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exv10w2

 

EXHIBIT 10.2

AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL

MULTI—TENANT LEASE — GROSS

1. Basic Provisions (“Basic Provisions”).

     1.1 Parties: This Lease (“Lease”), dated for reference purposes only August 15, 2005, is made by and between Thomas L. Jackson (“Lessor”) and Save the World Air, Inc. (“Lessee”),
(collectively the “Parties”, or individually a “Party”).

     1.2(a) Premises: That certain portion of the Project (as defined below), including all
improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by
the street address of 235 Tenant Avenue, #5, located in the City of Morgan Hill
        , County of Santa Clara , State of California , with zip code 95037, as outlined on Exhibit attached hereto (“Premises”) and generally described as (describe
briefly the nature of the Premises): an approximately 3,200 square foot
industrial unit, part of a larger approximately 20,000 square foot industrial building
In addition to Lessee’s rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to any utility raceways of the building containing the Premises
(“Building”)and to the Common Areas (as defined in Paragraph 2.7 below), but shall not have any
rights to the roof, or exterior walls of the Building or to any other buildings in the Project.
The Premises, the Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as the “Project.”
(See also Paragraph 2)

     1.2(b) Parking: 6 unreserved vehicle parking spaces . (See also Paragraph 2.6)

     1.3 Term: 2 years and -0- months (“Original Term”) commencing September 1, 2005
(“Commencement Date”) and ending August 31, 2007 (“Expiration Date”). (See also Paragraph 3)

     1.4 Early Possession: N/A (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)

     1.5 Base Rent: $ 2,240.00 per month (“Base Rent”), payable on the 1st
day of each month commencing September 1, 2005. (See also Paragraph 4)

o If this box is checked, there are provisions in this Lease for the Base Rent to be
adjusted.

     1.6 Lessee’s Share of Common Area Operating Expenses: None percent (                     %) (“Lessee’s Share”). Lessee’s Share has been calculated by dividing the
approximate square footage of the Premises by the approximate square footage of the Project. In
the event that size of the Premises and/or the Project are modified during the term of this
Lease, Lessor shall recalculate Lessee’s Share to reflect such modification.

     1.7 Base Rent and Other Monies Paid Upon Execution:

          (a)
Base Rent: $ 2,240.00 for the period September 1, 2005 — September 30, 2005

          (b) Common Area Operating Expenses: $ None for the period                                         .

          (c) Security Deposit: $ 4,500.00 (“Security Deposit”). (See also Paragraph 5)

          (d) Other: $                      for                                                             

          (e) Total Due Upon Execution of this Lease: $ 6,740.00 .

     1.8 Agreed Use: The engineering, design and testing of automotive, motorcycle parts
and all related legal uses . (See also Paragraph 6)

     1.9 Insuring Party. Lessor is the “Insuring Party”. (See also Paragraph 8)

     1.10 Real Estate Brokers: (See also Paragraph 15)

          (a) Representation: The following real estate brokers (the “Brokers”) and brokerage
relationships exist in this transaction (check applicable boxes):

o                                                              represents Lessor exclusively (“Lessor’s Broker”);

o                                                              represents Lessee exclusively (“Lessee’s Broker”); or

þ Colliers International represents both Lessor and Lessee (“Dual Agency”).

          (b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor
shall pay to the Brokers the brokerage fee agreed to in a separate written agreement

          1.11
Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by Signatory
(“Guarantor”). (See also Paragraph 37)

          1.12 Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

þ an Addendum consisting of Paragraphs 1 through 2 ;

o a site plan depicting the Premises;

o a site plan depicting the Project;

o a current set of the Rules and Regulations for the Project;

o a current set of the Rules and Regulations adopted by the owners’ association;

					
	 	 	 	 	 
	 
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	o a Work Letter;
	 	 
	o other (specify):
	 	 
	 

	 	 
	 
	 	 
	 
	 
	 	 
	 

2. Premises.

     2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set
forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this
Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree
is reasonable and any payments based thereon are not subject to revision whether or not the actual
size is more or less. NOTE: Lessee is advised to verify the actual size prior to executing this
Lease.

     2.2 Condition. Lessor shall deliver that portion of the Premises contained within the
Building (“Unit”) to Lessee broom clean and free of debris on the Commencement Date or the Early
Possession Date, whichever first occurs (“Start Date”), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty
days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler,
lighting, heating, ventilating and air conditioning systems (“HVAC”), loading doors, sump pumps,
if any, and all other such elements in the Unit, other than those constructed by Lessee, shall
be in good operating condition on said date, that the structural elements of the roof, bearing
walls and foundation of the Unit shall be free of material defects, and that the Unit does not
contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal
law. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems
or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as
Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense.
The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days
as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the
required notice within the appropriate warranty period, correction of any such non-compliance,
malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense (except
for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls — see
Paragraph 7).

     2.3 Compliance. Lessor warrants that to the best of its knowledge the improvements on the
Premises and the Common Areas comply with the building codes that were in effect at the time that
each such improvement, or portion thereof, was constructed, and also with all applicable laws,
covenants or restrictions of record, regulations, and ordinances in effect on the Start Date
(“Applicable Requirements”). Said warranty does not apply to the use to which Lessee will put the
Premises, modifications which may be required by the Americans with Disabilities Act or any similar
laws as a result of Lessee’s use (see Paragraph 49), or to any Alterations or Utility Installations
(as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the Applicable Requirements, and especially the zoning are appropriate
for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be
allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within 6 months following
the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s
sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during
the term of this Lease the construction of an addition to or an alteration of the Unit, Premises
and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other
physical modification of the Unit, Premises and/or Building (“Capital Expenditure”), Lessor and
Lessee shall allocate the cost of such work as follows:

          (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result
of the specific and unique use of the Premises by Lessee as compared with uses by tenants in
general, Lessee shall be fully responsible for the cost thereof, provided, however, that if such
Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds
6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in
writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to
pay the difference between the actual cost thereof and the amount equal to 6 months’ Base Rent. If
Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires
such Capital Expenditure and deliver to Lessor written notice specifying a termination date at
least 90 days thereafter. Such termination date shall, however, in no event be earlier than the
last day that Lessee could legally utilize the Premises without commencing such Capital
Expenditure.

          (b) If such Capital Expenditure is not the result of the specific and unique use of the
Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee
shall allocate the obligation to pay for the portion of such costs reasonably attributable to the
Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such
Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably
determines that it is not economically feasible to pay its share thereof, Lessor shall have the
option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies
Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will
pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with
Interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable
to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this
Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right
to terminate this Lease upon 30 days written notice to Lessor.

          (c) Notwithstanding the above, the provisions concerning Capital Expenditures are
intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the
Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in
use, change in intensity of use, or modification to the Premises then, and in that event, Lessee
shall either: (i) immediately cease such changed use or intensity of use and/or take such other
steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii)
complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate
this Lease.

     2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or
Brokers to satisfy itself with respect to the condition of the Premises (including but not limited
to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and
compliance with Applicable Requirements and the Americans with Disabilities Act), and their
suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral
or written representations or warranties with respect to said matters other than as set forth in
this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations,
promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the
Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability
and/or suitability of all proposed tenants.

     2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of
no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the
Premises. In such event, Lessee shall be responsible for any necessary corrective work.

     2.6 Vehicle Parking. Lessee shall be entitled to use the number of Parking Spaces specified
in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor
for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall
be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called “Permitted Size Vehicles.”

					
	 	 	 	 	 
	 
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Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as
provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of
Lessor. In addition:

     (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee
or Lessee’s employees, suppliers, shippers, customers, contractors or invitees to be loaded,
unloaded, or parked in areas other than those designated by Lessor for such activities.

     (b) Lessee shall not service or store any vehicles in the Common Areas.

     (c) If Lessee permits or allows any of the prohibited activities described in this Paragraph
2.6, then Lessor shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.

     2.7 Common Areas — Definition. The term “Common Areas” is defined as all areas and facilities
outside the Premises and within the exterior boundary line of the Project and interior utility
raceways and installations within the Unit that are provided and designated by the Lessor from time
to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and
their respective employees, suppliers, shippers, customers, contractors and invitees, including
parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and
landscaped areas.

     2.8 Common Areas — Lessee’s Rights. Lessor grants to Lessee, for the benefit of Lessee and
its employees, suppliers, shippers, contractors, customers and invitees, during the term of this
Lease, the non-exclusive right to use, in common with others entitled to such use, the Common
Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by
Lessor under the terms hereof or under the terms of any rules and regulations or restrictions
governing the use of the Project. Under no circumstances shall the right herein granted to use the
Common Areas be deemed to include the right to store any property, temporarily or permanently, in
the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor’s designated agent, which consent may be revoked at any time. In the event that any
unauthorized storage shall occur, then Lessor shall have the right, without notice, in addition to
such other rights and remedies that it may have, to remove the property and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.

     2.9 Common Areas — Rules and Regulations. Lessor or such other person(s) as Lessor may
appoint shall have the exclusive control and management of the Common Areas and shall have the
right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations
(“Rules and Regulations”) for the management, safety, care, and cleanliness of the grounds, the
parking and unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of the Building and the Project and their invitees.
Lessee agrees to abide by and conform to all such Rules and Regulations, and shall use its best
efforts to cause its employees, suppliers, shippers, customers, contractors and invitees to so
abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said
Rules and Regulations by other tenants of the Project.

     2.10 Common Areas — Changes. Lessor shall have the right, in Lessor’s sole discretion, from
time to time:

     (a) To make changes to the Common Areas, including, without limitation, changes in the
location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading
and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and
utility raceways;

     (b) To close temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available;

     (c) To designate other land outside the boundaries of the Project to be a part of the Common Areas;

     (d) To add additional buildings and improvements to the Common Areas;

     (e) To use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Project, or any portion thereof; and

     (f) To do and perform such other acts and make such other changes in, to or with respect to
the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be
appropriate.

3. Term.

     3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as
specified in Paragraph 1.3.

     3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the
Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early
possession. All other terms of this Lease (including but not limited to the obligations to pay
Lessee’s Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to
maintain the Premises) shall be in effect during such period. Any such early possession shall not
affect the Expiration Date.

     3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts
to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said
efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or change the
Expiration Date. Lessee shall not, however, be obligated to pay Rent or perform its other
obligations until Lessor delivers possession of the Premises and any period of rent abatement
that Lessee would otherwise have enjoyed shall run from the date of the delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed, but minus any days of
delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days
after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after
the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder. If such written notice is not received by Lessor within said 10
day period, Lessee’s right to cancel shall terminate. Except as otherwise provided, if possession
is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid,
any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed
under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If
possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease
shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

     3.4 Lessee Compliance. Lessor shall not be required to tender possession of the Premises to
Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5).
Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under
this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s
election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee
is required to perform any other conditions prior to or concurrent with the Start Date, the Start
Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4. Rent.

     4.1. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this
Lease (except for the Security Deposit) are deemed to be rent (“Rent”).

     4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in
addition to the Base Rent, Lessee’s Share (as specified in Paragraph 1.6) of all Common Area
Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:

     (a) “Common Area Operating Expenses” are defined, for purposes of this Lease, as all costs
incurred by Lessor relating to the ownership and operation of the Project, including, but not
limited to, the following:

          (i) The operation, repair and maintenance, in neat, clean, good order and
condition, but not the replacement (see

					
	 	 	 	 	 
	 
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subparagraph (e)), of the following:

               (aa) The Common Areas and Common Area improvements, including parking areas, loading and
unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers,
irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof
drainage systems.

               (bb)
Exterior signs and any tenant directories.

               (cc)
Any fire sprinkler systems.

          (ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately
metered.

          (iii) Trash disposal, pest control services, property management, security services, owner’s association dues and
fees, the cost to repaint the exterior of any structuresand the cost of any environmental inspections.

          (iv) Reserves set aside for maintenance and repair of Common Areas and Common Area equipment.

          (v) Any increase above the Base Real Property Taxes (as defined in Paragraph 10).

          (vi) Any “Insurance Cost Increase” (as defined in Paragraph 8).

          (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.

          (viii) Auditors’, accountants’ and attorneys’ fees and costs related to the
operation, maintenance, repair and replacement of the Project.

          (ix) The cost of any Capital Expenditure to the Building or the Project not covered under the
provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over a
12 year period and Lessee shall not be required to pay more than Lessee’s Share of 1/144th of the
cost of such Capital Expenditure in any given month.

          (x) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be
a Common Area Operating Expense.

     (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically
attributable to the Unit, the Building or to any other building in the Project or to the operation,
repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other
building. However, any Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the operation, repair and
maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

     (c) The inclusion of the improvements, facilities and services set forth in Subparagraph
4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Project already has the
same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.

     (d) Lessee’s Share of Common Area Operating Expenses is payable monthly on the same day as the
Base Rent is due hereunder. The amount of such payments shall be based on Lessor’s estimate of the
annual Common Area Operating Expenses. Within 60 days after written request

(but not more than once each year) Lessor shall deliver to Lessee a reasonably detailed statement
showing Lessee’s Share of the actual Common Area Operating Expenses incurred during the preceding
year. If Lessee’s payments during such year exceed Lessee’s Share, Lessor shall credit the amount
of such over-payment against Lessee’s future payments. If Lessee’s payments during such year were
less than Lessee’s Share, Lessee shall pay to Lessor the amount of the deficiency within 10 days
after delivery by Lessor to Lessee of the statement.

     (e) Except as provided in paragraph 4.2(a)(viii), Common Area Operating Expenses shall not
include the cost of replacing equipment or capital components such as the roof, foundations,
exterior walls or Common Area capital improvements, such as the parking lot paving, elevators,
fences that have a useful life for accounting purposes of 5 years or more.

     (f) Common Area Operating Expenses shall not include any expenses paid by any tenant directly
to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant,
or insurance proceeds.

     4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of
the United States, without offset or deduction (except as specifically permitted in this Lease), on
or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole
dollar. In the event that any statement or invoice prepared by Lessor is inaccurate such
inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth
in this Lease. Rent for any period during the term hereof which is for less than one full calendar
month shall be prorated based upon the actual number of days of said month. Payment of Rent shall
be made to Lessor at its address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less than the amount then due
shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s
endorsement of any check so stating. In the event that any check, draft, or other instrument of
payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the
sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be
paid by cashier’s check. Payments will be applied first to accrued late charges and attorney’s
fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any
remaining amount to any other outstanding charges or costs.

5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit
as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails
to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any
portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall
within 10 days after written request therefor deposit monies with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. If the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with
Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion
to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should
the Agreed Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit
to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and
tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs
during this Lease and following such change the financial condition of Lessee is, in Lessor’s
reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor
as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based
on such change in financial condition. Lessor shall not be required to keep the Security Deposit
separate from its general accounts. Within 14 days after the expiration or termination of this
Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30
days after the Premises have been vacated pursuant to Paragraph
7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by
Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest
or to be prepayment for any monies to be paid by Lessee under this Lease.

6. Use.

     6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal
use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance,
or that disturbs occupants of or causes damage to neighboring premises or properties. Other than
guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets,
animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to
any written request for a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the Building or the mechanical or electrical systems therein, and/or is not
significantly more burdensome to the Project. If Lessor elects to withhold consent, Lessor shall
within 7 days

					
	 	 	 	 	 
	 
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after such request give written notification of same, which notice shall include an explanation of
Lessor’s objections to the change in the Agreed Use.

     6.2 Hazardous Substances.

          (a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease
shall mean any product, substance, or waste whose presence, use, manufacture, disposal,
transportation, or release, either by itself or in combination with other materials expected to be
on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a
basis for potential liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substances shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a
Reportable Use of Hazardous Substances without the express prior written consent of Lessor
and timely compliance (at Lessee’s expense) with all Applicable Requirements.
“Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance
that requires a permit from, or with respect to which a report, notice, registration or business
plan is required to be filed with, any governmental authority, and/or (iii) the presence at the
Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that
a notice be given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, ordinary office supplies (copier
toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may condition its consent to any
Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to
protect itself, the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and removal on or before
Lease expiration or termination) of protective modifications (such as concrete encasements) and/or
increasing the Security Deposit.

          (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a
Hazardous Substance has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice of such fact to
Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which
it has concerning the presence of such Hazardous Substance.

          (c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under, or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee’s expense,comply with all Applicable
Requirements and take all investigatory and/or remedial action reasonably recommended, whether or
not formally ordered or required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of the Premises or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the
Premises during the term of this Lease, by or for Lessee, or any third party.

          (d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents,
employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents
and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and
consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance under the Premises from
areas outside of the Project not caused or contributed to by Lessee). Lessee’s obligations shall
include, but not be limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee shall release
Lessee from its obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.

          (e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend,
reimburse and hold Lessee, its employees and lenders, harmless from and against any and all
environmental damages, including the cost of remediation, which suffered as a direct result of
Hazardous Substances on the Premises prior to Lessee taking possession or which are caused by the
gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations,
as and when required by the Applicable Requirements, shall include, but not be limited to, the cost
of investigation, removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease.

          (f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any
investigations or remediation measures required by governmental entities having jurisdiction with
respect to the existence of Hazardous Substances on the Premises prior to Lessee taking possession,
unless such remediation measure is required as a result of Lessee’s use (including “Alterations”,
as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible
for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor,
including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

          (g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e))
occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which
case Lessee shall make the investigation and remediation thereof required by the Applicable
Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights
under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at
Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate
this Lease as of the date 60 days following the date of such notice. In the event Lessor elects
to give a termination notice, Lessee may, within 10 days thereafter, give written notice to
Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such
Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory
assurance thereof within 30 days following such commitment. In such event, this Lease shall
continue in full force and effect, and Lessor shall proceed to make such remediation as soon as
reasonably possible after the required funds are available. If Lessee does not give such notice
and provide the required funds or assurance thereof within the time provided, this Lease shall
terminate as of the date specified in Lessor’s notice of termination

     6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this
Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially
comply with all Applicable Requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants
which relate in any manner to such Requirements, without regard to whether said Requirements are
now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt
of Lessor’s written request, provide Lessor with copies of all permits and other documents, and
other information evidencing Lessee’s compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents
involved) of any threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable
Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water
damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to
the production of mold; or (ii) any mustiness or other odors that might indicate the presence of
mold in the Premises.

					
	 	 	 	 	 
	 
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     6.4 Inspection; Compliance. Lessor and Lessor’s “Lender” (as defined in Paragraph 30) and
consultants shall have the right to enter into Premises at any time, in the case of an emergency,
and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any
such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a
Hazardous Substance condition (see Paragraph 9.1) is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon
request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably
related to the violation or contamination. In addition, Lessee shall provide copies of all relevant
material safety data sheets(MSDS) to Lessor within 10 days of the receipt of written request
therefor.

     7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.

          7.1 Lessee’s Obligations.

          (a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3
(Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or
Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises,
Utility Installations (intended for Lessee’s exclusive use, no matter where located), and
Alterations in good order, condition and repair (whether or not the portion of the Premises
requiring repairs, or the means of repairing the same, are reasonably or readily accessible to
Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior
use, the elements or the age of such portion of the Premises), including, but not limited to, all
equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities,
boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings,
floors, windows, doors, plate glass, and skylights but excluding any items which are the
responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices, specifically including
the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below.
Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep
the Premises and all improvements thereon or a part thereof in good order, condition and state of
repair.

          (b) Service Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with contractors
specializing and experienced in the maintenance of the following equipment and improvements, if
any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels,
(iii) clarifiers, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor
reserves the right, upon notice to Lessee, to procure and maintain any or all of such service
contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

          (c) Failure to Perform. If Lessee fails to perform Lessee’s obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee
(except in the case of an emergency, in which case no notice shall be required), perform such
obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and
Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

          (d) Replacement. Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7
below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and
perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired
other than at a cost which is in excess of 50% of the cost of replacing such item, then such item
shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term of this Lease, on the
date on which Base Rent is due, an amount equal to the product of multiplying the cost of such
replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie.
1/144th of the cost per month). Lessee shall pay interest on the unamortized balance but may
prepay its obligation at any time.

     7.2 Lessor’s Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage
or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2,
shall keep in good order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm
and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as
well as providing the services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of
exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in
effect to the extent it is inconsistent with the terms of this Lease.

     7.3 Utility Installations; Trade Fixtures; Alterations.

          (a) Definitions. The term “Utility Installations” refers to all floor and window coverings,
air and/or vacuum lines, power panels, electrical distribution, security and fire protection
systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on
the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can
be removed without doing material damage to the Premises. The term “Alterations” shall mean
any modification of the improvements, other than Utility Installations or Trade Fixtures, whether
by addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a).

          (b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises
without Lessor’s prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without such consent but upon
notice to Lessor, as long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls,will not affect the electrical, plumbing,
HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended
does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s
Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof
penetrations and/or install anything on the roof without the prior written approval of Lessor.
Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor
chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to Lessor in
written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i)
acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the
permits and the plans and specifications prior to commencement of the work, and (iii) compliance
with all conditions of said permits and other Applicable Requirements in a prompt and expeditious
manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with
good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built
plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor
may condition its consent upon Lessee providing a lien and completion bond in an amount equal to
150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting
an additional Security Deposit with Lessor.

          (c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or
alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or
may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest
therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post notices of
non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the
same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount
equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against
liability for the same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor’s attorneys’ fees and costs.

					
	 	 	 	 	 
	 
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7.4 Ownership; Removal; Surrender; and Restoration.

          (a) Ownership. Subject to Lessor’s right to require removal or elect ownership as hereinafter
provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee,
but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility
Installations shall, at the expiration or termination of this Lease, become the property of Lessor
and be surrendered by Lessee with the Premises.

          (b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not
later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all
Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of
this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent.

          (c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any
earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and
free of debris, and in good operating order, condition and state of repair, ordinary wear and tear
excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would
have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is
for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered
to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any
damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned
Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any
storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any
and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except
Hazardous Substances which were deposited via underground migration from areas outside of the
Premises) even if such removal would require Lessee to perform or pay for work that exceeds
statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any
earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or
retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises
pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a
holdover under the provisions of Paragraph 26 below.

8. Insurance; Indemnity.

     8.1 Payment of Premium Increases.

          (a) As used herein, the term “Insurance Cost Increase” is defined as any increase in the
actual cost of the insurance applicable to the Building and/or the Project and required to be
carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), (“Required Insurance”), over
and above the Base Premium, as hereinafter defined, calculated on an annual basis. Insurance Cost
Increase shall include, but not be limited to, requirements of the holder of a mortgage or
deed of trust covering the Premises, Building and/or Project, increased valuation of the
Premises, Building and/or Project, and/or a general premium rate increase. The term Insurance Cost
Increase shall not, however, include any premium increases resulting from the nature of the
occupancy of any other tenant of the Building. If the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the “Base Premium.” The Base Premium shall be the annual
premium applicable to the 12 month period immediately preceding the Start Date. If, however, the
Project was not insured for the entirety of such 12 month period, then the Base Premium shall be
the lowest annual premium reasonably obtainable for the Required Insurance as of the Start Date,
assuming the most nominal use possible of the Building. In no event, however, shall Lessee be
responsible for any portion of the premium cost attributable to liability insurance coverage in
excess of $2,000,000 procured under Paragraph 8.2(b).

          (b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to Paragraph 4.2.
Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall
be prorated to coincide with the corresponding Start Date or Expiration Date.

     8.2 Liability Insurance.

          (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability
policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily
injury, personal injury and property damage based upon or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall
be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an
additional insured by means of an endorsement at least as broad as the Insurance Service
Organization’s “Additional Insured-Managers or Lessors of Premises” Endorsement and coverage shall
also be extended to include damage caused by heat, smoke or fumes from a hostile fire. The policy
shall not contain any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an “insured contract” for the
performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee
shall provide an endorsement on its liability policy(ies) which provides that its insurance shall
be primary to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.

          (b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph
8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee.
Lessee shall not be named as an additional insured therein.

     8.3 Property Insurance — Building, Improvements and Rental Value.

          (a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of
insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender
insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full
insurable replacement cost of the Premises, as the same shall exist from time to time, or the
amount required by any Lender, but in no event more than the commercially reasonable and available
insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and
Lessee’s personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is
available and commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for debris removal and the enforcement of any
Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any
portion of the Premises as the result of a covered loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance coverage amount by
a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban
Consumers for the city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence.

          (b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name
of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one
year with an extended period of indemnity for an additional 180 days ("Rental Value
insurance"). Said insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next 12 month period.

          (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property
insurance of the Building and for theCommon Areas or other buildings in the Project if said
increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

          (d) Lessee’s Improvements. Since Lessor is the Insuring Party, Lessor shall not be required
to insure Lessee Owned Alterations and Utility Installations unless the item in question has become
the property of Lessor under the terms of this Lease.

     8.4 Lessee’s Property; Business Interruption Insurance.

					
	 	 	 	 	 
	 
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          (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s
personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations.
Such insurance shall be full replacement cost coverage with a deductible of not to exceed
$1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property, Trade Fixtures and
Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written
evidence that such insurance is in force.

          (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense
insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable
to all perils commonly insured against by prudent lessees in the business of Lessee or attributable
to prevention of access to the Premises as a result of such perils.

     (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or
forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business
operations or obligations under this Lease.

     8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or
admitted to transact business in the state where the Premises are located, and maintaining during
the policy term a “General Policyholders Rating” of at least A-, VI, as set forth in the most
current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender.
Lessee shall not do or permit to be done anything which invalidates the required insurance
policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts of the required
insurance. No such policy shall be cancelable or subject to modification except after
30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of
such policies, furnish Lessor with evidence of renewals or
“insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such
policies shall be for a term of at least one year, or the length of the remaining term of this
Lease, whichever is less. If either Party shall fail to procure and maintain the insurance
required to be carried by it, the other Party may, but shall not be required to, procure and
maintain the same.

     8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor
each hereby release and relieve the other, and waive their entire right to recover damages against
the other, for loss of or damage to its property arising out of or incident to the perils required
to be insured against herein. The effect of such releases and waivers is not limited by the amount
of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to
have their respective property damage insurance carriers waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.

     8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master
or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or
damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities
arising out of, involving, or in connection with, the use and/or occupancy of the Premises by
Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing
matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.

     8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to
the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees,
contractors, invitees, customers, or any other person in or about the Premises, whether such damage
or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air
quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes,
fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the Premises or upon other
portions of the Building, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor nor from the failure of
Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor’s
negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to
Lessee’s business or for any loss of income or profit therefrom.

     8.9 Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain
or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor
to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to
ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the
required insurance and/or does not provide Lessor with the required binders or certificates
evidencing the existence of the required insurance, the Base Rent shall be automatically
increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then
existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base
Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will
incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent
shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to
maintain such insurance, prevent the exercise of any of the other rights and remedies granted
hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9. Damage or Destruction.

     9.1 Definitions.

          (a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be
repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does
not exceed a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing within 30
days from the date of the damage or destruction as to whether or not the damage is Partial or
Total. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows,
doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant
to the provisions of Paragraph 7.1.

          (b) “Premises Total Destruction” shall mean damage or destruction to the improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which
cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or
the cost thereof exceeds a sum equal to 6 month’s Base Rent. Lessor shall notify Lessee in writing
within 30 days from the date of the damage or destruction as to whether or not the damage is
Partial or Total.

          (c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other
than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by
an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of
any deductible amounts or coverage limits involved.

          (d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by
Lessor at the time of the occurrence to their condition existing immediately prior thereto,
including demolition, debris removal and upgrading required by the operation of
Applicable Requirements, and without deduction for depreciation.

          (e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition
involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph
6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

     9.2 Partial Damage — Insured Loss. If a Premises Partial Damage that is an Insured Loss
occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade
Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect; provided, however, that Lessee shall, at
Lessor’s election, make the repair of any damage or destruction the total cost to repair of which
is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds
available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the
required insurance was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required
to complete said repairs.

					
	 	 	 	 	 
	 
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In the event, however, such shortage was due to the fact that, by reason of the unique nature of
the improvements, full replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within 10 days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof
within said 10 day period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If such funds or
assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10
days thereafter to: (i) make such restoration and repair as is commercially reasonable with
Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and
effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to
reimbursement of any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3,
notwithstanding that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.

     9.3 Partial Damage — Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss
occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably
possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or
(ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor
of knowledge of the occurrence of such damage. Such termination shall be effective 60 days
following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee
shall have the right within 10 days after receipt of the termination notice to give written notice
to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from
Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30
days after making such commitment. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not make the required commitment, this Lease shall
terminate as of the date specified in the termination notice.

     9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total
Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages
from Lessee, except as provided in Paragraph 8.6.

     9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is
damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss,
Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage
by giving a written termination notice to Lessee within 30 days after the date of occurrence of
such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by,
(a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds
(or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the
date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate
this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially
reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option and provide such funds or
assurance during such period, then this Lease shall terminate on the date specified in the
termination notice and Lessee’s option shall be extinguished.

     9.6 Abatement of Rent; Lessee’s Remedies.

          (a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a
Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent
payable by Lessee for the period required for the repair, remediation or restoration of such damage
shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other obligations of
Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such
damage, destruction, remediation, repair or restoration except as provided herein.

          (b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not
commence, in a substantial and meaningful way, such repair or restoration within 90 days after such
obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of
Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of
such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30
days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair
or restoration is commenced within such 30 days, this Lease shall continue in full force and
effect. “Commence” shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever first occurs.

     9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph
6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any
other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so
much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

     9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the
effect of any damage to or destruction of the Premises with respect to the termination of this
Lease and hereby waive the provisions of any present or future statute to the extent inconsistent
herewith.

10. Real Property Taxes.

     10.1 Definitions.

          (a) “Real Property Taxes.” As used herein, the term “Real Property Taxes” shall include any
form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax
(other than inheritance, personal income or estate taxes); improvement bond; and/or license fee
imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor’s
right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the
direct or indirect power to tax and where the funds are generated with reference to the Project
address and where the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Project is located. The term “Real Property
Taxes” shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i)
imposed by reason of events occurring during the term of this Lease, including but not limited to,
a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii)
levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

          (b) “Base Real Property Taxes.” As used herein, the term “Base Real Property Taxes” shall be
the amount of Real Property Taxes, which are assessed against the Premises, Building, Project or
Common Areas in the calendar year during which the Lease is executed. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included
in the calculation of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.

     10.2 Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall pay the
Real Property Taxes applicable to the
Project, and said payments shall be included in the calculation of Common Area Operating Expenses
in accordance with the provisions of Paragraph 4.2.

     10.3 Additional Improvements. Common Area Operating Expenses shall not include Real
Property Taxes specified in the tax assessor’s records and work sheets as being caused by
additional improvements placed upon the Project by other lessees or by Lessor for the exclusive
enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however,
pay to Lessor at the time Common Area Operating

					
	 	 	 	 	 
	 
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Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee’s request or by reason of any alterations or improvements to
the Premises made by Lessor subsequent to the execution of this Lease by the Parties.

     10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes
allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such proportion to be determined
by Lessor from the respective valuations assigned in the assessor’s work sheets or such
other information as may be reasonably available. Lessor’s reasonable determination thereof, in
good faith, shall be conclusive.

     10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed
against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures,
furnishings, equipment and all personal property of Lessee contained in the Premises. When
possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade
Fixtures, furnishings, equipment and all other personal property to be assessed and billed
separately from the real property of Lessor. If any of Lessee’s said property shall be assessed
with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property
within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s
property.

11. Utilities and Services. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the Premises, together
with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in
Lessor’s sole judgment, Lessor determines that Lessee is using a disproportionate amount of water,
electricity or other commonly metered utilities, or that Lessee is generating such a large volume
of trash as to require an increase in the size of the trash receptacle and/or an increase in the
number of times per month that it is emptied, then Lessor may increase Lessee’s Base Rent by an
amount equal to such increased costs. There shall be no abatement of Rent and Lessor shall not be
liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of
any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other
cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

     12.1 Lessor’s Consent Required.

          (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage
or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s
interest in this Lease or in the Premises without Lessor’s prior written consent.

          (b) Unless Lessee is a corporation and its stock is publicly traded on a national stock
exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The
transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a
change in control for this purpose.

          (c) The involvement of Lessee or its assets in any transaction, or series of transactions
(by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise),
whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which
results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of
such Net Worth as it was represented at the time of the execution of this Lease or at the time of
the most recent assignment to which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is greater, shall be
considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of
Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally
accepted accounting principles.

          (d) An assignment or subletting without consent shall, at Lessor’s option, be a Default
curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any
notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written
notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the
event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the
Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in
effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the
Lease term shall be increased to 110% of the scheduled adjusted rent.

          (e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to
compensatory damages and/or injunctive relief.

          (f) Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is
in Default at the time consent is requested.

          (g) Notwithstanding the foregoing, allowing a diminimus portion of the Premises, ie. 20 square
feet or less, to be used by a third party vendor in connection with the installation of a vending
machine or payphone shall not constitute a subletting.

     12.2 Terms and Conditions Applicable to Assignment and Subletting.

          (a) Regardless of Lessor’s consent, no assignment or subletting shall : (i) be effective
without the express written assumption by such assignee or sublessee of the obligations of Lessee
under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other obligations to be
performed by Lessee.

          (b) Lessor may accept Rent or performance of Lessee’s obligations from any person other
than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver
or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

          (c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any
subsequent assignment or subletting.

          (d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against
Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations
under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies
against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

          (e) Each request for consent to an assignment or subletting shall be in writing, accompanied
by information relevant to Lessor’s determination as to the financial and operational
responsibility and appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any, together with a fee of
$500 as consideration for Lessor’s considering and processing said request. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as may be
reasonably requested. (See also Paragraph 36)

          (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such
assignment, entering into such sublease, or entering into possession of the Premises or any portion
thereof, be deemed to have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee during the term of
said assignment or sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

          (g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or
sublessee any Option granted to the original Lessee by this Lease unless such transfer is
specifically consented to by Lessor in writing. (See Paragraph 39.2)

     12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and
conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be deemed included in all subleases under this
Lease whether or not expressly incorporated therein:

          (a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable
on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under
this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s
obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor
exceeds Lessee’s then outstanding obligations any

					
	 	 	 	 	 
	 
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such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any
assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such
sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations
under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee
shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any
obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from
Lessee to the contrary.

          (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn
to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

          (c) Any matter requiring the consent of the sublessor under a sublease shall also require the
consent of Lessor.

          (d) No sublessee shall further assign or sublet all or any part of the Premises without
Lessor’s prior written consent.

          (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee,
who shall have the right to cure the Default of Lessee within the grace period, if any, specified
in such notice. The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies.

     13.1 Default; Breach. A “Default” is defined as a failure by the Lessee to comply with or
perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A
“Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of
Lessee to cure such Default within any applicable grace period:

          (a) The abandonment of the Premises; or the vacating of the Premises without providing a
commercially reasonable level of security, or where the coverage of the property insurance
described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism.

          (b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be
made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable
evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of 3 business days
following written notice to Lessee.

          (c) The commission of waste, act or acts constituting public or private nuisance, and/or an
illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to
Lessee.

          (d) The failure by Lessee to provide (i) reasonable written evidence of compliance with
Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized
assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi)
evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41,
(viii) material data safety sheets (MSDS), or (ix) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure
continues for a period of 10 days following written notice to Lessee.

          (e) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or
of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs
13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written
notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days
are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee
commences such cure within said 30 day period and thereafter diligently prosecutes such cure to
completion.

          (f) The occurrence of any of the following events: (i) the making of any general arrangement
or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. § 101
or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same
is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee’s assets located at the Premises or of
Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided,
however, in the event that any provision of this subparagraph is contrary to any applicable law,
such provision shall be of no force or effect, and not affect the validity of the remaining
provisions.

          (f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor
was materially false.

          (g) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death
of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other
than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a
Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure,
within 60 days following written notice of any such event, to provide written alternative assurance
or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the time of execution of
this Lease.

     13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations,
within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at
its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the
obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or
approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred
by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor
may, with or without further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:

     (a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case
this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned
at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award exceeds the amount of
such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided;
and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused
by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course
of things would be likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by
Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve
Bank of the District within which the Premises are located at the time of award plus one percent.
Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive
Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right
to recover all or any part thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice required by
Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the
unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace

					
	 	 	 	 	 
	 
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periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to
the remedies provided for in this Lease and/or by said statute.

          (b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes
due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of
maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s
interests, shall not constitute a termination of the Lessee’s right to possession.

          (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of
the state wherein the Premises are located. The expiration or termination of this Lease and/or the
termination of Lessee’s right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by
reason of Lessee’s occupancy of the Premises.

     13.3 Inducement Recapture. Any agreement for free or abated rent or other charges, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration
for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as
“Inducement Provisions”, shall be deemed conditioned upon Lessee’s full and faithful performance of
all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any
such Inducement Provision shall automatically be deemed deleted from this Lease and of no further
force or effect, and any rent, other charge, bonus, inducement or consideration theretofore
abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this
paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.

     13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent
will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a
one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The
parties hereby agree that such late charge represents a fair and reasonable estimate of the costs
Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall
in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount,
nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for 3 consecutive
installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base
Rent shall, at Lessor’s option, become due and payable quarterly in advance.

     13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not
received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days
following the date on which it was due for non-scheduled payment, shall bear interest from the date
when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled
payments. The interest (“Interest”) charged shall be computed at the rate of 10% per annum but
shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential
late charge provided for in Paragraph 13.4.

     13.6 Breach by Lessor.

          (a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails
within a reasonable time to perform an obligation required to be performed by Lessor. For purposes
of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by
Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such
purpose, of written notice specifying wherein such obligation of Lessor has not been performed;
provided, however, that if the nature of Lessor’s obligation is such that more than 30 days
are reasonably required for its performance, then Lessor shall not be in breach if performance is
commenced within such 30 day period and thereafter diligently pursued to completion.

          (b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender
cures said breach within 30 days after receipt of said notice, or if having commenced said cure
they do not diligently pursue it to completion, then Lessee may elect to cure said breach at
Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided
however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent
or the Security Deposit, reserving Lessee’s right to reimbursement from Lessor for any such expense
in excess of such offset. Lessee shall document the cost of said cure and supply said
documentation to Lessor.

14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent
domain or sold under the threat of the exercise of said power
(collectively “Condemnation”), this
Lease shall terminate as to the part taken as of the date the condemning authority takes title
or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more
than 25% of Lessee’s Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessee’s
option, to be exercised in writing within 10 days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within 10 days after the condemning
authority shall have taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing,
this Lease shall remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in proportion to the reduction in utility of the
Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value of the leasehold,
the value of the part taken, or for severance damages; provided, however, that Lessee shall be
entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or
Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the
provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by
Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and
Lessee shall be entitled to any and all compensation which is payable therefor. In the event
that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to
the Premises caused by such Condemnation.

15. Brokerage Fees.

     15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.10
above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if
Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other
premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is
increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay
Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution
of this Lease.

     15.2 Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease
shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party
beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to
Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such
amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker
when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if
Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to
its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to
be a third party beneficiary of any commission agreement entered into by and/or between Lessor and
Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

     15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each
represent and warrant to the other that it has had no dealings with any person, firm, broker or
finder (other than the Brokers, if any) in connection with this Lease, and that no one other than
said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and
against liability for compensation or charges which may be claimed by any such unnamed broker,
finder or

					
	 	 	 	 	 
	 
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other similar party by reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

16. Estoppel Certificates.

          (a) Each
Party (as “Responding Party”) shall within 10 days after written notice from the
other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a
statement in writing in form similar to the then most current “Estoppel Certificate” form published
by the AIR Commercial Real Estate Association, plus such additional information, confirmation
and/or statements as may be reasonably requested by the Requesting Party.

          (b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within
such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i)
the Lease is in full force and effect without modification except as may be represented by the
Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and
(iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance.
Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate,
and the Responding Party shall be estopped from denying the truth of the facts contained in said
Certificate.

          (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee
and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such
financial statements as may be reasonably required by such lender or purchaser, including but not
limited to Lessee’s financial statements for the past 3 years. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.

17. Definition of Lessor. The term “Lessor” as used herein shall mean the owner or owners at
the time in question of the fee title to the Premises, or, if this is a sublease, of the
Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in
the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall
be relieved of all liability with respect to the obligations and/or covenants under this Lease
thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.

18. Severability. The invalidity of any provision of this Lease, as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this
Lease shall mean and refer to calendar days.

20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute
personal obligations of Lessor, or its partners, members, directors, officers or shareholders,
and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of
any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s
partners, members, directors, officers or shareholders, or any of their personal assets for such
satisfaction.

21. Time of Essence. Time is of the essence with respect to the performance of all obligations to
be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between
the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous
agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to
the Brokers that it has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease and as to the use,
nature, quality and character of the Premises. Brokers have no responsibility with respect thereto
or with respect to any default or breach hereof by either Party. The liability (including court
costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or modification hereto
shall be limited to an amount up to the fee received by such Broker pursuant to this Lease;
provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable
to any gross negligence or willful misconduct of such Broker.

23. Notices.

     23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law
shall be in writing and may be delivered in person (by hand or by courier) or may be sent by
regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or
by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified
in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be
that Party’s address for delivery or mailing of notices. Either Party may by written notice to the
other specify a different address for notice, except that upon Lessee’s taking possession of the
Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to
Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may
from time to time hereafter designate in writing.

     23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt card, or if no
delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed
given 72 hours after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that guarantee next day
delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or
courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered
upon telephone confirmation of receipt (confirmation report from fax machine is sufficient),
provided a copy is also delivered via delivery or mail. If notice is received on a Saturday,
Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition
hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of
any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition
hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be
construed as the basis of an estoppel to enforce the provision or provisions of this Lease
requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or
Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages
due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection
therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

     (a) When entering into a discussion with a real estate agent regarding a real estate
transaction, a Lessor or Lessee should from the outset understand what type of agency relationship
or representation it has with the agent or agents in the transaction. Lessor and Lessee
acknowledge being advised by the Brokers in this transaction, as follows:

          (i) Lessor’s Agent. A Lessor’s agent under a listing agreement with the Lessor acts
as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative
obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and
loyalty in dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise
of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair
dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting
the value or desirability of the property that are not known to, or within the diligent attention
and observation of, the Parties. An agent is not obligated to reveal to either Party any
confidential information obtained from the other Party which does not involve the affirmative
duties set forth above.

          (ii) Lessee’s Agent. An agent can agree to act as agent for the Lessee only. In
these situations, the agent is not the Lessor’s

					
	 	 	 	 	 
	 
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agent, even if by agreement the agent may receive compensation for services rendered, either in
full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative
obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and
loyalty in dealings with the Lessee. To the Lessee and the Lessor: a. Diligent exercise
of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair
dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting
the value or desirability of the property that are not known to, or within the diligent attention
and observation of, the Parties. An agent is not obligated to reveal to either Party any
confidential information obtained from the other Party which does not involve the affirmative
duties set forth above.

          ` (iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting
directly or through one or more associate licenses, can legally be the agent of both the Lessor and
the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the
Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the
Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the
dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated
above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not
without the express permission of the respective Party, disclose to the other Party that the Lessor
will accept rent in an amount less than that indicated in the listing or that the Lessee is willing
to pay a higher rent than that offered. The above duties of the agent in a real estate transaction
do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor
and Lessee should carefully read all agreements to assure that they adequately express their
understanding of the transaction. A real estate agent is a person qualified to advise about real
estate. If legal or tax advice is desired, consult a competent professional.

     (b) Brokers have no responsibility with respect to any default or breach hereof by either
Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty,
error or omission relating to this Lease may be brought against Broker more than one year after the
Start Date and that the liability (including court costs and attorneys’ fees), of any Broker with
respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s
liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

     (c) Buyer and Seller agree to identify to Brokers as “Confidential” any communication or
information given Brokers that is considered by such Party to be confidential.

26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part
thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over,
then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the
expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any
holding over by Lessee.

27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.

28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be
observed or performed by Lessee are both covenants and conditions. In construing this Lease, all
headings and titles are for the convenience of the Parties only and shall not be considered a part
of this Lease. Whenever required by the context, the singular shall include the plural and vice
versa. This Lease shall not be construed as if prepared by one of the Parties, but rather
according to its fair meaning as a whole, as if both Parties had prepared it.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal
representatives, successors and assigns and be governed by the laws of the State in which the
Premises are located. Any litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

     30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate
to any ground lease, mortgage, deed of trust, or other hypothecation or security device
(collectively, “Security Device”), now or hereafter placed upon the Premises, to any and all
advances made on the security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as
“Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under
this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to
the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates
of the documentation or recordation thereof.

     30.2 Attornment. In the event that Lessor transfers title to the Premises, or the Premises
are acquired by another upon the foreclosure or termination of a Security Devise to which this
Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph
30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or,
at the election of the new owner, this Lease will automatically become a new lease between Lessee
and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations
hereunder and such new owner shall assume all of Lessor’s obligations, except that such new owner
shall not: (a) be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee
might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or
(d) be liable for the return of any security deposit paid to any prior lessor.

     30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to
receiving a commercially reasonable non-disturbance agreement (a
“Non-Disturbance Agreement”) from
the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and
this Lease, including any options to extend the term hereof, will not be disturbed so long as
Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60
days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to
obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is
secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance
Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and
attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

     30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without
the execution of any further documents; provided, however, that, upon written request from Lessor
or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31. Attorneys’ Fees. If any Party or Broker brings an action or proceeding involving the Premises
whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate
suit, whether or not such action or proceeding is pursued to decision or judgment. The term,
“Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or
the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award
shall not be computed in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to
attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default
and consultations in connection therewith, whether or not a legal action is subsequently commenced
in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence
for such services and consultation).

32. Lessor’s Access; Showing Premises; Repairs. Showing Premises; Repairs. Lessor and Lessor’s
agents shall have the right to enter the Premises at any time, in the case of an emergency, and
otherwise at reasonable times after reasonable prior notice for the purpose of showing the same

					
	 	 	 	 	 
	 
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to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements
or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and
maintaining of utilities, services, pipes and conduits through the Premises and/or other premises
as long as there is no material adverse effect on Lessee’s use of the Premises. All such
activities shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the
Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to permit an auction.

34. Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary
“For Lease” signs during the last 6 months of the term hereof. Except for ordinary “For Sublease”
signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project
without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary
or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a
termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or
lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or
all existing subtenancies. Lessor’s failure within 10 days following any such event to elect
to the contrary by written notice to the holder of any such lesser interest, shall constitute
Lessor’s election to have such event constitute the termination of such interest.

36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party
is required to an act by or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’,
attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response
to, a request by Lessee for any Lessor consent, including but not limited to consents to an
assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee
upon receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act,
assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee
of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or
Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such
consent. The failure to specify herein any particular condition to Lessor’s consent shall not
preclude the imposition by Lessor at the time of consent of such further or other conditions
as are then reasonable with reference to the particular matter for which consent is being
given. In the event that either Party disagrees with any determination made by the other hereunder
and reasonably requests the reasons for such determination, the determining party shall furnish its
reasons in writing and in reasonable detail within 10 business days following such request.

37. Guarantor.

     37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most
recently published by the AIR Commercial Real Estate Association,.

     37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses,
upon request to provide: (a) evidence of the execution of the guaranty, including the authority of
the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors authorizing the making of
such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written
confirmation that the guaranty is still in effect.

39. Options. If Lessee is granted an option, as defined below, then the following provisions shall
apply.

     39.1 Definition. “Option” shall mean: (a) the right to extend the term of or renew this
Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of
first refusal or first offer to lease either the Premises or other property of Lessor; (c) the
right to purchase or the right of first refusal to purchase the Premises or other property of
Lessor.

     39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is
personal to the original Lessee, and cannot be assigned or exercised by anyone other than said
original Lessee and only while the original Lessee is in full possession of the Premises and, if
requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.

     39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or
renew this Lease, a later Option cannot be exercised unless the prior Options have been validly
exercised.

     39.4 Effect of Default on Options.

          (a) Lessee shall have no right to exercise an Option: (i) during the period commencing with
the giving of any notice of Default and continuing until said Default is cured, (ii) during the
period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given
3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month
period immediately preceding the exercise of the Option.

          (b) The period of time within which an Option may be exercised shall not be extended or
enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of
Paragraph 39.4(a).

          (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s
due and timely exercise of the Option, if, after such exercise and prior to the commencement of the
extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days
after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if
Lessee commits a Breach of this Lease.

40. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does
not include the cost of guard service or other security measures, and that Lessor shall have no
obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of third parties.

41. Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of
Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the
recordation of parcel maps and restrictions, and (iii) to create and/or install new utility
raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways
do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate such rights.

42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of
money to be paid by one Party to the other under the provisions hereof, the Party against whom the
obligation to pay the money is asserted shall have the right to make payment “under protest” and
such payment shall not be regarded as a voluntary payment and there shall survive the right on the
part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there
was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party
shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A
Party who does not initiate suit for the recovery of sums paid “under protest” within 6 months
shall be deemed to have waived its right to protest such payment.

43. Authority.; Multiple Parties; Execution.

          (a) If either Party hereto is a corporation, trust, limited liability company, partnership,
or similar entity, each individual executing this Lease on behalf of such entity represents and
warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each
Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such
authority.

          (b) If this Lease is executed by more than one person or entity as “Lessee”, each such person
or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named
Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary
thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named
Lessees had executed such document.

          (c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed
an original and all of which together

					
	 	 	 	 	 
	 
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shall constitute one and the same instrument.

44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or
handwritten provisions shall be controlled by the typewritten or handwritten provisions.

45. Offer. Preparation of this Lease by either party or their agent and submission of same to the
other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended
to be binding until executed and delivered by all Parties hereto.

46. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at
the time of the modification. As long as they do not materially change Lessee’s obligations
hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be
reasonably required by a Lender in connection with the obtaining of normal financing or refinancing
of the Premises.

47. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

48. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the
Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease
is            is not attached to this Lease.

49. Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act
(ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or
representation as to whether or not the Premises comply with ADA or any similar legislation. In
the event that Lessee’s use of the Premises requires modifications or additions to the Premises in
order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or
additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED
HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE
PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO
THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE
ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID
INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES,
THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING
SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES
FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE
LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE
LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their
respective signatures.

	 	 	 	 	 	 	 	 	 
	Executed at: Cupertino, California	 	 	 	Executed at: North Hollywood, California
	On: August 16, 2005	 	 	 	On: August 15, 2005
	 
	By LESSOR:	 	 	 	By LESSEE:
	 
	Thomas L. Jackson	 	 	 	Save the World Air, Inc.
	 
	By:

	/s/ Thomas L. Jackson
	 	By:
	/s/ Eugene E. Eichler
	 

	 
	 	 	 	 	 
	Name Printed: Thomas L. Jackson	 	 	 	Name Printed: Eugene E. EIchler
	Title:

	 	 	 	 	 	Title:
	  President  	 President
	 

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	By:	 	 
	 

	 	 
	 	 	 	 	 	 
	Name Printed:	 	 	 	Name Printed:
	 

	 	 
	 	 	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Address: 22468 Cupertino Road	 	 	 	Address: 5125 Lankership Boulevard
	Cupertino, CA 95014	 	 	 	North Hollywood, CA 91601
	 
	 	 	 	 	 	 	 	 
	Telephone: (
      )	 	 	 	 	Telephone: (818) 487-8000
	 

	 	 	 	 	 	 	 	 
	Facsimile: (       )	 	 	 	Facsimile: (818) 487-8003
	 

	 	 	 	 	 	 	 	 
	Federal ID No.	 	 	 	 	Federal ID No:	 
	 

	 	 
	 	 	 	 	 	 

					
	 	 	 	 	 
	 
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	BROKER:	 	 	 	BROKER:
	 
	Colliers International	 	 	 	Colliers International
	Att: Brent Dressen	 	 	 	Att: Brent Dressen
	Title:

	 	 	 	 	 	Title:	 	 
	 

	 
	 	 	 	 	 
	Address: 8339 Church Street, Suite 101	 	 	 	Address: 8339 Church Street, Suite 101
	Gilroy, CA 95020	 	 	 	Gilroy, CA 95020
	Telephone: (408 ) 842-7000	 	 	 	Telephone: (408 ) 842-7000
	Facsimile:(408 ) 842-1141	 	 	 	Facsimile:(408 ) 842-1141
	Federal ID No.	 	 	 	 	Federal ID No:	 
	 

	 	 
	 	 	 	 	 	 

bautista 080505 bd/pkp

These forms are often modified to meet changing requirements of law and needs of the industry.
Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL
ESTATE ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, CA 90017.
(213) 687-8777.

(c)Copyright 1998 By AIR Commercial Real Estate Association. All rights reserved.

No part of these works may be reproduced in any form without permission in writing.

					
	 	 	 	 	 
	 
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EXHIBIT 10.3

THIS NOTE AND ANY SHARES OF COMMON STOCK INTO WHICH THIS NOTE MAY BE CONVERTED HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED FOR SALE UNDER ANY STATE
SECURITIES LAWS (COLLECTIVELY, “SECURITIES LAWS”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS REGISTERED OR QUALIFIED FOR SALE UNDER ALL APPLICABLE SECURITIES LAWS OR UNLESS,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER, ANY SUCH OFFER, SALE OR OTHER TRANSFER IS EXEMPT FROM THE REGISTRATION OR QUALIFICATION
REQUIREMENTS OF SUCH SECURITIES LAWS.

	 	 	 
	$	 	 
	 
	 	 
	“Subscription Amount”
	 	“Issuance Date”

 

“Holder”

     FOR VALUE RECEIVED, SAVE THE WORLD AIR, INC., a corporation organized under the laws of the
state of Nevada (the “Company”), promises to pay to the order of the holder identified above
(together with any subsequent holder hereof, called the “Holder”), at the address of the Holder
shown on the books and records of the Company, or at such other place as Holder may direct from
time to time, the “Subscription Amount” noted above (the “Loan”), payable in full on July 31, 2006,
or at an earlier date as provided herein (the “Maturity Date”). This Note is one of several Notes
issued by the Company on one or more Issuance Dates (collectively, the “Notes”).

     The Company agrees to pay interest on the unpaid principal amount of the Subscription Amount
from time to time outstanding hereunder at the rate of 9% per year. Interest hereunder shall be
computed on the basis of a year of three hundred sixty-five (365) days and the actual number of
days elapsed. Interest on the unpaid principal amount hereof shall accrue on a monthly basis on
the last day of each calendar month, commencing on the calendar month following the Issuance Date.
Interest on the unpaid principal amount hereof shall be payable quarterly commencing on the last
day of the second calendar month after the calendar month of the Issuance Date and continuing on
the last day of each third calendar month thereafter until all sums due hereunder have been paid in
full. Accrual of interest hereunder shall commence on the Issuance Date.

     Payments of both principal and interest will be made in immediately available funds in lawful
money of the United States of America to the Holder at the Investor’s Address.

     The Note is subject to the following additional provisions:

     1. The Company shall be entitled to withhold from all payments of principal and/or interest of
this Note any amounts required to be withheld under the applicable

1

 

provisions of the U.S. Internal Revenue Code of 1986, as amended, or other applicable laws at
the time of such payments.

     2. This Note has been issued subject to investment representations of the original Holder
hereof and may be transferred or exchanged only in compliance with the Securities Act and
applicable state and other securities laws. Prior to the due presentment for such transfer of this
Note, the Company and any agent of the Company may treat the person in whose name this Note is duly
registered on the Company’s Note register as the owner hereof for the purpose of receiving payment
as herein provided and all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary. The transferee shall be
bound, as the original Holder by the same representations and terms described herein and under the
Agreement.

     3. a. The Holder or the Company may, at such Holder’s option, at any time convert the
principal amount of this Note or any portion thereof, and any interest accrued and unpaid thereon
(the “Conversion Amount”), into a number shares of fully paid and non-assessable Common Stock of
the Company (the “Conversion Shares”) pursuant to the following formula: the Conversion Amount
divided by Seventy Cents ($0.70) (as the same may be adjusted from time to time pursuant to the
provisions of this Note, the “Conversion Price”). The Holder may exercise the right to convert all
or any portion of the Conversion Amount by delivering to the Company (i) an executed and completed
notice of conversion in the form attached to this Note (the “Notice of Conversion”) to the Company
and (ii) this Note. The business day on which a Notice of Conversion and this Note are delivered
to the Company in accordance with the provisions hereof shall be deemed a “Conversion Date”. The
Company will transmit the certificates representing Conversion Shares issuable upon such conversion
of this Note (together with the certificates representing the amount of this Note not so converted)
to the Holder via express courier within ten Business Days after the Conversion Date. No
fractional shares shall be issued upon conversion of this Note. The amount of any of the
Conversion Amount which is less than a whole share of Common Stock shall be paid to the Holder in
cash. If the conversion of this Note requires that the Company amend its charter to increase the
number of common shares authorized, the conversion may not take place prior to the Company’s
completion of that process. Any delay due to such circumstance shall not be an event of default
under this Note. The Company shall promptly take any action required to effect such amendments to
its charter.

          b. If at any time on or prior to the Maturity Date the Company should either consummate or
enter into a “firm commitment” agreement for debt and/or equity financings in a transaction or
series of transactions in which the Company would be entitled to receive at least Five Million
Dollars ($5,000,000.00) of proceeds before payment of all costs of consummating such transaction or
transactions (the “Financing”), the Company may, in its sole and absolute discretion, elect to
require that the Holders of all, but not less than all, of the Notes, convert their respective
Notes on the same terms and subject to the same conditions as if each Holder had elected to
exercise such Holder’s rights of conversion as provided for herein (the “Mandatory Conversion”).
Whether or not the Company obtains the Financing, the Company shall have no obligation to require

2

 

a Mandatory Conversion. Should it elect to exercise its rights to require a Mandatory
Conversion, the Company shall promptly so notify the Holder and each holder of the other Notes, but
not later than five business days following the Maturity Date. The principal amount of this Note,
and any accrued interest thereon, shall be reduced as per that principal amount indicated on the
Notice of Conversion upon the proper receipt by the Holder of such Conversion Shares due upon such
Notice of Conversion.

     4. The number of Conversion Shares shall be adjusted as follows:

          a. If the Company shall at any time after the Issuance Date subdivide its outstanding shares
of Common Stock into a greater number of shares of Common Stock, the number of Conversion Shares in
effect immediately prior to such subdivision shall be proportionately increased, and conversely, in
case the outstanding shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect immediately prior to such combination shall be
proportionately reduced.

          b. If the Company shall at any time or from time to time after the Issuance Date make, or fix
a record date for the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in each such event the
number of Conversion Shares issuable upon conversion of this Note shall be proportionately
increased; provided, however, that if such record date is fixed and such dividend is not fully
paid, or if such distribution is not fully made on the date fixed therefor, the number of
Conversion Shares shall be recomputed to reflect that such dividend was not fully paid or that such
distribution was not fully made.

          c. If the Company at any time or from time to time after the Issuance Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of Common Stock, then and
in each such event provision shall be made so that Holder shall receive upon exercise of the
conversion right of this Note, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Company which Holder would have received had the
Conversion Amount of this Note been exercised on the date of such event and had it thereafter,
during the period from the date of such event to and including the date of conversion or purchase,
retained such securities receivable during such period.

          d. If the Common Stock issuable upon the conversion of this Note or option to purchase is
changed into the same or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a transaction described elsewhere in
Section 4 of this Note), then, and in any such event, each Holder shall have the right thereafter,
upon conversion of this Note or purchase pursuant to option to receive the kind and amount of stock
and other securities and property receivable upon such reorganization or other change, in an amount
equal to the amount that Holder would have been entitled to had it immediately prior to such
reorganization, reclassification or change converted this Note, but only to the extent this Note is
actually converted, all subject to further adjustment as provided herein.

3

 

          e. If at any time the Company proposes (A) the acquisition of the Company by another entity by
means of any transaction or series of related transactions (including, without limitation, any
reorganization, merger, consolidation or stock issuance) that results in the transfer of fifty
percent (50%) or more of the then outstanding voting power of the Company; or (B) a sale of all or
substantially all of the assets of the Company, then the Company shall give the Holder ten (10)
days notice of the proposed effective date of the transaction. If this Note has not been converted
by the effective date of such transaction, this Note shall be exercisable into the kind and number
of shares of stock or other securities or property of the Company or of the entity resulting from
such merger or acquisition to which such Holder would have been entitled if immediately prior to
such acquisition or merger, it had exercised this Note. The provisions of this Section 4(e) shall
similarly apply to successive consolidations, mergers, sales or conveyances.

     5. No provision of this Note shall alter or impair the obligation of the Company, which
is absolute and unconditional, upon an Event of Default (as defined below), to pay the principal
of, and interest on this Note at the place, time, and rate, and in the coin or currency herein
prescribed.

     6. Events of Default. Each of the following occurrences is hereby defined as an “Event
of Default”:

	 	(i)	 	Nonpayment. The Company shall fail to make any
payment of principal, interest, or other amounts payable hereunder when and as
due; or
	 
	 	(ii)	 	Dissolutions, etc. The Company or any subsidiary
shall fail to comply with any provision concerning its existence or any
prohibition against dissolution, liquidation, merger, consolidation or sale of
assets; or
	 
	 	(iii)	 	Noncompliance with this Agreement. The Company
shall fail to comply in any material respect with any provision hereof, which
failure does not otherwise constitute an Event of Default; or
	 
	 	(iv)	 	Insolvency. The institution of bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company, which proceedings shall not have been
vacated by appropriate court order within sixty (60) days of such institution.

     If one or more “Events of Default” shall occur, then, or at any time thereafter, and in each
and every such case, unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) or cured as provided
herein, at the option of the Holder, and in the Holder’s sole discretion, the Holder may elect to
consider this Note (and all interest through such date) immediately due and payable. In order to so
elect, the Holder must deliver written notice of the election and the amount due to the Company via
certified mail, return receipt requested, at the Company’s address as set forth herein (or any
other

4

 

address provided to the Holder), and thereafter the Company shall have ten (10) business days
upon receipt to cure the Event of Default or pay this Note, or convert the amount due on the Note
pursuant to the conversion formula set forth above. Notwithstanding the foregoing, no Event of
Default shall have occurred, if the Company shall have given a notice of a Mandatory Conversion
hereunder.

     7. In case any provision of this Note is held by a court of competent jurisdiction to
be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted
rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby.

     8. This Note does not entitle the Holder hereof to any voting rights or other rights as a
shareholder of the Issuer prior to the conversion into Common Stock thereof, except as provided by
applicable law. If, however, at the time of the surrender of this Note and conversion the Holder
hereof shall be entitled to convert this Note, the Conversion Shares so issued shall be and be
deemed to be issued to such holder as the record owner of such shares as of the close of business
on the Conversion Date.

     9. The Holder shall pay all issue and transfer taxes and other incidental expenses in respect
of the issuance of certificates for Conversion Shares upon the conversion of this Note, and such
certificates shall be issued in the name of the Holder of this Note.

     10. In no event will the Holder make a disposition of this Note or the Conversion Shares
unless and until, if requested by the Company, the Holder shall have furnished the Company with an
opinion of counsel satisfactory to the Company and its counsel to the effect that appropriate
action necessary for compliance with the Securities Act of 1933, as amended (the “Act”) relating to
sale of an unregistered security has been taken. Notwithstanding the foregoing, the restrictions
imposed upon the transferability of the Conversion Shares shall terminate as to this Note or any
particular Conversion Share when (i) such security shall have been sold without registration in
compliance with Rule 144 under the Act, or (ii) a letter shall have been issued to the Holder at
its request by the staff of the Securities and Exchange Commission or a ruling shall have been
issued to the Holder at its request by such Commission stating that no action shall be recommended
by such staff or taken by such Commission, as the case may be, if such security is transferred
without registration under the Act in accordance with the conditions set forth in such letter or
ruling and such letter or ruling specifies that no subsequent restrictions on transfer are
required, or (iii) such security shall have been registered under the Act and sold by the Holder
thereof in accordance with such registration.

     11. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note, and in case of loss, theft or destruction of this Note,
upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and cancellation of such Note,
and upon reimbursement to the Company of all reasonable expenses incidental thereto, the Company
will make and deliver to the

5

 

Holder, in lieu thereof, a new Note in substantially identical form and dated as of such
cancellation.

     12. If the last or appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the
United States or the State of California, then such action may be taken or such right may be
exercised on the next succeeding business day.

     13. a. This Note shall be governed by and construed in accordance with the laws of the State
of California applicable to contracts made and to be performed wholly within such state.

          b. Except as otherwise provided herein, any notice or demand which, by the provisions
hereof, is required or which may be given to or served upon the parties hereto shall be in writing
and, if by telegram, telecopy or telex, shall be deemed to have been validly served, given or
delivered when sent, if by personal delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given
or delivered three (3) business days after deposit in the United States mails, as registered or
certified mail, with proper postage prepaid and addressed to the party or parties to be notified.

          c. The Holder acknowledges that the Conversion Shares acquired upon the exercise of this
Note may have restrictions upon its resale imposed by state and federal securities laws.

          d. With regard to any power, remedy or right provided herein or otherwise available to any
party hereunder (i) no waiver or extension of time shall be effective unless expressly contained in
a writing signed by the waiving party; and (ii) no alteration, modification or impairment shall be
implied by reason of any previous waiver, extension of time, delay or omission in exercise, or
other indulgence.

          e. This Note constitutes the Company’s and Holder’s entire agreement with respect to the
subject matter hereof and supersedes all agreements, representations, warranties, statements,
promises and understandings, whether oral or written, with respect to the subject matter hereof.
This Note may not be amended, altered or modified except by a writing signed by the Company and the
Holder.

     14. a. The rights of the Holder to receive payments hereunder shall be subordinate to the
rights of the holders of up to $10,000,000.00 of the Company’s other securities which may be
issued after the Issuance Date and prior to the Maturity Date (the “Other Debt”), if the terms of
the Other Debt require that the indebtedness represented by all Notes shall be so subordinated. .

          b. Unless and until there should occur a default under the terms and conditions of the Other
Debt, the Holder shall be entitled to retain any payment of principal or interest made by the
Company in respect of its obligations under this Note. In the event of and during the continuance
of any such default, no payment of principal of

6

 

          or interest on this Note shall be made by the Company or, to the extent made by the Company,
retained by the Holder. If the Company should be in such default, the Company shall so notify the
Holder not later than the next date a payment hereunder shall become due in accordance with the
provisions hereof

          c. Upon any distribution of assets of the Company in connection with any dissolution,
winding-up or liquidation (whether or not in bankruptcy, insolvency or other similar proceedings)
the holders of the Other Debt shall first be entitled to receive payment in full in money or
money’s worth, in accordance with the terms of the Other Debt, of all sums due in respect thereto,
before the Holder shall be entitled to receive from the Company any payment under this Note.

     IN WITNESS WHEREOF, the Issuer has caused this Convertible Note to be duly executed by an
officer thereunto duly authorized.

	 	 	 	 	 
	 	SAVE THE WORLD AIR, INC.

 	 
	 	By:  	
 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 

7

 

NOTICE OF EXERCISE OF CONVERSION RIGHT

     TO:   SAVE THE WORLD AIR, INC.

     (1) The
undersigned hereby elects to convert $____________ of the attached Note into
____________
shares of Common Stock (the “Shares”) of Save the World Air, Inc. pursuant to the
terms of the attached Note.

     (2) Please issue a certificate or certificates representing the Shares in the name of the
undersigned or in such other name as is specified below:

 
(Print Name)

Address:
 

 

 

 

     (3) The undersigned confirms that the Shares are being acquired for the account
of the undersigned for investment only and not with a view to, or for resale in
connection with, the distribution thereof and that the undersigned has no present
intention of distributing or selling the Shares.

     (4) The undersigned accepts such shares subject to the restrictions on transfer
set forth in the attached Note.

     (5) The undersigned hereby represents and warrants that that he or she is either (you must
initial one choice and fill in the requested information):

_______________FOR U.S. INVESTORS ONLY: an “accredited investor” as defined in Rule 501(a) of
Regulation D, a copy of which definition the investor acknowledges receiving and reviewing,
and resident of the State of __________________;  or

_______________FOR NON-U.S. PERSONS ONLY: not a “U.S. person” as defined in Rule 902 of
Regulation S, a copy of which definition the investor acknowledges receiving and reviewing,
and a citizen of the country of __________________ and a resident of the country of
__________________,

and, in either case, makes the following further representation:

I, THE UNDERSIGNED, REPRESENT THAT I HAVE A PRE-EXISTING PERSONAL OR BUSINESS RELATIONSHIP
WITH THE COMPANY, ANY OFFICER, DIRECTOR OR CONTROLLING PERSON THEREOF OR HAVE, THROUGH
MYSELF OR THROUGH MY UNAFFILIATED PROFESSIONAL

8

 

ADVISER, THE BUSINESS OR FINANCIAL EXPERIENCE TO PROTECT MY INTERESTS IN CONNECTION WITH MY
SUBSCRIPTION HERETO.

FURTHER, I AM PURCHASING THE SECURITIES OFFERED HEREBY FOR INVESTMENT AND NOT WITH A VIEW
TOWARD DISTRIBUTION THEREOF.

	 	 	 	 	 	 
	 	 	 	 
	 	 	 	
 	 
	 	(Date)	 	(Signature) 	 
	 	 	 
	 
	 	 	 	 
	 	 	 	  	 
	 	 	 	(Print Name) 	 
	 	 	 	 
	 

9

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