Document:

Exhibit
10.1

OFFICE
LEASE—BUILD-TO-SUIT

BETWEEN

WALTER
BROS. CONSTRUCTION CO., INC.

AND

MISSION COMMUNITY BANK

 

THIS OFFICE LEASE— BUILD-TO-SUIT
(“Lease”), dated as of October 16, 2007, is entered into between Walter Bros. Construction Co., Inc., a
California corporation (“Landlord”) and Mission Community Bank, a
California corporation (“Tenant”).

 

NOW THEREFORE, for good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:

 

 

Summary
of Lease Terms

 

Effective Date: October 16, 2007

 

Landlord: Walter Bros. Construction Co., Inc., a
California corporation.

 

Landlord’s Address For
Notice (“Landlord’s Address”): 3220 South Higuera Street
Suite 302, San Luis Obispo, CA 93401

 

Tenant: Mission
Community Bank, a California corporation

 

Tenant’s Address For Notice
(“Tenant’s Address”): 581 Higuera Street, San Luis Obispo, CA 93401

 

Real Property: The property
at South Higuera Street and Prado Road, San Luis Obispo, California more
particularly described as set forth in Exhibit A.

 

Building: A two (2)
story building of approximately 14, 000 square feet in size of which
approximately 12,880 square feet could be considered “rentable,” delivered to
Tenant at Landlord’s cost in a shell condition as more particularly described
in Exhibit B.

 

Term: Fifteen (15)
years.

 

Extended Term:  Two (2) five (5) year options to run
consecutively following expiration of the initial Term.

 

Estimated Commencement Date
(“Estimated Commencement Date”): Within two (2) years of
the Effective Date of this Lease.

 

Initial Base Rent Per Month
(“Base Rent”): $2.85
per  square foot per month.

 

Security Deposit: There is no
Security Deposit required, subject to the provisions of Section 22.

 

Broker: [None.]

 

 

 

Lease Year: During the
Term, each period of approximately 365 days. The first period will commence on
the Commencement Date and end on the day prior to the first anniversary of that
period and each successive period.

 

Permitted Use: Tenant shall
use the Premises for banking and banking related activities.  No other uses are permitted without the
Landlord’s prior written consent, which shall not be unreasonably withheld.

 

The terms and provisions in
the Basic Lease Information above and the attached Exhibits are a part of the
following Lease. The definitions in the Basic Lease Information apply to all
references in this Lease to those terms and provisions. If this Lease and the
Basic Lease Information contain conflicting definitions, the Basic Lease
Information definition will control.

 

 

Section
1. Premises

 

Landlord leases to Tenant
the Real Property. The Real Property will be improved with the Building to be
constructed by Landlord. The Building is described in the Work Letter, attached
as Exhibit B. The Real Property and the Building are collectively referred to
as the “Premises.”

 

Section
2. Term

(a) Commencement Date.
The Term of this Lease will commence (“Commencement Date”) on the earliest of
the following dates:

 

(i)
the date on which Tenant takes possession of all or a portion of the Premises;

 

(ii)
the date on which the Premises would have been Ready for Delivery (defined in
Exhibit B) but for Tenant Delays (defined in Exhibit B); or

 

(iii) the date on which the
Building is Ready for Delivery.

 

The Term of the Lease will
continue for the period of time specified as the Term or until this Lease is
terminated as otherwise provided for in the Lease.

 

(b) Commencement Date
Memorandum. On the Commencement Date, Tenant will execute and deliver to
Landlord a memorandum of the Commencement Date in the form of attached Exhibit
C (“Commencement Date Memorandum”). The Commencement Date Memorandum must
acknowledge:

 

(i)
the Commencement Date;

 

(ii)
the final square footage of the Premises; and

 

(iii)
Tenant’s acceptance of the Premises.

 

(c) Delays. If the
Premises are not Ready for Delivery on the Estimated Commencement Date, as it
may be extended by any Unavoidable Delays (defined in Exhibit B) and Tenant
Delays, this Lease will not terminate and Landlord will not be subject to any
liability. Notwithstanding the same, in the event the Premises are not Ready
for Delivery within six (6) additional months from the Estimated Commencement
Date for reasons other than Unavoidable Delays (defined in Exhibit B) or Tenant
Delays, at the option of Tenant, this Lease will terminate, and Landlord will 

 

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reimburse Tenant its out of
pocket costs for any Tenant Alterations incorporated into the Premises prior to
the Delivery and notice of termination. 
In such event, Tenant will submit to Landlord reasonably sufficient
documents of all out of pocket cost invoices and evidence of payment thereon,
which Landlord will reimburse to Tenant within thirty (30) of receipt.

 

(d) Early Entry. With
the prior written consent of Landlord, Tenant may, at Tenant’s own risk, enter
the Building prior to the date that the Building is Ready for Delivery. The
entry may be made solely to install trade fixtures and equipment and shall be
subject to the following terms and conditions:

 

(i)
Tenant’s early entry may not interfere with the construction of the Building or
cause labor difficulties;

 

(ii)
Tenant’s early entry must be on all the terms and conditions of this Lease,
other than the obligation to pay Base Rent;

 

(iii)
Tenant must provide evidence of insurance that is satisfactory to Landlord;

 

(iv)
Tenant must indemnify, defend, and hold harmless Landlord and Landlord’s
agents, employees, and contractors against all claims, liability, and damages
arising from the early entry;

 

(v)
Tenant’s early entry does not constitute the commencement of the Lease; and

 

(vi)
Tenant must pay utility charges reasonably allocated by Landlord.

 

(e) Extended Term.  Tenant is given the option to extend the Term
on all the provisions contained in this Lease other than Base Rent, for two (2)
additional five-year periods (“Extended Term”) following expiration of the
initial Term, by giving notice of exercise of option (“Option Notice”) to
Landlord at least  one hundred twenty
(120) but not more than one hundred and eighty (180) days before the expiration
of the Term; provided that, if Tenant is in default on the date of giving the
Option Notice, the Option Notice shall be totally ineffective, or if the Tenant
is in default on the date the Extended Term is to commence, the Extended Term
shall not commence and this Lease shall expire at the end of the then-current
term.

 

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Section 3. Rent

 

(a) Initial Base Rent.
Tenant will pay to Landlord, at any address that Landlord may designate in
writing to Tenant, the Base Rent. The rent must be paid, without the need for
notice, demand, offset, or deduction, on the first day of each calendar month.
Upon the Commencement Date, Tenant will pay to Landlord the first month’s Base
Rent. If the Term commences or ends on a date other than the first or last day
of a month, Tenant must pay on the Commencement Date or the first day of the
last month a Base Rent prorated on a per diem basis with respect to the portion
of the month within the Term. All sums other than Base Rent that Tenant is
obligated to pay under this Lease will be deemed to be additional rent due,
regardless of whether those sums are designated as “additional rent.” The term “Rent”
means the Base Rent and all additional rent payable under this Lease.

 

(b) Adjustments to Base Rent.  On the first anniversary of the Commencement
Date and each anniversary of the Commencement Date during the Term, and any
Extended Term, the Base Rent shall be increased based on the increase in CPI
(as defined below) since the Commencement Date; provided, however, in no event
shall such new Base Rent increase by less than three percent (3%) and no more
than five percent (5%).  As used herein,
the term “CPI” shall mean and refer to the Consumer Price Index of the Bureau
of Labor Statistics of the Department of Labor for All Urban Consumers,
(1982-84 = 100), “All Items,” for Los Angeles/Riverside/Orange County,
California Area.  The base for computing
the adjustment shall be the CPI for the month which is three (3) months prior
to the Commencement Date, and the Index to be used to determine the adjustment
shall be the Index published for the month which is three (3) months prior to
the adjustment date (“Extension Index”). 
The adjustment shall be set by multiplying the then applicable Base Rent
by a fraction, the numerator of which is the extension index and the
denominator of which is the beginning index. 
In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be used
to make such calculations.  On adjustment
of the monthly rent provided in this Lease, Landlord shall send notice to Tenant
regarding such adjustment, but failure to do so shall not constitute a waiver
of Landlord’s right to collect the increased amount.

 

(c) Determination of Base
Rent for Extension Option.  In the
event that Tenant chooses to exercise one or more options to extend the Term
pursuant to Section 2(e), above, the Base Rent for the Option Periods shall be
equal to the prevailing market rate.  The
parties shall have thirty (30) days after Landlord receives the Option Notice
in which to agree on the Base Rent for the first year of the Extended
Term.  If the parties are unable to agree
on the Base Rent for the extended term within that period, then within ten (10)
days after the expiration of that period each party, at its cost and by giving
notice to the other party, shall appoint a real estate appraiser with at least
five (5) years’ full-time commercial appraisal experience in the area in which
the premises are located to appraise and set the Base Rent for the extended
term.  If a party does not appoint an
appraiser within ten (10) days after the other party has given notice of the
name of its appraiser, the single appraiser appointed shall be the sole
appraiser and shall set the Base Rent 

 

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for the extended term.  If the two appraisers are appointed by the
parties as stated in this paragraph, they shall meet promptly and attempt to
set the Base Rent for the Extended Term. 
If they are unable to agree within ten (10) days after the second
appraiser has been appointed, they shall attempt to elect a third appraiser
meting the qualifications stated in this paragraph within ten (10) days after
the last day the two appraisers are given to set the Base Rent.  If they are unable to agree on the third
appraiser, either of the parties to this Lease by giving ten (10) days’ notice
to the other party can file a petition with the American Arbitration
Association solely for the purpose of selecting a third appraiser who meets the
qualifications stated in this paragraph. 
Each party shall bear half the cost of the American Arbitration
Association appointing the third appraiser and of paying the third appraiser’s
fee.  The third appraiser, however
selected, shall be a person who has not previously acted in any capacity for
either party.  Within thirty (30) days
after the selection of the third appraiser, a majority of the appraisers shall
set the Base Rent for the Extended term. 
If a majority of the appraisers are unable to set the Base Rent within
the stipulated period of time, the three appraisers shall be added together and
their total divided by three; the resulting quotient shall be the Base Rent for
the Premises during the Extended Term. 
In setting the Base Rent for the Extended Term, the appraiser or
appraisers shall consider the use to which the Premises are restricted under
this Lease and shall not consider the highest and best use for the Premises
without regard to the restriction on use of the Premises contained in this
Lease.  After the Base Rent for the
Extended Term has been set, the appraiser shall immediately notify the parties,
and such determination shall be conclusive and binding on the parties.

 

Section
4. Right of First Refusal—Freestanding Building

 

(a)       Subject to the rights set forth in Subsection (b) below, in the
event Landlord desires to sell the Premises, or any portion of its interest in
the Premises, and shall either intend to list the Premises for sale, or have
received an acceptable bona fide offer to purchase the Premises or such
interest (the “Offer”), Landlord shall give written notice of its intent to
sell (the “Notice of Intent to Sell”) to Tenant, together with either the terms
which would be acceptable to Landlord for such sale (“Term Sheet”) or an
executed copy of the Offer setting forth all of the terms of the proposed
purchase and identifying the prospective purchaser.  Tenant shall then have an option to purchase
the Premises or such interest on the same terms and conditions as set forth in
the Term Sheet or Offer; provided that if the terms and conditions of the Offer
provide for an exchange of like kind of real property as payment of all or a
portion of the purchase price, Tenant may exercise its option to purchase by
stating in its written notice of exercise its willingness to participate in an
exchange transaction in which Landlord shall identify certain real property
which Tenant, at no additional cost or expense to Tenant, shall acquire and
exchange with Landlord for the Premises on terms and conditions otherwise
consistent with the Offer.  If no
exchange is contemplated in the Offer, Tenant shall have the further option of
paying Landlord in cash at closing the full amount of the purchase price of the
Premises or Landlord’s interest in the Premises, notwithstanding any non-cash
terms set forth in the Offer.  If Tenant
elects to exercise its option, it shall give Landlord written notice of such
election within sixty (60) days after receipt of the Notice of Intent to
Sell.  If Tenant fails to exercise its
option within such sixty (60)-day period, (i) Landlord shall be free to accept
an offer to sell the Premises or interest therein on the terms set forth in the
Term Sheet or Offer at any time within ninety (90) days after the expiration of
such sixty (60)-day period and (ii) Tenant shall, upon request, deliver to
Landlord an acknowledgement of Tenant’s failure to exercise the option and
Landlord’s right to sell the Premises or interest therein pursuant to this
Section.

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(b)       Notwithstanding the foregoing, Landlord shall be free to
convey, transfer or assign the Premises or any portion of its interest in the
Premises without compliance with Subsection (a) in the event that such
conveyance, transfer or assignment is either (i) made to any mortgagee of Landlord’s
fee estate in the Premises, provided that the lien of any fee mortgage or other
security instrument shall expressly remain subordinate to Tenant’s leasehold
interest herein created or (ii) made to any lineal descendants (natural or
adopted) of Landlord, the spouses of such lineal descendants or any trust the
total beneficial interest of which is held by such lineal descendants or their
spouses.

Section 5. Utilities

 

Landlord shall provide
connections for utilities to the perimeter of the shell of the Building. Tenant
will make all arrangements and pay all charges for water, sewer, telephone,
gas, garbage, electricity, and other utilities supplied to or used on the
Premises. This includes, without limitation, paying any deposits and “hook up
charges.” Landlord will not be liable to Tenant for any interruption in or
curtailment of any utility service, nor will any interruption or curtailment
constitute constructive eviction or grounds for abatement of rent.

 

Section
6. Taxes

 

(a) Real Property Taxes.
Landlord will pay to the proper taxing authorities, as they become due, all
Real Property Taxes applicable to the Premises after the Commencement Date (but
excluding any fees or assessments which specifically relate to Landlord’s
development process prior to the Commencement Date), and Tenant will reimburse
Landlord for those taxes as provided in clause (b) below. The term “Real
Property Taxes” includes, but is not limited to, the following:

 

(i) real property taxes;

(ii) possessory interest
taxes;

(iii) business, license, or
use fees,

(iv) excises;

(v) transit charges;

(vi) housing fund
assessments;

(vii) open space charges;

(viii) childcare fees;

(ix) school fees;

(x) any other assessments,
levies, fees, or charges, general and special, ordinary and extraordinary,
unforeseen and foreseen (including fees “in- lieu” of any tax or assessment)
that are assessed, levied, charged, confirmed, or imposed by any public
authority upon the Premises (or any real property comprising any portion of the
Premises) or its operations; but excluding, and notwithstanding any other
provision herein, , any assessments relating to public improvements on Prado
Road and the Prado Road Highway 101 interchange, which shall be the sole
responsibility of the Landlord;

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(xi) all taxes, assessments,
or other fees imposed by any public authority on or measured by any Rent or
other charges payable under this Lease, including any gross income tax or
excise tax levied by the local government authority, the federal government, or
any other governmental body with respect to receipt of rent, or upon, with
respect to, or by reason of, the development, possession, leasing, operation,
management, maintenance, alteration, repair, use, or occupancy by Tenant of the
Premises or any portion of the Premises, or on this transaction or any document
to which Tenant is a party creating or transferring an interest in the
Premises; and

(xii) any tax imposed in
substitution, partially or totally, of any tax previously included within the
definition or any additional tax, the nature of which was previously included
within the definition, together with the costs and expenses (including attorney
fees) of changing any taxes or seeking the reduction in or abatement, redemption,
or return of any taxes, but only to the extent of any reduction, abatement,
redemption, or return.

 

Nothing contained in this
Lease will require Tenant to pay any franchise, corporate, estate, or
inheritance tax of Landlord, or any income, profits, or revenue tax or charge
on the net income of Landlord.

 

(b)
Tax Reimbursements. Tenant will pay to Landlord an amount equal to the
Real Property Taxes then due within fifteen (15) days after delivery to Tenant
by Landlord of an invoice. Landlord may, at Landlord’s option, deliver
statements from different taxing authorities at different times or deliver all
statements at one time. In addition, Landlord may elect to collect Real
Property Taxes from Tenant in advance, on a monthly or quarterly basis, based
upon Landlord’s reasonable estimate of the Real Property Taxes. If the amount
of monthly or quarterly payments for estimated Real Property Taxes received by
Landlord from Tenant are more or less than the actual Real Property Taxes due,
an appropriate adjustment will be made by Landlord and Tenant. Real Property
Taxes for partial tax fiscal years, if any, falling within the Term, will be
prorated. Tenant’s obligations for Real Property Taxes for the last full or
partial year of the Term will survive the expiration or earlier termination of
this Lease.

 

(c)
Personal Property Taxes. Prior to delinquency, Tenant will pay all taxes
and assessments levied on trade fixtures, alterations, additions, improvements,
inventories, and other personal property located or installed on the Premises
by Tenant. Tenant will also provide Landlord copies of receipts for payment of
all those taxes and assessments. To the extent any taxes are not separately
assessed or billed to Tenant, Tenant will pay the amount as invoiced by Landlord.

 

(d)
Prorations. All payments of taxes or assessments, or both, except permitted
installment payments, shall be prorated for the initial lease year and for the
year in which the lease terminates. For permitted installment payments of which
at least the first installment fell due before commencement of the term, Tenant
shall pay all installments falling due after commencement of the term. For
permitted installment payments extending beyond the expiration of the term,
Tenant shall pay those installment(s) falling due before expiration of the
term.

 

(e)
Tenant’s Right to Contest. Tenant may contest the legal validity or amount of
any taxes, assessments, or charges for which Tenant is responsible under this
lease, and may institute such proceedings as Tenant considers necessary. If
Tenant contests any such tax, assessment, or charge, Tenant may withhold or
defer payment or pay under protest but shall protect 

 

7

 

Landlord and the Premises
from any lien by adequate surety bond or other appropriate security.

 

                   Landlord appoints Tenant as
Landlord’s attorney-in-fact for the purpose of contesting any taxes,
assessments, or charges, conditioned on Tenant’s preventing any liens from
being levied on the Premises or on Landlord (other than the statutory lien of
Revenue and Taxation Code Section 2187).

 

(f)
Exemptions. Tenant’s obligation to pay taxes or assessments levied or charged
against the Premises or improvements or against specified personal property
shall not include the following, whatever they may be called: income or profits
taxes levied or assessed against Landlord by federal, state, or other
governmental agency; estate, succession, inheritance, or transfer taxes of
Landlord; or corporation, franchise, or profits taxes imposed on the corporate
owner of the fee title of the Premises. If, however, during the term, taxes are
imposed, assessed, or levied on the rents derived from the Premises in lieu of
all or any part of real property taxes, personal property taxes, or real and
personal property that Tenant would have been obligated to pay under the
foregoing provisions, and the purpose of the new taxes is more closely akin to
that of an ad valorem or use tax than to an income or franchise tax on Landlord’s
income, Tenant shall pay the taxes as provided above for property taxes and
assessments.

 

   Tenant shall also defend and indemnify
Landlord and the Premises against liability for taxes and other impositions in
the nature of a tax on the right to do business when Landlord’s collection of
rent under this lease is defined as doing business.

 

 

Section
7. Triple Net Lease

 

This is a “triple net lease”
and the Rent will be paid by Tenant and be received by Landlord without any
deduction or offset whatsoever by Tenant, foreseeable or unforeseeable. Except
as expressly provided to the contrary in this Lease, Landlord will not be
required to make any expenditure, incur any obligation, or incur any liability
of any kind in connection with this Lease or the ownership, construction,
maintenance, operation, or repair of the Premises.

 

Section
8. Insurance

 

(a) Tenant’s Obligations.
Tenant will, at Tenant’s expense, obtain and keep in force at all times the
following insurance:

 

(i)
Casualty Insurance. Casualty insurance insuring the Building against
fire, and extended coverage (including “all risk” coverage, earthquake and
volcanic action, and flood and surface water insurance, if applicable) for the
full replacement cost of the Building, with deductibles and the form and endorsements
of the coverage as acceptable to Landlord, together with, at Landlord’s option,
rental value insurance against loss of Rent in an amount equal to the amount of
Rent for a period of at least twelve (12) months commencing on the date of
loss.

 

(ii)
General Liability Insurance. A policy of commercial general liability
insurance (occurrence form) having a combined single limit of not less than Two
Million Dollars ($2,000,000) per occurrence and Four Million Dollars
($4,000,000) aggregate per location if Tenant has multiple locations, providing
coverage for, among other things, blanket contractual liability, premises,
products and completed operations, and personal and advertising injury
coverage.

 

8

 

(iii)
Workers’ Compensation and Employer’s Liability Insurance. Workers’
compensation insurance having limits not less than those required by state
statute and federal statute, if applicable, and covering all persons employed
by Tenant in the conduct of Tenant’s operations on the Premises. This must
include the all states endorsement and, if applicable, the volunteer’s
endorsement, together with employer’s liability insurance coverage in the
amount of at least One Million Dollars ($1,000,000).

 

(iv)
Personal Property Insurance. “All risk” property insurance, including
boiler and machinery comprehensive form, if applicable, covering damage to or
loss of any equipment of Tenant and coverage for the full replacement cost,
including electronic data processing equipment, and coverage for the full
replacement cost of the equipment, including business interruption of Tenant (“Tenant’s
Property”). If the property of Tenant’s invitees is to be kept in the Premises,
the insurance should include warehouser’s legal liability or bailee customers’
insurance for the full replacement cost of the property belonging to invitees
and located in the Premises.

 

(b) Additional Insurance.
Landlord may also carry any other insurance that Landlord deems prudent or
advisable, including, without limitation, liability insurance in any amounts
and on any terms acceptable to Landlord but not in excess to that which is
commercially reasonable and standard in the community for a similar building.
Tenant will pay to Landlord an amount equal to the premiums due on that
insurance within fifteen (15) days after delivery to Tenant by Landlord of an
invoice for any premiums. Landlord may, at Landlord’s option, elect to collect
the premiums from Tenant in advance, on a monthly or quarterly basis, based on Landlord’s
reasonable estimate of the premiums. If the amount of monthly or quarterly
payments for estimated premiums received by Landlord from Tenant are more or
less than the actual premiums due, an appropriate adjustment will be made by
Landlord and Tenant.

 

(c) General Insurance
Provisions.

 

(i)
Insurance Companies. Insurance required to be maintained by Tenant will
be written by companies licensed to do business in the state in which the
Premises are located and having a “General Policyholders Rating” of at least A,
or a higher rating if required by a lender having a lien on the Premises, as
set forth in the most current issue of “Best’s Insurance Guide.”

 

(ii)
Certificates of Insurance. Tenant will deliver to Landlord certificates
of insurance for all insurance required to be maintained by Tenant in the form
acceptable to Landlord no later than seven (7) days prior to the date of
possession of the Premises. Tenant will, at least ten (10) days prior to
expiration of the policy, furnish Landlord with certificates of renewal or “binders.”
Each certificate will expressly provide that the policies are not cancelable or
otherwise subject to modification except after thirty (30) days’ prior written
notice to the parties named as additional insureds in this Lease. However, in
the case of cancellation for nonpayment of premium, the cancellation will not
take effect until at least (10) days’ notice has been given to Landlord. If
Tenant fails to maintain any insurance required in this Lease, Tenant will be
liable for all losses and costs resulting from that failure; Landlord will have
the right, but not the obligation, to obtain insurance on behalf of Tenant, and
Tenant will immediately on demand pay Landlord the premiums on the insurance;
and Landlord may declare a default under this Lease.

 

(iii)
Additional Insureds. Landlord and any property management company of
Landlord for the Premises must be named as additional insureds under all of the
policies required by 

 

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Section
8(a). The policies required under Section 8(a)(ii) must provide for
severability of interest.

 

(iv)
Primary Coverage. All insurance to be maintained by Tenant must, except
for workers’ compensation and employer’s liability insurance, be primary, without
right of contribution from insurance of Landlord. Any umbrella liability policy
or excess liability policy must provide primary insurance. The limits of
insurance maintained by Tenant will not limit Tenant’s liability under this
Lease.

 

(v)
Waiver of Subrogation. Tenant waives any right to recover against
Landlord for damages to Tenant’s Property covered by insurance. This fully
waives, for the benefit of Landlord, any rights and claims that might give rise
to a right of subrogation in favor of any insurance carrier. The coverage
obtained by Tenant pursuant to this Lease must include, without limitation and
that which is reasonably  available to
Tenant, a waiver of subrogation endorsement attached to the certificate of
insurance.

 

(d) Indemnification. Landlord
will not be liable for any loss or damage to person or property caused by
theft, fire, acts of God, acts of a public enemy, riot, strike, insurrection,
war, court order, requisition, or order of government body or authority, or for
any damage or inconvenience that may arise through repair or alteration of any
part of the Premises or failure to make any repair. Tenant will indemnify and
defend Landlord, by counsel acceptable to Landlord, against any liabilities,
including reasonable attorney fees and court costs, arising out of or relating
to the following:

 

(i)
claims of injury to or death of persons or damage to property occurring or
resulting directly or indirectly from the use or occupancy of the Premises, or
from activities of Tenant, Tenant’s invitees, or anyone about the Premises, or
from any other cause, except to the extent caused by Landlord’s negligence or
willful misconduct;

 

(ii)
claims for work or labor performed, or for materials or supplies furnished to
or at the request of Tenant in connection with performance of any work done for
the account of Tenant within the Premises; and

 

(iii)
claims arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease. The provisions of this
Section 8(d) will survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to the expiration or
termination.

 

Section
9. Repairs and Maintenance

 

(a) Landlord’s
Obligations. Subject to the terms of this Section, Landlord shall maintain
the interior and exterior structural portions of the roof, foundation, and
load-bearing portions of walls of the Building, excluding wall coverings,
painting, glass, and doors. Landlord will not be required to make any repair
resulting from:

 

(i)
any alteration or modification to the Building or to mechanical equipment
within the Building performed by, for, or because of Tenant or to special
equipment or systems installed by, for, or because of Tenant;

 

(ii)
the installation, use, or operation of Tenant’s property, fixtures, and
equipment;

 

10

 

(iii)
the moving of Tenant’s property in or out of the Building or in and about the
Premises;

 

(iv)
Tenant’s use or occupancy of the Premises in violation of Section 11 of this
Lease or in the manner not contemplated by the parties at the time of the
execution of this Lease;

 

(v)
the acts or omissions of Tenant and Tenant’s employees, agents, invitees,
subtenant’s, licensees, or contractors;

 

(vi)
fire and other casualty, except as provided by Section 13 of this Lease; or

 

(vii) condemnation, except
as provided in Section 14 of this Lease.

 

Landlord shall have no
obligation to make repairs under this Section until a reasonable time after
receipt of written notice from Tenant of the need for repairs. Tenant waives
any right to repair at the expense of Landlord under any applicable
governmental laws, ordinances, statutes, orders, or regulations now or later in
effect.

 

(b) Tenant’s Obligations.
Except for the portions of the Premises expressly required to be maintained by
Landlord under Section 9(a), Tenant, at Tenant’s expense, will maintain the
Premises in good order including, without limitation, subfloors and floor
coverings, walls and wall coverings, mechanical, electrical, and plumbing
systems, doors, windows, parking lots, and truck aprons, gutters, and
downspouts, landscaping, and any signage. Tenant will enter into preventive
maintenance and service contracts with maintenance contractors for regularly
scheduled maintenance that are reasonably acceptable to Landlord for servicing
all mechanical systems, including but not limited to elevator, fire sprinklers,
fire extinguishers, backflow, hot water, heating, and air-conditioning systems
and equipment in the Premises, and Tenant further agrees to provide Landlord
with annual reports of such maintenance. 
Tenant agrees to enter into a maintenance contract with a reputable
landscape contractor for the provision of ground maintenance and landscaping,
on no less than a weekly basis, and for parking lot maintenance and light
maintenance on no less than a bi-weekly basis, and as needed, for the entire
term of the Lease, and acknowledges that a failure to fulfill its obligations
under this Section shall constitute a default under the Lease.  Tenant further agrees that Landlord may seal
coat the parking lot for the entire Center in which the Premises are located on
a scheduled basis, for which Tenant shall pay its pro rata share.  If Tenant fails, in the reasonable judgment
of Landlord, to maintain the Premises in good order, Landlord may perform the
maintenance, repairs, refurnishing, or repairing at Tenant’s expense.

 

Section
10. Alterations

 

(a) Trade Fixtures and
Alterations. Tenant will not make or allow any additions, alterations,
installations, or improvements in or to the Premises (collectively, “Alterations”)
without the prior written consent of Landlord, which will not be unreasonably
withheld. Unless Landlord has waived this requirement in writing, together with
Tenant’s request for approval of any Alteration, Tenant must also submit
details about design concept, plans and specifications, names of proposed
contractors, and financial and other pertinent information about any
contractors (including, without limitation, the labor organization affiliation
or lack of affiliation of any contractors), certificates of insurance to be
maintained by Tenant’s contractors, hours of construction, proposed
construction methods, details about the quality of the proposed work and, if
reasonably required by Landlord, evidence of security (such as payment and
performance bonds) to assure timely completion of the work by the contractor
and payment by the contractor of all costs of the work. For any Alteration that
is visible from outside the Building, the proposed

 

11

 

Alteration must, in the opinion of Landlord,
also be architecturally and aesthetically harmonious with the remainder of the
Premises. If a Notice of Completion is required for the work, Tenant must file
it and provide Landlord with a copy. Tenant must provide Landlord with a set of
“as-built” drawings for any work.

 

(b) Complex Alterations.
If the nature, volume, or complexity of any proposed Alteration causes Landlord
to consult with an independent architect, engineer, or other consultant, Tenant
will reimburse Landlord for the reasonable fees and expenses incurred by the
Landlord. Before incurring consultant costs, Landlord will deliver to Tenant an
estimate for those costs.  If any
Alteration will affect the basic mechanical, electrical, or plumbing systems of
the Building, Landlord may require that the work be designed by consultants
designated by Landlord.

 

(c) Standard of Work.
All work to be performed by or for Tenant pursuant to the Lease will be
performed diligently, in a first-class manner, and in compliance with all
applicable laws, ordinances, regulations, and rules of any public authority
having jurisdiction over the Premises and Tenant and Landlord’s insurance
carriers. Landlord will have the right, but not the obligation, to periodically
inspect the work on the Premises and may require changes in the method or
quality of the work.

 

(d) Damage and Removal.
Tenant assumes the risk of damage to any of Tenant’s Alterations. Tenant will
repair all damage to the Premises caused by the installation or removal of
these items. All Tenant Alterations constructed on the Premises by Tenant as
permitted by this Lease shall be owned by Tenant until expiration of the term
or sooner termination of this Lease. Tenant shall not, however, remove any
improvements from the Premises nor waste, destroy, or modify any improvements
on the Premises, except as permitted by this Lease.  The parties covenant for themselves and all
persons claiming under them that the improvements are real property.  The foregoing language shall not be deemed to
apply to any of Tenant’s trade fixtures, which may be removed by Tenant at the
expiration of the Lease, provided that such removal shall not cause any damage
to the structures on the Premises, which structures shall be surrendered to Landlord
pursuant to Section 42, below.

 

          All improvements on the Premises at the expiration of the
term or sooner termination of this Lease shall, without compensation to Tenant,
then become Landlord’s property free and clear of all claims to or against them
by Tenant or any third person, and Tenant shall defend and indemnify Landlord
against all liability and loss arising from such claims or from Landlord’s
exercise of the rights conferred by this section.

 

(e) Liens. Tenant
will promptly pay and discharge all claims for labor performed, supplies
furnished, and services rendered at the request of Tenant and will keep the
Premises free from all mechanics’ and materialmen’s liens. Tenant will provide
at least ten (10) days’ prior written notice to Landlord before any labor is
performed, supplies are furnished, or services are rendered at the Premises,
and Landlord will have the right to post notices of nonresponsibility on the
Premises. If any lien is filed, Landlord may take any necessary action to
remove the lien, and Tenant will pay Landlord any amounts expended by Landlord,
together with interest at the Applicable Interest Rate from the date of
expenditure.

 

 

Section 11. Use

 

The Premises will be used only for the Permitted Use and for no other
uses. The use will be otherwise consistent with any applicable governmental
laws, ordinances, statutes, orders, and 

 

12

 

regulations and any
declaration of covenants, conditions, and restrictions (“CC&Rs”) or any
supplement to these that has been or will be recorded in any official or public
records concerning the Premises or any portion of it, including, but not
limited to, all provisions of the Americans with Disabilities Act [42 U.S.C.A
§§12101 et seq.]; except to the extent that the use results from (a) any work
to be done by Landlord pursuant to this Lease, and (b) any work necessitated by
defects in the construction of the Building. The judgment of any court of
competent jurisdiction, or the admission of Tenant in any action or proceeding
against Tenant, regardless of whether the Landlord is a party, that Tenant has
violated any legal requirement in the condition, use, or occupancy of the
Premises, will be conclusive of that fact as between Landlord and Tenant. Tenant
will not commit waste, overload the floors or structure of the Premises,
subject the Premises to any use that would cause damage or raise or violate any
insurance coverage, permit any unreasonable odors, smoke, dust, gas,
substances, noise, or vibrations to emanate from the Premises, take any action
that would constitute a nuisance or would disturb, obstruct, or endanger any
other person, take any action that would abrogate any warranties, or use or
allow the Premises to be used for any unlawful purpose. Landlord will not be
liable to Tenant nor will this Lease be affected if any parking is impaired by
moratorium, initiative, referendum, or regulation. Tenant will promptly comply
with the reasonable requirements of any board of fire insurance underwriters or
other similar body now or later constituted.

 

Section
12. Environmental Provisions.

 

(a) Environmental
Compliance. Tenant shall, at its sole cost and expense, comply with all
federal, state and local laws and regulations relating to the storage, use, handling
and disposal of hazardous, toxic or radioactive matter (collectively, “Hazardous
Materials”).  Tenant represents and
warrants that, except for materials falling within the definition of Hazardous
Materials which are normally used and properly disposed of in the ordinary
course of Tenant’s business, neither Tenant, nor its agents, servants,
employees, contractors, nor anyone else acting on Tenant’s behalf will store,
dispose of, produce, use, transport or manufacture any Hazardous Materials on
the Premises.  Tenant shall notify
Landlord and provide to Landlord a copy or copies of any environmental
entitlements or inquiries related to the Premises.

 

(b) Remediation. The
clean-up and disposal of any Hazardous Materials located or released onto or
about the Premises by Tenant or its agents, contractors or employees shall be
performed by Tenant at Tenant’s sole cost and expense and shall be performed in
accordance with all applicable laws, rules, regulations and ordinances,
pursuant to a site assessment and removal/remediation plan prepared by a
licensed and qualified geotechnical engineer and submitted to and approved in
writing by Landlord prior to the commencement of any work.  The foregoing notwithstanding, Landlord in
Landlord’s sole and absolute discretion may elect, by written notice to Tenant,
to perform the clean-up and disposal of such Hazardous Materials from the
Premises.  In such event, Tenant shall
pay to Landlord the actual cost of same upon receipt from Landlord of Landlord’s
written invoice therefore.

 

(c) Landlord’s Right of
Entry. Notwithstanding any other term or provision of this Lease, but
subject to the provisions of Section 45, “Regulator Requirements”, Tenant shall
permit Landlord or Landlord’s agents or employees to enter the Premises at any
time, upon reasonable notice, to inspect, monitor and/or take emergency or long-term
remedial action with respect to Hazardous Materials on or affecting the
Premises or to discharge Tenant’s obligations hereunder with respect to such
Hazardous Materials when Tenant has failed, after demand by Landlord, to do
so.  All costs and expenses incurred by
Landlord in connection with performing Tenant’s obligations hereunder shall be
reimbursed by Tenant to Landlord within ten (10) days of Tenant’s receipt of
written request therefore

 

13

 

 

(d)
Expiration and Termination Procedures. Upon expiration or termination of
this Lease and upon the request of Landlord, Tenant will perform all of the
following activities at Tenant’s sole expense:

(i) all remedial or other
work identified in the environmental assessment in accordance with Section
12(b) and all applicable environmental laws; and

(ii)
all corrective, remedial, repair, or other work necessary to correct any alleged
violations, deficiencies, or hazards noted by any environmental governmental
agency; and

 

(e) Tenant’s
Indemnification of Landlord. Tenant will indemnify, protect, defend, and
hold harmless Landlord and Landlord’s partners, directors, officers, employees,
shareholders, lenders, agents, contractors, and each of their respective
successors and assigns (individually and collectively “Landlord Indemnitees”)
from all claims, judgments, causes of action, damages, penalties, fines, taxes,
costs, liabilities, losses, and expenses arising (directly or indirectly) as a
result of or in connection with Tenant’s or Tenant’s employees, agents,
customers, visitors, invitees, licensees, contractors, designees, or subtenant’s
Tenant’s employees, agents, customers, visitors, invitees, licensees,
contractors, designees, or subtenant’s (“Tenant’s Parties) breach of any
prohibition or provision of Section 12, or the presence of any Hazardous
Materials on or under the Premises during the Term or any Hazardous Materials
that migrate from the Premises to other properties, as a result (directly or
indirectly) of Tenant’s or Tenant’s Parties’ activities, or failure to act
where Tenant had a duty to act, on or in connection with the Premises.

 

This obligation by Tenant to
indemnify, protect, defend, and hold harmless Landlord Indemnities includes,
without limitation, costs and expenses incurred for or in connection with any
investigation, cleanup, remediation, monitoring, removal, restoration, or
closure work required by the Agencies because of any Hazardous Materials
present on, under, or about the Premises; the costs and expenses of restoring,
replacing, or acquiring the equivalent of damaged natural resources if required
under any environmental law; all foreseeable consequential damages; all
reasonable damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Premises; all reasonable sums paid in settlement
of claims; reasonable attorney fees; litigation, arbitration, and
administrative proceeding costs; and reasonable expert, consultant, and
laboratory fees. Neither the written consent of Landlord to the presence of
Hazardous Materials on or under the Premises, nor the strict compliance by
Tenant with all environmental laws, will excuse Tenant from the indemnification
obligation. This indemnity will survive the expiration or termination of this
Lease.

 

(f) Landlord’s
Indemnification of Tenant. Landlord will indemnify, protect, defend, and
hold harmless Tenant and Tenant’s partners, directors, officers, employees,
shareholders, lenders, agents, contractors, and each of their respective
successors and assigns (individually and collectively “Tenant Indemnitees”)
against all claims, judgments, causes of action, damages, penalties, fines,
taxes, costs, liabilities, losses, and expenses arising as a result (directly
or indirectly) of or in connection with any existing environmental condition,
or the presence of any Hazardous Materials on the Premises during the Term or
any Hazardous Materials that migrate from the Premises to other properties, as
a result (directly or indirectly) of Landlord’s or Landlord’s Parties’
activities, or failure to act where Landlord had a duty to act, on or in
connection with the Premises.

 

This obligation by Landlord
to indemnify, protect, defend, and hold harmless Tenant Indemnitees includes,
without limitation, costs and expenses incurred for or in connection with any
investigation, cleanup, remediation, monitoring, removal, restoration, or
closure work

 

14

 

required by the Agencies
because of any Hazardous Materials present on the premises; the costs and
expenses of restoring, replacing, or acquiring the equivalent of damaged
natural resources if required under any environmental law; all foreseeable
consequential damages; all reasonable damages for the loss or restriction on
use of rentable or usable space or of any amenity of the Premises; all
reasonable sums paid in settlement of claims; reasonable attorney fees;
litigation, arbitration, and administrative proceeding costs; and reasonable
expert, consultant, and laboratory fees. The strict compliance by Landlord with
all environmental laws will not excuse Landlord from the indemnification
obligation. This indemnity will survive the expiration or termination of this
Lease.

 

 

Section
13. Damage and Destruction

 

(a) Casualty. If the
Premises is damaged or destroyed by fire or other casualty, Tenant will give
immediate written notice to Landlord. Within thirty (30) days after receipt,
Landlord will notify Tenant whether repairs can reasonably be made (1) within
ninety (90) days, (2) in more than ninety (90) days, but in less than one
hundred eighty (180) days; or (3) in more than one hundred eighty (180) days
from the date of notice.

 

(i)
Less Than 90 Days. If the Premises is damaged only to the extent that
rebuilding or repairs can be reasonably completed within ninety (90) days, this
Lease will not terminate and, provided that insurance proceeds are available to
fully repair the damage, Landlord will repair the Premises. However, Landlord
will not be required to rebuild, repair, or replace any Alterations that may
have been placed on the Premises for Tenant. The Rent will be abated
proportionately from the date Tenant vacates the Premises only to the extent
the Premises are unfit for occupancy.

 

(ii)
Greater Than 90 Days. If the Premises is damaged only to the extent that
rebuilding or repairs can be reasonably completed in more than ninety (90)
days, but in less than one hundred eighty (180) days, Landlord will have the
option of (1) terminating the Lease effective upon the occurrence of the
damage, in which event the Rent will be abated from the date Tenant vacates the
Premises; or (2) electing to repair the Premises, provided insurance proceeds
are available to fully repair the damage. However, Landlord will not be
required to rebuild, repair, or replace any part of the Alterations that may
have been placed on the Premises for the Tenant. The Rent will be abated
proportionately from the date Tenant vacates the Premises only to the extent
the Premises are unfit for occupancy. If Landlord fails to complete repairs
within one hundred eighty (180) days after the date on which Landlord is
notified by Tenant (that period to be extended for delays caused by Tenant or
because of any items of Force Majeure, as defined in attached Exhibit B),
Tenant may, within ten (10) days after the expiration of the one hundred eighty
(180) day period, terminate this Lease by delivering written notice to Landlord
as Tenant’s exclusive remedy. All rights under this Lease will cease and
terminate thirty (30) days after Landlord’s receipt of notice.

 

(iii)
Greater Than 180 Days. If the Premise is so damaged that rebuilding or
repairs cannot be completed within one hundred eighty (180) days, either
Landlord or Tenant may terminate by giving written notice within ten (10) days
after notice from Landlord regarding the time period of repair. This Lease and
the Rent will be abated from the date Tenant vacates the Premises. If neither
party elects to terminate this Lease, Landlord will promptly commence and
diligently prosecute to completion the repairs to the Premises, provided
insurance proceeds are available to fully repair the damage. However, Landlord
will not be required to rebuild, repair, or replace any Alterations that may
have been placed on the Premises for the

 

15

 

Tenant. During the time when
Landlord is prosecuting repairs to completion, the Rent will be abated
proportionately from the date Tenant vacates the Premises only to the extent
and only during the period that the Premises are unfit for occupancy.

 

(b) Tenant’s Fault.
If any portion of the Premises is damaged resulting from the fault or breach of
this Lease by Tenant or Tenant’s Parties, the Rent will be diminished during
the repair of the damage only to the extent the Premises are unfit for
occupancy and Tenant will be liable to Landlord for the cost of the repair to
the extent the cost is not covered by insurance proceeds.

 

(c) Uninsured Casualty.
Tenant is responsible for and will pay to Landlord any deductible amount under
the property insurance for the Premises. If any portion of the Premises is
damaged and is not fully covered by insurance proceeds received by Landlord for
any reason (and Tenant elects not to pay any difference) or if the holder of
any indebtedness secured by the Premises requires that the insurance proceeds
be applied to the indebtedness, Landlord will have the right to terminate this
Lease by delivering written notice of termination to Tenant within thirty (30)
days after the date of notice to Tenant. All rights and obligations will then
cease and terminate under this Lease.

 

(d) Waiver. With
respect to any damage or destruction that Landlord is obligated to repair or
may elect to repair, Tenant waives all rights to terminate this Lease pursuant
to rights otherwise presently or later accorded by law.

 

Section
14. Eminent Domain

 

(a) Definitions. The
following definitions apply in construing provisions of this Lease relating to
a taking of or damage to all or any part of the Premises or improvements or any
interest in them by eminent domain or inverse condemnation:

          (i)            Taking
means the taking or damaging, including severance damage, by eminent domain or
by inverse condemnation for any public or quasi-public use under any statute.
The transfer of title may be either a transfer resulting from the recording of
a final order in condemnation or a voluntary transfer or conveyance to the condemning
agency or entity under threat of condemnation, in avoidance of an exercise of
eminent domain, or while condemnation proceedings are pending. The taking shall
be considered to take place as of the later of (i) the date actual physical
possession is taken by the condemnor or (ii) the date on which the right to
compensation and damages accrues under the law applicable to the Premises.

          (ii)           Total
taking means the taking of the fee title to all the Premises and the
improvements on the Premises, which shall be considered to include any off-site
improvements effected by Tenant to serve the Premises or the improvements on
the Premises.

          (iii)          Substantial
taking means the taking of the fee interest in so much of the Premises or
improvements or both that thirty percent (30%) in area of the Premises shall be
taken or damaged or twenty-five percent (25%) of the floor area contained
within the improvements constructed on the Premises shall be taken or damaged,
and the conduct of Tenant’s business on the Premises would be substantially
prevented or impaired as the result of such taking.

          (iv)          Partial
taking means any taking of the fee title that is not either a total or a
substantial taking.

 

(b) Notice to Other Party.
The party receiving any notice of the kinds specified below shall promptly give
the other party notice of the receipt, contents, and date of the notice
received:

          (i)            Notice
of intended taking;

 

16

 

          (ii)           Service
of any legal process relating to condemnation of the Premises or improvements;

 

          (iii)          Notice
in connection with any proceedings or negotiations with respect to such a
condemnation; or

 

          (iv)          Notice
of intent or willingness to make or negotiate a private purchase, sale or
transfer in lieu of condemnation.

 

(c) Effect on Rent and Term:
Total Taking or Substantial Taking.

          (i)            On a
total taking, Tenant’s obligation to pay rent shall terminate on, and Tenant’s
interest in the leasehold shall continue until, the date of taking.

          (ii)           If the
taking is substantial under the definition appearing above, Tenant may, by
notice to Landlord given within ten (10) days after Tenant receives notice of
the intended taking, elect to treat the taking as a substantial taking. If
Tenant does not so notify Landlord, the taking shall be deemed a partial
taking. If Tenant gives such notice and Landlord gives Tenant notice disputing
Tenant’s contention within five (5) days following receipt of Tenant’s notice,
the dispute shall be promptly determined by arbitration. If Landlord gives no
such notice, the taking shall be treated as a total taking if (l) Tenant
delivers possession to Landlord within thirty (30) days after determination
that the taking was a substantial taking, and (2) Tenant is not in default
under the lease and has complied with all lease provisions concerning
apportionment of the award. If these conditions are not met, the taking shall
be treated as a partial taking.

          (iii) Tenant may continue to occupy the Premises and
improvements until the condemnor takes physical possession. However, at any
time following notice of intended total taking, or within the time limit
specified for delivering possession in the provision for substantial taking,
Tenant may elect to deliver possession of the Premises to Landlord before the
actual taking. The election shall be made by notice declaring the election and
covenanting to pay all rents required under this lease to the date of taking.
Tenant’s right to apportionment of or compensation from the award shall then
accrue as of the date that Tenant goes out of possession.

 

(d) Apportionment;
Distribution of Award for Total Taking. On a total taking, all sums, including
damages and interest, awarded for the fee or the leasehold or both shall be
deposited promptly with an escrow agent acceptable to both parties (acceptance
not to be unreasonably withheld) and shall be distributed and disbursed in the
following order of priority:

          First, to Landlord and Tenant, as herein provided,
reimbursement of all costs and expenses of collection of the award, including
fees and expenses incurred in the condemnation proceeding.

          Second, the remainder shall be divided between Landlord and
Tenant in the ratio, as nearly as practicable, which (i) the then value of
Landlord’s interest in the Premises including its interest under this Lease as
determined by appraisal as provided below bears to (ii) the then value of
Tenant’s interest in the Tenant’s Alterations constructed on the Premises and
under this Lease for the remainder of the Lease term determined by appraisal as
provided below.  If appraisal becomes
necessary under this section, the parties shall promptly agree upon a competent
appraiser, and neither party shall unreasonably refuse to reach an agreement. If
the parties are unable to agree on an appraiser, then, upon written notice to
the other party, either party may apply for such appointment to the Superior
Court of the State of California, or to any other court having jurisdiction and
exercising functions similar to those now exercised by the Superior Court of
the State of California.

 

(e)     Partial Taking. On a partial taking, this Lease shall remain in
full force and effect, covering the remaining property, except that the net
rent shall be reduced in the same ratio as the

 

17

 

dollar amount of the award,
excluding interest and severance damages, bears to the total fair market value
of the Premises before the taking, as determined by the most recent appraisal
made for the property. Both parties waive their rights to petition for
termination of the lease under section 1265.130 of the California Code of Civil
Procedure.

 

          (i) Promptly after a partial taking, at Tenant’s expense
and in the manner specified in provisions of this Lease relating to maintenance,
repairs, and alterations, Tenant shall repair, alter, modify, or reconstruct
the improvements (hereafter referred to as restoring) so as to make them
reasonably suitable for Tenant’s continued occupancy for the uses and purposes
for which the Premises are leased.

 

          (ii) If the reasonably estimated cost of the work
represents more than twenty-five percent (25%) of the then fair market value of
the leasehold improvements before the taking, Tenant may, in the manner
provided for a substantial taking, elect to treat the taking as substantial.

 

          (iii) On a partial taking, all sums, including damages and
interest, awarded for the fee title or the leasehold or both, shall be
deposited promptly with an escrow agent acceptable to both parties (acceptance
not to be unreasonably withheld) and shall be distributed and disbursed in the
following order to priority:

 

                          First, to Landlord and Tenant, as herein
provided, reimbursement of all costs and expenses of collection of the award,
including fees and expenses incurred in the condemnation proceeding.

 

                          Second, to Tenant, reimbursement of the
costs and expenses of restoration of the improvements, as such costs and
expenses are reasonably incurred by Tenant, plus any amount awarded for
detriment to business.

 

                          Third, the remainder shall be divided
between Landlord and Tenant in the ratio, as nearly as practicable, which (i)
the then value of Landlord’s interest in the Premises including its interest
under this Lease as determined by appraisal as provided below bears to (ii) the
then value of Tenant’s interest in the improvements constructed on the Premises
and under this Lease for the remainder of the Lease term determined by
appraisal as provided below.

 

(f) Limited Taking. On the
taking, other than a temporary taking, of less than a fee title interest in the
Premises or improvements or both, the question whether the taking is total,
substantial, or partial, and the effects on term, rent, and apportionment of
award shall be determined by arbitration.

 

          On any taking of the temporary use of all or any part of
parts of the Premises or improvements or both for a period, or of any estate
less than a fee, ending on or before the expiration date of the term, neither
the term nor the rent shall be reduced or affected in any way, and Tenant shall
be entitled to any award for the use or estate taken. If a result of the taking
is to necessitate expenditures for changes, repairs, alterations, modification,
or reconstruction of the improvements to make them economically viable and a
practical whole, Tenant shall receive, hold, and disburse the award in trust
for such work. At the completion of the work and the discharge of the Premises
and improvements from all liens and claims, Tenant shall be entitled to any
surplus and shall be liable for any deficit.

 

          If any such taking is for a period extending beyond the
expiration date of the term, the taking shall be treated under the foregoing
provisions for total, substantial, and partial takings.

 

18

 

Section
15. Default

 

(a) Events of Default.
The occurrence of any of the following events will, at Landlord’s option,
constitute an event of default (“Event of Default”):

 

(i)
failure to pay Rent on the date when due, the failure continuing for a period
of five (5) days after payment is due;

 

(ii)
vacation or abandonment of the Premises for a period of thirty (30) consecutive
days;

 

(iii)
failure to perform Tenant’s covenants under this Lease (except default in the
payment of Rent); provided that if this default is susceptible of cure and
Tenant has promptly commenced the cure of this default and is diligently
prosecuting the cure to completion, then the default must remain uncured for
thirty (30) days after written notice from Landlord;

 

(iv)
the making of a general assignment by Tenant for the benefit of creditors, the
filing of a voluntary petition by Tenant, or the filing of an involuntary
petition by any of Tenant’s creditors seeking the rehabilitation, liquidation,
or reorganization of Tenant under any law relating to bankruptcy, insolvency,
or other relief of debtors and, in the case of an involuntary action, the
failure to remove or discharge the petition within sixty (60) days of the
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenant’s assets or this leasehold, Tenant’s insolvency or
inability to pay Tenant’s debts or failure generally to pay Tenant’s debts when
due, any court entering a decree or order directing the winding up or liquidation
of Tenant’s debts when due, any court entering a decree or order directing the
winding up or liquidation of Tenant or substantially all of Tenant’s assets,
Tenant taking any action toward the dissolution or winding up of Tenant’s
affairs, the cessation or suspension of Tenant’s use of the Premises, or the
attachment, execution, or other judicial seizure of substantially all of Tenant’s
assets or this leasehold; or

 

(v)
the making of any material misrepresentation or omission by Tenant in any
materials delivered by or on behalf of Tenant to Landlord pursuant to this
Lease.

 

(b) Remedies.

 

(i)
Termination. In the event of the occurrence of any Event of Default,
Landlord will have the right to give a written termination notice to Tenant
and, on the date specified in that notice, this Lease will terminate unless on
or before that date all arrears of Rent and all other sums payable by Tenant
under this Lease and all costs and expenses incurred by or on behalf of
Landlord have been paid by Tenant and all other Events of Default at the time
existing have been fully cured to the satisfaction of Landlord.

 

(A)
Repossession. Following termination, without prejudice to other remedies
Landlord may have, Landlord may (1) peaceably re-enter the Premises on voluntary
surrender by Tenant; (2) remove Tenant and any other persons occupying the
Premises, using any legal proceedings that may be available; (3) repossess the
Premises or relet the Premises or any part of them for any term (which may be
for a term extending beyond the Term), at any rental and on any other terms and
conditions that Landlord in Landlord’s sole discretion may determine, with the
right to make reasonable alterations and repairs to the Premises; and (4)
remove all personal property.

 

19

 

(B)
Unpaid Rent. Landlord will have all the rights and remedies of a
landlord provided by applicable law, including the right to recover from Tenant
(1) the worth, at the time of award of the unpaid Rent that had been earned at
the time of termination; (2) the worth, at the time of award, of the amount by
which the unpaid Rent that would have been earned after the date of termination
until the time of award exceeds the amount of loss of rent that Tenant proves
could have been reasonably avoided; (3) the worth, at the time of award, of the
amount by which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of the loss of rent that Tenant proves could have been
reasonably avoided; and (4) any other amount, and court costs, necessary to
compensate Landlord for all detriment proximately caused by Tenant’s default.
The phrase “worth, at the time of award,” as used in clauses (1) and (2) above,
will be computed at the greater of ten percent (10%) per annum or five percent
(5%) per annum plus the federal discount rate on advances to member banks in
effect at the Federal Reserve Bank of San Francisco on the 25th day of the
month preceding the date of the Lease, and as used in clause (3) above, will be
computed by discounting that amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).

 

(ii)
Continuation. Even though an Event of Default may have occurred, this
Lease will continue in effect for so long as Landlord does not terminate Tenant’s
right to possession. Also, Landlord may enforce all of Landlord’s rights and
remedies under this Lease, including the right to recover Rent as it becomes
due, and Landlord, without terminating this Lease, may, during the period
Tenant is in default, enter the Premises and relet them, or any portion of
them, to third parties for Tenant’s account. Tenant will be liable to Landlord
for all costs Landlord incurs in reletting the Premises, including, without limitation,
brokers’ commissions, expenses of remodeling the Premises, and similar costs.
Reletting may be for a period shorter or longer than the remaining Term. Tenant
will continue to pay the Rent on the date that it is due. No act by Landlord
under this Lease, including acts of maintenance, preservation, or efforts to
lease the Premises or the appointment of a receiver on application of Landlord
to protect Landlord’s interest under this Lease, will terminate this Lease
unless Landlord notifies Tenant that Landlord elects to terminate this Lease.
In the event that landlord elects to relet the Premises, the rent that Landlord
receives from reletting will be applied to pay the following in the order
listed:

 

(A)
any indebtedness from Tenant to Landlord other than Base Rent, Real Property
Taxes, and other amounts owing to Landlord under this Lease;

 

(B)
all costs, including maintenance, incurred by Landlord in reletting; and

 

(C)
Base Rent, Real Property Taxes, and other amounts owing to Landlord under this
Lease.  After deducting the payments
referred to above, any sum remaining from the rental Landlord receives from
reletting will be held by Landlord and applied in payment of future Rent as
Rent becomes due under this Lease. In no event will Tenant be entitled to any
excess rent received by Landlord. If, on the date Rent is due under this Lease,
the rent received from the reletting is less than the Rent due on that date,
Tenant will pay to Landlord, in addition to the remaining Rent due, all costs,
including maintenance, that Landlord incurred in reletting that remain after
applying the rent received from reletting. So long as this Lease is not
terminated, Landlord will have the right to remedy any default of Tenant, to
maintain or improve the Premises, to cause a receiver to be appointed to
administer the Premises and new or existing subleases, and to add to the Rent
all of Landlord’s reasonable costs in so doing, with interest at the Applicable
Interest Rate from the date of the expenditure.

 

20

 

(c) Cumulative. Each
right and remedy of Landlord provided for in this Lease or now or later
existing at law, in equity, by statute, or otherwise, will be cumulative and
will not preclude Landlord from exercising any other rights or remedies
provided for in this Lease or now or later existing at law or in equity, by
statute, or otherwise. No payment by Tenant of a lesser amount than the Rent,
or any endorsement on any check or letter accompanying any check or payment as
Rent, will be deemed an accord and satisfaction of full payment of Rent.
However, Landlord may accept this payment without prejudice to Landlord’s right
to recover the balance of Rent or to pursue other remedies.

 

Section
16. Assignment and Subletting

 

          Tenant will not assign or sublet, whether voluntarily or
involuntarily or by operation of law, the Premises or any part of the Premises
without Landlord’s prior written approval, which will not be unreasonably
withheld. The merger of Tenant with any other entity or the transfer of any
controlling or managing ownership or beneficial interest in Tenant constitutes
an assignment under this Lease. If Tenant desires to assign this Lease or
sublet any or all of the Premises, Tenant must give Landlord written notice sixty
(60) days prior to the anticipated effective date of the assignment or
sublease. Landlord will then have a period of forty-five (45) days following
receipt of notice and all related documents and agreements associated with the
assignment or sublease, including, without limitation, the financial statements
of any proposed assignee or subtenant, to notify Tenant in writing that
Landlord elects (a) to permit Tenant to assign this Lease or sublet space,
subject however to Landlord’s prior written approval of the proposed assignee
or subtenant and of any related documents or agreements associated with the
assignment or sublease received by Landlord or reasonably requested by
Landlord; or (b) to disapprove the proposed assignment or subletting. If
Landlord fails to notify Tenant in writing of the election, Landlord will be
deemed to have elected option (b). This Lease may not be assigned by operation
of law. Any purported assignment or subletting contrary to the provisions of
this Lease will be void. If Tenant receives rent or other consideration for any
transfer in excess of the Rent, or in case of the sublease of a portion of the
Premises, in excess of the Rent that is fairly allocable to that portion, after
appropriate adjustments to assure that all other required payments are
appropriately taken into account, Tenant will pay Landlord fifty percent (50%)
of the difference between each payment of rent or other consideration and the
required Rent. Landlord may, without waiving any rights or remedies, collect rent
from the assignee, subtenant, or occupant, and apply the net amount collected
to the Rent reserved here and apportion any excess rent collected in accordance
with the terms of the preceding sentence. Tenant will continue to be liable as
a principal and not as a guarantor or surety to the same extent as though no
assignment or subletting had been made. Landlord may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to the
Lease by assignees of Tenant without notifying Tenant or any successor of
Tenant and without obtaining their consent. No permitted transfer will be
effective until there has been delivered to Landlord a counterpart of the
transfer instrument in which the transferee agrees to be and remain jointly and
severally liable with Tenant for the payment of Rent pertaining to the space
and for the performance of all the terms and provisions of this Lease arising
on or after the date of the transfer. Tenant will not do any act that will in
any way encumber the title of Landlord to the Premises or the Building.

 

Section 17. Estoppel

 

                Within ten (10) days after
request by Landlord, Tenant will deliver an estoppel certificate duly execcuted
(and acknowledged, if required by any lender) in the form of attached Exhibit
D, to any

 

21

 

 

proposed mortgagee,
purchaser, or Landlord. Tenant’s failure to deliver this statement in that time
period will be an Event of Default under this Lease and it will be conclusive
on Tenant that (a) this Lease is in full force and effect, without modification
except as may be represented by Landlord; (b) there are no uncured defaults in
Landlord’s performance and Tenant has no right of offset, counterclaim, or
deduction against Rent; and (c) no more than one period’s Base Rent has been
paid in advance. Landlord reserves the right to substitute a different form of
estoppel certificate requiring substantially the same information from Tenant
on the request of any proposed mortgagee or purchaser. If any financier should
require that this Lease be amended (other than in the description of the
Premises, the Term, the Permitted Use, the Rent, or as will substantially,
materially, and adversely affect the rights of Tenant), Landlord will give
written notice of that to Tenant. The notice will be accompanied by a Lease
supplement embodying the amendments. Tenant must, within ten (10) days after
the receipt of Landlord’s notice, execute the tendered Lease supplement.

 

Section
18. Attornment

 

In the event of a
foreclosure proceeding, the exercise of the power of sale under any mortgage or
deed of trust or the termination of a ground lease, Tenant will, if requested,
attorn to the purchaser and recognize that purchaser as Landlord under this
Lease. However, Tenant’s obligation to attorn to the purchaser will be
conditioned on Tenant’s receipt of a nondisturbance agreement.

Concurrent with the
execution of this Lease, Landlord, Tenant and all mortgagee’s of record shall
execute and record an Estoppel, Non-Disturbance, Attornment Agreement(s), in
the form attached hereto as Exhibit “*F*.

 

Section 19. Subordination

 

This Lease is subject and subordinate to all ground leases and the lien
of all mortgages and deeds of trust that now or later affect the Premises or
Landlord’s interest, or on or against all ground leases, and to all subdivision
maps of the Premises and all CC&Rs on the Premises that are now or may
become of record, and all amendments, all without the necessity of Tenant’s
executing further instruments to effect the subordination. If requested, Tenant
will execute whatever documentation may be required to further effect the
provision of this section.

 

Section 20. Entry

 

Landlord reserves the right to enter the Premises upon reasonable
notice to Tenant (except in case of an emergency, in which case no notice would
be required) to inspect the Premises or the performance by Tenant of the terms
and conditions of this Lease, and, during the last nine (9) months of the Term,
show the Premises to prospective tenant’s.

 

Section 21. Late Charges and Interest

 

The late payment of any Rent
will cause Landlord to incur additional costs, including administration and
collection costs, processing and accounting expenses, and increased debt
service. If Landlord has not received any installment of Rent within ten (10)
days after that amount is due, Tenant must pay ten percent (10%) of the
delinquent amount, which is agreed to represent a reasonable estimate of the
cost incurred by Landlord. In addition, all delinquent amounts will bear
interest from the date the amount was due until paid in full at a rate per
annum (“Applicable Interest Rate”) equal to the greater of (a) five percent
(5%) per annum plus the then federal discount rate on advances to member banks
in effect at the Federal Reserve Bank of San 

 

22

 

Francisco on the 25th day of
the month preceding the date of this Lease or (b) ten percent (10%). However,
in no event will the Applicable Interest Rate exceed the maximum interest rate
permitted by law that may be charged under the circumstances. Landlord and
Tenant recognize that the damage that Landlord will suffer in the event of
Tenant’s failure to pay these amounts is difficult to ascertain and the late
charge and interest are the best estimate of the damage that Landlord will suffer
in the event of late payment. If a late charge becomes payable for any three
(3) installments or Rent within any twelve (12)-month period, the Rent will
automatically become due quarterly in advance.

 

Section
22. Security Deposit

 

There is no Security Deposit
required from Tenant at the inception of this Lease.  However, in the event that Tenant is
permitted to assign or sublet the Premises, Landlord shall be entitled to
require a Security Deposit from the sublessee or assignee, in an amount equal
to one and one-half (11⁄2) times the then-current Base Rent for the
Premises.  The Security Deposit will
secure the full and faithful performance of each provision of this Lease to be
performed by Tenant. Landlord may use and commingle the Security Deposit with
other funds of Landlord. If Tenant fails to perform any of Tenant’s obligations
under this Lease, Landlord may apply all or any portion of the Security Deposit
toward fulfillment of Tenant’s unperformed obligations. If Landlord does apply
the Security Deposit, Tenant must immediately pay Landlord sufficient cash to
restore the Security Deposit to the full original amount. The Security Deposit
will not bear interest.

 

Section 23. Entire Agreement

 

This Lease sets forth all the agreements between Landlord and Tenant
concerning the Premises, and there are no other agreements, either oral or
written, other than as set forth in this Lease.

 

Section 24. Time of Essence

 

Time is of the essence in this Lease.

 

Section 25. Attorney Fees

 

In any action that either party brings to enforce rights under this
Lease, the unsuccessful party will pay all costs incurred by the prevailing
party, including reasonable attorney fees, to be fixed by the court. Those
costs and attorney fees will be considered a part of the judgment in that
action.

 

Section 26. Severable

 

If any provision of this Lease or the application of any provision is
held by a court of competent jurisdiction to be invalid, void, or unenforceable
to any extent, the remaining provisions of this Lease and the application of it
will remain in full force and will not be affected, impaired, or invalidated.

 

Section 27. Governing Law

 

This Lease will be construed and enforced in accordance with the laws
of the state Of California.

 

23

 

Section 28. No Option

 

Submission of this Lease to Tenant for examination or negotiation does
not constitute an option to lease, offer to lease, or a reservation of, or
option for, the Premises. This document will become effective and binding only
upon the execution and delivery of the document by Landlord and Tenant.

 

Section 29. Successors and Assigns

 

This Lease will be binding on and inure to the benefit of the
successors and assigns of Landlord and, to the extent assignment is approved by
Landlord, Tenant.

 

Section 30. No Third-Party
Beneficiaries

 

Nothing in this Lease is
intended to create any third-party benefit.

 

Section 31. Memorandum of Lease

 

Tenant may record a short form memorandum of this Lease in a form to be
mutually agreed by the parties hereto.

 

Section 32. No Agency, Partnership, or Joint Venture

 

Nothing contained in this Lease will be deemed or construed by the
parties, or by any third party, as creating the relationship of principal and
agent, partnership, or joint venture by the parties. It is understood and
agreed that no provision contained in this Lease or any acts of the parties
will be deemed to create any relationship other than the relationship of
landlord and tenant.

 

Section
33. No Merger

 

The voluntary or other
surrender of this Lease by Tenant or a mutual cancellation of the Lease or a
termination by Landlord will not work a merger and will, at the option of
Landlord, terminate all of any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any subtenancies.

 

Section
34. Signs

 

All signs and graphics of
every kind visible from public view, corridors, or the exterior of the Premises
will be subject to Landlord’s prior written approval and will be subject to any
applicable governmental laws, ordinances, and regulations and in compliance
with Landlord’s signage program. Tenant must remove all signs and graphics
prior to the termination of this Lease. Installations and removals must be made
in a manner so as to avoid injury or defacement of the Premises. Tenant must
repair any injury or defacement, including, without limitation, discoloration
caused by installation or removal.

 

Section
35. No Waiver

 

No waiver of any default or
breach under this Lease will be implied from any omission to take action on
account of this Lease, regardless of any custom and practice or course of
dealing. No waiver will affect any default other than the default specified in
the waiver, and then the waiver 

 

24

 

will be operative only for
the time and to the extent stated in the Lease. Waivers of any covenant will
not be construed as a waiver of any subsequent breach of the same covenant. No
waiver by either party of any provision under this Lease will be effective
unless in writing and signed by that party.

 

Section 36. Financial Statements

 

Except for publicly traded entity Tenants, Tenant will provide to any
lender, purchaser, or Landlord, within ten (10) days after request, a current,
accurate, certified financial statement for Tenant and Tenant’s business
prepared under generally accepted accounting principles consistently applied
and any other certified financial information or tax returns as may be
reasonably required by Landlord, purchaser, or any lender of either.

 

Section
37. Limitation of Liability

 

The obligations of Landlord
under this Lease are not personal obligations of the individual partners,
directors, officers, shareholders, agents, or employees of Landlord. Tenant may
look solely to the Premises for satisfaction of any liability and may not look
to other assets of Landlord or seek recourse against the assets of the
individual partners, directors, officers, shareholders, agents, or employees of
Landlord. Whenever Landlord transfers Landlord’s interest, Landlord will be
automatically released from further performance under this Lease and from all
further liabilities and expenses under this Lease and the transferee of
Landlord’s interest will assume all liabilities and obligations of Landlord
under this Lease from the date of the transfer.

 

Section
38. Notices

 

        Any
notice, demand, request, consent, approval, or communication that either party
desires or is required to give to the other party or any other person shall be
in writing and either served personally or sent by prepaid, first class
mail.  Any notice, demand, request,
consent, approval, or communication that either party desires or is required to
give to the other party shall be addressed to the other party at the address
set forth below. Either party may change its address by notifying the other
party of the change of address. Notice shall be deemed communicated within
forty-eight (48) hours from the time of mailing if mailed as provided in this
section.

	
   

  	
   

  	
  Landlord:

  	
  Walter
  Bros. Construction Co., Inc.

  
	
   

  	
   

  	
   

  	
  P.O.
  Box 809

  
	
   

  	
   

  	
   

  	
  San
  Luis Obispo, CA 93406

  

 

25

 

	
   

  	
   

  	
  with
  a copy to:

  	
  Diehl
  & Rodewald

  
	
   

  	
   

  	
   

  	
  1043
  Pacific Street

  
	
   

  	
   

  	
   

  	
  San
  Luis Obispo, CA 93401

  
	
   

  	
   

  	
   

  	
  Telephone:
  (805) 541-1000

  
	
   

  	
   

  	
   

  	
  FAX/541-6870

  
	
   

  	
   

  	
   

  	
  E-Mail:
  rar@diehlrodewald.com

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Tenant:

  	
  Mission
  Community Bank

  
	
   

  	
   

  	
   

  	
  581
  Higuera Street

  
	
   

  	
   

  	
   

  	
  San
  Luis Obispo, CA 93401

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  	
  Matthew S. Kennedy, Esq.

  
	
   

  	
   

  	
   

  	
  MATTHEW S. KENNEDY, APLC

  
	
   

  	
   

  	
   

  	
  P.O. Box 1031

  
	
   

  	
   

  	
   

  	
  San Luis Obispo, California 93406-1031

  
	
   

  	
   

  	
   

  	
  (805) 544-5002

  
	
   

  	
   

  	
   

  	
  FAX/544-5003

  
	
   

  	
   

  	
   

  	
  E-Mail: msk@KennedyLawRealty.com

  

 

Section 39. Brokerage Commission

 

Tenant warrants to Landlord that Tenant’s sole contact with Landlord or
with the Premises in connection with this transaction has been directly with
Landlord, and that no broker or finder can properly claim a right to a
commission or a finder’s fee based on contacts between the claimant and Tenant.
Tenant and Landlord, respectively, will each indemnify, defend by counsel
acceptable to the other, protect, and hold each other harmless from any loss,
cost, or expense, including, but not limited to, attorney fees and cost,
resulting from any claim for a fee or commission by any broker or finder in
connection with the Premises and this Lease.

 

Section 40. Authorization

 

Tenant will furnish to Landlord, within ten (10) days after written
request, evidence satisfactory to Landlord that the person who executed this
Lease on behalf of Tenant was duly authorized to do so. Each individual
executing this Lease on behalf of Tenant represents and warrants that she or he
is duly authorized to execute and deliver this Lease on behalf of Tenant and
that the execution is binding upon Tenant.

 

Section 41. Holding Over

 

If Tenant holds over the Premises or any part of the Premises after
expiration of the Term, the holding over will constitute a month-to-month
tenancy, at a rent equal to the Base Rent in effect immediately prior to the
holding over plus twenty-five percent (25%) of the Rent. This section will not be
construed as Landlord’s permission for Tenant to hold over. Acceptance of Rent
by Landlord following expiration or termination would not constitute a renewal
of this Lease.

 

26

 

Section 42. Surrender

 

Upon the termination of this Lease or Tenant’s right to possession of
the Premises, Tenant will surrender the Premises, together with all keys, in
good condition and repair, reasonable wear and tear excepted. Conditions
existing because of Tenant’s failure to perform maintenance, repairs, or
replacements will not be deemed “reasonable wear and tear.”

 

Section 43. Joint and Several

 

If Tenant consists of more than one person, the obligation of all those
persons will be joint and several.

 

Section 44. Covenants and Conditions

 

Each provision to be performed by Tenant under this Lease will be
deemed to be both a covenant and a condition.

 

Section 45. Regulator Requirements

 

a.                           Notwithstanding
any other provision of this Lease, Landlord shall not have the right to take
possession of any of Tenant’s business records or personal property located on
the Premises, of any customer of Tenant, or of any other third party.
Furthermore, any rights and remedies of Landlord under this Lease are subject
to the power of the State of California Department of Financial Institutions
(“DFI”), the Federal Deposit Insurance Corporation (“F.D.I.C.”), and other bank
regulatory agencies, to enter upon and/or assume control of the Premises and of
any personal property therein as permitted under applicable laws.

b.                          Also,
notwithstanding any other provisions contained in this Lease, in the event (a)
Tenant or its successors or assigns shall become insolvent or bankrupt, or, if
their interests under this Lease shall be levied upon or sold under execution
or other legal process; or, (b) the depository institution then operating on
the Premises is closed or is taken over by any depository institution
supervisory authority (“Authority”), Landlord may, but shall not be required
to, in either such event, terminate this Lease only with the concurrence of any
receiver or liquidator, to the extent required by applicable law.

 

Section
46. Exhibits

 

The attached Exhibits,
identified with this Lease and initialed by the parties, are incorporated by
this reference.

 

27

 

IN WITNESS WHEREOF, the
parties have executed this Lease as of the date set forth above.

 

 

	
  LANDLORD:

  	
  TENANT:

  
	
   

  	
   

  
	
  WALTER BROS. 

  	
  MISSION
  COMMUNITY BANK,

  
	
  CONSTRUCTION CO., INC., a 

  	
  a
  California corporation

  
	
  California corporation

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Donald C. Walter

  	
   

  	
  Anita M. Robinson

  
	
   

  	
  President

  	
   

  	
  President and CEO

  
						

 

 

28

 

 

 

EXHIBIT
A

 

LEGAL
DESCRIPTION OF THE REAL PROPERTY

 

 

 

Parcel 1 of Parcel Map SL-05-0428
in the City of San Luis Obispo, County of San Luis Obispo, State of California,
according to Map recorded March 26, 2007, in Book 68, Pages 66-68 of Parcel
Maps.

 

 

 

EXHIBIT
B

 

WORK
LETTER

 

THIS WORK LETTER (“Work
Letter”) constitutes part of the Office Lease—Build-to-Suit Lease (“Lease”)
dated as of [date],
between Mission Community Bank, a California corporation, (“Tenant”), and
Walter Bros. Construction Co., Inc., (“Landlord”),. The terms of this Work
Letter are incorporated in the Lease for all purposes.

 

Section
1. Defined Terms

 

As used in this Work Letter,
the following capitalized terms have the following meanings:

 

General Contractor:  Walter Bros. Construction Co., Inc. or such
other general contractor which may be designated by Landlord.

 

Improvements: The Building,
parking areas, landscaping, and other improvements, more particularly shown on
the conceptual plans (as modified) prepared by RRM Design Group, and approved
by Tenant,  that Landlord is to construct
on the Real Property pursuant to the Lease and this Work Letter.  The Landlord shall deliver the Building in a
shell condition, but with off-site improvements, HVAC, sprinkler systems,
elevator and inside drywall completed.

 

Landlord’s Representative: Donald C. Walter

 

Punch List Work: Minor details
of construction or decoration or mechanical adjustments that do not materially
interfere with Landlord’s delivery of the Premises in its agreed upon shell condition.

 

Ready for Delivery:  When Landlord’s architect has furnished
Landlord with a certificate that the work to be done by Landlord has been
substantially completed except for Punch List Work.

 

Tenant Delay: Any of the
following:

 

(a)
any delay resulting from Tenant’s failure to approve any matters requiring
approval in a timely manner;

 

(b)
any delay resulting from Change Orders, including any delay resulting from the
need to revise any drawings as a result of any Change Order; or

 

(c) any delay of any other
kind or nature in the completion of the Improvements caused by Tenant (or
Tenant’s agents or employees) or resulting from the performance of Tenant’s
Work by anyone other than Landlord or Landlord’s General Contractor.

 

Tenant’s Representative: Anita M. Robinson.

 

1

 

Unavoidable Delays: Delays due to
acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy and stormy weather, inability to obtain supplies, materials, fuels,
or permits, delays of contractors or subcontractors, or other causes or
contingencies beyond the reasonable control of Landlord.

 

Work Schedule: Parties agree
that upon execution of this Lease, Landlord shall authorize the completion of
working drawings for the construction of the Improvements, and shall diligently
apply for and obtain necessary permits and approvals and construct and complete
the Improvements, as defined herein, utilizing its best efforts to deliver the
Improvements to Tenant by                ,
20   , as may be extended by any Tenant delay.  Landlord shall consult with Tenant from time
to time concerning the scheduling and progress of each portion of Landlord’s
Work, so as to keep Tenant informed of the progress and estimated completion
date for any such portion of Landlord’s Work. 
Tenant’s Representative shall have the right at all reasonable times to
enter upon the Premises for the purpose of inspecting the Improvements to
verify conformity to the Working Plans.

 

Capitalized terms not
otherwise defined in this Work Letter will have the definitions set forth in
the Lease.

 

Section
2. Representatives

 

Tenant has designated the
Tenant’s Representative as the sole representative with respect to the matters
set forth in this Work Letter with full authority and responsibility to act on
behalf of the Tenant as required in this Work Letter. Landlord has designated
the Landlord’s Representative as the sole representative with respect to the
matters set forth in this Work Letter with full authority and responsibility to
act on behalf of Landlord as required in this Work Letter. Either party may
change the representative under this Work Letter at any time by giving ten (10)
days written notice to the other party.

 

Section
3. Procedure and Costs

 

Landlord and Tenant will
comply with the procedure outlined in this Section in preparing, delivering,
and approving matters relating to the Improvements to be constructed by
Landlord.

 

(a) Working Drawings.
Attached to this Work Letter as Schedule 1 are conceptual plans and
specifications (collectively, “Conceptual Plans”) for the construction of the
Improvements. These Conceptual Plans have previously been approved by Landlord
and Tenant. Landlord will cause to be prepared and delivered to Tenant final plans
and specifications and working drawings for the construction of the
Improvements that will include structural, sprinkler systems, elevator,  mechanical and electrical working drawings, and final
architectural drawings for the Improvements and the tenant improvements which
are the responsibility of Tenant under Section 6, below (collectively, “Final
Working Drawings”). The Final Working Drawings will substantially conform to
the Conceptual Plans, and Landlord shall deliver to Tenant along with the Final
Working Drawings an estimated cost breakdown (“Cost Estimates”) outlining the
anticipated costs of the Improvements (“Landlord’s Work”), and the tenant
improvement work for which Tenant is responsible as set forth in Section 6,
below (“Tenant’s Work”).  Landlord

 

2

 

shall also deliver an
estimated work schedule (“Work Schedule”) for the completion of both the
Improvements and such portions of Tenant’s work as may be completed by Landlord
or Landlord’s general contractor.  No
later than ten (10) days after receipt thereof, Tenant must either approve the
Final Working Drawings, Cost Estimates and Work Schedule, or set forth in
writing with particularity any changes necessary to bring the Final Working
Drawings into substantial conformity with the Conceptual Plans or to modify the
Cost Estimates for Tenant’s Work or the Work Schedule. However, Tenant will not
unreasonably withhold approval, or object to any logical development or
refinement of the Conceptual Plans or any changes necessitated by applicable
law. Failure of Tenant to deliver to Landlord written notice of disapproval and
the required changes on or before the ten (10)-day timeline will constitute and
be deemed approval of the Final Working Drawings, Cost Estimate and Work
Schedule. Upon approval, actual or deemed, of the Final Working Drawings by
Landlord and Tenant, the Final Working Drawings will be referred to as the “Approved
Working Drawings.”

 

(b) General Contractor.
Landlord intends to execute a construction contract with General Contractor
relating to construction of the Improvements.

 

(c) Construction of
Improvements. Promptly following finalization and approval of the Approved
Working Drawings, Landlord will apply for and use reasonable efforts to obtain
the necessary permits and approvals to allow construction of the Improvements.
Landlord will construct and complete the Improvements substantially in
accordance with the Approved Working Drawings.

 

(d) Changes. If
Tenant desires any changes, alterations, or additions to the Approved Working
Drawings, Tenant must submit a detailed written request to Landlord (“Change
Order”). If construction of the portion of the Improvements Tenant seeks to
change has not commenced and if the requested changes are reasonable and
practical and generally consistent with the Approved Working Drawings, Landlord
will seek to comply with the Change Order. However, Tenant is obligated to
reimburse Landlord for all increases, costs incurred by Landlord as a result of
changes in accordance with the procedure set forth below, and additional
expenses incurred by Landlord as a result of Tenant Delays, including, without
limitation, loss of rents, architecture fees, increases in construction costs,
and other proper charges caused by delay. Under no circumstance will Landlord
be required to undertake any change, alteration, or addition to the Approved
Working Drawings prior to the execution of a Change Order by Tenant’s
Representative. If any additional plans, drawings of specifications, or
modifications of those items are required as a result of a Change Order, they
will be prepared and approved in the manner set forth in Section 3(a).

 

Section
4. Payment

 

All amounts payable by
Tenant to Landlord pursuant to this Work Letter will be paid by Tenant within
ten (10) calendar days after the rendering to Tenant of a bill by Landlord.
Tenant’s failure to pay in the ten (10) day time period will constitute an
Event of Default under the Lease, and all amounts will then bear interest from
the date due until paid at the Applicable Interest Rate.

 

3

 

Section
5. Ready for Delivery

 

When the Improvements are
Ready for Delivery, Landlord will prepare and deliver in duplicate to Tenant a
certificate in the form of attached Exhibit E (“Completion Certificate”)
certifying that the Improvements are substantially complete in accordance with
the Approved Working Drawings and the date of that completion. The Completion
Certificate must be certified by Landlord’s architect. Upon receipt by Tenant
of the Completion Certificate, the Improvements will be deemed delivered to
Tenant for all purposes of the Lease, including, without limitation,
commencement of Rent and other obligations. However, if Landlord is delayed in
substantially completing any of the work for which Landlord is responsible as a
result of any Tenant Delay, the Term and Tenant’s obligation to pay Rent will
be accelerated by the number of days of the Tenant Delays, and Tenant must
reimburse Landlord for any additional costs and expenses incurred by Landlord
as a result of the Tenant Delays. Landlord will diligently complete any Punch
List Work. In the event of any dispute as to substantial completion of work
performed or required to be performed by Landlord, the certificate of Landlord’s
architect will be conclusive. Substantial completion will have occurred
notwithstanding Tenant’s submission of a punch list to Landlord, which Tenant
must submit, within thirty (30) days after the Commencement Date.

 

Section
6. Tenant’s Work

 

Upon (or before) receipt of
the Completion Certificate, Tenant will diligently proceed to construct and
install in the Improvements the materials and improvements that are more
particularly described on the Approved Working Drawings as being the
responsibility of Tenant (the work to be completed by Tenant is referred to as “Tenant’s
Work”), substantially in accordance with the Approved Working Drawings. Tenant
will utilize Landlord’s Contractor to perform the Tenant’s Work, up to the
extent of the Work Allowance set forth in Section 6(c), below.  If the Tenant’s Work exceeds the allowance,
Tenant shall either continue to utilize Landlord or Landlord’s Contractor
to  provide the Tenant’s Work, or to hire
its own general contractor, but Landlord shall have the right to approve the
general contractor.  All of Tenant’s Work
will be performed and in all respects be subject to the terms and conditions of
the Lease (to the extent not inconsistent with this Work Letter), and will also
be subject to the following conditions:

 

(a) Architect
Requirements. The parties acknowledge that the Architect employed by
Landlord for site planning and other architectural services relating to the
design of the Improvements (including the building in a shell condition), shall
either be RRM Design Group or Fraser-Seiple in San Luis Obispo (at the sole
option of Landlord), and that some of said services (i.e., Tenant Improvement
work in the slab) may include certain aspects of Tenant’s Work.  Tenant may hire its own Architect for site
planning and other architectural services related to Tenant’s Work, provided
that the  Architect shall be duly
licensed in California and shall be subject to Landlord’s prior written
approval, which shall not be unreasonably withheld.

 

(b) Tenant’s Work
Allowance.  Landlord agrees to
contribute up to, but not to exceed, $300,000.00 of Tenant’s actual costs
incurred in performing Tenant’s Work (the “Construction Allowance”), which
shall be deducted from the first $300,000.00 in invoices from Landlord’s

 

4

 

Contractor.  Landlord shall provide copies of said
invoices for Tenant’s review and reasonable approval, and shall further obtain
a breakdown of any invoices which include both aspects of the improvements to
be constructed by Landlord per Section 3, above, and the Tenant’s Work to be
constructed under this Section 6, including any plans, architectural services
or permit fees, which relate to the Tenant’s Work. At such time as these invoices
reach $300,000.00, Tenant shall be responsible to pay any invoices in excess of
that amount thereafter, within ten (10) days of receipt from Landlord or
Landlord’s Contractor.

 

(c) Costs and Expenses of
Tenant’s Work. Subject to the provisions of Section 6(b), above, Tenant
will promptly pay all costs and expenses arising out of the performance of
Tenant’s Work (including the costs of permits) and will furnish Landlord with
evidence of payment on request. Tenant will provide Landlord with ten (10) days
prior written notice before commencing any Tenant Work by any contractor other
than Landlord or Landlord’s contractor. 
In the event any of Tenant’s Work is performed by other contractors,
then on completion of Tenant’s Work, Tenant will deliver to Landlord a release
and waiver of lien executed by each contractor, subcontractor, and material
supplier concerned with Tenant’s Work. If any lien is filed against the
Premises or against Tenant’s leasehold interest, Tenant will obtain, within ten
(10) days after the filing, the release or discharge of that lien. If Tenant
fails to do so, Landlord may obtain the release or discharge of the lien and
Tenant must indemnify Landlord for the costs, including reasonable attorney
fees, together with interest at the Applicable Interest Rate from the date of
demand.

 

(d) Indemnification.
Tenant will indemnify, defend (with counsel satisfactory to Landlord), and hold
Landlord harmless from all suits, claims, actions, loss, cost, or expense
(including claims for workers’ compensation, attorney fees, and costs) based on
personal injury or property damaged or contract claims (including, but not
limited to, claims for breach of warranty) arising from the performance of
Tenant’s Work by anyone other than Landlord or Landlord’s contractor. Tenant
will repair or replace (or, at Landlord’s election, reimburse Landlord for the
cost of repairing or replacing) any portion of the Improvements or item of
Landlord’s equipment or any of Landlord’s real or personal property damaged,
lost, or destroyed in the performance of Tenant’s Work  by anyone other than Landlord or Landlord’s
contractor.

 

(e) Insurance. Tenant’s
contractors will obtain and provide Landlord with certificates evidencing
Worker’s Compensation, public liability, and property damage insurance in
amounts and forms and with companies satisfactory to Landlord.

 

(f) Rules and Regulations.
Tenant and Tenant’s contractors will comply with any other rules, regulations,
or reasonable requirements that Landlord or General Contractor may impose.
Tenant’s agreement with Tenant’s contractors will require each contractor to
provide daily cleanup of the construction area to the extent that cleanup is
necessitated by the performance of the Tenant’s Work.

 

(g) Condition of Tenant’s
Work. All work performed by Tenant’s contractors will be performed in a
professional and workmanlike manner, using new high quality materials, all in
accordance with construction industry standards.  Such work will be free from defects in
design,

 

5

 

materials, and workmanship,
and will be completed in strict compliance with the Approved Working Drawings.

 

Section 7. Effect of Delays

 

Any delay in any deadlines
established by Landlord for the completion of the work (“Work Deadlines”),
including any item that must be redone due to Tenant’s disapproval, will
automatically delay all subsequent deadlines by the same amount of time. To the
extent that any delay has been caused by Tenant, the Commencement Date for all
purposes under the Lease will be the date the Improvements would have been
Ready for Delivery absent the Tenant Delays.

 

Section
8. No Agency

 

Nothing
contained in this Letter will make or constitute Tenant as the agent of
Landlord.

 

Section
9. Miscellaneous

 

All references in this
Letter to a “number of days” means to calendar days. In all instances where
Tenant’s approval is required, if no written notice of disapproval is given
within the applicable time period, at the end of that period Tenant will be
deemed to have given approval and the next succeeding time period will
commence. If any item requiring approval is disapproved by Tenant in a timely
manner, the procedure for preparation of that item and approval will be
repeated.

 

	
  IN WITNESS WHEREOF, the
  parties have executed this Work Letter as of the date of the Lease.

  

 

	
   

  	
   

  	
   

  
	
  LANDLORD:

  	
  TENANT:

  	
   

  
	
   

  	
   

  	
   

  
	
  WALTER BROS.

  	
  MISSION COMMUNITY BANK,

  	
   

  
	
  CONSTRUCTION CO., INC.,

  	
  a California corporation

  	
   

  
	
  a California corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Donald C. Walter

  President

  	
   

  	
  Anita M. Robinson

  President and CEO

  	
   

  
	
   

  	
   

  	
   

  
							

 

  

6

 

 

EXHIBIT
C

 

COMMENCEMENT DATE MEMORANDUM

 

 

[Address
of landlord]

 

Dear [name],

 

With
respect to the lease (“Lease”) between Mission Community Bank, a California
corporation, (“Tenant”), and Walter Bros. Construction Co., Inc., (“Landlord”),
by which Landlord leased to Tenant and Tenant leased from Landlord
approximately __________ [rentable]
square feet of the building located at [address
of premises] (“Premises”) in accordance with a Lease dated [date of lease],
Tenant acknowledges and certifies to Landlord as follows:

 

(1)
The Lease commenced on [date of
commencement] (“Commencement Date”);

(2)
The Premises contain [number]
square feet of space; and

(3) Tenant has accepted and
is currently in possession of the Premises.

 

IN
WITNESS WHEREOF, this Commencement Date Memorandum is executed on [date].

 

 

	
  TENANT:

  
	
   

  
	
  [Name and capacity of
  tenant]

  
	
   

  
	
  By:

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   

  
	
   

  	
   

  
	
  Its:

  	
   

  
			

 

 

EXHIBIT
D

 

ESTOPPEL CERTIFICATE

 

TO:                      

                              

                              

                              

        Attn:                  

 

 

                         
(“Tenant”) hereby certifies as follows:

 

 

1.             The
undersigned is the Tenant under that certain Lease dated            ,
20  , and amended on             ,
20   (collectively herein, the “Lease”), executed by                                         
(“Landlord”), as Landlord, and the undersigned, as Tenant, regarding all of the
 real property located at                     
                                                                           
(the “Property”) and the Building (collectively referred to as the “Premises”).

 

2.             The
term of the Lease commenced on            ,
20   and the initial expiration date of the Lease is           ,
20  .  Tenant has accepted
possession and taken occupancy of the entire Premises; the term of the Lease
has commenced; Tenant has commenced payment of Base Rent and additional rent
for all spaces subject to the Lease.

 

3.             The
current monthly Base Rent (not including any additional rent) payable under the
Lease is                                     
Dollars ($           ).  Tenant has paid Base Rent through                ,
20  ; the next payment of Base Rent is due on               ,
20  .

 

4.             The
current amount of additional rent payable by Tenant is             
                  
Dollars ($           ).  Tenant has paid its additional rent through                  ,
20  ; the next payment of Additional Rent is due on               ,
20  .

 

5.             The
Lease provides for          
option(s) to extend the term of the Lease, each for              
year(s).  The Base Rent for each such
extension term is as follows (if none, state “NONE”):                                              .  Except as expressly provided in the Lease for
the above option(s), Tenant has no right or option to renew or extend the term
of the Lease.

 

6.             A
true, correct and complete copy of the Lease (including all amendments, modifications
and supplements thereto) is attached hereto and the Lease is in full force and
effect, and represents the entire agreement between Tenant and Landlord with
respect to the Premises.  There are no
other agreements, amendments, modifications or supplements to the Lease,
whether oral or written, between Tenant and Landlord, or any other party, with
respect to

 

1

 

the Premises
except as follows (include the date of any such agreement, amendment, modification
or supplement; if none, state “NONE”):                                    .

 

7.             To
Tenant’s actual present knowledge, as of the date hereof (a) Landlord is not in
any respect in default in the performance of the terms and provisions of the
Lease and no event has occurred which with the giving of notice or the passage
of time or both would constitute a default by Landlord under the Lease, except
as follows (if none, state “NONE”):                                                               ,
and (b) Tenant is not in any respect in default in the performance of the terms
and provisions of the Lease and no event has occurred which with the giving of
notice or the passage of time or both would constitute a default by Tenant
under the Lease, except as follows (if none, state “NONE”):                                                               .

 

8.             Tenant’s
interest in the Lease has not been assigned, sublet, licensed, and hypothecated
(and Tenant has not agreed to do any of the foregoing), except as follows (if
none, state “NONE”):                                                 .  Tenant has not received notice and is not
aware of any prior transfer, assignment, hypothecation or pledge by Landlord of
any of Landlord’s leasehold interest in the Project or in the Lease.

 

9.             To
Tenant’s actual present knowledge, as of the date hereof, there are no
defenses, offsets, claims, counterclaims or credits against Base Rent or
additional rent payable under the Lease and no free periods or rental
concessions have been granted to Tenant, except as follows (if none, state “NONE”):
                                                              .

 

10.           To
Tenant’s actual present knowledge, as of the date hereof, there are no actions,
voluntary or otherwise, pending or threatened against Tenant under the
bankruptcy, reorganization, moratorium or similar laws of the United States,
any state thereof or any other jurisdiction.

 

11.           Tenant
is not aware of any work to be performed by or on behalf of Landlord under the
Lease that has not been completed in accordance with the Lease except as
follows (if none, state “NONE”):                                                                      ,
and all reimbursements and allowances due to Tenant under the Lease in
connection with any work have been paid in full except as follows (if none,
state “NONE”):                                                         .

 

12.           The
Security Deposit being held by Landlord under the Lease is $              .

 

13.           This
Certificate is given to                                 
with the understanding that                           
will rely hereon in connection with the conveyance and/or encumbrance of the
Project of which the Premises constitute a part to                            .  Following any such conveyance and/or
encumbrance, Tenant 

 

2

 

agrees that the
Lease shall remain in full force and effect and shall bind and inure to the
benefit of                                            
and its successor in interest as if no purchase or encumbrance had occurred.

 

14.           Any
initially capitalized term not otherwise defined herein shall have the same
meaning as set forth in the Lease.

 

 

DATED:            ,
20                               “TENANT”

 

 

 

	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [Print Name]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [Print Title]

  	
   

  
				

 

 

 

 

[ATTACH
LEASE AND AMENDMENTS TO THIS CERTIFICATE]

 

 

EXHIBIT
E

 

LANDLORD’S COMPLETION CERTIFICATE

 

 

                                                         
[Tenant’s name and address]

                                                         

                                                         

 

Re:                                                   
[Description of Leased Premises] (“Project”)

 

 

Dear                                   :

 

                Pursuant to
Section 5 of the Work Letter attached as Exhibit B to the Lease (“Lease”) dated
as of                      [date], between the undersigned, as Landlord,
and                                 
[Tenant’s name and capacity], as Tenant, the Landlord notifies you that as of                              
[date], the Improvements (as defined in the Lease) became Ready for Delivery
(as defined in the Lease).

 

                The Landlord
certifies that the Improvements are substantially complete in accordance with
the Approved Working Drawings (as defined in the Lease).

 

 

 

	
   

  	
   

  	
   

  
	
   

  	
  Landlord’s signature

  	
   

  
	
   

  	
  [name and capacity]

  	
   

  

 

3Exhibit 4.1

 

SECURED TERM LOAN NOTE

 

	
  $10,000,000

  	
   

  	
  October 17, 2007

  
	
   

  	
   

  	
  Minneapolis,
  Minnesota

  
	
   

  	
   

  	
   

  

 

FOR VALUE RECEIVED, the
undersigned, ADVANCED BIOENERGY, LLC,
a Delaware limited liability company (as more fully defined below, “Borrower”),
hereby unconditionally promises to pay to the order of PJC CAPITAL
LLC, a Delaware limited
liability company (including its successors, assigns, pledgees,
transferees and participants, collectively, “Lender”), on or before the
Maturity Date on the dates, in the manner and otherwise in accordance with the
terms and conditions of this Note the principal sum of TEN MILLION DOLLARS
($10,000,000), on the terms and conditions set forth herein, together with all
accrued but unpaid interest thereon computed as set forth below and all unpaid
fees, expenses, indemnities and other advances connected herewith. Capitalized
terms used but not otherwise defined herein shall have the meaning given to
them in Section 13.

 

1.                                       Accrual
and Imposition of Interest. All amounts outstanding hereunder shall bear
interest (computed daily until paid, both prior to and after the Maturity Date
and prior to and after any bankruptcy or insolvency of Borrower) at a per annum
rate equal to 13.0% from the date hereof until July 15, 2008 and 15.0% thereafter.
Upon the occurrence and during the continuation of any Event of Default
hereunder, to the maximum extent not prohibited by applicable law, Lender (at
Lender’s election) may increase the interest rate hereunder by 3.0% per annum
in excess of the rate then otherwise applicable hereunder (provided
that, if the relevant default relates to the insolvency or bankruptcy of
Borrower, then such rate increase (to the maximum extent not prohibited by
applicable law) will occur automatically without any action by Lender). Interest
hereunder will be calculated, accrued, imposed and payable on the basis of a
360-day year for the actual number of days elapsed. Unless prohibited by
applicable law, interest hereunder will be compounded (and added to the
outstanding balance hereunder) quarterly, on the last calendar day of each
calendar quarter.

 

2.                                       Payments
at Maturity. Borrower shall pay Lender the entire outstanding balance
hereunder together with all accrued but unpaid interest hereunder and all fees,
expenses, indemnities and other advances in connection herewith or any other
Loan Document on the date of the earlier to occur of the following (the “Maturity
Date”):  (a) October 16, 2008, and
(b) the occurrence of a Change of Control and (c) the date of
acceleration of the maturity of the Obligations pursuant to Section 14
(whether automatically or at Lender’s election after notice to Borrower)
following the occurrence of an Event of Default.

 

3.                                       Voluntary
Prepayments. At any time, upon advance written notice to Lender of at least
3 Business Days, Borrower may prepay outstanding balances hereunder in whole or
in part without penalty or premium. Any voluntary partial prepayment must be in
an amount of not less than $500,000 (or such lesser amount equal to the then
outstanding principal balance of this Note) or in multiples of $100,000 in
excess thereof. Amounts prepaid pursuant to this Section 3 shall be
applied to the Obligations in accordance with Section 7.

 

4.                                       Mandatory
Prepayments. If Borrower or ABE Fairmont (a) sells, leases, licenses
pursuant to an exclusive license, transfers or otherwise disposes of any assets
(other than (i) inventory sold in the ordinary course of business and (ii)
other dispositions of assets not exceeding an aggregate fair market value of
$1,000,000 during any 12 consecutive calendar month period), (b) issues any
Equity Interests (other than “Excluded Units”, as such term is defined in the
Warrant as in effect on the date hereof)

 

 

or (c) issues
any debt securities or notes (other than Indebtedness permitted hereunder),
Borrower shall (except for Net Cash Proceeds of dispositions of assets of ABE
Fairmont that are required to be applied pursuant to the applicable mandatory
prepayment provisions relating to dispositions of assets of ABE Fairmont either
under the CoBank Loan Documents or the Wells Fargo Loan Documents, in each case
as in effect on the date funds are first advanced under this Note) immediately
prepay the outstanding Obligations under this Note without penalty or premium
in an amount equal to 100% of the resulting Net Cash Proceeds from such sale or
other disposition of assets or such issuance of equity or debt securities, as
the case may be. Net Cash Proceeds prepaid pursuant to this Section 4
shall be applied to the Obligations in accordance with Section 7.

 

5.                                       Funding
Advances. At the written request and expense of Borrower, Lender will wire
transfer all or any portion of the advances hereunder in accordance with
written instructions therefor. By executing this Note, Borrower hereby requests
Lender to make and fund the initial advances in accordance with the funding
instructions that have been provided to Lender in writing.

 

6.                                       Mechanics
of Payment. All payments and other amounts due hereunder must be received
by Lender by wire transfer in immediately available funds in Dollars (and
without any deduction, offset, netting, counterclaim or reservation of rights)
on or before 2:00 p.m. Central Time on the due date therefor at the principal
office of Lender located at 800 Nicollet Mall, Minneapolis, MN  55402, Attention Tim Carter or Greg Meyer, or
at such other location as Lender at any time or from time to time may designate
to Borrower in writing. Any funds received by Lender after 2:00 p.m. Central
Time on any day will be deemed to be received on the next succeeding Business
Day. Whenever any payment to be made hereunder is due on a day that is not a
Business Day, then such payment may be made on the next succeeding Business
Day, and such extension of time will be included in the computation of interest
due hereunder.

 

7.                                       Application
of Payments. All payments and other funds received by Lender hereunder will
be applied in the following order:  (a)
to the payment of any fees and charges due under the Loan Documents, then
(b) to any obligations for the payment of expenses, costs and indemnities due
under the Loan Documents, then (c) to the payment of interest due and
owing hereunder, then (d) to the principal indebtedness due hereunder, then
(e) to any other interest accrued hereunder, then (f) to any other
indebtedness of Borrower to Lender under the Loan Documents.

 

8.                                       Capital
Adequacy, Taxes and Other Adjustments. If Lender determines that (a) the
adoption, implementation or interpretation after the date hereof of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline,
directive, policy or order regarding capital adequacy, reserve requirements,
taxes or similar requirements, or (b) the compliance by Lender or any entity
controlling or funding the operations of Lender with any request or directive
regarding capital adequacy, reserve requirements, taxes or similar requirements
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) from any central bank, governmental agency,
controlling entity, funding source or body, in either instance, would have the
effect of increasing the amount of capital, reserves, taxes, funding costs or
other funds required to be maintained or paid by Lender and thereby have the
effect of reducing the rate of return on Lender’s capital as a consequence of
its obligations hereunder, then Borrower must pay to Lender additional amounts
sufficient to compensate Lender for such reduction. Lender will notify Borrower
of any such determination and payment amount within a reasonable period of time
thereafter, and (upon written request) Lender will furnish a statement setting
forth the basis and the method for determining the amount of such payment. Any
such determination or calculation by Lender will be conclusive absent manifest
error.

 

2

 

9.                                       Miscellaneous
Additional Payment Terms, Including Ability to Re-Borrow. Principal amounts
repaid or prepaid hereunder will not be available for re-borrowing under the
terms hereof. To the extent Lender notes the date or amount of any payment
hereunder on a schedule annexed hereto, then such notations shall constitute
prima facie evidence of the information noted on such schedule, but the failure
of Lender to make any such notation will not limit or otherwise affect the
obligations or liabilities of Borrower hereunder.

 

10.                                 Usury
Savings Provision. Notwithstanding any provision of any Loan Document,
Borrower shall not be required to pay interest at a rate or any fee or charge
in an amount prohibited by applicable law. If interest or any fee or charge
payable on any date would be in a prohibited amount, then such interest, fee or
charge will be automatically reduced to the maximum amount that is not
prohibited, and any interest, fee or charge for subsequent periods (to the
extent not prohibited by applicable law) will be increased accordingly until
Lender receives payment of the full amount of each such reduction. To the
extent that any prohibited amount is actually received by Lender, then such
amount will be automatically deemed to constitute a repayment of principal
indebtedness hereunder.

 

11.                                 Affirmative
and Negative Covenants. Borrower hereby covenants and agrees that, until
this Note has been Paid in Full, Borrower will comply with the following
covenants:

 

(a)                                  Delivery
of Periodic Financial Information. Within 30 calendar days after the end of
each month (including the last month of each fiscal quarter and of each fiscal
year), Borrower shall deliver to Lender a set of consolidated financial
statements for such immediately preceding month (in form and substance
reasonably acceptable to Lender) including a balance sheet, income statement
and statement of cash flows for Borrower and its Subsidiaries (with appropriate
exhibits and schedules). Together with the monthly financial statements, Lender
must also receive a certificate executed by the chief financial officer of
Borrower as is acceptable to Lender (1) stating that the financial
statements have been prepared in accordance with GAAP (except for the absence
of footnotes and for customary, nonmaterial year-end adjustments) and fairly
present the consolidated financial condition of Borrower and its Subsidiaries
as of the date thereof and for the periods covered thereby and
(2) certifying that as of the date of such certificate there is not any
existing Default or Event of Default.

 

(b)                                 Delivery
of Financial Statements. Within 90 calendar days after each fiscal year,
Borrower shall deliver to Lender a complete set of annual consolidated and
consolidating financial statements for Borrower and its Subsidiaries (with
accompanying notes), in reasonable detail and in comparative form. Such
financial statements (1) must be prepared in accordance with GAAP
consistently applied, and (2) must be audited by McGladrey &
Pullen, LLP or another independent certified public accounting firm
satisfactory to Lender. Together with the annual financial statements, Lender
must also receive all related management letters, if any, prepared by such
accountants, and such financial statements shall be accompanied by a report of
such accountants, which report shall be without limitation as to the scope of
the audit and shall state that such financial statements present fairly, in all
material respects, the financial position of Borrower and its Subsidiaries in
conformity with GAAP as of the date thereof and for the periods covered
thereby.

 

(c)                                  Other
Information; Access. From time to time, Borrower shall provide Lender with
any other information (financial or otherwise) about Borrower or any of its
Subsidiaries reasonably requested by Lender. From time to time (upon request by
Lender), Borrower shall provide Lender and its agents with reasonable access to
the management personnel, books and records, property and operations (including
its financial records) of Borrower and its Subsidiaries, whether such property,
books and records are in the possession of Borrower or are in the possession of
a third party.

 

3

 

(d)                                 Compliance
with Laws; Existence and Good Standing. Borrower shall, and shall cause
each of its Subsidiaries to, comply in all material respects with all laws,
rules, regulations and orders (federal, state, local and otherwise) that are
applicable to Borrower, or any Subsidiary of Borrower, including all applicable
Environmental Control Statutes and ERISA. Borrower shall, and shall cause each
of Subsidiaries to, preserve and maintain (1) such Person’s existence as an
organization in good standing under the applicable laws of such Person’s
jurisdiction of organization, and (2) such Person’s qualification in
good standing to conduct business in all jurisdictions where it conducts
business and as to which the failure to be in good standing could reasonably be
expected to have a Material Adverse Effect, and (3) the validity of all
such Person’s authorizations and licenses required or otherwise appropriate in
the conduct of such Person’s businesses and as to which the failure to have
such valid authorization or license could reasonably be expected to have a
Material Adverse Effect.

 

(e)                                  Books
and Records; Maintenance of Properties. Borrower shall, and shall cause
each of Subsidiaries to, keep and maintain accurate books and records of
account in accordance with GAAP. Borrower shall, and shall cause each of
Subsidiaries to, keep, maintain and preserve all of its material assets in good
order and repair (ordinary wear and tear excepted) and fully insured by
reputable and financially sound insurance companies with coverages that are
customary for Borrower’s or such Subsidiary’s industry (and reasonably
acceptable to Lender).

 

(f)                                    Transactions
with Affiliates. Borrower shall not, and shall not permit any of its
Subsidiaries to, engage in any transaction (including employment, management
and/or other compensation arrangements) with any Person who is an Affiliate of
Borrower or any of its Subsidiaries other than (a) reasonable and
customary compensation arrangements in the ordinary course of business with its
officers and directors, to the extent permitted hereunder and
(b) transactions on a basis no more favorable to such Affiliate then would
be obtained in a comparable arm’s length transaction with a Person not an
Affiliate of Borrower or any of its Subsidiaries and disclosed to Lender in
writing prior to entering into any such transaction.

 

(g)                                 Indebtedness
and Guaranties. Borrower shall not, and shall not permit ABE Fairmont to,
(1) create, incur, assume or permit to exist any additional Indebtedness or
liabilities or (2) guarantee, assume or otherwise be or agree to
become directly or indirectly liable in any way for any additional indebtedness
or liability of any other Person, except (i) Indebtedness and guarantees in
favor of Lender; (ii) trade debt and customary operating expenses incurred and
paid by such Person in the normal and ordinary course of business;
(iii) Indebtedness incurred to purchase fixed or capital assets and
Capital Leases, consistent with the restrictions and conditions in Section
11(h)(2), provided that the aggregate amount of such Indebtedness
outstanding under this clause (iii) at any time may not exceed $3,000,000;
(iv) Indebtedness under the CoBank Loan Documents in an amount not to
exceed $103,000,000 in the aggregate outstanding at any time; (v) the
Indebtedness listed on Schedule 11(g) attached to this Note; (vi)
Indebtedness under the Wells Fargo Documents in an amount not to exceed
$7,000,000 in the aggregate outstanding at any time; (vii) Indebtedness under
the ECM Loan Documents in an amount not to exceed $25,929,436;
(viii) extensions, refinancings and renewals of any of the Indebtedness
permitted by the foregoing clauses, provided that the principal amount
of such Indebtedness shall not be increased or the terms of such Indebtedness
modified to impose more burdensome terms upon Borrower or any of its
Subsidiaries; (ix) other unsecured Indebtedness of Borrower in an amount
not to exceed $3,000,000 in the aggregate outstanding at any time; and
(x) other unsecured Indebtedness of ABE Fairmont in an amount not to
exceed $5,000,000 in the aggregate outstanding at any time.

 

(h)                                 Liens.
Borrower shall not, and shall not permit ABE Fairmont to, create, permit or
suffer the creation or existence of any Liens on any of its property or assets
(real or personal, tangible or intangible), except (1) Liens in favor of
Lender; (2) Liens arising in favor of sellers, lessors or other

 

4

 

financial
institutions for indebtedness and obligations incurred to purchase or lease
fixed or capital assets as permitted under Section 11(g)(iii), provided
that such Liens secure only the indebtedness and obligations created thereunder
(but not any related monetary obligations under non-compete and consulting
arrangements) and are limited to the assets purchased or leased pursuant
thereto and the proceeds thereof; (3) Liens for taxes, assessments or other
governmental charges (federal, state or local) that are not yet delinquent or
that are then being currently contested in good faith by appropriate
proceedings diligently prosecuted, provided that (i) adequate
reserves therefor in accordance with GAAP have been established, and
(ii) such Liens could not reasonably be expected to have or cause a Material
Adverse Effect, (4) deposits or pledges made in the ordinary course of business
to secure obligations which are not overdue in respect of under workmen’s
compensation, unemployment insurance or social security laws or similar
legislation; (5) deposits to secure performance or payment bonds, bids,
tenders, contracts, leases, franchises or public and statutory obligations
required in the ordinary course of business; (6) statutory or common law liens
of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen, and landlords
incurred in the ordinary course of business and in existence less than 120 days
from the date of creation thereof in respect of obligations not past due or
sums being currently contested in good faith by appropriate proceedings
diligently prosecuted, provided that (A) adequate reserves therefor
in accordance with GAAP must have been established, and (B) such Liens could
not reasonably be expected to have or cause a Material Adverse Effect; (7)
easements, rights-of-way, restrictions and other similar encumbrances on real
property owned or leased by Borrower and encumbrances evidencing the ownership
interest or title of any owner or lessor with respect to real property leased
by Borrower, provided that such Liens do not in the aggregate materially
interfere with the occupation, use or enjoyment by Borrower of the property or
assets encumbered thereby in the normal course of business or materially impair
the value of the property subject thereto; (8) Liens securing Indebtedness
permitted by Section 11(g)(iv) or Section 11(g)(vi); (9) the
Liens listed on Schedule 11(h) attached to this Note; (10) Liens arising
from judgments, decrees or attachments that do not constitute an Event of
Default; (11) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with the
importation of goods; (12) Liens arising solely by virtue of any statutory or
common law provision relating to banker’s liens, rights of setoff or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; (13) Liens in favor of a depository bank
or a securities intermediary pursuant to such depository bank’s or securities
intermediary’s customary customer account agreement; provided that any such
Liens shall at no time secure any indebtedness or obligations other than
customary fees and charges payable to such depository bank or securities
intermediary; and (14) Liens incurred in connection with the extension, renewal
or refinancing of indebtedness secured by Liens permitted under the preceding
clauses, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase.

 

(i)                                     Investments,
Acquisitions and Loans. Borrower shall not, and shall not permit ABE
Fairmont to, purchase or otherwise acquire (including by way of share exchange)
any part or share of the Equity Interests or equity ownership of, or acquire
all or substantially all of the assets or any division or similar operating
unit of, guaranty any Indebtedness of, or make any loan, advance or extension
of credit to, or contribute to the capital of, or make or permit to exist any
contribution, investment in or other interest in, any other Person
(collectively, “Investments”), except for: (1) government
and agency securities backed by the full faith and credit of the U.S. federal
government; (2) commercial paper of a U.S. domestic issuer rated at least A-1+
or A-1 by Standard & Poor’s Ratings Group or at least P-1 by Moody’s
Investor Services, Inc. and maturing not more than 90 calendar days from the
date of acquisition thereof; (3) certificates of deposit (maturing within 12
calendar months after the date of issuance), time deposits, other deposits and
bankers’ acceptances issued by or established with U.S. federally insured
commercial banks rated as “well capitalized” by their primary federal
regulators,

 

5

 

and having
unimpaired capital and unimpaired surplus (collectively) of at least
$250,000,000, and whose commercial paper (or commercial paper that is supported
by such bank’s letter of credit or commitment to lend) is rated at least A-1+
or A-1 by Standard & Poor’s Ratings Group or at least P-1 by Moody’s
Investor Services, Inc.; (4) loans and advances to employees of Borrower or any
of its Subsidiaries in the ordinary course of business not to exceed an
aggregate principal amount of $100,000 at any time outstanding; (5) Investments
set forth on Schedule 11(i) attached to this Note; (6) Investments
in Subsidiaries existing as of the date funds are first advanced under this
Note; (7)  Investment by Borrower of the
net proceeds of this Note in ABE Fairmont, (8) additional Investments in
Subsidiaries in an amount not to exceed $3,000,000 in the aggregate at any
time; and (9) repurchases of Equity Interests from former employees or managers
of Borrower under the terms of applicable repurchase agreements, including
repurchases effected by the cancellation of indebtedness owed to such former
employees of Borrower, in an aggregate amount not to exceed $100,000 during the
term of this Note, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to such repurchases or
cancellation of indebtedness.

 

(j)                                     Transfer
of Assets. Borrower shall not, and shall not permit ABE Fairmont to, sell,
lease, license pursuant to an exclusive license (whether or not fully paid up
front), transfer or otherwise dispose of all or a substantial part of its
assets or any asset the loss of which could reasonably be expected to have or
cause a Material Adverse Effect. In addition, Borrower shall not, and shall not
permit any of its Subsidiaries to, sell, lease, license, transfer or otherwise
dispose of any asset other than (1) pursuant to a transaction with an unrelated
third party in the normal and ordinary course of business for value received
and otherwise in accordance with the terms hereof that (together with all other
transactions during the immediately preceding 12 consecutive calendar months)
has a fair market value aggregating less than $1,000,000, provided that
no Default or Event of Default is then occurring or would otherwise be caused
thereby; (2) with respect to obsolete or replaced equipment no longer useful in
the operation of Borrower’s or any Subsidairy’s business, pursuant to a
reasonable and customary transaction with an unrelated third party and otherwise
in accordance with the terms hereof; or (3) dispositions of inventory, or
used, worn-out or surplus property, all in the ordinary course of business. Borrower
shall not, and shall not permit any of its Subsidiaries to, enter into any
sale-lease back transaction with respect to any of their respective assets.

 

(k)                                  Dividends,
Distributions and Redemptions. Except as permitted by Section 11(i)(9),
Borrower shall not declare or make (directly or indirectly) any payment or
distribution with respect to, or incur any liability for the purchase,
acquisition, redemption or retirement of, any of its equity interests
(including warrants therefor) or as a dividend, return of capital or other
payment or distribution of any kind to any holder of any such equity interest. Notwithstanding
the foregoing, so long as no Default or Event of Default then exists under the
Loan Documents or would otherwise be caused by the payment of such dividend,
Borrower may declare and distribute reasonable and lawful dividends to the
holders of its equity securities for the sole purpose of making Tax
Distributions to such holders of its Equity Interests.

 

(l)                                     New
Ventures; Mergers. Borrower shall not, and shall not permit ABE Fairmont
to, (1) enter into any new business activities or ventures not directly related
to its current business; (2) merge or consolidate with or into any other
corporation, partnership, limited liability company or other organization; or
(3) create or acquire (or cause or permit the creation or acquisition of) any
Subsidiary.

 

(m)                               Modifications
to Organizational Documents. Borrower shall not, and shall not permit ABE
Fairmont to, (1) amend or otherwise modify any of its Organizational Documents,
or (2) change its legal or official name, its operating names or the names under
which it executes contracts and conducts business, in each instance, if such
amendment or change could reasonably be expected to have

 

6

 

or cause an
adverse effect (including any adverse affect on the attachment or perfection of
any pledge or security interest in favor of Lender).

 

(n)                                 General
Insurance Provisions. Borrower shall, and shall cause ABE Fairmont to, keep
all of their respective property and assets fully covered by insurance with
reputable and financially sound insurance companies (reasonably acceptable to
Lender), and also maintain such protection against such hazards and liability
in such amounts and with such deductibles as is customary in the industry of
Borrower or ABE Fairmont and appropriate under the relevant circumstances and,
on the date that is 5 Business Days from the date hereof, and at all times
thereafter, shall name (with appropriate endorsements) Lender as an additional
insured with respect to policies of liability insurance. Upon Lender’s request,
Borrower from time to time will furnish Lender with proof of such insurance, in
form and substance acceptable to Lender, and a copy of the related policy or
policies.

 

(o)                                 Taxes.
Borrower shall, and shall cause ABE Fairmont to, pay and discharge all material
taxes, assessments or other governmental charges or levies imposed on it or any
of its property or assets prior to the date upon which any penalty for
non-payment or late payment is incurred, unless the same are then being contested
in good faith by appropriate proceedings diligently prosecuted, adequate
reserves therefor have been established in accordance with GAAP, and the
consequences of such non-payment could not reasonably be expected to have a
Material Adverse Effect.

 

(p)                                 Management
Changes. Borrower shall notify Lender in writing within 20 days after any
change (including any dismissal or change in title or status) in the senior
management personnel of Borrower or ABE Fairmont.

 

(q)                                 Litigation
and Administrative Proceedings. Borrower shall notify Lender in writing
promptly upon the institution or commencement of any litigation, legal or
administrative proceeding, any arbitration proceeding, or any labor controversy
against or involving Borrower or any of its Subsidiaries (1) with a purported
amount in controversy in excess of $250,000 (in excess of the amount of any
insurance coverage as to which the applicable insurer has accepted tender) or
(2) that could otherwise, if adversely determined, reasonably be expected
to have or cause a Material Adverse Effect.

 

(r)                                    Monitoring
Compliance. Borrower shall notify Lender in writing promptly, but in any
event within 5 calendar days, after obtaining knowledge of the occurrence or
existence of any Default or Event of Default hereunder.

 

(s)                                  Margin
Stock Restrictions; Other Federal Statutes. Borrower shall not, and shall
not permit ABE Fairmont to, use any of the proceeds hereunder, directly or
indirectly, to purchase or carry, or to reduce or retire any indebtedness that
was originally incurred to purchase or carry, any “Margin Stock” or for any
other purpose that might constitute the transactions contemplated hereby as a “Purpose
Credit” within the meaning of the Board of Governors of the Federal Reserve
Systems’ Margin Regulations. Borrower shall not, and shall not permit ABE
Fairmont to, engage as its principal business in the extension of credit for
purchasing or carrying Margin Stock. Borrower shall not, and shall not permit
ABE Fairmont to, cause or permit any Loan Document to violate any other
regulation of the Board of Governors of the Federal Reserve System or the
Securities and Exchange Commission or any provision of the Securities Act of
1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940
or the Small Business Investment Act of 1958, each as amended, or any rules or
regulations promulgated under any of such statutes.

 

7

 

(t)                                    Further
Assurances. From time to time, Borrower shall, and shall cause ABE Fairmont
to, execute and deliver (or will cause to be executed and delivered) such
supplements, amendments, modifications to and/or replacements of the Loan
Documents and such further instruments as may be reasonably required or
reasonably requested by Lender to effectuate the intention of the parties to
(or to otherwise facilitate the performance of) the Loan Documents.

 

(u)                                 Costs
and Expenses. Borrower shall pay or reimburse Lender for all fees and costs
(including all reasonable attorneys’ fees and disbursements) that Lender may
pay or incur in connection with (1) the preparation, negotiation and review of
the Loan Documents, any waivers, consents and amendments in connection herewith
or therewith and all other documentation related hereto or thereto, (2) the initial
and continuing perfection or protection of Lender’s interest in any of the
Collateral, (3) the collection or enforcement of any of the Loan Documents, (4)
the periodic examination of the books, records and operations of Borrower and
its Subsidiaries (including with respect to the Collateral), and (5) Lender’s
release of its interests in the Collateral in accordance with the terms of the
Loan Documents. Borrower shall pay any and all recordation taxes or other fees
due upon the filing of the financing statements or documents of similar effect
required to be filed under the Loan Documents, and shall provide Lender with a
copy of any receipt or other evidence reflecting such payments. All obligations
provided for in this Section 11(u) shall survive the termination of this
Note and the repayment of the Obligations hereunder.

 

(v)                                 Closing
Conditions. The obligation of Lender to make the advance contemplated to be
made under this Note on the date hereof is subject to the satisfaction or
waiver, on or before the date hereof, of the following conditions:

 

(i)                                     Documents.
Borrower and ABE Fairmont shall each have executed and/or delivered to Lender
each Loan Document to which it is a party, and such other certificates,
documents and agreements as Lender may reasonably request.

 

(ii)                                  Representations
and Warranties; No Default. The representations and warranties contained in
Section 12 and in the other Loan Documents shall be true on and as of
the date hereof, both immediately before and immediately after giving effect to
the consummation of the transactions contemplated hereby and there shall exist
on such day no Default or Event of Default, both immediately before and
immediately after giving effect to the consummation of the transactions
contemplated hereby.

 

(iii)                               Opinion.
Lender shall have received from Faegre & Benson, counsel to Borrower and
ABE Fairmont, an opinion letter regarding the Loan Documents and the financing
transaction contemplated thereby, in form and substance satisfactory to Lender.

 

(iv)                              Compliance
with Laws. The advance of the funds as contemplated by this Note on the
terms and conditions herein provided (including the use of the proceeds thereof
by Borrower) and the issuance of the Warrant shall not violate any applicable
law or governmental regulation and shall not subject Lender or the holder of
the Warrant to any tax, penalty or liability under or pursuant to any
applicable law or governmental regulation.

 

(v)                                 Consents.
Lender shall be satisfied that any and all material government, contractual and
other third-party licenses, approvals and consents necessary to the funding of
the advance contemplated by this Note, the issuance of the Warrant and the
granting of the security interest to Lender pursuant to the Collateral Security
Documents have been obtained.

 

8

 

(vi)                              Warrant.
Borrower have issued the Warrant to Lender in form and substance satisfactory
to Lender.

 

(vii)                           Origination
Fee. Borrower shall have paid to Lender an origination fee in the amount of
$200,000 by wire transfer in immediately available funds, which origination fee
shall be non-refundable and fully earned as of the date hereof.

 

(viii)                        Other
Fees and Expenses. Borrower shall have paid all fees required by Section
11(u) then due and owing.

 

(ix)                                Secretary’s
Certificate with Attachments. Borrower shall have, and shall have caused
ABE Fairmont to have, delivered to Lender certificates of the Secretary or an
Assistant Secretary and one other officer of each of Borrower and ABE Fairmont (with
incumbency), certifying the names and true signatures of the officers of such
Person authorized to sign the Loan Documents (and the Warrant, with respect to
Borrower) to which such Person is a party and the other documents to be
delivered hereunder to which such Person is a party, in form and substance
satisfactory to Lender, attaching (A) copies of the resolutions of the board of
directors or the sole member, as applicable, of each of Borrower and ABE
Fairmont, authorizing its execution and delivery of, and the performance of,
its respective obligations under the Loan Documents to which such Person is a
party (and the Warrant, with respect to Borrower), (B) certified copies of the
certificates of formation and operating agreements of each of Borrower and ABE
Fairmont; and (C) a good standing certificate for each of Borrower and ABE
Fairmont from the Secretary of State of the state of formation of each such
Person, each dated as of a recent date.

 

(x)                                   Officer’s
Certificate. Borrower shall have delivered a certificate of an officer of
Borrower having primary responsibility for financial matters, in form and
substance satisfactory to Lender, certifying as to the amount of outstanding
Indebtedness of each of Borrower and ABE Fairmont on an unconsolidated basis as
of the date hereof.

 

(xi)                                Perfection
of Security Interest. All actions necessary to perfect (and to maintain
perfection of) the Lien of Lender in the Collateral shall have been taken in
accordance with the terms and provisions of the Collateral Security Documents. The
Lien of Lender in the Collateral shall be valid and enforceable and the
Collateral shall be subject to no other Liens.

 

(xii)                             Material
Adverse Effect. No Material Adverse Effect shall have occurred.

 

(w)                               Independence
of Covenants. All covenants and defaults contained in this Note and the
other Loan Documents shall be given independent effect. If a particular action
or condition is not permitted by any covenant in this Note, then the fact that
such action or condition would be permitted by an exception to (or would
otherwise be within the limitations of) another covenant in this Note shall not
avoid the occurrence or existence of a Default or Event of Default if such
action is taken or if such condition exists.

 

12.                                 Representations
and Warranties. Borrower hereby represents and warrants to and for the
benefit of Lender as follows:

 

(a)                                  Organization
and Good Standing. Each of Borrower and each of its Subsidiaries (1) is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and (2) has all requisite limited
liability company power to own its properties and to

 

9

 

conduct its
business as now conducted and as currently proposed to be conducted, and
(3) is duly qualified to conduct business as a foreign limited liability
company and is currently in good standing in each state and jurisdiction in
which it conducts business, except where failure to be duly qualified
and in good standing could not reasonably be expected to have a Material
Adverse Effect.

 

(b)                                 Power
and Authority. Borrower has all requisite limited liability company power
and authority under applicable law and under its Organizational Documents to
execute, deliver and perform its obligations under the Loan Documents.

 

(c)                                  Validity
and Legal Effect. This Note constitutes, and the other Loan Documents to
which Borrower is a party constitute (or will constitute when executed and
delivered), the legal, valid and binding obligations of Borrower enforceable
against it in accordance with the terms thereof, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws and except as limited by general principles of equity.

 

(d)                                 No
Violation of Laws or Agreements. The execution, delivery and performance by
Borrower of the Loan Documents (1) will not violate or contravene any material
provision of any material law, rule, regulation, administrative order or
judicial decree (federal, state or local), (2) will not violate or
contravene any provision of the Organizational Documents of Borrower or any of
its Subsidiaries, (3) will not result in any material breach or violation of
(or constitute a material default under) any material agreement or instrument by
which Borrower or any of its Subsidiaries or any of their respective assets or
property may be bound, and (4) will not result in or require the creation of
any Lien (other than pursuant to the Loan Documents) upon or with respect to
any assets or properties of Borrower or any of its Subsidiaries, whether such
assets or properties are now owned or hereafter acquired.

 

(e)                                  Accuracy
of Financial Information. All financial statements previously furnished to
Lender concerning the financial condition and operations of Borrower and it
Subsidiaries: (1) fairly present in all material respects the financial
condition of the organization covered thereby as of the dates and for the
periods covered thereby, (2) disclose all material liabilities (contingent and
otherwise) of Borrower and its Subsidiaries, and (3) with respect to financial
statements prepared by or on behalf of Borrower and its Subsidiaries, have been
prepared in accordance with GAAP consistently applied.

 

13.                                 Definitions.
For purposes of this Note, the following terms have the following corresponding
meanings:

 

(a)                                  “ABE
Fairmont” means ABE Fairmont, LLC, a Delaware limited liability company and
wholly-owned Subsidiary of Borrower.

 

(b)                                 “Affiliate”
of any Person means any other Person that directly or indirectly controls, is
controlled by or is under direct or indirect common control with such Person. A
Person shall be deemed to “control” another Person if such first Person
directly or indirectly possesses the power to direct (or to cause the direction
of or to materially influence) the management and policies of the second
Person, whether through the ownership of voting securities, by contract or
otherwise. Without limiting the generality of the foregoing, each Person who
owns or controls 5% or more of any class or series of any equity interest of
such Person will be deemed to be an Affiliate of a Person. Notwithstanding the
foregoing, in no event shall Lender or any of its Affiliates be deemed to be an
Affiliate of Borrower or any of its Subsidiaries.

 

10

 

(c)                                  “Bankruptcy Code” means the
Federal Bankruptcy Reform Act of 1978, as codified under Title 11 of the
United States Code, and the Bankruptcy Rules promulgated thereunder, as
amended.

 

(d)                                 “Borrower”
means Advanced BioEnergy, LLC, a Delaware limited liability company, having its
principal and chief executive office at the address specified in Section 25,
and any successor or authorized assignee of any thereof.

 

(e)                                  “Business
Day” means any day that is not a Saturday, a Sunday or a day on which banks
under the laws of the States of Minnesota or New York are authorized or
required to be closed.

 

(f)                                    “Capital
Leases” means all leases that have been or should be recorded as
capitalized leases in accordance with GAAP.

 

(g)                                 “Change
of Control” means shall mean the occurrence of an event, or series of
events, which shall lead, or has led to (a) any “person” or any syndicate or
group deemed a “person” within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), has
become, directly or indirectly, the “beneficial owner” (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have “beneficial ownership” of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), of 30% or more of the voting power of the voting stock of
Borrower on a fully-diluted basis, after giving effect to the conversion and
exercise of all outstanding warrants, options and other securities of Borrower
(whether or not such securities are then currently convertible or exercisable),
or (b) during any period of 2 consecutive calendar years, individuals who at
the beginning of such period constituted the board of directors (or similar
governing body) of Borrower cease for any reason (other than death, disability
or expiration of term) to constitute a majority of the board of directors (or
similar governing body) of Borrower then in office unless such new directors
(or similar) were elected by the directors (or similar) of Borrower who
constituted the board of directors (or similar governing body) of Borrower at
the beginning of such period, or (c) the failure of Borrower to own 100% of the
equity interests of each of its Subsidiaries on a fully-diluted basis.

 

(h)                                 “CoBank
Loan Documents” means, collectively, (i) that Master Loan Agreement dated
as of November 20, 2006 between Farm Credit Services of America, FLCA (“Farm
Credit”) and ABE Fairmont as amended by an Amendment dated on or about October
5, 2007 (the “11/20/06 MLA”), as further amended and supplemented by that (1)
Construction and Term Loan Supplement to the MLA dated as of November 20, 2006
between Farm Credit and ABE Fairmont with respect to a construction and term
loan in an amount not to exceed $6,500,000, as amended by the Amendment to such
Supplement dated on or about October 5, 2007 between Farm Credit and ABE
Fairmont, (2) Construction and Revolving Term Loan Supplement to the MLA dated
as of November 20, 2006 and effective as of June 1, 2007 between Farm Credit
and ABE Fairmont with respect to a construction and revolving term loan
commitment in an amount not to exceed $4,000,000, as amended by the Amendment to
such Supplement entered into on or about October 5, 2007 between Farm Credit
and ABE Fairmont, (3) Disbursing Agreement dated as of November 1, 2006 among
ABE Fairmont, Farm Credit, CoBank, ACB (“CoBank”) and Homestead Escrow and
Exchange Co., (4) Administrative Agency Agreement dated as of November 20, 2006
among Farm Credit, CoBank and ABE Fairmont, and (5) Statused Revolving Credit
Supplement dated on or about October 5, 2007 between ABE Fairmont and Farm
Credit; and (ii) that Master Loan Agreement dated as of February 17, 2006
between Farm Credit and Borrower (the “2/17/06 MLA”), as amended and
supplemented by that (1) Construction and Term Loan Supplement dated as of
February 17, 2006 between Farm Credit and ABE Fairmont with respect to a
construction and

 

11

 

term loan in an
amount not to exceed $58,500,000, (2) Construction and Revolving Loan
Supplement dated as of February 17, 2006 between Farm Credit and ABE Fairmont
with respect to a construction and revolving term loan in an amount not to
exceed at any one time outstanding 
$21,000,000, (3) Statused Revolving Credit Supplement dated as of
February 17, 2006 between Farm Credit and ABE Fairmont with respect to a revolving
credit facility in an available amount not to exceed at any one time
outstanding $5,000,000 as amended by the Amendment dated on or about October 5,
2007, (4) Administrative Agency Agreement dated as of February 17, 2006 among
Farm Credit, CoBank and Borrower, ABE Fairmont, (5) Amendment to Master Loan
Agreement dated as of April 11, 2006 between Farm Credit and Borrower, (6) that
Security Agreement dated February 17, 2006 between Borrower and Farm Credit,
and (7) that Deed of Trust and Assignment of Rents dated February 17, 2006 by Borrower
in favor of Farm Credit, all of Borrower’s obligations and liabilities under
the 2/17/06 MLA, as amended, having been assumed by ABE Fairmont pursuant to
Section 25 of the 11/20/06 MLA and Borrower having been discharged from its
obligations under the 2/17/06 MLA, as amended, pursuant to that letter
agreement dated November 10, 2006 between Farm Credit and Borrower, as the
2/17/06 MLA has been further amended by that (x) Amendments to the Construction
and Term Loan Supplement dated as of November 20, 2006 and on or about October
5, 2007 between Farm Credit and ABE Fairmont and (y) Amendments to the
Construction and Revolving Term Loan Supplement dated as of November 20, 2006
and on or about October 5, 2007 between Farm Credit and ABE Fairmont, together
with all amendments, supplements, agreements, documents, exhibits, schedules
and certificates contemplated thereby or entered into in connection with any of
the foregoing.

 

(i)                                     “Collateral”
means the collateral security committed to Lender under the Collateral Security
Documents executed by Borrower in favor of Lender pursuant to this Note from
time to time and/or pursuant to all similar or related documents and agreements
from time to time, all as amended, modified, supplemented or restated and in
effect from time to time.

 

(j)                                     “Collateral
Security Documents” means, individually and collectively, (1) the
Membership Interest Pledge Agreement, all financing statements filed pursuant
thereto, and all other instruments (including membership interest certificates)
and other executed and/or delivered pursuant thereto and (2) any additional
documents granting security to Lender pursuant to this Note or required or
delivered in connection with any other Loan Document, all as amended modified,
supplemented or restated and in effect from time to time.

 

(k)                                  “Default”
means any event or circumstance that with the giving of notice or the passage
of time (or both) would constitute an Event of Default.

 

(l)                                     “Dollar”
or “$” means U.S. dollars.

 

(m)                               “ECM
Loan Documents” means, collectively, that (i) Note Purchase Agreement dated
as of April 20, 2007 between Borrower and Ethanol Investment Partners, LLC (“EIP”),
(ii) the 15% Subordinated Convertible Promissory Note issued by Borrower to EIP
on April 27, 2007 in the original principal amount of $10,000,000, and (iii)
the 15% Subordinated Convertible Promissory Note issued by Borrower to EIP on
June 20, 2007 in the original principal amount of $15,929,436, together with
all amendments, supplements, agreements, documents, exhibits, schedules and
certificates contemplated thereby or entered into in connection with any of the
foregoing.

 

(n)                                 “Environmental
Control Statutes” means all federal, state and local laws, statutes, rules,
ordinances, regulations (as implemented and as interpreted), judgments,
decrees, orders, licenses, permits and rules governing the control, removal,
storage, transportation, spill, release or

 

12

 

discharge of
hazardous or toxic wastes, substances and petroleum products or otherwise
pertaining to the protection of human health, safety or the environment or
natural resources.

 

(o)                                 “Equity
Interests” means shares of capital stock, partnership interests, membership
interests or units in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants,
options or other rights entitling the holder thereof to purchase or acquire any
such equity interest.

 

(p)                                 “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.

 

(q)                                 “Event of Default”
means the occurrence of any one or more of the following events:  (1) if any payment of principal, interest,
fees, expenses, indemnities or other sums payable to Lender under any Loan
Document is not received by Lender in immediately available funds on the date
such payment is due and payable and, except with respect to principal
payments, such failure to receive such payment in immediately available funds
continues for 3 Business Days after the due date therefor; (2) if any
representation, warranty or other statement made in any Loan Document or in any
financial statement or written report provided to Lender by or on behalf of
Borrower or ABE Fairmont (or otherwise furnished in connection herewith) when made
was misleading or incorrect in any material respect; (3) if Borrower or ABE
Fairmont defaults in the full and timely performance when due of any other
covenant or agreement contained in any Loan Document, and such default remains
uncured for 15 Business Days after the earlier of the date that Lender notifies
Borrower thereof or the date that Borrower or ABE Fairmont otherwise acquires
knowledge or should have acquired knowledge thereof; (4) if Borrower or ABE
Fairmont fails or refuses to make any required payment (whether as principal,
interest or otherwise) with respect to any indebtedness for borrowed money in
excess of $1,000,000 (or with respect to any guaranty or reimbursement
obligation of any such indebtedness) prior to the expiration of any applicable
grace period with respect to such payment, or if any such indebtedness for
borrowed money is accelerated prior to its express maturity as a result of any
default thereunder; (5) if Borrower or any of its Subsidiaries (i) becomes
insolvent, bankrupt or generally fails to pay its debts as such debts become
due; or (ii) is adjudicated insolvent or bankrupt in any Insolvency Proceeding;
or (iii) admits in writing an inability to pay its debts; or (iv) comes
under the authority of a custodian, receiver or trustee (or one is appointed
for substantially all of its property); or (v) makes an assignment for the
benefit of creditors; or (vi) has commenced against it any proceeding
(including any Insolvency Proceeding) under any law related to bankruptcy, insolvency,
liquidation, dissolution or the reorganization, readjustment or release of
debtors that is either not contested or if contested is not dismissed or stayed
within 60 calendar days after the commencement thereof; or (vii) commences or
institutes any proceeding (including any Insolvency Proceeding) under any law
related to bankruptcy, insolvency, liquidation, dissolution or the
reorganization, readjustment or release of debtors; or (viii) calls a meeting
of creditors with a view to arranging a composition or adjustment of debt; or
(ix) by any act or failure to act that indicates consent to, approval of or
acquiescence in any of the foregoing; (6) if (i) any judgment, writ,
warrant, attachment or execution or similar process that calls for payment or
presents liability in excess of $250,000 is rendered, issued or levied against
Borrower or ABE Fairmont or any of their respective properties or assets or (ii) any final, non-appealable
arbitration award that calls for payment or presents liability in excess of
$250,000 is rendered, issued or levied against Borrower or ABE Fairmont or any
of their respective properties or assets, and in either case such liability is
not paid, waived, stayed, vacated, discharged, settled, satisfied or fully
bonded within 60 calendar days after it is rendered, issued or levied; (7) (i)
if the security interest or lien in any of the Collateral with a fair market
value exceeding collectively $250,000 at any time does not constitute a legal,
valid and enforceable security interest or lien in favor of Lender or shall
cease to have the priority contemplated by the Collateral Security Documents
otherwise than in accordance with the terms thereof or with the express prior
written

 

13

 

agreement, consent
or approval of Lender, or (ii) if any of the Loan Documents shall be
cancelled, terminated, revoked or rescinded otherwise than in accordance with
the terms thereof or with the express prior written agreement, consent or
approval of Lender, or any action at law, suit or in equity or other legal
proceeding to cancel, revoke or rescind any of the Loan Documents shall be
commenced by or on behalf of Borrower or any of its Subsidiaries or any of
their respective equity holders, or any Governmental Authority shall make a
determination that, or issue a judgment, order, decree or ruling to the effect
that, any one or more of the Loan Documents is illegal, invalid or
unenforceable in accordance with the terms thereof; (8) Borrower or any of its
Subsidiaries fails to observe or perform any agreement or condition under the
CoBank Loan Documents beyond the expiration of any applicable grace period, or
any default or other event occurs (unless such default or event is waived in
writing in accordance with the terms thereof), the effect of which default or
other event is to cause, or to permit the holder or holders of the Indebtedness
under the CoBank Loan Documents to cause, with the giving of notice if
required, such Indebtedness to be demanded or to become due or to be
repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an
offer to repurchase, prepay, defease or redeem such Indebtedness to be made,
prior to its stated maturity; (9) Borrower or any of its Subsidiaries fails to
observe or perform any agreement or condition under the Wells Fargo Documents
beyond the expiration of any applicable grace period, or any other default or
other event occurs (unless such default or event is waived in writing in
accordance with the terms thereof), the effect of which default or other event
is to cause, or to permit the holder or holders of the Indebtedness under the
Wells Fargo Documents to cause, with the giving of notice if required, such
Indebtedness to be demanded or to become due or to be repurchased, prepaid,
defeased or redeemed (automatically or otherwise), or an offer to repurchase,
prepay, defease or redeem such Indebtedness to be made, prior to its stated
maturity; (10) Borrower or any of its Subsidiaries fails to observe or
perform any agreement or condition under the ECM Loan Documents beyond the
expiration of any applicable grace period, or any other default or other event
occurs (unless such default or event is waived in writing in accordance with
the terms thereof), the effect of which default or other event is to cause, or
to permit the holder or holders of the Indebtedness under the ECM Loan
Documents to cause, with the giving of notice if required, such Indebtedness to
be demanded or to become due or to be repurchased, prepaid, defeased or
redeemed (automatically or otherwise), or an offer to repurchase, prepay,
defease or redeem such Indebtedness to be made, prior to its stated maturity;
(11) so long as the Warrant is held by Lender or any of its Affiliates,
(i) any representation, warranty or other statement made in the Warrant
when made shall be misleading or incorrect in any material respect; or (ii)
Borrower defaults in the full and timely performance when due of any covenant
or agreement contained in the Warrant, and such default remains uncured for 15
Business Days after the earlier of the date that Lender notifies Borrower
thereof or the date that Borrower otherwise acquires knowledge or should have
acquired knowledge thereof; and/or (12) if a Material Adverse Effect has occurred.

 

(r)                                    “GAAP”
means generally accepted accounting principles from time to time in effect,
including the statements and interpretations of the United States Financial
Accounting Standards Board, applied on a consistent basis.

 

(s)                                  “Governmental
Authority” means the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.

 

(t)                                    “Hazardous
Materials” includes (a) any “hazardous waste” as defined by the Resource
Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et  seq.),
as amended from time to time, and regulations promulgated thereunder; or
(b) any “hazardous substance” as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq.),

 

14

 

as amended from
time to time, and regulations promulgated thereunder; or (c) any
pollutant or contaminant as defined by 42 U.S.C. §9601(33); or (d) any
toxic substance, oil or hazardous material or other chemical or substance (including,
without limitation, asbestos in any form, urea formaldehyde or polychlorinated
biphenyls) the use or presence of which is similarly regulated or prohibited by
any Environmental Control Statute.

 

(u)                                 “Indebtedness”
of any Person means, without duplication, (1) all indebtedness of such Person
for borrowed money, and (2) all obligations of such Person for the
deferred purchase price of property or services (other than trade indebtedness,
if and to the extent such indebtedness is incurred in the ordinary course of
business for value received which would be shown as a liability on a balance
sheet or are required to be set forth in the footnotes to a year-end balance
sheet, each prepared in accordance with GAAP, and (3) all obligations of
such Person evidenced by notes, bonds, debentures or other similar instruments,
and (4) all obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), and (5) all obligations of such Person
as lessee under Capital Leases to the extent classified as a liability on a balance
sheet in accordance with GAAP, and (6) all obligations, contingent or
otherwise, of such Person under acceptance, letter of credit or similar
facilities, and (7) all obligations of such Person in respect of any
interest rate or currency swap, cap or other agreement or arrangement designed
to provide protection against fluctuations in interest or currency exchange
rates, and (8) all Indebtedness of others referred to in clauses (1)
through (7) above or clause (9) below guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person to assure a creditor against loss, and (9) all Indebtedness
referred to in clauses (1) through (8) above of another Person secured by (or
for which the holder of such debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including, without
limitation, accounts, contract rights or inventory) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
debt; provided that Indebtedness of any Subsidiary of Borrower other
than ABE Fairmont shall not be deemed to be Indebtedness of Borrower solely as
a result of a non-recourse pledge by Borrower of its Equity Interest in such
Subsidiary and/or its intercompany receivables from such Subsidiary in order to
secure such Indebtedness, and (10) the principal balance outstanding
under any synthetic lease, tax retention operating lease, off-balance sheet
loan or similar off-balance sheet financing product to which such Person is a
party, where such transaction is considered borrowed money indebtedness for tax
purposes but is classified as an operating lease in accordance with GAAP, and
(11) all payment obligations of such Person to former owners of businesses
which were acquired by such Person which are in the nature of deferred purchase
price or earn-out. For the purposes of the Agreement, the term “Indebtedness”
shall exclude any effects of the application of FASB 150.

 

(v)                                 “Insolvency Proceeding” means (1) any case, action or
proceeding before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (2) any general assignment for
the benefit of creditors, composition, marshalling of assets for creditors or
other, similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, in each of case (1) and (2) undertaken
under federal, state or foreign law, including the Bankruptcy Code.

 

(w)                               “Lien”
means any security interest, mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or otherwise), reversionary
or reclamation interest, charge against or interest in property to secure
payment of a debt or performance of an obligation or other priority or
preferential arrangement of any kind or nature whatsoever.

 

15

 

(x)                                   “Loan
Documents” means this Note, the Collateral Security Documents and all other
documents, agreements and certificates (inclusive of all schedules and exhibits
thereto) from time to time entered into or delivered in connection herewith or
therewith or pursuant hereto or thereto, all as may be amended, modified and
supplemented from time to time.

 

(y)                                 “Material
Adverse Effect” means, relative to any occurrence of whatever nature, a
change that has, causes or could reasonably be expect to have or cause a
material adverse change to or a materially adverse effect on:  (1) the business, assets, revenues, financial
condition, operations or prospects of Borrower, or of Borrower and its
Subsidiaries, taken as a whole, (2) the ability of Borrower or any of its
Subsidiaries to perform any of its payment obligations when due or to perform
any other material obligations under any Loan Document or (3) any right,
remedy, benefit or collateral in favor of Lender under any Loan Document.

 

(z)                                   “Maturity
Date” has the meaning set forth in Section 2.

 

(aa)                            “Net
Cash Proceeds” means the cash proceeds or, with respect to non-cash
transactions, the cash equivalent of the fair market value of any equity or
debt issuance, asset disposition or asset condemned or subject to insurance
proceeds in each case net of (as applicable) (1) reasonable commissions and
expenses actually paid to unrelated third parties in connection with such
transaction, (2) taxes actually due from Borrower as a direct result of
such transaction and (3) in the case of asset dispositions, commercially
reasonable reserves established in respect of post-closing purchase price
adjustments and indemnification and other contingent liabilities arising in
connection with such asset dispositions.

 

(bb)                          “Note”
means this Secured Term Loan Note as amended, modified, renewed, extended
and/or restated from time to time in accordance with the terms hereof.

 

(cc)                            “Obligations”
means all loans, advances, debts, liabilities and obligations (including
reimbursement obligations), for monetary amounts owing by Borrower to Lender,
whether due or to become due, matured or unmatured, liquidated or unliquidated,
contingent or non-contingent, of any kind or nature, present or future, arising
under or in respect of this Note or any of the other Loan Documents. This term
includes all principal, interest (including all interest that accrues after the
commencement against Borrower of any Insolvency Proceeding under the Bankruptcy
Code), reasonable fees, including any and all arrangement fees, delivery fees,
loan fees, commitment fees, agent fees and any and all other reasonable fees,
expenses, costs or other sums (including reasonable attorneys fees) chargeable
to Borrower under any of the Loan Documents.

 

(dd)                          “Organizational
Documents” means, relative to any entity, its certificate or articles of incorporation
or organization or formation, its by-laws or operating agreements, and all
equityholder agreements, voting agreements and similar arrangements applicable
to any of its authorized shares of capital stock, its partnership interests or
its member interests, and any other arrangements relating to the control or
management of any such entity.

 

(ee)                            “Paid
in Full” and “Payment in Full” mean, with respect to the
Obligations, all amounts owing with respect thereto (including any interest
accruing thereon after the commencement of any Insolvency Proceeding against
Borrower, whether or not allowed as a claim against Borrower in such Insolvency
Proceeding, but excluding as yet unasserted contingent obligations), have been
fully, finally and completely paid in cash.

 

16

 

(ff)                                “Person”
means any natural person, corporation, limited liability company, partnership,
firm, association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.

 

(gg)                          “Subsidiary”
of any Person or entity means any Person as to which such other Person or
entity (a) directly or indirectly owns, controls or holds 50% or more of the
outstanding beneficial interest or (b) is otherwise required in accordance with
GAAP to be considered as part of a consolidated organization.

 

(hh)                          “Tax
Distributions” means any dividend or distribution paid in accordance with Section
11(k) to any holder of membership interests of Borrower to the extent that
such funds are distributed to provide cash or other assets to such holder in
order to pay such holder’s federal, state and local income tax liabilities for
such year (determined based upon a combined marginal rate of 40%) that is
directly attributable to such holder as a direct result of the amount of income
and gain (net of allowable deductions, losses and credits) of Borrower.

 

(ii)                                  “Warrant”
means the Warrant to Purchase Units issued by Borrower on the date hereof to
Lender.

 

(jj)                                  “Wells
Fargo Loan Documents” means, collectively, (i) that Loan and Trust
Agreement dated as of April 1, 2006 (the “4/1/06 Loan Agreement”) among
Borrower, County of Fillmore, State of Nebraska, as issuer (“Issuer”), and
Wells Fargo Bank, N.A., as trustee (“Trustee”), as Borrowers obligations and
liabilities under the 4/1/06 Loan Agreement have been assigned to and assumed
by ABE Fairmont pursuant to that Assignment and Assumption Agreement dated as
of November 14, 2006 among Borrower, ABE Fairmont, Issuer and Trustee, (ii)
that  Promissory Note dated April 27,
2007 among Borrower, issuer and Trustee, (iii) that Subordinate Deed of Trust
and Construction Security Agreement by Borrower in favor of Trustee, (iv) that
Tax Regulatory Agreement dated as of April 27, 2006 from Borrower and Issuer to
Trustee and (v) that Continuing Disclosure Agreement as of dated April 1, 2006
between Borrower and Trustee, together with all amendments, supplements,
agreements, documents, exhibits, schedules and certificates contemplated
thereby or entered into in connection with any of the foregoing.

 

14.                                 Selected
Rights and Remedies Upon Event of Default. Upon the occurrence and during
the continuation of any Event of Default, with notice thereof to Borrower (unless
an Event of Default described in clause (5) of the definition of “Event of
Default” has occurred, in which case acceleration will occur automatically with
respect to the entire indebtedness and without any notice), Lender may declare
all or any portion of the indebtedness under any Loan Document to be
immediately due and payable. Upon the occurrence and during the continuation of
any Event of Default, Lender shall have the immediate right to enforce and
realize upon any collateral security (including all or any portion of the
Collateral) for the Obligations hereunder in any manner or order that Lender
deems expedient without regard to any equitable principles of marshalling or
otherwise. Lender shall have and be entitled to all of the rights, remedies,
benefits and powers of enforcement with respect hereto that are available to a
holder of a negotiable instrument under Article 3 of the Uniform Commercial
Code, and any subsequent transferee of Lender shall have and be entitled to all
of the rights, remedies, benefits and powers of enforcement with respect hereto
that are available to a holder in due course of a negotiable instrument under
Article 3 of the Uniform Commercial Code (provided that such transferee
acquired this Note in good faith, for value and without actual notice of a
claim or defense hereunder by Borrower). In addition to any rights granted
hereunder or in any other Loan Document, Lender shall also have all other
rights and remedies permissible under any applicable law (including creditor
rights and the rights of a secured

 

17

 

party under the
Uniform Commercial Code), and all such rights and remedies shall be cumulative
in nature.

 

15.                                 Indemnification,
Reliance and Assumption of Risk. Without limiting any other indemnification
in any Loan Document, Borrower hereby agrees to defend Lender (and its
directors, officers, employees, agents, representatives, counsels and
Affiliates) (each an “Indemnitee”) from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages, interests,
judgments, or costs (including reasonable fees and disbursements of counsel)
incurred by any of them arising out of or in any way connected with any Loan
Document, except for losses resulting directly from such Person’s own gross negligence
or willful misconduct. Expenses (including, without limitation, reasonable
attorneys’ fees and expenses) incurred by an Indemnitee shall be paid in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking from such Indemnitee to repay such amount if it shall
ultimately be determined that such Indemnitee is not entitled to
indemnification. Borrower’s obligations provided for in this Section 15
will survive any termination of this Agreement, and the repayment of the
outstanding balances hereunder. Without limiting the generality of the
foregoing, Borrower hereby agrees to indemnify, defend and hold harmless each
Indemnitee from and against, any and all losses, liabilities, claims, damages
(including, without limitation, natural resource damages), interests,
judgments, fines, penalties, liens or costs (including reasonable fees and
disbursements of counsel and consultants) resulting from or relating to any of
the following:  (1) the storage, holding,
existence, migration, release (as defined by CERCLA), threat of release,
disposal, treatment, generation, processing, abatement, handling or
transportation of any Hazardous Materials (collectively “Environmental Activity”)
at, on, under, from or in the vicinity of any property presently or formerly
owned, leased or operated by Borrower; and (2) any violation or alleged
violation of Environmental Control Statutes by Borrower at any property
presently or formerly owned, leased or operated by Borrower; and (3) any
investigation, inquiry, notice, order (including consent orders, agreements and
decrees), hearing, action, proceeding, demand, directive, fine, penalty, lien
or claim instituted, asserted or threatened by any Person in connection with
any Environmental Activity or Environmental Control Statute relating to
Borrower or any portion of any property presently or formerly owned, leased or
operated by Borrower; and (4) any off-site transportation, treatment,
storage or disposal or Hazardous Materials generated at or transported from any
property presently or formerly owned, leased or operated by Borrower.

 

16.                                 Selected
Waivers and Consents by Borrower. Borrower hereby waives diligence,
presentment, protest, demand for payment, notice of protest and non-payment,
notice of dishonor, and any and all other notices or demands in connection with
the delivery, acceptance, payment, performance, default, acceleration or
enforcement of this Note. Borrower, in addition, hereby consents (without the
necessity of prior notice) to any extensions of time, renewals, releases of any
party hereto or guarantor hereof, waivers and/or modifications in connection
herewith that may be granted or consented to by Lender from time to time. Borrower
also waives any defenses (other than the defense of full unconditional payment)
and rights of discharge to its obligations hereunder that it may have or may
hereafter acquire based upon suretyship or impairment of collateral (including
lack of attachment or perfection with respect thereto).

 

17.                                 Waivers
by Lender and Severability. To be effective, any waiver by Lender must be
expressed in a writing executed by Lender. If Lender waives any term, right or
remedy arising hereunder or under any applicable law, then such waiver will not
be deemed to be a waiver (1) upon any later occurrence or recurrence of any
events giving rise to the earlier waiver or (2) as to any other Person. No
failure or delay by Lender to insist upon the strict performance of any Loan
Document, or to exercise any right or remedy, will constitute a waiver of
compliance with any term, condition, covenant or agreement, or preclude Lender
from exercising any right, power, or remedy at any later time or times. By
accepting

 

18

 

payment after the
due date of any amount payable under any Loan Document, Lender will not be
deemed to waive the right either to require prompt payment when due of all
other amounts payable under any Loan Document or to declare an Event of Default
for failure to effect such prompt payment of any such other amount. If
fulfillment of any provision hereof at the time performance is due involves
transcending the limit of validity prescribed by applicable law, then (ipso facto) the obligation to be fulfilled
shall be reduced to the limit of such validity. If any clause or provision
hereof operates or would prospectively operate to invalidate this Note in whole
or in part, then such clause or provision only shall be void (as though not
contained herein), and the remainder of this Note shall remain operative and in
full force and effect; provided, however, if any such clause or
provision pertains to the repayment of any indebtedness hereunder, then the
occurrence of any such invalidity shall constitute an immediate Event of Default
hereunder.

 

18.                                 Reinstatement.
To the maximum extent not prohibited by applicable law, this Note (and the
Obligations hereunder and Collateral therefor) will be automatically reinstated
and the indebtedness correspondingly increased (as though such payments had not
been made) if at any time any amount received by Lender in respect hereof is
rescinded or must otherwise be restored, refunded or returned by Lender to
Borrower or other Person for any reason, including (a) as a result of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of any
Person, or (b) as a result of the appointment of any receiver, intervenor,
conservator, trustee or similar official for any Person or for any part of the
assets of any Person.

 

19.                                 Assignability.
Borrower shall not assign or delegate any of its obligations, duties, rights or
benefits hereunder or under any other Loan Document without the prior written
consent of Lender. Lender (and its successors or assigns), at any time and from
time to time, may assign, transfer, participate, syndicate, delegate and/or
pledge all or any part of its obligations, duties, rights and benefits under
this Note and the other Loan Documents without the consent of Borrower.

 

20.                                 Conflicts
Among Loan Documents. In the event of any irreconcilable conflict between
the terms and conditions of this Note and the terms and conditions of any other
Loan Document, then the terms and conditions of this Note shall govern.

 

21.                                 Relationship
with Prior Agreements. This Note, together with the other Loan Documents
and the Warrant, completely and fully supersedes all oral agreements and all
other and prior written agreements by and among Borrower and Lender concerning
the terms and conditions of this credit arrangement.

 

22.                                 Severability.
If fulfillment of any provision of or any transaction related to any Loan
Document at the time performance is due involves transcending the limit of
validity prescribed by applicable law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit
of such validity.  If any clause or provision of this Agreement operates
or would prospectively operate to invalidate this Agreement or any other Loan
Document in whole or in part, then such clause or provision only shall be void
(as though not contained herein or therein), and the remainder of this
Agreement or such other Loan Document shall remain operative and in full force
and effect; provided, however, if any such clause or provision
pertains to the repayment of any indebtedness hereunder, then the occurrence of
any such invalidity shall constitute an immediate Event of Default hereunder.

 

23.                                 No
Fiduciary Relationship. No provision in the Loan Documents and no course of
dealing between the parties shall be deemed to create any fiduciary duty owing
to Borrower or any of its Affiliates by Lender and Lender shall not be deemed
to be a partner, joint venturer or co-venturer with Borrower by reason of this
Agreement or the transaction contemplated hereunder.

 

19

 

24.                                 Secured Note. The full amount of
this Note is secured by the Collateral identified and described as security
therefor in the Collateral Security Documents and the other Loan Documents.

 

25.                                 Notices.
Any notice or other communication required or permitted in connection with the
Loan Documents will be deemed satisfactorily given if it is in writing and is
delivered either personally to the addressee thereof, or by prepaid registered
or certified U.S. mail (return receipt requested), or by a nationally
recognized commercial courier service with next-day delivery charges prepaid,
or by facsimile (voice confirmed), or by any other reasonable means of personal
delivery to the party entitled thereto at its respective address set forth
below:

 

	
  If to Borrower:

  	
   

  	
  Advanced BioEnergy, LLC

  
	
   

  	
   

  	
  10201 Wayzata Blvd.,
  Suite 250

  
	
   

  	
   

  	
  Minneapolis, MN 55305

  
	
   

  	
   

  	
  Attn:    Revis
  L. Stephenson III, Chief Executive Officer

  
	
   

  	
   

  	
  Facsimile No.:    (763)
  226-2728

  
	
   

  	
   

  	
   

  
	
  If to Lender:

  	
   

  	
  PJC Capital LLC

  
	
   

  	
   

  	
  c/o Piper, Jaffray
  & Co.

  
	
   

  	
   

  	
  1950 University Avenue,
  Suite 200

  
	
   

  	
   

  	
  Menlo Park, CA 94303

  
	
   

  	
   

  	
  Attention:    Scott
  R. La Rue, Managing Director

  
	
   

  	
   

  	
  Facsimile:    (650)
  838-1419

  

 

Any party to a Loan
Document may change its address or other contact information for notice
purposes by giving notice thereof to the other parties to such Loan Document in
accordance with this Section 25, provided that such change shall
not be effective until 2 calendar days after notice of such change. All such
notices and other communications will be deemed given and effective (a) if by
mail, then upon actual receipt or 5 calendar days after mailing as
provided above (whichever is earlier), or (b) if by facsimile, then
upon successful transmittal to such party’s designated number, or (c) if
by nationally recognized commercial courier service, then upon actual
receipt or 2 Business Days after delivery to the courier service (whichever is
earlier), or (d) if otherwise delivered, then upon actual
receipt.

 

26.                                 Jurisdictional and Related Consents. Any
litigation in any way related to this Note, or any course of conduct, course of
dealing, statements (whether verbal or written), actions or inactions of Lender
or Borrower shall be brought and maintained exclusively in the courts of the
State of New York or in the United States District Court for the Southern
District of New York; provided, however, that any suit seeking enforcement
hereof against Borrower or any property may also be brought (at Lender’s
option) in the courts of any other jurisdiction where such property may be
found or where Borrower may be subject to personal jurisdiction. Borrower
hereby expressly and irrevocably submits to the jurisdiction of the courts of
the State of New York and of the United States District Court for the Southern
District of New York for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final and non-appealable judgment
rendered thereby in connection with such litigation. Borrower further
irrevocably consents to the service of process by registered or certified mail,
postage prepaid, or by personal service within or outside the State of New York.
Borrower hereby expressly and irrevocably waives (to the fullest extent
permitted by law) any objection that it at any time may have to the laying of
venue of any such litigation brought in any such court referred to above and
any claim that any such litigation has been brought in an inconvenient forum.

 

20

 

27.                                 Jury Trial Waiver. Lender and Borrower each
hereby knowingly, voluntarily and intentionally waives any rights it may have
to a trial by jury in respect of any litigation (whether as claim,
counter-claim, affirmative defense or otherwise) in any way related to this
Note or any of the Loan Documents or any course of conduct, course of dealing,
statements (whether verbal or written), actions or inactions of Lender or
Borrower.

 

28.                                 Governing
Law and Binding Effect. This Note and the other Loan Documents are binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. This Note and the other Loan Documents are governed as
to their validity, interpretation, construction and effect by the laws of the
State of New York (without giving effect to the conflicts of law rules of such
state).

 

[Balance of Page Intentionally Blank...Signatures
on Next Page]

 

21

 

IN WITNESS WHEREOF,
Borrower has executed this Secured Term Loan Note  on the day and year first written above.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  ADVANCED
  BIOENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Revis L.
  Stephenson III

  	
   

  
	
   

  	
   

  	
  Name:

  	
    Revis L.
  Stephenson III

  	
   

  
	
   

  	
   

  	
  Title:

  	
    Chairman
  & CEO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ACCEPTED:

  	
   

  
	
   

  	
   

  
	
  PJC
  CAPITAL LLC

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ Scott LaRue

  	
   

  	
   

  
	
   

  	
  Name:

  	
    Scott LaRue

  	
   

  	
   

  
	
   

  	
  Title:

  	
      MD

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