OFFICE LEASE

Exhibit 10.1

OFFICE LEASE

LAKESHORE TOWERS

LAKESHORE TOWERS LIMITED PARTNERSHIP PHASE IV,

a California limited partnership,

as Landlord,

and

UNITED PANAM FINANCIAL CORP.,

a California corporation,

as Tenant.

LAKESHORE TOWERS BUILDING II

[United PanAm Financial Corp.]

TABLE OF CONTENTS

 

 

i

 

TABLE OF CONTENTS

(continued)

 

 

ii

 

TABLE OF CONTENTS

(continued)

 

 

iii

 

LIST OF DEFINED TERMS

 

 

iv

 

 

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EXHIBITS

 

A	OUTLINE OF PREMISES

 

B	TENANT WORK LETTER

 

C	LEGAL DESCRIPTION

 

D	FORM OF NOTICE OF LEASE TERM DATES

 

E	DIRECT EXPENSES ALLOCATION

 

F	RULES AND REGULATIONS

 

G	FORM OF TENANT’S ESTOPPEL CERTIFICATE

 

H	TENANT’S EYEBROW SIGN LOCATION

 

I	TENANT’S BUILDING TOP SIGN LOCATION

 

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LAKESHORE TOWERS

OFFICE LEASE

This Office Lease (the “Lease” ) , dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “Summary” ), below, is made by and between LAKESHORE TOWERS LIMITED PARTNERSHIP PHASE IV, a California limited partnership (“Landlord” ), and UNITED PANAM FINANCIAL CORP., a California corporation ( “Tenant” ).

SUMMARY OF BASIC LEASE INFORMATION

 

 

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4.

Base Rent

 

(Article 3):

 

 

*

Base Rent for the first full month of the Term shall be abated. As used herein a “month” means a calendar month. If the Lease Commencement Date is other than the first day of a calendar month, the Base Rent for such partial calendar month shall be prorated pursuant to Article 3 of the Lease and such prorated Base Rent shall be due and payable on the tenth (10th) day following the Lease Commencement Date. For example, if the Lease Commencement Date is the 15th day of April 2007, prorated Base Rent for April 2007 would be due on April 25, 2007.

 

 

 

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ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

1.1 Premises, Building, Project and Common Areas .

1.1.1 The Premises . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the “Premises” ). The outline of the Premises is set forth in Exhibit A attached hereto and each of the floors of the Premises has the number of rentable square feet as set forth in Section 2.2 of the Summary. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance. The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the Building (as defined below) only, and such exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the Common Areas (as defined below) or the elements thereof or of the accessways to the Premises or the Project (as defined below). Except as specifically set forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B (the “Tenant Work Letter“ ), Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant’s business, except as specifically set forth in this Lease and the Tenant Work Letter. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in good and sanitary order, condition and repair.

1.1.2 The Building and The Project . The Premises are a part of the building set forth in Section 2.1 of the Summary (the “Building” ). The Building is part of an office project known as “Lakeshore Towers”. The term “Project” , as used in this Lease, shall mean (i) the land on which the Project is located which land is described in Exhibit C hereto, (ii) the Building, (iii) the Common Areas, (iv) the other buildings located in the Project, and (v) at Landlord’s discretion, any additional real property, areas, land, buildings or other improvements added thereto outside of the Project.

1.1.3 Common Areas . Tenant shall have the non-exclusive right to use in common with Project tenants the Project Common Areas and the non-exclusive right to use in common with other Building tenants the Building Common Areas, subject to the rules and regulations referred to in Article 5 of this Lease. Those portions of the Project which are provided for use in common by Landlord, Tenant and any other tenants of the Project and 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” shall mean (i) the portion of the Project designated as such by Landlord and (ii) all common areas designated in that certain Declaration of Covenants, Conditions and Restrictions and Reservation of Easements for the Lakeshore Towers, dated October 17, 1989, recorded October 23, 1989, as Instrument No. 89569018 of the Official Records of Orange County, California (the “CC&Rs” ). The term “Building Common Areas” shall mean the portions of the Common Areas located within the Building designated as such by Landlord. The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord, provided that Landlord shall maintain and operate same in a manner consistent with that of other first-class, high-rise office buildings in the John Wayne Airport/South Coast Plaza, Costa Mesa, California area, which are comparable in size (containing at least 125,000 rentable square feet), quality of construction, and services and amenities to the Building (the “Comparable Buildings” ) and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time. Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas so long as Tenant’s access to and use of the Premises is not adversely affected during Building Hours (as defined below).

 

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1.2 Verification of Rentable Square Feet and Usable Square Feet of Premises, Building, and Project . For purposes of this Lease, “rentable square feet” and “usable square feet” shall be calculated pursuant to BOMA (as defined below) . In the event that the rentable area of the Premises, the Building and/or the Project shall hereafter change due to subsequent alterations and/or other modifications to the Premises, the Building and/or the Project, the rentable area of the Premises, the Building and/or the Project, as the case may be, shall be appropriately adjusted as of the date of such alteration and/or other modification, based upon the written verification by Landlord’s space planner of such revised rentable area. In the event of any such adjustment to the rentable area of the Premises, the Building and/or the Project, all amounts, percentages and figures appearing or referred to in this Lease based upon such rentable area (including, without limitation, the amount of the Rent (as defined below)) shall be modified in accordance with such determination.

1.3 Right of First Offer . Subject to the provisions of Section 1.3.6 below, Landlord hereby grants to Original Tenant, a right of first offer with respect to any space on the second (2nd) and fourth (4th) floors of the Building (the “First Offer Space”). Notwithstanding the foregoing, (i) such first offer right of Tenant shall commence only following the expiration or earlier termination of (i) that certain Lease dated                      between Landlord, as landlord, and McDermott Will & Emery LLP, as tenant, and (ii) Landlord, as landlord, and                      as tenant (items (i) and (ii), collectively, the “Superior Leases” ), including any renewal or extension of such Superior Leases, provided such renewal or extension is pursuant to an express written provision in such Superior Lease, but regardless of whether any such renewal or extension is consummated strictly pursuant to the terms of such express written provisions, or pursuant to a lease amendment or a new lease, and (ii) such first offer right shall be subordinate and secondary to all rights of expansion, first refusal, rights of first offer or similar rights previously granted to the tenants of the Superior Leases (the rights described in items (i) and (ii) above to be known collectively as “Superior Rights” ). Tenant’s Right of First Offer shall be on the terms and conditions set forth in this Section 1.3. As used herein “ Original Tenant ” means United PanAm Financial Corp. and any Affiliate (as defined below) of United PanAm Financial Corp. that receives an assignment of all of Tenant’s interest in this Lease. Contiguous space no less than 5000 sq. ft.

1.3.1 Procedure for Offer . During the initial Lease Term and during the first twenty four (24) months of the Option Term (if applicable), Landlord shall notify Tenant (the “First Offer Notice” ) from time to time when Landlord determines that marketing for any portion of the First Offer Space will commence because such portion of the First Offer Space shall become available for lease to third parties, provided that no holder of a Superior Right wishes to lease such space. Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant the then available First Offer Space. The First Offer Notice shall describe the space so offered to Tenant, shall set forth the date (“Anticipated First Offer Date” ) upon which Landlord anticipates that the First Offer Space shall become available for lease to third parties (subject to any holdover of any then existing tenant) and shall set forth the First Offer Rent (as defined below) and the other economic terms upon which Landlord is willing to lease such space to Tenant.

1.3.2 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 five (5) days of delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant’s exercise of its right of first offer with respect to the space described in the First Offer Notice on the terms contained in such notice. In the event that concurrently with Tenant’s exercise of the first offer right, Tenant notifies Landlord that it does not accept the First Offer Rent set forth in the First Offer Notice, the First Offer Rent shall be determined in accordance with the procedures set forth in Section 2.2.4 of this Lease; otherwise, the First Offer Rent shall be as set forth in Landlord’s First Offer Notice. If Tenant does not so notify Landlord within the five (5) day period of Tenant’s exercise of its first offer right, then 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 for a period of one hundred eighty (180) days commencing upon the expiration of the five (5) day period, after which time, Tenant’s rights to such space under this Section 1.3 shall renew. In the event that Landlord does lease all or a portion of the First Offer Space pursuant to this Section 1.3.2, then such lease and all of its terms shall become a Superior Lease and the rights described in items (i) and (ii) of Section 1.3 above with respect to such lease shall be included within the Superior Rights. Notwithstanding anything to the contrary contained

 

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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.

1.3.3 First Offer Space Rent . The “First Offer Rent” shall be as set forth in the First Offer Notice or, if Tenant properly objects to the First Offer Rent pursuant to Section 1.3.2 above, the First Offer Rent shall be the Fair Market Rental Value (as defined below) for the First Offer Space.

1.3.4 Construction In First Offer Space . Tenant shall lease the First Offer Space, except as otherwise provided in this Lease in connection with the Base Building and any Common Areas on the floor where the First Offer Space is located, in its “as is” condition (except to the extent an improvement allowance is granted in connection with the determination of the Fair Market Rental Value in Section 1.3.3 above and except as otherwise set forth in this Lease), and Tenant’s construction of improvements in the First Offer Space shall otherwise be in accordance with the Tenant Work Letter.

1.3.5 Amendment to Lease . If Tenant timely exercises Tenant’s right to lease the First Offer Space as set forth herein, Landlord and Tenant shall within fifteen (15) days after determination of the First Offer Rent execute an amendment to this Lease adding such First Offer Space to the Premises upon the terms and conditions as set forth in this Section 1.3. Tenant shall commence payment of Rent for the First Offer Space, and the term of the First Offer Space shall commence on a date determined as a component of the First Offer Rent (the “First Offer Commencement Date” ), and shall terminate on the Lease Expiration Date, as the same may be extended.

1.3.6 Termination of Right of First Offer . The rights contained in this Section 1.3 shall be personal to the Original Tenant, and may only be exercised by the Original Tenant (and not any other assignee, sublessee or transferee of the Original Tenant’s interest in this Lease) if the Original Tenant, and/or its Affiliates occupy more than fifty percent (50%) of the Premises as of the date of the First Offer Notice. (iv) if, as of the date of the attempted exercise of any right of first offer by Tenant, or, at Landlord’s option, as of the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in default under this Lease after expiration of any applicable cure periods.

ARTICLE 2

LEASE TERM; OPTION TERM

2.1 Lease Term . The terms and provisions of this Lease shall be effective as of the date of this Lease. The term of this Lease (the “Lease Term” ) shall subject to Force Majeure, be as set forth in Section 3.1 of the Summary and shall commence on the date set forth in Section 3.2 of the Summary (the “Lease Commencement Date” ). At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit D , attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) days of receipt thereof.

2.2 Lease Commencement Date Delay .

2.2.1 Delay In Possession . If Landlord is unable to deliver possession of the Premises to Tenant with the Tenant Improvements substantially complete (as defined in the Tenant Work Letter) on or before March 15, 2007, Landlord shall not be subject to any liability for its failure to do so . If Landlord is unable to deliver possession of the Premises to Tenant with the Tenant Improvements substantially complete on or before the Outside Date, Tenant’s sole remedy shall be to terminate this Lease as provided in Section 2.2.2 below. For purposes of this Lease, the “Outside Date” shall be May 15, 2007 as extended by the number of days of “Tenant Delays” as described in Exhibit B hereto and by the number of days of delay due to Force Majeure (as defined below).

2.2.2 Tenant’s Notice of Termination . If Landlord fails to deliver the Premises to Tenant with the Tenant Improvements substantially complete by the Outside Date, Tenant’s sole remedy shall be the right to deliver a notice to Landlord ( “Termination Notice” ) electing to terminate this Lease effective on Landlord’s receipt of the Termination Notice

 

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( “Effective Date” ). Except as provided below, the Termination Notice must be delivered to Landlord by Tenant, if at all, no later than fifteen (15) business days after the Outside Date.

2.2.3 Landlord’s Suspension of Effective Date . If Tenant delivers the Termination Notice to Landlord, Landlord shall have the right to suspend the Effective Date until thirty (30) days after the original Effective Date. In order to suspend the Effective Date, Landlord must deliver to Tenant, within five (5) business days after receipt of the Termination Notice, a certificate of the general contractor in charge of construction certifying that it is that contractor’s best good faith judgment that the delivery of the Premises with the Tenant Improvements substantially complete will occur within thirty (30) days after the original Effective Date. If Landlord provides this certificate and delivery of the Tenant Improvements substantially complete occurs within that thirty (30) day suspension period, the Termination Notice shall be of no force or effect. If, however, such delivery does not occur within that thirty (30) day suspension period, this Lease shall terminate as of the date of expiration of the thirty (30) day period.

2.2.4 Extension of Outside Date . If before the Outside Date Landlord determines that delivery of the Premises with the Tenant Improvements substantially complete will not occur by the Outside Date, Landlord shall have the right to deliver a written notice to Tenant stating Landlord’s reasonable, good faith estimate of the date by which such delivery will occur. Tenant will be required within ten (10) business days after receipt of such notice either to deliver the Termination Notice (which will mean that this Lease shall terminate and be of no further force and effect) or agree to extend the Outside Date to the date stated in Landlord’s notice. Tenant’s failure to respond in writing within such ten (10) business day period shall constitute Tenant’s agreement to extend the Outside Date to the date stated in Landlord’s notice. If the Outside Date is so extended, Landlord’s right to request Tenant to elect to either terminate or further extend the Outside Date shall remain and continue to remain, with each of the notice periods and response periods set forth above, until possession of the Premises with Tenant Improvements substantially complete have been delivered to Tenant or until this Lease is terminated.

2.3 Option Term .

2.3.1 Option Right . Landlord hereby grants to Tenant one (1) option to extend the Lease Term for a period of five (5) years ( “Option Term” ), which option shall be exercisable only by written notice delivered by Tenant to Landlord as provided below, provided that, as of the date of delivery of such notice, Tenant is not in default under this Lease, after the expiration of applicable cure periods,. Upon the proper exercise of such option to extend, and provided that, as of the end of the initial Lease Term or Option Term, as applicable, Tenant is not in default under this Lease, after the expiration of applicable cure periods, the Lease Term, as it applies to the Premises, shall be extended for a period of five (5) years. The rights contained in this Section 2.3 shall be personal to Tenant and may only be exercised by Tenant if Original Tenant occupies the entire Premises. (References to “Tenant” in this Section 2.3 and elsewhere in this Lease with respect to the Option Term shall mean Original Tenant).

2.3.2 Option Rent . The rent payable by Tenant during the Option Term (the “Option Rent”) shall be equal to the “Fair Market Rental Value” for the Premises. As used herein, “Fair Market Rental Value” shall be equal to the rent (including additional rent and considering any “base year” or “expense stop” applicable thereto), including all escalations, at which, as of the commencement of the Option Term, or as of the First Offer Commencement Date, as applicable, taking into consideration only those transactions involving the services of a professional real estate broker, tenants leasing non-sublease, non-encumbered, non-equity space comparable in size, location and quality to the Premises, or First Offer Space, as applicable, for a term of five (5) years, or comparable to the term of the lease of the First Offer Space, as applicable, which comparable space is located in the Project and in Comparable Buildings, in either case taking into consideration the following: (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; (b) tenant improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same can be utilized by Tenant based upon the fact that the precise tenant improvements existing in the Premises are specifically suitable to Tenant; and (c) other reasonable monetary concessions being granted or

 

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charges being imposed upon such tenants in connection with such comparable space, including parking concessions or charges; provided, however, that in calculating the Fair Market Rental Value, no consideration shall be given to the fact that Landlord is or is not required to pay a ?realestate brokerage commission in connection with Tenant’s extension of its lease of the Premises, or lease of the First Offer Space, as applicable, or the fact that landlords are or are not paying real estate brokerage commissions in connection with such comparable space. When considering rental rates in the Comparable Buildings, adjustments shall be made to such rates to increase or decrease such rates, as applicable, based on substantial historical differences between the rental rates of the Building and any applicable Comparable Building. In calculating the Option Rent, no consideration shall be given to any period of rental abatement granted to tenants in comparable transactions in connection with the design, permitting and construction of tenant improvements in such comparable spaces.

2.3.3 Exercise of Option. The option contained in this Section 2.3 shall be exercised by Tenant, if at all, delivering written notice (“Option Exercise Notice” ) to Landlord not more than twelve (12) months nor less than six (6) months prior to the expiration of the initial Lease Term, stating that Tenant is exercising its option. Landlord, after receipt of Option Exercise Notice, shall deliver notice (the “Option Rent Notice” ) to Tenant not less than nine (9) months prior to the expiration of the initial Lease Term setting forth the Option Rent. Within thirty (30) days after Tenant’s receipt of the Option Rent Notice, Tenant may, at its option, object to the Option Rent contained in the Option Rent Notice. If Tenant timely and appropriately objects to the Option Rent contained in the Option Rent Notice, the parties shall follow the procedure and the Option Rent shall be determined as set forth in Section 2.3.4, below.

2.3.4 Determination of Option Rent . If Tenant fails to timely and appropriately object to Option Rent or First Offer Rent, then the Option Rent or First Offer Rent shall be as set forth in the Option Rent Notice or First Offer Rent Notice, as the case may be. If Tenant timely and appropriately objects to the Option Rent or First Offer Rent, Landlord and Tenant shall attempt to agree upon the applicable Fair Market Rental Value using their best good-faith efforts. If Landlord and Tenant fail to reach agreement within ten (10) days following Tenant’s objection to the Option Rent or First Offer Rent, as applicable (the “Outside Agreement Date” ), then each party shall make a separate determination of the applicable Fair Market Rental Value (the “Arbitration Fair Market Rental Value(s)” ), within fifteen (15) days following the Outside Agreement Date and such determinations shall be submitted to arbitration in accordance with Sections 2.3.4.1 through 2.3.4.7, below.

2.3.4.1 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 John Wayne Airport/South Coast Plaza (Center Area) area. The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Arbitration Fair Market Rental Value is the closest to the actual Fair Market Rental Value as determined by the arbitrators, taking into account the requirements of Section 2.3.2 of this Lease. Each such arbitrator shall be appointed within twenty (20) days after the applicable Outside Agreement Date.

2.3.4.2 The two arbitrators so appointed shall within ten (10) 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 arbitrators.

2.3.4.3 The three arbitrators shall within thirty (30) days of the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Fair Market Rental Value, and shall notify Landlord and Tenant thereof.

2.3.4.4 The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant.

2.3.4.5 If either Landlord or Tenant fails to appoint an arbitrator within twenty (20) days after the applicable Outside Agreement Date, the arbitrator appointed by one of

 

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them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator’s decision shall be binding upon Landlord and Tenant.

2.3.4.6 If the two 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 matter to be decided shall be forthwith submitted to arbitration under the provisions of the American Arbitration Association Commercial Rules of Arbitration but subject to the instruction set forth in this Section 2.3.4.

2.3.4.7 The cost of the arbitrator appointed by Landlord shall be paid by Landlord. The cost of the arbitrator appointed by Tenant shall be paid by Tenant. The cost of the third arbitrator shall be shared equally by Landlord and Tenant.

ARTICLE 3

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, by 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 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever. The Base Rent for the second full month of the Lease Term shall be paid at the time of Tenant’s execution of this Lease. If any Base Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Base Rent is for a period which is shorter than one month, the Base Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Base Rent. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

ARTICLE 4

ADDITIONAL RENT

4.1 General Terms . In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay Tenant’s Share (as defined below) of the annual Building Direct Expenses (as defined below) which are in excess of the amount of Building Direct Expenses for the Base Year (as defined below); provided, however, that in no event shall any decrease in Building Direct Expenses for any Expense Year (as defined below) below Building Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent or any credit against sums due under 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 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent . Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

4.2 Definitions of Key Terms Relating to Additional Rent . As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1 Base Year . “Base Year” shall mean the period set forth in Section 5 of the Summary.

4.2.2 Building Direct Expenses . “Building Direct Expenses” shall mean Building Operating Expenses and Building Tax Expenses (as defined below).

 

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4.2.3 Building Operating Expenses . “Building Operating Expenses” shall mean the portion of Operating Expenses (as defined below) allocated to the tenants of the Building pursuant to the terms of Section 4.3 below.

4.2.4 Building Tax Expenses . “Building Tax Expenses” shall mean that portion of Tax Expenses (as defined below) allocated to the tenants of the Building pursuant to the terms of Section 4.3 below.

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

4.2.6 Expense Year . “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. 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.

4.2.7 Operating Expenses .

4.2.7.1 Inclusions to Operating Expenses . “Operating Expenses” shall mean all 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, security, repair, replacement, restoration or operation of the Project, or any portion thereof, subject to the terms and provisions of Section 4.2.7. 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, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith;

(ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program;

(iii) the cost of earthquake insurance and all other insurance carried by Landlord in connection with the Project as reasonably determined by Landlord;

(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 non-capital (as determined pursuant to generally accepted accounting principles) parking area repair, restoration, and maintenance;

(vi) fees and other costs, including reasonable management fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project;

(vii) payments under any equipment rental agreements and the fair rental value of any management office space;

(viii) subject to Section 4.2.7.2(vi) below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project;

(ix) operation, repair and maintenance of all systems and equipment and components thereof of the Project;

 

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(x) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in Common Areas, maintenance and replacement of curbs and walkways, and repair to roofs and reroofing;

(xi) amortization (including interest on the unamortized cost) over the useful life, determined in accordance with generally accepted accounting principles, 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;

(xii) 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 (but only to the extent of the annual cost savings reasonably anticipated by Landlord), (B) that are required to comply with present or anticipated reasonable conservation programs, (C) which are replacements of nonstructural items located in the Common Areas required to keep the Common Areas in good order or condition, or (D) that are required under any governmental law or regulation enacted after the date of this Lease; provided, however, that any capital expenditure shall be amortized (including interest on the amortized cost) over its useful life reasonably determined in accordance with generally accepted accounting principles;

(xiii) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord 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; and

(xiv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building with other buildings in the Project.

4.2.7.2 Exclusions to Operating Expenses . Notwithstanding the provisions of Section 4.2.7.1 above, for purposes of this Lease, Operating Expenses shall not, however, include:

(i) costs, including marketing costs, legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any Common Areas or parking facilities);

(ii) except as set forth in Sections 4.2.7. 1 (xi), (xii), and (xiii) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, costs of capital repairs and alterations, and costs of capital improvements and equipment;

(iii) costs for which Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(iv) any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(v) costs associated with the operation of the business of the partnership or entity which constitutes Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity

 

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which constitutes Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord’s general corporate overhead and general and administrative expenses;

(vi) the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

(vii) amounts paid as ground rental for the Project by Landlord;

(viii) except for a Project management fee to the extent allowed pursuant to item (xiii), below, overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(ix) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

(x) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

(xi) all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(xii) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;

(xiii) fees payable by Landlord for management of the Project in excess of five percent (5%) (the “Management Fee Cap” ) of Landlord’s gross rental revenues, adjusted and grossed up to reflect a one hundred percent (100%) occupancy of the Building with all tenants paying rent, including base rent, pass-throughs, and parking fees (but excluding the cost of after hours services or utilities) from the Project for any calendar year or portion thereof;

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

(xv) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

(xvi) costs arising from the negligence or willful misconduct of Landlord or its agents, employees, vendors, contractors, or providers of materials or services;

 

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(xvii) costs (A) incurred to comply with laws relating to the removal of Hazardous Material (as defined below) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto; and (B) costs incurred to remove, remedy, contain, or treat Hazardous Material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto;

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

(xix) any gifts provided to any entity whatsoever, including, but not limited to, Tenant, other tenants, employees, vendors, contractors, prospective tenants and agents;

(xx) the cost of any magazine, newspaper, trade or other subscriptions;

(xxi) any amount paid to Landlord or to subsidiaries or affiliates of Landlord for services in the Project to the extent the same exceeds the cost of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

(xxii) costs arising from Landlord’s failure to comply with any applicable governmental laws or regulations in existence at the time of the Lease Commencement Date;

(xxiii) costs relating to categories of expenses for the Project parking areas which were not included in Operating Expenses during the Base Year, except to the extent the Base Year is retroactively adjusted to include such categories; and

(xxiv) any entertainment expenses and travel expenses of Landlord, its employees, agents, partners and affiliates.

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 Project is not at least ninety-five percent (95%) occupied during all or a portion of the Base Year or any Expense Year, Landlord shall make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been incurred had the Project been ninety-five percent (95%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year.

4.2.8 Taxes .

4.2.8.1 Tax Expenses . “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

 

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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 or accrued 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 including the parking areas. 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;

(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 business or gross income tax or excise 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;

(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; and

(v) all of the real estate taxes and assessments imposed upon or with respect to the Building and Project. To the extent such taxes are not currently known, Landlord shall reasonably estimate the taxes and the Base Year Tax Expenses shall be adjusted accordingly upon receipt of the actual tax adjustment based upon such reassessment.

4.2.8.2 Other Costs . Any costs and expenses (including, without limitation, reasonable attorneys’ and consultants’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are incurred. Tax refunds shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable; provided, however, in no event shall the amount to be refunded Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year. 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 Landlord upon demand Tenant’s Share of any such increased Tax Expenses included by Landlord as Building Tax Expenses pursuant to the terms of this Lease. Notwithstanding anything to the contrary contained in this Section 4.2.8 (except as set forth in Section 4.2.8.1, 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,

 

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receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

4.2.8.3 Base Taxes . The amount of Tax Expenses for the Base Year attributable to the valuation of the Project, inclusive of tenant improvements, shall be known as the “ Base Taxes .” If in any comparison year subsequent to the Base Year the amount of Tax Expenses decreases below the amount of Base Taxes for the Premises, then for purposes of all subsequent comparison years, including the comparison year in which such decrease in Tax Expenses occurred, the Base Taxes and therefore the Base Year shall be decreased by an amount equal to the decrease in Tax Expenses; provided, however, if the amount of Tax Expenses for the Premises subsequently increases in any comparison year from that decreased amount, the Base Taxes for the Premises shall be increased by an amount equal to the increase in the Tax Expenses for the Premises but not in excess of the Base Taxes for the Base Year (calendar year 2007).

4.2.9 Tenant’s Share . “ Tenant’s Share ” shall mean the percentages set forth in Section 6 of the Summary. Tenant’s Share is calculated by multiplying the number of rentable square feet of the Premises as set forth in Section 2 of the Summary by 100, and dividing the applicable product by the rentable square feet in the Building. The rentable square feet in the Premises and Building is measured pursuant to the Building Owners and Managers Association Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1 - 1996 (“ BOMA ”), provided that the rentable square footage of the Building shall include all of, and the rentable square footage of the Premises therefore shall include a portion of, the square footage of the ground floor Common Areas located within the Building and the Common Area and occupied space of the portion of the Building or Project, dedicated to the service of the Building. In the event either the rentable square feet of the Premises and/or the total rentable square feet of the Building is remeasured, Tenant’s Share for the Premises shall be appropriately adjusted and, as to the Expense Year in which such change occurs, Tenant’s Share for the Premises for such Expense Year shall be determined on the basis of the number of days during such Expense Year that each such Tenant’s Share was in effect.

4.3 Allocation of Direct Expenses . 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 4.2 above, Direct Expenses (which consist 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 in accordance with the CC&Rs, 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 allocation in accordance with the CC&Rs is further described in Exhibit E hereto) . 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.

4.4 Calculation and Payment of Additional Rent . If for any Expense Year ending or commencing within the Lease Term, the applicable Tenant’s Share of Building Direct Expenses for such Expense Year exceeds the applicable Tenant’s Share of Building Direct Expenses applicable to the Base Year for the Premises, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional Rent, an amount equal to the excess (the “ Excess ”).

4.4.1 Statement of Actual Building Direct Expenses and Payment by Tenant . Landlord shall give to Tenant following the end of each Expense Year, 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 the Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, with its next installment of Base Rent due, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as Estimated Excess (as defined below), and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease. 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 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final

 

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determination is made of Tenant’s Share of Building Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall immediately pay to Landlord such amount, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.

4.4.2 Statement of Estimated Building Direct Expenses . 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 excess (the “ Estimated Excess ”) as calculated by comparing the Building Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Building Direct Expenses for the Base Year. 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 Excess under this Article 4, nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary. Thereafter, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.4.2). 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 Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant.

4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible .

4.5.1 Personal Property Taxes . Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and any other personal property located in or about the Premises. If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

4.5.2 Taxes on Improvements in Premises . If the tenant improvements in the Premises, whether installed and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation higher than the valuation at which tenant improvements conforming to Landlord’s “building standard” in other space in the Building are assessed, then the Tax Expenses levied against Landlord or the property by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Section 4.5.1, above; provided that Landlord uniformly applies such excess assessed valuation for the same period uniformly to all tenants in the Building.

4.5.3 Other Taxes . Notwithstanding any contrary provision herein, Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service tax, transfer tax or value added tax, or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project parking facility, or (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.6 Landlord’s Books and Records . Within six (6) months after receipt of a Statement by Tenant, if Tenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant is a member of a nationally or regionally recognized accounting firm, has previous experience in reviewing financial operating

 

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records of landlords of office buildings, and is retained by Tenant on a non contingency fee basis) (the “ Tenant Auditor ”), designated and paid for by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records with respect to the Statement at Landlord’s offices, provided that Tenant is not then in default under this Lease and Tenant has paid all amounts required to be paid under the applicable Estimated Statement and Statement, as the case may be. In connection with such inspection, Tenant and Tenant’s agents must agree in advance to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection. Tenant’s failure to dispute the amount of Additional Rent set forth in any Statement within six (6) months following Tenant’s receipt of such Statement shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the “ Accountant ”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such certification by the Accountant proves that Direct Expenses were overstated by more than five percent (5%), then the cost of the Accountant, and the cost of such determination certification, shall be paid for by Landlord. Any reimbursement amounts determined to be owing by Landlord to Tenant or by Tenant to Landlord shall be (i) in the case of amounts owing from Tenant to Landlord, paid within thirty (30) days following such determination, and (ii) in the case of amounts owing from Landlord to Tenant, credited against the next payment of Rent due Landlord under the terms of this Lease, or if the Lease Term has expired, paid to Tenant within thirty (30) days following such determination. In no event shall this Section 4.6 be deemed to allow any review of any of Landlord’s records by any subtenant of Tenant. Tenant agrees that this Section 4.6 shall be the sole method to be used by Tenant to dispute the amount of any Direct Expenses payable or not payable by Tenant pursuant to the terms of this Lease, and Tenant hereby waives any other rights at law or in equity relating thereto.

4.7 Security Deposit .

4.7.1 Security Deposit . Upon execution of this Lease, Tenant shall deposit or cause to be deposited with Landlord a cash sum in the amount of Eighty-Seven Thousand Three Hundred Ninety-Nine and 20/100 Dollars ($87,399.20) (the “ Security Deposit ”). Landlord shall hold the Security Deposit as security for the performance of Tenant’s obligations under this Lease. If Tenant defaults on any provision of this Lease, Landlord may, after such notice as may be required under this Lease and without prejudice to any other remedy it has, apply all or a part of the Security Deposit to:

4.7.1.1 Any Rent or other sum in default; or

4.7.1.2 Any expense, loss, or damage that Landlord may suffer because of Tenant’s default including, without limitation, Rent that would accrue after such default.

4.7.2 Landlord’s Transfer of Security Deposit on Transfer of Real Property . If Landlord disposes of its interests in the Premises, Landlord may deliver or credit the Security Deposit to Landlord’s successor-in-interest in the Premises and thereupon be relieved of further responsibility with respect to the Security Deposit.

4.7.3 Restoration of Security Deposit . If Landlord applies any portion of the Security Deposit pursuant to Section 4.7.1 above, Tenant shall, within thirty (30) days after demand by Landlord, deposit with Landlord an amount sufficient to restore the Security Deposit to its original amount.

4.7.4 Interest on Security Deposit . Tenant is not entitled to any interest on the Security Deposit.

4.7.5 Return of Security Deposit . If Tenant performs every provision of this Lease to be performed by Tenant, the unused portion of the Security Deposit shall be returned to Tenant or the last assignee of Tenant’s interest under this Lease within thirty (30) days following the expiration or termination of the Lease Term.

 

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4.8 Letter of Credit .

4.8.1 Delivery of Letter of Credit . In lieu of depositing cash in the amount of the Security Deposit with Landlord, Tenant may, on execution of this Lease, deliver to Landlord and cause to be in effect during the Lease Term an unconditional, irrevocable letter of credit (the “ Letter of Credit ”) in the amount specified in Section 8 of the Summary (which amount is the amount of the Security Deposit) (the “ Letter of Credit Amount ”). The Letter of Credit shall be in form and content acceptable to Landlord, in its sole discretion, and shall be issued by a financial institution selected by Tenant and reasonably acceptable to Landlord (the “ Letter of Credit Bank ”). The Letter of Credit Bank must be a financial institution that accepts deposits, maintains accounts, has a local Orange County, California office that will negotiate a letter of credit, and the deposits of which are insured by the Federal Deposit Insurance Corporation. Tenant shall pay all expenses, points, or fees incurred by Tenant in obtaining the Letter of Credit. If the term of the Letter of Credit will expire prior to the expiration of the Lease Term, Tenant shall deliver to Landlord, at least thirty (30) days prior to the Letter of Credit expiration date, a renewal of the Letter of Credit or replacement Letter of Credit which satisfies the conditions of Section 4.8.2.

4.8.2 Replacement of Letter of Credit . Tenant may, from time to time, replace any existing Letter of Credit with a new letter of Credit (which new Letter of Credit may reflect a reduced Letter of Credit amount contemplated by Section 4.8.1 above), if the new Letter of Credit:

(i) becomes effective at least thirty (30) days before expiration of the Letter of Credit that it replaces;

(ii) is in the required Letter of Credit Amount;

(iii) is issued by a Letter of Credit Bank; and

(iv) otherwise complies with the requirements of this Section 4.

4.8.3 Landlord Right to Draw on Letter of Credit . Landlord shall hold the Letter of Credit as security for the performance of Tenant’s obligations under this Lease. If Tenant defaults on any provision of this Lease, Landlord may, after such notice as may be required under this Lease and without prejudice to any other remedy it has, draw on the Letter of Credit to (i) pay any Rent or other sum in default or (ii) pay or reimburse any expense, loss, or damage that Landlord may suffer because of Tenant’s default. If Tenant fails to renew or replace the Letter of Credit at least thirty (30) days before its expiration, Landlord may, without prejudice to any other remedy it has, draw on all of the Letter of Credit.

4.8.4 Letter of Credit Security Deposit . Any amount of the Letter of Credit that is drawn on by Landlord but not applied by Landlord shall be held by Landlord and shall be treated as the Security Deposit which may be applied by Landlord for the purposes described in Section 4.7.

4.8.5 Restoration of Letter of Credit . If Landlord draws on any portion of the Letter of Credit pursuant to Section 4.8.3 above, Tenant shall, within thirty (30) days after demand by Landlord, cause the Letter of Credit Amount to be restored as such amount may be reduced pursuant to Section 4.8.1 above.

4.8.6 Landlord’s Transfer of Letter of Credit on Transfer of Premises . If Landlord disposes of its interest in the Premises, Landlord shall transfer or assign the Letter of Credit to the Landlord’s successor-in-interest in the Premises and thereupon be relieved of further responsibility with respect to the Letter of Credit.

ARTICLE 5

USE OF PREMISES

5.1 Permitted Use . Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord’s sole discretion.

 

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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 or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit F , attached hereto, 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. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or Project, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall comply with, and Tenant’s rights and obligations under the Lease and Tenant’s use of the Premises shall be subject and subordinate to, all recorded easements, covenants, conditions, and restrictions now or hereafter affecting the Project.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Standard Tenant Services . Landlord shall provide the following services on all days (unless otherwise stated below) during the Lease Term.

6.1.1 Subject to limitations imposed by all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning (“ HVAC ”) when necessary for normal comfort for normal office use in the Premises from 7:00 A.M. to 6:00 P.M. Monday through Friday, and on Saturdays from 9:00 A.M. to 1:00pm (collectively, the “ Building Hours ”), except for the date of observation of New Year’s Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord’s discretion, other locally or nationally recognized holidays (collectively, the “ Holidays ”).

6.1.2 Landlord shall provide adequate electrical wiring and facilities for connection to Tenant’s lighting fixtures and incidental use equipment, provided that (i) the connected electrical load of the incidental use equipment does not exceed an average of six (6) watts per usable square foot of the Premises, and (ii) the connected electrical load of Tenant’s lighting fixtures does not exceed an average of two (2) watts per usable square foot of the Premises, which electrical usage shall be subject to applicable laws and regulations, including Title 24. Tenant shall bear the cost of replacement of lamps, starters and ballasts for non-Building standard lighting fixtures within the Premises.

6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Building Common Areas.

6.1.4 Landlord shall provide janitorial services to the Premises and window washing services in a manner consistent with Comparable Buildings.

6.1.5 Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours and shall have one elevator available at all other times, including on the Holidays.

6.1.6 Landlord shall provide nonexclusive freight elevator service subject to scheduling by Landlord.

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.

6.2 Overstandard Tenant Use .

6.2.1 Non-Electrical Usage . Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than Building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system

 

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or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If Tenant uses water, heat or air conditioning in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the actual cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the cost of such increased use directly to Landlord, on demand, at the rates charged by the public utility company furnishing the same, including the cost of such additional metering devices. If Tenant desires to use HVAC during non-Building Hours, Tenant shall give Landlord such prior notice, if any, as Landlord shall from time to time establish as appropriate, of Tenant’s desired use in order to supply HVAC, and Landlord shall supply HVAC to the Premises. The cost of after-hours HVAC is currently Sixty Dollars ($60.00) per hour, per floor. Is this pro-rated for the 2 ^nd floor?Such cost shall increase hereafter only to the extent of an increase occurring after the date of this Lease in the actual cost to Landlord of providing such HVAC services. The cost of HVAC supplied by Landlord during non-Building Hours shall be paid by Tenant as Additional Rent.

6.2.2 Electrical Usage . If in any month Tenant uses electricity (not including any electricity consumed in connection with the operation of the Building’s main HVAC system) in excess of the Electricity Usage Standard (as defined below), Tenant shall pay to Landlord, upon billing, Landlord’s cost of such excess consumption and the reasonable cost of the installation, operation, and maintenance of equipment which is required to be installed to supply such excess capacity and/or consumption to Tenant. For purposes hereof, the “ Electricity Usage Standard ” shall be an average of five (5) watts per rentable square foot of the Premises of actual consumption , on a monthly Business Hours basis. Tenant’s use of electricity shall not exceed the capacity of the feeders to the Project or the risers or wiring installation (which capacity is eight (8) watts per rentable square foot) and Tenant shall promptly discontinue any such excess use promptly following receipt of notice of the same from Landlord. In those cases where Landlord proposes to install equipment to be paid for by Tenant or otherwise is proposing to require Tenant to pay for any cost related to such excess consumption, Tenant may require Landlord, as a condition of such charge by Landlord, to reasonably demonstrate that Landlord’s actions and such charges are consistent with the requirement of this Lease.

6.3 Interruption of Use . Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease . Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6.

ARTICLE 7

REPAIRS

Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures and furnishings therein, 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 Premises and replace or repair all damaged, broken, or worn fixtures and appurtenances, except for damage caused by ordinary wear and tear or beyond the reasonable control of Tenant; provided however, that, at Landlord’s

 

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option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building 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 upon reasonable advance notice to Tenant 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 quasi-governmental authority or court order or decree. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1 Landlord’s Consent to Alterations . Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “ Alterations ”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building. 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 8.

8.2 Manner of Construction .

8.2.1 Conditions to Alterations . 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, (i) the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant from a list provided and approved by Landlord, and (ii) the requirement that upon Landlord’s request Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term. Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the City of Irvine, all in conformance with Landlord’s construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord’s design parameters and code compliance issues. In performing the work of any such Alterations, Tenant shall have the work performed in such manner 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. 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 Building or the Common Areas. In addition to Tenant’s obligations under Article 9 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 Orange, 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 construction manager a reproducible copy of the “as built” drawings of the Alterations , as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

8.2.1.1 Base Building Changes . In the event any Alterations which Tenant proposes to make to the Premises require or give rise to governmentally-required changes (“ Additional Required Work ”) to the Base Building, Landlord and Tenant shall work together to eliminate, if possible, or otherwise minimize the Additional Required Work. Absent elimination of such Additional Required Work or a mutually acceptable allocation of such

 

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changes as between Landlord and Tenant, the cost of such changes shall be borne by Tenant . As used herein, (i) “ Base Building ” means the structural portions of the Building, the Base Building Systems, the public restrooms, elevators, exit stairwells and the systems and equipment located in the internal core of the Building, and (ii) “ Base Building Systems ” means all systems and equipment (including plumbing, HVAC, electrical fire/life/safety elevator and security systems) that serve all or part of the Building.

8.3 Payment for Improvements . If payment is made directly to contractors, Tenant shall (i) comply with Landlord’s requirements for final lien releases and waivers in connection with Tenant’s payment for work to contractors, and (ii) cause its contractors to sign Landlord’s standard contractor’s rules and regulations. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to three percent (3%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work. If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord’s review of such work.

8.4 Construction Insurance . In addition to the requirements of Article 10 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 10 of this Lease immediately upon completion thereof. In addition, in connection with any Alteration Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

8.5 Landlord’s Property . All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in 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, except that Tenant may remove any Alterations, improvements, fixtures and/or equipment which Tenant can substantiate to Landlord have not been paid for with any Tenant improvement allowance funds provided to Tenant by Landlord, provided Tenant repairs any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a building standard tenant improved condition as determined by Landlord. Furthermore, 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 any such Alterations or improvements and to repair any damage to the Premises and Building caused by such removal and returns the affected portion of the Premises to a building standard tenant improved condition as determined by Landlord. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations or improvements in the Premises and return the affected portion of the Premises to a building standard tenant improved condition as reasonably determined by Landlord, Landlord may do so and may charge the cost thereof to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

8.6 Communications and Computer Lines . Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the “ Lines ”) in or serving the Premises, provided that (i) Tenant shall obtain Landlord’s prior written consent, use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Project, as determined in Landlord’s reasonable opinion, (iii) the Lines (including riser cables) shall be appropriately insulated to prevent excessive electromagnetic fields or radiation, and shall be surrounded by a protective conduit reasonably acceptable to Landlord, (iv) any new or existing Lines servicing the Premises shall comply with all applicable governmental laws and regulations, (v) as a condition to permitting the installation of new Lines, Landlord may require that Tenant remove existing Lines located in or serving the Premises and repair any damage in

 

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connection with such removal, and (vi) Tenant shall pay all costs