STANDARD OFFICE LEASE

 

 

                          SADDLE RIVER EXECUTIVE CENTRE

                               ONE ROUTE 17 SOUTH

                            SADDLE RIVER, NEW JERSEY

 

                              STANDARD OFFICE LEASE

 

1. Basic Lease Provisions.

 

     1.1. Parties: This Lease, dated for reference purposes only November 20,

          2003, is made by and between VRS SADDLE RIVER LLC, a Virginia limited

          liability company ("Landlord") and PDI, INC., a Delaware corporation

          ("Tenant"). The Tenant's Employer Identification Number is 22-2919486.

 

     1.2   Premises: Entire Third (3rd) Floor, portion of the Second (2nd) Floor

          and Entire First (1st) Floor, as shown on Exhibit A attached hereto

          and known as Suite 300.

 

     1.3. Rentable Area of Premises: Approximately 84,122 rentable square feet,

          consisting of 46,912 rentable square feet on the third (3rd) floor,

          21,190 rentable square feet on the second (2nd) floor and 16,020

          rentable square feet on the first (1st) floor.

 

     1.4. Building Address: One Route 17 South, Saddle River, Bergen County, New

          Jersey.

 

     1.5. Use: General administrative office use, subject to the requirements

          and limitations contained in Section 7.

 

     1.6. Term: Approximately twelve (12) years commencing on the Commencement

          Date, as defined below and expiring January 31, 2016, unless sooner

          terminated pursuant to the Term of the Lease.

 

     1.7. Possession Date/Commencement Date:

 

           a. Possession Date: The date that Landlord delivers possession of the

          Premises to Tenant for purposes of Tenant constructing the

          Improvements, as more particularly described in Schedule 1 attached

          hereto with Landlord's Work, as defined in Schedule 1-A, Substantially

          Completed, which is estimated to be on or about the date which is

          sixty (60) days following the date on which this Lease is executed by

          both Landlord and Tenant, whichever signs later.

 

          b. Commencement Date: The date Tenant commences the conduct of its

          business from the Premises.

 

          The period between the Possession Date and the Commencement Date shall

          be referred to herein as the Construction Period, as more particularly

          defined in Paragraph 4 of Schedule 1-B.

 

     1.8. Base Rent:

 

<TABLE>

<S>                  <C>                           <C>

          Months:    Commencement Date-01/31/06    $24.75 per rentable square foot per annum

                             02/01/06-01/31/09    $25.75 per rentable square foot per annum

                             02/01/09-01/31/12    $26.75 per rentable square foot per annum

                             02/01/12-01/31/14    $27.75 per rentable square foot per annum

                             02/01/14-01/31/16    $28.75 per rentable square foot per annum

</TABLE>

 

<PAGE>

 

                            See Addendum Paragraph 1

 

     1.9. Base Rent Paid Upon the Commencement Date: Tenant will deposit with

          Landlord the sum of $173,501.62 for the Base Rent due for January,

          2005 and February, 2005.

 

     1.10. Security Deposit: $2,000,000.00.

 

                            See Addendum Paragraph 3

 

     1.11. Tenant's Share (i.e. proportionate share for purposes of Operating

          Expense Increases): 79.39%.

 

     1.12. Base Year is the calendar year 2004.

 

     1.13. Number of Parking Spaces: See Addendum Paragraph 6

 

     1.14. Initial Monthly Parking Rates Per Space: Reserved: $0.00; Unreserved:

          $0.00 .

 

     1.15. Real Estate Broker(s): Kwartler Associates, Inc. and CB Richard Ellis

          Real Estate Services, Inc.

 

     1.16. Attachments to Lease: Addendum; Exhibit A - "Premises", Exhibit A-1 -

          "Right of First Refusal Space", Exhibit A-2 - "Parking Plan", Exhibit

          A-3 - "Storage Space", Exhibit B - "Verification Letter", Exhibit C -

          "Rules and Regulations", Exhibit D - "HVAC Specifications", Exhibit E

          - "Cleaning Specifications", Exhibit F - "Building Holidays", Exhibit

          G - "License Agreement for Satellite Dish", Exhibit H - "Form of

          Letter of Credit", Exhibit I - "Memorandum of Lease", Exhibit J -

          "Discharge of Memorandum of Lease", Exhibit K - "Subordination,

          Non-Disturbance and Attornment Agreement", Schedule 1-A - "Landlord's

          Work", Schedule 1-B - "Work Letter Agreement"; Schedule 1-C -

          "Improvements to be removed by Tenant at end of Term", and Schedule

          1-D - "Electric Plans".

 

     1.17. Address for Notices:

 

<TABLE>

<S>                    <C>                              <C>

          Landlord:    VRS Saddle River LLC             With Copy To:

                      c/o Kwartler Associates, Inc.    TA Associates Realty

                      2 North Street                   28 State Street

                      Waldwick, NJ 07463               Boston, MA 02109

                                                      Attn.: Mr. Christopher J. Good

 

          Tenant:      PDI, Inc.                        With Copy To (subject to the:

                      One Route 17 South               limitations contained in Section 40 below):

                      Saddle River, New Jersey         Greenbaum, Rowe, Smith,

                       Suite 300                        Ravin, Davis & Himmel LLP

                      Attn: Mr. Peter Lynch            Metro Corporate Campus One

                                                      99 Wood Avenue South

                                                       Iselin, New Jersey 08830-2712

                                                      Attn.: Steven C. Delinko, Esq.

</TABLE>

 

<PAGE>

 

     1.18. Agent for Service of Process: If Tenant is a corporation, the name

          and address of Tenant's registered agent for service of process is:

 

                         National Registered Agents, Inc.

                         9 East Lookerman Street, Suite 1B

                         Dover, Delaware   19901

 

     1.19. Tenant's Standard Industrial Classification (herein "SIC") Number:

          422990, as determined by reference to the SIC Manual and its

          operations shall consist of the Use described in Section 1.5.

 

<PAGE>

 

2. Premises.

 

     2.1 Lease of Premises. The "Project" consists of one (1) building to be

built (hereinafter, the "Building"), the Common Areas (as defined below), the

land upon which the same are located, along with all other buildings and

improvements thereon or thereunder, including all parking facilities. Landlord

hereby leases to Tenant, and Tenant hereby leases from Landlord, upon all of the

conditions set forth herein, the Premises, together with the non-exclusive right

to use the Common Areas as hereinafter specified. The Premises shall not include

an easement for light, air or view.

 

     2.2 Calculation of Size of Building and Premises. All provisions included

in this Lease relating to the number of rentable square feet in the Premises,

including, but not limited to, Base Rent and Tenant's Share, shall reflect the

number of rentable square feet in the Premises and in the Building. The

calculation of the number of rentable square feet in the Premises is specified

in Section 1.3 hereinabove.

 

     2.3 Common Areas-Defined. The term "Common Areas" is defined as all areas

and facilities outside the Premises and within the exterior boundary line of the

Project that are designated by Landlord from time to time for the general

non-exclusive use of Landlord, Tenant and the other tenants of the Project and

their respective employees, suppliers, customers and invitees, including, but

not limited to, common entrances, lobbies, corridors, stairwells, public

restrooms, elevators, parking areas, loading and unloading areas, roadways and

sidewalks. Landlord may also designate other land and improvements outside the

boundaries of the Project to be a part of the Common Areas, provided that such

other land and improvements have a reasonable and functional relationship to the

Project.

 

3. Term.

 

     3.1 Term and Commencement Date. The Term, Possession Date and Commencement

Date of this Lease are as specified in Sections 1.6 and 1.7. The Possession Date

set forth in Section 1.7 is an estimated Possession Date. Subject to the

limitations contained in Section 3.3 below, the actual Possession Date shall be

the date possession of the Premises is tendered to Tenant for purposes of Tenant

constructing the Improvements in accordance with Section 3.4 below. If the

Commencement Date is other than the first day of a month, then the Term of this

Lease shall commence on the Commencement Date but the Term of the Lease shall be

computed from the first day of the calendar month following the Commencement

Date. When the actual Commencement Date is established by Landlord, Tenant

shall, within five (5) days after Landlord's request, complete and execute the

letter attached hereto as Exhibit "B" (the "Verification Letter") and deliver it

to Landlord. Tenant's failure to execute the Verification Letter within said

five (5) day period shall be a material default hereunder and shall constitute

Tenant's acknowledgment of the truth of the facts contained in the Verification

Letter delivered by Landlord to Tenant. Tenant shall have the right to contest

in good faith the facts set forth in the Verification Letter sent to Tenant by

Landlord. Notwithstanding anything to the contrary contained herein, provided

that Tenant delivers written notice to Landlord stating with specificity the

nature of Tenant's dispute within such five (5) day period referenced above,

then Tenant's failure to execute the Verification Letter within such time period

shall not be considered to be a default hereunder. In the event Tenant delivers

written notice of a dispute regarding the Verification Letter to Landlord

pursuant to this provision, then the parties agree to negotiate in good faith in

order to resolve the dispute. If the parties are unable to come to an agreement

regarding the facts of the Verification Letter within thirty (30) days following

the date on which Tenant delivered its notice of dispute to Landlord, then the

matter shall be submitted to arbitration in accordance with the rules of the

American Arbitration Association, in a venue which is nearest to the location of

the Premises and mutually agreed upon by Landlord and Tenant.

 

<PAGE>

 

     3.2 Delay in Possession. Notwithstanding the estimated Possession Date

specified in Section 1.7, if for any reason Landlord cannot deliver possession

of the Premises to Tenant on said date, Landlord shall not be subject to any

liability therefor, nor shall such failure affect the validity of this Lease or

the obligations of Tenant hereunder or extend the Term hereof. If Landlord shall

not have tendered possession of the Premises to Tenant within one hundred twenty

(120) days following the estimated Possession Date specified in Section 1.7 for

any reason including a Force Majeure Event as hereinafter defined, Tenant may,

at Tenant's option, by notice in writing to Landlord within ten (10) days after

the expiration of the one hundred twenty (120) day period, terminate this Lease.

If Tenant terminates this Lease as provided in the preceding sentence, the

parties shall be discharged from all obligations hereunder, except that Landlord

shall return any money previously deposited with Landlord by Tenant. A Force

Majeure Event shall mean fire, earthquake, weather delays or other acts of God,

strikes, boycotts, war, riot, insurrection, embargoes, shortages of equipment,

labor or materials, delays in issuance of governmental permits or approvals, or

any other cause beyond the reasonable control of Landlord.

 

     3.3 Delays Caused by Tenant. [Intentionally omitted].

 

     3.4 Tender of Possession. Possession of the Premises shall be deemed

tendered to Tenant when Landlord's architect or agent has determined that (a)

Landlord's Work, as defined in Schedule 1-A is

 

<PAGE>

 

substantially completed, (b) the Project utilities are ready for use in the

Premises, and (c) Tenant has reasonable access to the Premises.

 

     3.5 Early Possession. [Intentionally omitted].

 

4. Rent.

 

     4.1 Base Rent. Subject to adjustment as hereinafter provided in Section 5

of the Lease, Tenant shall pay to Landlord the Base Rent for the Premises set

forth in Section 1.8, without offset or deduction on the first day of each

calendar month commencing January 1, 2005. Tenant shall deposit with Landlord

the advance Base Rent described in Section 1.9 in accordance with Addendum

Paragraph 1. Base Rent for any period during the Term hereof which is for less

than one month shall be prorated based upon the actual number of days of the

calendar month involved. Base Rent and all other amounts payable to Landlord

hereunder shall be payable to Landlord in lawful money of the United States at

the address stated herein or to such other persons or at such other places as

Landlord may designate in writing.

 

                            See Addendum Paragraph 1

 

5. Adjustments in Rent (also referred to as "Additional Rent").

 

     5.1 Operating Expense Increases. Tenant shall pay to Landlord during the

Term hereof, in addition to the Base Rent, Tenant's Share of the amount by which

all Operating Expenses for each Comparison Year exceeds the amount of all

Operating Expenses for the Base Year. The Operating Expenses for the Base Year

shall be adjusted, if necessary, to a level of that of a 95% occupied and fully

operational office building at cost levels prevailing in the geographic market

in which the Building is located for an entire calendar year. This adjustment

shall include (a) when Building systems are under warranty during the Base Year,

an adjustment for the cost of service contracts and other expenses that would

have been incurred in the absence of such warranties; (b) an adjustment for all

other expenses that are not incurred if the Building is new and start-up

discounts or similar savings have been achieved; and (c) adjustments for all

other atypical costs that occur or do not occur during the Base Year other than

those costs which would occur in the Base Year in the ordinary course of

business. The purpose of these adjustments is to include in the Operating

Expenses for the Base Year all reasonable cost components that occur or are

likely to occur in later years. If a new category of expense is incurred after

the Base Year, the first full year's expense for such item shall be added to the

 

<PAGE>

 

Building Operating Expenses for the Base Year commencing with the first full

calendar year that such expense is incurred, so that Tenant shall only be

required to pay subsequent increases in such expense. The expense incurred for

such item during the first year shall be subject to the adjustments described in

this paragraph.

 

     Tenant's Share of Operating Expense increases shall be determined in

accordance with the following provisions:

 

          (a) "Base Year" as used in this Section 5, shall mean the calendar

year (January through December) set forth in Section 1.12. "Base Year Expenses"

shall mean the Operating Expenses for the Base Year (as grossed up pursuant to

Section 5.1 above).

 

          (b) "Tenant's Share" is defined as the percentage set forth in Section

1.11, which percentage has been determined by dividing the number of rentable

square feet attributed to the Premises by the total number of rentable square

feet in the Building and multiplying the resulting quotient by one hundred

(100). In the event that the number of rentable square feet in the Building or

the Premises changes, Tenant's Share shall be adjusted in the year the change

occurs, and Tenant's Share for such year shall be determined on the basis of the

days during such year that each Tenant's Share was in effect.

 

          (c) "Comparison Year" is defined as each calendar year during the Term

of this Lease subsequent to the Base Year. "Comparison Expenses" are those

Operating Expenses occurring during a Comparison Year, to be compared to Base

Year Expenses. Tenant's Share of the Operating Expense increases for the last

Comparison Year of the Term shall be prorated according to that portion of such

Comparison Year as to which Tenant is responsible for a share of such increase.

 

          (d) "Operating Expenses" shall include all costs, expenses and fees

incurred by Landlord in connection with or attributable to the Project,

including but not limited to, the following items: (i) all costs, expenses and

fees associated with or attributable to the ownership, management, operation,

repair, maintenance, improvement, alteration and replacement of the Project, or

any part thereof, including but not limited to, the following: (A) all surfaces,

coverings, decorative items, carpets, drapes, window coverings, parking areas,

loading and unloading areas, trash areas, roadways, sidewalks, stairways,

landscaped areas, striping, bumpers, irrigation systems, lighting facilities,

building exteriors and roofs, fences and gates; (B) all heating, ventilating and

air conditioning equipment ("HVAC"), plumbing, mechanical, electrical systems,

life safety systems and equipment, telecommunication equipment, elevators,

escalators, tenant directories, fire detection systems including sprinkler

system maintenance and repair; (ii) the cost of trash disposal, janitorial

services and security services and systems; (iii) the cost of all insurance

purchased by Landlord and enumerated in Section 9 of this Lease, including any

deductibles; (iv) the amount of the real property taxes to be paid by Landlord

under Section 5.2 hereof; (v) the cost of water, sewer, gas, electricity, and

other utilities available at the Project and paid by Landlord; (vi) the cost of

labor, salaries and applicable fringe benefits incurred by Landlord; (vii) the

cost of materials, supplies and tools used in managing, maintaining and/or

cleaning the Project; (viii) the cost of accounting fees, management fees, legal

fees and consulting fees attributable to the ownership, operation, management,

maintenance and repair of the Project plus the cost of any space occupied by the

property manager and leasing agent (if Landlord is the property manager,

Landlord shall be entitled to receive a fair market management fee); (ix) the

cost of replacing and/or adding improvements mandated by any law, statute,

regulation or directive of any governmental agency and any repairs or removals

necessitated thereby; (x) personal property taxes imposed upon the fixtures,

machinery, equipment, furniture and personal property used in connection with

the operation of the Project; (xi) payments made by Landlord under any easement,

license, operating agreement, declaration, restrictive covenant, or instrument

pertaining to the payment or sharing of costs among property owners; and (xii)

the cost of any other service provided by Landlord or any cost that is elsewhere

stated in this Lease to be an "Operating Expense." Landlord shall have the right

but not the obligation, from time to

 

<PAGE>

 

time, to equitably allocate some or all of the Operating Expenses among

different tenants of the Project (the "Cost Pools"). Such Cost Pools may

include, but shall not be limited to, the office space tenants of the Project

and the retail space tenants of the Project.

 

                            See Addendum Paragraph 2

 

          (e) Operating Expenses shall not include: (i) any expenses paid by any

tenant directly to third parties, or as to which Landlord is otherwise

reimbursed (or entitled to be reimbursed regardless of whether or not Landlord

actually receives such reimbursement) by any third party or by insurance

proceeds; (ii) electricity paid for by any tenant of the Project as described in

Section 11.6 of the Lease; (iii) salaries for Landlord's executives above the

grade of building manager and/or any employee of Landlord not directly involved

with the Project; (iv) costs associated with Landlord's performance of work or

services solely for the benefit of other tenant(s) and not for the benefit of

the Tenant; (v) leasing commissions; and (vi) interest and amortization payments

on any mortgage or mortgages.

 

          (f) If the cost incurred in making an improvement or replacing any

equipment is not fully deductible as an expense in the year incurred in

accordance with generally accepted accounting principles, the cost shall be

amortized over the useful life of the improvement or equipment, as reasonably

determined by Landlord, together with an interest factor of ten percent (10%)

per annum on the unamortized cost of such item.

 

          (g) As soon as practicable after each calendar year, Landlord shall

furnish Tenant with a statement (the "Statement") which shall show the

Comparison Expenses for the preceding Comparison Year compared to the Base Year

Expenses. On the same day as the next payment of Base Rent is due following the

furnishing of such Statement: (1) Tenant shall pay to Landlord a sum (the

"Expense Increase") equal to Tenant's Share of the increase, if any, of the

Operating Expenses for the preceding Comparison Year over the Base Year Expenses

as determined by comparing the Comparison Expenses to the Base Year Expenses;

(2) Tenant shall pay to Landlord a sum equal to one-twelfth (1/12th) of the

Expense Increase multiplied by the number of months then elapsed commencing with

the first day of the then current Lease Year; (3) Tenant shall pay, in advance,

one-twelfth (1/12th) of the Expense Increase with respect to the then current

month and thereafter, each and every month, until a different Statement shall be

submitted to Tenant as provided hereinabove. Notwithstanding the above, if the

Landlord shall estimate that any Comparison Year's Operating Expenses shall be

in excess of those for the preceding Comparison Year, then the said monthly

installments of Expense Increase shall be increased to an amount equal to

Tenant's Share of one-twelfth (1/12th) of Landlord's estimate of said Comparison

Expenses. If Tenant's payments under this Section 5.1(g) during said Comparison

Year exceed Tenant's Share as indicated on the Statement, Tenant shall be

entitled to credit the amount of such overpayment against Tenant's Share of

Expense Increases next falling due. If Tenant's payments under this Section

5.1(g) during said Comparison Year were less than Tenant's Share as indicated on

the statement, Tenant shall pay to Landlord the amount of the deficiency within

thirty (30) days after delivery by Landlord to Tenant of the Statement. Landlord

and Tenant shall forthwith adjust between them by cash payment any balance

determined to exist with respect to that portion of the last Comparison Year for

which Tenant is responsible for Expense Increases, notwithstanding that the Term

of the Lease may have terminated before the end of such Comparison Year; and

this provision shall survive the expiration or earlier termination of the Lease.

 

          (h) The computation of Tenant's Share of Operating Expense increases

is intended to provide a formula for the sharing of costs by Landlord and Tenant

and will not necessarily result in the reimbursement to Landlord of the exact

costs it has incurred.

 

          (i) If Tenant disputes the amount set forth in the Statement, Tenant

shall have the right, at Tenant's sole expense, not later than one hundred

twenty (120) days following receipt of such Statement, to cause Landlord's books

and records in respect to the

 

<PAGE>

 

calendar year which is the subject of the Statement to be audited by an

accountant mutually acceptable to Landlord and Tenant. The audit shall take

place at the offices of Landlord where its books and records are located at a

mutually convenient time during Landlord's regular business hours. Before

conducting any audit, Tenant must pay the full amount of Operating Expenses

billed. Tenant shall have no right to conduct an audit or to give Landlord

notice that it desires to conduct an audit at any time Tenant is in default

under the Lease after the expiration of any applicable notice and cure periods.

The accountant conducting the audit shall be compensated on an hourly basis and

shall not be compensated based upon a percentage of overcharges it discovers. No

subtenant shall have any right to conduct an audit, and no assignee shall

conduct an audit for any period during which such assignee was not in possession

of the Premises. Tenant's right to undertake an audit with respect to any

calendar year shall expire one hundred twenty (120) days after Tenant's receipt

of the Statement for such calendar year, and such Statement shall be final and

binding upon Tenant and shall, as between the parties, be conclusively deemed

correct, at the end of such one hundred twenty (120) day period, unless prior

thereto Tenant shall have given Landlord written notice of its intention to

audit Operating Expenses for the calendar year which is the subject of the

Statement. If Tenant gives Landlord notice of its intention to audit Operating

Expenses, it must commence such audit within sixty (60) days after such notice

is delivered to Landlord, and the audit must be completed within one hundred

twenty (120) days after such notice is delivered to Landlord. If Tenant does not

commence and complete the audit within such periods, the Statement which Tenant

elected to audit shall be deemed final and binding upon Tenant and shall, as

between the parties, be conclusively deemed correct. Tenant agrees that the

results of any Operating Expenses audit shall be kept strictly confidential by

Tenant and shall not be disclosed to any other person or entity except Tenant's

agents and consultants on an as-needed basis. If the parties agree to the

results of such audit, Tenant's Share of Operating Expenses shall be

appropriately adjusted based upon the results of such audit, and the results of

such audit shall be final and binding upon Landlord and Tenant. If the parties

do not agree upon the inclusion or amount of any Operating Expense charged by

Landlord, the sole remedy of Tenant shall be to conduct an audit within the time

specified in this Lease and, if still in disagreement with Landlord, to submit

the matter to arbitration within thirty (30) days after completion of the audit

to request an adjustment to any disputed Operating Expense item.

 

     5.2 Real Property Taxes.

 

          (a) Landlord shall pay the real property tax, as defined in Section

5.2(b), applicable to the Project, subject to reimbursement by Tenant of

Tenant's Share of increases in such Taxes in accordance with the provisions of

Section 5.1.

 

          (b) "Real property tax" shall include any form of real property tax or

assessment, general, special, or otherwise, and any license fee, commercial

rental tax, improvement bond or bonds, levy or tax levied upon or with respect

to the Building, the Project, and the Land, imposed upon or with respect to the

Building, the Project, and the Land, imposed by Federal, State and/or local

governments, as well as school districts and/or other taxing authorities (but

shall not include income, franchise, capital stock, estate or inheritance taxes

or taxes based upon receipts of rentals, unless the same be in substitution for

or in lieu of a real property tax or assessment), and any personal property

taxes imposed upon the fixtures, machinery, equipment. apparatus, systems and

appurtenances in, upon or used in connection with the Building and the Project

for the operation thereof. However, if, because of any change in the method of

taxation of real property, any other or additional tax or assessment is imposed

upon Landlord or upon or with respect to the Building, the Project, and/or the

Land or the rents or income therefrom, in addition to or in substitution for, or

in lieu of any tax or assessment which would otherwise be a real property tax,

or personal property tax of the type referred to above, such other tax or

assessment

 

<PAGE>

 

shall also be deemed a real property tax. As used herein, the term "real

property tax" shall be deemed to include "real estate tax".

 

          (c) Tenant shall pay prior to delinquency all taxes assessed against

and levied upon trade fixtures, furnishings, equipment and all other personal

property of Tenant contained in the Premises or related to Tenant's use of the

Premises. If any of Tenant's personal property shall be assessed with Landlord's

real property, Tenant shall pay to Landlord the taxes attributable to Tenant

within ten (10) days after receipt of a written statement from Landlord setting

forth the taxes applicable to Tenant's property.

 

          (d) From time to time Landlord may challenge the assessed value of the

Project as determined by applicable taxing authorities and/or Landlord may

attempt to cause the real property taxes to be reduced on other grounds. If

Landlord is successful in causing the real property taxes to be reduced or in

obtaining a refund, rebate, credit or similar benefit (hereinafter collectively

referred to as a "reduction"), Landlord shall, to the extent practicable, credit

the reduction(s) to real property taxes for the calendar year to which a

reduction applies and recalculate the Expense Increases owed by Tenant for years

after the year in which the reduction applies based on the reduced real property

taxes (if a reduction applies to Tenant's Base Year, the Base Year Expenses

shall be reduced by the amount of the reduction and Tenant's Share of Expense

Increases shall be recalculated for all Comparison Years following the year of

the reduction based on the lower Base Year amount). All costs incurred by

Landlord in obtaining the real property taxes reductions shall be considered an

Operating Expense and Landlord shall determine, in its sole discretion to which

years any reductions will be applied. In addition, all accounting and related

costs incurred by Landlord in calculating new Base Years for tenants and in

making all other adjustments shall be an Operating Expense.

 

6. Security Deposit. Tenant shall deliver to Landlord at the time it executes

this Lease the security deposit set forth in Section 1.10 as security for

Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails

to pay Base Rent or other charges due hereunder, or otherwise defaults with

respect to any provision of this Lease and such default continues after the

expiration of any applicable notice and cure periods, Landlord may use all or

any portion of said deposit for the payment of any Base Rent or other charge due

hereunder, to pay any other sum to which Landlord may become obligated by reason

of Tenant's default, or to compensate Landlord for any loss or damage which

Landlord may suffer thereby. If Landlord so uses or applies all or any portion

of said deposit, Tenant shall within ten (10) days after written demand therefor

deposit cash with Landlord in an amount sufficient to restore said deposit to

its full amount. Landlord shall not be required to keep said security deposit

separate from its general accounts. If Tenant performs all of Tenant's

obligations hereunder, said deposit, or so much thereof as has not heretofore

been applied by Landlord, shall be returned, without payment of interest or

other amount for its use, to Tenant (or, at Landlord's option, to the last

assignee, if any, of Tenant's interest hereunder) at the expiration of the Term

hereof, and after Tenant has vacated the Premises. No trust relationship is

created herein between Landlord and Tenant with respect to said security

deposit. Tenant acknowledges that the security deposit is not an advance payment

of any kind or a measure of Landlord's damages in the event of Tenant's default.

 

                            See Addendum Paragraph 3

 

<PAGE>

 

7. Use.

 

     7.1 Use. The Premises shall be used and occupied only for the purpose set

forth in Section 1.5 and for no other purpose. If Section 1.5 gives Tenant the

right to use the Premises for general office use, by way of example and not

limitation, general office use shall not include medical office use or any

similar use, laboratory use, classroom use, any use not characterized by

applicable zoning and land use restrictions as general office use, or any use

which would require Landlord or Tenant to obtain a conditional use permit or

variance from any federal, state or local authority. No exclusive use has been

granted to Tenant hereunder.

 

     7.2 Compliance with Law. Notwithstanding any permitted use inserted in

Section 1.5, Tenant shall not use the Premises for any purpose which would

violate the Project's certificate of occupancy, any conditional use permit or

variance applicable to the Project or violate any covenants, conditions or other

restrictions applicable to the Project. Tenant shall, at Tenant's expense,

promptly comply with all applicable laws, ordinances, rules, regulations,

orders, certificates of occupancy, conditional use permits, variances, covenants

and restrictions of record, and requirements of any fire insurance underwriters,

rating bureaus or government agencies, now in effect or which may hereafter come

into effect, whether or not they reflect a change in policy from that now

existing, during the Term or any part of the Term hereof, relating in any manner

to the Premises and the occupation and use by Tenant of the Premises. Tenant

shall conduct its business and use the Premises in a lawful manner and shall not

use or permit the use of the Premises or the Common Areas in any manner that

will tend to create waste or a nuisance or shall tend to disturb other occupants

of the Project. Tenant shall obtain, at its sole expense, any permit or other

governmental authorization required to operate its business from the Premises.

Landlord shall not be liable for the failure of any other tenant or person to

abide by the requirements of this section or to otherwise comply with applicable

laws and regulations, and Tenant shall not be excused from the performance of

its obligations under this Lease due to such a failure.

 

     7.3 Condition of Premises. Except as otherwise provided in this Lease,

Tenant hereby accepts the Premises and the Project in their condition existing

as of the Possession Date, subject to all applicable federal, state and local

laws, ordinances, regulations and permits governing the use of the Premises, the

Project's certificate of occupancy, any applicable conditional use permits or

variances, and any easements, covenants or restrictions of record affecting the

use of the Premises or the Project. Tenant shall comply with all federal, state

and local laws and regulations governing occupational safety and health at

Tenant's sole cost and expense. Tenant acknowledges that it has satisfied itself

by its own independent investigation that the Premises and the Project are

suitable for its intended use, and that neither Landlord nor Landlord's agents

has made any representation or warranty as to the present or future suitability

of the Premises, or the Project for the conduct of Tenant's business.

Notwithstanding anything to the contrary contained in this Section 7.3, Landlord

warrants to Tenant that, to the best of Landlord's knowledge, the Building, in

the state existing on the Possession Date, but without regard to alterations or

improvements to be made by Tenant or the use for which Tenant will occupy the

Premises, does not violate any covenants or restrictions of record, or any

applicable building code, regulation or ordinance in effect on such date.

Notwithstanding anything to the contrary contained in Section 7.2 above,

Landlord shall comply with all present and future applicable laws relating to

the Building and the operation of the Building generally as an office building.

Without limiting the generality of the foregoing, Landlord expressly

acknowledges that if, as a result of Tenant's construction of the Improvements

or its occupancy of the Premises, any work must be performed in the lavatories

or other Common Areas or public portions of the Building in order to comply with

ADA, then Landlord at its sole cost and expense shall promptly perform such work

to the extent that (i) the occupancy of the Premises by Tenant for its normal

conduct of business is affected by reason of the Building's failure to comply

with ADA, or (ii) the Landlord receives any notice from a governmental entity

that the Building is not in compliance with the ADA. To the extent

 

<PAGE>

 

that such notice requires action within the Premises with regard to Tenant's

particular use of the Premises, Tenant shall be obligated to undertake such

action at Tenant's sole cost and expense. If Landlord incurs an expense to

comply with an amendment to the ADA that is enacted after the date of this

Lease, the foregoing provisions of this Section 7.3 shall not be construed to

prohibit Landlord from including such expense in Operating Expenses, to the

extent and in the manner prescribed by Article 5 above.

 

8. Maintenance, Repairs and Alterations.

 

     8.1 Landlord's Obligations. Landlord shall keep the Project, including

without limitation, the roof, structure, Building systems and Common Areas (but

excluding the interior of the Premises and space leased to other occupants of

the Project) in good condition and repair. Except as provided in Section 10.3,

there shall be no abatement of rent or liability to Tenant on account of any

injury or interference with Tenant's business with respect to any improvements,

alterations or repairs made by Landlord to the Project or any part thereof.

Tenant expressly waives the benefits of any statute now or hereafter in effect

which would otherwise afford Tenant the right to make repairs at Landlord's

expense or to terminate this Lease because of Landlord's failure to keep the

Project in good order, condition and repair.

 

     8.2   Tenant's Obligations.

 

          (a) Subject to the requirements of Section 8.3, Tenant shall be

responsible for payment of the cost of keeping the Premises in good condition

and repair, and if Landlord makes any repairs to the Premises, the cost thereof

shall be paid by Tenant to Landlord. Tenant shall be responsible for the cost of

painting, repairing or replacing wall coverings, and the cost of repairing or

replacing any improvements made to the Premises by Tenant. Landlord may, but

shall not be obligated to, enter the Premises at all reasonable times to make

such repairs, alterations, improvements and additions to the Premises or to any

equipment located therein as Landlord deems necessary, in its sole discretion.

 

          (b) Tenant is responsible for the maintenance of the lighting fixtures

in the Premises. At the option of Tenant, Landlord agrees to sell to Tenant,

replacement parts for the lighting fixtures, including lamps, ballasts,

starters, lenses and grills used in the Premises. In addition, if Landlord

provides replacement part installation and/or repair work, then in said event,

Tenant shall pay Landlord the cost of installation thereof.

 

          (c) Except as expressly provided to the contrary in Section 8.3 below,

on the last day of the Term hereof, or on any sooner termination, Tenant shall

surrender the Premises to Landlord in the same condition as received, ordinary

wear and tear excepted, clean and free of debris and Tenant's personal property.

Tenant shall repair any damage to the Premises occasioned by the installation or

removal of Tenant's trade fixtures, furnishings and equipment. Except as

otherwise stated in this Lease, Tenant shall leave the power panels, electrical

distribution systems, lighting fixtures, HVAC, window coverings, wall coverings,

carpets, wall paneling, ceilings and plumbing at the Premises and in good

operating condition.

 

     8.3   Alterations and Additions.

 

          (a) Tenant shall not, without Landlord's prior written consent, which

may be given or withheld in Landlord's sole discretion, make any alterations,

improvements, additions, utility installations or repairs (hereinafter

collectively referred to as "Alterations") in, on or about the Premises or the

Project. As used in this Lease, the term "utility installation" shall mean

carpeting or other floor covering, window and wall coverings, power panels,

electrical distribution systems, lighting fixtures, telephone or computer system

wiring, HVAC and plumbing. At the expiration of the Term, Landlord may require

the removal of any Alterations (including non-structural Alterations made

without Landlord's consent as more particularly described below) installed by

Tenant and the restoration of the Premises and the Project to their prior

 

<PAGE>

 

condition, at Tenant's expense. To the extent Landlord's consent is required

pursuant to this Section 8.3(a), at the written request of Tenant, Landlord

agrees to notify Tenant concurrently with Landlord's consent to such Alteration

whether Landlord will require Tenant to remove such Alteration at the end of the

Term. Except as set forth on Schedule 1-C attached hereto, Tenant shall not be

obligated to remove the tenant improvements constructed in accordance with the

work letter agreement attached hereto as Schedule 1-B or any improvements

performed by Tenant in connection with its initial fit-out of the Premises.

Should Landlord permit Tenant to make its own Alterations, Tenant shall use only

such contractor as has been reasonably approved by Landlord. Should Tenant make

any Alterations without the prior approval of Landlord, or use a contractor not

approved by Landlord in its reasonable discretion, Landlord may, at any time

during the Term of this Lease, require that Tenant remove all or part of the

Alterations and return the Premises to the condition it was in prior to the

making of the Alterations. In the event Tenant makes any Alterations, Tenant

agrees to cause its contractor to obtain, prior to the commencement of any work,

"builders all risk" insurance in an amount approved by Landlord and workers

compensation insurance.

 

                            See Addendum Paragraph 4

 

          (b) Any Alterations in or about the Premises that Tenant shall desire

to make shall be presented to Landlord in written form, with plans and

specifications which are sufficiently detailed to obtain a building permit. If

Landlord consents to an Alteration, the consent shall be deemed conditioned upon

Tenant acquiring a building permit from the applicable governmental agencies,

furnishing a copy thereof to Landlord prior to the commencement of the work, and

compliance by Tenant with all conditions of said permit in a prompt and

expeditious manner. Tenant shall provide Landlord with as-built plans and

specifications for any Alterations made to the Premises.

 

          (c) Tenant shall pay, when due, all claims for labor or materials

furnished or alleged to have been furnished to or for Tenant at or for use in

the Premises, which claims are or may be secured by any mechanic's or

materialmen's lien against the Premises or the Project, or any interest therein.

If Tenant shall, in good faith, contest the validity of any such lien, Tenant

shall furnish to Landlord a surety bond satisfactory to Landlord in an amount

equal to such contested lien claim or demand indemnifying Landlord against

liability arising out of such lien or claim. In addition, Landlord may require

Tenant to pay Landlord's reasonable attorneys' fees and costs in participating

in such action.

 

          (d) Tenant shall give Landlord not less than ten (10) days' advance

written notice prior to the commencement of any work in the Premises by Tenant,

and Landlord shall have the right to post notices of non-responsibility in or on

the Premises or the Project as provided by law.

 

          (e) All Alterations (whether or not such Alterations constitute trade

fixtures of Tenant) which may be made to the Premises by Tenant shall be made

and done in a good and workmanlike manner and with new materials satisfactory to

Landlord and shall be the property of Landlord and remain upon and be

surrendered with the Premises at the expiration of the Lease Term, unless

Landlord requires their removal pursuant to Section 8.3(a). Provided Tenant is

not in default, notwithstanding the provisions of this Section 8.3(e), Tenant's

personal property and equipment, other than that which is affixed to the

Premises so that it cannot be removed without material damage to the Premises or

the Project, shall remain the property of Tenant and may be removed by Tenant

subject to the provisions of Section 8.2(c). Notwithstanding anything to the

contrary contained herein, any Improvements made by and paid for by Tenant

pursuant to the Work Letter Agreement attached hereto as Schedule 1-B shall be

deemed

 

<PAGE>

 

to be the property of Tenant until the expiration or earlier termination of the

Lease and, if set forth in Schedule 1-C attached hereto, Tenant shall, at

Tenant's sole cost and expense, remove such Improvements and repair any damage

caused by such removal.

 

     8.4 Failure of Tenant to Remove Property. If this Lease is terminated due

to the expiration of its Term or otherwise, and Tenant fails to remove its

property as required by Section 8.2(b), in addition to any other remedies

available to Landlord under this Lease, and subject to any other right or remedy

Landlord may have under applicable law, Landlord may remove any property of

Tenant from the Premises and store the same elsewhere at the expense and risk of

Tenant and at any time (before or after Landlord stores said property), Landlord

may sell any or all such property at public or private sale, in such a manner

and at such times and places as Landlord, in its sole discretion, may deem

proper, without notice to or demand upon Tenant. Landlord shall apply the

proceeds of such sale: first, to the cost and expenses of the sale, including

reasonable attorneys' fees actually incurred; second, to the payment of the cost

of or charges for storing any such property; third, to the payment of any other

sums of money which may then or thereafter be due to Landlord from Tenant under

this Lease; and fourth, the balance, if any, to Tenant.

 

9. Insurance.

 

     9.1   Insurance-Tenant.

 

          (a) During the Term of the Lease and at such other times as Tenant

occupies the Premises, Tenant shall keep in force at its expense "comprehensive

general liability" insurance including an ISO broad form endorsement or its

equivalent with respect to the Premises with limits of not less than One Million

Dollars ($1,000,000) combined single limit or such higher amount as Landlord may

reasonably require in writing from time to time. The insurance shall cover

liability arising out of Tenant's operations and liability arising out of work

performed at the Premises by other persons on behalf of Tenant, and shall

specifically include the contractual liability assumed by Tenant under this

Lease. Such coverage, if written on a claims-made basis, must provide for a

retroactive date which is prior to the date Tenant occupies the Premises, and

the same retroactive date shall continue during the entire Term of this Lease.

 

          (b) Tenant will also maintain "all risk" extended coverage property

insurance written on a one hundred percent (100%) replacement cost basis on

Tenant's personal property, all tenant improvements installed at the Premises

and paid for by Tenant, Tenant's trade fixtures and other property. Such

policies shall provide protection against any peril included within the

classification "fire and extended coverage," against vandalism and malicious

mischief, theft, sprinkler leakage and flood damage. If this Lease is terminated

as the result of a casualty in accordance with Section 10, the proceeds of said

insurance attributable to the replacement of all tenant improvements at the

Premises shall be paid to Landlord.

 

          (c) Tenant shall, at all times during the Term hereof, maintain in

effect workers' compensation insurance as required by applicable law .

 

     9.2   Insurance-Landlord.

 

          (a) Landlord shall obtain and keep in force a policy of comprehensive

general liability insurance with coverage against such risks and in such amounts

as Landlord deems reasonably advisable insuring Landlord against liability

arising out of the ownership, operation and management of the Project.

 

          (b) Landlord shall also obtain and keep in force during the Term of

this Lease a policy or policies of "all risk" insurance covering loss or damage

to the Project in the amount of not less than the full replacement cost thereof

(less foundations and

 

<PAGE>

 

footings), as reasonably determined by Landlord from time to time. The terms and

conditions of said policies and the perils and risks covered thereby shall be

reasonably determined by Landlord, from time to time, in Landlord's sole

discretion. In addition, at Landlord's option, Landlord shall obtain and keep in

force, during the Term of this Lease, a policy of rental interruption insurance,

with loss payable to Landlord, which insurance shall, at Landlord's option, also

cover all Operating Expenses. Tenant will not be named as an additional insured

in any insurance policies carried by Landlord and shall have no right to any

proceeds therefrom. At Landlord's option, Landlord may obtain insurance

coverages and/or bonds related to the operation of the parking areas. At

Landlord's option, Landlord may obtain coverage for flood and earthquake

damages. In addition, Landlord shall have the right to obtain such additional

insurance as is customarily carried by owners or operators of other comparable

office buildings in the geographical area of the Project. The policies purchased

by Landlord shall contain such deductibles as Landlord may reasonably determine.

In addition to amounts payable by Tenant in accordance with Section 5, Tenant

shall pay any increase in the property insurance premiums for the Project over

what was payable immediately prior to the Commencement Date to the extent the

increase is specified by Landlord's insurance carrier as being caused by the

nature of Tenant's occupancy or any act or omission of Tenant.

 

     9.3 Insurance Policies. Tenant shall deliver to Landlord copies of the

certificates of insurance required under Section 9.1 within fifteen (15) days

prior to the Possession Date of this Lease, and Landlord shall have the right to

approve the terms and conditions of said policies. Tenant's insurance policies

shall not be cancelable or subject to reduction of coverage or other

modification except after thirty (30) days prior written notice to Landlord.

Tenant shall, at least thirty (30) days prior to the expiration of such

policies, furnish Landlord with renewals thereof. Tenant's insurance policies

shall be issued by insurance companies authorized to do business in the state in

which the Project is located, with a general policyholders rating of not less

than "A" and a financial rating of not less than "Class X," as rated in the most

recent edition of "Best Insurance Reports." Tenant's insurance policies shall be

issued as primary policies and not contributing with and not in excess of

coverage which Landlord may carry. Landlord, and at Landlord's option the holder

of any mortgage or deed of trust encumbering the Project, shall be named as an

additional insured on all insurance policies Tenant is obligated to obtain by

Section 9.1 above. Tenant's insurance policies shall not include deductibles in

excess of One Hundred Thousand Dollars ($100,000).

 

     9.4 Waiver of Subrogation. Tenant and Landlord each hereby release and

relieve the other, and waive their entire right of recovery against the other,

for direct or consequential loss or damage arising out of or incident to the

perils covered by insurance carried by such party (or required to be carried by

such party by this Lease) to the extent of the insurance proceeds actually

received (or which would have been received had the party carried the insurance

required to be maintained by such party pursuant to this Section 9), whether due

to the negligence of Landlord or Tenant or their agents, employees, contractors

and/or invitees. Landlord and Tenant shall each cause the insurance policies

they obtain in accordance with this Section 9 to provide that the insurance

company waives all right of recovery by subrogation against either party in

connection with any damage covered by any policy.

 

     9.5 Coverage. Landlord makes no representation to Tenant that the limits or

forms of coverage specified above or approved by Landlord are adequate to insure

Tenant's property or Tenant's obligations under this Lease, and the limits of

any insurance carried by Tenant shall not limit its obligations under this

Lease.

 

<PAGE>

 

10. Damage or Destruction.

 

     10.1 Effect of Damage or Destruction. If all or part of the Project is

materially damaged (as defined in Section 10.2 below) by fire, earthquake,

flood, explosion, the elements, riot or any other casualty, Landlord shall have

the right in its sole and complete discretion to repair or to rebuild the

Project or to terminate this Lease. Landlord shall within ninety (90) days after

the occurrence of such damage notify Tenant in writing of Landlord's intention

to repair or to rebuild or to terminate this Lease. Tenant shall in no event be

entitled to compensation or damages on account of annoyance or inconvenience in

making any repairs, or on account of construction, or on account of Landlord's

election to terminate this Lease. Notwithstanding the foregoing, if Landlord

shall elect to rebuild or repair the Project, but in good faith determines that

the Project cannot be rebuilt or repaired within two hundred seventy (270) days

after the date of the occurrence of the damage, without payment of overtime or

other premiums, and the damage to the Project has rendered the Premises

unusable, Landlord shall notify Tenant thereof in writing at the time of

Landlord's election to rebuild or repair, and Tenant shall thereafter have a

period of fifteen (15) days within which Tenant may elect to terminate this

Lease, upon written notice to Landlord. Tenant's termination right described in

this Section 10.1 shall not apply if the damage was caused by Tenant's willful

misconduct. Failure of Tenant to exercise said election within said period shall

constitute Tenant's agreement to accept delivery of the Premises under this

Lease whenever tendered by Landlord (provided the Premises have been

substantially completed and Landlord has obtained a temporary certificate of

occupancy ("TCO"), provided Landlord thereafter pursues reconstruction or

restoration diligently to completion, subject to delays beyond Landlord's

reasonable control; provided further, however, in the event Landlord pursues

reconstruction or restoration of the Project and such reconstruction and

restoration is not substantially complete due to delays within Landlord's

control within two hundred seventy (270) days after the date of the occurrence

of the damage, then Tenant shall have a further right to terminate this Lease

upon written notice to Landlord, so long as Tenant's written notice is delivered

to Landlord prior to Landlord's delivery of the Premises substantially completed

to Tenant together with delivery of a TCO. If Landlord is unable to repair the

damage to the Premises or the Project during such two hundred seventy (270) day

period due to a Force Majeure Event, the two hundred seventy (270) day period

shall be extended by the period of delay caused by the Force Majeure Event, not

to exceed forty-five (45) days following the expiration of such two hundred

seventy (270) day period.

 

     10.2 Definition of Material Damage. The damage shall be deemed material if,

(a) the Project cannot be repaired to substantially the same condition it was in

prior to the damage due to laws or regulations in effect at the time the repairs

will be made, (b) the holder of any mortgage or deed of trust encumbering the

Project requires that insurance proceeds available to repair the damage in

excess of Twenty-Five Thousand Dollars ($25,000) be applied to the repayment of

the indebtedness secured by the mortgage or the deed of trust, or (c) the damage

occurs during the last twelve (12) months of the Lease Term as extended unless

Tenant has exercised (or does exercise) its Option to renew the Lease pursuant

to Paragraph 8 of the Addendum, or (d) insurance proceeds are not available to

Landlord in an amount which is sufficient to pay the entire cost of repairing

all of the damage to the Project due to the casualty being an uninsured event

(assuming Landlord had carried the insurance required under Section 9.2 and such

event is not typically insured by comparable landlords of comparable properties

in the same geographic area). Notwithstanding the foregoing, upon the sale of

the Project by Landlord, Landlord agrees to endeavor to have language included

in any SNDA provided to Tenant pursuant to

 

<PAGE>

 

Section 25 of the Lease requiring the lender to release the insurance proceeds

for restoration of any damage..

 

     10.3 Abatement of Rent. If Landlord elects to repair damage to the Project

and all or part of the Premises will be unusable or inaccessible to Tenant in

the ordinary conduct of its business until the damage is repaired, and the

damage was not caused by the willful misconduct of Tenant or its employees,

agents, contractors or invitees, Tenant's Base Rent and Tenant's Share of

Operating Expense increases shall be abated in proportion to the amount of the

Premises which is unusable or inaccessible to Tenant in the ordinary conduct of

its business until the repairs are completed.

 

     10.4 Tenant's Negligence. If such damage or destruction occurs as a result

of the willful misconduct of Tenant or Tenant's employees, agents, contractors

or invitees, and the proceeds of insurance which are actually received by

Landlord are not sufficient to repair all of the damage, Tenant shall pay, at

Tenant's sole cost and expense, to Landlord upon demand, the difference between

the cost of repairing the damage and the insurance proceeds received by

Landlord.

 

     10.5 Tenant's Property. Landlord shall not be required to repair any injury

or damage to, or to make any repairs or replacements of, any fixtures,

furniture, equipment or tenant improvements installed in the Premises, and

Tenant shall repair and restore all such property at Tenant's sole expense.

 

     10.6 Waiver. Landlord and Tenant hereby waive the provisions of any

statutes which relate to the termination of leases when leased property is

damaged or destroyed and agree that such event shall be governed by the terms of

this Lease.

 

11. Services Provided by Landlord. Landlord shall furnish, without charge to

Tenant (except where otherwise specified herein), the following services

("Building Services"):

 

     11.1 Air-Conditioning. Air-conditioning during Business Hours on Business

Days (as those terms are hereinafter defined) when, it may be required for the

comfortable occupancy of the Premises in accordance with the specifications set

forth in Exhibit D. At other times during Business Hours on Business Days,

Landlord shall provide ventilation for the Premises. Tenant at all times agrees

to cooperate fully with Landlord and to abide by all regulations and

requirements which Landlord may reasonably prescribe, for the proper functioning

and protection of its heating, ventilating and air-conditioning systems.

Landlord shall have free access to any and all mechanical installations of

Landlord, including but not limited to: air-conditioning, fans, ventilating and

machine rooms and electrical closets; and Tenant agrees that there shall be no

construction of partitions or other obstructions which might interfere with

Landlord's equipment to or from the enclosures containing said installations.

Tenant agrees that Tenant, its agents, employees or contractors shall not at any

time enter the said enclosures or tamper with, adjust, touch or otherwise in any

manner, affect Landlord's said mechanical installations.

 

     11.2 Heat. Heat, on Business Days during Business Hours in accordance with

the specifications set forth in Exhibit D.

 

     11.3 Water. Cold and hot water at standard building temperatures to all

lavatories, public or private, for ordinary drinking, cleaning, sanitary and

lavatory purposes.

 

<PAGE>

 

     11.4 Janitorial and Maintenance Services. Janitorial and maintenance

services for the Premises as defined in Exhibit E. Tenant shall pay to Landlord

the cost incurred by Landlord, for the removal of any of Tenant's refuse and

rubbish which exceeds by quantity and nature, the daily refuse and rubbish that

might otherwise result from the daily use of such premises as offices. Bills for

the such additional cost shall be rendered by Landlord to Tenant and shall be

due and payable when rendered; and the amount of such bills shall be deemed to

be, and shall be paid as, Additional Rent. Alternately, Tenant shall use

Landlord's contractors or employees, at the option of Landlord, for the removal

of such excess rubbish and refuse and Tenant agrees to pay reasonable charges

therefor.

 

     11.5 Elevators. Automatic (non-attended) elevator facilities during

Business Hours on Business Days and at least one (1) automatic elevator

available at all other times.

 

     11.6 Electricity.

 

          (a) Electric current, with the understanding, however, that the Base

Rent does not include the cost of electricity consumed by Tenant in the

Premises; and Tenant shall, in addition to the Base Rent, be required to pay an

Electric Energy Charge as a condition for the Landlord to provide electric

current to the Premises. The Electric Energy Charge shall be paid monthly, as

Additional Rent, together with Base Rent for the Premises, based on Tenant's

actual electric consumption which shall be measured by a separate checkmeter,

installed by Landlord, at Landlord's sole expense, commencing on the

Commencement Date and throughout the Term and any renewals or extensions

thereof. The Electric Energy Charge shall be equal to the actual amount payable

by Landlord to the utility company without mark-up of any kind by Landlord.

Landlord will endeavor to obtain the lowest rates offered by the utility company

to similar landlords in comparable buildings in the same geographic area.

 

          (b) (i) [Intentionally omitted].

 

              (ii) [Intentionally omitted].

 

              (iii) [Intentionally omitted].

 

              (iv) [Intentionally omitted].

 

<PAGE>

 

              (v) [Intentionally omitted].

 

          (c) [Intentionally omitted].

 

          (d) (i) [Intentionally omitted].

 

              (ii) [Intentionally omitted].

 

           (e) [Intentionally omitted].

 

          (f) Landlord shall not in any way be responsible or liable to Tenant

at any time for any loss, damage or expense resulting from any change in the

quantity or character of the electric service or for its being no longer

suitable for Tenant's requirements or from any cessation or interruption of the

supply or current; nor except as set forth in Section 11.10 herein, shall any

such loss, damage or expense, or non-supply of electric service or current in

any way affect the tenancy or in any way relieve Tenant of any obligation under

the terms of this Lease.

 

          (g) Tenant covenants and agrees that at all times its use of electric

current shall never exceed the capacity provided by Landlord pursuant to

subsection 11.6(g) and Schedule 1-A. Tenant shall make no changes, alterations,

additions, substitutions ("Changes") to any risers, conduits, meters, panel

boxes, switch gear, wiring, or any other part of the electric service without

the express prior written consent of Landlord. Any Changes requested by Tenant

shall be sent in writing to Landlord; and if, in the reasonable judgment of

Landlord, such Changes will not cause or create a dangerous or hazardous

condition or damage or injury to the Building, or entail excessive or

unreasonable alterations or repairs, or interfere with or disturb other tenants

or occupants and/or the electrical service then or thereafter to be supplied to

tenants or occupants, Landlord will, at the sole cost and expense of Tenant,

make such Changes. Tenant covenants and agrees to pay Landlord for such costs

and expenses as additional rent, upon the rendition of a bill indicating the

amount due therefor.

 

          (h) (i) Landlord reserves the right to terminate the furnishing of

electricity to the Premises at any time, upon no less than ninety (90) days'

written notice to the Tenant, in

 

<PAGE>

 

which event, Tenant shall make immediate application directly to the utility

company servicing the Building for the Tenant's entire separate supply of

electric current; and Landlord shall permit its risers, wires, conduits and

other electrical equipment, to the extent available and safely capable, to be

used for such purpose. Any meters, and additional risers, wires, conduits and

equipment or connections necessary to enable Tenant to obtain electric current

directly from such utility company shall be installed at Tenant's sole cost and

expense if the termination of Landlord's service is legally required; otherwise,

they shall be installed at Landlord's sole cost and expense, and in compliance

with all applicable laws, ordinances and regulations and requirements of

insurance companies and fire underwriters.

 

               (ii) No alterations, modifications or changes shall be made by

the Tenant to any meters, risers, conduits or other equipment or connections in

the Building in a manner which would cause damage to the Building or interfere

with the use, enjoyment, occupancy or possession of the Building by Landlord and

its other tenants. Rigid conduit only, or such other type as may be specified by

Landlord, will be allowed.

 

               (iii) Tenant's liability for the Electric Energy Charge provided

for in this Lease shall terminate as of the date of discontinuance by Landlord

of the supplying of electric current, but this Lease shall otherwise remain in

full force and effect. Unless required by law, however, Landlord shall not

discontinue furnishing electricity to the Premises until after Tenant shall have

commenced receiving its electricity directly from the utility company unless

Tenant shall have failed to make such arrangements with due diligence.

 

     11.7 Building Services on Non-Business Days or Non-Business Hours.

 

          (a) Tenant acknowledges that Landlord is only required to provide the

Building Services specified in Sub-sections 11.1 through 11.6 hereinabove only

during Business Hours on Business Days and in addition, access to electricity,

water and one (1) automatic elevator, during Non-Business Hours on Non-Business

Days as well. Anything to the contrary notwithstanding, Landlord shall provide

Tenant reasonable access to the Common Areas of the Project and Building and to

the Premises, twenty-four (24) hours a day, seven (7) days per week, subject to

such security procedures, restrictions and regulations which Landlord may

reasonably promulgate.

 

          (b) Landlord shall use its best efforts to provide HVAC to Tenant at

times other than those set forth above subject to (i) the payment by Tenant of

Landlord's standard charge, as determined by Landlord from time to time, in

Landlord's sole discretion, for after hours HVAC and (ii) Tenant providing to

Landlord at least one (1) Business Day's advance written notice of Tenant's need

for Non-Business Hours and/or Non-Business Day HVAC service. As of the date of

this Lease, and subject to future increases in accordance with the terms of this

subsection, the standard charge for after hours HVAC is Fifty Dollars ($50.00)

per hour with a four (4) hour minimum, unless such overtime usage is continuous

to the Business Hours, in which case no hourly minimum will be required. The

standard charge shall be increased by a percentage equal to the percentage

increase in utility charges during the Term of this Lease. For example, if the

usage charge for electricity increases from twenty-five cents ($.25) per

Kilowatt-Hour (KWHR) to thirty cents ($.30) KWHR, then the after hours HVAC

charge shall increase by twenty percent (20%) to Sixty Dollars ($60.00) per

hour. Tenant shall pay all after hours HVAC charges to Landlord within thirty

(30) days after Landlord bills Tenant for said charges.

 

     11.8 Definition of Business Days and Business Hours of Building Services.

"Business Days" as defined herein, shall be Monday through Friday from 8:00 A.M.

to 6:00 PM and Saturdays from 8:00 A.M. to 1:00 P.M., excluding all days

observed as non-working (vacation) holidays by the State and/or Federal

government ("Holidays") as listed on Exhibit F attached hereto. "Business Hours"

as defined herein, shall mean 8:00 A.M. and 6:00 P.M. on

 

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Monday through Friday, excluding Holidays, and Saturday, from 8:00 A.M. to 1:00

P.M., excluding Holidays.

 

     11.9 Excess Usage by Tenant. Notwithstanding the use set forth in Section

1.5 and/or Section 11 and its sub-sections, Tenant shall not use Building

utilities or services in excess of those used by the average office building

tenant using its premises for ordinary office use.

 

     11.10 Interruptions. Tenant agrees that Landlord shall not be liable to

Tenant for its failure to furnish utilities or other Building Services when such

failure is occasioned, in whole or in part, by repairs, replacements, or

improvements, by any strike, lockout or other labor trouble, by inability to

secure electricity, gas, water, or other fuel at the Project after reasonable

effort to do so, by any accident or casualty whatsoever, by act or default of

Tenant or other parties, or by any other cause beyond Landlord's reasonable

control, and such failures shall never be deemed to constitute an eviction or

disturbance of Tenant's use and possession of the Premises or relieve Tenant

from paying rent or performing any of its obligations under this Lease.

Furthermore, Landlord shall not be liable under any circumstances for loss of

property or for injury to, or interference with, Tenant's business, including,

without limitation, loss of profits, however occurring, through or in connection

with or incidental to a failure to furnish any of the Building Services or

utilities as set forth in this Section 11 and its sub-sections. Landlord may

comply with voluntary controls or guidelines promulgated by any governmental

entity relating to the use or conservation of energy, water, gas, light or

electricity or the reduction of automobile or other emissions without creating

any liability of Landlord to Tenant under this Lease. Notwithstanding anything

contained herein to the contrary, if any interruption of utilities or services

or inability of Tenant to gain access to the Premises shall continue for more

than seven (7) consecutive business days and shall render all or any portion of

the Premises unusable for the normal conduct of Tenant's business, and if Tenant

does not in fact so use or occupy such portion of the Premises, then all Base

Rent and additional rent payable hereunder with respect to such portion of the

Premises which Tenant does not so occupy shall be abated from and after such

seventh (7th) business day until full use of such portion of the Premises is

restored to Tenant. In the event any such interruption of services continues for

more than two hundred seventy (270) days, the Premises are unusable or

inaccessible to Tenant in the ordinary conduct of its business during such

period and Tenant does not, in fact, use the Premises for the conduct of its

business during such period, Tenant shall have the same termination rights

afforded to Tenant pursuant to Section 10 hereinabove.

 

     11.11 Services Exclusive to Tenant. Tenant shall pay for all water, gas,

heat, electricity, telephone and other utilities and services supplied and/or

metered exclusively to the Premises or to Tenant, together with any taxes

thereon. If any such services are not separately metered to the Premises, Tenant

shall pay, at Landlord's option, either Tenant's Share or a reasonable

proportion to be determined by Landlord of all charges jointly metered with

other premises in the Project.

 

     Landlord agrees to permit Tenant to install, operate and maintain

supplementary HVAC units ("Supplemental HVAC") subject to Tenant's satisfaction

of the following conditions: (i) Tenant shall obtain all necessary approvals,

permits and licenses from all governmental authorities having jurisdiction over

such matters; and (ii) Tenant shall

 

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obtain Landlord's prior approval of Tenant's plans, which such plans shall

include the location and size of the Supplemental HVAC and such other

information as Landlord deems necessary. Landlord shall have the right to have a

representative present at the time of such installation. Landlord reserves the

right to require Tenant to remove the Supplemental HVAC at the expiration of the

Term or earlier termination of the Lease and to restore the Premises to its

prior condition, provided that Landlord agrees to notify Tenant at such time as

Landlord approves Tenant's plans, at the written request of Tenant, whether or

not Landlord will require Tenant to remove such Supplemental HVAC at the

expiration or earlier termination of the Lease. Tenant understands that such

usage shall be separately submetered and that Tenant shall pay all costs

associated with the use of such Supplemental HVAC.

 

12. Assignment and Subletting.

 

     12.1 Landlord's Consent Required. Tenant shall not voluntarily or by

operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise

transfer or encumber all or any part of Tenant's interest in this Lease or in

the Premises (hereinafter collectively a "Transfer"), without Landlord's prior

written consent, which shall not be unreasonably withheld. Landlord shall

respond to Tenant's written request for consent hereunder within fifteen (15)

business days after Landlord's receipt of the written request from Tenant. Any

attempted Transfer without such consent shall be void and shall constitute a

material default and breach of this Lease. Tenant's written request for

Landlord's consent shall include, and Landlord's fifteen (15) business day

response period referred to above shall not commence, unless and until Landlord

has received from Tenant, all of the following information: (a) financial

statements for the proposed assignee or subtenant for the past three (3) years

prepared in accordance with generally accepted accounting principles, (b)

federal tax returns for the proposed assignee or subtenant for the past three

(3) years, (c) a TRW credit report or similar report on the proposed assignee or

subtenant, (d) a detailed description of the business the assignee or subtenant

intends to operate at the Premises, (e) the proposed effective date of the

assignment or sublease, (f) a copy of the proposed sublease or assignment

agreement which includes all of the terms and conditions of the proposed

assignment or sublease, and (g) a detailed description of any ownership or

commercial relationship between Tenant and the proposed assignee or subtenant.

If the obligations of the proposed assignee or subtenant will be guaranteed by

any person or entity, Tenant's written request shall not be considered complete

until the information described in (a), (b) and (c) of the previous sentence has

been provided with respect to each proposed guarantor. "Transfer" shall also

include the transfer (a) if Tenant is a corporation, and Tenant's stock is not

publicly traded over a recognized securities exchange, of more than twenty five

percent (25%) of the voting stock of such corporation during the term of this

Lease (whether or not in one or more transfers) or the dissolution or merger of

the corporation, or (b) if Tenant is a partnership or other entity, of more than

twenty five percent (25%) of the profit and loss participation in such

partnership or entity during the term of this Lease (whether or not in one or

more transfers) or the dissolution or liquidation of the partnership.

 

                            See Addendum Paragraph 5

 

     12.2 Standard For Approval. Landlord shall not unreasonably withhold its

consent to a Transfer provided that Tenant has complied with each and every

requirement, term and condition of this Section 12. Tenant acknowledges and

agrees that each requirement, term and condition in this Section 12 is a

reasonable requirement, term or condition. It shall be deemed reasonable for

Landlord to withhold its consent to a Transfer if any requirement, term or

condition of this Section 12 is not complied with or: (a) the Transfer would

cause Landlord to be in violation of its obligations under another lease or

agreement to which Landlord is a party; (b) a proposed assignee has sufficient

assets to meet the remaining obligations of Tenant under the Lease, in

Landlord's reasonable judgment

 

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; (c) a proposed assignee's or subtenant's business will impose a burden on the

Project's parking facilities, elevators, Common Areas or utilities that is

greater than the burden imposed by Tenant, in Landlord's reasonable judgment;

(d) the terms of a proposed assignment or subletting will allow the proposed

assignee or subtenant (other than a Permitted Transferee as that term is defined

in Paragraph 5 of the Addendum) to exercise a right of renewal, right of

expansion, right of first offer, right of first refusal or similar right held by

Tenant; (e) a proposed assignee does not, in Landlord's reasonable judgment,

have a good credit rating; (f) [intentionally omitted] ; (g) a proposed assignee

or subtenant refuses to enter into a written assignment agreement or sublease,

reasonably satisfactory to Landlord, which provides that it will abide by and

assume all of the terms and conditions of this Lease for the term of any

assignment or sublease and containing such other terms and conditions as

Landlord reasonably deems necessary; (h) the use of the Premises by the proposed

assignee or subtenant will not be identical to the use permitted by this Lease;

(i) ) Landlord is marketing space in the Project at the time of Tenant's request

and is able to accommodate such person or entity with the space Landlord has

available and the proposed assignee or subtenant is then currently a tenant of

the Landlord at the Project; (j) Landlord has ever evicted or been involved in

litigation with the proposed assignee or subtenant; (k) any guarantor of this

Lease refuses to consent to the Transfer or to execute a written agreement

reaffirming the guaranty; (l) Tenant is in default after expiration of any

applicable notice and cure periods at the time of the request; (m) if requested

by Landlord, the assignee or sublessee refuses to sign a non-disturbance and

attornment agreement in favor of Landlord's lender; (n) [intentionally omitted]

; or (o) the proposed assignee or subtenant is a person or entity then, or

during the prior six (6) months, negotiating with Landlord for the lease of

space in the Project unless Landlord is unable to accommodate such person or

entity with the space Landlord has available in the Project at the time of

Tenant's request.

 

     12.3 Additional Terms and Conditions. The following terms and conditions

shall be applicable to any Transfer:

 

          (a) Regardless of Landlord's consent, no Transfer shall release Tenant

from Tenant's obligations hereunder or alter the primary liability of Tenant to

pay the rent and other sums due Landlord hereunder and to perform all other

obligations to be performed by Tenant hereunder or release any guarantor from

its obligations under its guaranty.

 

          (b) Landlord may accept rent from any person other than Tenant pending

approval or disapproval of an assignment or subletting.

 

          (c) Neither a delay in the approval or disapproval of a Transfer, nor

the acceptance of rent, shall constitute a waiver or estoppel of Landlord's

right to exercise its rights and remedies for the breach of any of the terms or

conditions of this Section 12.

 

          (d) The consent by Landlord to any Transfer shall not constitute a

consent to any subsequent Transfer by Tenant or to any subsequent or successive

Transfer by an assignee or subtenant. However, Landlord may consent to

subsequent Transfers or any amendments or modifications thereto without

notifying Tenant or anyone else liable on the Lease and without obtaining their

consent, and such action shall not relieve such persons from liability under

this Lease.

 

          (e) In the event of any default under this Lease, Landlord may proceed

directly against Tenant, any guarantors or anyone else responsible for the

performance of this Lease, including any subtenant or assignee, without first

exhausting Landlord's remedies against any other person or entity responsible

therefor to Landlord, or any security held by Landlord.

 

<PAGE>

 

          (f) Landlord's written consent to any Transfer by Tenant shall not

constitute an acknowledgment that no default then exists under this Lease nor

shall such consent be deemed a waiver of any then existing default.

 

          (g) The discovery of the fact that any financial statement relied upon

by Landlord in giving its consent to an assignment or subletting was materially

false shall, at Landlord's election, render Landlord's consent null and void.

 

          (h) Landlord shall not be liable under this Lease or under any

assignment or sublease to any assignee or subtenant.

 

          (i) No assignment or sublease may be modified or amended without

Landlord's prior written consent.

 

          (j) Tenant or its agent shall not advertise the Premises for lease,

sublet or assignment for less Rent than the then current asking rent for space

in the Project.

 

     12.4 Additional Terms and Conditions Applicable to Subletting. The

following terms and conditions shall apply to any subletting by Tenant of all or

any part of the Premises and shall be deemed included in all subleases under

this Lease whether or not expressly incorporated therein:

 

          (a) Tenant hereby absolutely and unconditionally assigns and transfers

to Landlord all of Tenant's interest in all rentals and income arising from any

sublease entered into by Tenant, and Landlord may collect such rent and income

and apply same toward Tenant's obligations under this Lease; provided, however,

that until a default shall occur in the performance of Tenant's obligations

under this Lease which continues after the expiration of any applicable notice

and cure period, Tenant may receive, collect and enjoy the rents accruing under

such sublease. Landlord shall not, by reason of this or any other assignment of

such rents to Landlord nor by reason of the collection of the rents from a

subtenant, be deemed to have assumed or recognized any sublease or to be liable

to the subtenant for any failure of Tenant to perform and comply with any of

Tenant's obligations to such subtenant under such sublease, including, but not

limited to, Tenant's obligation to return any security deposit. Tenant hereby

irrevocably authorizes and directs any such subtenant, upon receipt of a written

notice from Landlord stating that a default exists in the performance of

Tenant's obligations under this Lease, to pay to Landlord the rents due as they

become due under the sublease. Tenant agrees that such subtenant shall have the

right to rely upon any such statement and request from Landlord, and that such

subtenant shall pay such rents to Landlord without any obligation or right to

inquire as to whether such default exists and notwithstanding any notice from or

claim from Tenant to the contrary.

 

          (b) In the event Tenant shall default in the performance of its

obligations under this Lease, Landlord at its option and without any obligation

to do so, may require any subtenant to attorn to Landlord, in which event

Landlord shall undertake the obligations of Tenant under such sublease from the

time of the exercise of said option to the termination of such sublease;

provided, however, Landlord shall not be liable for any prepaid rents or

security deposit paid by such subtenant to Tenant or for any other prior

defaults of Tenant under such sublease.

 

     12.5 Transfer Premium from Assignment or Subletting. Landlord shall be

entitled to receive from Tenant (as and when received by Tenant) as an item of

additional rent fifty percent (50%) of all amounts received by Tenant from such

assignee or subtenant in excess of the amounts payable by Tenant to Landlord

hereunder (the "Transfer Premium"). "Transfer Premium" shall mean all Base Rent,

additional rent or other consideration of any type whatsoever payable by the

assignee or subtenant in excess of the Base Rent and additional rent payable by

Tenant under this Lease. If less than all of the Premises is transferred,

 

<PAGE>

 

the Base Rent and the additional rent shall be determined on a per rentable

square foot basis. The Transfer Premium shall be reduced by the bona fide third

party transaction costs actually paid by Tenant in order to assign the Lease or

to sublet a portion of the Premises. "Transfer Premium" shall also include, but

not be limited to, key money and bonus money paid by the assignee or subtenant

to Tenant in connection with such Transfer, and any payment in excess of fair

market value for services rendered by Tenant to the assignee or subtenant or for

assets, fixtures, inventory, equipment, or furniture transferred by Tenant to

the assignee or subtenant in connection with such Transfer. For purposes of

calculating the Transfer Premium, expenses will be amortized over the life of

the sublease. The provisions of this Section 12.5 shall not apply with respect

to a Permitted Transfer (as that term is defined in Paragraph 5 of the

Addendum).

 

     12.6 Landlord's Option to Recapture Space. Notwithstanding anything to the

contrary contained in this Section 12, if Tenant shall request (i) to assign

this Lease, or (ii) sublease space in the Premises, the term of which sublease

shall expire during the last twelve (12) months of the Term, then Landlord shall

have the option, by giving written notice to Tenant ("Recapture Notice") within

thirty (30) days after receipt of Tenant's request for consent to such sublease

or assignment, to terminate this Lease and recapture the Premises. Tenant shall

have five (5) business days after receipt of such Recapture Notice to notify

Landlord of its intention to withdraw its request to assign or sublease the

Premises. If Tenant does not withdraw its request to assign or sublease the

Premises, then Landlord may terminate this Lease as of the commencement date of

the proposed sublease or assignment and recapture the Premises, whereupon this

Lease shall terminate. If Tenant so withdraws its request to assign or sublease

the Premises, then this Lease shall continue in full force and effect. Tenant

acknowledges that the purpose of this Section 12.6 is to enable Landlord to

receive profit in the form of higher rent or other consideration to be received

from an assignee or sublessee, to give Landlord the ability to meet additional

space requirements of other tenants of the Project and to permit Landlord to

control the leasing of space in the Project. Tenant acknowledges and agrees that

the requirements of this Section 12.6 are commercially reasonable and are

consistent with the intentions of Landlord and Tenant. The provisions of this

Section 12.6 shall not apply with respect to a Permitted Transfer.

 

     12.7 Landlord's Expenses. In the event Tenant shall assign this Lease or

sublet the Premises or request the consent of Landlord to any Transfer, then

Tenant shall pay Landlord's reasonable costs and expenses incurred in connection

therewith, including, but not limited to, attorneys', architects', accountants',

engineers' or other consultants' fees.

 

13. Default; Remedies.

 

     13.1 Default by Tenant. Landlord and Tenant hereby agree that the

occurrence of any one or more of the following events is a material default by

Tenant under this Lease and that said default shall give Landlord the rights

described in Section 13.2. Landlord or Landlord's authorized agent shall have

the right to serve any notice of default, notice to pay rent or quit or similar

notice.

 

          (a) Tenant's failure to make any payment of Base Rent, Electric Energy

Charge, Tenant's Share of Operating Expense increases, parking charges, charges

for after hours HVAC, late charges, or any other payment required to be made by

Tenant hereunder, as and when due, where such failure shall continue for a

period of five (5) business days after written notice thereof from Landlord to

Tenant. In the event that Landlord serves Tenant with a notice to pay rent or

quit pursuant to applicable unlawful detainer statutes, such notice shall also

constitute the notice required by this Section