9701 JERONIMO ROAD OFFICE LEASE

EXHIBIT 10.35

9701 JERONIMO ROAD

OFFICE LEASE

This Office Lease, which includes the preceding Summary attached hereto and incorporated herein by this reference (the Office Lease and Summary to be known sometimes collectively hereafter as the “ Lease ”), dated as of the date set forth in Section 1 of the Summary, is made by and between 9701 JERONIMO HOLDINGS, LLC, a California limited liability company (“ Landlord ”) and INTRALASE CORP., a Delaware corporation (“ Tenant ”).

ARTICLE 1

BUILDING AND PREMISES

1.1 Building and Premises . Upon and subject to the terms set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 6.1 of the Summary (the “ Premises ”), which Premises are located in the Building defined in Section 6.2 of the Summary. The outline of the Premises is set forth in Exhibit A attached hereto. Tenant’s use of the Premises shall be subject to the rules, regulations and restrictions attached hereto as Exhibit B (the “ Rules and Regulations ”). Landlord reserves the right to (but it shall not be obligated to) make alterations or additions to or to change the location of elements of the Building to comply with any governmental mandates to the extent Tenant was required to do so by the terms of this Lease and Tenant fails to do so.

1.2 Condition of Premises . Except as expressly set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit D , Landlord shall not be obligated to provide or pay for any improvements, work or services related to the improvement, remodeling or refurbishment of the Premises, and Tenant shall accept the Premises in its “AS IS” condition on the Lease Commencement Date. Tenant also acknowledges that Landlord has made no representation or warranty regarding the condition of the Premises or the Building, except as specifically set forth in this Lease and the Tenant Work Letter. As of the date the Premises are delivered to Tenant, Landlord shall, at its sole cost and expense, cause the Building to comply with all applicable governmental laws, statutes and ordinances (including, without limitation, the Americans with Disabilities Act) (collectively, the “ Governmental Laws ”) which are in effect as of such date except to the extent such compliance is required as a result of Tenant’s specific and unique use of the Premises, in which case Tenant shall be solely responsible for compliance. Thereafter, Landlord shall assume responsibility for compliance of the Premises with the Americans with Disabilities Act, except to the extent such compliance is required as a result of Tenant’s alterations, repairs or improvements in the Premises or Tenant’s specific and unique use of the Premises.

1.3 Rentable Square Feet . The parties estimate that the approximate Rentable Square Feet of the Premises is 128,670 Rentable Square Feet. The Rentable Square Feet of the Premises may be confirmed by Tenant, by remeasurement in accordance with the standards set forth in ANSI Z65.1-1996 as promulgated by the Building Owners and Managers Association (“ BOMA Standard ”), for measuring gross building area. Tenant shall have the right, exercisable within one hundred eighty (180) days after the Lease Commencement Date, to remeasure the Premises within such one hundred eighty (180) day period. In the event that subsequent remeasurement of the Premises by Tenant, within the time period specified above, indicates that the square footage measurement prepared by Landlord produces a square footage number in excess of or lower than the square footage number which would have resulted had the BOMA Standard been properly utilized, any payments due to Landlord from Tenant based upon the amount of square feet contained in the Premises shall be proportionally, retroactively and prospectively reduced or increased, as appropriate, to reflect the actual number of square feet, as properly remeasured under the BOMA Standard. If Landlord disagrees with Tenant’s remeasurement and if a dispute occurs regarding the final accuracy of such BOMA measurements and cannot be resolved after good-faith deliberations, such dispute and any resulting adjustments will be resolved pursuant to binding arbitration using the arbitration procedure set forth in Section 2.2 below with the necessary modifications to reflect an arbitration as to square footage

 

ARTICLE 2

LEASE TERM

2.1 Lease Term . The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “ Lease Term ”) shall be as set forth in Section 7.1 of the Summary and shall commence on the date (the “ Lease Commencement Date ”) set forth in Section 7.3 of the Summary, subject to the terms of Section 5 of Exhibit D , and shall terminate on the date (the “ Lease Expiration Date ”) set forth in Section 7.4 of the Summary, unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “ Lease Year ” shall mean each consecutive twelve (12) month period during the Lease Term; provided, however, that the first Lease Year shall commence on the Lease Commencement Date and the last Lease Year shall end on the Lease Expiration Date. At any time during the Lease Term, Landlord may deliver to Tenant an amendment to this Lease confirming the Lease Commencement Date and Lease Expiration Date, in the form as set forth in Exhibit C , attached hereto, which Tenant shall execute and return to Landlord within five (5) days of receipt thereof.

2.2 Option Term . Landlord hereby grants to the Tenant the number of options to extend the Lease Term for the period of years set forth in the Summary of Basic Lease Information (the “ Option Term ”), which option shall be exercisable only by written notice (“ Option Notice ”) delivered by Tenant to Landlord as provided in Section 2.2.2 below, provided that, as of the date of delivery of such notice and, at Landlord’s option, as of the last day of the initial Lease Term, Tenant is not in default under this Lease after expiration of applicable cure periods. The right contained in this Section 2.2 may not be assigned separately from Tenant’s interest in this Lease.

2.2.1 Option Rent . The Rent payable by Tenant during the Option Term (the “ Option Rent ”) shall be equal to 95% of the then prevailing fair market rent for the Premises as of the commencement date of the Option Term, but not below the sum of Base Rent plus Tenant’s Share of Operating Expenses payable by Tenant immediately prior to the Option Term and shall have the same annual percentage escalations as the original Lease Term. The then prevailing fair market rent shall be the rental rate, including all escalations, at which new, non-renewal tenants, as of the commencement of the Option Term, are leasing non-sublease, non-encumbered space comparable in size, location and quality to the Premises for a comparable term, which comparable space is located in comparable buildings in the surrounding area within a radius of five (5) miles. In no event shall the Option Rent be less than the monthly rent being paid in the last month of the initial Term.

2.2.2 Exercise of Option . The option contained in this Section 2.2 shall be exercised by Tenant, if at all, only in the following manner: (i) Tenant shall deliver written notice (“ Interest Notice ”) to Landlord on or before the date which is nine (9) months prior to the expiration of the initial Lease Term, stating that Tenant is interested in exercising its option; (ii) Landlord, after receipt of Tenant’s notice, shall deliver notice (the “ Option Rent Notice ”) to Tenant not less than seven (7) months prior to the expiration of the initial Lease Term, setting forth the Option Rent; and (iii) if Tenant wishes to exercise such option, Tenant shall, on or before the earlier of (A) the date occurring six (6) months prior to the expiration of the initial Lease Term, and (B) the date occurring thirty (30) days after Tenant’s receipt of the Option Rent Notice, exercise the option by delivering the Option Notice to Landlord and upon, and concurrent with, such exercise, Tenant may, at its option, object to the Option Rent determined by Landlord. Failure of Tenant to deliver the Interest Notice to Landlord on or before the date specified in (i) above or to deliver the Option Notice to Landlord on or before the date specified in (iii) above shall be deemed to constitute Tenant’s failure to exercise its option to extend. If Tenant timely and properly exercises its option to extend, the Lease Term shall be extended for the Option Term upon all of the terms and conditions set forth in this Lease, except that the Rent shall be as indicated in the Option Rent Notice unless Tenant, concurrently with its exercise, objects to the Option Rent contained in the Option Rent Notice, in which case the parties shall follow the procedure as set forth in Section 2.2.3 below.

2.2.3 Determination of Option Rent . In the event Tenant exercises its option to extend but objects to Landlord’s determination of the Option Rent concurrently with its exercise of the option to extend, Landlord and Tenant shall attempt to agree in good faith upon the Option Rent. If Landlord and Tenant fail to

 

reach agreement within thirty (30) days following Tenant’s delivery of the Option Notice (the “ Outside Agreement Date ”), then each party shall make a separate determination of the Option Rent within five (5) business days after the Outside Agreement Date, concurrently exchange such determinations and such determinations shall be submitted to arbitration in accordance with the following:

2.2.3.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be a real estate broker or appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the leasing (or appraisal, as the case may be) of commercial office buildings in the area in which the Building is located. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Option Rent is the closest to the actual Option Rent, as determined by the arbitrators, taking into account the requirements of Section 2.2.1 of this Lease (i.e., the arbitrators may only select Landlord’s or Tenant’s determination and shall not be entitled to make a compromise determination). Each such arbitrator shall be appointed within fifteen (15) business days after the applicable Outside Agreement Date.

2.2.3.2 The two (2) arbitrators so appointed shall within five (5) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators.

2.2.3.3 The three (3) arbitrators shall within five (5) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Option Rent and shall notify Landlord and Tenant thereof.

2.2.3.4 The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant.

2.2.3.5 If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) business days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

2.2.3.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator, or both parties fail to appoint an arbitrator, then the appointment of the third arbitrator or any arbitrator shall be dismissed and the Option Rent to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association, but subject to the instruction set forth in this Section 2.2.3.

2.2.3.7 The cost of arbitration shall be paid by Landlord and Tenant equally.

2.3 Early Entry. Tenant may, from and after the date hereof, enter the Premises in order to install cables, phone and computer systems and/or furniture and equipment. If Tenant desires to exercise its right of early entry in accordance with the provisions of this Section, Tenant further agrees (i) to provide to Landlord at least three (3) business days advance written notice of the date of its intended entry, (ii) that Tenant shall pay for and provide certificates evidencing the existence and amounts of liability insurance carried by Tenant, which insurance shall comply with the terms and conditions of this Lease, (iii) that Tenant and its employees, contractors and agents shall comply with all applicable laws, regulations, permits and other approvals applicable to such early entry work on the Premises, (iv) that Tenant and its employees, contractors and agents shall not interfere with or delay in any manner the construction of the Tenant Improvements, (v) that during such early occupancy period, Tenant shall comply with all other terms and conditions of the Lease other than the payment of Rent and (vi) Tenant shall be responsible for and shall indemnify Landlord for any damage to Landlord’s work or installations in the Premises caused by Tenant, its employees, contractors and agents.

2.4 Early Termination . Tenant shall have the option to terminate and cancel this Lease effective as of the last day of the eighty-fourth (84 ^th ) full calendar month of the Lease Term by delivering to Landlord on or before the last day of the seventy-eighth (78 ^th ) full calendar month of the Lease Term: (a) written notice of

 

Tenant’s exercise of said option, and (b) an amount equal to the unamortized value of the cost of (i) all Tenant Improvements constructed by Landlord pursuant to the Tenant Work Letter, (ii) all brokerage commissions paid by Landlord in connection with leasing the Premises to Tenant, and (iii) any other economic concessions provided, paid, granted or incurred by Landlord in connection with this Lease, including rent abatement. The unamortized value of such concessions shall be determined by taking the total value of such concessions and multiplying such value by a fraction, the numerator of which is the number of months of the Lease Term not yet elapsed as of the date on which the Lease is terminated, and the denominator of which is the total number of months of the Lease Term using an interest rate of ten percent (10%). If Tenant properly and timely exercises said option, the Lease shall expire at midnight on the last day of the eighty-fourth (84 ^th ) full calendar month of the Lease Term.

ARTICLE 3

BASE RENT

3.1 Base Rent . Tenant shall pay, without notice or demand, to Landlord at the address specified in Section 3 of the Summary, or, at Landlord’s option, such other place as Landlord may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent ( “ Base Rent ”) as set forth in Section 8 of the Summary, payable in equal monthly installments as set forth in Section 8 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the first full calendar month of the Lease Term shall be paid at the time of Tenant’s execution of this Lease. If any rental payment date (including the Lease Commencement Date) falls on a day of a calendar month other than the first day of such calendar month or if any Rent payment is for a period which is shorter than one calendar month (such as during the last month of the Lease Term), the Rent for any fractional calendar month shall be the proportionate amount of a full calendar month’s rental based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

3.2 Rent Abatement. Notwithstanding anything to the contrary set forth herein, and provided that Tenant shall faithfully perform all of the terms and conditions of this Lease, Landlord hereby agrees to abate Tenant’s obligation to pay the Base Rent for the first (1 ^st ), second (2 ^nd ), third (3 ^rd ) and fourth (4 ^th ) months of the Lease Term. During such abatement period, Tenant shall continue to be responsible for the payment of all Additional Rent which Tenant is required to pay under this Lease. In the event of a default by Tenant under the terms of this Lease which results in early termination of this Lease, then as a part of the recovery set forth in this Lease, Landlord shall be entitled to the recovery of the Base Rent which was abated under the provisions of this Section and such Base Rent shall not be deemed to have been forgiven or abated, but shall become immediately due and payable as unpaid rent which had been earned at the time of termination.

ARTICLE 4

ADDITIONAL RENT

4.1 General Terms . As set forth in this Article 4, in addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Operating Expenses,” as those terms are defined in Sections 4.2.5 and 4.2.3 of this Lease, respectively, allocated to the tenants of the Building pursuant to the terms of Section 4.3 below. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “ Additional Rent ”, and the Base Rent and the Additional Rent are sometimes herein collectively referred to as “ Rent .” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

 

4.2 Definitions . As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1 “ Expense Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires; provided, that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any twelve (12) consecutive month period, and, in the event of any such change, Tenant’s Share of the Direct Expenses and Tenant’s Share of the Utilities Costs shall be equitably adjusted for any Expense Year involved in any such change.

4.2.2 “ Operating Expenses ” shall mean all expenses, costs and amounts of every kind and nature incurred in connection with the ownership, management, maintenance, repair, replacement, restoration or operation of the Building, including, without limitation, any amounts paid or incurred for (i) the cost of supplying all utilities servicing the Building not paid by Tenant directly to the applicable utility provider; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with the implementation and operation of a transportation system management program or a municipal or public shuttle service or parking program; (iii) the cost of all insurance required by Landlord to be maintained pursuant to this Lease; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Building, or any portion thereof which Tenant fails to perform; (v) the cost of parking area repair, restoration, and maintenance, including, but not limited to, resurfacing, repainting, restripping, and cleaning which Tenant fails to perform; (vi) fees, charges and other costs, including consulting fees, legal fees and accounting fees, of all contractors and consultants; (vii) payments under any easement, license, operating agreement, declaration, covenant, conditions and restrictions, or any other instrument pertaining to the sharing of costs by the Building, or any portion thereof; (viii) the cost of alarm and security service, exterior window cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; and (ix) the cost of any capital improvements made to the Building after the Lease Commencement Date that are required under any governmental law or regulation that was not applicable to the Building as of the date of this Lease and/or replacement of worn-out systems and/or mechanical equipment; provided, however, that each such permitted expenditure shall be amortized (including interest on the unamortized cost) over its useful life as determined under generally accepted accounting principles.

Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include: (A) except as otherwise set forth above in this Section 4.2.4, interest on debt and amortization on mortgages; (B) ground lease payments; (C) costs of leasing commissions, attorneys’ fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Real Property; (D) any costs expressly excluded from Operating Expenses elsewhere in this Lease; (E) costs of any items to the extent Landlord receives reimbursement from insurance proceeds (such proceeds to be excluded from Operating Expenses in the year in which received, except that any deductible amount under any insurance policy shall be included within Operating Expenses) or from a third party; (F) tax penalties incurred as a result of Landlord’s negligence, inability or unwillingness to make payments or file returns when due; (G) costs arising from Landlord’s charitable or political contributions; (H) expenses incurred with respect to the installation of tenant or other occupants improvements made for tenants or other occupants in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space exclusively for tenants or other occupants of the Building; (I) depreciation, amortization and interest payments, all as determined in accordance with generally accepted accounting principles, consistently applied; (J) marketing costs including leasing commissions, attorneys’ fees and other consultant fees in connection with the negotiation and preparation of leases and related agreements; (K) expenses in connection with services or other benefits which are not offered to Lessee or for which Lessee is charged directly by Landlord or an independent contractor or a utility, but which are provided to another tenant or occupant of the Building the cost of which is included as Operating Expenses; (L) expenses incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Building, and penalties incurred as a result of Landlord’s negligence, inability or unwillingness to make payments and/or to file any tax or informational returns when due; (M) overhead and

 

profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services in the Building to the extent the overhead and profit increment exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis for similar projects; (N) advertising and promotional expenditures, and costs of signs in or on the Building identifying the owner of the Building or other tenants’ signs; (O) costs incurred by Landlord for the repair of damage to the Building, to the extent that Landlord is reimbursed by insurance proceeds; (P) any bad debt loss, rent loss, or reserves for bad debts or rent loss or reserves of any kind; (Q) all items and services for which Lessee or any other tenant in the Building is obligated to reimburse Landlord; (R) electric power and other utility costs for which any tenant (including Lessee) directly contracts with a public service company; (S) tax penalties for failure to make payments prior to delinquency; (T) costs arising from the gross negligence or willful misconduct of Landlord; (U) any finders fees, brokerage commissions or the like; (V) legal fees and costs, settlements, judgments or awards paid or incurred because of disputes between Landlord and any other tenant; (W) management fees; and (X) any cost for which Tenant is responsible under this Lease unless Tenant fails to perform its obligation and Landlord performs such obligation after the expiration of applicable notice and cure periods in accordance with Section 7.2 hereof.

Landlord further agrees that (i) Landlord will not collect or be entitled to collect Operating Expenses from all of its tenants in an amount which is in excess of 100% of the Operating Expenses actually paid by Landlord in connection with the operation of the Building (inclusive of any management fee whether paid to Landlord or a third party), (ii) Landlord shall make no profit from Landlord’s collections of Operating Expenses, and (iii) Landlord will not “double recover” any Operating Expenses.

4.2.3 “ Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes or charges, business or license taxes or fees, annual or periodic license or use fees, open space charges, housing fund assessments, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Building), which Landlord shall pay or incur during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Real Property or Landlord’s interest therein.

4.2.3.1 Tax Expenses shall include, without limitation:

(i) any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“ Proposition 13 ”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, conservation, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the contribution of the Building towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for purposes of this Lease;

(ii) any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any gross income tax with respect to the receipt of such Rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof;

 

(iii) any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises;

(iv) any possessory taxes charged or levied in lieu of real estate taxes; and

(v) any expenses incurred by Landlord in attempting to protest, reduce or minimize Tax Expenses.

4.2.3.2 Intentionally Omitted.

4.2.3.3 Notwithstanding anything to the contrary contained in this Section 4.2.5, there shall be excluded from Tax Expenses: (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Building); and (ii) any items paid by Tenant under Section 4.4 of this Lease.

4.2.4 “ Utilities Costs ” shall mean the cost of all utilities supplied for the Building (including, without limitation, water, sewer, electricity, telephone and HVAC), other than those utilities which are paid directly by Tenant. Notwithstanding anything herein to the contrary, and in addition to Tenant’s obligations to pay items of Additional Rent as described in this Lease, throughout Tenant’s occupancy of the Premises, whether prior to, during or after the Lease Term, Tenant shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, water and/or gas, together with any taxes thereon (“ Tenant’ s Utilities ”). If any of Tenant’s Utilities are not separately metered or billed to the Premises, Tenant shall pay to Landlord, as Additional Rent, a reasonable proportion to be determined by Landlord of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth above for Additional Rent. The responsibility for providing and the cost of any such Tenant’s Utilities delivered to or consumed on the Premises (except for standard air conditioning and heating) shall be controlled by the terms and conditions of this Article 4. Tenant agrees to provide all, and Landlord shall not provide any, of such utilities to the Premises.

4.2.4.1 To the extent possible at the Premises, Tenant, at its sole expense, shall maintain separate meters for Tenant’s use of Tenant’s Utilities. Tenant shall contract directly with the appropriate utility companies and/or public entities for the provision of such utilities, and shall pay directly such companies’ charges and any governmental fees, taxes or other charges payable in connection with such utility service.

4.2.4.2 Tenant agrees that the heating, ventilation and air conditioning systems within the Premises are adequate for Tenant’s use. Tenant shall use its best efforts to conserve energy in the operation of its heating, ventilation and air conditioning systems, and shall cooperate with Landlord in any energy conservation programs.

4.2.4.3 Tenant agrees that the lighting systems within the Premises are adequate for Tenant’s use. Tenant shall use its best efforts to conserve energy in the operation of its lighting systems, and shall cooperate with Landlord in any energy conservation programs.

4.2.4.4 If Tenant fails to provide any of the utility or other services as required by this Section 4.2.6 or is, in Landlord’s reasonable judgment, about to so fail, Landlord may, but shall not be required to, provide such services on Tenant’s account. Any costs incurred by Landlord in providing such services shall be deemed Additional Rent hereunder, and shall be billed as set forth in this Lease. If Tenant fails to make any such payment of Additional Rent that includes the cost of utility or other services, then

 

without prejudice to any other remedy that Landlord may have by reason of such failure to pay, Landlord may discontinue any such utility service to the Premises, without thereby incurring any liability to Tenant. Any such discontinuance of utility or other service shall not be deemed an eviction (constructive or otherwise), a disturbance of possession, nor an election by Landlord to terminate the Lease.

4.2.5 “ Tenant’s Share ” shall mean the percentage set forth in Section 9.1 of the Summary. Tenant’s Share was calculated by dividing the number of rentable square feet of the Premises by the total rentable square feet in the Building and multiplying the product by 100. In the event either the rentable square feet of the Premises and/or the Building is changed, Tenant’s Share shall be appropriately adjusted, and, as to the Expense Year in which such change occurs, Tenant’s Share for such year shall be determined on the basis of the number of days during such Expense Year that each such Tenant’s Share was in effect.

4.3 Calculation and Payment of Additional Rent .

4.3.1 Calculation . For each Expense Year ending or commencing within the Lease Term, Tenant shall pay to Landlord, in the manner set forth in Section 4.3.2, below, and as Additional Rent: (i) Tenant’s Share of Operating Expenses for such Expense Year; and (ii) Tenant’s Share of the Utilities Costs incurred for such Expense Year.

4.3.2 Statement of Actual Operating Expenses and Utilities Costs and Payment by Tenant . Following the end of each Expense Year, Landlord shall give to Tenant a statement (the “ Statement ”), which shall indicate: (i) the Operating Expenses incurred or accrued for such preceding Expense Year; and (ii) the amount of the Utilities Costs incurred for such preceding Expense Year. Upon receipt of the Statement for each Expense Year ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, but in no event later than thirty (30) days after receipt of such Statement, (A) the full amount of Tenant’s Share of Operating Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Operating Expenses,” as that term is defined in Section 4.3.3, below, plus (B) the full amount of Tenant’s Share of the Utilities Costs for such Expense Year, less the amounts, if any, paid by Tenant during the Expense Year as “Estimated Utilities Costs”, as that term is defined in Section 4.3.3 below. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of the Operating Expenses and Utilities Costs for the Expense Year in which this Lease terminates, taking into consideration that the Lease Expiration Date may have occurred prior to the final day of the applicable Expense Year, Tenant shall immediately pay to Landlord an amount as calculated pursuant to the provisions of Section 4.3.1 of this Lease as Tenant’s Share of the Operating Expenses and Utilities Costs for such final Expense Year. The provisions of this Section 4.3.2 shall survive the expiration or earlier termination of the Lease Term.

4.3.3 Statement of Estimated Operating Expenses and Utilities Costs . In addition, Landlord shall give Tenant a yearly expense estimate statement (the “ Estimate Statement ”) which shall set forth Landlord’s reasonable estimate (the “ Estimate ”) of (i) what the total amount of Tenant’s Share of Operating Expenses for such then-current Expense Year shall be (“ Estimated Operating Expenses ”), and (ii) what the total amount of Tenant’s Share of the Utilities Costs for the then-current Expense Year shall be (the “ Estimated Utilities Costs ”). The Estimate Statement may be revised and reissued by Landlord from time to time. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Operating Expenses or Estimated Utilities Costs under this Article 4. Within thirty (30) days after receipt of such Estimate Statement, Tenant shall pay to Landlord an amount equal to (A) a fraction of the Estimated Operating Expenses (or the increase in the Estimated Operating Expenses if pursuant to a revised Estimate Statement) for the then-current Expense Year (reduced by any amounts paid as Estimated Operating Expenses pursuant to the last sentence of this Section 4.3.3), plus (B) a fraction of the Estimated Utilities Costs (or the increase in the Estimated Utilities Costs if pursuant to a revised Estimate Statement) for the then-current Expense Year (reduced by the amounts paid as Estimated Utilities Costs pursuant to the last sentence of this Section 4.3.3). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year to the month of such payment, both months inclusive, and shall have twelve (12) as its denominator. Until a new

 

Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to the sum of (x) one-twelfth (1/12) of the total Estimated Operating Expenses plus (y) one-twelfth (1/12) of the total Estimated Utilities Costs set forth in the previous Estimate Statement delivered by Landlord to Tenant.

4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible . Tenant shall reimburse Landlord, as Additional Rent, within ten (10) days after demand, for any and all Tax Expenses payable by Landlord. In addition, Tenant shall reimburse Landlord, as Additional Rent, within ten (10) days after demand, for any and all other taxes required to be paid by Landlord, excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when:

4.4.1 said taxes are measured by or reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds the cost or value of a building standard build-out as determined by Landlord regardless of whether title to such improvements shall be vested in Tenant or Landlord;

4.4.2 said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Building; or

4.4.3 said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.5 Late Charges . If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) days after notice from Landlord that the same is due more than once in any twelve (12) month period, then Tenant shall pay to Landlord a late charge equal to three percent (3%) of the amount due plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid by the date they are due shall thereafter bear interest until paid at a rate equal to the lesser of (i) the Interest Rate set forth in Section 4.2.4 above, or (ii) the highest rate permitted by applicable law.

4.6 Audit Rights . Tenant, its agents, and employees shall have sixty (60) days after receiving the Statement for a Lease Year to audit Landlord’s books and records concerning the statement at a mutually convenient time at Landlord’s offices or, if the parties mutually agree, at such other place as they so agree, provided, however, that (i) any such examination or audit may not be conducted by any auditor whose compensation is in any way commission based, (ii) must be conducted by a certified public accountant, (iii) must be the subject of a confidentiality agreement between Landlord, Tenant and such auditor in form and substance that is satisfactory to Landlord, and (iv) any such examination shall be at Tenant’s sole cost and expense, except as otherwise provided herein. Tenant shall give Landlord not less than twenty (20) business days prior written notice of its intention to conduct any such audit. Landlord shall cooperate with Tenant during the course of such audit, which shall be conducted during normal business hours in Landlord’s Building management office, but in no event shall such audit last more than three (3) business days in duration for each Lease Year audited. If Tenant’s audit of the books and records shows that the actual aggregate Operating Expenses were five percent (5%) or more below the aggregate Operating Expenses shown on the Statement and Landlord concedes to the same (or the court or an arbitrator so rules), then Landlord shall pay to Tenant the amount owed to Tenant plus Tenant’s reasonable out-of-pocket cost of conducting the audit, which shall in no event exceed Two Thousand Dollars ($2,000.00).

4.7 Fully Net Lease . Landlord and Tenant hereby acknowledge that this Lease is a fully net lease, and that notwithstanding anything to the contrary contained herein, Tenant shall be solely responsible

 

for Tenant’s Share of all costs and expenses incurred by either Landlord or Tenant for the maintenance and repair of the Premises and Building except to the extent specifically excluded pursuant to Section 4.2.4 and except as provided in Section 7.2 below.

ARTICLE 5

USE OF PREMISES

5.1 Use . Tenant shall use the Premises for general office, administration, sales, training, assembly and manufacturing and warehousing purposes and/or any other uses consistent with the character and integrity of the Building. Tenant further covenants and agrees that it shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the Rules and Regulations, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Building (including laws pertaining to Hazardous Materials, as defined below). Tenant shall comply with the Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of such Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Building. Tenant shall comply with all recorded covenants, conditions, and restrictions now or hereafter affecting the Real Property.

5.2 Hazardous Materials .

5.2.1 Prohibition on Use . Tenant shall not use or allow another person or entity to use any part of the Premises for the storage, use, treatment, manufacture or sale of Hazardous Materials. Landlord acknowledges, however, that Tenant will maintain products in the Premises which are incidental to the operation of its offices, such as photocopy supplies, secretarial supplies and limited janitorial supplies, which products contain chemicals which are categorized as Hazardous Materials. Landlord agrees that the use of such products in the Premises in compliance with all applicable laws and in the manner in which such products are designed to be used shall not be a violation by Tenant of this Section 5.2.1.

5.2.2 Indemnity . Tenant agrees to indemnify, defend (with legal counsel reasonably acceptable to Landlord), protect and hold Landlord and the Landlord Parties (as defined in Section 10.1 below) harmless from and against any and all claims, actions, administrative proceedings (including informal proceedings), judgments, damages, punitive damages, penalties, fines, costs, liabilities, interest or losses, including reasonable attorneys’ fees and expenses, consultant fees, and expert fees, together with all other costs and expenses of any kind or nature, that arise during or after the Lease Term directly or indirectly from or in connection with the presence, suspected presence, release or suspected release of any Hazardous Materials in or into the air, soil, surface water or groundwater at, on, about, under or within the Premises or Real Property or any portion thereof, caused by Tenant, its assignees or subtenants and/or their respective agents, employees, contractors, licensees or invitees (collectively, “ Tenant Affiliates ”). Landlord shall indemnify, defend, protect, and hold harmless the Tenant, from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’ fees) incurred caused by the existence of Hazardous Materials at the Building prior to the date the Premises are delivered to Tenant, except to the extent caused by Tenant or any Tenant Affiliates.

5.2.3 Remedial Work . In the event any investigation or monitoring of site conditions or any clean-up, containment, restoration, removal or other remedial work (collectively, the “ Remedial Work ”) is required under any applicable federal, state or local laws or by any judicial order, or by any governmental entity as the result of operations or activities upon, or any use or occupancy of any portion of the Premises by Tenant or Tenant Affiliates, Tenant shall perform or cause to be performed the Remedial Work in compliance with such laws or order. All Remedial Work shall be performed by one or more contractors, selected by Tenant and approved in advance in writing by Landlord. All costs and expenses of such Remedial Work shall be paid by Tenant, including, without limitation, the charges of such contractor(s), the consulting engineers, and Landlord’s reasonable attorneys’ fees and costs incurred in connection with monitoring or review of such Remedial Work.

 

5.2.4 Definition of Hazardous Materials . As used herein, the term “ Hazardous Materials ” means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government, including, without limitation, any material or substance which is (i) defined or listed as a “hazardous waste,” “extremely hazardous waste,” “restricted hazardous waste,” “hazardous substance” or “hazardous material” under any applicable federal, state or local law or administrative code promulgated thereunder, (ii) petroleum, or (iii) asbestos.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Services and Utilities . Tenant agrees to contract directly for and to pay for all water, gas, heat, light, power, telephone, HVAC and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Tenant, any charges related thereto shall constitute Operating Expenses and Tenant agrees to pay Tenant’s Share of such charges as Additional Rent pursuant to this Lease.

6.2 Intentionally Omitted .

6.3 Interruption of Use . Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6. Notwithstanding anything contained in this Lease to the contrary, in the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof for the Permitted Use (the “ Affected Portions ”) for three (3) consecutive business days (“ Interruption Period ”), as a result of any interruption in essential utilities to the Premises which is due solely to the gross negligent actions of Landlord, then Tenant’s obligation to pay Minimum Monthly Rental shall be abated or reduced, as the case may be, during the period after the Interruption Period until the earlier of (i) the date that the disrupted utilities are restored, or (ii) the date that Tenant recommences use of the Affected Portions, in the proportion that the rentable area of the Affected Portion bears to the total rentable area of the Premises. Such Rent abatement shall be Tenant’s sole remedy in the event of a Service Interruption. Except as set forth in this Section, no discontinuance, failure or interruption of Utilities (including, without limitation the HVAC system) shall be deemed a constructive eviction of Tenant or entitle Tenant to terminate this Lease or withhold payment of any rent due under this Lease, unless due to the gross negligence of Landlord.

6.4 Additional Services . Landlord shall also have the exclusive right, but not the obligation, to provide any additional services which may be required by Tenant, including, without limitation, locksmithing, additional janitorial service, and additional repairs and maintenance, provided that Tenant shall pay to Landlord, within ten (10) days after billing, the sum of all costs to Landlord of such additional services plus an administration fee. Charges for any utilities or service for which Tenant is required to pay from time to time hereunder, shall be deemed Additional Rent hereunder and shall be billed on a monthly basis.

 

ARTICLE 7

REPAIRS

7.1 Tenant’s Repairs . Subject to Landlord’s repair obligations in Sections 7.2 and 11.1 below, Tenant shall, at Tenant’s own expense, keep all parts of the Building, the Premises, all Building Systems (as defined in Exhibit D ) and all landscaping, parking areas and other improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term, which repair obligations shall include, without limitation, the obligation to promptly and adequately repair all damage to the Premises and replace or repair all damaged or broken fixtures and appurtenances; provided however, that, at Landlord’s option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same.

7.2 Landlord’s Repairs . Anything contained in Section 7.1 above to the contrary notwithstanding, and subject to Articles 11 and 12 of this Lease, Landlord shall repair and maintain the footings, foundation, exterior walls, floors (but not floor covering) and roof of the Building (the “ Structural Portions ”) at its sole cost and expense and shall perform the maintenance and repair obligations set forth on Schedule 1 to Exhibit D (subject to reimbursement as provided therein); provided, however, if such maintenance and repairs are caused in part or in whole by the act, neglect, fault of or omission of any duty by Tenant, its agents, contractors, employees, licenses or invitees, Tenant shall pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Landlord shall not be liable to Tenant for any failure to make any such repairs, or to perform any maintenance hereunder, and there shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making or a failure to make any repairs, alterations or improvements in or to any portion of the Premises or Building or in or to fixtures, appurtenances and equipment therein. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make any repairs, alterations, improvements or additions to the Premises or to the Building or to any equipment located in the Building as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree. Tenant hereby waives and releases its right to make repairs at Landlord’s expense under any law, statute, or ordinance now or hereafter in effect. After the Lease Commencement Date, Landlord shall comply with all requirements of governmental authorities related to the Structural Portions of the Building which are required by such authorities in the enforcement of applicable Governmental Laws. In the event Landlord shall maintain and repair any portions of the Building / Premises which are Tenant’s responsibility under Section 7.1 above, the costs of such maintenance and repair shall become part of the Operating Expenses payable by Tenant pursuant to Article 4 hereof.

7.3 Tenant’s Self-Help Rights . Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect (including the provisions of California Civil Code Section 1941 and 1942 and any successor sections or statutes of a similar nature; provided, however, if Landlord fails to perform any maintenance or repair work required of Landlord with respect to the Premises pursuant to Section 7.2 above within thirty (30) days after Landlord receives Tenant’s written notice of the need for such repairs or maintenance (or such period of time in excess of thirty (30) days as is reasonably necessary based upon the nature of such work), then Tenant shall be permitted to make such repairs or maintenance, using contractors reasonably approved by Landlord, provided (i) the cost of such repairs or maintenance does not exceed $50,000.00, (ii) Tenant first gives Landlord an additional two (2) days’ prior written notice indicating that Tenant intends to undertake such repairs or maintenance, and (iii) Landlord fails to commence such repairs or maintenance within such two (2) day period. If Tenant performs any repairs or maintenance as permitted under this Section 7.3, Landlord agrees to promptly reimburse Tenant for the reasonable, actual and documented costs of such repairs or maintenance performed by Tenant, but without any off-set rights against rent or any other amounts payable by Tenant under this Lease. If Tenant performs any such repairs or maintenance pursuant to this Section 7.3, the performance of such repairs or maintenance shall be done in accordance with the provisions of this Lease including, without limitation, Article 8 hereof.

 

ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1 Landlord’s Consent to Alterations . Tenant may not make any improvements, alterations, additions or changes to the Premises (collectively, the “ Alterations ”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof (which request shall also include a request that Landlord determine whether such Alterations must be removed by Tenant upon the termination or expiration of this Lease), and which consent shall not be unreasonably withheld by Landlord; provided, however, Landlord may withhold its consent in its sole and absolute discretion with respect to any Alterations which (i) may affect the structural components of the Building, or the Building’s mechanical, electrical, heating, ventilating, air-conditioning, or life safety systems, or (ii) are visible from outside the Premises. Notwithstanding the foregoing, Tenant may make minor changes to the Premises, the cost of which do not exceed $25,000 each or a total of $100,000 on an annual basis, provided such changes do not require any structural or other substantial modifications to the Premises, upon thirty (30) days prior written notice to Landlord. The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter, attached hereto as Exhibit D , and not the terms of this Article 8.

8.2 Manner of Construction . Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that upon Landlord’s request, Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term (upon Tenant’s request, Landlord shall specify, at the time of its consent, which Alteration, if any, must be removed upon expiration or early termination of the Lease Term), and/or the requirement that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen approved by Landlord. Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable rules and regulations of any federal, state, county or municipal code or ordinance and pursuant to a valid building permit, issued by the City of Irvine in conformance with Landlord’s construction rules and regulations. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Tenant shall have the work performed in such manner as not to obstruct access to the Building or the common areas by any other tenant of the Building, and as not to obstruct the business of Landlord or other tenants in the Building, or interfere with the labor force working in the Building. If Tenant makes any Alterations, Tenant agrees to carry “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. Upon completion of any Alterations, Tenant shall (i) cause a timely Notice of Completion to be recorded in the office of the Recorder of Irvine County in accordance with the terms of Section 3093 of the Civil Code of the State of California or any successor statute, (ii) deliver to Landlord a reproducible copy of the “as built” drawings of the Alterations, and (iii) deliver to Landlord evidence of payment, contractors’ affidavits and full and final waivers of all liens for labor, services or materials.

8.3 Payment for Alterations . If Tenant orders any Alterations or repair work directly from Landlord, Tenant shall pay to Landlord, within ten (10) days after demand, all charges for such work, including a percentage of the cost of such work (such percentage to be established on a uniform basis for the Building) sufficient to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord, within ten (10) days after demand, for Landlord’s out-of-pocket costs and expenses incurred in connection with Landlord’s review of such work.

 

8.4 Landlord’s Property . All Alterations, improvements and fixtures which may be installed or placed in or about the Premises, and all signs installed in, on or about the Premises, from time to time, shall be at the sole cost of Tenant and shall be and become the property of Landlord. Notwithstanding the following, Landlord may, by written notice to Tenant prior to the end of the Lease Term, require Tenant at Tenant’s expense to remove any Alterations from the Premises and repair any damage to the Premises and Building caused by such removal. If Tenant fails to complete such removal prior and/or to repair any damage caused by the removal of any Alterations by the end of the Lease Term, Landlord may do so and may charge the cost thereof to Tenant.

ARTICLE 9

COVENANT AGAINST LIENS

Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Real Property or any portion thereof, and any and all liens and encumbrances created by Tenant shall attach to Tenant’s interest only. Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Real Property or any portion thereof, with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be immediately released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, in the event that such lien is not released and removed on or before the date occurring five (5) days after notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys’ fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall immediately be due and payable by Tenant.

ARTICLE 10

INSURANCE

10.1 Indemnification and Waiver . Tenant hereby assumes all risk of damage to property and injury to persons in, on or about the Premises from any cause whatsoever, and agrees that, to the extent not prohibited by law, Landlord, its partners and subpartners, and their respective officers, directors, shareholders, agents, property managers, employees and independent contractors (collectively, the “ Landlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant subject to the terms of Section 10.6 hereof. Tenant shall indemnify, defend, protect and hold harmless the Landlord Parties from and against any and all loss, cost, damage, expense, cause of action, claims and liability, including without limitation court costs and reasonable attorneys’ fees (collectively “ Claims ”) incurred in connection with or arising from any cause in, on or about the Premises, and/or any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, employees, licensees or invitees of Tenant or any such person in, on or about the Real Property, provided that the terms of the foregoing indemnity shall not apply to any Claims to the extent resulting from the negligence or willful misconduct of Landlord or the Landlord Parties and not insured (or required to be insured) by Tenant under this Lease. Tenant’s agreement to indemnify Landlord pursuant to this Section 10.1 is not intended and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provision of this Lease. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any Claims occurring prior to such expiration or termination.

10.2 Landlord Indemnity . Subject to the terms of Section 10.6 hereof, except as otherwise provided in this Lease, Landlord shall indemnify, defend, protect, and hold harmless Tenant from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys’

 

fees) incurred by Tenant which relates to the Premises or the Building and results from Landlord’s gross negligence or willful misconduct. In no event, however, shall Landlord’s liability for any act or omission exceed the amount of insurance proceeds available to Landlord pursuant to the insurance carried by Landlord hereunder.

10.3 Landlord’s Insurance . During the Term, Landlord shall maintain replacement cost casualty insurance covering the Building (excluding (a) the property which Tenant is obligated to insure pursuant to the terms hereof, (b) Tenant’s Alterations and (c) any portion of the Tenant Improvements not paid for with the Tenant Improvement Allowance). Such insurance shall provide protection against any peril generally included within the classification “Fire and Extended Coverage”. Landlord shall also maintain comprehensive general liability and property damage insurance with respect to the operation of the Building. Such insurance shall be in such amounts and with such deductibles as Landlord reasonably deems appropriate. Landlord may, but shall not be obligated to, obtain and carry any other form or forms of insurance as it or Landlord’s mortgagees or deed of trust beneficiaries may determine advisable. Notwithstanding any contribution by Tenant to the cost of insurance premiums as provided in this Lease, Tenant acknowledges that it has no right to receive any proceeds from any insurance policies maintained by Landlord and will not be named as an additional insured thereunder.

10.4 Tenant’s Compliance with Landlord’s Fire and Casualty Insurance . Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for any insurance policies carried by Landlord, then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

10.5 Tenant’s Insurance . Tenant shall maintain the following coverages in the following amounts at all times following the date (the “ Insurance Start Date ”) which is the earlier of (i) Tenant’s entry into the Premises to perform any work therein, or (ii) the Lease Commencement Date, and continuing thereafter throughout the Lease Term:

10.5.1 Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant’s operations, assumed liabilities or use of the Premises, including a Commercial General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than: (i) Bodily Injury and Property Damage Liability – $5,000,000 each occurrence and $5,000,000 annual aggregate, and (ii) Personal Injury Liability – $5,000,000 each occurrence and $5,000,000 annual aggregate.

10.5.2 Physical Damage Insurance covering (i) all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, and (ii) all Alterations and other improvements and additions in and to the Premises whether owned by Landlord or Tenant pursuant to this Lease. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the guaranteed replacement cost value new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage.

10.5.3 Business interruption, loss-of-income and extra-expense insurance in such amounts as will reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or to the Building as a result of such perils.

10.5.4 The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall: (i) name Landlord, and any other party it so specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under

 

this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee of Landlord; and (vi) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord. Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the Insurance Start Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the costs of it shall be paid to Landlord as Additional Rent within five (5) days after delivery to Tenant of bills therefor.

10.6 Subrogation . Landlord and Tenant agree to have their respective insurance companies issuing property damage and loss of insurance and extra expense insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance carried by Landlord and Tenant, respectively, is not invalidated thereby. Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to the extent such loss or damage is insurable under such policies of insurance.

10.7 Additional Insurance Obligations . Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10, and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord, but in no event shall such increased amounts of insurance or such other reasonable types of insurance be in excess of that required by landlords of comparable Class “A” buildings located in the Sorrento Mesa area.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1 Repair of Damage to Premises by Landlord . Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty or any condition existing in the Premises as a result of a fire or other casualty that would give rise to the terms of this Article 11. If the Premises or any common areas of the Building serving or providing access to the Premises shall be damaged by fire or other casualty or be subject to a condition existing as a result of a fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore the base, shell, and core of the Premises and such common areas to substantially the same condition as existed prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building (or any portion thereof) or any other modifications to the common areas deemed desirable by Landlord, provided that access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance required under Section 10.5.2(ii) of this Lease, and Landlord shall repair any injury or damage to the Tenant Improvements and Alterations installed in the Premises and shall return such Tenant Improvements (to the extent paid for with the Tenant Improvement Allowance) and Alterations to their original condition; provided that if the cost of such repair by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord prior to Landlord’s repair of the damage. In connection with such repairs and replacements, Tenant shall, prior to the commencement of construction, submit to Landlord, for Landlord’s review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or

 

other casualty shall have damaged the Premises or common areas necessary to Tenant’s occupancy, and if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant’s agents, employees, contractors, licensees or invitees, Landlord shall allow Tenant a proportionate abatement of Base Rent during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof.

11.2 Termination Rights .

11.2.1 Termination by Landlord . Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises and/or Building and/or any other portion of the Building and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause or be subject to a condition existing as a result of such a fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present: (i) repairs cannot reasonably be completed within one hundred eighty (180) days of the date of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Real Property or ground lessor with respect to the Real Property shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; or (iii) the damage or condition arising as a result of such damage is not fully covered, except for deductible amounts, by Landlord’s insurance policies. In addition, if the Premises, the Building or any portion of the Building is destroyed or damaged to any substantial extent (meaning that the damage cannot be repaired within 180 days) during the last twenty four (24) months of the Lease Term, then notwithstanding anything contained in this Article 11, either Landlord or Tenant shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within thirty (30) days after such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice. Upon such termination of this Lease pursuant to this Section 11.2, Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of damage (subject to any abatement as provided in Section 11.1 above), and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of this Lease Term.

11.2.2 Termination by Tenant . Notwithstanding anything to the contrary set forth in this Article 11, Tenant shall have the right to terminate this Lease in the event that the Premises is damaged in such a way that (i) the work necessary to be completed by Landlord to restore the Premises (excluding completion of the Tenant Improvements (as defined in the Tenant Work Letter)) is anticipated to take more than one hundred eighty (180) days after the date of the damage, unless Landlord’s architect certifies to Tenant the contrary, and (ii) such damage to the Premises prevents Tenant from using less than eighty percent (80%) of the entire Premises during such period. If Tenant is interested in exercising its option to terminate this Lease as provided herein, Tenant shall, within thirty (30) days after the damage to the Premises has occurred, deliver a written notice to Landlord requesting a determination of the time necessary to complete the restoration of the Premises, and Landlord shall provide such certification from Landlord’s architect within thirty (30) days after receipt of such request. Tenant shall then have thirty (30) days after receipt of Landlord’s notice to provide written notice to Landlord of its intention to terminate this Lease. If Tenant delivers such a notice, this Lease shall be terminated on the date which is thirty (30) days after Landlord’s receipt of such notice.

11.3 Abatement of Rent . In the event of damage described in Section 11.1 above, and the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Tenant’s use of the Premises is impaired. Except for abatement of rent, if any, Tenant shall have no claim against Landlord for any damage suffered by reason of any such damage, destruction, repair or restoration.

11.4 Waiver of Statutory Provisions . The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or

 

destruction of, all or any part of the Real Property, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Real Property.

ARTICLE 12

CONDEMNATION

If more than ten percent (10%) or more of the Premises is taken, or if access to the Premises is substantially impaired as a result of any taking of the Building by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease upon ninety (90) days’ notice to Tenant, provided such notice is given no later than one hundred eighty (180) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired as a result of any taking of all or any portion of the Building, Tenant shall have the option to terminate this Lease upon ninety (90) days’ notice to Landlord, provided such notice is given no later than one hundred eighty (180) days after the date of such taking. Landlord shall be entitled to receive the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claim does not diminish the award available to Landlord, its ground lessor with respect to the Real Property or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Base Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure.

ARTICLE 13

COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1 Transfers . Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit a