LEASE AGREEMENT

THIS LEASE AGREEMENT (this “Lease”) is made as of the ____ day of ___________, 2006 by and between TKC XCIX, LLC, a North Carolina limited liability company (“Landlord”), and BIG DOG HOLDINGS, INC., a Delaware corporation (“Tenant”).

A.     Landlord anticipates becoming the owner of those parcels of property located on Lincoln County Parkway in the Lincoln County Industrial Park, Lincoln County, North Carolina and described on Exhibit A attached hereto (the “Property”) and containing approximately 34 acres.

B.      In consideration of the agreement of Landlord to construct certain improvements on the Property and the other covenants and conditions set forth in this Lease, Tenant has agreed to lease the Property, and all the improvements thereon, from Landlord on the terms and conditions set forth in this Lease.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained in this Lease and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby covenant and agree as follows:

SECTION 1.1  BASIC LEASE TERMS . The terms set out and defined in this Section, whenever used in this Lease with the first letter of each word capitalized, shall have only the meanings set forth in this Section, unless such meanings are expressly modified, limited or expanded elsewhere in this Lease.

1.1.1   Additional Rental” shall mean all sums payable by Tenant pursuant to this Lease, except Annual Basic Rental.

1.1.2   “Annual Basic Rental” shall, for each of Rental Years one through five, be an amount equal to $751,500.00 (payable in each monthly installments of $62,625.00) and for each of Rental Years six through ten, the Annual Basic Rental shall be an amount equal to $838,472.00 (payable in equal monthly installments of $69,872.66). On the first day of each Option Term and on the five year annual anniversary of the first day of each Option Term, the Annual Basic Rental shall increase by 10% over the amount of Annual Basic Rental for the immediately preceding Rental Year. Annual Basic Rental shall be subject to adjustment as set forth in Section 7.1(c) .

1.1.3   “Construction Force Majeure” shall mean any delay due to a cause not within the reasonable control of Landlord, including, without limitation, labor strikes or shortages, acts of God, unusually severe and abnormal weather conditions, abnormal material shortages that could not be foreseen or avoided or governmental action which interferes with construction. With respect to “unusually severe and abnormal weather conditions”, if adverse weather conditions are the basis for a claim for additional time, such claim shall be documented by data substantiating that weather conditions were abnormal for the period of time, could not have been reasonably anticipated and had an adverse effect on the scheduled construction. Landlord and Tenant acknowledge and agree that both parties anticipate weather delays of 24 calendar days during the Project's course of construction based on the historical seasonal average of weather delays for the Project area. Landlord has taken this into account in determining the Turnover Date. To the extent adverse weather delays exceed 24 calendar days during the Project's course of construction due to unusual weather delays, Tenant shall give Landlord credit for each day of additional delay, and the Turnover Date shall be adjusted accordingly. Landlord shall only be afforded time credit for additional delays resulting from “unusually several and abnormal weather conditions” if (i) such conditions cause a delay in the Landlord’s Work on the critical path (as opposed to any other Landlord’s Work) in a manner that such Work on the critical path may not be reasonably performed as a direct result of the adverse weather conditions, and (ii) Landlord notifies Tenant in writing within ten (10) days of the alleged weather delay.

1.1.4   “Construction Plans” shall have the meaning set forth in Section 7.1(a) .

1.1.5   “Default Rate” shall be an annual rate of the Prime Rate plus two percent (2%).

1.1.6   “Event of Default” shall have the meaning set forth in Section 15.1 .

1.1.7   “Force Majeure” shall mean any event the occurrence of which prevents or delays the performance by Landlord or Tenant of any obligation imposed upon it hereunder (other than the payment of money) and the prevention or cessation of which event is beyond the reasonable control of the obligor.

1.1.8   “GAAP” shall mean Generally Accepted Accounting Principles.

1.1.9   “General Contractor” or “Contractor” shall mean Choate Constructors Inc.

1.1.10  “Hazardous Substances” shall have the meaning set forth in Section 19.16.

1.1.11  “Improvements” shall mean the improvements to be constructed pursuant to the Scope of Landlord’s Work, the proposed location of which is shown on the Site Plan.

1.1.12  “Initial Termination Date” shall mean midnight on the date that is ten (10) years following the Rent Commencement Date, subject to extension as set forth in Section 3.3 .

1.1.13  “Landlord’s Work” shall have the meaning attributed to it in Section 7.1(a) .

1.1.14  “Lease Termination Date” shall mean the earlier to occur of (i) midnight on the Initial Termination Date, or the expiration date of the last Option Term exercised by Tenant pursuant to Section 3.3 hereof and (ii) the date that this Lease is terminated pursuant to the express terms hereof.

1.1.15  “Mortgage” shall have the meaning set forth in Section 16.1 .

1.1.16  “Mortgagee” shall have the meaning set forth in Section 16.1 .

1.1.17  “Option Term” shall mean any of Option Term One or Option Term Two, as applicable.

1.1.18  “Option Term One” shall mean a period of ten (10) years, commencing on the Initial Termination Date and expiring at midnight on the date preceding the ten (10) year annual anniversary of the Initial Termination Date, all as described in and as contemplated by Section 3.3 .

1.1.19  “Option Term Two” shall mean a period of ten (10) years, commencing on the expiration of Option Term One and expiring at midnight on the date preceding the ten (10) year annual anniversary of the commencement date of Option Term One, all as described and as contemplated by Section 3.3 .

1.1.20  “Permitted Encumbrances” shall mean the encumbrances to Landlord’s title to the Property as set forth on Exhibit D hereto, together with all utility easements recorded after the date of this Lease which do not materially interfere with Tenant’s use of the Property or impose a material obligation on Tenant.

1.1.21  “Permitted Use” shall mean the use of the Premises for general office uses and for warehouse uses and in no event for any use prohibited by the Permitted Encumbrances or by applicable law, including applicable zoning laws.

1.1.22  “Premises” shall mean the Property and the Improvements.

1.1.23  “Prime Rate” shall mean the rate of interest per annum adopted from time to time by Wachovia Bank (or its successor) as its prime rate.

1.1.24  “Property” shall have the meaning set forth in the Recitals.

1.1.25  “Punchlist” shall mean that list of construction items remaining to be repaired, corrected or completed which are of a minor nature (such as touch-up paint, or repair of door-knobs), so that Tenant could occupy the Premises and conduct its business therefrom without any material interference, within forty-five (45) days after the Turnover Date.

1.1.26  “Rent Commencement Date” shall mean the date thirty (30) days following the Turnover Date. The Rent Commencement Date shall be subject to adjustment in accordance with the provisions set forth in Section 3.1(b) .

1.1.27  “Rental” shall mean the Annual Basic Rental plus all Additional Rental hereunder.

1.1.28  “Rental Year” shall mean a period of one (1) year, with the first Rental Year commencing on the Rent Commencement Date and expiring on the day preceding the first anniversary of the Rent Commencement Date and each subsequent Rental Year commencing upon the expiration of the prior Rental Year and continuing until the next subsequent anniversary of the Rent Commencement Date.

1.1.29  “Scheduled Turnover Date” shall have the meaning set forth in Section 3.1(b) .

1.1.30  “Scope of Landlord’s Work” shall mean the scope of the Landlord’s Work attached hereto as Exhibit B .

1.1.31  “Site Plan” shall mean the site plan of the Property attached hereto as Exhibit E which shows the proposed location of the Improvements.

1.1.32  “Taxes” shall have the meaning set forth in Section 6.1 .

1.1.33  “Tenant Changes” shall mean, collectively, all changes in or modifications to the Scope of Landlord’s Work either requested by Tenant or necessitated because of unanticipated changes in applicable laws, rules and regulations as of the date of this Lease, including, but not limited to, unanticipated changes in zoning laws, building codes and city ordinances as of the date of this Lease. Tenant Changes shall not include changes (i) to the Construction Plans or the Scope of Landlord’s Work in the nature of clarification or (ii) which do not change the Scope of Landlord’s Work and will not cause an increase in the cost or the time necessary to complete the Landlord’s Work.

1.1.34  “Tenant Delays” means (i) any delay in the performance of the Landlord’s Work caused by Tenant Changes, (ii) the delay beyond the time periods provided to Tenant in making elections, approvals or choices required to be made hereunder, and (iii) any delay in completion of the Landlord’s Work’s caused by Tenant.

1.1.35   “Tenant Fixtures” shall have the meaning set forth in Section 7.4 .

1.1.36   “Tenant Notice Address” shall mean:

Big Dog Holdings, Inc.

121 Gray Avenue

Santa Barbara, California 93101

Attention: Roberta Morris, CFO

(800) 636-9888

with a copy of any notice of default to Tenant’s attorney:

Buchalter Nemer

1000 Wilshire Boulevard, Suite 1500

Los Angeles, California 90017

Attention: Nadav Ravid, Esq.

(213) 891-5087

1.1.37   “Term” shall mean the period of time during this Lease between the date hereof and the Lease Termination Date.

1.1.38   “Turnover Date” shall mean the date on which (i) Landlord shall have substantially completed Landlord’s Work in substantial accordance with the Scope of Landlord’s Work and the Construction Plans, subject to the Punchlist and (ii) exclusive and vacant possession of the Improvements is delivered to Tenant (subject to the presence of Landlord’s contractors and subcontractors completing the Punchlist).

SECTION 1.2   TERMS GENERALLY . All accounting terms not specifically defined herein shall be construed in accordance with GAAP. The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references to Articles, Sections and Exhibits shall be deemed references to Articles and Sections of, and Exhibits to, this Lease unless the context shall otherwise require.

SECTION 1.3   ATTACHMENTS . All of the attachments to this Lease and all drawings and documents referenced in the Lease, or in the exhibits or schedules to the Lease, shall be deemed to be a part hereof for all purposes.

SECTION 2.1   AGREEMENT . This Lease shall be effective on the date hereof as a valid and binding agreement between Landlord and Tenant.

SECTION 2.2   DEMISE . Landlord hereby leases, rents and demises to Tenant, and Tenant hereby leases, rents, demises and accepts from Landlord, the Premises on the terms and conditions contained herein.

SECTION 3.1   INITIAL TERM; SCHEDULE FOR COMPLETION OF LANDLORD’S WORK; LIQUIDATED DAMAGES .

(a)     The Term of the Lease shall commence on the date hereof and shall terminate on the Lease Termination Date, without the necessity of any notice from either Landlord or Tenant; provided , however , Landlord shall provide Tenant with thirty (30) days prior notice of the date Landlord anticipates completing Landlord’s Work to the Premises.

(b)     Subject only to delays caused by (i) Construction Force Majeure and (ii) Tenant Delays, Landlord shall cause the Turnover Date to occur on or before October 15, 2006   (the “Scheduled Turnover Date”). If the Turnover Date occurs after the Scheduled Turnover Date solely because of Tenant Delays, then the Rent Commencement Date shall commence on the date it would have occurred but for the Tenant Delays.

(c)     LIQUIDATED DAMAGES. IF LANDLORD FAILS TO COMPLETE LANDLORD’S WORK BY THE SCHEDULED TURNOVER DATE (SUBJECT TO EXTENSION FOR CONSTRUCTION FORCE MAJEURE), LANDLORD SHALL PAY TO TENANT, AS LIQUIDATED DAMAGES, THE LIQUIDATED AMOUNT (HEREINAFTER DEFINED). IT IS HEREBY AGREED THAT THE LIQUIDATED AMOUNT CONSTITUTES LIQUIDATED DAMAGES TO WHICH TENANT IS ENTITLED HEREUNDER AND IS A REASONABLE FORECAST OF JUST COMPENSATION FOR THE HARM THAT WOULD BE CAUSED BY LANDLORD'S FAILURE TO COMPLETE LANDLORD’S WORK BY THE SCHEDULED TURNOVER DATE. IT IS AGREED THAT THE HARM THAT WOULD BE CAUSED BY SUCH FAILURE, WHICH INCLUDES, WITHOUT LIMITATION, LOAN CARRYING COSTS, LOSS OF EXPECTED USE OF THE PROJECT AREAS, PROVISION OF ALTERNATE STORAGE FACILITIES AND RESCHEDULING OF MOVING AND OCCUPANCY DATES, IS ONE THAT IS INCAPABLE OR VERY DIFFICULT OF ACTUAL ESTIMATION.

The “Liquidated Amount” is an amount equal to the sum of (x) $2,000 multiplied by the number of days between the Scheduled Turnover Date and the actual Turnover Date, plus (y) $2,000 multiplied by the number of days (if any) between the date ninety (90) days after the Scheduled Turnover Date and the actual Turnover Date. Notwithstanding anything to the contrary contained in this Lease, in no event shall Tenant be entitled to the Liquidated Amount attributable to delays caused by Tenant Delay, or Construction Force Majeure. Tenant shall be entitled to deduct such credit, if any, against the first and (to the extent necessary) subsequent installments of Annual Basic Rental due pursuant to the terms of this Lease but in no event shall Tenant be entitled to deduct more than 25% of any installment of Rental due hereunder; provided, however, if Tenant exercises its right to terminate the Lease as provided below, then Landlord shall pay Tenant the Liquidated Amount in full within thirty (30) days following such termination. If the actual Turnover Date has not occurred by the date one hundred twenty (120) days after the Scheduled Turnover Date (as extended by Construction Force Majeure or Tenant Delay), then Tenant, in addition to its right to the Liquidated Amount, shall be entitled to terminate this Lease and upon any such termination, neither party shall have any further liability or obligation to the other party (other than Landlord’s obligation to pay the Liquidated Amount as provided above).

(d)     Except as expressly set forth in this Section 3.1 , Tenant acknowledges and agrees that Landlord shall have no liability with respect to the failure to complete Landlord’s Work within a particular time period and Tenant, to the maximum extent permitted by applicable law, hereby WAIVES, DISCHARGES, AND RELEASES Landlord from any and all liability related to the failure of Landlord to complete the Landlord’s Work within a particular time period, whether arising in tort, contract or otherwise and Tenant acknowledges and agrees that the foregoing waiver is a material part of the consideration for Landlord agreeing to the transactions contemplated by this Lease. Tenant agrees that its rights under this Section 3.1 to receive the Liquidated Amount and to terminate the Lease under the circumstances set forth in this Section 3.1 are the sole and exclusive remedies available to Tenant with respect to the failure of Landlord to complete the Landlord’s Work within a particular time period or at all.

SECTION 3.2    HOLDING OVER . (a) If Tenant shall be in possession of the Premises after the Lease Termination Date, in the absence of any additional agreement extending the Term hereof, the tenancy under this Lease shall become a lease from month to month, terminable by either party upon thirty (30) days prior written notice. Such tenancy shall be subject to all other conditions, provisions and obligations of this Lease, except that the Annual Basic Rental shall be 125% of the amount paid during the previous Rental Year or the Rental Year during which the Lease Termination Date occurred, as applicable.

(b)     Notwithstanding the terms of Section 3.2(a) above, Tenant hereby agrees that if it fails to surrender the Premises on or before the date ninety (90) days after the Lease Termination Date, Tenant will be liable for any and all actual damages which Landlord shall suffer proximately by reason thereof, and Tenant will indemnify and hold Landlord harmless against any and all claims and demands made by any succeeding tenants or other parties against Landlord resulting from any delay by Landlord in delivering possession of the Premises to a tenant or other party proximately caused by Tenant’s holding over beyond the date ninety (90) days after the Lease Termination Date.

SECTION 3.3  EXTENSION OF TERM . Tenant may extend the Term of this Lease (as to all but not a part of the Premises) beyond the Initial Termination Date for Option Term One by giving written notice to Landlord of such extension not less than twelve (12)   months prior to the Initial Termination Date. Tenant may extend this Lease for Option Term Two by giving written notice to Landlord of such extension not less than twelve (12) months prior to the expiration of Option Term One; provided , however , that Tenant may only extend the Term for Option Term Two if Tenant exercised its rights to extend the Term for Option Term One. Upon delivery to Landlord of Tenant’s notice to extend this Lease, the stated expiration date of this Lease shall thereupon be changed to the last day of the applicable Option Term. In the event Tenant timely exercises its option to extend this Lease for an Option Term, then this Lease shall remain in full force and effect during the applicable Option Term and shall govern the rights and responsibilities of the parties hereto during such Option Term. The terms of the lease of the Premises during any Option Term shall be as set forth herein and the Annual Basic Rental payable for any Option Term shall be the amount set forth herein for such Option Term. Notwithstanding anything contained herein to the contrary, Tenant shall only have the right to extend the Term for any Option Term if at the time of such election no Event of Default exists for which Tenant has received written notice from Landlord.

SECTION 4.1  USE . The Premises shall be used for Permitted Uses and for no other purpose or use, without Landlord’s consent, which consent shall not be unreasonably withheld, conditioned, or delayed.

SECTION 4.2    CESSATION OF TENANT OPERATIONS . Subject to Section 4.1 , Tenant shall have no obligation to operate its or any business from the Premises and shall have the right at any time and from time to time to cease operating its or any business at the Premises; provided , however , that during the time that Tenant, or its permitted subtenants or assigns, is not conducting its or their operations at the Premises, Tenant agrees, at its sole cost and expense, to (i) add such additional security at the Premises as is reasonably required by Landlord to insure the safety of the Premises and to prevent vandalism, mischief and general mayhem and (ii) inform all applicable insurance carriers providing insurance covering the Premises of Tenant’s discontinued use and pay the increased cost of any such insurance caused by such vacancy. Tenant acknowledges and agrees that its right to cease operating its business at the Premises shall in no way discharge Tenant from its obligations hereunder, including its obligation to pay Rental and its maintenance obligations set forth in Article IX.

SECTION 5.1    RENT COMMENCEMENT DATE . Within thirty (30) days of the Turnover Date and if requested by Landlord or Tenant, Landlord and Tenant each hereby agrees to execute an amendment to this Lease setting forth the actual date on which the Turnover Date and the Rent Commencement Date occurs.

SECTION 5.2    RENTALS PAYABLE .

(a)     Tenant covenants and agrees to pay to Landlord as Rental for the Premises, the following:

(i)     The Annual Basic Rental specified in Section 1.1.2 for the applicable Rental Year, commencing on the Rent Commencement Date; plus

(ii)     all Additional Rental due from time to time hereunder.

(b)     Tenant hereby covenants and agrees with Landlord that the obligation to pay the Rental described herein is an independent covenant and shall be due and payable by Tenant to Landlord notwithstanding any default by Landlord of its obligations hereunder.

SECTION 5.3    ANNUAL BASIC RENTAL . Annual Basic Rental shall be payable without prior demand in equal monthly installments in advance commencing on the Rent Commencement Date and thereafter on the first day of each full calendar month during the Term of this Lease. If the Rent Commencement Date or the Lease Termination Date occurs on a date other than on the first or the last day of a calendar month, as applicable, then the first and last monthly installment of Annual Basic Rental shall be prorated for such fractional calendar month based upon the actual number of days in such month.

SECTION 5.4    PAYMENT OF RENTAL . Tenant shall pay all Rental when due and payable, without any offset, counterclaim, deduction or prior demand therefor whatsoever, except as expressly provided for in this Lease. All Rental and other sums due hereunder shall be paid in U.S. currency. If Tenant shall fail to pay any Rental on or before the later of (i) the date such payment is due or (ii) five (5) days after Landlord has provided Tenant with written notice of its failure to timely pay rent (provided that Landlord shall not be obligated to provide more than two (2) such notices in any calendar year), then Tenant shall be obligated to pay a late payment charge (a “Late Fee”) equal to the greater of (i) $1,000 or (ii) five percent (5%) of such Rental payment that is past due.   In addition, any Rental which is not paid by the date that is ten (10) days after the date such payment is due shall bear interest at the Default Rate from the first day due until paid. Any Additional Rental which shall become due shall be payable, unless otherwise expressly provided herein, shall be paid with the next monthly installment of Annual Basic Rental. Rental and statements required of Tenant shall be paid and delivered to Landlord at its notice address set out in Section 17.1 or at such other place as Landlord may, from time to time, designate in a notice to Tenant. No such change of the place of payment of Rental shall be effective until thirty (30) days from the date of notice thereof to Tenant. Any payment by Tenant or acceptance by Landlord of a check for a lesser amount than shall be due from Tenant to Landlord shall be treated as a payment on account. The acceptance by Landlord of a check or other form of payment for an amount less than the amount then due and payable, even if accompanied by a statement from Tenant that the lesser amount is the entire amount due, and acceptance of such lesser amount shall not constitute Landlord’s acceptance and agreement that such lesser amount is payment in full, shall not be deemed a waiver of Landlord’s rights to collect the amounts not tendered and any such Tenant statements shall be given no effect, and Landlord may accept such payment without prejudice to any other rights or remedies which Landlord may have against Tenant.

SECTION 6.1    PAYMENT BY TENANT . Subject to the provisions of Section 6.2 , in addition to the Annual Basic Rental, Tenant shall pay prior to the due date therefor, all ad valorem taxes and assessments, general and special, all personal property taxes, all water taxes and all other impositions, ordinary and extraordinary of every kind and nature whatsoever relating to the Property, the Premises or Tenant’s property located thereon or used in connection therewith, including, but not limited to, maintenance assessments and other charges imposed pursuant to the Permitted Encumbrances, which, during the Term of this Lease, may be levied or assessed against the Premises; provided , however , Tenant shall not be responsible for any Taxes that are levied against the Premises but are accrued with respect to the Premises for any period of time outside of the Term of this Lease. Landlord agrees to deliver copies of statements for all of the foregoing to Tenant on the later to occur of (i) sixty (60) days prior to the due date thereof and (ii) fifteen (15) days from the date Landlord receives such statements from the applicable tax authorities. Tenant agrees to pay directly to the applicable tax authority all such taxes and assessments on or before the date the same are due and to deliver to Landlord a copy of the transmittal letter and check within ten (10) days from the date Tenant makes such payments to the applicable tax authorities. Tenant shall furnish to Landlord a copy of the taxing authority’s receipt evidencing payment within thirty (30) days after the date Tenant receives such receipt. Tenant also agrees to pay all other Taxes to the parties entitled to payment prior to delinquency. Tenant shall be responsible for all delinquencies and penalties if the same are incurred because Tenant did not remit payment to the appropriate tax authorities in a timely manner after its receipt of the statement therefor or because the amount Tenant remitted to the tax authorities was insufficient to pay all Taxes. Tenant shall also be solely responsible for and pay prior to delinquency all taxes imposed on its inventory, trade fixtures, apparatus, leasehold improvements (installed by or on behalf of Tenant), equipment and other personal property. All taxes, assessments and other costs to be paid by Tenant pursuant to this Section 6.1 are collectively referred to herein as the “Taxes”; provided that “Taxes” shall in no event include (i) any federal, state, or other tax on the income of Landlord or (ii) any franchise, estate, inheritance or similar tax imposed upon Landlord. To the extent Tenant fails to pay any of the Taxes when required pursuant to the terms hereof, Landlord shall have the right to do so and upon Landlord’s payment thereof the same shall become Additional Rental hereunder payable by Tenant on demand by Landlord.

SECTION 6.2    PRORATION OF TAXES . During the first and last years of the Term, all such taxes and assessments which shall become payable during each of the calendar or fiscal, tax or assessment years, as applicable, shall be ratably adjusted on a per diem basis between Landlord and Tenant in accordance with the respective portions of such calendar, fiscal, tax or assessment year. To the extent permitted by applicable law, Tenant may pay any such assessments or taxes in annual installments. In the event any such assessment shall be payable in a lump sum or on an installment basis, Tenant shall have the sole right to elect the basis of payment. If Tenant shall elect to pay any such assessment on the installment basis, then Tenant shall pay only those installments which shall become due and payable during the Term. Any such installments due and payable in the years in which this Lease commences and terminates shall be prorated proportionally.

SECTION 6.3    TAXES ON RENTAL . In addition to the Taxes payable by Tenant pursuant to Section 6.1 above, Tenant shall pay to the appropriate agency any and all sales, excise and other taxes (not including, however, Landlord’s income taxes) levied, imposed or assessed by the State of or any political subdivision thereof or other taxing authority upon any Rental payable hereunder, except to the extent the same are in substitution for income taxes.

SECTION 6.4    TENANT’S RIGHT TO CONTEST TAXES . If Tenant is not in default hereunder (after all applicable notice and cure periods), Tenant shall have the right to initiate all negotiations of tax assessments. Tenant shall have the right to contest the validity or the amount of any tax or assessment levied against the Premises by such appellate or other proceedings as may be appropriate in the jurisdiction, and may defer payment of such obligations, pay same under protest, or take such other steps as Tenant may deem appropriate; provided , however , that Tenant hereby agrees to (i) indemnify and hold Landlord harmless from and against any cost, expense or liability arising out of such contest, (ii) pursue any such contest in good faith and (iii) post any bond or other security required by applicable law in connection with such contest. Tenant also agrees to notify Landlord promptly of any such contest and Landlord agrees, at the sole cost of Tenant, to cooperate in any such contest or proceedings and execute any documents which Landlord may be required to execute in connection with such proceedings. Tenant shall be entitled to all refunds paid by taxing authorities resulting from any such contest or otherwise paid to Landlord during or attributable to the Term.

SECTION 7.1    CONSTRUCTION BY LANDLORD .

(a)     The work to be completed by Landlord is described on the Scope of Landlord’s Work (the “Landlord’s Work”). All such work shall be performed in a good and workmanlike manner and in accordance with all governmental permits required and/or issued therefor. Until the Turnover Date, Landlord shall bear the risk of loss with respect to the Improvements. The Landlord’s Work shall be performed substantially in accordance with the plans and specifications derived from the Scope of Landlord’s Work (the “Construction Plans”). In the event of any conflict between the Construction Plans and the Scope of Landlord’s Work, the Scope of Landlord’s Work shall control. Landlord shall perform all of the Landlord’s Work at its sole cost and expense, except for Tenant Changes.

(b)     All Tenant Changes shall be evidenced by a written change order executed by each of Landlord and Tenant’s authorized employee or representative, in each case as designated in writing by Tenant. Tenant Changes shall be subject to Landlord’s prior approval, not to be unreasonably withheld, conditioned or delayed. Within five (5) business days of a request for a Tenant Change, Landlord shall provide to Tenant a written detailed estimate of the increase (or decrease) in the cost of the Landlord’s Work resulting therefrom, and any delays in the Scheduled Turnover Date resulting therefrom. The cost of a Tenant Change shall be the sum of (i) the actual direct cost of the contractor and/or the subcontractor performing the Tenant Change, plus (ii) an overhead and fee markup of 10% of the direct cost of the contractor and/or subcontractor performing the Tenant Change plus (iii) a development fee imposed by Landlord, which shall not exceed 3% of the actual direct cost of such Tenant Change, plus (iv) the actual cost of any design fees for such Tenant Change. The detailed estimate shall include an estimate of all of the foregoing. Tenant shall thereafter have a period of five (5) days from receipt of such written notice to advise Landlord, in writing, whether it desires to proceed with such Tenant Change.

(c)     If Tenant elects to proceed with such Tenant Change, then Tenant shall pay to Landlord the amount of the increase in the cost of the Landlord’s Work resulting from such Tenant Change within five (5) business days of the day that Tenant receives a detailed invoice from Landlord for the work covered by the Change Order, provided there are no more tenant improvement allowances remaining in which case the allowances shall first be applied until fully exhausted. Failure by Tenant to pay for a Tenant Change beyond the date due shall constitute a Tenant Delay. If Tenant elects to proceed with any such Tenant Change and the cost to Landlord of the Landlord’s Work is decreased, then Landlord shall pay to Tenant (within five (5) days of the Turnover Date) the amount of the decrease in the cost resulting from such Tenant Change.

(d)     Tenant’s use of the Premises may require certain governmental approvals and permits. Tenant acknowledges and agrees that except for all permits required to construct the Improvements, Tenant is responsible for obtaining all the permits and approvals necessary for it to conduct the Permitted Use (collectively, the “Permits”). A failure by Tenant to obtain the Permits shall not delay or extend either the Turnover Date or the Rent Commencement Date.

SECTION 7.2  EFFECT OF TAKING POSSESSION OF PREMISES ON TURNOVER DATE .

(a)     By taking possession of the Premises on the Turnover Date, Tenant shall be deemed to have accepted the Premises and agreed that the obligations of Landlord to substantially complete the Landlord’s Work have been fully performed, except for (i) Punchlist items of which Tenant notifies Landlord in writing within ten (10) business days of the Turnover Date and (ii) the warranty set forth in Section 7.2(b) . If Landlord fails to complete the Punchlist items within forty-five (45) days of the Turnover Date, then Tenant shall be entitled to abate its Rent obligations by an amount equal to 115% of the reasonably estimated cost of incomplete Punchlist items as of such date and upon any such abatement, Landlord shall be relieved of its obligation to complete the Punchlist and shall have no further obligation or liability for the Punchlist. Except as expressly set forth in Section 7.2(b) below and notwithstanding any contrary provision contained herein (including any indemnity by Landlord), Tenant acknowledges and agrees that Landlord shall have no liability with respect to the Landlord’s Work or the condition thereof and Tenant, to the maximum extent permitted by applicable law, hereby WAIVES, DISCHARGES, AND RELEASES Landlord from any and all liability related to the Improvements, whether arising in tort, contract or otherwise.

(b)     For the period beginning on the Turnover Date and ending on the date 12 months after the Turnover Date (the “Warranty Period”), Landlord warrants to Tenant that the materials and equipment furnished by Landlord and Landlord’s Contractor shall be of good quality and new unless otherwise required or permitted by Tenant, and that the Landlord’s Work shall be free from defects, comply with all applicable laws as of the Turnover Date, and will conform to the requirements hereunder. Landlord agrees to repair or replace any and all defects in the Improvements at Landlord’s sole cost and expense. Landlord shall have no obligation to repair or replace any damage to the Improvements resulting from the negligence of Tenant, its employees and contractors, or from Tenant’s failure to comply with the guidelines and manuals furnished to Tenant regarding the maintenance, use and operation of the Improvements. Landlord’s obligation under this Section 7.2(b) shall terminate upon the expiration of the Warranty Period as to defects not specifically identified in writing to Landlord prior to the expiration of the Warranty Period. The warranty provided herein shall be assignable at no expense or fee to any permitted sublessee or to any permitted assignee of Tenant under this Lease. Landlord shall procure for Tenant and shall assign to Tenant (without recourse to Landlord) a five year manufacturer’s warranty (beginning no earlier than the Turnover Date) on the HVAC condensers and compressors.

SECTION 7.3    MECHANICS’ LIENS . No work performed by Tenant pursuant to this Lease, whether in the nature of erection, construction, alteration or repair, shall be deemed to be for the immediate use and benefit of Landlord so that no mechanics’ or other lien shall be allowed against the estate of Landlord by reason of any consent given by Landlord to Tenant to improve the Premises. Tenant shall pay promptly all persons furnishing labor or materials with respect to any work performed by Tenant or its contractors on or about the Premises. In the event any mechanics’ or other lien shall at any time be filed against the Premises by reason of work, labor, services or materials performed or furnished, or alleged to have been performed or furnished, to Tenant or to anyone holding the Premises through or under Tenant, Tenant shall forthwith cause the same to be discharged of record or bonded to the satisfaction of Landlord. If Tenant shall fail to cause such lien forthwith to be so discharged or bonded after being notified of the filing thereof, then, in addition to any other right or remedy of Landlord, Landlord may bond or discharge the same by paying the amount claimed to be due, and the amount so paid by Landlord including reasonable attorneys’ fees incurred by Landlord either defending against such lien or in procuring the discharge of such lien, together with interest thereon at the Default Rate, shall be due and payable by Tenant to Landlord as Additional Rental.

SECTION 7.4    TENANT’S TRADE FIXTURES . All trade fixtures, signs, equipment and apparatus (as distinguished from leasehold improvements) owned by Tenant (the “Tenant Fixtures”) and installed in the Premises by Tenant, at its expense, shall remain the property of Tenant and Tenant may remove such fixtures and apparatus at any time prior to the expiration of the Term. Notwithstanding the foregoing, Tenant shall repair any damage to the Premises caused by the removal of its personalty, inventory, trade fixtures, equipment and apparatus. All Tenant Fixtures remaining in the Premises after the expiration of the Term shall become the property of Landlord and Landlord may keep or dispose of such Tenant Fixtures. Notwithstanding anything to the contrary in this Lease, in no event shall Landlord have any lien (whether consensual, or by statute) on any of Tenant’s Trade Fixtures, personal property, or any other property owned by Tenant whatsoever. Any language to the contrary in the Lease is hereby deemed deleted.

SECTION 8.1    OPERATIONS BY TENANT . Following the Turnover Date, and in addition to the requirements of Section 9.1 below, Tenant will at its expense:

(a)     keep the inside and outside of all glass in the doors and windows of the Premises clean;

(b)     keep all exterior building surfaces of the Premises reasonably clean;

(c)     replace promptly any cracked or broken glass of the Premises with glass of like grade and quality;

(d)     maintain the Premises in a reasonably clean, orderly and sanitary condition and free of insects, rodents, vermin and other pests, including cleaning, repairing or replacing all floor covering, if any, within the Premises and sweeping the parking lot and drives located on the Property;

(e)     keep any garbage, trash, rubbish or other refuse in containers, including exterior dumpsters, within the Premises until removed;

(f)     have such garbage, trash, rubbish and refuse removed on a timely basis from such containers;

(g)     maintain all landscaping and irrigation in a neat and orderly condition and replace shrubs and other landscaping as necessary; and

(h)     comply with all laws, ordinances, rules and regulations of governmental authorities applicable to the Premises and/or relating to the use and/or occupancy of the Premises and all reasonable recommendations of any fire and liability insurance rating organization now or hereafter in effect.

TENANT ACKNOWLEDGES THAT LANDLORD DOES NOT PROVIDE AND HAS NO RESPONSIBILITY FOR SECURITY OF THE PREMISES OR FOR THE CUSTOMERS, INVITEES, PATRONS OR GUESTS OF TENANT. LANDLORD SHALL IN NO EVENT BE LIABLE TO TENANT OR ANY OTHER PARTY FOR ANY DAMAGES OR LOSS RESULTING FROM THE CRIMINAL ACTS OF THIRD PARTIES.

SECTION 8.2    SIGNS AND ADVERTISING . Tenant will, at its sole cost and expense, maintain all signs and other advertising devices in good condition and repair at all times. Tenant agrees that all signs and other advertising on the exterior of the Premises shall be in compliance with the Permitted Encumbrances and all applicable laws, rules and regulations (including all zoning laws).

SECTION 8.3    RESTRICTIONS . The use and occupancy of the Premises are subject to the terms and conditions of the Permitted Encumbrances. Tenant, by its execution of this Lease, acknowledges receipt of a copy of each of the Permitted Encumbrances and agrees that it has reviewed the Permitted Encumbrances and shall perform all of the obligations of Landlord thereunder during the Term, including the payment of any assessments levied pursuant to any of the Permitted Encumbrances. Landlord makes no representation or warranty, express or implied, as to the Permitted Encumbrances.

SECTION 9.1    MAINTENANCE AND REPAIRS .

(a)     The provisions of this Article IX are subject to the provisions of Article XII and Article XIII hereof. At all times during the Term of this Lease after the Turnover Date, Tenant shall, at its sole cost and expense, keep and maintain the Premises in as good a condition and state of repair as exists on the Turnover Date, ordinary wear and tear excepted. From and after the Turnover Date, (i) Tenant shall make any and all additions to and all alterations and repairs in, on and about the Premises which may be required by, and shall otherwise observe and comply with, all public laws, ordinances and regulations from time to time applicable to the Premises and (ii) Tenant will (a) keep the interior and exterior of the Premises (including paving, parking areas, and landscaping), together with all electrical, plumbing, heating, ventilating, air-conditioning, fire pump, exterior storm drain systems, irrigation systems and other mechanical systems and installations therein, in good order and repair including normal and customary preventive maintenance   and will make all replacements from time to time required in as good a condition as exists on the Turnover Date, ordinary wear and tear excepted. Landlord   shall be responsible at Landlord’s sole cost and expense throughout the Term of this Lease for the repair, maintenance, and replacement of the roof, load bearing walls, foundation, and other structural elements of the building. Except as set forth in the preceding sentence, Landlord shall have no obligation whatsoever arising under this Lease with respect to the repair and/or maintenance of the Premises. Within a commercially reasonable period in light of the nature of the repair and/or replacement, Landlord shall satisfy its obligations hereunder. Unless Tenant has engaged Landlord or an affiliate of Landlord to provide property management services, then no management fees or personnel service charges may be charged by Landlord for property management. Tenant shall take no action to invalidate any warranty relating to the roof or any other portion of the Improvements.

(b)     Except for ordinary wear and tear, Tenant will surrender the Premises at the expiration of the Term or at such other time as it may vacate the Premises in as good condition as existed on the Turnover Date. Any damage or injury sustained by any person because of Tenant’s failure to comply with the terms of this Section 9.1 shall be paid for by Tenant, and Tenant shall indemnify and hold Landlord harmless from and against all claims, actions, damages and liability in connection therewith, including, but not limited to reasonable attorneys’ and other professional fees actually incurred, and any other cost which Landlord might reasonably incur. Landlord shall not be required to furnish any services or facilities or to make any repairs or alterations of any kind in or on the Premises unless expressly required under this Lease.

(c)     Notwithstanding any provision set forth in the Lease to the contrary, if Tenant provides written notice (or oral notice in the event of an emergency such as damage or destruction to or of one or more of the structural elements of the building structure or roof (the “Building Structure”) to Landlord of an event or circumstance which requires the action of Landlord with respect to repair and/or maintenance, and Landlord fails to provide such action within twenty-one (21) days after receipt of such notice (or such longer time as is reasonably necessary in light of the magnitude of the repair and/or replacement), then Tenant may proceed to take the required action upon delivery of an additional ten (10) business days' notice to Landlord specifying that Tenant is taking such required action (provided, however, that neither of such notices shall be required in the event of an emergency which threatens life or where there is imminent danger of damage to property), and if such action was required under the terms of the Lease to be taken by Landlord and was not taken by Landlord within such ten (10) day period, then Tenant shall be entitled to prompt reimbursement by Landlord of Tenant's reasonable costs and expenses in taking such action plus interest thereon at a rate per annum equal to the Prime Rate plus 3%. In the event Tenant takes such action, and such work will affect the Building Structure, Tenant shall use only those contractors used by Landlord in the Building for work on such Building Structure unless such contractors are unwilling or unable to perform, or timely and competitively perform, such work, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in comparable buildings. Any such work performed by Tenant shall be performed in a good and workmanlike manner, in accordance with all applicable laws and Tenant shall indemnify and hold Landlord harmless from and against any and all claims, liabilities or losses (e.g., personal injury claims) incurred by Landlord in connection with such repairs and/or replacements performed by Tenant or Tenant’s agents or contractors. Furthermore, if Landlord does not deliver a detailed written objection to Tenant within thirty (30) days after receipt of an invoice by Tenant of its costs of taking action which Tenant claims should have been taken by Landlord, and if such invoice from Tenant sets forth a reasonably particularized breakdown of its costs and expenses in connection with taking such action on behalf of Landlord, then Tenant shall be entitled to deduct from Rent payable by Tenant under the Lease, the amount set forth in such invoice; provided , however , that in no event shall Tenant have the right to offset more than 25% of any installment of Rent due hereunder. If, however, Landlord delivers to Tenant, within thirty (30) days after receipt of Tenant's invoice, a written objection to the payment of such invoice, setting forth with reasonable particularity Landlord's reasons for its claim that such action did not have to be taken by Landlord pursuant to the terms of the Lease or that the charges are excessive (in which case Landlord shall pay the amount it contends would not have been excessive), then Tenant shall not then be entitled to such deduction from Rent, but as Tenant's sole remedy, Tenant may proceed with a claim against Landlord for such amount or, if elected by either Landlord or Tenant, the matter shall proceed to resolution by the selection of an arbitrator to resolve the dispute, which arbitrator shall be selected and qualified pursuant to the procedures set forth in the Lease, and whose costs shall be paid for by the losing party, unless it is not clear that there is a “losing party,” in which event the costs of arbitration shall be shared equally. If Tenant prevails in the arbitration, the amount of the award (which shall include interest per annum at the Prime Rate plus 3% from the time of each expenditure by Tenant until the date Tenant receives such amount by payment or offset and attorneys' fees and related costs) may be deducted by Tenant from the rents next due and owing under the Lease; provided , however , that in no event shall Tenant have the right to offset more than 25% of any installment of Rent due hereunder.

SECTION 9.2    ALTERATIONS . Other than carrying out Tenant’s obligations of maintenance and repair as described in Section 9.1 above, Tenant will not make any alterations, renovations, improvements or other installations (collectively, “Alterations”) in, on or to the Premises or any part thereof without the prior written consent of Landlord; provided, however, Tenant may make Alterations to the Premises that do not affect the structural integrity of the Building or the roof and which do not exceed $25,000 in the aggregate without Landlord’s consent. If Landlord’s consent is required, Landlord agrees not to unreas