OFFICE LEASE

Exhibit 10.44

 

RESULTS WAY CORPORATE PARK

CUPERTINO, CALIFORNIA

 

LEASE FOR 2 RESULTS WAY

 

RWC, LLC,

a California limited liability company,

 

Landlord

 

and

 

DURECT CORPORATION,

a Delaware corporation

 

Tenant

TABLE OF CONTENTS

 

 

 

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OFFICE LEASE

 

This lease is entered into by and between the landlord and tenant specified in the Basic Lease Information (hereinafter “Landlord” and “Tenant” respectively).

 

BASIC LEASE INFORMATION

 

 

 

 

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In the event of any conflict between this Basic Lease Information and the other terms of this Lease, the other terms of this Lease shall control.

 

Article 1 — Premises

 

Section 1.1 Premises.

 

(a) Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, for the term and subject to the agreements, conditions and provisions contained in the Basic Lease Information and hereinafter set forth, to each and all of which Landlord and Tenant hereby mutually agree, those certain premises shown on Exhibit “A” attached hereto, together with a non-exclusive right to the use of the “Common Facilities” (as defined in Section 1.3) (the “Premises”), which Premises are specified in the Basic Lease Information and located in the building specified in the Basic Lease Information (the “Building”). The vertical boundaries of the Premises shall extend from the unfinished surface of the floor to and including the unfinished surface of the roof above the finished ceiling. Landlord hereby reserves for itself from the leasehold interest granted to Tenant herein: (a) the “Main Utility Lines” (as defined in Section 1.3), any easements for public utilities and the right of ingress and egress to the public utilities and the distribution system for all utilities serving the Project for the purpose of installing, maintaining and repairing such utility systems, and (b) a nonexclusive right to use the Common Facilities, including a nonexclusive right of ingress and egress over the parking lots, entrances, exits and drive aisles.

 

(b) Right of First Refusal. Throughout the Term of this Lease, but subject to the extension option rights and expansion option rights granted prior to July 2005 to other tenants of the building commonly known as 3 Results Way (“Building 3”) and shown on Exhibit “A” attached hereto, which extension option and expansion option rights are listed on Exhibit “G” attached hereto, Tenant shall have the continuing right of first refusal to lease space located in Building 3 as such space becomes available for lease (the “First Refusal Space”). The First Refusal Space shall not be deemed available for lease if Landlord renews or extends the lease with the existing tenant(s) of the First Refusal Space, their successors or assigns, on a negotiated basis. The precise size and configuration of the First Refusal Space shall be as reasonably determined by Landlord and shall be subject to the exiting requirements then imposed by the applicable governmental authorities with jurisdiction over the Premises. On each occasion during the Term of this Lease (including any Option Terms) that Landlord receives a Third Party Offer (as hereinafter defined) for the First Refusal Space and prior to leasing the First Refusal Space to any third party, Landlord shall first deliver to Tenant a redacted copy of such Third Party Offer specifying the material business terms and conditions upon which such third-party has proposed to lease the First Refusal Space and which Landlord is willing to accept (the “Availability Notice”). Tenant shall then have five (5) business days after its receipt of the Availability Notice in which Tenant may either give Landlord written notice of Tenant’s acceptance of the First Refusal Space on the terms and conditions specified in the Availability Notice (the “Acceptance Notice”) or written notice of a counteroffer by Tenant for the lease of such First Refusal Space (the “Counteroffer Notice”). Prior to giving the Availability Notice to Tenant and for five (5) business days thereafter, Landlord shall not enter into any lease of the First Refusal Space with any other person. If during such five (5) business day period:

 

1. Tenant gives Landlord an Acceptance Notice, Landlord and Tenant shall then promptly and at Landlord’s election enter into an amendment of this Lease incorporating the terms of the Acceptance Notice, increasing the size of the Premises to include the First Refusal Space and to increase Tenant’s Percentage Share to reflect the Rentable Area so added; or

 

2. Tenant gives Landlord a Counteroffer Notice, Landlord shall then give Tenant written notice either: (i) accepting such counteroffer (in which event, Landlord and Tenant shall promptly enter into an amendment of this Lease incorporating the terms of said counteroffer, increasing the size of the Premises to include the First Refusal Space

 

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and to increase Tenant’s Percentage Share to reflect the Rentable Area so added); or (ii) rejecting such counteroffer.

 

After expiration of such five (5) business day period, if Tenant has not given Landlord a timely Acceptance Notice or a timely Counteroffer Notice, then Landlord shall be free to lease the First Refusal Space to any other person or entity on any terms and conditions which are not materially less favorable to Landlord than those as set forth in the Third Party Offer. After expiration of such five (5) business day period, if Tenant has given Landlord a timely Counteroffer Notice which Landlord has rejected, Landlord shall be free to lease such First Refusal Space to any other person or entity on any terms and conditions; provided, however, Landlord shall not lease such First Refusal Space to any other person or entity on basic economic terms materially less favorable to Landlord (in the aggregate) than those set forth in such Counteroffer Notice (or, if more than one was timely given, in the last such Counteroffer Notice) without first giving Tenant at least five (5) business days prior written notice of such proposed lease and the opportunity (during such five (5) business day period by delivery of written notice to Landlord) to agree to lease such First Refusal Space on the same terms and conditions as those of such proposed lease.

 

For purposes of this Section, the term “Third Party Offer” shall mean a bona fide offer to lease all or any part of the First Refusal Space received by Landlord (including any term sheets or letters of intent) from an unaffiliated third party on terms which are acceptable to Landlord.

 

Section 1.2 Rentable Area. As used in this Lease, the term “Rentable Square Feet” means the number of square feet of constructed floor area appropriated to the exclusive use or occupancy of tenants or owner/occupants, whether or not such areas are actually leased or occupied, measured in accordance with the standard set forth under “Rentable Area of Space Within Building” in the Basic Lease Information. As used in this Lease, the term “Rentable Area” means the total number of Rentable Square Feet comprising the applicable portion of the Project from time to time. The Rentable Area of the Premises and of the Project are agreed to be the corresponding number of square feet specified in the Basic Lease Information determined using the methodology set forth in the preceding sentences of this Section 1.2.

 

Section 1.3 Main Utility Lines, Common Facilities. The term “Main Utility Lines” means the pipes, conduits, lines, trails and/or systems for electricity, telephone, water, storm drain, gas and sewer services serving the Project and located under those portions of the Project. The term “Common Facilities” means the Main Utility Lines, entrances, exits, drive aisles and access roads, parking areas, walkways, landscaped areas and all other areas located on or adjacent to the Project which are provided from time to time for the common use of tenants or occupants of the Project and/or the Premises. The Common Facilities exclude all areas located on or adjacent to the Project which Landlord has provided for the exclusive use of particular tenants or occupants of the Project and/or the Premises (except that Landlord shall maintain, on a common basis, any exclusive parking spaces and the cost of such maintenance shall be included in “Operating Expenses,” as defined below).

 

Section 1.4 Common Facilities Use. Landlord grants to Tenant and its authorized representatives and invitees a nonexclusive right to use the Common Facilities for ingress and egress, with others who are entitled to use the Common Facilities, subject to Landlord’s reserved rights hereinafter set forth. Landlord reserves the right to change the Common Facilities or the layout thereof, and to add other buildings and improvements to the Project and remove buildings and improvements from the Project, from time to time so long as such change does not materially adversely affect Tenant’s use of the Premises. Landlord shall also have the right to remeasure other buildings in the Project and to adjust the Proportionate Share for all tenants in the Project as a result of any such remeasurement. Landlord reserves for itself and its assigns a nonexclusive easement on, over and across the Common Facilities for the purpose of vehicular (including trucks of all sizes) and pedestrian ingress and egress. Tenant expressly acknowledges that Landlord has informed Tenant that Landlord will likely subdivide the Project, and demolish some of the existing buildings in the Project, and that subsequent thereto a new project may be constructed (by Landlord or otherwise) in its place, which new “project” will not be a part of the Project.

 

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Section 1.5 Common Facilities Operation. Landlord shall have the right to:

 

(a) Establish and enforce rules and regulations applicable to all tenants and occupants concerning the maintenance, management, use and operation of the Common Facilities.

 

(b) Close any of the Common Facilities to whatever extent required in the opinion of Landlord’s counsel to prevent a dedication of any of the Common Facilities or the accrual of any rights of any person or of the public to the Common Facilities, but Landlord shall use reasonable efforts not to interfere with Tenant’s use of the Premises.

 

(c) Close temporarily any of the Common Facilities for maintenance purposes.

 

(d) Select a person or company to maintain and operate any of the Common Facilities if at any time Landlord determines that the best interests of the Project will be served by having any of the Common Facilities maintained and operated by that person or company. Landlord shall have the right to negotiate and enter into a contract with that person or company on such terms and conditions and for such period of time as Landlord deems reasonable and proper as to both service and cost.

 

(e) Landlord and its agents (and others receiving Landlord’s written permission) while engaging in the work of constructing improvements or making repairs in the Project, including construction of new buildings or building additions, shall have the right to make use of portions of the accommodation areas, roads and truckways; provided, however, that Landlord shall use its reasonable efforts not to interfere with Tenant’s use of the Premises. In determining the reasonableness of any such use, all pertinent factors shall be taken into consideration including the interference, if any, with the operations of the various businesses located in the Project, the availability of other space for such purpose and the cost of using other space for such purpose, provided that the entrance to the Premises or other tenants’ premises for customers and service shall not be blocked.

 

Section 1.6 Signage. Tenant shall be entitled to the 2 Results Way portion of the monument sign at the entrance to the Project which monument sign may be relocated by Landlord before or after the Term Commencement Date. In addition, Tenant shall have the exclusive right to place its name on the building sign near the Premises subject to (i) Landlord’s prior review and approval, which shall not be unreasonably withheld, conditioned or delayed, (ii) the receipt by Tenant of all necessary governmental approvals therefor and (ii) the compliance of any such signage with (1) the Results Way Corporate Park Sign Program attached hereto as Exhibit “B” and incorporated herein by this reference and (2) all legal requirements to construct, install, maintain, repair and replace signs and other identifying materials containing the Tenant Name (as hereinafter defined) in, on or about the Premises. As used herein, the “Tenant Name” means Durect Corporation and any other legal name or trade name by which Tenant or its products may be known. As part of the Tenant Name, Tenant may include any logo commonly associated with Tenant or its products on such signage located on the Premises.

 

Section 1.7 Parking. Tenant shall have the exclusive use of the parking garage in the Building, along with the right to ten (10) spaces located near the front entrance to the Building in the adjacent surface parking lot, which ten (10) spaces may be designated by Tenant by appropriate signage as “Durect Corporation Visitor Parking.” From time to time, Landlord shall have the right to designate other parking spaces in the Project for the exclusive use of particular tenants of the Project and/or a building, and Tenant shall not allow its employees to park their vehicles in any parking spaces designated for the exclusive use of other tenants. In addition, Landlord shall have the right to designate “visitors only” parking spaces for the use of visitors to the Project (as opposed to employees of tenants of the Project), in which case Tenant shall not allow its employees to park their vehicles in any parking spaces so designated. Landlord shall have no obligation to supervise or monitor the use of the parking lot by tenants or third parties.

 

Article 2 — Term

 

Section 2.1 Term. Prior to tendering the Premises to Tenant, Landlord shall complete construction of the tenant improvements to the first (1st) floor of the Building (the “First Floor Improvements”), at Landlord’s sole cost and expense, in accordance with the provisions of the Work Letter attached hereto as Exhibit “C”. If the Premises have been

 

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tendered to Tenant on or before December 1, 2005 (which date may be extended as set forth below) with the First Floor Improvements Substantially Completed (as defined in Section 2.2 below), then the term of this Lease (the “Term”) shall commence (the “Term Commencement Date”), and all rent and additional rent shall commence to accrue (the “Rent Commencement Date”) on December 1, 2005 (or the date as so extended). If the Premises have not been tendered to Tenant on or before December 1, 2005 (or the date as so extended) with the First Floor Improvements Substantially Completed, and the reason for the delay is not a Tenant Delay (as defined in the Work Letter), then the Term Commencement Date shall be the date on which the Premises are tendered to Tenant with the First Floor Improvements Substantially Completed, and the Rent Commencement Date shall be as many days after the Term Commencement Date as is equal to (i) the number of days after December 1, 2005 (as such date may be extended) until the Premises is tendered with the First Floor Improvements Substantially Completed, if the Premises is tendered with the First Floor Improvements Substantially Completed by March 1, 2006 (which date shall also be extended as set forth below), and (ii) two (2) times the number of days after March 1, 2006 (as such date may be extended) until the Premises is tendered with the First Floor Improvements Substantially Completed, if the Premises is not tendered with the First Floor Improvements Substantially Completed by March 1, 2006. The dates of December 1, 2005 and March 1, 2006 as used throughout this paragraph are contingent on Tenant executing this Lease on or before August 31, 2005, and Landlord and Tenant mutually agreeing to the Plans (as defined in the Work Letter) on or before September 21, 2005. If either Tenant has not executed the lease on or before August 31, 2005, or Landlord and Tenant have not mutually approved the Plans on or before September 21, 2005, then the dates “December 1, 2005 and March 1, 2006” shall each be extended on a day-for-day basis. Regardless of the Rent Commencement Date applicable to the first floor of the Premises, Base Rent shall commence to be due with respect to the second floor of the Premises on December 1, 2006. If Substantial Completion of the First Floor Improvements has not occurred by the Scheduled Term Commencement Date for any reason, Landlord shall not be liable for any claims, damages or liabilities by reason thereof. Landlord shall provide Tenant as much notice as circumstances reasonably allow of the date when Landlord expects to achieve Substantial Completion, based upon the progress of the work. Upon the execution and delivery of this Lease, the terms and provisions hereof shall be fully binding on Landlord and Tenant prior to the occurrence of the Term Commencement Date. Unless sooner terminated as hereinafter provided, the Term shall end on the “Term Expiration Date” specified in the Basic Lease Information. Once the Term Commencement Date and Term Expiration Date have been determined, Landlord and Tenant shall memorialize the Term Commencement Date and Term Expiration Date by executing the Acknowledgement of Term Commencement Date in the form attached hereto as Exhibit ”D” and incorporated herein by reference (“Commencement Acknowledgment”), but the failure to do so will not affect the determination of such dates. For purposes of determining whether Tenant has accepted possession of the Premises, Tenant shall be deemed to have done so when Tenant (or any person or entity claiming by, through or under Tenant) first moves any of its personnel, furnishings and/or equipment into the Premises, except to the extent that Tenant is explicitly authorized in this Lease to do any of the foregoing without being deemed to have accepted possession of the Premises. Any early entry by Tenant shall be at Tenant’s sole risk and shall be subject to all of the terms and conditions of this Lease other than the obligation to pay Monthly Base Rent. In permitting early entry, Landlord shall have the right, in its sole discretion, to establish such rules, regulations and conditions as Landlord deems appropriate. Early entry by Tenant shall only be permitted for purposes of installing computer cable and telephone lines; shall not occur more than two (2) weeks prior to the anticipated date of Substantial Completion; and shall be performed in such manner as not to interfere with or otherwise delay construction of the Improvements. If Landlord has failed to tender the Premises to Tenant on or before the date that is six (6) months after the Scheduled Term Commencement Date and such failure is not attributable to Unavoidable Delays (as hereinafter defined), Tenant shall have the right to terminate this Lease at any time prior to Landlord’s tender of the Premises. For purposes of this Lease “Unavoidable Delays” means Landlord’s inability to fulfill or delay in fulfilling any of its obligations under this Lease expressly or impliedly to be performed by Landlord or Landlord’s inability to make or delay in making any repairs, additions, alterations, or improvements, if Landlord’s inability or delay is due to or arises by reason of strikes, labor troubles or by accident, or by any cause whatsoever beyond Landlord’s reasonable control, including governmental preemption in connection with a national emergency, shortages, and the application of any present and future laws, rules, orders, ordinances, regulations, statutes, requirements, codes and executive orders, extraordinary and ordinary, or unavailability of labor, fuel, steam, water,

 

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electricity or materials, or delays caused by Tenant or other tenants, mechanical breakdown, acts of God, enemy action, civil commotion, fire or other casualty.

 

Section 2.2 Substantial Completion. As to any construction performed by any party in the Premises, “Substantial Completion” or “Substantially Completed” means that such work has been completed, as reasonably determined by Landlord’s architect, in accordance with (a) the provisions of this Lease applicable thereto, (b) the plans and specifications for such work, and (c) applicable law, ordinances and other legal requirements, except for minor details of construction, decoration and mechanical adjustments (i.e., “punch list” items), if any, the noncompletion of which does not materially interfere with Tenant’s use of the Premises or which in accordance with good construction practices should be completed after the completion of other work in the Premises or in the Project. Substantial Completion shall be deemed to have occurred notwithstanding a requirement to complete “punch list” items or similar corrective work.

 

Section 2.3 Extension Option.

 

(a) Option . Tenant is given the option to extend the Term for three (3) additional consecutive two (2) year periods (each, an “Option Term”) following expiration of the initial Term (the “Initial Term”), by giving written notice of exercise of such option (each, an “Option Notice”) to Landlord not less than nine (9) months but not more than twelve (12) months before the expiration of the Initial Term. Notwithstanding the foregoing, if there is an Event of Default by Tenant on the date of giving the Option Notice, the Option Notice will be deemed of no force or effect; or if Tenant is in default on the date the Option Term is to commence, the Option Term shall not commence. The Annual Base Rent for the first year of the Option Term shall be ninety-five percent (95%) of the Fair Market Rental (as hereinafter defined) of the Premises at the commencement of the Option Term (the “Adjustment Date”). The Monthly Base Rent shall be adjusted, simultaneously with any and each such adjustment to the Annual Base Rental, to equal one-twelfth (1/12) of the Annual Base Rent as so adjusted.

 

(b) Fair Market Rental .

 

(i) “Fair Market Rental” shall mean the rate being charged to tenants renewing existing leases for comparable buildings in comparable business parks in the Cupertino area with similar amenities (“Comparable Business Parks”), taking into consideration all relevant factors, based on use for general office development/manufacturing, including: size, location, proposed term of the lease, extent of services to be provided, and the time that the rental rate under consideration is to become effective. Fair Market Rental as of the Adjustment Date shall be determined by Landlord with written notice (the “Notice”) given to Tenant not later than thirty (30) days after receipt of the Option Notice, subject to Tenant’s right to arbitration as hereinafter provided. Failure on the part of Tenant to demand arbitration within thirty (30) days after receipt of the Notice from Landlord shall bind Tenant to the Fair Market Rental as determined by Landlord. Should Tenant elect to arbitrate and should the arbitration not have been concluded prior to the Adjustment Date, Tenant shall pay the Annual Base Rent in effect during the last month of the Initial Term to Landlord after the Adjustment Date. If the amount of the Fair Market Rental as determined by arbitration is greater than or less than such Annual Base Rent, then any adjustment required to adjust the amount previously paid shall be made by adjustment in the next payment by Tenant of Monthly Base Rent.

 

(ii) If Tenant disputes the amount claimed by Landlord as Fair Market Rental, Tenant may require that Landlord submit the dispute to arbitration. The arbitration shall be conducted and determined in accordance with the then prevailing rules of the American Arbitration Association or its successor for arbitration of commercial disputes, except that the procedures and manner of determination mandated by such rules shall be modified as follows:

 

(1) Tenant shall make demand for arbitration in writing within thirty (30) days after service of the Notice, specifying therein the name and address of the person to act as the arbitrator on Tenant’s behalf. The arbitrator shall be a real estate broker with at least ten (10) years full-time commercial experience who is familiar with the Fair Market Rental of Comparable Business Parks. Failure on the part of Tenant to make the timely and proper demand for such arbitration shall constitute a waiver of the right thereto. Within ten (10) business days after the service of the demand for arbitration, Landlord shall give notice to Tenant

 

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specifying the name and address of the person designated by Landlord to act as arbitrator on its behalf, which arbitrator shall be similarly qualified. If Landlord fails to notify Tenant of the appointment of its arbitrator, within or by the time specified, then the arbitrator appointed by Tenant shall be the arbitrator to determine the Fair Market Rental for the Premises.

 

(2) If two arbitrators are chosen pursuant to Subsection 2.3(b)(ii)(1) above, the arbitrators so chosen shall meet within ten (10) business days after the second arbitrator is appointed and shall attempt during such ten (10) business day period to mutually agree on the Fair Market Rental. If during such ten (10) business day period, the two arbitrators do not mutually agree upon the Fair Market Rental, then during the same ten (10) business day period, they shall appoint a third arbitrator, who shall be a competent and impartial person with qualifications similar to those required of the first two arbitrators. If they are unable to agree upon such appointment within five (5) business days after expiration of such ten (10) day period, the third arbitrator shall be selected by the parties themselves. If the parties do not agree on the third arbitrator within five (5) business days after expiration of the foregoing five (5) business day period, then either party, on behalf of both, may request appointment of such a qualified person by the then president of the Santa Clara County Board of Realtors or comparable organization in Santa Clara County. The three arbitrators shall decide the dispute, if it has not been previously resolved, by following the procedures set forth in Subsection 2.3(b)(ii)(3) below. Each party shall pay the fees and expenses of its respective arbitrator and both shall share the fees and expenses of the third arbitrator. Attorneys’ fees and expenses of counsel and of witnesses for the respective parties shall be paid by the respective party engaging such counsel or calling such witnesses.

 

(3) The Fair Market Rental shall be fixed by the three arbitrators in accordance with the following procedures. Each of the arbitrators selected by the parties shall state, in writing, his or her determination of the Fair Market Rental supported by the reasons therefor and shall make counterpart copies for each of the other arbitrators. The arbitrators shall arrange for a simultaneous exchange of such proposed resolutions within ten (10) business days after appointment of the third arbitrator. If either arbitrator fails to deliver to the other arbitrators his or her determination within such ten (10) business day period, then the determination of the other arbitrator shall be final and binding upon the parties. The role of the third arbitrator shall be to select which of the two proposed resolutions more closely approximates his or her determination of Fair Market Rental. The third arbitrator shall have no right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution he or she chooses as that more closely approximating his or her determination of the Fair Market Rental shall constitute the decision of the arbitrators and shall be final and binding upon the parties. If either party fails to pay its share of the fees of the third arbitrator within five (5) business days after receipt of an invoice, or fails to execute and deliver any documents reasonably required by the third arbitrator within five (5) business days after receipt thereof, then the Fair Market Rental shall be determined solely by the arbitrator selected by the other party.

 

(4) In the event of a failure, refusal or inability of any arbitrator to act, his or her successor shall be appointed by him or her, but in the case of the third arbitrator, his or her successor shall be appointed in the same manner as that set forth herein with respect to the appointment of the original third arbitrator. The arbitrators shall attempt to decide the issue within ten (10) business days after the appointment of the third arbitrator. Any decision in which the arbitrator appointed by Landlord and the arbitrator appointed by Tenant concur shall be binding and conclusive upon the parties, except that such arbitrators shall not attempt by themselves to mutually ascertain the Fair Market Rental and any such determination, in a manner other than that provided for in Subsection 2.3(b)(ii)(3) hereof, shall not be binding on the parties.

 

(5) The arbitrators shall have the right to consult experts and competent authorities for factual information or evidence pertaining to a determination of Fair Market Rental, but any such consultation shall be made in the presence of both parties with full right on their part to cross-examine. The arbitrators shall render the decision and award in writing with counterpart copies to each party. The arbitrators shall have no power to modify the provisions of this Lease.

 

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Article 3 — Rent

 

Section 3.1 Base Rent. Tenant shall pay to Landlord for the use of the Premises, in lawful money of the United States, Annual Base Rent in the amount specified in the Basic Lease Information (subject to adjustment as provided in Article 4), payable without notice or demand in equal monthly installments in advance, beginning on the Term Commencement Date with respect to the 22,786 rentable square feet on the first floor of the Premises, and on December 1, 2006 with respect to the 17,774 rentable square feet on the second floor of the Premises. The Base Rent for the second floor of the Premises shall commence at the per square foot rate in effect with respect to the first floor of the Premises as of December 1, 2006 and shall increase at the same time(s) as Base Rent increases with respect to the first floor of the Premises. Base Rent shall be payable on the first day of each calendar month during the Term in the sums specified in the Basic Lease Information (the “Monthly Base Rent”).

 

Section 3.2 Payment. All payments required to be made by Tenant under this Lease shall be made without any setoff, deduction or counterclaim whatsoever and shall be made payable to and delivered to Landlord at such place as Landlord may designate.

 

Section 3.3 Partial Months. If the Term Commencement Date is a day other than the first day of a calendar month or if the Term expires or is terminated on a day other than the last day of a calendar month, then the Monthly Base Rent for the first and last fractional months of the Term shall be prorated on the basis of a thirty (30) day month.

 

Section 3.4 Advance Rent. Upon execution of this Lease, Tenant shall pay to Landlord the sum specified in the Basic Lease Information as “Advance Rent.” The Advance Rent shall be applied to Tenant’s obligation to pay Monthly Base Rent for the first month or months in which Monthly Base Rent is due.

 

Section 3.5 “Net” Lease. This Lease is intended to be a “net” lease, and Monthly Base Rent shall be paid to Landlord absolutely net of all costs and expenses of owning, operating, maintaining and repairing the Premises, and the Project, except to the extent that this Lease expressly requires Landlord to pay any of such costs.

 

Article 4 — Operating Expenses and Direct Expenses

 

Section 4.1 Proportionate Share of Operating Expenses; Payment of Direct Expenses. Tenant shall pay to Landlord with respect to the entire Premises, commencing on the Term Commencement Date, and on the first day of each calendar month thereafter, in addition to Monthly Base Rent, an amount estimated by Landlord to be equal to Tenant’s “Proportionate Share” of “Operating Expenses” (each as defined below) and Tenant’s share of Direct Expenses (as defined below); provided, however, Landlord may, at Tenant’s sole cost, repair any damage to the Common Facilities caused by the negligence or act or omission of Tenant, its agents, employees, servants or invitees, or Landlord may require Tenant to make such repairs. Unless otherwise specified in this Lease, whenever Tenant is required to pay its “Proportionate Share,” such Proportionate Share shall be the ratio (expressed as a percentage) which the number of Rentable Square Feet then contained in the Premises bears to the total number of Rentable Square Feet then contained in the Project, as each may change from time to time; however, if portions of the Project are maintained, managed or in some other way treated separately with respect to costs of which Tenant is to pay a portion, then, at Landlord’s option, the denominator used for calculating Tenant’s Proportionate Share shall be the total number of Rentable Square Feet contained in that portion of the Project in which the Premises are included for purposes of such maintenance, management or other costs. For example, if Landlord elects not to bill Taxes respecting the Premises as part of Direct Expenses, and if certain portions of the Project are separately assessed for tax purposes, then, at Landlord’s option, the denominator used for Tenant’s Proportionate Share of Taxes would be the total number of Rentable Square Feet contained in that portion of the Project which is included in the same tax bill as the Premises. In addition, Landlord shall have the option of billing certain Operating Expenses on a building-by-building basis (“Direct Expenses”), in which case Tenant’s share of any such Direct Expenses relating to the Premises shall be one hundred percent (100%). Without limiting the foregoing, “Direct Expenses” might include: (a) submetered or equitably prorated charges for electricity, water, gas and sewer; (b) maintenance and repair service contracts for HVAC units and elevators in the Premises; and (c) fire/life safety monitoring costs and roof repairs for the Premises. If Landlord submeters or prorates any of such charges, then Landlord’s allocation, made reasonably

 

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and in good faith, shall be determinative and binding on Tenant. As of the date of this Lease, and except as otherwise provided in this Lease, Tenant’s Proportionate Share of Operating Expenses is the percentage specified in the Basic Lease Information.

 

Section 4.2 Operating Expense and Direct Expense Billing. Landlord may, at or after the start of any calendar year, notify Tenant of the amount which Landlord estimates will be Tenant’s monthly Direct Expenses and monthly Proportionate Share of Operating Expenses for such calendar year, and the amount thereof shall be added to the Monthly Base Rent payments required to be made by Tenant in such year. A Statement (the “Statement”) of the Direct Expenses and Proportionate Share of Operating Expenses payable by Tenant for each year shall be given to Tenant within a reasonable period of time after the end of each calendar year. If Tenant’s Direct Expenses and/or Proportionate Share of Operating Expenses as shown on such Statement is greater or less than the corresponding total amounts actually paid by Tenant during the year covered by such Statement, then within thirty (30) days after receipt of the Statement, Tenant shall pay in cash any sums owed Landlord or, if applicable, Tenant shall receive a credit against any rent next accruing for any sum owed Tenant, or if no rent is accruing, such amount shall be refunded to Tenant. If this Lease expires or is terminated on a day other than the last day of a calendar year, the amount of Direct Expenses and Proportionate Share of Operating Expenses payable by Tenant during the year in which this Lease expires or is terminated shall be prorated on the basis which the number of days from the commencement of the calendar year to and including the date on which this Lease expires or is terminated bears to three hundred sixty-five (365), and shall be due and payable monthly in advance notwithstanding the expiration or earlier termination of the Term. Following the expiration or termination of this Lease, Landlord may deliver to Tenant an estimate of the final Statement for such partial calendar year. If Tenant’s Direct Expenses and/or Proportionate Share of Operating Expenses for such partial calendar year as shown on such estimated Statement is different than the total amount of Direct Expenses and/or Proportionate Share of Operating Expenses actually paid by Tenant during such partial calendar year, then if over paid by Tenant, Landlord will reimburse Tenant, and if underpaid by Tenant, Tenant will pay Landlord, within fifteen (15) days after receipt of such estimated final Statement, the amount of the net difference. Whether or not Landlord has delivered to Tenant an estimated Statement at the end of the Term, following expiration of the calendar year in which this Lease expired or was terminated, Landlord shall give a final Statement to Tenant for such calendar year. If Tenant’s Direct Expenses and/or Proportionate Share of any Operating Expenses as shown on the final Statement is greater or less than the total amount of Direct Expenses and/or Proportionate Share of Operating Expenses actually paid by Tenant during the year covered by the final Statement, then within fifteen (15) days after receipt of the Statement, the appropriate party shall pay to the other party any net sums owed.

 

Section 4.3 Audit Rights. For a period of six (6) months after Tenant’s receipt of the Statement, and provided Tenant has made full payment on account thereof, Tenant shall be entitled, upon ten (10) days’ prior written notice, to inspect and examine those books and records of Landlord relating to the determination of Direct Expenses and Operating Expenses for the calendar year to which the Statement relates. Such inspection shall take place during normal business hours at Landlord’s office or at such other place as Landlord shall designate. If, after such inspection, Tenant reasonably disputes the amount of Direct Expenses or Operating Expenses charged by Landlord, Tenant may, by written notice to Landlord, request an independent audit of such books and records. The audit shall be conducted by a certified public accountant (“CPA”) acceptable to both Landlord and Tenant. The CPA shall not be retained by Tenant on a contingency fee basis (i.e., with the CPA’s fee based upon any recovery by Tenant). If, within thirty (30) days after Landlord’s receipt of Tenant’s notice requesting an audit, Landlord and Tenant are unable to agree on the CPA who will conduct such audit, then Tenant shall designate a nationally recognized accounting firm not then employed by Landlord or Tenant to conduct such audit. The audit shall be limited to the determination of the amount of Direct Expenses and/or Operating Expenses for the calendar year to which the Statement relates. If the audit discloses that the amount of Direct Expenses and/or Operating Expenses billed to Tenant was incorrect, the appropriate party shall pay to the other party the deficiency or overpayment, as applicable. Tenant shall pay all costs and expenses of the audit unless the audit finds that Landlord has overbilled by more than 5%, in which case Landlord will pay for the audit. Tenant shall keep any information gained from such audit confidential and shall not disclose it to any other party. Tenant’s exercise of its audit rights hereunder shall not relieve

 

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Tenant of its obligation to timely pay all sums due hereunder, including the disputed Direct Expenses and/or Operating Expenses.

 

Section 4.4 Operating Expenses and Direct Expenses. The terms “Operating Expenses” and “Direct Expenses” as used herein, means any and all sums expended by Landlord for the management, ownership, maintenance, repair and operation of the Common Facilities, the Premises, and the Project, including, without limitation:

 

(a) Wages, salaries, social security and employment taxes, medical and other types of insurance uniforms, training and retirement and pension plans, as well as any adjustments thereto, for Landlord’s agents and any independent contractors hired by Landlord to operate and maintain the Project.

 

(b) Costs of service, maintenance and inspection contracts for janitorial, security, landscaping, rubbish removal, exterminating, elevator, fire and life safety equipment, HVAC units, plumbing, electrical and mechanical equipment and the costs of purchasing or renting mechanical equipment, supplies, tools, materials and uniforms, and the costs of monitoring and inspection of fire and life safety equipment.

 

(c) Premiums and other charges (including costs of claims adjustments) for insurance and deductible amounts under the terms of such insurance (deductibles not to exceed Twenty Thousand Dollars ($20,000.00) per occurrence), including, without limitation, all risk, earthquake, terrorist, flood, public liability, environmental, property damage and workers’ compensation insurance, and such other insurance coverage in such amounts as Landlord, in its sole discretion, shall elect to maintain. The initial Landlord named herein maintains insurance for the Premises as part of a portfolio insurance program. So long as such Landlord is the landlord hereunder, the property insurance coverage for the Premises will not be materially different than such insurance maintained within the portfolio program for similarly situated buildings.

 

(d) Costs of providing electricity, water, gas, sewer and other utilities for the common areas.

 

(e) Costs of restriping, resurfacing and sweeping parking areas, planting and landscaping (including replacement planting and landscaping), maintenance, repair and replacement of directional signs and other markers, as well as lighting.

 

(f) Sales, use and excise taxes on goods and services purchased by Landlord for the Project.

 

(g) License, permit and inspection fees.

 

(h) Attorneys’, accountants’ and consultants’ fees.

 

(i) Fees for management and accounting services and costs incidental thereto, whether provided by an independent management company, Landlord, or an affiliate of Landlord.

 

(j) The cost of all capital improvements, equipment or devices (collectively, “Capital Improvements”) installed or paid for by Landlord which are required or desired: (i) for the health and safety of tenants and occupants; (ii) to conform with any laws, rules, regulations or requirements of any governmental or quasi-governmental authority having jurisdiction; (iii) to effect a labor saving, energy saving or other economy, or to replace or resurface existing capital items with like kind replacement or resurface. The cost of each Capital Improvement, together with interest thereon, shall be amortized over the lesser of (A) the “pay-back period” (as defined below, if applicable to such Capital Improvement), or (B) the useful life of such Capital Improvement (as reasonably determined by Landlord). Interest on the unamortized balance shall be at the “Prime Rate” (as defined below) on the date the costs are incurred or such higher rate as may have been paid by Landlord on borrowed funds. The “pay-back period” means the period within which the anticipated savings from the use of such Capital Improvement, as determined by Landlord, will equal the cost of such Capital Improvement. The “Prime Rate” means the prime rate (or base rate) reported in the Money Rates column or section of The Wall Street Journal as being the base rate on corporate loans at large U.S. money center commercial banks (whether or not such rate has actually been charged by any such bank) on the

 

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first day on which The Wall Street Journal is published in the month preceding the month in which the subject costs are incurred.

 

(k) Any capital improvement the cost of which is less than Ten Thousand Dollars ($10,000.00).

 

(l) Depreciation or amortization of the costs of materials, tools, supplies and equipment purchased by Landlord to enable Landlord to supply services which Landlord might otherwise contract for with a third party where such depreciation and amortization would otherwise have been included in the charge for such third party’s services.

 

(m) Compliance with air, water and noise quality and/or control statutes, laws, codes, rules and regulations including statutes, laws, codes, rules and regulations relating to toxic substances or hazardous wastes; provided, however, this category shall not include costs of removal or otherwise incurred due to the presence of toxic substances of hazardous wastes on or about the Project.

 

(n) Taxes (as defined in Section 4.6).

 

(o) Local civic association dues and fees related to the Project.

 

(p) A roof reserve of one cent per square foot of Rentable Area of the Project per month.

 

(q) Fees for management and accounting services and costs incidental thereto, whether provided by an independent management company, Landlord, or an affiliate of Landlord in an amount not to exceed three percent (3%) of Annual Base Rent.

 

Notwithstanding the foregoing, to the extent any cost constituting an Operating Expense is recovered directly from Tenant as a Direct Expense (or directly from any other tenant of the Project), or paid by Tenant directly to the provider of the service, then such cost shall be excluded from the determination of Tenant’s Proportionate Share of Operating Expenses pursuant to this Article 4.

 

Section 4.5 Exclusions from Operating Expenses and Direct Expenses. Operating Expenses and Direct Expenses shall not include:

 

(a) Leasing commissions, attorneys’ fees, costs, and disbursements and other expenses incurred in connection with negotiations or disputes with tenants, other occupants, or prospective tenants or other occupants, or legal fees incurred in connection with this Lease.

 

(b) Expenses incurred in construction of tenant improvements or otherwise in improving space for tenants or other occupants of vacant space in the Project.

 

(c) Costs incurred by Landlord for alterations which are considered capital improvements and replacements under generally accepted accounting principles consistently applied, and all other costs of a capital nature including, but not limited to, capital improvements, capital repairs, capital equipment and capital tools, all in conformity with generally accepted accounting principles consistently applied, except as expressly permitted by Section 4.4.

 

(d) Depreciation of the buildings in the Project.

 

(e) Amounts paid to subsidiaries or other affiliates of Landlord (i.e., persons or companies controlled by, under common control with, or which control, Landlord) for services in or to the Premises, the land on which it is situated or the Project (or any portion of any of the foregoing) to the extent only that the cost of such services exceeds the competitive cost of such services were they not so rendered by a subsidiary or other affiliate of Landlord.

 

(f) Payments of principal, interest, late fees, prepayment fees or other charges on any debt secured by a mortgage or mortgages covering the Premises or any portion of the Project, or rental payments under any ground or underlying lease or leases (except to the extent allocable to the payment of real property taxes).

 

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(g) Landlord’s general administrative overhead expenses for services not specifically performed for the Project, or salaries of any officer or employee of Landlord (or any subsidiary or affiliate of Landlord) above the level of property manager.

 

(h) Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Landlord at a profit.

 

(i) All items and services for which Tenant pays directly to third parties.

 

(j) Advertising and promotional expenditures.

 

(k) Any costs, fines, or penalties incurred due to violations by Landlord of any governmental rule or authority, or due to late payment of any charge by Landlord.

 

(l) Costs and expenses of the original design and construction of the Premises or any other portion of the Project.

 

Section 4.6 Taxes. “Taxes” as used herein shall include all taxes, assessments and charges (including costs and expenses of contesting the amount or validity thereof or seeking a reduction by appropriate administrative or legal proceedings) levied upon or with respect to the Project, the land on which the Project is situated, or any personal property of Landlord used in connection with the ownership, management, operation, repair and maintenance of the Project, or Landlord’s interest in the Project, the land, or such personal property, including, without limitation, all real property taxes and general and special assessments; charges, fees, levies or assessments for transit, housing, police, fire or other governmental services or purported benefits to the Project; service payments in lieu of taxes; and any tax, fee or excise on the act of entering into this Lease or any other lease of space in the Project, on the use or occupancy of the Project or any part thereof, or on the rent payable under any lease or in connection with the business of renting space in the Project, which may now or hereafter be levied or assessed against Landlord by the United States of America, the State of California, the County of Santa Clara, or any political subdivision, public corporation, district or other political or public entity, and any other tax, fee or other excise, however described, that may be levied or assessed as a substitute for, or as an addition to (in whole or in part) any other property taxes, whether or not now customary or in the contemplation of the parties on the date of this Lease. In addition, “Taxes” shall include the costs of any transit impact development or mitigation fees required of Landlord by the City of Cupertino, County of Santa Clara or the State of California. Taxes shall not include net income, documentary transfer, gift, estate or inheritance taxes. Tenant shall reimburse Landlord upon demand for any and all taxes, surcharges, levies, assessments, fees and charges payable by Landlord, whether or not now customary or within the contemplation of the parties hereto: (a) upon, measured by or reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located in the Premises, or the cost or value of any leasehold improvements (but only to the extent such leasehold improvements are separately assessed), regardless of whether title to such improvements shall be in Tenant or Landlord; or (b) upon or measured by any rent payable hereunder, including, without limitation, any gross income tax, gross receipts tax or excise tax levied by the city and/or county where the Project is located, the State of California, the federal government of the United States or any other governmental body with respect to the receipt of such rent.

 

Article 5 — Letter of Credit

 

Section 5.1 Letter of Credit.

 

Tenant shall deliver to Landlord, upon Tenant’s execution of this Lease, a Letter of Credit (as hereinafter defined) in the amount specified in the Basic Lease Information, as security for the faithful performance and observance by Tenant of the terms, covenants and conditions of this Lease. The Letter of Credit shall be in the form of a clean, irrevocable, non-documentary and unconditional letter of credit (the “Letter of Credit”) issued by and drawable upon any commercial bank which is a member of the New York Clearing House Association or other bank satisfactory to Landlord, trust company, national banking association or savings and loan association with offices for banking purposes in the San Francisco Bay Area, California (the “Issuing Bank”), which is either Wells Fargo Bank, N.A., or which has outstanding unsecured,

 

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uninsured and unguaranteed indebtedness, or shall have issued a letter of credit or other credit facility that constitutes the primary security for any outstanding indebtedness (which is otherwise uninsured and unguaranteed), that is then rated, without regard to qualification of such rating by symbols such as “+” or “-” or numerical notation, “Aa” or better by Moody’s Investors Service and “AA” or better by Standard & Poor’s Rating Service, and has combined capital, surplus and undivided profits of not less than Two Billion Dollars ($2,000,000,000.00). The Letter of Credit shall (a) name Landlord as beneficiary, (b) have a term of not less than one year, (c) permit multiple drawings, (d) be fully transferable by Landlord without the payment of any fees or charges by Landlord, and (e) otherwise be in form and content satisfactory to Landlord. If upon any transfer of the Letter of Credit, any fees or charges shall be so imposed, then such fees or charges shall be payable solely by Tenant and the Letter of Credit shall so specify. The Letter of Credit shall provide that it shall be deemed automatically renewed, without amendment, for consecutive periods of one year each thereafter during the Term (and in no event shall the Letter of Credit expire prior to the thirtieth (30th) day following the Term Expiration Date) unless the Issuing Bank sends duplicate notices (the “Non-Renewal Notices”) to Landlord by certified mail, return receipt requested (one to each of the two addresses for Landlord set forth in the Basic Lease Information) not less than thirty (30) days next preceding the then expiration date of the Letter of Credit stating that the Issuing Bank has elected not to renew the Letter of Credit. The Issuing Bank shall agree with all drawers, endorsers and bona fide holders that drafts drawn under and in compliance with the terms of the Letter of Credit will be duly honored upon presentation to the Issuing Bank at an office location in the San Francisco Bay Area. The Letter of Credit shall be subject in all respects to the International Standby Practices 1998, International Chamber of Commerce Publication No. 590.

 

Section 5.2 Application of Security. If (a) an Event of Default by Tenant occurs in the payment or performance of any of the terms, covenants or conditions of this Lease, including the payment of Monthly Base Rent or any additional rent due hereunder, or (b) Tenant fails to make any installment of Base Rent as and when due, or (c) Landlord receives a Non-Renewal Notice, Landlord shall have the right by sight draft to draw, at its election, all or a portion of the proceeds of the Letter of Credit and thereafter hold, use, apply, or retain the whole or any part of such proceeds, as the case may be, (x) to the extent required for the payment of any portion of Annual Base Rent or any other sum as to which Tenant is in default including (i) any sum which Landlord may expend or may be required to expend by reason of Tenant’s default, and/or (ii) any damages to which Landlord is entitled pursuant to this Lease, whether such damages accrue before or after summary proceedings or other reentry by Landlord, and/or (y) as a cash security deposit, unless and until, in the case of clause (c) above, Tenant delivers to Landlord a substitute Letter of Credit which meets the requirements of this Article 5. If Landlord applies any part of the proceeds of the Letter of Credit, or cash security, Tenant, upon demand, shall deposit with Landlord the amount so applied so that Landlord shall have the full amount thereof on hand at all times during the Term. If Tenant shall comply with all of the terms, covenants and conditions of this Lease, the Letter of Credit or cash security, as the case may be, shall be returned to Tenant after the Term Expiration Date and after delivery of possession of the Premises to Landlord in the manner required by this Lease.

 

Section 5.3 Transfer. Upon a sale or other transfer of the Project or the Premises, or any financing of Landlord’s interest therein, Landlord shall have the right to transfer the Letter of Credit or the cash security to its transferee or lender. With respect to the Letter of Credit, within five (5) days after notice of such transfer or financing, Tenant, at its sole cost, shall arrange for the transfer of the Letter of Credit to the new landlord or the lender, as designated by Landlord in the foregoing notice or have the Letter of Credit reissued in the name of the new landlord or the lender. Upon such transfer, Tenant shall look solely to the new landlord or lender for the return of the Letter of Credit or such cash security and the provisions hereof shall apply to every transfer or assignment made of the Letter of Credit or such cash security to a new landlord. Tenant shall not assign or encumber or attempt to assign or encumber the Letter of Credit or such cash security and neither Landlord nor its successors or assigns shall be bound by any such action or attempted assignment, or encumbrance.

 

Article 6 — Use

 

Section 6.1 General. The Premises shall be used only for the purposes specified in the Basic Lease Information. No other use will be permitted without Landlord’s written consent, which consent may be withheld in Landlord’s sole discretion.

 

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Section 6.2 No Nuisance or Waste. 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 Project or injure or annoy them or use or allow the Premises to be used for any improper, immoral or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on, or about the Premises. Tenant shall not commit or suffer the commission of any waste in, on, or about the Premises. Without Landlord’s prior consent, Tenant shall not use the name, street address or likeness of the Premises for any advertising, promotional or marketing purposes.

 

Section 6.3 No Illegal Use. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance, or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall not do or permit anything to be done in or about the Premises or bring or keep anything therein which will in any way increase the rate of fire or other insurance upon the Premises or any of its contents, and Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances, and governmental rules, regulations, and requirements now in force or which may hereafter be in force, and with the requirements of any board of insurance underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use, or occupancy of the Premises, excluding structural changes not related to or affected by (i) Tenant’s alterations or improvements; or (ii) the specific manner and nature of Tenant’s use or occupancy of the Premises. The judgment of any court of competent jurisdiction or the admission of Tenant in an action against Tenant, whether Landlord be a party thereto or not, that Tenant has so violated any law, statute, ordinance, or governmental rule, regulation, or requirement, shall be conclusive of such violation as between Landlord and Tenant.

 

Section 6.4 Hazardous Substances. Tenant shall not cause or permit the escape, disposal or release of any biologically or chemically active or other hazardous substances or materials (a “Release”). Tenant shall not allow the storage, use or handling of such substances or materials in any manner not sanctioned by law or by the highest standards prevailing in the industry for the storage, use and handling of such substances or materials, nor allow to be brought into the Premises any such materials or substances except to use in the ordinary course of Tenant’s business, and then only after written notice is given to Landlord of the identity of such substances or materials. Without limitation, hazardous substances and materials shall include those described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended 42 U.S.C. Section 6901 et seq., any applicable state or local laws and the regulations adopted under these acts. If any lender or governmental agency requires testing to ascertain whether there has been any Release, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand as additional charges if such requirement applies to the Premises. In addition Tenant shall execute affidavits, representations and the like from time to time at Landlord’s request concerning Tenant’s best knowledge and belief regarding the presence of hazardous substances or materials on the Premises. In all events, Tenant shall indemnify Landlord and its property manager, its and their agents and employees from and against any and all clean-up costs and expenses, losses, damages, claims, fines, penalties or liabilities for: (i) any damage to any property or injury, illness or death of any person from any Release on the Premises occurring while Tenant is in possession, or elsewhere if caused by Tenant or persons acting under Tenant or (ii) any unlawful use, handling or storage of hazardous substances or materials at, to or from the Premises. The covenants contained herein shall survive the expiration or earlier termination of the Lease. California Health and Safety Code Section 25359.7(b) requires any tenant of real property who knows, or has reasonable cause to believe, that any release of a hazardous substance has come to be located on or beneath such real property to give written notice of such condition to the owner. Tenant shall comply with the requirements of Section 25359.7(b) and any successor statute thereto and with all other statutes, laws, ordinances, rules, regulations and orders of governmental authorities with respect to hazardous substances. Landlord shall have the right to pursue all legal and equitable remedies available to it in the event of failure of Tenant to comply with the requirements of this Section 6.4.

 

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Article 7 — Services and Utilities

 

Section 7.1 Utilities. Tenant shall make all arrangements for, and shall pay all costs of, installation and supply of utility facilities, telephone service and all utilities furnished to or used by it; provided, however, that utilities for the Common Facilities or which are provided jointly to tenants of the Project shall be provided by Landlord as part of Operating Expenses.

 

Section 7.2 Use of Electrical Service by Tenant. Electricity used by Tenant in the Premises shall be paid for by Tenant by separate charge billed by the applicable utility company and payable directly by Tenant. Electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and distribution services, and the cost of electricity may consist of several different components or separate charges for such services, such as generation, distribution and stranded cost charges. Landlord shall have the exclusive right to select any company providing electrical service to the Premises.

 

Section 7.3 Interruption of Access, Use or Services. Landlord shall not be liable for any failure to provide access to the Premises, to assure the beneficial use of the Premises or to furnish any services or utilities when such failure is caused by natural occurrences, riots, civil disturbances, insurrection, war, court order, public enemy, accidents, breakage, strikes, lockouts, other labor disputes, the making of repairs, alterations or improvements to the Premises or the Project, the inability to obtain an adequate supply of fuel, gas, water, electricity or other supplies or by any other condition beyond Landlord’s reasonable control, and Tenant shall not be entitled to any damages resulting from such failure, nor shall such failure relieve Tenant of the obligation to pay all sums due hereunder or constitute or be construed as a constructive or other eviction of Tenant. If any governmental entity promulgates or revises any statute, ordinance or building, fire or other code, or imposes mandatory or voluntary controls or guidelines on Landlord or the Project or any part thereof, relating to the use or conservation of energy, water, gas, light or electricity or the provision of any other utility or service provided with respect to this Lease, or if Landlord is required or elects to make alterations to the Premises or the Project in order to comply with such mandatory or voluntary controls or guidelines, Landlord may, in its sole discretion, comply with such mandatory or voluntary controls or guidelines, or make such alterations to the Premises or the Project. Neither such compliance nor the making of such alterations shall in any event entitle Tenant to any damages, relieve Tenant of the obligation to pay any of the sums due hereunder, or constitute or be construed as a constructive or other eviction of Tenant.

 

Article 8 — Alterations

 

Section 8.1 General. Tenant shall neither make nor cause to be made any alterations, additions or improvements (collectively, “Alterations”) in, on or to any portion of the Common Facilities or any other portion of the Project other than the Premises, any which Alterations to the Premises shall be made or caused to be made in accordance with this Article 8. Tenant shall not make or suffer to be made any Alterations in, on or to the Premises or any part thereof without the prior written consent of Landlord, which consent will not be unreasonably withheld; provided, however, Landlord may withhold its consent in its sole discretion if any proposed Alterations will affect the structure or safety of the Premises or its fire/life safety systems. When applying for any such consent, Tenant shall furnish complete plans and specifications for the desired Alterations, unless the cost thereof is less than Ten Thousand Dollars ($10,000.00) and such Alterations will not adversely affect the structural, mechanical, electrical, plumbing or life safety systems of the Premises. Subsequent to obtaining Landlord’s consent and prior to commencement of construction of the Alterations, Tenant shall deliver to Landlord a copy of the building permit and a copy of the executed construction contract covering the Alterations. Tenant shall pay to Landlord upon demand a review fee in the amount of one percent (1%) of the construction cost of all Alterations (including the Second Floor Improvements, as hereinafter defined) (“Review Fee”) to compensate Landlord for the cost of review and approval of the plans and specifications and for additional administrative costs incurred in monitoring the construction of the Alterations. If Landlord consents to the making of any Alterations, the same shall be made by Tenant at Tenant’s sole cost and expense, and Tenant shall engage the services of a contractor to make the same who has previously been approved in writing by Landlord to work in the Project, which approval shall not be unreasonably withheld. Landlord shall make available a list of at least three (3) approved contractors and for Alterations affecting the Premises’ structural, electrical, mechanical, plumbing or life safety systems, Tenant

 

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must use those approved contractors or subcontractors designated by Landlord. Tenant shall require its contractor to maintain liability insurance of at least Three Million Dollars ($3,000,000). Any construction, alteration, maintenance, repair, replacement, installation, removal or decoration undertaken by Tenant in connection with the Premises shall be completed in accordance with the plans and specifications approved by Landlord, shall be carried out in a good, workmanlike and prompt manner, shall comply with all applicable statutes, laws, ordinances, regulations, rules, orders and requirements of the authorities having jurisdiction thereof, and shall be subject to supervision by Landlord or its employees, agents or contractors. Without Landlord’s prior written consent Tenant shall not use any portion of the Common Facilities in connection with the making of any Alterations. If the Alterations which Tenant causes to be constructed result in Landlord being required to make any alterations and/or improvements to other portions of the Project in order to comply with any applicable statutes, laws, ordinances, regulations, rules, orders or requirements (e.g. ordinances intended to provide full access to handicapped persons), then Tenant shall reimburse Landlord upon demand for all costs and expenses incurred by Landlord in making such alterations and/or improvements. Any Alterations made by Tenant shall remain on and be surrendered with the Premises upon the expiration or sooner termination of the Term, subject to the provisions of Article 25 of this Lease.

 

Section 8.2 Second Floor Improvements. Tenant shall improve the Second Floor in accordance with the provisions of this Article 8, including without limitation Section 8.1, at its sole cost and expense, subject to Landlord’s Contribution, as set forth below (the “Second Floor Improvements”). The Second Floor Improvements may be installed by Tenant, subject to the provisions of this Article 8, at any time following mutual execution of this Lease.

 

Landlord shall pay an amount not to exceed Seven Hundred Ninety-Nine Thousand Eight Hundred Thirty and No/100 Dollars ($799,830.00) (the “Landlord’s Contribution”) toward the cost of the Second Floor Improvements, provided as of the date on which Landlord is required to make payment thereof in accordance with this Section 8.2, (i) the Lease is in full force and effect, and (ii) no Event of Default then exists. Tenant shall pay all costs of the Second Floor Improvements in excess of Landlord’s Contribution. Landlord’s Contribution shall be payable solely on account of labor directly related to the Second Floor Improvements, materials delivered to the Premises in connection with the Second Floor Improvements, the Review Fee applicable to the Second Floor Improvements, architectural and engineering fees and costs, and building permit fees. In no event may any portion of Landlord’s Contribution be used for the purchase or installation of furniture, trade fixtures or equipment that is not permanently affixed to the Premises, and will not be removed at the end of the Term. Tenant shall not be entitled to receive any portion of Landlord’s Contribution not actually expended by Tenant in the performance of the Second Floor Improvements, nor shall Tenant have any right to apply any unexpended portion of Landlord’s Contribution as a credit against rent or any other obligation of Tenant under the Lease. Any amount of Landlord’s Contribution which has not been disbursed as of December 1, 2007 shall be retained by Landlord and Tenant shall have no further right to any portion thereof. Anything herein to the contrary notwithstanding, Tenant may use a portion of the Landlord’s Contribution to pay the Tenant’s Contribution as set forth in Section 5 of the Work Letter. If Tenant elects to do so, the remaining Landlord’s Contribution under this Section 8.2 will be reduced by the amount so used.

 

Landlord shall make progress payments of Landlord’s Contribution to Tenant or, at Landlord’s sole option, directly to the contractor or applicable subcontractor, on a monthly basis, for the work performed during the previous month. Each of Landlord’s progress payments shall be limited to that fraction of the total amount of such payment, t