machinery
or equipment within the warehouse area of the Industrial Facility, as defined in
Exhibit “C”. The parties
agree that the Industrial Facility will be ready for LESSEE’s Preferential
Occupancy on or before the expiration of a twenty
eight (28) week term as from the date on which LESSOR begins the
construction of the Industrial Facility after it has concluded the grading,
compaction and leveling of the Lots.

 

4.4.2.       Final Occupancy. Understood as such date
when LESSOR advises LESSEE, that LESSEE commence to possess the LEASED PREMISES
as lessee subject only to punch list items which may be completed by

 

4

 

LESSOR within a fifteen (15) calendar day term.The
Industrial Facility will be ready for LESSEE’s final occupancy on or before the
expiration of a thirty six (36) week term as from the date on which LESSOR begins
the construction of the Industrial Facility after it has concluded the grading,
compaction and leveling of the Lots.

 

4.5.          LESSOR
will proceed diligently with construction and completion of the LEASED PREMISES
and deliver LESSEE the LEASED PREMISES for its Final Occupancy, no later than
August 14, 2004, (“Commencement Date”)  as
the same may be extended pursuant to paragraphs
4.6, 4.8 of this Clause  and
the other applicable provisions of this Lease and its exhibits.

 

4.6.          If
LESSEE requests any change(s) in the Architectural Project and any such
requested changes are approved by LESSOR, which approval shall not be
unreasonably withheld, conditioned or delayed, LESSOR shall advise LESSEE
(prior to the commencement of any constructions changes to the Architectural
Project) of any costs and/or delays. LESSOR shall not be obligated to carry out
such requested changes unless it has received in advance full payment of the
cost of same.

 

4.7.          If
LESSEE shall enter the LEASED PREMISES during the Preferential Occupancy
Period, LESSEE shall obtain proper insurance against any potential risks and
liabilities for injury to its authorized personnel, employees or contractors
and damages to property or equipment installed by LESSEE, therefore any ingress
by LESSEE or its authorized personnel, employees or contractors during the
Preferential Occupancy Period shall be at their own
risk. LESSOR shall be responsible for any injury in regards to its own
personnel, employees or contractors or for any loss or damage caused by any
negligent act or omissions of LESSOR, its contractors, licensees, agents,
invitees or employees during such Preferential Occupancy Period.

 

4.8.          The
LESSOR during the Preferential Occupancy Period it expressly waives any and all
rights to receive rents from LESSEE, therefore LESSEE will not be obligated to
pay rent as per this Lease Agreement during the Preferential Occupancy Period.

 

4.9.          The
parties agree that the Date of Final Occupancy shall be extended for a term
equivalent to delays attributable to LESSEE or LESSEE’s contractors or
subcontractors, weather, acts of God or force majure. Delays considered
attributable to the weather shall be jointly determined between the parties and
duly recorded in the Construction Log. Should a representative of LESSEE not be
present when there is a delay due to weather, then LESSOR’s Construction
Supervisor shall record the reason for such delay.

 

4.10.        The LESSEE, at its
own expense and with the prior written approval of the LESSOR, may add new improvements
and may alter, extend, improve or add to any of the improvements and buildings
now or hereafter on the LEASED

 

5

 

PREMISES, provided that such alterations,
extensions, improvements and additions do not adversely affect the structural
strength of the Industrial Facility or improvements on the LEASED PREMISES, or
reduce the fair market value of the LEASED PREMISES immediately prior thereto;
and provided further that said alterations are effected with diligence, in a
good and workman-like manner, and in accordance with all applicable laws,
ordinances, regulations and governmental practices. LESSOR’s written approval
shall not be required in the event any such improvements do not exceed the
amount of $25,000.00US Cy., (TWENTY FIVE THOUSAND DOLLARS 00/100 US Cy.),
provided the same do not affect the structure of the Industrial Facility.

 

4.11.        Notwithstanding
the foregoing and unless otherwise agreed in writing by LESSOR, LESSEE at the
termination of this Lease shall return the Leased Premises in the same
conditions as received, except for normal ware and tear; additionally LESSEE
hereby expressly waives any right that it may have to request LESSOR for the
payment of any compensation for LESSEE’s improvements specifically waiving
LESSEE any and all right that it might have under article 2297 of the Civil
Code for the State of Baja California.

 

4.12.        LESSEE
shall indemnify and hold harmless the LESSOR from all claims, liens, damages
and costs resulting from or arising out of the LESSEE’s acts, omissions or lack
of performance of any of its obligations filed or initiated by LESSEE’s
contractors, employees, workers, agents, representatives or principals or by
the “Instituto Mexicano del Seguro Social (IMSS)”, Tax authorities, or the
“Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT)”, resulting
from any claim, demand or obligation incurred by such personnel during the
installation of improvements and related activities at the LEASED PREMISES during
the Preferential Occupancy Period and up to the Commencement Date hereof and in
such other periods on which LESSEE carries out any leasehold improvement,
provided, however, LESSOR must notify LESSEE in writing of any such claims,
liens or demands, within 48 hours from receipt thereof for this indemnity to
apply, so that LESSEE may file a defense in respect of any such claim, lien or
demand.

 

4.13.        The LESSOR shall
indemnify and hold harmless the LESSEE from all claims, liens, damages and
costs resulting from or arising out of the LESSOR’S acts, omissions or lack of
performance of any of its obligations filed or initiated by LESSOR’S
contractors, employees, workers, agents representatives or principals or by the
“Instituto Mexicano del Seguro Social (“IMSS”), Tax Authorities, or the Fondo
Nacional de Vivienda para los Trabajadores (“INFONAVIT”), resulting from any
claim, demand or obligation incurred by such personnel during the construction
of the LEASED PREMISES and up to the Commencement Date hereof, provided,
however, LESSEE must notify LESSOR in writing of any such claims, liens or
demands, within 48 hours from receipt thereof for this indemnity to apply, so
that LESSOR may file a defense in respect of any such claim, lien or demand.

 

6

 

FIFTH.                   USE OF THE LEASED PREMISES.

 

5.1.          The
purpose for which the LESSEE shall use the LEASED PREMISES shall be: general
office, warehouse, light manufacturing, storage, services, repair, engineering,
sales, product demonstration, training of customers and employees, ancillary
storage, parking of cars and all other uses incidental and related to a
manufacturing, warehouse and office facility, and for no other purposes without
the written consent of the LESSOR. LESSEE may not use the LEASED PREMISES for
any other purposes without LESSOR’s prior written authorization.

 

5.2.          During
the Term of this Lease, the LESSEE shall not do or permit anything to be done
in the LEASED PREMISES which shall in any way conflict with any laws, statutes,
ordinances, Park Restrictions or governmental rules.

 

5.3.          The
Park Restrictions are attached hereto and incorporated into this Lease by
reference as Exhibit “F”.

 

5.4.          The
LESSOR represents and warrants that the LEASED PREMISES is located in an area
authorized for light industrial manufacturing purposes as evidenced with the
documentation attached hereto as Exhibit “G”.

 

SIXTH.                  LEASE TERM.

 

6.1.          Effectiveness. This Lease will be in effect as of its date
of execution.

 

6.2.          Lease
Term. This Lease will remain
in effect until the expiration of a ten
(10) year term (the “Lease Term”, or the “Term of this Lease”) as of the Final Occupancy Date, or
August 14, 2004, whichever happens first (hereinafter the “Rent Commencement Date”).

 

6.3.          Renewal
Options. Subject to the terms and conditions of Clause
Twenty Fourth hereof, LESSEE
shall have an option to extend the Term of this Lease for two (2) terms of
five (5) years each.

 

SEVENTH.            RENTAL AND TERMS AND
CONDITIONS OF PAYMENT.

 

7.1.          For
the first twelve months of the Lease Term, and starting as from the Rent
Commencement Date, the LESSEE agrees to pay without demand and the LESSOR
agrees to accept as the full rental for the LEASED PREMISES, the amount of U.S.$0.393 Dollars (point three nine three Dollars U.S. Cy.) plus the corresponding Value
Added Tax per square foot of the total area of the Industrial Facility
(200,000.00 square feet), per month, for a total of US$78,600.00 Dollars (Seventy Eight Thousand Six Hundred dollars
00/100 U.S. Cy.) plus the corresponding Value Added Tax (hereinafter the “Initial Rent”). The parties

 

7

 

acknowledge
that the total area may vary, in which case, the monthly total of the rental
price shall be adjusted accordingly.

 

7.2.          The
LESSEE shall pay the Value Added Tax which may be applicable to the monthly
lease payments, and the LESSOR shall issue the corresponding invoice therefore,
containing all requirements of Fiscal Law.

 

7.3.          Such
amount of the Initial Rent will in effect for a term of twelve months as of the
Rent Commencement Date. The Initial Rent will be increase every twelve month
period as of the expiration of the twelfth month starting on the Rent
Commencement Date, and the increase will be of 3.0% (Three) compounded for each
twelve (12) month period.

 

7.4.          The
above monthly installments may be paid by the LESSEE in U.S. Dollars or in
Mexican currency, at the average rate of exchange in effect on the date of
payment, for the purchase of U.S. Dollars offered by BBVA Bancomer, S.A., in
Tijuana, Baja California, México. All lease payments shall be made in advance
during the first five days of each month during the term hereof at LESSOR’s
address, which is located at Paseo de los Héroes #9188, Piso 5, Edificio Rodeo,
Zona Río, Tijuana, Baja California, Mexico, or at any other address that from
time to time the LESSOR indicates.

 

7.5.          If
the Rent Commencement date of this Lease is a day other than the first day of a
calendar month, the amount of the first monthly rental payment shall be that
pro rata portion of the monthly rental payment which is equal to the pro rata
portion of the first calendar month that the LEASED PREMISES were occupied by
the LESSEE; and the amount of the final rental payment hereunder shall be that
pro rata portion of the then monthly rental payment which is equal to the pro
rata portion of the last calendar month during which this Lease shall be in
effect.

 

7.6.          In
the event LESSEE does not pay the rent within the five (5) day term as set
forth above, LESSEE shall pay LESSOR late payment interests at the rate of 2%
(Two Percent) monthly. Such interest shall continue to accrue until such time
payment has been effected by LESSEE.

 

7.7.          LESSEE
hereby agrees not to withhold nor compensate rental payments. Therefore LESSEE
will timely pay under the agreed terms all rental and other payments that
correspond to LESSOR as well as all other payments required to be effected by
LESSEE.

 

7.8.          As
part of the consideration for the execution hereof by LESSOR, LESSEE covenants
and agrees to timely and fully comply with each and all of its obligations
hereunder.

 

8

 

EIGHTH.                TAXES AND UTILITIES.

 

8.1.          LESSOR
guarantees to LESSEE that the connections and infrastructure required by the
LESSEE to contract for telephone, electricity, water and sewer, including all
connections and the installation of one 750 KVA transformer and one 300 KVA
transformer, for a total of 1,050 KVA’S of electricity at 13,200 volts, and any
other capacities and installations required under Bid Number 90301-1, attached
hereto as Exhibit “E”, will be installed and available on site at the
LEASED PREMISES on the Final Occupancy Date or on the Commencement Date hereof,
to enable the LESSEE to contract such public services, provided it timely pays
the hook up and capacity fees that may correspond from the perimeter of the
LEASED PREMISES. The parties agree that the LESSOR shall provide all
infrastructure and connections up to the building of the LEASED PREMISES and
the LESSEE shall be responsible and liable for payment in a timely manner of
all hook-up and capacity fees that may correspond for such services from the
perimeter of the LEASED PREMISES.

 

8.2.          LESSEE
shall, as of the Rent Commencement Date and during the Term of this Lease,
timely pay all electrical service charges, water and sewer charges, telephone
charges and other public utilities available for the LEASED PREMISES.

 

8.3.          LESSEE
shall provide evidence of payment of such utilities at the request of LESSOR.

 

NINTH.                  ASSIGNMENT – SUBLEASING.

 

LESSEE
shall not transfer, mortgage, pledge or otherwise encumber this Lease, nor any
interest herein, without the prior written consent of LESSOR, which consent
will not be withheld unreasonably, LESSEE shall have the right to sublease all
or a portion of the LEASED PREMISES or to assign this Lease with the prior
written consent of the LESSOR, but any such subletting or assignment shall not
relieve LESSEE nor LESSEE’s Guarantor of their obligations hereunder especially
those pertaining to the payment of rentals and those warranted by the Guaranty
attached hereto as Exhibit “H”.

 

TENTH.                     MAINTENANCE AND REPAIRS.

 

10.1.        LESSOR
will only be responsible for the structural integrity of the building,
including foundations, floor, structure, roof, exterior walls, exterior paved
areas, underground utilities and storm drainage system.

 

10.2.        LESSOR
warranties for a one year period, as of the Rent Commencement Date, all basic
building components and for the lease term the roof membrane. It is agreed and
understood by the LESSEE that, except in the cases set forth herein below, none
of its employees, contractors, dependents or representatives may access the
roof for any work whatsoever without the prior written authorization of

 

9

 

the LESSOR. The only cases on which LESSEE will be
authorized to access the roof, without LESSOR’s prior written authorization,
will be in case of an emergency to prevent further damage to the LEASED
PREMISES, products, equipment and lost of lives, and in those other cases
required for the maintenance of the roof equipment such as air conditioning and
air injection systems.

 

10.3.        LESSOR will not be
responsible for repair needed as a result of the improper use or negligent acts
of LESSEE, its employees, agents or visitors.

 

10.4.        LESSEE shall be
responsible for all maintenance and repair tasks and works, including those of
preventive maintenance and for repair of all the building components and
exterior areas, including preventive maintenance of those items mentioned in paragraph 10.1 above, that the LEASED
PREMISES may require.

 

10.5.        LESSEE shall keep
and maintain the LEASED PREMISES clean and free from trash, debris and
pollutants.

 

10.6.        LESSOR and LESSEE
covenant and agree that if any of them fail to comply with their maintenance
and repair obligations pursuant to paragraphs
10.1 and 10.4 above, the other party shall have the right to perform
the obligations of the other pursuant to the terms of Clause Seventeenth hereof.

 

ELEVENTH.          INSURANCE.

 

11.1.        As of the Rent
Commencement Date and throughout the Lease Term, the LESSOR shall insure the
LEASED PREMISES against loss or damage caused by fire, lightning, all risks
included within an extended coverage endorsement (cobertura
de extension de cubierta),  all risks included
within a hydro meteorological phenomenon endorsement (fenomenos
hidrometereologicos),  earthquake and
volcanic eruption, debris removal and all other casualties covered by an
Extended Coverage Insurance Policy, in the amount of the full insurable value
of US$5’300,000.00 Dollars (expressed in Dollars, Currency of the United States
of America, but payable in Mexican Currency) of the LEASED PREMISES, buildings
and improvements thereon, including the foundation and excavation thereof.

 

11.2.        Aforementioned
insurance policy shall include insurance against risks such as: fire,
lightning, explosion, hurricane and wind damage, hail, airplane and other
vehicles, smoke, earthquakes, strikes, riots, civil disorders, vandalism, acts
of war (declared or undeclared), acts of terrorism, falling of trees, volcanic
eruption, mud avalanche, rain flooding, removal of debris, and rental
interruption insurance to cover rents payable during the time in which any of
above casualties occur. The rental interruption insurance shall cover a period
of twelve (12) months, and shall be renewed annually.

 

10

 

11.3.        The insurance
required to be provided by the LESSOR under this Clause shall be purchased by
the LESSOR on an annual basis during the Term of this Lease. The amount of the
premium payable of such insurance shall be reimbursed to the LESSOR by the
LESSEE upon LESSOR’s request.

 

11.4.        The
LESSEE at its sole cost and expense, shall insure the contents, and at its sole
cost and expense, shall maintain general public liability insurance against
claims for personal injury, death or property damage upon, in or about, such
insurance to afford protection to the limit of not less than US$1,000,000.00
(One Million Dollars currency of the United States of America).

 

11.5.        It is agreed and
understood by the parties that for the securing of the above insurance
policies, LESSEE may use its umbrella coverage, provided that LESSOR be
designated as beneficiary. Should LESSEE elect to provide insurance under its
umbrella coverage, it shall notify in advance LESSOR and provide evidence
thereof.

 

TWELFTH.           DESTRUCTION.

 

12.1.        In
case of damage to or destruction of the Industrial Facility or improvements on
the LEASED PREMISES for causes not attributable to LESSEE, LESSOR will
promptly, and with the insurance proceeds, make such repairs, restoration or
rebuilding to the extent that is necessary to provide the LESSEE with premises
possessing equal utility, design and construction to that which existed prior
to such damage or destruction; and this Lease shall remain in full force and effect
during the time such repairs, restoration or rebuilding are/is being effected,
provided, however, that during such restoration or repair period, in its case,
rental payments will be paid through the above mentioned rental interruption
insurance. To the extent that such rental interruption insurance does not cover
the rental payments, the rent would be equitably abated during such restoration
or repair period.

 

12.2.        In
the event that such repairs, restoration or rebuilding cannot be accomplished
within four (4) months after occurrence of the damage or destruction, in
accordance with a reasonable estimate from LESSOR, either party may, terminate
this Lease through written notice to the other party served within the term of
15 (fifteen) calendar as of the date on which LESSOR issued LESSEE a notice in
the sense that such repairs and or reconstruction can not be accomplished
within such four (4) month term.

 

12.3.        However,
if fifty-percent (50%) or more of the replacement cost of the Industrial
Facility or improvements on the LEASED PREMISES are damaged or destroyed during
the last year of (1) the original Lease Term or (2) any extension of
the original Lease Term; and if LESSEE shall not exercise any right of
extending the Lease Terms then in effect, LESSOR may elect to terminate this
Lease by written notice delivered to the LESSEE within thirty (30) days of such
damage.

 

11

 

THIRTEENTH.                     EXPROPRIATION

 

13.1.        In
the event the whole of the LEASED PREMISES is taken by expropriation for any
public or quasi-public use or purpose, during the Lease Term, this lease shall
terminate and conclude on the date that the possession is taken by the
expropriator.

 

13.2.        In
the event of termination of the Lease because of such taking(s) or
expropriations, the award shall be divided between the LESSOR and the LESSEE in
accordance with their respective interests on the LEASED PREMISES according to
the terms of this agreement. For purposes of determining LESSEE’s interests,
LESSEE shall keep accurate records of improvements it effects to or within the
LEASED PREMISES. In addition thereto LESSEE, on its own behalf, may begin any
legal action, any claims to which it may be entitled because of such taking,
such as: moving expenses, fixture losses and special damages

 

FOURTEENTH.    SURRENDER

 

14.1.        LESSEE
shall, on the last day of the Term of this Lease or its extension or upon
earlier termination, surrender and deliver the LEASED PREMISES into the
possession and use of the LESSOR without delay, in good order, condition and
repair, except for normal wear and tear due to normal use and the passage of
time. For purpose hereof, the parties shall, within a term of one
(1) month prior to the end of the Lease Term, effect a joint inspection in
order to determine the conditions of the LEASED PREMISES.

 

14.2.        All
signs, inscriptions, canopies and installations of like nature made by LESSEE
shall be removed at or prior to the expiration of the term of this Lease.

 

14.3.        All
furniture, trade fixtures and business equipment installed by LESSEE may be
removed by LESSEE at any time during or at the end of the term and the LESSEE
shall, at its own expense, repair all damage resulting from the installation or
removal thereof.

 

14.4.        In the
event LESSEE does not remove timely its improvements, machinery or equipment,
LESSOR will have the option to: (1) remove LESSEE properties on LESSEE’s
account; or (2) that such properties remain for the benefit of the LEASED
PREMISES without causing the payment of a consideration.

 

12

 

FIFTEENTH.                         HOLDOVER

 

The
LESSEE shall at the termination of the Lease by lapse of time or otherwise,
yield up immediate possession of the LEASED PREMISES to LESSOR , and failing to
do so will pay as liquidated damages starting as of the termination hereof and
for the whole time such possession is withheld thereafter, the price of then
current rent plus 100% (one hundred) percent of the same, but the provisions of
this Clause shall not be held as a waiver by LESSOR of any right of reentry as
herein set forth; nor shall the receipt of said payment or any part thereof, or
any act in apparent affirmation of tenancy, operate as waiver of the right of
LESSOR to recover the LEASED PREMISES.

 

SIXTEENTH.                        LESSOR’S RIGHT TO
PERFORM LESSEE’S COVENANTS

 

16.1.      If LESSEE
shall at any time fail to perform any one or more of its agreements made in
this Lease, LESSOR, after ten days written notice to LESSEE (or without notice
in the case of an emergency) and without waiving or releasing LESSEE from any
obligation of LESSEE contained in this Lease, may but shall be under no
obligation to perform any act on LESSEE’s part to be performed as provided in
this Lease, and may enter upon the LEASED PREMISES for that purpose and take
all such actions thereon as may be necessary therefore. All sums, paid by
LESSOR and all costs and expenses incurred by LESSOR in connection with the
performance of any such obligation of LESSEE, shall be payable by LESSEE to
LESSOR on demand.

 

16.2.         In
addition to any other right or remedies hereunder or under applicable law, the
untimely payment or reimbursement by LESSEE of any amount owed or required to
be reimbursed hereunder shall cause late payment interests at a rate of 24%
(twenty four percent) annually, which interests shall continue to accrue until
such time payment and/or reimbursement has been effected by LESSEE.

 

SEVENTEENTH.                        LESSEE’S RIGHT TO
PERFORM LESSOR’S COVENANTS

 

17.1.        If
LESSOR shall at any time fail to perform any one or more of its agreements made
in this Lease, LESSEE, after ten days written notice to LESSOR (or without
notice in the case of an emergency) and without waiving or releasing LESSOR
from any obligation of LESSOR contained in this Lease, may but shall be under
no obligation to perform any act on LESSOR’s part to be performed as provided
in this Lease, and may take all such actions thereon as may be necessary
therefore. All sums paid by LESSEE and all costs and expenses incurred by
LESSEE in connection with the performance of any such obligations of LESSOR,
shall be payable by LESSOR to LESSEE on demand.

 

17.2.        In
addition to any other right or remedies hereunder or under applicable law, the
untimely payment or reimbursement by LESSOR of any amount owed or required to be
reimbursed hereunder shall cause late payment interests at a rate of 24%
(twenty four percent) annually, which interests shall continue to accrue until
such time payment and/or reimbursement has been effected by LESSOR.

 

13

 

EIGHTEENTH.                     ENTRY ON LEASE PREMISES BY
LESSOR

 

18.1.        LESSEE shall permit
LESSOR and its authorized representatives to enter the LEASED PREMISES at all
reasonable times for the purpose of inspecting the same and performing any work
therein that may be required of it or that may be necessary by reason of LESSEE’s
failure to make repair or perform such work or to commence the same after ten
days written notice from LESSOR.

 

18.2.        Nothing herein shall
imply any duty upon the part of LESSOR to do any such work and performance
thereof by LESSOR shall not constitute a waiver of LESSEE’s default in failing
to perform the same.

 

18.3.        LESSOR shall have the
right to enter the LEASED PREMISES at all reasonable times during usual
business hours for the purpose of showing the same to prospective purchasers or
renters of the LEASED PREMISES at any time within six months prior to the
expiration of this Lease.

 

18.4.        The
LESSOR shall exercise its authority under this provision in such a way as to
minimize interference with the business operations of the LESSEE.

 

NINETEENTH.                     GUARANTIES

 

19.1.        LESSOR hereby
acknowledges to have received from LESSEE as deposit, the amount of US$259,380.00 Dollars (Two Hundred Fifty
Nine Thousand Three Hundred and Eighty 00/100 DOLLARS U.S. Cy.) in order to
guarantee LESSEE’s obligations hereunder, which in part shall be applied
towards the entire first three (3) months of rental payments (said portion
will include the corresponding IVA tax). LESSEE shall have the obligation,
within ten (10) working days after the termination of the lease and the
delivery of possession of the LEASED PREMISES to LESSOR, to deliver evidence of
payment of all utilities, and completion of any and all repairs and clean up of
the LEASED PREMISES.

 

19.2.        Likewise, the LESSEE
shall obtain and deliver to the LESSOR, to the satisfaction of LESSOR at the
execution hereof an unqualified guarantee from D.J. ORTHOPEDICS, LLC. as to
LESSEE’s obligations hereunder, including but not limited to rental payments.
Such guaranty shall be under the terms of the form of “Guaranty of Lease” which
is attached hereto as Exhibit “H”.

 

TWENTIETH.                      SUBORDINATION.

 

20.1.        LESSEE
agrees, at the request of LESSOR, to subordinate this lease (including any
extensions) to any mortgage or security interest placed upon the LEASED

 

14

 

PREMISES,
provided that the holder agrees not to disturb the possession and other rights
of LESSEE under this lease so long as LESSEE continues to perform its
obligation hereunder and in the event of acquisition of title by said holder
through foreclosure proceedings or otherwise, to accept LESSEE as tenant of the
LEASED PREMISES and to perform the LESSOR’s obligations hereunder and LESSEE
agrees to recognize such holder or any other person acquiring title to the
LEASED PREMISES. LESSEE and LESSOR agree to execute and deliver any appropriate
instruments necessary to carry out the agreements contained herein.

 

20.2.        LESSEE and its Guarantor
D.J. ORTHOPEDICS, LLC. represent and warrant to LESSOR that LESSEE’s Guarantor
D.J. ORTHOPEDICS, LLC. is a subject of credit with US financial institutions.
LESSEE and LESSEE’s Guarantor D.J. ORTHOPEDICS, LLC. shall provide LESSOR, upon
LESSOR’s request and as reasonably required, all financial information and
documentation that may be required to enable LESSOR to secure financing with
this Lease Agreement.

 

20.3.        LESSEE as of the date of
execution hereof hereby waives the right of first refusal referred to under Article 2321
of the Civil Code for the State of Baja California. Furthermore, LESSEE hereby
agrees that LESSOR is entitled to freely, convey, assign or otherwise transfer
title to the LEASED PREMISED.

 

TWENTY FIRST.                EARLY TERMINATION.

 

21.1.        The occurrence of any of
the following events shall allow LESSOR to terminate this Lease immediately,
through the issuance to LESSEE of a simple written notice:

 

21.1.1.     The
lack of payment by LESSEE of two or more consecutive monthly rental payments or
the failure by LESSEE to make any other payment required to be made by LESSEE
when due;

 

21.1.2.     The
failure by LESSEE to observe or perform on timely basis any of the covenants,
conditions or provisions of this Lease when such default shall continue for
thirty (30) days after notice thereof from LESSOR to LESSEE, or, in the case of
a default which cannot with due diligence be cured within thirty (30) days,
LESSEE fails to commence such cure promptly within such thirty (30) day period
and thereafter diligently prosecute such cure to completion;

 

21.1.3.     The making of any general arrangement or any
general assignment by LESSEE or D.J. ORTHOPEDICS, LLC. for the benefit of their
creditors;

 

21.1.4.     If
a term of ninety (90) calendar days has elapsed after the filing by or against
LESSEE or its guarantor D.J. ORTHOPEDICS, LLC. of a petition to have LESSEE or
D.J. ORTHOPEDICS, LLC. adjudged insolvent, or a petition of reorganization or
arrangement under any law relating to

 

15

 

insolvency if such petition is not dismissed within
such ninety (90) calendar days term;

 

21.1.5.     The appointment of a trustee or receiver to take
possession of all or substantially all of LESSEE’s or its guarantor D.J.
ORTHOPEDICS, LLC. assets;

 

21.1.6.     The attachment, execution or other judicial seizure
of all or substantially all of LESSEE’s or D.J. ORTHOPEDICS, LLC. assets;

 

21.1.7.     That LESSEE or D.J. ORTHOPEDICS, LLC. declare in
writing their inability to pay their debts;

 

21.1.8.     If LESSEE uses the LEASED PREMISES for uses other
than those which have been approved by LESSOR;

 

21.1.9.     If LESSEE suspends its activities for any reason or
abandons or vacates the LEASED PREMISES for any reason whatsoever for more than
a month. In such event LESSOR may take possession of the LEASED PREMISES 15
(fifteen) calendar days after it issues the termination notice. For such
purposes LESSOR is hereby authorized by LESSEE to request competent authority
under a “Jurisdicción Voluntaria”  action to return possession of the
LEASED PREMISES in the understanding that LESSEE hereby waives any right to be
notified. This procedure is in addition to any other action that LESSOR may
have.

 

21.1.10.   That LESSEE be subject to a labor strike, duly
sanction by the competent labor authority;

 

21.1.11.   If LESSEE fails to comply with any law or
regulations.

 

21.2.        In the event this
Lease is terminated by LESSOR pursuant to paragraph
21.1 above, LESSEE shall pay LESSOR as conventional penalty for such
early termination, an amount equivalent to the sum of all monthly rental
payments (based on the then current monthly rent) for the remaining period of
the Lease Term, and in its case for the remaining of the renewal term.

 

21.3.        LESSOR shall in no
event be charged with default in any of its obligations hereunder unless and
until LESSOR shall have failed to perform such obligations within thirty (30)
days after written notice to LESSOR by LESSEE, specifically describing such
failure.

 

TWENTY SECOND.           INDEMNIFICATION

 

With regard to the LEASED PREMISES, LESSOR agrees to
indemnify, defend and save LESSEE harmless from any claims for personal injury
or property damage which

 

16

 

may
be made against the LESSEE during the Lease Term, and which arise out of the
negligence or tortuous conduct of the LESSOR, its servants, employees, agents,
assignees, representatives, licenses or invitees; and LESSEE agrees to
indemnify, defend and save LESSOR harmless from any claims for personal injury
or property damage which may be made against the LESSOR during the Lease Term,
and which arise out the negligence or tortuous conduct of the LESSEE, its
servants, employees, agents, assignees, representatives, licensees or invitees.

 

TWENTY THIRD.               ENVIRONMENTAL.

 

23.1.        LESSOR acknowledges that
LESSEE may use hazardous materials, as defined in applicable legislation, and
LESSEE agrees to use any such materials in accordance with such applicable
legislation; accordingly, LESSEE agrees that during the term of this Agreement
LESSEE shall maintain the LEASED PREMISES environmentally clean and that there
shall be neither soil nor ground water contamination which would constitute a
violation to applicable environmental laws and regulations. In addition, at the
time of delivery of the LEASED PREMISES to LESSOR, the LEASED PREMISES will be
free from any environmental liability, and that there shall be neither soil nor
ground water contamination which would constitute a violation to applicable
environmental laws and regulations. In the event that during the term of this Agreement
or when LESSEE delivers possession of the LEASED PREMISES to LESSOR, the LEASED
PREMISES, any surrounding soil, underground or underground waters present any
type of contamination, LESSEE hereby agrees and binds itself to clean and
restore the LEASED PREMISES or such contaminated, soil, underground or
underground waters, thus releasing and holding LESSOR harmless with respect to
any obligation, fine, sanction or liability towards third parties, which
derives from such contamination.

 

23.2.        The parties hereto agree
that 30 (thirty) days prior to the scheduled termination of this Lease or at
the time it is early terminated, LESSEE shall carry out an environmental study
over the LEASED PREMISES through an expert third party, in order to determine
if there is any soil or ground water contamination or any other environmental
condition on or affecting the LEASED PREMISES. If as a result of such
environmental study, the LEASED PREMISES are determined to be contaminated by
any actions of LESSEE, its employees, agents, contractors or any other party
acting for LESSEE, LESSEE shall clean-up whatever contamination exists over the
LEASED PREMISES in order for the LEASED PREMISES to comply with the
specifications indicated to LESSOR by the expert in charge of affecting the
environmental study over the LEASED PREMISES.

 

23.3.        Furthermore, LESSEE
hereby agrees to maintain at all times LESSOR harmless and free of any
environmental liability that may arise from any act or omission caused by the
LESSEE, his employees, representatives, directives, contractors,
subcontractors, or guests on the LEASED PREMISES during the term of this Lease.

 

17

 

23.4.        LESSOR warrants to
LESSEE that the LEASED PREMISES does not contain hazardous waste in violation
of the Laws of Mexico or any Mexican competent agency or authority. LESSOR
shall indemnify and hold LESSEE harmless from any and all liabilities, costs
and expenses which may result from the presence of hazardous waste on or in the
surface soils of the LEASED PREMISES on or from such premises, which predates
LESSEE’s occupancy of such LEASED PREMISES, whether now known or discovered at
a later date.

 

TWENTY FOURTH.           RENEWAL OF LEASE.

 

24.1.        LESSEE shall have an
option to extend the Term of this Lease for two (2) additional terms of
five (5) years, each. The option shall be exercised at the sole discretion
of the LESSEE in writing, and said writing shall be delivered to LESSOR at
least six (6) months prior to the expiration of the then current Lease
Term. Unless otherwise agreed in writing by LESSOR, LESSEE’s option to extend the
lease term is subject to the condition that LESSEE fully and timely complies
with each and all of its obligations hereunder.

 

24.2.        It is agreed and
understood by the LESSEE that in the event the Term of this Lease is renewed,
the Guaranty granted pursuant to Exhibit “H”
hereof in favor of LESSOR shall continue to be in full force and
effect during the extension periods.

 

24.3.        All renewal options five
year terms will have the same economics of the initial term and will be
exercisable at the lesser of fair market value or the prior year’s rent plus
rental escalation at 3% (three percent) annually.

 

TWENTY FIFTH.                OPTION TO LEASE THE ADJACENT
PREMISES AND RIGHT OF FIRST REFUSAL.

 

25.1.        LESSOR hereby grants
LESSEE the exclusive right and option to lease an industrial building to be
constructed on the property adjacent to the LEASED PREMISES which is described
in Exhibit “B” attached
hereto (hereinafter the “Expansion Area”).  The
terms and conditions of the Lease Agreement to be entered by the parties over
the industrial building to be constructed on the Expansion Area, in its case,
shall be similar to those contained herein and the monthly rental price per
square foot of such building, shall be equal to the then current rental price
per square foot of the LEASED PREMISES, in the understanding that such rental
price shall be increased every twelve month period as provided for under paragraph 7.3 of Clause Seventh hereof.

 

25.2.        In the event the parties
enter into a Lease Agreement for the industrial building to be constructed on
the Expansion Area during the initial 10 (ten) year term of this Lease, such
initial 10 (ten) year term of this Lease shall reinitiate as of the date of

 

18

 

execution
of the Lease Agreement for the industrial facility to be constructed on the
Expansion Area, in order that both Leases concurrently end upon the termination
of such 10 (ten) year term or of its renewals.

 

25.3.        The industrial building
to be constructed on the Expansion Area shall be constructed by LESSOR with
similar or identical specifications or materials to those used for the
construction of the industrial building of the LEASED PREMISES, unless
otherwise agreed in writing by the parties.

 

25.4.        The option to lease the
industrial building to be constructed on the Expansion Area shall be in effect
for a term that will expire two (2) years after the Rent Commencement
Date, at no cost to LESSEE. Once the term to exercise the above mentioned
option to rent has expired, subject to the provisions of paragraph 25.2 above,
and for a one (1) year period after the expiration of the option to lease
the Expansion Area, the LESSEE will have a right of first refusal to lease the
Expansion Area, provided LESSEE does not breach any of its covenants hereunder
or defaults any or all of its obligations. LESSEE’s breach of any of its
covenants hereunder or default of any or all of its obligations, shall automatically
revoke and terminate the effectiveness of the option to lease the Expansion
Area and of the right of first refusal.

 

25.5.        LESSEE shall have the
option to extend the term of the lease agreement for the industrial building to
be constructed on the Expansion Area in the same form as set forth in Clause Twenty Fourth hereof for the LEASED
PREMISES.

 

TWENTY SIXTH.               RECORDING.

 

26.1.        LESSOR and LESSEE
covenant and agree that in order to comply with applicable legislation, they
will jointly carry out all necessary procedures in order to record this Lease
Agreement with the corresponding Public Registry of Property and Commerce prior
to the LESSEE’s occupancy of the LEASED PREMISES. The corresponding fees of the
Public Registry of Property and Commerce for the recording of this Lease shall
be paid by LESSEE.

 

26.2.        It is
agreed and understood by the parties that such procedures will be jointly
carried out by LESSOR and LESSEE without involving LESSEE’s Guarantor, since
the guaranty granted by such company is subject to a foreign jurisdiction.

 

TWENTY SEVENTH.         NOTICES.

 

Whenever
it shall be necessary or desirable for either of the parties to serve any
notice of demand upon the other party pursuant to the provisions of this
agreement, such notice or demand shall be served personally, or by registered
or certified mail, return receipt requested, sent to the addressees set forth  hereunder,
until otherwise directed in writing by the party which wishes to change its
address.

 

19

 

LESSOR:        Paseo de los Héroes #9188, Piso 5, Edificio
Rodeo, Zona Rio, Tijuana, Baja California, Mexico,

 

LESSEE:         Bulevar Insurgentes 316695-1, Delegación La
Presa, Tijuana, Baja California, Mexico.

 

TWENTY EIGHTH.             ENTIRE AGREEMENT

 

28.1.        This
agreement and its Exhibits contain all the agreements and conditions between
the parties. Therefore, the parties hereto agree that with the execution of
this agreement, any prior agreements have been duly fulfilled and complied
with, except as expressly set forth hereunder.

 

28.2.        If any
term, covenant, condition, or provision of this lease, or the application
thereof to any person or circumstance, shall to any extent be held by a court
of competent jurisdiction, to be invalid, void or unenforceable, the remainder
of the terms, covenants, conditions or provisions of this lease, or the
application thereof to any person or circumstance, shall remain in full force
end effect.

 

TWENTY NINTH.               AMENDMENTS.

 

This
agreement may not be modified orally or in any other form other than under
written agreement signed by the parties authorized representatives.

 

THIRTIETH.                         EXHIBITS.

 

The
documents that are attached hereto as exhibits form and integral part of this
Lease Agreement, and are described as follows:

 

	
  EXHIBIT

  	
   

  	
  DESCRIPTION

  
	
   

  	
   

  	
   

  
	
  A

  	
   

  	
  Power
  of Attorney of LESSOR’s representative.

  
	
  B

  	
   

  	
  Drawing
  that describes the Lots and the Expansion Area.

  
	
  C

  	
   

  	
  Preliminary
  drawings, specifications and work schedule of the Industrial Facility.

  
	
  D

  	
   

  	
  Power
  of Attorney of LESSEE’s representative.

  
	
  E

  	
   

  	
  LESSEE’s
  Bid 90301-1 requirements.

  
	
  F

  	
   

  	
  Regulations
  of Parque Industrial El Florido.

  
	
  G

  	
   

  	
  Official
  Documentation pertaining to the light industrial manufacturing zoning of the
  LEASED PREMISES.

  
	
  H

  	
   

  	
  Guaranty
  of Lease.

  

 

20

 

THIRTY FIRST.                  GOVERNING LAW AND
JURISDICTION.

 

In the event of any controversy derived from this
Agreement, the parties expressly submit themselves to the applicable laws in
the State of Baja California, United Mexican States. Likewise, they submit
themselves to the jurisdiction of the competent courts of the City of Tijuana,
Baja California, Mexico, expressly waiving any other forum they might otherwise
have by reason of their present or future domiciles or any other reason
whatsoever.

 

IN WITNESS WHEREOF, the parties hereto have executed
and delivered this agreement on December 10, 2003, before the witnesses who
also sign the same.

 

	
   

  	
  “LESSOR”

  BBVA BANCOMER SERVICIOS, S.A.

  AS TRUSTEE OF “SUBMETRÓPOLI DE TIJUANA”
  TRUST

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Bertha Leticia Del Rio Martínez

  	
   

  
	
   

  	
  BERTHA LETICIA DEL RIO MARTÍNEZ

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “LESSSEE”

  	
   

  
	
   

  	
  DJ ORTHOPEDICS DE MÉXICO, S.A. DE C.V.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Juan Jose Lopez Bojorquez

  	
   

  
	
   

  	
  JUAN JOSE LOPEZ BOJORQUEZ

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WITNESSES

  	
   

  

 

 

	
  /s/
  [Illegible]

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  

 

21

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