STANDARD MODIFIED GROSS OFFICE LEASE PACIFIC SORRENTO MESA HOLDINGS, L.P.,

Exhibit 10.19

 

STANDARD MODIFIED GROSS OFFICE LEASE

 

BETWEEN

 

PACIFIC SORRENTO MESA HOLDINGS, L.P.,

a California limited partnership,

and

PACIFIC STONECREST HOLDINGS, L.P.,

a California limited partnership,

as tenants in common

 

AS LANDLORD

 

AND

 

NET RESOURCES, INC.

a Canadian based Corporation,

d/b/a BakBone Software, Inc.

 

AS TENANT

 

¨ Landlord’s Original

 

¨ Tenant’s Original

 

¨ Tenant’s file copy (Discard upon full execution of Tenant’s original)

 

TABLE OF CONTENTS

 

 

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STANDARD FORM

MODIFIED GROSS OFFICE LEASE

 

This Standard Form Modified Gross Office Lease (“Lease”) is entered into effective as of February 22, 2000, between AMERICAN ASSETS, INC., as Agent for PACIFIC SORRENTO MESA HOLDINGS, L.P., a California limited partnership, and PACIFIC STONECREST HOLDINGS, L.P., a California limited partnership, as tenants in common (“Landlord”), and NET RESOURCES INC., a Canadian based corporation, d/b/a BakBone Software, Inc. (“Tenant”), who agree as follows:

 

1. Agreement to Let . Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all of the terms, provisions, and conditions contained in this Lease, those certain demised premises described in Paragraph 2.3, below (the “Premises”), consisting of a portion of that certain building described in Paragraph 2.2 below (the “Building”), which is a part of the Project (as defined in Paragraph 2.1, below), along with the non-exclusive right to use, in common with Landlord, Landlord’s invitees and licensees, and the other tenants and users of space within the Project, those portions of the Project intended for use by the tenants of the Project in common including, without limitation, the landscaped areas, passageways, walkways, hallways, parking areas, and driveways (the “Common Areas”). This Lease confers no rights, however, to the roof, exterior walls, or utility raceways of the Building nor rights to any other building which may now or in the future be located in the Project, nor with regard to either the subsurface of the land below the ground level of the Project or with regard to the air space above the ceiling of the Premises; provided, however, that Tenant shall have the limited right to access systems and equipment exclusively serving the Premises (for which Tenant has maintenance and repair responsibilities pursuant to Paragraph 10.1 below) that may be located on the roof, in exterior or demising walls, in utility raceways, in the airspaces above the ceiling of the Premises, or in any other portion of the Building or the Project, for the sole purpose of maintaining, repairing, and replacing such systems and equipment.

 

2. Principal Lease Provisions . The following are the Principal Lease Provisions of this Lease. Other portions of this Lease explain and define these Principal Lease Provisions in more detail and should be read in conjunction with this Paragraph. In the event of any conflict between the Principal Lease Provisions and the other portions of this Lease, the Principal Lease Provisions will control. (Terms shown in quotations are defined terms used elsewhere in this Lease)

 

2.1. “Project”: That certain office project sometimes referred to as Pacific Tower, located near the intersection of Pacific Heights Boulevard and Pacific Mesa Boulevard (see Exhibit “A” ). At present, the Project includes only the Building and Common Areas; however, it is anticipated that in the future Landlord may develop additional buildings and improvements within the boundaries of the Project pursuant to Paragraph 2.1 of the attached Addendum, in which event, all references herein to the Project will include such additional buildings and improvements as well.

 

2.2. “Building”: That certain building whose mailing address is 10145 Pacific Heights Boulevard, San Diego, California 92121 (see Exhibit “A” ). Currently, the Building is the only building in the Project.

 

2.3. “Premises”: Approximately 12,703 Rentable Square Feet of space on the west side of the 9 ^th floor of the Building (see Exhibit “B” )

 

2.4. Rentable Area of the Premises: Approximately 12,703 Rentable Square Feet of space.

 

2.5. “Initial Lease Term”: 5 years (estimated, subject to Exhibit “C” ) (beginning as of the Lease Commencement Date)

 

2.5.1. “Lease Commencement Date”: May 1, 2000 (estimated date; see Exhibit “C” )

 

2.5.2. “Initial Expiration Date”: April 30, 2005 (estimated date; see Exhibit “C” ) (the Initial Expiration Date stated herein, even if adjusted pursuant to Exhibit “C” , must always be the last day of a calendar month)

 

2.5.3. Extension Rights: Yes x No ¨ (subject to the terms and conditions of the attached Addendum No. 1 )

 

2.6. “Rentable Area,” “Rentable Square Feet,” “Rentable Square Footage,” “Usable Area,” “Usable Square Feet,” and “Usable Square Footage” will be calculated under the American National Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1C1996 (revised and adopted June 7, 1996) or successor standard(s), adopted by the Building Owners and Managers Association International (BOMA).

 

2.7. “Basic Monthly Rent”: $2.15 per Rentable Square Foot (subject to adjustment as provided in attached Addendum No. 1 ). Basic Monthly Rent shall always be due on or before the first day of the applicable month.

 

2.7.1. “Rent Commencement Date”: May 1, 2000; (estimated date; see Exhibit “C” and Addendum No. 1 )

 

2.8. “Security Deposit”: $27,311.45 (an amount equal to first month’s Basic Monthly Rent). Tenant’s Security Deposit does not constitute last month’s rent. Last month’s rent must be separately paid by Tenant on or before the first day of the last month of the Lease Term.

 

2.9. “Base Year” The calendar year of 2000.

 

2.10. Guarantor: N/A (subject to the terms and conditions of the attached Addendum No. 2 , if so provided).

 

 

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2.13. Permitted Uses By Tenant: General office use, research and development, and related uses, all of which uses must be consistent with the operation of a first class office building in the Sorrento Mesa area, and otherwise in compliance with the terms, provisions, and conditions of this Lease (the “Permitted Use”).

 

 

2.17. Amounts Payable upon Lease Execution: $54,622.90 representing Security Deposit and first month’s Basic Monthly Rent.

 

3. Term . The term of this Lease (“Term”) shall commence on the “Lease Commencement Date”, as defined in the Principal Lease Provisions, and shall expire on the “Initial Expiration Date”, as defined in the Principal Lease Provisions, subject to (i) any modifications to such dates described in Exhibit ”C” to this Lease, (ii) any extension rights described in the Addendum to this Lease, and (iii) earlier termination, as provided in this Lease. The term “Expiration Date”, as used in this Lease shall mean the Initial Expiration Date, any earlier date upon which this Lease is terminated by Landlord, as provided below, or if the Term is extended, then any extended Term expiration date.

 

4. Delivery of Possession . On or before the Lease Commencement Date, Landlord, at its cost, shall have substantially completed the work, if any, required to be completed by Landlord prior to the delivery of the Premises to Tenant, as described in Exhibit ”C” to this Lease (the “Landlord’s Work”). For purposes of this Paragraph, the term “substantially complete” shall mean completed to such an extent that Tenant can commence its work, if any, to be undertaken by Tenant, as described in Exhibit ”C” to this Lease (the “Tenant’s Work”), without material delay or interference due to the completion of Landlord’s Work or if no such Tenant’s Work is to be undertaken, then such term shall mean completed to such an extent that the Landlord’s Work can be finally completed within 30 days and without material interference to Tenant’s occupancy and use of the Premises. If possession of the Premises (including, without limitation, substantial completion of the Landlord’s Work, if any) is not delivered to Tenant on or before the Lease Commencement Date stated in the Principal Lease Provisions, then Landlord shall not be liable for any damage caused by such delay, and such delay shall neither affect the validity of this Lease, affect Tenant’s obligations under this Lease, nor extend the Term. Tenant’s acceptance of possession of the Premises shall constitute Tenant’s acknowledgment that it has inspected the Premises, that Tenant accepts the Premises in its then “as is” condition, that the Premises comply with all applicable laws and ordinances, and that the Premises are in first-class condition and repair. Except for any items set forth on a written “punch-list” of excepted items delivered to Landlord upon the Lease Commencement Date, Tenant shall be deemed to have (i) acknowledged that Landlord’s Work has been substantially completed, (ii) accepted the Premises in its then as-is condition with no right to require Landlord to perform any additional work therein, except as set forth on the punch list, and (iii) waived any express or implied warranties regarding the condition of the Premises, including any implied warranties of fitness for a particular purpose or merchantability.

 

5. Use of Premises and Common Areas .

 

5.1. Permitted Use of Premises . Tenant may use the Premises for the Permitted Use specified in the Principal Lease Provisions and for no other use. Any change in the Permitted Use (or any change in Tenant’s trade name from the Permitted Trade Name identified in the Principal Lease Provisions) will require Landlord’s prior written consent, which consent may be granted or withheld in Landlord’s reasonable discretion.

 

5.2. Compliance with Laws . Tenant shall comply with all laws concerning the Premises and/or Tenant’s use of the Premises, including without limitation the obligation at Tenant’s sole cost to alter, maintain, or restore the Premises in compliance with all applicable laws, even if such laws are enacted after the date of this Lease, even if compliance entails costs to Tenant of a substantial nature and even if compliance requires structural alterations. Such obligation to comply with laws shall include without limitation compliance with Title III of the Americans With Disabilities Act of 1990 (42 U.S.C. 12181 et seq. ) (the “ADA”). If Tenant’s use of the Premises results in the need for

 

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modifications or alterations to any portion of the Common Areas or the Project in order to comply with the ADA, then Tenant shall additionally be responsible for the cost of such modifications and alterations.

 

5.3. Condition During Periods of Non-Use; Recapture . During any period of time in which Tenant is not continuously using and occupying the Premises, Tenant shall take such measures as may be necessary or desirable, in Landlord’s reasonable opinion, to secure the Premises from break-ins and use by unauthorized persons, to minimize the appearance of non-use, and to otherwise maintain the interior and exterior portions of Tenant’s Premises, including all windows and doors, in first class condition and consistent with the manner in which the Premises were maintained during Tenant’s occupancy. During any period of time in which Tenant is not continuously using and occupying the Premises, Landlord may, at its election, by giving written notice (the “Non-Use Recapture Notice”) to Tenant, to recapture the Premises and terminate this Lease. If Landlord elects to exercise such right and delivers a Non-Use Recapture Notice to Tenant, this Lease shall automatically be deemed terminated as of the effective date stated in the Non-Use Recapture Notice, and Tenant shall surrender possession of the Premises as of such date (and any failure to do so shall constitute a default hereunder).

 

5.4. Use of Common Areas . Tenant’s use of the Common Areas shall at all times comply with the provisions of all rules and regulations regarding such use as Landlord may from time to time adopt. In no event shall the rights granted to Tenant to use the Common Areas include the right to store any property in the Common Areas, whether temporarily or permanently. Any property stored in the Common Areas may be removed by Landlord and disposed of, and the cost of such removal and disposal shall be payable by Tenant upon demand. Additionally, in no event may Tenant use any portion of the Common Areas for loading, unloading, or parking, except in those areas specifically designated by Landlord for such purposes, nor for any sidewalk sale or similar commercial purpose.

 

5.5. General Covenants and Limitations on Use . Tenant shall not do, bring, or keep anything in or about the Premises that will cause a cancellation of any insurance covering the Premises. If the rate of any insurance carried by Landlord is increased as a result of Tenant’s use or Tenant’s failure to continuously use and occupy the Premises, Tenant shall pay to Landlord, within ten days after Landlord delivers to Tenant a notice of such increase, the amount of such increase. Furthermore, Tenant covenants and agrees that no noxious or unreasonably offensive activity shall be carried on, in or upon the Premises by Tenant or Tenant’s Invitees (as defined below), nor shall anything be done or kept in the Premises which may be or become a public nuisance or which may cause unreasonable embarrassment, disturbance, or annoyance to others in the Building, on the Project, or on adjacent or nearby property. To that end, Tenant additionally covenants and agrees that no light shall be emitted from the Premises which is unreasonably bright or causes unreasonable glare; no sounds shall be emitted from the Premises which are unreasonably loud or annoying; and no odor shall be emitted from the Premises which is or might be noxious or offensive to others in the Building, on the Project, or on adjacent or near-by property. Tenant shall not conduct or permit any “fire sale”, public auction, sidewalk sale, going out of business sale, employment fair, or other such event in or about the Premises or the Project. In addition, Tenant covenants and agrees that no unsightliness shall be permitted in the Premises which is visible from the Common Areas. Without limiting the generality of the foregoing, all equipment, objects, and conditions shall be kept enclosed within the Premises and screened from view; no refuse, scraps, debris, garbage, trash, bulk materials, or waste shall be kept, stored, or allowed to accumulate except as may be properly enclosed within appropriate containers in the Premises and promptly and properly disposed of; the Premises shall not be used for sleeping or washing clothes, nor shall the Premises be used for cooking (other than use of a microwave oven or toaster oven for uses typically used in office settings) or the preparation, manufacture, or mixing of anything that might emit any offensive odor or objectionable noises or lights onto the Project or nearby properties; and all pipes, wires, poles, antennas, and other facilities for utilities or the transmission or reception of audio or visual signals shall be kept and maintained enclosed within the Premises. Tenant shall be solely responsible for the timely removal of all refuse, scraps, debris, garbage, trash, bulk materials, or waste from the Premises and the deposit thereof in the trash containers or dumpsters located adjacent to the Building. Further, Tenant shall not keep or permit to be kept any bicycle, motorcycle, or other vehicle, nor any animal (excluding seeing-eye dogs), bird, reptile, or other exotic creature in the Premises. Neither Tenant nor Tenant’s Invitees shall do anything that will cause damage or waste to the Project. Neither the floor nor any other portion of the Premises shall be overloaded. No machinery, equipment, apparatus, or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate, or shake all or any part of the Project or be allowed to interfere with the equipment of any other tenant within the Project (or other property owned by Landlord or its affiliates), including, without limitation, interference with transmission and reception of telephone, television, radio, or similar signals. In the event of any breach of this Paragraph 5 by Tenant or Tenant’s Invitees, Landlord, at its election, may pay the cost of correcting such breach and Tenant shall immediately, upon demand, pay the reasonable cost thereof, plus a supervisory fee in the amount of ten percent (10%) of such cost.

 

6. Security Deposit . Upon the execution of this Lease, Tenant shall deposit with Landlord cash in the amount of the Security Deposit set forth in the Principal Lease Provisions (the “Security Deposit”), to secure the performance by Tenant of its obligations under this Lease, including without limitation Tenant’s obligations (i) to pay Basic Monthly Rent, Additional Rent, and (if applicable) Percentage Rent, (ii) to repair damages to the Premises and/or the Project caused by Tenant or Tenant’s agents, employees, contractors, licensees, and invitees (collectively, “Tenant’s Invitees”), (iii) to surrender the Premises in the condition required by Paragraph 24, and (iv) to remedy any other defaults by Tenant in the performance of any of its obligations under this Lease. If Tenant commits any default under this Lease, Landlord may, at its election, use the Security Deposit to cure such defaults, and to compensate Landlord for all damage suffered by Landlord from such defaults, including, without limitation, attorneys’ fees and costs incurred by Landlord. Upon demand by Landlord, Tenant shall promptly pay to Landlord a sum equal to any portion of the Security Deposit so used by Landlord, in order to maintain the Security Deposit in the amount set forth in the Principal Lease Provisions (subject to increase as set forth below). If the Basic Monthly Rent shall, from time to time, increase during the Term, then, upon demand by Landlord, Tenant shall deposit with Landlord cash in an amount necessary to increase the Security Deposit such that it shall at all times bear the same proportion to the then-current Basic Monthly Rent as the initial Security Deposit bears to the initial Basic Monthly Rent. Following the Expiration Date and within the time frame required by applicable law, Landlord shall deliver to Tenant, at Tenant’s last known address, any portion of the Security Deposit not used by Landlord, as provided in this Paragraph. Landlord may commingle the Security Deposit with Landlord’s other funds and Landlord shall not pay interest on such Security Deposit to Tenant.

 

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7. Rent . Tenant shall pay to Landlord as minimum monthly rent, without deduction, setoff, prior notice, or demand, the Basic Monthly Rent described in the Principal Lease Provisions (subject to adjustment as provided in the attached Addendum), in advance, on or before the first day of each calendar month, beginning on the Rent Commencement Date and thereafter throughout the Term. If the Rent Commencement Date is other than the first day of a calendar month, then the Basic Monthly Rent payable by Tenant for the first month of the Term following the Rent Commencement Date (which first month’s rent shall be payable upon execution of this Lease) shall be prorated on the basis of the actual number of days during the Term occurring during the relevant month. Notwithstanding the foregoing, if Landlord is delayed in completion of Landlord’s Work due to any act or omission by Tenant or its agents, employees, contractors, or representatives, then in addition to the Basic Monthly Rent payable for the first month of the Term following the Rent Commencement Date, Tenant shall additionally pay to Landlord, upon the Rent Commencement Date, additional rent (at the rate of one-thirtieth of the Basic Monthly Rent per day) for the number of days of such delay. All “Rent” (which includes Basic Monthly Rent, and any items designated as “Additional Rent” hereunder) shall be paid to Landlord at the same address specified for notices to Landlord pursuant to the Principal Lease Provisions, as Landlord may change such address from time to time pursuant to the terms of this Lease. The Rentable Area of the Premises and the Building is, at Landlord’s election, subject to verification by Landlord’s space planner or architect. That verification shall be made in accordance with this Paragraph. Tenant’s space planner or architect may consult with Landlord’s space planner or architect regarding that verification. Verification of the Rentable Area of the Premises shall be done, if at all, within 90 days of the Lease Commencement Date. Verification of the Rentable Area of the Building may be accomplished within such 90-day period or at any time thereafter that there is a change to the Building necessitating such verification. If Landlord’s space planner or architect determines that the Rentable Area of the Premises or the Building is different from that stated in this Lease, all Rent that is based on that incorrect amount shall be modified in accordance with that determination. If that determination is made, it shall be confirmed in writing by Landlord to Tenant.

 

8. Additional Rent .

 

8.1. Additional Rent; Rent . In addition to paying the Basic Monthly Rent pursuant to Paragraphs 2.6 and 7 above, Tenant shall, commencing on the first day of the calendar year following the Base Year, pay as additional rent Tenant’s Share of the annual Direct Expenses (as defined below) that are in excess of the amount of Direct Expenses applicable to the Base Year (as defined below). That additional rent, together with other amounts of any kind (other than Basic Monthly Rent) payable by Tenant to Landlord under the terms of this Lease, shall be collectively referred to in this Lease as “Additional Rent.” Basic Monthly Rent and Additional Rent are collectively referred to in this Lease as “Rent.” Without limitation on other obligations of Tenant that survive the expiration of the Lease Term, Tenant’s obligations to pay the Additional Rent provided for in this Paragraph will survive the expiration of the Lease Term.

 

8.2. Definitions . The following definitions apply in this Paragraph (and elsewhere in this Lease):

 

8.2.1. Base Year . “Base Year” means the period defined as such in the Principal Lease Provisions.

 

8.2.2. Direct Expenses . “Direct Expenses” means the sum of Operating Expenses plus Tax Expenses (as such terms are defined below).

 

8.2.3. Expense Year . “Expense Year” means each calendar year in which any portion of the Lease Term falls, beginning with calendar year 2000 (which first Expense Year is also the Base Year), through and including the calendar year in which the Lease Term expires.

 

8.2.4. Operating Expenses . The term “Operating Expenses” means and refers to all expenses, costs, and amounts of every kind or nature that Landlord actually pays or incurs because of or in connection with the ownership, operation, management, maintenance, or repair of the Building and the Project. By way of illustration, Operating Expenses include, without limitation, the following amounts paid or incurred relative to the Project (a) the cost of providing and supplying utilities, (b) the cost of operating, managing, maintaining, and repairing the Project and all building systems, including without limitation utility, mechanical, HVAC, sanitary, storm drainage, and elevator systems, and the cost of Parking Area (as defined below) maintenance, repair, and restoration, including, without limitation, resurfacing, repainting, restriping, and cleaning, (c) the cost of supplies and tools and of equipment, maintenance, and service contracts in connection with the Project and the systems referenced in the preceding clause, (d) the cost of licenses, certificates, permits, and inspections required in connection with the operation of the Building (for example elevator permits and inspections), (e) the cost of contesting the validity or applicability of any government enactments that may affect the Operating Expenses, (f) costs incurred in connection with the implementation and operation of a parking or transportation management program or similar program, (g) Insurance Expenses (as defined below), (h) fees, charges, and other costs including management fees (or amounts in lieu of such fees), consulting fees, legal fees, and accounting fees of all persons engaged by Landlord or otherwise reasonably incurred by Landlord in connection with the operation, management, maintenance, and repair of the Project, (i) the cost of providing janitorial services, whether provided by Landlord’s personnel or by third parties, (j) wages, salaries, and other compensation and benefits of all persons engaged in the operation, maintenance, or security of the Project plus employer’s Social Security taxes, unemployment taxes, insurance, and any other taxes or payroll burden imposed on Landlord that may be levied on those wages, salaries, and other compensation and benefits, (k) amortization (including interest at a rate equal to the floating commercial loan rate announced from time to time by Bank of America as its reference rate plus four percentage points per annum) of the cost of acquiring or renting personal property used in the maintenance, repair, and operation of the Project, (l) any costs or expenses payable pursuant to the provisions of any reciprocal easement and maintenance agreement (or similar agreement) recorded against the Project either now or in the future including any owner’s association or similar fees, assessments, or dues presently or hereafter established for the Project, and (m) the cost of capital improvements or other similar expenses (other than those excluded below) which (1) are intended as a labor saving device or to effect other economies in the maintenance or operation of all or part of the Project, or (2) are required under any government law or regulation but that were not required as of the Commencement Date. All capital expenditures shall be amortized (including interest on the unamortized cost at the rate stated in clause (k), above) over

 

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their useful life, as reasonably determined by Landlord. With respect to clause (j) above, if any of Landlord’s employees provide services for more than one project, only the prorated portion of those employees’ wages, salaries, other compensation and benefits, and taxes reflecting the percentage of their working time devoted to the Project shall be included in Operating Expenses.

 

8.2.5. Tenant’s Share . “Tenant’s Share” means a percentage which is calculated by multiplying the number of Rentable Square Feet of the Premises by 100 and dividing the product by the total Rentable Square Feet in the Project. If either the Premises, the Building, or the Project are expanded or reduced, Tenant’s Share shall be appropriately adjusted. Tenant’s Share for the Expense Year in which that change occurs shall be determined on the basis of the number of days during the Expense Year in which each such Tenant’s Share was in effect.

 

8.3. Adjustment of Operating Expenses . Operating Expenses shall be adjusted as follows:

 

8.3.1. Gross Up Adjustment When a Project is Less Than Fully Occupied . If the occupancy of the total Rentable Square Footage of completed buildings within the Project during any part of any Expense Year (including the Base Year) is less than 95%, Landlord shall make an appropriate adjustment of the variable components of Operating Expenses for that Expense Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred had the Project been 95% occupied. This amount shall be considered to have been the amount of Operating Expenses for that Expense Year. For purposes of this Paragraph 8.3, “variable components” include only those component expenses that are affected by variations in occupancy levels.

 

8.3.2. Adjustment When Landlord Adds Additional Buildings to the Project . If Landlord constructs additional buildings within the Project, Landlord shall make an appropriate adjustment to the Operating Expenses for the Base Year, as reasonably determined by Landlord using sound accounting and management principles, to determine the amount of Operating Expenses that would have been incurred for the Base Year if such building had been complete and 95% occupied (unless the actual percentage of occupancy is higher than 95%, in which case such higher percentage will be used) during the Base Year.

 

8.3.3. Adjustment When Landlord Does Not Furnish a Service to All Tenants . If, during any part of any Expense Year (including the Base Year), Landlord is not furnishing a particular service or work (the cost of which, if furnished by Landlord, would be included in Operating Expenses) to a tenant (other than Tenant) that has undertaken to perform such service or work in lieu of receiving it from Landlord, Operating Expenses for that Expense Year shall be considered to be increased by an amount equal to the additional Operating Expenses that Landlord would reasonably have incurred during such period if Landlord had furnished such service or work to that tenant.

 

8.3.4. Common Areas . Landlord may elect to partition/separate the Common Areas of the Project such that the Operating Costs associated with such partitioned Common Areas are allocated to particular buildings or parcels within the Project; provided, however, that such election does not increase Operating Costs associated with the Premises.

 

8.4. Tax Expenses .

 

8.4.1. Definition of Taxes and Tax Expenses . “Taxes” means the all federal, state, county, or local government or municipal taxes, fees, charges, or other impositions of every kind or nature, whether general, special, ordinary, or extraordinary. Taxes include taxes, fees, and charges such as real property taxes, general and special assessments, transit taxes, leasehold taxes, and taxes based on the receipt of rent (including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant); personal property taxes imposed on the fixtures, machinery, equipment, apparatus, systems, and equipment; appurtenances; furniture; and other personal property used in connection with the Project. Notwithstanding the foregoing, the following shall be excluded from Taxes: (a) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal, state, and local income taxes, and other taxes applied or measured by Landlord’s general or net income (as opposed to rents, receipts, or income attributable to operations at the Building), (b) any items included as Operating Expenses, (c) personal property taxes attributable to property owned or installed by or for other tenants of the Project. “Tax Expenses” means the sum of all Taxes that are paid or incurred by Landlord because of or in connection with the ownership, leasing, and operation of the Project, (d) any environmental assessments, charges, or liens arising in connection with the remediation of Hazardous Materials (as defined below) from the Project, the causation of which arose prior to the Lease Commencement Date, or to the extent caused by Landlord or Landlord’s Invitees (as defined below), and (e) costs or fees (other than real estate taxes) payable in connection the right to further develop the Project.

 

8.4.2. Adjustment of Taxes . For purposes of this Lease, Tax Expenses for the Base Year shall be adjusted upon a reassessment of the Project resulting from the construction of a new building within the Project to increase the Base Year Tax Expenses amount by the amount of Tax Expenses attributable to such new building’s assessed value. Landlord specifically agrees that any gross receipts component of Tax Expenses for the Base Year and each subsequent year shall be calculated as if the buildings in the Project were one hundred percent (100%) occupied with rent paying tenants. Accordingly, during the portion of any Expense Year occurring after the Base Year, Tax Expenses shall be considered to be increased appropriately.

 

8.5. Calculation and Payment of Additional Rent . Tenant’s Share of any Direct Expenses for any Expense Year shall be calculated and paid as follows:

 

8.5.1. Calculation of Excess . If Tenant’s Share of Direct Expenses for any Expense Year ending or beginning within the Lease Term exceeds Tenant’s Share of the amount of Direct Expenses applicable to the Base Year, Tenant shall pay as Additional Rent to Landlord an amount equal to that excess, in the manner stated below.

 

8.5.2. Statement/Payment of Direct Expenses . Tenant shall pay to Landlord, on the first day of each calendar month during the Lease Term, commencing on the first day of the calendar year immediately

 

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following the Base Year, as Additional Rent, an amount (“Tenant’s Monthly Payment”) equal to one-twelfth of Tenant’s Share of the amount by which the Direct Expenses for such calendar year exceed the Base Year Direct Expenses (“Increased Direct Expenses”), as estimated by Landlord in the most recently delivered Estimated Statement (as defined below). Landlord intends to deliver to Tenant, prior to the commencement of each Expense Year during the Lease Term, a written statement (“Estimated Statement”) setting forth Landlord’s estimate of the Direct Expenses and Increased Direct Expenses allocable to the ensuing Expense Year, and Tenant’s Share of such Increased Direct Expenses. Landlord may, at its option, during any Expense Year, deliver to Tenant a revised Estimated Statement, revising Landlord’s estimate of the Direct Expenses and Increased Direct Expenses, in accordance with Landlord’s most current estimate. Within ninety (90) days after the end of each Expense Year during the Lease Term, Landlord intends to deliver to Tenant a written statement (“Actual Statement”) setting forth the actual Direct Expenses allocable to the preceding Expense Year. Tenant’s failure to object to Landlord regarding the contents of an Actual Statement, in writing, within 90 days after delivery to Tenant of such Actual Statement, shall constitute Tenant’s absolute and final acceptance and approval of the Actual Statement. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any Expense Year exceeds Tenant’s Share of the actual Increased Direct Expenses allocable to such Expense Year, then such excess will be credited against future Tenant’s Monthly Payments, unless such Expense Year was the calendar year during which the Lease Expiration Date occurs (the “Last Calendar Year”), in which event either (i) such excess shall be credited against any monetary default of Tenant under this Lease, or (ii) if Tenant is not in default under this Lease, then Landlord shall (within the time frame for returning Tenant’s Security Deposit) pay to Tenant such excess. If the sum of Tenant’s Monthly Payments actually paid by Tenant during any Expense Year is less than Tenant’s Share of the actual Increased Direct Expenses allocable to such Expense Year, then Tenant shall, within ten days of delivery of the Actual Statement, pay to Landlord the amount of such deficiency. Landlord’s delay in delivering any Estimated Statement or Actual Statement will not release Tenant from its obligation to pay any Tenant’s Monthly Payment or any such excess upon receipt of the Estimated Statement or the Actual Statement, as the case may be. The references in this Paragraph to the actual Increased Direct Expenses allocable to a Expense Year, shall include, if such Expense Year is the Last Calendar Year, the actual Increased Direct Expenses allocable to the portion of such year prior to the Lease Expiration Date, calculated on a pro rata basis, without regard to the date of a particular expenditure.

 

8.6. Landlord’s Books and Records . If Tenant timely disputes the amount of Additional Rent stated in an Actual Statement, Tenant may, upon at least five business days notice to Landlord, request an opportunity to inspect Landlord’s records and supporting documentation regarding Additional Rent. Such inspection shall be at Tenant’s sole cost and expense and Landlord shall, at its election, either provide copies of such records and supporting documentation to Tenant or make such records and supporting documentation available to Tenant for its inspection at Landlord’s business office during normal business hours.

 

9. Utilities and Services . Subject to applicable government rules, regulations, and guidelines and the rules or actions of the public utility furnishing the service, Landlord shall provide (as an Operating Cost and part of the Direct Expenses) the following utilities and services:

 

9.1. Heating and Air Conditioning . Landlord shall provide heating and air conditioning when necessary for normal comfort for normal office use in the Premises and the Common Areas of the Building, as reasonably determined by Landlord, during Building Standard Operating Hours.

 

9.2. Electricity . Landlord shall provide wiring, outlets, and systems sufficient to provide electrical current to the Premises for ordinary and customary office uses. In addition to the foregoing, Landlord shall replace lamps, starters, and ballasts for Building-standard lighting fixtures within the Premises upon Tenant’s request and at Landlord’s expense. Tenant shall replace lamps, starters, and ballasts for non Project-standard lighting fixtures within the Premises at Tenant’s sole expense.

 

9.3. Water . Landlord shall provide city water from the regular Building outlets for ordinary and customary drinking, lavatory, and toilet purposes.

 

9.4. Janitorial Service . Landlord shall provide five (5) day per week ordinary and customary, basic janitorial services in and about the Premises consistent with other first class office buildings in the vicinity of the Building. Landlord shall not be required to provide janitorial services to above Project-standard improvements installed in the Premises including but not limited to metallic trim, wood floor covering, glass panels, interior windows, kitchens, executive washrooms, or shower facilities. Any janitorial services required by Tenant and provided by Landlord in excess of such ordinary and customary, basic janitorial services shall be separately paid for by Tenant, as Additional Rent, within ten days of written demand.

 

9.5. Over-Standard Tenant Use . Tenant shall not exceed the rated capacity of the Building’s electrical and other utility systems. In the event of any damage or overloading to any of the Project’s systems caused by Tenant’s use thereof in excess of ordinary and customary usage for an office, Tenant shall be responsible for all costs and expenses incurred by Landlord as a result of such over-use. In addition, if Tenant requires any utilities or services described in this Paragraph in excess of the standard levels being provided by Landlord, or during hours other than Building Standard Operating Hours, Landlord shall have the right to impose reasonable restrictions on such usage and/or commercially reasonable charges therefor. The cost for after hours heating and air conditioning is estimated to be Twenty Five Dollars ($25.00) per hour, subject to increase over the Lease Term, including the Extension Term, if any.

 

9.6. Conduit and Wiring . Installation of all types of conduit and wiring exclusively serving the Premises, including but not limited to communications wiring, shall be subject to the requirements of Paragraph 23, below, Exhibit “C”, and the Landlord’s approval of the location, manner of installation, and the installing contractor. All such conduit and wiring shall, at Landlord’s option, become Landlord’s property upon the expiration of the Term. Upon the expiration of the Term, Landlord may elect to require Tenant to remove such conduit and wiring at Tenant’s expense and return the Premises and the Common Areas to their pre-existing condition. If Landlord constructs new or additional utility facilities, including without limitation wiring, plumbing, conduits, and/or mains, resulting from Tenant’s

 

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changed or increased utility requirements, Tenant shall on demand promptly pay to Landlord the total cost of such items.

 

9.7. Utilities Generally . 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 diminution in the quality or quantity of any service when the failure, delay, or diminution is entirely or partially caused by: (a) breakage, repairs, replacements, or improvements which is corrected within two (2) business days; (b) strike, lockout, or other labor trouble; (c) inability to secure electricity, gas, water, or other fuel at the Building despite reasonable efforts to do so; (d) accident or casualty; (e) act or default of Tenant or other parties other than Landlord; or (f) any other cause beyond Landlord’s reasonable control. Such failure, delay, or diminution shall not be considered to constitute an eviction or a 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, except that Tenant shall be entitled to an equitable abatement of Rent for the period of such failure, delay, or diminution to the extent such failure, delay, or diminution is directly attributable to Landlord’s gross negligence or intentional misconduct and continues for more than two (2) business days after delivery of written notice of such failure, delay or diminution from Tenant to Landlord. 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 loss of profits through, in connection with, or incidental to a failure to furnish any of the utilities or services under this Paragraph. Notwithstanding the foregoing, Landlord agrees to use reasonable efforts to promptly correct any such interruption of utilities or services. If any governmental authority having jurisdiction over the Project imposes mandatory controls, or suggests voluntary guidelines applicable to the Project, relating to the use or conservation of water, gas, electricity, power, or the reduction of automobile emissions, Landlord, at its sole discretion, may comply with such mandatory controls or voluntary guidelines and, accordingly, require Tenant to so comply. Landlord shall not be liable for damages to persons or property for any such reduction, nor shall such reduction in any way be construed as a partial eviction of Tenant, cause an abatement of rent, or operate to release Tenant from any of Tenant’s obligations under this Lease except that Tenant shall be entitled to an equitable abatement of Rent for the period of such failure, delay, or diminution to the extent such failure, delay, or diminution is directly attributable to Landlord’s gross negligence or intentional misconduct and continues for more than two (2) business days after delivery of written notice of such failure, delay or diminution from Tenant to Landlord.

 

10. Maintenance .

 

10.1. Tenant’s Duties . Tenant shall at its sole cost maintain, repair, replace, and repaint, all in first class condition, the interior of the Premises and any damage to the Premises or the Project resulting from the acts or omissions of Tenant or Tenant’s Invitees, including, without limitation, any damage to doors, windows, or the roof or damage relating to a roof penetration caused by Tenant or Tenant’s Invitees. Tenant shall maintain all communications conduit and wiring exclusively serving the Premises, whether in the Premises or not, regardless of the ownership of said conduit or wiring, subject to Landlord’s approval of Tenant’s maintenance/repair contractor. If Tenant fails to maintain, repair, replace, or repaint any portion of the Premises or the Project as provided above then Landlord may, at its election, maintain, repair, replace, or repaint any such portion of the Premises or the Project and Tenant shall promptly reimburse Landlord for Landlord’s actual cost thereof, plus a supervisory fee in the amount of ten percent (10%) of Landlord’s actual cost.

 

10.2. Landlord’s Duties . Landlord shall, as a part of the Direct Expenses, maintain, repair, replace, and repaint, all in good order and condition, consistent with first-class office buildings in the vicinity of the Building, the Common Areas and all portions of the interior and exterior of the Building, except to the extent of Tenant’s obligations as set forth in Paragraph 10.1, above. Landlord’s failure to perform its obligations set forth in the preceding sentence will not release Tenant of its obligations under this Lease, including without limitation Tenant’s obligation to pay Rent. Tenant waives the provisions of California Civil Code Section 1942 (or any successor statute), and any similar principals of law with respect to Landlord’s obligations for tenantability of the Premises and Tenant’s right to make repairs and deduct the expense of such repairs from rent.

 

11. Parking . Subject to the remaining provisions of this Paragraph, as long as Tenant is not in default under this Lease, Landlord grants to Tenant (for the benefit of Tenant and Tenant’s Invitees) the right to the non-exclusive use of the parking area within the boundaries of and serving the Project (the “Parking Area”). Tenant’s use of the Parking Area shall be subject to such rules as Landlord may, in its sole discretion, adopt from time to time with respect to the Parking Area, including without limitation (i) rules providing for the payment of charges or fees by users of the Parking Area (including without limitation Tenant) in order to reimburse Landlord for the expense of a parking attendant and/or an automated parking system or to comply with local taxes or fees and in such event the charges or fees shall be deemed Additional Rent, (ii) rules limiting tenants of the Project (including, without limitation, Tenant) to the use of, or excluding the use of, certain parking spaces or certain portions of the Parking Area, in order to maintain the availability of accessible parking spaces for clients, guests, and invitees of tenants of the Project, and (iii) rules limiting tenants of the Project (including without limitation Tenant) to the use of a restricted number of parking spaces or a restricted area. Notwithstanding anything to the contrary in this Paragraph, Landlord may, at its election, construct improvements upon or otherwise alter in any manner the Parking Area provided that Landlord makes reasonable amounts of parking available (or reasonable amounts of parking will remain available) to Tenant elsewhere on the Project, or within a reasonable distance from the Project. Landlord reserves the right to grant certain tenants in the Project the exclusive right to park in specified areas of the Parking Area, to the exclusion of all other tenants. Tenant acknowledges that the exercise of the rights reserved to Landlord under this Paragraph may result in a decrease in the number of parking spaces available to Tenant and Tenant’s Invitees, and no such decrease shall affect Tenant’s obligations under this Paragraph or entitle Tenant to any abatement of Rent.

 

12. Signs .

 

12.1. General Signage Conditions . Subject to Tenant’s signage rights under this paragraph, Landlord may at any time change the name of either or both of the Building and/or the Project and install, affix, and maintain all signs on the exterior and interior of the Building and other buildings within the Project as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not have or acquire any property right or interest in the name of the Building or

 

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Project. Tenant may use the name of the Building or Project or pictures or illustrations of the Building or Project in advertising or other publicity during the Lease Term. Tenant may not place, construct, or maintain any sign, advertisement, awning, banner, or other exterior decoration (collectively, “sign”) in the Premises which is visible from the exterior of the Premises, or on the Building or any other portion of the Project without Landlord’s prior written consent. Any sign that Tenant is permitted by Landlord to place, construct, or maintain in the Premises or on the Building or the Project (including, specifically, those installed pursuant to Paragraph 12.2 below) must comply with Landlord’s sign criteria applicable to the Project, including, without limitation, criteria relating to size, color, shape, graphics, and location (collectively, the “Sign Criteria”), and shall comply with all applicable laws, ordinances, CC&R’s (or similar recorded instruments), rules, or regulations, and Tenant shall obtain any approvals required by such laws, ordinances, CC&R’s (or similar recorded instruments), rules, and regulations. Landlord makes no representation or warranty with respect to Tenant’s ability to obtain any such approval. Tenant shall, at Tenant’s sole cost, make any changes to any sign, in the Premises or on the Building as required by any new or revised applicable laws, ordinances, rules, or regulations. Tenant shall, additionally, maintain, repair, and replace all of Tenant’s signs (including, specifically, those installed pursuant to Paragraph 12.2 below) in first class condition (excluding any multi-tenant sign within the Project maintained by the Landlord).

 

12.2. Tenant’s Signage Rights . Subject to compliance with the requirements of Paragraph 12.1, above, Tenant is hereby granted the following signage rights in/on the Building and at the Project.

 

12.2.1. Directory/Suite Signage . Tenant shall be provided, at Landlord’s expense, with Project-standard lobby directory and suite signage identifying Tenant.

 

12.2.2. Single Tenant Floor . If at any time during the Term the Premises comprise or include an entire floor of the Building, Tenant may, at Tenant’s sole expense, install identification signs (including its logo) in the elevator lobby of the Premises, subject to the following requirements: (i) Tenant must obtain Landlord’s prior written approval for such signs, which Landlord may, in Landlord’s reasonable discretion, grant or deny; (ii) all signs must be in keeping with the quality, design, and style of the Building; and (iii) no such sign may be visible from the exterior of the Building.

 

13. Rules, Regulations and Covenants . Tenant shall (and shall cause Tenant’s Invitees to) observe faithfully and comply strictly with any reasonable, non-discriminatory rules and regulations which Landlord may from time to time adopt for the Project as well as any recorded CC&Rs (or like instruments) affecting the Premises or the Project, whether now existing or hereafter adopted or amended from time to time (all of the foregoing, collectively, “rules”). Landlord has no duty or obligation to enforce such rules against any other tenant, and Landlord will not be liable to Tenant for violation of any rule by any other tenant, or any other tenant’s agents, employees, officers, independent contractors, customers, invitees, visitors, or licensees. Tenant acknowledges that Landlord reserves the right, from time to time, to enter into leases or other agreements by which Landlord agrees to restrict the use of all or any portion of the Project (including the Premises) from certain uses. All such leases and other agreements, whether now existing or entered into in the future, shall be binding upon Tenant and in no event shall Tenant utilize the Premises for any use so prohibited.

 

14. Early Access Insurance . If prior to the Lease Commencement Date Tenant is planning to (and permitted by Landlord to) make any Alterations (as defined below) to the Premises, perform any of the Tenant’s Work, or enter into the Premises for purposes of installing furniture, fixtures, and equipment, then in addition to complying with the provisions of attached Exhibit “C” , (i) Tenant shall, at Tenant’s sole cost, prior to first entering onto the Project, obtain and thereafter at all times maintain (a) “Builder’s Risk” or “Course of Construction” insurance with respect to such work and the Premises, reasonably satisfactory to Landlord, and (b) all of the insurance to be maintained by Tenant during the Term, (ii) the provisions of the Paragraph in this Lease entitled “Indemnity and Exemption of Landlord from Liability” shall be operative, and (iii) the provisions of the Paragraph in this Lease entitled “Utilities and Services” shall be operative. Any Alterations pursuant to this Paragraph shall be subject to all the provisions of the Paragraph in this Lease entitled “Alterations”. Nothing in this Paragraph shall be construed as granting permission to Tenant to enter the Premises, or to make any Alterations, prior to the Lease Commencement Date and no such right shall exist unless specified in Exhibit “C” or agreed to by Landlord in its sole discretion.

 

15. Plate-Glass Insurance . Tenant shall at its sole cost maintain full coverage plate-glass insurance on the Premises, under which Landlord and any lender holding a security interest in the Project (“Lender”) shall be named as additional insureds.

 

16. Public Liability and Property Damage Insurance . Throughout the Lease Term, Tenant shall, at Tenant’s sole cost, maintain commercial general liability and property damage insurance (i) with a combined single limit of liability of not less than $2,000,000.00, (ii) insuring (a) against all liability of Tenant and Tenant’s Invitees arising out of or in connection with Tenant’s use or occupancy of the Premises, including, without limitation, Tenant’s use, maintenance, repair, and replacement of systems and equipment either contained within the Premises or in air spaces, walls, roof areas, or other portions of the Building or the Project and which exclusively serve the Premises, and (b) performance by Tenant of the indemnity provisions set forth in this Lease, (iii) naming Landlord, its agent, and any Lender as additional insureds, (iv) containing cross-liability endorsements, and (vi) which includes products liability insurance (if Tenant is to sell merchandise or other products derived, assembled, or produced from the Premises). Not more frequently than once every year, if, in the commercially reasonable opinion of Landlord, the amount of such insurance at that time is not adequate, then Tenant shall increase such insurance as reasonably required by Landlord.

 

17. Fire and Extended Coverage Insurance . Tenant shall, at Tenant’s sole cost, maintain on Tenant’s Alterations and Tenant’s Personal Property (as defined below) a policy of standard fire and extended coverage and special form insurance, with vandalism and malicious mischief endorsements, coverage with respect to increased costs due to building ordinances, demolition coverage, boiler and machinery insurance, and sprinkler leakage coverage, in each case to the extent of at least 100 percent of full replacement value, and issued in the name of Tenant with Landlord, Landlord’s Lender and Landlord’s designated agent as additional insureds. Such “full replacement value” shall be determined by the company issuing such policy at the time the policy is initially obtained. Not more frequently than once every two years, either Landlord or Tenant may, at its election, notify the other that it elects to have the

 

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replacement value redetermined by an insurance company. Such redetermination shall be made promptly and in accordance with the rules and practices of the Board of Fire Underwriters, or a like board recognized and generally accepted by the insurance company, and Landlord and Tenant shall be promptly notified of the results by the insurance company. Such policy shall be promptly adjusted according to such redetermination.

 

18. Business Interruption Insurance . Tenant shall obtain business interruption insurance in amounts sufficient to reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or to the Project as a result of such perils.

 

19. Insurance Generally . If Tenant fails during the Term to maintain any insurance required to be maintained by Tenant under this Lease, then Landlord may, at its election and after providing Tenant with 5 days notice and an opportunity to cure, arrange for any such insurance, and Tenant shall reimburse Landlord, as Additional Rent, for any premiums for any such insurance within five days after Tenant receives a copy of the premium notice. Insurance required to be maintained by Tenant under this Lease shall be in form and content reasonably satisfactory to Landlord and its Lender and (i) shall be issued as a primary policy, by insurance companies authorized to do business in the State of California, with a Best’s Rating of at least “A” and a Best’s Financial Size Category rating of at least “VIII,” as set forth in the most current edition of “Best’s Insurance Reports” (unless otherwise approved by Landlord), or such higher rating as may be required by any Lender, (ii) shall name Landlord, Landlord’s agent(s), and any Lender as additional insureds, (iii) shall consist of “occurrence” based coverage, without provision for subsequent conversion to “claims” based coverage, (iv) shall not be cancelable or subject to reduction of coverage or other modification except after 30-days’ prior written notice to Landlord and any Lender, and (v) shall not provide for a deductible or co-insurance provision in excess of $5,000.00. Tenant shall, at least 30 days prior to the expiration of each such policy, furnish Landlord with a renewal of or “binder” extending such policy. Tenant shall promptly, upon request, deliver to Landlord copies of such policy or policies or certificates evidencing the existence and amounts of such insurance together with evidence of payment of premiums.

 

20. Waiver of Subrogation . Tenant releases Landlord and Landlord’s guests, invitees, customers and licensees (collectively, “Landlord’s Invitees”) from all claims for damage, loss, or injury to Tenant’s Personal Property and to the systems, equipment, fixtures and Alterations of Tenant in or on the Premises and the Project to the extent such damage, loss or injury is covered by any insurance policies carried by Tenant and in force at the time of such damage. Tenant shall cause all insurance policies obtained by it pursuant to this Lease to provide (if such provision is generally commercially available) that the insurance company waives all right of recovery by way of subrogation against Landlord in connection with any damage, loss, or injury covered by such policy.

 

21. Landlord’s Insurance . Landlord may, at its election, maintain any of the following insurance, in such amounts and with such limits as Landlord shall determine in its reasonable discretion: (i) public liability and property damage insurance, and products liability insurance; (ii) fire and extended coverage and special form insurance, coverage with respect to increased costs due to building ordinances, demolition coverage, and sprinkler leakage coverage; (iii) boiler and machinery insurance; (iv) fidelity insurance; (v) plate-glass insurance; and (vi) rental interruption insurance. The premiums, costs, expenses, co-insurance payments, and deductibles (or similar costs or charges) of and/or with respect to any insurance maintained from time to time by Landlor