EXHIBIT 10.45 OFFICE LEASE WARNER CENTER PLAZA AH WARNER CENTER PROPERTIES, LIMITED LIABILITY COMPANY

EXHIBIT 10.45

 

OFFICE LEASE

 

WARNER CENTER PLAZA

 

AH WARNER CENTER PROPERTIES,

LIMITED LIABILITY COMPANY,

a Delaware limited liability company

 

as Landlord,

 

and

 

FOUNDATION HEALTH SYSTEMS, INC.,

a Delaware corporation,

 

as Tenant.

 

WARNER CENTER PLAZA

[Foundation Health Systems]

WARNER CENTER PLAZA

 

SUMMARY OF BASIC LEASE INFORMATION

 

The undersigned hereby agree to the following terms of this Summary of Basic Lease Information (the “ Summary ”). This Summary is hereby incorporated into and made a part of the attached Office Lease (the “ Office Lease ”) which pertains to the “Project”, as that term is defined in the Office Lease, commonly known as “ Warner Center Plaza ” located in Woodland Hills, California. This Summary and the Office Lease are collectively referred to herein as the “ Lease. ” Each reference in the Office Lease to any term of this Summary shall have the meaning set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Office Lease.

 

 

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6.	Base Rent (Article 3):

 

 

Tenant shall have no obligation to pay Base Rent for any portion of the Premises from and after the fixed date component of the Lease Commencement Date for such portion of the Premises specified in Section 5.2 of this Summary above ( i.e., September 1, 1998 for the 25th Floor Space, December 1, 1998 for the 24th Floor Space and October 1, 1998 for the Initial 21st Floor Space) until January 1, 1999; however, if Tenant commences to conduct business in any such portion of the Premises on or before said fixed dates, then Base Rent shall be due and payable for such portion of the Premises at the rate of $2.15 per rentable square foot per month from the date such occupancy commences until such fixed date. By way of example, if Tenant commences to conduct business in the (a) 25th Floor Space on August 15, 1998, Base Rent shall be due and payable for such space for the period from August 15, 1998 through and including August 31, 1998, and (b) 24th Floor Space on November 20, 1998, Base Rent shall be due and payable for such space for the period from November 20, 1998 through and including November 30, 1998. If the Lease Commencement Date for the 25th Floor Space, the 24th Floor Space or the Initial 21st Floor Space occurs after January 1, 1999 (or if the Lease Commencement Date for the 22nd Floor Space occurs after February 1, 1999), Tenant shall have no obligation to pay Base Rent for such portion of the Premises until the actual Lease Commencement Date for such portion.

 

†	Assumes that Lease Commencement Dates for all space other than the 22nd Floor Space and the Must Take Space has occurred on or before January 1, 1999 and that the 22nd Floor Space Lease Commencement Date occurs on February 1, 1999.

 

*	Subject to increase upon addition of the Must Take Space pursuant to, and in accordance with, Section 1.5 of the Office Lease below.

 

**	Includes Base Rent for the Must Take Space.

 

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INDEX

 

 

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EXHIBITS

 

 

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INDEX OF MAJOR DEFINED TERMS

 

 

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OFFICE LEASE

 

This Office Lease, which includes the preceding Summary of Basic Lease Information (the “ Summary ”) attached hereto and incorporated herein by this reference (the Office Lease and Summary are collectively referred to herein as the “ Lease ”), dated as of the date set forth in Section 1 of the Summary is made by and between AH WARNER CENTER PROPERTIES, LIMITED LIABILITY COMPANY, a Delaware limited liability company (“ Landlord ”), and FOUNDATION HEALTH SYSTEMS, INC., a Delaware corporation (“ Tenant ”).

 

ARTICLE 1

 

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

 

1.1 The Premises . Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 4.2 of the Summary (the “ Premises ”). The outline of the Premises is set forth in Exhibit A attached hereto. Notwithstanding the foregoing, the Premises shall be increased as of the Must Take Space Commencement Date to include the Must Take Space in accordance with, and subject to Section 1.5 of this Lease. Tenant’s rights to the Premises include the limited right to use and access the janitorial closet and the electrical and telephone rooms on the floors containing the Premises as reasonably necessary for Tenant’s effective and efficient use of the Premises, subject to Landlord’s notice and consent rights under Section 6.2 below. Tenant shall also be permitted to enter such areas to service its equipment. Tenant shall have the right to use, or access, any ceilings or space above and the ceilings and floors on the floors containing the Premises to the extent necessary to service Tenant’s equipment in the Premises and to run wires, cables and other conduits to the Premises to the extent permitted by applicable laws, subject to Landlord’s notice and consent rights under Section 6.2 below. In addition, Tenant shall be allowed to use such space as necessary for providing utility services such as the installation of computer cable conduits and core drilling, subject to Landlord’s consent rights under Section 6.2 below. Tenant’s rights to the Premises include the right to use and access any floors or walls on the floors containing the Premises to install equipment, wiring, cables, conduits and the like as necessary to service Tenant’s equipment in the Premises, subject to Landlord’s notice and consent rights under Section 6.2 below. Tenant shall be entitled to, and Landlord shall provide at no additional cost to Tenant, non-exclusive use of the existing underground cabling conduit(s) between the building located at 21600 Oxnard Street and the Building, and the riser space in the Building, in order for Tenant to achieve telephone and data network transmission connectivity between the Premises and all other premises of Tenant and its Affiliates (including, without limitation, Health Net) located in the Building and at the building located at 21600 Oxnard Street, Woodland Hills, California. Tenant acknowledges that it has independently determined that said existing conduit(s) and riser(s) shall be adequate for Tenant’s intended use, and that the Landlord does not warrant the suitability of such conduit(s) and/or riser(s) for Tenant’s use now or in the future. Furthermore, Landlord’s responsibility for maintenance and repair of said conduit(s) and riser(s) shall be limited to those maintenance and repair obligations as set forth elsewhere in this Lease. Notwithstanding anything to the contrary

 

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set forth in this Lease, in no event shall Tenant take any action in the Premises or the Building which may adversely affect the “Systems and Equipment,” as that term is defined in Section 3.3.8 of this Lease, without the prior written consent of Landlord.

 

1.2 The Building and The Project . The Premises are a part of the building set forth in Section 4.1 of the Summary (the “ Building ”). The Building is part of an office project known as WARNER CENTER PLAZA. The term “ Project, ” as used in this Lease, shall mean (i) the Building and the “Common Areas”, as that term is defined in Section 1.3 below, (ii) the land (which is improved with landscaping, parking facilities and other improvements as shown on Exhibit B attached hereto) upon which the Building and the Common Areas are located, and (iii) at Landlord’s reasonable discretion, any additional real property, areas, land, buildings or other improvements added thereto pursuant to the terms of Section 1.4 of this Lease; provided that no such additions shall result in an increase in Direct Expenses allocated to Tenant under this Lease.

 

1.3 Common Areas . Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “ Common Areas ”). The Common Areas shall consist of the “Project Common Areas” and the “Building Common Areas”. The term “ Project Common Areas ”, as used in this Lease, shall mean the portion of the Project designated as such by Landlord, and may include, without limitation, any fixtures, systems, signs, facilities, parking areas, gardens, parks or other landscaping contained, maintained or used in connection with the Project, and may include any city sidewalks adjacent to the Project, pedestrian walkway system, whether above or below grade, park or other facilities open to the general public and roadways, sidewalks, walkways, parkways, driveways and landscape areas appurtenant to the Project. The location of the Project Common Areas as of the date of this Lease is shown on Exhibit B attached hereto. The term “ Building Common Areas ”, as used in this Lease, shall mean the portions of the Common Areas located within the Building designated as such by Landlord, and may include, without limitation, the common entrances, lobbies, atrium areas, restrooms, elevators, stairways and accessways, loading docks, ramps, drives, platforms, passageways, serviceways, common pipes, conduits, wires, equipment, loading and unloading areas, parking facilities and trash areas servicing the Building. The Common Areas shall be maintained and operated in a first class manner.

 

1.4 Landlord’s Use and Operation of the Building, Project, and Common Areas . Provided Landlord does not unreasonably interfere with Tenant’s normal and customary business operations and to the extent the Tenant Improvements and Alterations are not damaged and Tenant is not denied the beneficial use of its Premises, Landlord reserves the right from time to time without notice to Tenant (i) to close temporarily any of the Common Areas; (ii) to make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of street entrances, driveways, ramps, entrances, exits, passages, stairways and other

 

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ingress and egress, direction of traffic, landscaped areas, loading and unloading areas, and walkways; (iii) to expand the Building; (iv) to add additional buildings and improvements to the Common Areas; (v) to designate land outside the Project to be part of the Project, and in connection with the improvement of such land to add additional buildings and common areas to the Project and/or to delete land and improvements from the Project; (vi) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or to any adjacent land, or any portion thereof; and (vii) to do and perform such other acts and make such other changes in, to or with respect to the Project, Common Areas and Building or the expansion thereof as Landlord may deem to be appropriate; provided that Landlord’s actions under items (iii), (iv), (v) and (vi) shall not result in an increase in Direct Expenses allocated to Tenant under this Lease.

 

1.5 Must Take Space . Landlord hereby agrees to lease to Tenant and Tenant hereby agrees to add to the Premises the remainder of the twenty-first (21st) floor of the Building, which remainder consists of approximately 12,759 rentable (11,143 usable) square feet (the “ Must Take Space ”).

 

1.5.1 Must Take Space Commencement Date . The effective date of Tenant’s lease of the Must Take Space (the “ Must Take Space Commencement Date ”) shall be April 1, 1999 (subject to Section 5 of the Tenant Work Letter). However, if Tenant commences to conduct business operations in any portion of the Must Take Space prior to the Must Take Space Commencement Date, then Base Rent shall be due and payable for such portion of the Must Take Space at the rate of $2.15 per rentable square foot per month with respect to that portion of the Must Take Space from which Tenant has commenced to conduct business operations from the date Tenant first commences to conduct such business operations until the Must Take Space Commencement Date and all other terms and conditions of this Lease shall apply to such occupancy. The Must Take Space shall be improved by Tenant at the same time the initial Premises are improved and the Must Take Space shall be improved pursuant to the provisions of Exhibit C hereto. Landlord shall not permit any third party to use or occupy the Must Take Space prior to the Must Take Space Commencement Date. Accordingly, effective upon the Must Take Space Commencement Date, the Premises shall be increased to include the Must Take Space. Landlord and Tenant hereby agree that such addition of the Must Take Space to the Premises shall, effective as of the Must Take Space Commencement Date, increase the number of rentable square feet leased by Tenant in the Building to a total of approximately 101,502 rentable (92,759 usable) square feet.

 

1.5.2 Term and Monthly Base Rent for the Must Take Space . The Lease Term for Tenant’s lease of the Must Take Space (“ Must Take Space Term ”) shall commence on the Must Take Space Commencement Date and shall expire co-terminously with Tenant’s lease of the Majority Space on the Lease Expiration Date for such space as the same may be extended pursuant to Section 2.2. During the Must Take Space Term, Tenant shall pay in accordance with the provisions of this Section 1.5.2, Base Rent for the Must Take Space as follows:

 

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1.6 Right of First Offer . Landlord hereby grants to Tenant a right of first offer with respect to that certain space consisting of all space on the twentieth (20th) and twenty-third (23rd) floors of the Building which are not leased to other tenants as of the date of this Lease (“ First Offer Space ”). If Tenant does not lease any increment of First Offer Space after being offered such space in accordance with the terms of this Section 1.6, Tenant shall have no further right to lease such increment of First Offer Space. Notwithstanding the foregoing, such first offer right shall be subordinate and secondary to all rights of expansion, first refusal, first offer or similar rights granted to the tenants of the Building as of the date of this Lease (collectively, the “ Superior Rights ”), which Superior Rights are set forth on Exhibit H attached to this Lease. Tenant’s right of first offer shall be on the terms and conditions set forth in this Section 1.6.

 

1.6.1 Procedure for Offer . Landlord shall notify Tenant (the “ First Offer Notice ”) the first time after the date of this Lease that Landlord receives a proposal or request for proposal for all or any portion of the First Offer Space which Landlord would seriously consider. The First Offer Notice shall describe the space which is the subject of the First Offer Notice and shall set forth the size and location of such space, the economic terms and conditions which Landlord would accept for Tenant’s lease of such space (collectively, the “ Economic Terms ”), including, without limitation, the Base Rent, any contribution by Landlord to Direct Expenses, any concessions and any contribution by Landlord to the improvement of the First Offer Space. Such Economic Terms shall constitute Landlord’s good faith determination of the then prevailing fair market economic terms for such space.

 

1.6.2 Procedure for Acceptance . If Tenant wishes to exercise Tenant’s right of first offer with respect to the space described in the First Offer Notice, then within ten (10) business days after delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant’s intention to exercise its right of first offer with respect to the entire space described in the First Offer Notice. If concurrently with Tenant’s exercise of the first offer right, Tenant notifies Landlord that it does not accept the Economic Terms set forth in the First Offer Notice, Landlord and Tenant shall, for a period of fifteen (15) business days after Tenant’s exercise, negotiate in good faith to reach agreement as to such Economic Terms. If Tenant does not so notify Landlord that it does not accept the Economic Terms set forth in the First Offer Notice concurrently with Tenant’s exercise of the first offer right, the Economic Terms shall be as set forth in the First Offer Notice. In addition, if Tenant does not exercise its right of first offer within the ten (10) business day period, or, if Tenant exercises its first offer right but timely objects to Landlord’s determination of the Economic Terms and if Landlord and Tenant are unable to reach agreement on such Economic Terms within said fifteen (15) business day period, then

 

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Landlord shall be free to lease the space described in the First Offer Notice to anyone to whom Landlord desires on any terms Landlord desires and Tenant’s right of first offer shall terminate as to the First Offer Space described in the First Office Notice; provided that, If Landlord desires to lease the same First Offer Space to any third party but increase or decrease the size of such First Offer Space by more than twenty percent (20%), Landlord shall be required to give Tenant another First Offer Notice with respect to such increased or decreased First Offer Space and Tenant’s rights in connection therewith shall renew under this Section 1.6, except that the ten (10) and fifteen (15) business day periods set forth above shall be reduced to five (5) and ten (10) business days, respectively. Notwithstanding anything to the contrary contained herein, Tenant must elect to exercise its right of first offer, if at all, with respect to all of the space offered by Landlord to Tenant at any particular time, and Tenant may not elect to lease only a portion thereof.

 

1.6.3 Lease of First Offer Space . If Tenant timely exercises Tenant’s right to lease the First Offer Space as set forth herein, Landlord and Tenant shall execute an amendment adding such First Offer Space to this Lease upon the same non-economic terms and conditions as applicable to the initial Premises, and the Economic Terms and conditions as provided in this Section 1.6. Tenant shall commence payment of Rent for the First Offer Space and the Lease Term of the First Offer Space shall commence upon the date (“ First Offer Commencement Date ”) which is the earlier of (i) the expiration of a reasonable build-out period determined as a component of the Economic Terms, and (ii) the date that Tenant, or any person occupying any of the First Offer Space with Tenant’s permission, commences business operations from the First Offer Space, subject to any appropriate modification with respect to such commencement of Rent as determined as part of the Economic Terms. The Lease Term for the First Offer Space shall expire on the Lease Expiration Date, subject to extension as provided in Section 2.2 of this Lease, co-terminously with Tenant’s lease of the Majority Space.

 

1.6.4 Termination of Right of First Offer . The rights set forth in this Section 1.6, and Landlord’s obligations with respect thereto, shall be exercisable only by the originally-named Tenant (“ Original Tenant ”) and any Affiliated Assignee (as defined in Section 11.7) (and shall not inure to the benefit of any assignee, sublessee or other transferee of the Original Tenant’s interest in this Lease, other than an Affiliated Assignee). Tenant’s right of first offer hereunder shall not be effective in any period during which more than ten percent (10%) of the rentable area of the Premises is subject to a sublease, other than to an Affiliated Assignee. Tenant shall not have the right to lease the First Offer Space if, as of the date of the attempted exercise of any right of first offer by Tenant, or, at Landlords option, as of the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in default under this Lease after notice and lapse of any applicable cure periods.

 

ARTICLE 2

 

LEASE TERM

 

2.1 Initial 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 5.1

 

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of the Summary, shall commence on the dates set forth in Section 5.2 of the Summary, and shall terminate on the date set forth in Section 5.3 of the Summary (the “ Lease Expiration Date ”) unless this Lease is sooner terminated or extended 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 January 1, 1999 and that the last Lease Year shall end on the Lease Expiration Date for the applicable portion of the Premises. At any time during the Lease Term, Landlord may deliver to Tenant a factually correct notice in the form as set forth in Exhibit D, attached hereto, which Tenant shall execute and return to Landlord within ten (10) days of receipt thereof.

 

2.2 Option Terms . Landlord hereby grants to the Tenant two (2) options to extend the Lease Term for a period of five (5) years each (each, an “ Option Term ”), which options shall be exercisable only by written 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 notice and expiration of applicable cure periods. The right contained in this Section 2.2 shall be personal to the Original Tenant and any Affiliated Assignee, and may only be exercised by the Original Tenant or any Affiliated Assignee (and not any other assignee, sublessee or other transferee of the Original Tenant’s interest in this Lease). Exercise of the right under this Section 2.2 shall not be effective if, as of the date of the Option Notice, more than ten percent (10%) of the rentable area of the Premises is subject to a sublease other than to an Affiliated Assignee, In no event shall Tenant be entitled to exercise the second (2nd) option to extend unless Tenant has previously exercised the first (1st) option to extend.

 

2.2.1 Option Rent . The Rent payable by Tenant during the Option Term (the “ Option Rent ”) shall be equal to the then prevailing fair market rent for the Premises as of the commencement date of the Option Term. The then prevailing fair market rent shall be the rental rate, including all escalations, at which new, non-equity, non-renewal, creditworthy tenants, as of the commencement of the Option Term, are entering into leases for non-sublease, non-encumbered space comparable in size, location and quality to the Premises for a term of approximately the Option Term, which comparable space is located in comparable buildings (“ Comparable Transactions ”) in Warner Center. In any determination of Comparable Transactions, appropriate consideration should be given to annual rental rates per rentable square foot, the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to useable square feet, the type of escalation clause (e.g., whether increases in additional rent are determined on a net or gross basis, and if gross, whether such increases are determined according to a base year or a base dollar amount expense stop), abatement provisions reflecting free rent, length of the lease term, size and location of premises being leased, building standard work letter and/or tenant improvement allowances, if any, taking into account the value of the existing improvements in the Premises as compared to the value of the then existing improvements for the Comparable Transactions, and other generally applicable conditions of tenancy for such Comparable Transactions. The intent is that Tenant will obtain the same rent and other economic benefits that Landlord would otherwise give in Comparable Transactions. The parties agree that if Landlord is obligated to pay a brokerage commission in connection with Tenant’s extension, Comparable Transactions shall only include transactions in which a broker is

 

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also paid a commission; conversely, if Landlord is not obligated to pay a commission in connection with Tenant’s extension, then Comparable Transactions shall only include those transactions where no brokerage commission is paid.

 

2.2.2 Exercise of Options . If Tenant wishes to exercise a renewal option hereunder, Tenant shall, on or before the date occurring nine (9) months prior to the expiration of the initial Lease Term for the Majority Space (or nine (9) months prior to the expiration of the first Option Term for the Majority Space, if applicable), exercise the option by delivering notice to Landlord of such exercise by Tenant (the “ Option Notice ”). Landlord and Tenant acknowledge that if Tenant delivers an Option Notice, the Lease Term shall be extended for the Option Term for all space then leased by Tenant in the Building including, without limitation, the Majority Space, the 22nd Floor Space and any First Offer Space then leased by Tenant, that the procedure for determination of the Option Rent as provided in this Section 2.2 below shall apply in order to determine the Option Rent for the entire Premises (including the 22nd Floor Space), but that the Option Terms shall commence and shall expire on slightly different dates for the 22nd Floor Space as compared to the remainder of the Premises due to the separate Lease Expiration Dates specified in Section 5.3 of the Summary. Failure of Tenant to deliver the Option Notice to Landlord on or before such date 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 initial Lease Term or first Option Term, as applicable, 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 the Option Rent determined as follows. Tenant shall be entitled to request that Landlord notify Tenant of Landlord’s estimate of the Option Rent prior to Tenant’s delivery of the Option Notice. Within thirty (30) days after such request by Tenant (but not earlier than fifteen (15) months prior to the expiration of the initial Lease Term or first Option Term, as applicable), Landlord shall notify Tenant of Landlord’s estimate of the Option Rent for the applicable Option Term (the “ Information Estimate ”); provided that neither Tenant’s request for the Information Estimate nor Landlord’s notice thereof shall create any liability for either party. Landlord shall determine the Option Rent for the Option Term by using its good faith judgment. Whether or not Landlord has previously delivered the Information Estimate, Landlord shall provide written notice (“ Option Rent Notice ”) of Landlord’s determination of the Option Rent within thirty (30) days after Tenant provides the Option Notice to Landlord; provided, however, that Landlord shall not be obligated to provide the Option Rent Notice for an Option Term prior to the date which is fifteen (15) months before the commencement of such Option Term. Tenant shall have thirty (30) days (“ Tenant’s Review Period ”) after receipt of Landlord’s Option Rent Notice within which to accept such rental or to reasonably object thereto in writing. Tenant’s failure to object by written notice to Landlord within said thirty (30) day period shall be deemed to constitute Tenant’s acceptance of the Option Rent specified by Landlord in the Option Rent Notice. In the event Tenant timely objects in writing, Landlord and Tenant shall attempt to agree upon such Option Rent using their best good faith efforts. If Landlord and Tenant fail to reach agreement within thirty (30) days following Tenant’s Review Period (“ Outside Agreement Date ”), then the Option Rent shall be determined by arbitration in accordance with Sections 2.2.3.1 through 2.2.3.7 below.

 

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2.2.3 Determination of Option Rent. If Landlord and Tenant fail to reach agreement on the Option Rent by 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 Sections 2.2.3.1 through 2.2.3.7 below.

 

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 high-rise properties in the Woodland Hills, California area. 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 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.

 

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

 

ARTICLE 3

 

RENT

 

3.1 Base Rent . Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing (provided any such notice changing the place for payment is given to Tenant no later than fifteen (15) days prior to the next date that Base Rent is due), in 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 6 of the Summary, payable in equal monthly installments as set forth in Section 6 of the Summary in advance on or before the first day of each and every month during the Lease Term, commencing with respect to each floor of the Premises on the Lease Commencement Date therefor as set forth in Section 5.2 of the Summary, without any setoff or deduction whatsoever (except as otherwise expressly set forth in this Lease). Notwithstanding the foregoing, Base Rent shall be increased by the amount of Base Rent for the Must Take Space effective as of the Must Take Space Commencement Date as set forth in Section 1.5 of this Lease. The Base Rent for the first full month of the Lease Term which occurs in calendar year 1999 for both the initial Premises and the Must Take Space (i.e., a total of $218,229.30) shall be paid at the time of Tenant’s execution of this Lease. If any Rent payment date (including the Lease Commencement Date for the 22nd Floor Space) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall be a 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 prorated on a time basis shall be prorated on the same basis.

 

3.2 Additional Rent . In addition to paying the Base Rent specified in Section 3.1 of this Lease, Tenant shall pay “Tenant’s Share” of the annual “Building Direct Expenses,” as those terms are defined in Sections 3.3.10 and 3.3.2 of this Lease, respectively, to the extent such Building Direct Expenses are in excess of Building Direct Expenses for the “Base Year,” as that term is defined in Section 3.3.1 of this Lease. 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 herein collectively referred to as “ Rent. ” All amounts due under this Article 3 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 3 and Landlord’s obligation to reimburse Tenant for overpayments, if any, of Additional Rent shall survive the expiration of the Lease Term.

 

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3.3 Definitions of Key Terms Relating to Additional Rent . As used in this Article 3, the following terms shall have the meanings hereinafter set forth:

 

3.3.1 “ Base Year ” shall be as set forth in Section 7.1 of the Summary.

 

3.3.2 “ Building Direct Expenses ” shall mean “Building Operating Expenses” and “Building Tax Expenses”, as those terms are defined in Sections 3.3.3 and 3.3.4, below, respectively.

 

3.3.3 “ Building Operating Expenses ” shall mean the portion of “Operating Expenses,” as that term is defined in Section 3.3.7 below, allocated to the tenants of the Building pursuant to the terms of Section 3.4.1 below.

 

3.3.4 “ Building Tax Expenses ” shall mean that portion of “Tax Expenses”, as that term is defined in Section 3.3.9 below, allocated to the tenants of the Building pursuant to the terms of Section 3.4.1 below.

 

3.3.5 “ 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 other twelve (12) consecutive month period, and, in the event of any such change, Tenant’s Share of Building Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

 

3.3.6 “ Direct Expenses ” shall mean “Operating Expenses” and “Tax Expenses”.

 

3.3.7 “ Operating Expenses ” shall mean all reasonable and actually incurred expenses, costs and amounts of every kind and nature which Landlord pays during any Expense Year because of or in connection with the ownership, management, maintenance, repair, or operation of the Project, or any portion thereof. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, maintaining, repairing, complying with conservation measures in connection with, and managing the utility systems, mechanical systems, sanitary and storm drainage systems, and elevator systems, and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (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, private or public shuttle service or parking program; (iii) the cost of all insurance carried by Landlord in connection with the Project, or any portion thereof; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area repair, restoration, and maintenance including, but not limited to, resurfacing, repainting, restriping, and cleaning; (vi) fees, charges and other costs, including consulting fees, legal fees and accounting fees, of all contractors and consultants engaged by Landlord or reasonably incurred by Landlord in connection with the management, operation, maintenance and repair of the Project, or any portion

 

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thereof including the fair market rental value of any office space utilized for such purpose (where the size of such office space is competitive with the size of management office space included in Operating Expenses in other comparable projects of comparable size in the Los Angeles, California area) and in lieu of any other management fee, a management fee in the amount of fifteen percent (15%) of all other Direct Expenses; (vii) payments under any equipment rental agreements; (viii) wages, salaries and other compensation and benefits of all persons engaged in the operation, maintenance or security of the Project, or any portion thereof, including employer’s Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; provided, that if any employees of Landlord provide services for more than one project of Landlord, then a prorated portion of such employees’ wages, benefits and taxes shall be included in Operating Expenses based on the portion of their working time devoted to the Project, or any portion thereof; provided further that no portion of any employee’s wages, benefits, or taxes allocable to time spent on the development, marketing, financing, re-financing, sale, or leasing of the Project shall be included in Operating Expenses; (ix) payments, fees or charges under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Project, or any portion thereof; (x) operation, repair and maintenance of all “Systems and Equipment,” as that term is defined in Section 3.3.8 of this Lease, and components thereof; (xi) the cost of janitorial services, alarm and security service, 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 and repair to roofs; (xii) amortization (including interest on the unamortized cost at Landlord’s actual cost of funds) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to effect economies in the operation or maintenance of the Project, or any portion thereof to the extent of cost savings reasonably anticipated by Landlord, or (B) that are required under any governmental law or regulation that was not enacted prior to the date this Lease was fully executed and delivered or that was not applicable to the Project on the date this Lease was fully executed and delivered; provided, however, that any capital expenditure shall be amortized over its useful life as reasonably determined, and the unamortized cost of the same shall bear interest at Landlord’s actual cost of funds; and (xiv) costs, fees, charges or assessments imposed by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 3.3.9, below. If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its.own expense furnished such work or service to such tenant. If the Building is not at least ninety-five percent (95%) occupied during all or a portion of any Expense Year, Landlord shall make an appropriate adjustment to the variable components of Operating Expenses for such year employing sound accounting and management principles, to determine the amount of Operating Expenses that would have been paid had the Building been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount

 

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of Operating Expenses for such year. Landlord (x) shall not collect or be entitled to collect from Tenant an amount in excess of Tenant’s Share of one hundred percent (100%) of the Operating Expenses; and (y) shall reduce the amount of the Operating Expenses by any refund or discount received by Landlord. Any expense or category of expense excluded from Operating Expenses in the Base Year pursuant to the provisions of this Section 3.3.7 below shall also be excluded from Operating Expenses in any subsequent Expense Year. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, except as otherwise set forth in this Section 3.3, include:

 

(A) bad debt expenses and interest, principal, points and fees on debts (except in connection with the financing of items which are expressly included in the definition of Operating Expenses above) or amortization or rent, attorneys’ fees or other transaction costs on any ground lease, mortgage or mortgages or any other debt instrument encumbering the Building or the Project (including the land on which the Building is situated);

 

(B) marketing costs, including leasing commissions, attorneys’ fees in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building, including attorneys’ fees and other costs and expenditures incurred in connection with disputes with present or prospective tenants or other occupants of the Building;

 

(C) real estate brokers’ leasing commissions;

 

(D) costs, including permit, license, construction and inspection costs, incurred with respect to the installation of other tenants’ or occupants’ improvements made for tenants or other occupants in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants, prospective tenants or other occupants in the Building;

 

(E) any costs expressly excluded from Operating Expenses elsewhere in this Lease;

 

(F) costs of any items (including, but not limited to, costs incurred by Landlord for the repair of damage to the Building) to the extent Landlord receives reimbursement from insurance proceeds or from a third party;

 

(G) costs of capital improvements, capital replacements, capital repairs, capital restorations and capital additions (with the determination of whether an item is a capital item to be made under generally accepted accounting principles) except those set forth in Sections 3.3.7(xii) and (xiii) above;

 

(H) rentals and other related expenses for leasing an HVAC system, elevators, or other items (except when needed in connection with normal repairs and

 

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maintenance of the Building) which if purchased, rather than rented, would constitute a capital improvement not included in Operating Expenses pursuant to this Lease;

 

(I) depreciation, amortization and interest payments, except as specifically included in Operating Expenses pursuant to the terms of this Lease and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party, where such depreciation, amortization and interest payments would otherwise have been included in the charge for such third party’s services, all as determined in accordance with generally accepted accounting principles, consistently applied, and when depreciation or amortization is permitted or required, the item shall be amortized over its reasonably anticipated useful life;

 

(J) expenses in connection with services or other benefits which are not offered to Tenant or for which Tenant is charged for directly but which are provided to another tenant or occupant of the Building without charge;

 

(K) costs, including attorneys’ fees and costs, incurred by Landlord relating to disputes with ground lessors, lenders, brokers, tenants or prospective tenants;

 

(L) Landlord’s general corporate overhead, general and administrative expenses and costs of operation of the business of Landlord as contrasted with operation of the Project, including within this exclusion, costs related to the sale, financing or refinancing of the Project or any part thereof or interest therein;

 

(M) advertising and promotional expenditures;

 

(N) electric power costs or other utility costs for which any tenant directly contracts with the local public service company (but Landlord shall have the right to “gross up” as if the space was vacant);

 

(O) interest and tax penalties incurred as a result of Landlord’s negligence, inability or unwillingness to make payments or file returns when due;

 

(P) costs arising from Landlord’s charitable or political contributions;

 

(Q) costs arising from defects in the Base, Shell and Core of the Building or improvements installed by Landlord;

 

(R) the cost of any utilities or services supplied to retail space to the extent such cost exceeds the amount Landlord reasonably determines would have been incurred had such space been used for general office purposes;

 

(S) costs for acquisition of sculpture, paintings or other objects of art;

 

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(T) the wages and other personnel costs of any employee above the level of Project general manager (provided that the Project’s engineers shall be considered to be below the level of the Project general manager);

 

(U) the cost of providing any service directly to and paid directly by any tenant (but Landlord shall have the right to “gross up” Operating Expenses with respect to such item, if such item is otherwise includable in Operating Expenses, as if the space occupied by such tenant was vacant);

 

(V) 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 amount so paid exceeds the competitive cost (but not necessarily the lowest cost) for such goods and/or services;

 

(W) to the extent not in excess of the gross parking revenues, the cost of payroll for clerks and attendants, bookkeeping, garage keepers liability insurance, parking management fees, tickets and uniforms directly incurred in operating the parking facilities.

 

(X) cost incurred in connection with upgrading the Building or Project to comply with disability, life, fire and safety codes, ordinances, statutes or other laws in effect with respect to the Project prior to the date of this Lease; and

 

(Y) notwithstanding any contrary provision of this Lease, including, without limitation, any provision relating to capital expenditures, any and all costs arising from the presence of any Hazardous Materials (including cost of clean-up, remediation, monitoring, management and administration thereof and defense of claims related to the presence of such Hazardous Material) in or about the Premises, Building or Project that were discharged into the Project at any time as a result of the action of Landlord or its employees, agents or contractors (i) in violation of Laws or (ii) which were present in or on the Project and known to be Hazardous Material as of the date hereof; provided, however, unless caused by the negligence or willful misconduct of Landlord, its agents or employees, Operating Expenses shall include costs incurred in connection with the cleanup, remediation, monitoring, management and administration of (and defense of claims related to) the presence of Hazardous Materials used by Landlord in connection with the operation, repair and maintenance of the Project to perform Landlord’s obligations under this Lease (such as, without limitation, fuel oil for generators, cleaning solvents, and lubricants) and which are customarily found or used in first-class office buildings.

 

3.3.7.1 Landlord agrees that except for the management fee and management office rental described above, Landlord shall make no profit from Landlord’s collection of Operating Expenses. All assessments and premiums which are not specifically charged to Tenant because of what Tenant has done, which can be paid by Landlord in installments, shall be paid by Landlord in the maximum number of installments permitted by law and not included as Operating Expenses except in the year in which the assessment or premium installment is actually paid; provided, however, that if the prevailing practice in comparable

 

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buildings is to pay such assessments or premiums on an earlier basis, and Landlord pays on such basis, such assessments or premiums shall be included in Operating Expenses as paid by Landlord, and Landlord may, in such event, include any accrued interest (resulting from such assessments or premiums) in its computation of Operating Expenses. Each time Landlord provides Tenant with an actual and/or estimated statement of Operating Expenses, such statement shall be in a format containing at least the level of detail as such statements normally provided by Landlord as of the date hereof.

 

3.3.7.2 Landlord may not include in Operating Expenses or Tax Expenses attributable to a Lease Year any cost or tax which was incurred by Landlord and paid by Landlord more than three (3) years prior to the date Landlord seeks to include such item as Operating Expenses and/or Tax Expenses unless such circumstance results from governmental action or inaction (e.g., an error in the computation of Tax Expenses by the assessor).

 

Notwithstanding anything to the contrary set forth in this Article 3, when calculating Direct Expenses for the Base Year, Operating Expenses shall exclude (i) market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes, (ii) utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages, and (iii) amortization and other costs of capital improvement, restoration, and replacement relating to any portion of the Project (including the amortization expenses of any such costs incurred in prior years).

 

3.3.8 “ Systems and Equipment ” shall mean any plant, machinery, transformers, duct work, conduit, pipe, bus duct, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Project in whole or in part.

 

3.3.9 “ 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, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid 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 Project, or any portion thereof. Real Property taxes shall be calculated as if the Project and parking facility were fully completed and fully assessed.

 

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3.3.9.1 Tax Expenses shall include, without limitation:

 

(i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof;

 

(ii) 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, 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 Project’s contribution 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 the purposes of this Lease;

 

(iii) 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; and

 

(iv) 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.

 

3.3.9.2 With respect to any assessment that may be levied against, upon, or in connection with the Project, or any portion thereof, and may be evidenced by improvement or other bonds, or may be paid in annual installments, there shall be included within the definition of Tax Expenses with respect to any tax fiscal year only the amount currently payable on such bonds, including interest, for such tax fiscal year, or the current annual installment for such tax fiscal year.

 

3.3.9.3 If the method of taxation of real estate prevailing at the time of execution hereof shall be, or has been, altered so as to cause the whole or any part of the taxes now, hereafter or heretofore levied, assessed or imposed on real estate to be levied, assessed or imposed upon the owner or owners of the Project, wholly or partially, as a capital levy or otherwise, or on or measured by the rents received therefrom, then such new or altered taxes attributable to the Project, or any portion thereof, shall be included within the term “Tax Expenses” except that the same shall not include any enhancement of said tax attributable to other income.

 

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3.3.9.4 In no event shall Tax Expenses for any Expense Year be less than Tax Expenses for the Base Year.

 

3.3.9.5 If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay within ten (10) business days (or thirty (30) days if the amount due from Tenant is in excess of $50,000) of receipt of notice, Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the terms of this Lease.

 

3.3.9.6 Any expenses incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. Tax refunds shall be credited against Tax Expenses regardless of when received, based on the year to which the refund is applicable. If Landlord receives a Proposition 8 reduction in Tax Expenses attributable to any period of time during which this Lease is in effect, then regardless of whether this Lease has terminated, and regardless of when Landlord receives such deduction (by direct payment or credit), to the extent Tenant is entitled to a refund of Direct Expenses previously paid by Tenant for such period (based upon a recalculation of Direct Expenses for such time period reflecting such reduced Tax Expense amount), Landlord shall remit the amount of such deduction attributable to the appropriate square footage in the Premises to Tenant within thirty (30) days after receipt of such refund by Landlord or if this Lease is still in effect, credit such amount against the next Rent falling due under this Lease after Landlord’s receipt of such refund. Landlord shall use commercially reasonable efforts to obtain a Proposition 8 refund (or any other credit or refund under a similar or replacement law) whenever Landlord makes a good faith determination that such a refund or credit is appropriately due to Landlord.

 

3.3.9.7 Notwithstanding anything to the contrary contained in this Section 3.3.9 (except as set forth in Sections 3.3.9.1 and 3.3.9.3, above), 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 Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Article 9 of this Lease.

 

3.3.9.8 Notwithstanding anything to the contrary set forth in this Article 3, when calculating Direct Expenses for the Base Year, such Direct Expenses shall not include any increase in Tax Expenses attributable to special assessments, charges, costs, or fees, or due to modifications or changes in governmental laws or regulations, including, but not limited to, the institution of a split tax roll.

 

3.3.10 “ Tenant’s Share ” shall mean the percentage calculated by dividing the number of rentable square feet of the Premises by the total number of rentable square feet in the Building. In the event either the rentable square feet of the Premises and/or the total rentable square feet of 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 Expense Year shall be

 

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determined on the basis of the number of days during such Expense Year that each such Tenant’s Share was in effect.

 

3.3.11 Landlord shall, at Landlord’s option, have the right to segregate Direct Expenses into two (2) separate categories, one (1) such category to be applicable only to Direct Expenses incurred for the Building and the other category applicable to Direct Expenses incurred for the Project Common Areas. If Landlord so segregates Direct Expenses into two (2) categories, two (2) Tenant’s Shares shall apply, one (1) such Tenant’s Share shall be calculated by dividing the number of rentable square feet of the Premises by the total number of rentable square feet in the Building (“ Tenant’s Building Share ”), subject to adjustment as provided in Section 3.3.10 above, and the other Tenant’s Share to be calculated by dividing the number of rentable square feet of the Premises by the total number of rentable square feet (subject to adjustment as provided in Section 1.2) of all buildings in the Project (“ Tenant’s Common Area Share ”). Consequently, if Landlord elects to so segregate Direct Expenses into two (2) categories, any reference in this Lease to “ Tenant’s Share of Building Direct Expenses ” shall mean and refer to both Tenant’s Building Share of Direct Expenses and Tenant’s Common Area Share of Direct Expenses. No Operating Expenses or Taxes may be charged in a duplicative manner or as both Tenant’s Building Share of Direct Expenses and Tenant’s Common Area Share of Direct Expenses and this Section 3.3.11 shall be administered in accordance with generally accepted accounting and management practices, consistently applied.

 

3.4 Allocation of Direct Expenses .

 

3.4.1 Method of Allocation . The parties acknowledge that the Building is a part of a multi-building project and that the costs and expenses incurred in connection with the Project (i.e., the Direct Expenses) should be shared between the tenants of the Building and the tenants of the other buildings in the Project. Accordingly, as set forth in Section 3.3 above, Direct Expenses (which consists of Operating Expenses and Tax Expenses) are determined annually for the Project as a whole, and a portion of the Direct Expenses, which portion shall be determined by Landlord on an equitable basis in accordance with generally accepted accounting and management practices, consistently applied, shall be allocated to the tenants of the Building (as opposed to the tenants of any other buildings in the Project) and such portion shall be the Building Direct Expenses for purposes of this Lease. Such portion of Direct Expenses allocated to the tenants of the Building shall include all Direct Expenses attributable solely to the Building and an equitable portion of the Direct Expenses attributable to the Project as a whole in accordance with generally accepted accounting and management practices, consistently applied.

 

3.4.2 Cost Pools . Landlord shall have the right, from time to time, to equitably allocate some or all of the Direct Expenses for the Project among different portions or occupants of the Project (the “Cost Pools” ), in accordance with generally accepted accounting and management practices, consistently applied. Such Cost Pools may include, but shall not be limited to, the office space tenants of a building of the Project or of the Project, and the retail space tenants of a building of the Project or of the Project. The Direct Expenses within each such Cost Pool shall be allocated and charged to the tenants within such Cost Pool in an equitable manner in accordance with generally accepted accounting and management practices, consistently applied.

 

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3.5 Calculation and Payment of Additional Rent . For every Expense Year ending or commencing within the Lease Term, Tenant shall pay to Landlord, in the manner set forth in Section 3.5.1, below, and as Additional Rent, an amount equal to Tenant’s Share of Building Direct Expenses for such Expense Year in excess of the Building Direct Expenses for the Base Year.

 

3.5.1 Statement of Actual Building Direct Expenses and Payment by Tenant . Landlord shall endeavor to give to Tenant on or before the first day of April following the end of each Expense Year (but in any event on or before the first day of July), a statement (the “ Statement ”) which shall state the Building Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant’s Share of such Building Direct Expenses in excess of the Building Direct Expenses for the Base Year. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, upon the later of the next installment of Base Rent due or within thirty (30) days after receipt of the Statement, the full amount of Tenant’s Share of Building Direct Expenses for such Expense Year in excess of the Building Direct Expenses for the Base Year, less the amounts, if any, paid during such Expense Year as “Estimated Additional Rent,” as that term is defined in Section 3.5.2, below. If the Statement shows that Tenant has paid Estimated Additional Rent in excess of Tenant’s Building Share of Direct Expenses for such Expense Year, Landlord shall pay such excess to Tenant together with the applicable Statement, even if the Lease has terminated or expired. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 3. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall pay to Landlord within thirty (30) days after receipt of a Statement setting forth an amount owing to Landlord calculated pursuant to the provisions of Section 3.5 any unpaid amounts described herein, less any amounts owed from Landlord to Tenant. The provisions of this Section 3.5.1 shall survive the expiration or earlier termination of the Lease Term.

 

3.5.2 Statement of Estimated Building Direct Expenses . 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 what the total amount of Building Direct Expenses for the then-current Expense Year shall be and the estimated amount of Tenant’s Share of Building Direct Expenses for the then-current Expense Year in excess of the Building Direct Expenses for the Base Year (the “ Estimated Additional Rent ”). 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 Additional Rent under this Article 3; however, Landlord shall endeavor to deliver the Estimate Statement as soon as practicable after Landlord has prepared the Statement for the preceding calendar year. In addition, Tenant may request by written notice to Landlord, no more than one (1) time per year, that Landlord provided Tenant with Landlord’s good faith projection of Building Direct Expenses for the upcoming or then-current Expense Year and Landlord shall respond to such request within fifteen (15) business days based upon information then available to Landlord; however, Tenant acknowledges that Landlord shall not be bound by any such good-faith projection and shall have no liability to Tenant for any

 

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inaccuracy of such projections. Tenant shall pay, upon the later to occur of (i) the date upon which its next installment of Base Rent is due, and (ii) the date which is ten (10) days after Tenant’s receipt of the Estimate Statement, a fraction of the Estimated Additional Rent for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 3.5.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time). Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Additional Rent set forth in the previous Estimate Statement delivered by Landlord to Tenant.

 

3.6 Landlord’s Books and Records . Within two (2) years after receipt of a Statement by Tenant (“ Review Period ”), if Tenant disputes the amount of Additional Rent set forth in the Statement, Tenant or an independent certified public accountant (which accountant is a member of a regionally recognized accounting firm) designated by Tenant, may after reasonable notice to Landlord and during normal business hours, not more than once in any calendar year, inspect and photocopy Landlord’s records at Landlord’s offices, provided that Tenant is not then in default after expiration of any applicable cure period under Section 12.1.1 of this Lease, provided, further, that Tenant and such accountant shall, and each of them shall use their commercially reasonable efforts to cause their respective agents and employees to, maintain all information contained in Landlord’s records in strict confidence except as necessary in the enforcement of this Lease. If after such inspection, Tenant still disputes such Additional Rent, a certification as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant mutually selected by Landlord and Tenant. If Landlord and Tenant are unable to agree upon an independent certified public accountant, each party may apply to the presiding judge of the Los Angeles Superior Court to appoint same from a regionally recognized accounting firm. Landlord shall cooperate in good faith with Tenant and the designated accountant to show Tenant and the designated accountant the information upon which the certification is based; provided that if such certification by the designated accountant proves that the Direct Expenses set forth in the Statement were overstated by more than four percent (4%), then the cost of the designated accountant and the cost of such certification shall be paid for by Landlord. Promptly following the parties’ receipt of such certification, the parties shall make such appropriate payments or reimbursements, as the case may be, to each other, as are determined to be owing pursuant to such certification, together with interest at the “Interest Rate”, as that term is defined in Section 19.28 of this Lease, from the date due until paid, in the case of payments by Tenant to Landlord, or from the date paid until reimbursed, in the case of reimbursements by Landlord to Tenant. Landlord shall be required to maintain records of all Direct Expenses set forth in each Statement delivered to Tenant for the entirety of the three (3) year period following Landlord’s delivery of the applicable Statement. The payment by Tenant of any amounts pursuant to this Article 3 shall not preclude Tenant from questioning the correctness of any Statement delivered by Landlord, provided that the failure of Tenant to object thereto prior to the expiration of the Review Period shall be conclusively deemed Tenant’s approval of the applicable Statement.

 

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ARTICLE 4

 

[ INTENTIONALLY OMITTED ]

 

ARTICLE 5

 

USE OF PREMISES

 

5.1 Permitted Use . Tenant shall use the Premises solely for general office purposes consistent with the character of the Project as a first-class office building project, and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which Landlord may withhold in its sole discretion; provided that consent to such other purpose or purposes shall not be unreasonably withheld if Landlord then permits a comparable use by another tenant of the Project in a comparable space and area in the Project.

 

5.2 Prohibited Uses . Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises, the Common Areas (including, without limitation, the Project’s parking facility) or any part thereof for any use or purpose contrary to the provisions of Exhibit E attached hereto (“ 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 Project) including, without limitation, any such laws, ordinances, regulations or requirements relating to “Hazardous Material”, as that term is defined in Section 19.29 below. Landlord shall enforce the Rules and Regulations in a reasonable and non-discriminatory manner. To the extent that these Rules and Regulations attached as Exhibit E are contrary to, or inconsistent with, the provisions of this Lease, the provisions of this Lease shall prevail. Landlord shall not enforce, modify or amend the Rules and Regulations in an unreasonable manner or in a manner which would unreasonably interfere with normal and customary office business operations permitted under Section 5.1. Tenant shall comply with all recorded covenants, conditions, and restrictions now or hereafter affecting the Project; provided that Landlord warrants that such documents do not prohibit use of the Premises permitted hereunder and do not materially and adversely affect the rights and obligations of Tenant hereunder including, without limitation, obligations for Direct Expenses in accordance with Article 3.

 

5.3 Labor Harmony . Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Project.

 

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ARTICLE 6

 

REPAIRS, ADDITIONS AND ALTERATIONS

 

6.1 Repairs .

 

6.1.1 Repair Obligations. Landlord shall, as part of Operating Expenses to the extent permitted under Article 3 of this Lease, operate, improve, manage and maintain the Building and Project in accordance with all governmental laws, rules and regulations in a manner consistent with “ Comparable Buildings ,” defined as first class office buildings in the Woodland Hills/ West San Fernando Valley area comparable in age, location, amenities and quality of construction. Landlord shall keep and maintain the Building and Project (excluding the Tenant Improvements and Alterations), including the Building’s exterior walls, windows, roof and foundation, the Base, Shell and Core, and the Systems and Equipment located in the Building, in proper working order, condition and repair (collectively, the “ Landlord Repair Items ”). Landlord shall keep and maintain the Landlord Repair Items in compliance with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated, including any standard or regulation now or hereafter imposed on Landlord by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational health or safety standards for employers, employees, landlords or tenants, that relates to Tenant’s use or occupancy of the Premises or the operation of the Premises (collectively, “ Legal Requirements ”); provided, however, that Tenant hereby covenants and agrees that if such compliance is required as a result of Tenant’s non-general office use of the Premises, or Tenant’s particular use or occupancy (as opposed to use or occupancy by office tenants in general), Tenant shall be responsible for the cost of causing, and Tenant shall cause, the Tenant Improvements, the Alterations, the Base, Shell and Core (but then only to the extent that the cost of such compliance is not included in Operating Expenses), to comply with the Legal Requirements. Except as set forth above as Landlord’s obligations, and in addition to the obligations of Tenant set forth above, Tenant shall, at Tenant’s own expense, keep the Tenant Improvements and Alterations, and fixtures and furnishings in the Premises in good order, repair and condition at all times during the Lease Term. In addition, Tenant shall, at Tenant’s own expense, but under the supervision and subject to the prior approval of Landlord, and within any reasonable period of time specified by Landlord, promptly and adequately repair all damage to the Tenant Improvements and Alterations and replace or repair all damaged, broken, or worn fixtures and appurtenances in the Premises; 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 to the Tenant Improvements and Alterations, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building and/or the Project) 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. Landlord may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alterations, improvements or additions to the Premises or to the Project or to any equipment located in the Project as Landlord shall desire or deem necessary or as Landlord may be required to do by governmental or

 

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quasi-governmental authority or court order or decree. Tenant hereby waives and releases its right to make repairs at Landlord’s expense under Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

 

6.1.2 Tenant Maintenance and Repair .

 

6.1.2.1 If Tenant provides notice (the “ Repair Notice ”) of an event or circumstance which pursuant to the terms of this Lease requires Landlord to fulfill an obligation, including, without limitation, to provide services or utilities, or repair, alter, improve and/or maintain the Premises or to comply with law (a “ Required Action ”) to Landlord and any mortgage lender of Landlord which has previously been identified in a notice delivered to Tenant, and Landlord fails to provide the Required Action within the time period required by this Lease, or a reasonable period of time, if no specific time period is specified in this Lease, after the receipt of the Repair Notice (the “ Notice Date ”), or, in any event, does not commence the Required Action within thirty (30) days after the Notice Date and complete the Required Action within thirty (30) days after commencement of the Required Action, then Tenant may proceed to take the Required Action, pursuant to the terms of this Lease, and shall deliver a second notice to Landlord and such mortgage lender specifying that Tenant is taking the Required Action (the “ Second Notice ”); provided that if the nature of the Required Action is such that the same cannot reasonably be completed within a thirty (30)-day period, then Tenant shall not have the right to proceed to take the Required Action if Landlord diligently commences the Required Action within such period and thereafter diligently proceeds to complete the Required Action.

 

6.1.2.2 Notwithstanding the foregoing, if there exists an emergency such that the Premises or a portion thereof are rendered untenantable and Tenant’s personnel are forced to vacate the Premises or such portion thereof and if Tenant gives the notice (the “ Emergency Notice ”) of Tenant’s intention to take action with respect thereto (the “ Necessary Action ”) and the Necessary Action is also a Required Action, Tenant may take the Necessary Action if Landlord does not commence the Necessary Action within one (1) business day after the Emergency Notice (the “ Emergency Cure Period ”) and thereafter use its commercially reasonable, good faith efforts and due diligence to complete the Necessary Action as soon as possible.

 

6.1.2.3 If any Necessary Action will affect the Systems and Equipment, the structural integrity of the Building, or the exterior appearance of the Building, (i) Tenant shall use only those contractors used by Landlord in the Building, or (ii) if such contractors are unavailable or unwilling to perform, Tenant shall use only those contractors used by landlords of Comparable Buildings for work on such items.

 

6.1.2.4 If any Required Action or Necessary Action is taken by Tenant pursuant to the terms of this Section 6.1, then Landlord shall reimburse Tenant for its reasonable and documented costs and expenses in taking the Required Action or Necessary Action within thirty (30) days after receipt by Landlord of an invoice from Tenant which sets forth a reasonably particularized breakdown of its costs and expenses in connection with taking the Required Action or Necessary Action on behalf of Landlord (the “ Repair Invoice ”). In the event Landlord does

 

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not reimburse Tenant for the Repair Invoice within thirty (30) days of receipt, then Tenant may deduct from the next Rent payable by Tenant under this Lease, the amount set forth in the Repair Invoice plus interest at the Interest Rate (the “ Offset Right ”). Notwithstanding the foregoing, if Landlord delivers to Tenant within thirty (30) days after receipt of the Repair Invoice, a written objection to the payment of such invoice, setting forth with reasonable particularity Landlord’s reason for its claim that the Required Action or Necessary Action did not have to be taken by Landlord pursuant to the terms of this Lease or that Tenant breached the terms of this Section 6.1, 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 be entitled to deduct such amount from Rent, but Tenant shall retain any right it may have at law or in equity in connection with such dispute. However, Landlord shall not be entitled to claim that the charges for contractors which Tenant is required to use by Landlord under Section 6.1.2.3(i) above are excessive (but Landlord may claim that the Required Action or Necessary Action did not have to be taken).

 

6.2 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 not be unreasonably withheld, conditioned or delayed by Landlord and shall be approved or denied by notice delivered to Tenant within ten (10) business days of Landlord’s receipt of request for consent, provided that, if such notice of consent or denial is not received by Tenant within such ten (10) business day period, then, upon delivery of an additional five (5) business days’ notice to Landlord and Landlord’s failure to respond within such period, such Alterations shall be deemed approved by Landlord. Notwithstanding the foregoing, Tenant may make changes to the Premises, without Landlord’s consent, provided that such changes do not require any structural modifications to the Premises, do not require any changes to, or adversely affect, the Systems and Equipment, and do not affect the exterior appearance of the Building. Tenant shall give Landlord at least fifteen (15) days prior notice of such changes, which notice shall be accompanied by reasonably adequate evidence that such changes meet the criteria contained in this Section 6.2. The construction of the initial improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 6.

 

6.3 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 made at the time such consent is granted, which shall apply only to improvements which landlords of comparable office buildings generally do not permit tenants to leave in their premises upon the expiration or earlier termination of their lease, that Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any 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. In any event, a contractor of Landlord’s selection shall perform all work that may affect the Systems and Equipment, structural aspects of the Building or exterior appearance of the Building; provided that Landlord shall cause the contractor to charge Tenant for such work an amount equal to the costs that competitive first-class, reputable and reliable contractors would have charged Tenant (but not necessarily the lowest available), and such work shall be performed at Tenant’s cost. Tenant shall construct such

 

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Alterations and perform such repairs in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, all in conformance with Landlord’s reasonable 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 so as not to obstruct access to the Project or any portion thereof by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project, or interfere with the labor force working in the Project. In addition to Tenant’s obligations under Section 19.18 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project management office a reproducible, full-sized copy of the “as built” drawings (1/8 inch = 1 foot scale) of the Alterations.

 

6.4 Payment for Improvements . In the event Tenant orders any Alterations or repair work directly from Landlord, the charges for such work shall be deemed Additional Rent under this Lease, due and payable within thirty (30) days after Tenant’s receipt of billing therefor, either periodically during construction or upon substantial completion of such work, at Landlord’s option. If payment is made directly to contractors, Tenant shall comply with Landlord’s requirements for final lien releases and waivers in connection with Tenant’s payment for work to such contractors. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount sufficient to reimburse Landlord for all reasonable overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. If, however, Tenant retains the contractor(s) directly, Tenant shall pay Landlord a construction coordination fee in the amount of two percent (2%) of the cost of such work.

 

6.5 Construction Insurance . In addition to the requirements of Article 7 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 7 of this Lease immediately upon completion thereof. In addition, Landlord may, in its reasonable 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.

 

6.6 Landlord’s Property . All Alterations, improvements, fixtures and/or equipment which may be permanently installed 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. Any articles of personal property including business and trade fixtures not attached to, or built into, the Premises, machinery and equipment (including, without limitation, video conferencing and boardroom equipment) not permanently affixed to the Premises, free-standing cabinet work, and movable partitions, which were installed by Tenant in the Premises

 

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shall be and remain the property of Tenant and may be removed by Tenant at any time during the Term as long as Tenant is not in default under this Lease after notice and lapse of any applicable cure period and provided that Tenant repairs to Landlord’s reasonable satisfaction any damage to the Premises, the Building and any other part of the Project caused by such removal. Furthermore, if Landlord, as a condition to Landlord’s consent to any Alteration, requires that Tenant remove any Alteration upon the expiration or early termination of the Lease Term as set forth in Section 6.3 above, Landlord may, by written notice to Tenant prior to the end of the Lease Term, or given following any earlier termination of this Lease, require Tenant, at Tenant’s expense, to remove such Alterations and to repair any damage to the Premises and Building caused by such removal. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations, after three (3) days’ notice to Tenant and Tenant’s failure to complete such removal and repair, Landlord may do so and may charge the cost thereof to Tenant.

 

ARTICLE 7

 

INSURANCE

 

7.1 Indemnification and Waiver . The provisions of this Section 7.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination.

 

7.1.1 Waiver . To the extent not prohibited by law, and except as provided in this Lease, Landlord, its members, their partners, and all of their respective officers, agents (including, without limitation, Voit Management Co., L.P.), servants, employees, and independent contractors (collectively, “ Landlord Parties ”) shall not be liable for any damage to property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant, except to the extent caused by the negligence or willful misconduct of the Landlord Parties, in which case Landlord shall be responsible for such damage to the extent not covered by property insurance required to be carried by Tenant under this Lease or actually carried by Tenant.

 

7.1.2 Tenant’s Indemnity . Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense 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 during the Lease Term, provided that, except as set forth below, the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of the Landlord Parties. Notwithstanding the foregoing, because Tenant must carry insurance pursuant to Section 7.3.2, below, to cover its personal property and all office furniture, trade fixtures, office equipment and merchandise within the Premises and the Tenant Improvements and other improvements, alterations and additions to the Premises (collectively, “ Tenant Insured Items ”), Tenant hereby agrees to protect, defend, indemnify and hold Landlord harmless from any Claim with respect to any Tenant Insured Items within the Premises, to the extent such Claim is covered or required to covered by Tenant’s insurance, even if resulting from the negligence or willful misconduct of the Landlord Parties

 

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(except that Landlord shall, in such case, be responsible for deductible amounts, not to exceed standard deductible amounts for such coverage).

 

7.1.3 Landlord’s Indemnity . Landlord shall indemnify, defend, protect, and hold harmless Tenant its partners, and their respective officers, agents, servants, employees and independent contractors (collectively, “ Tenant Parties ”) from any Claims incurred in connection with or arising from (i) any cause in the Project but outside of the Premises during the Lease Term (to the extent covered by the general liability insurance required to be carried by Landlord under Section 7.2, below), or (ii) any negligent acts or willful misconduct of any of the Landlord Parties in, on, or about the Project (subject to the terms of the last sentence of Section 7.1.2, above) either prior to, during, or after the expiration of the Lease Term, provided that, except as set forth below, the terms of the foregoing indemnity shall not apply to the extent such Claims arise from the negligence or willful misconduct of the Tenant Parties. Notwithstanding the foregoing, because Landlord is required to maintain pursuant to the terms of Section 7.2, below, insurance on the Project and the Premises and Tenant compensates Landlord for such insurance as part of Direct Expenses, Landlord hereby agrees to protect, defend, indemnify and hold Tenant harmless from any Claims with respect to such property and Landlord’s equipment and property on the Project to the extent such Claim is covered by insurance of the type required to be carried by Landlord under Section 7.2, below, even if resulting from the negligent acts or willful misconduct of the Tenant Parties (except that Tenant shall, in such case, be responsible for deductible amounts, not to exceed standard deductible amounts for such coverage).

 

7.2 Landlord’s Insurance . Landlord shall insure the Building and the Real Property during the Lease Term against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage, vandalism coverage and malicious mischief, sprinkler leakage, water damage and special extended coverage on the Building. Such coverage shall be in such amounts, from such companies, and on such terms and conditions, as Landlord may from time to time reasonably determine. Landlord shall also carry, or self-insure Commercial General Liability Insurance coverage in commercially reasonable amounts and if Landlord elects to so self-insure such coverage. Tenant shall be treated for all purposes as if Landlord had obtained such insurance from a third party carrier. Additionally, at the option of Landlord, such insurance coverage may include the risks of earthquakes and/or flood damage and additional hazards, a rental loss endorsement and one or more loss payee endorsements in favor of the holders of any mortgages or deeds of trust encumbering the interest of Landlord in the Building or any portion thereof. Tenant shall, at Tenant’s expense, comply with all insurance company requirements of which Tenant has been notified pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for such insurance policies 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.

 

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7.3 Tenant’s Insurance . Tenant shall maintain the following coverages in the following amounts.

 

7.3.1 Commercial General Liability Insurance on an occurrence basis 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 the following divisions of insurance: Premises and Operations, Independent Contractors and Blanket Contractual Liability. Such insurance shall cover the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 7.1 of this Lease, for limits of liability not less than:

 

 

7.3.2 Property 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, (ii) the Tenant Improvements, and (iii) all other improvements, alterations and additions to the Premises. Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full 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. Provided that Tenant has and continues to have a net worth in excess of Fifty Million Dollars ($50,000,000) calculated in accordance with generally accepted accounting principles and as evidenced by audited financial statements, Tenant shall have the right to satisfy the property insurance requirements of Tenant set forth in Section 7.3.2 in the form of a reasonably acceptable “self-insurance” program. Within ten (10) days after request, Tenant shall provide Landlord with reasonable documentation that Tenant satisfies the net worth requirement set forth above. Prior to the institution of any such self-insurance, Tenant shall notify Landlord in writing of its election to so self-insure and shall submit to Landlord reasonably satisfactory evidence of a funded self-insurance program including the name, address and phone number of the claims administrator. Such program must be consistent with reasonably prudent and sound business practices. This Section 7.3.2 shall in no way limit or diminish the rights that Landlord would have had as an additional insured under any insurance policy, or the rights it would have had under any other provision of this Lease to receive from Tenant an amount equal to all or any portion of any insurance policy proceeds that would have been payable to Landlord or Tenant, under any required policy of insurance which was not maintained by Tenant as a result of such self-insurance program. Furthermore, this Section 7.3.2 shall in no way limit or diminish the waiver of subrogation rights and obligations provided in Section 7.5, nor the rights that Landlord’s insurance carriers would have had under “other insurance” or similar clauses in Landlord’s insurance policies if Tenant had not satisfied its insurance requirements with said self-insurance program.

 

7.3.3 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

 

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Building as a result of such perils; provided, however, that Tenant shall be entitled to self-insure the coverage described in this Section 7.3.3, in which case a waiver of subrogation shall be deemed to apply to such self-insurance.

 

7.3.4 Automobile Liability Insurance covering any and all owned, hired and non-owned vehicles used by any employees or agents of Tenant for limits not less than One Million Dollars ($1,000,000.00) per occurrence.

 

7.4 Form of Policies . 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. All insurance required of Tenant may be subject to standard deductibles. All insurance shall (i) be issued by an insurance company having a rating of not less than A-VIII in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; and (ii) provide that said insurance shall not be canceled or coverage changed in a manner which may be adverse to Landlord unless ten (10) days’ prior written notice shall have been given to Landlord and any mortgagee of Landlord of which Tenant has at least ten (10) days’ prior notice. In addition, the insurance described in Section 7.3.1 shall (a) name Landlord, and any other party related to the Project specified by Landlord, as an additional insured; (b) specifically cover the liability assumed by Tenant under this Lease including, but not limited to, Tenant’s obligations under Section 7.1 of this Lease; and (c) 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. Tenant shall deliver all policies or certificates thereof to Landlord on or before the Lease Commencement Date and proof of continuatio