SINGLE-TENANT LEASE (TRIPLE NET)

Exhibit 10.26

SINGLE-TENANT LEASE

(TRIPLE NET)

LANDLORD:

MORGAN HILL DEVELOPMENT PARTNERS, L.P.

TENANT:

ALIEN TECHNOLOGY CORPORATION

SUMMARY OF BASIC LEASE INFORMATION AND DEFINITIONS

This SUMMARY OF BASIC LEASE INFORMATION AND DEFINITIONS ( “Summary” ) is hereby incorporated into and made a part of the attached Single-Tenant Lease which pertains to the Buildings described in Section 1.4 below. All references in the Lease to the “Lease” shall include this Summary. All references in the Lease to any term defined in this Summary shall have the meaning set forth in this Summary for such term. Any initially capitalized terms used in this Summary and any initially capitalized terms in the Lease which are not otherwise defined in this Summary shall have the meaning given to such terms in the Lease. If there is any inconsistency between this Summary and the Lease, the provisions of the Lease shall control.

 

1.3 Project: The commercial development known as Morgan Hill Ranch in Morgan Hill, California, all buildings, improvements and facilities, now or subsequently located within such development from time to time, as depicted on the site plan attached as Exhibit “A.”

1.4 Buildings: Collectively, (i) a single-tenant office building containing approximately thirty-one thousand five hundred seventy-five (31,575) square feet of Building Area (defined in Section 1.1), and (ii) a single-tenant light industrial building containing approximately forty-nine thousand six hundred sixty (49,660) square feet of Building Area (defined in Section 1.1), commonly known as 18220 Butterfield Boulevard as situated on the Land pursuant to the Final Building Shell Plans.

1.5 Land: The Buildings are located within the Project on Parcel 2 of Lot Line Adjustment Parcel Map recorded on July 6, 2000, as Instrument No. 15302892, Book 729, Pages 49-50, with the County Recorder of Santa Clara County, California (the “Land”). The Land is shown on the map attached as Exhibit “B.”

1.6 Premises: The Land and the Buildings together.

1.7 Monthly Operating Expense Charge: See Section 5.5.

1.8 Estimated Commencement Date: June 1, 2001; Commencement Date to be determined as provided in Exhibit “C.”

1.9 Term: One Hundred Forty-Four (144) months.

1.10 Rent: The Monthly Basic Rent per square foot of Building Area set forth below is subject to adjustment in accordance with Section 3.2.

 

 

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1.11 Security Deposit: $400,000 (subject to Section 4.1).

1.12 Letter of Credit : $1,100,000 (subject to reduction as set forth in Section 4 .2).

1.13 Permitted Use: Uses consistent with applicable laws, ordinances, regulations and covenants, conditions, easements and restrictions of record.

1.14 Brokers: Colliers International, Inc., representing Landlord and Charles H. Bonno representing Tenant.

1.15 Interest Rate: The lesser of: (a) the rate announced from time to time by Wells Fargo Bank or, if Wells Fargo Bank ceases to exist or ceases to publish such rate, then the rate announced from time to time by the largest (as measured by deposits) chartered operating bank operating in California, as its “prime rate” or “reference rate,” plus five percent (5%); or (b) the maximum nonusurious rate permitted by law.

1.16 Tenant Improvements: The “Building Shell” and “Interior Improvements,” collectively, installed or to be installed in the Premises, as described in the Work Letter Agreement attached as Exhibit “C.”

1.17 Declaration: The Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for The Business Park at Morgan Hill Ranch dated October 21,1994, and recorded on September 19,1995, as Instrument No. 13018401, of the Official Records of Santa Clara County, California, as amended by a First Amendment to Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for The Business Park at Morgan Hill Ranch recorded on February 26,1999, as Instrument No. 14675995, of the Official Records of Santa Clara County, California, and as amended by a Second Amendment to Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for The Business Park at Morgan Hill Ranch recorded on April 28, 1999, as Instrument No. 14781746, of the Official Records of Santa Clara County, California, and as further amended from time to time.

1.18 Association: The Business Park at Morgan Hill Ranch Association, a California nonprofit public benefit corporation, which was organized pursuant to the Declaration, and its successors and assigns.

1.19 Maximum Vehicle Parking Spaces: All parking spaces on the Land shall be as set forth in the Final Building Shell Plans.

 

/s/ RLE				/s/ TLC
Landlord’s Initials				Tenants Initials
10/3/00				10/3/2000
Date				Date

 

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STANDARD FORM SINGLE-TENANT LEASE

TABLE OF CONTENTS

 

 

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SINGLE-TENANT LEASE

This SINGLE-TENANT LEASE ( “Lease” ), which includes the preceding Summary of Basic Lease Information and Definitions ( “Summary” ) attached to and incorporated in this Lease by this reference, is made as of October 3, 2000, by and between MORGAN HILL DEVELOPMENT PARTNERS, L.P., a California limited partnership ( “Landlord” ), and ALIEN TECHNOLOGY CORPORATION, a California corporation ( “Tenant” ). Landlord and Tenant are sometimes referred to collectively in this Lease as the “Parties” and individually as a “Party.”

1. Premises .

1.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises upon and subject to the terms, covenants and conditions contained in this Lease to be performed by each Party.

1.2 Landlord’s Reservation of Rights. Only as Landlord may be required by law or to perform its obligations under this Lease and provided Tenant’s use of and access to the Premises is not interfered with in an unreasonable manner, Landlord reserves the right from time to time to install, use, maintain, repair, replace and relocate pipes, ducts, conduits, wires and appurtenant meters and equipment above the ceiling surfaces, below the floor surfaces and within the walls of the Buildings and the Premises.

1.3 Building Area. As used in this Lease, “Building Area” means the sum total of the actual number of square feet of floor space within the exterior faces of the exterior walls of the Buildings to be located on the Premises, without deduction or exclusion for any space occupied by or used for columns or other interior construction or equipment.

2. Term .

2.1 Term; Notice of Lease Dates. The Term of this Lease shall be for the period designated in Section 1.9 of the Summary commencing on the Commencement Date and ending on the expiration of such period, unless the Term is sooner terminated or extended as provided in this Lease. Notwithstanding the foregoing, if the Commencement Date falls on any day other than the first day of a calendar month, the term of this Lease will be measured from the first day of the month following the month in which the Commencement Date occurs. As used in this Lease, “Lease Year” means the twelve month period commencing on the first day of the calendar month following the month in which the Lease Term commences, and each subsequent twelve month period during the Lease Term. Within ten (10) days after Landlord’s written request, Tenant shall execute a written confirmation of the Commencement Date and expiration date of the Term in the form of the Notice of Lease Dates attached as Exhibit “D.” The Notice of Lease Term Dates shall be binding upon Tenant unless Tenant objects to it in writing within such ten (10) day period.

2.2 Estimated Commencement Date. The Parties estimate that the Term of this Lease will commence on the Estimated Commencement Date set forth in Section 1.8 of the Summary. The Estimated Commencement Date is merely an estimate of the Commencement Date. Tenant agrees that Landlord shall have no liability to Tenant for any loss or damage, nor shall Tenant be entitled to terminate or cancel this Lease if the Term of this Lease does not commence by the Estimated Commencement Date for any reason whatsoever, including any delays in substantial completion of the Building Shell (defined in the Work Letter Agreement (the “Work Letter” ) attached to this Lease as Exhibit “C” ).

2.3 Intentionally Omitted.

2.4 Delivery of Possession. Within one (1) business day after execution of this Lease by both Landlord and Tenant, Landlord will deliver possession of the Premises to Tenant in its current “as-is” condition. Notwithstanding the foregoing, Landlord will not be obligated to deliver possession of the Premises to Tenant until Landlord has received from Tenant all of the following: (i) a copy of this Lease fully executed by Tenant; (ii) the Security Deposit; and (iii) copies of policies of insurance or certificates thereof as required under Section 12 of this Lease.

3. Rent .

3.1 Basic Rent. Tenant shall pay Landlord, as basic rent for the Premises, the Monthly Basic Rent designated in Section 1.10 of the Summary. The Monthly Basic Rent shall be paid by Tenant in the amounts designated in Section 1.10 of the Summary in advance on the first day of each and every calendar month during the Term. Monthly Basic Rent for any partial month shall be prorated in the proportion that the actual number of days in the month that this Lease is in effect.

3.2 Adjustment to Monthly Basic Rent in First Four (4) Lease Years. As used in this Lease, “Total Project Costs” means the costs set forth on Schedule “2” attached to the Work Letter. Within ten (10) days after substantial completion of the Buildings, Landlord and Tenant shall complete Schedule “2” to the Work Letter and determine the initial Monthly Basic Rent. The Monthly Basic Rent set forth in Section 1.10 assumes that the Total Project Costs will be One Hundred Thirty-Three and 29/100 Dollars ($133.29) per square foot of Building Area (the “Total Project Cost Limit” ). The Monthly Basic Rent shall be increased by $0.0091 per square foot of Building Area for each One Dollar ($1.00) by which the Total Project Costs exceed the Total Project Cost Limit. The Monthly Basic Rent shall be decreased by $0.0091 per square foot of Building Area for each One Dollar

 

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($1.00) by which the Total Project Costs are less than the Total Project Cost Limit. For example, if the Total Project Costs amount to One Hundred Thirty-Two and 29/100 Dollars ($132.29) per square foot of Building Area, the Monthly Basic Rent for the first (1 ^st ) Lease Year of the Term would be reduced from One and 21/100 ($1.21) per square foot of Building Area to One and 20/100 Dollars ($1.20) per square foot of Building Area.

3.3 Rent Increases Commencing After the Fourth Lease Year. The Monthly Basic Rent set forth in Section 1.10 of the Lease shall be increased (but never decreased) effective as of the first (1 ^st ) day of the first (1 ^st ) calendar month of the fifth (5 ^th ) Lease Year of the Term, and on the first (1 ^st ) day of the first (1 ^st ) calendar month of each subsequent Lease Year of the Term (individually, an “Adjustment Date” ) in accordance with percentage increases, if any, in the Consumer Price Index-Urban Consumers (San Francisco-Oakland-San Jose; 1982-84=100) ( “Index” ), as published by the United States Department of Labor, Bureau of Labor Statistics. The Index for the month ( “Comparison Month” ) which is three (3) months prior to each Adjustment Date during the Term of the Lease shall be compared with the Index for the month which is fifteen (15) months prior to the applicable Adjustment Date (the “Base Month” ), and the Monthly Basic Rent shall be increased upon the Adjustment Date in accordance with the percentage increase, if any, between the Base Month index and the Comparison Month index. Notwithstanding the foregoing, in no event shall the Monthly Basic Rent for any Lease Year increase by less than three percent (3%) per year for each Lease Year elapsing after the Base Month, or by more than six percent (6%) per year for each Lease Year elapsing after the Base Month. An example of the calculation is attached as Exhibit “J” . Landlord shall use commercially reasonable efforts to calculate and give Tenant written notice of any such increase in the Monthly Basic Rent prior to, and Tenant shall pay the increased Monthly Basic Rent effective on, the Adjustment Date of each year. If the Bureau discontinues the publication of the Index, or publishes the Index less frequently, or alters the Index in some other manner, Landlord, in its reasonable discretion will adopt a reasonably comparable substitute index or procedure which reflects consumer prices and that is generally accepted and used by landlords of similar projects in Santa Clara County, California.

3.4 Additional Rent. All amounts and charges payable by Tenant under this Lease in addition to the Monthly Basic Rent described in Section 3.1 above shall be considered additional rent for the purposes of this Lease. The word “rent” in this Lease shall include such additional rent. The Monthly Basic Rent and additional rent shall be paid to Landlord as provided in Section 29, without any prior demand and without any deduction or offset, except as expressly set forth in this Lease, in lawful money of the United States of America.

3.5 Late Payments. Late payments of Monthly Basic Rent or any item of additional rent will be subject to interest and a late charge as provided below.

3.6 Triple-Net Lease. The Parties acknowledge that this is a Triple-Net Lease and that Tenant shall be obligated to pay Monthly Basic Rent, Operating Expenses and maintenance costs as required hereunder.

4. Security Deposit and Letter of Credit .

4.1 Security Deposit. Concurrently with the execution of this Lease, Tenant shall deposit with Landlord Three Hundred Thousand Dollars ($300,000). Landlord acknowledges that Tenant has already deposited with Landlord One Hundred Thousand Dollars ($100,000) (the “Initial Deposit” ). Landlord shall hold the Security Deposit as security for the full and faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be performed by Tenant during the Term. The Security Deposit is not, and may not be construed by Tenant to constitute, rent for me last month or any portion of it. If Tenant defaults with respect to any of its obligations under this Lease, after expiration of applicable cure periods, if any, Landlord may, but shall not be required to, use, apply or retain all or any part of the Security Deposit for the payment of any rent or any other sum in default, or for the payment of any other amount, loss or damage which Landlord may spend, incur or suffer by reason of Tenant’s default. If any portion of the Security Deposit is so used or applied, Tenant shall, within ten (10) days after demand, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. Landlord shall not be required to keep the Security Deposit separate from its general funds. If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance of it shall be returned to Tenant within two (2) weeks following the expiration of the Term or earlier termination of this Lease, provided that Landlord may retain the Security Deposit until such time as any amount due from Tenant in accordance with Section 5 has been determined and paid in full. If Landlord sells its interest in the Buildings during the Term and deposits with the purchaser the Security Deposit or balance of it then, upon such sale, Landlord shall be discharged from any further liability with respect to the Security Deposit.

4.2 Letter of Credit. As additional security for Tenant’s obligation under this Lease, concurrently with Tenant’s execution of this Lease, Tenant shall deliver to Landlord an irrevocable letter of credit (the “Letter of Credit” ), issued by a financial institution located in California reasonably acceptable to Landlord, in the amount equal to One Million One Hundred Thousand Dollars ($1,100,000) in the form of Exhibit “I” attached to this Lease. Tenant shall extend the expiration date of the Letter of Credit until Landlord has drawn on the Letter of Credit. If Tenant has not extended the expiration date of the Letter of Credit at least forty-five (45) days prior to the expiration of the Letter of Credit, Landlord shall be authorized to draw on the full amount of the Letter of Credit and hold such funds as a security deposit. So long as Tenant is not in default under this Lease, after expiration of applicable notice and cure periods, effective upon the first (1 ^st ) day of the sixth (6th) Lease Year of the Term, Tenant shall be entitled to reduce the amount of the Letter of Credit to Eight Hundred Thousand Dollars ($800,000). So long as Tenant is not in default under this Lease after the expiration of applicable notice and cure periods, effective upon the first (1 ^st ) day of the eighth (8th) Lease Year of the Term, Tenant shall be entitled to reduce the

 

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amount of the Letter of Credit to Four Hundred Thousand Dollars ($400,000). If Tenant defaults under this Lease, after expiration of applicable notice and cure periods, Landlord shall be authorized to draw on the amount of the Letter of Credit necessary to apply towards amounts owed to Landlord in connection with the default (together with any applicable interest and penalties). Notwithstanding such application of Letter of Credit proceeds against such amounts (together with any applicable interest and penalties), Tenant’s default shall not be deemed cured unless and until Tenant either (i) increases the Letter of Credit principal amount by the amount of proceeds so applied, or (ii) pays Landlord the amount of Letter of Credit proceeds so applied (which shall thereafter be held by Landlord as a security deposit to secure Tenant’s obligations under the Lease), it being the parties’ intent that Landlord shall at all times retain security in the amount of the Letter of Credit (either in cash or in undrawn proceeds of the Letter of Credit) except as such security may be reduced as provided above. For example, Tenant may also elect to increase the Letter of Credit principal amount by the full amount of the proceeds drawn by Landlord and applied to cure Tenant’s delinquencies, in which case Landlord shall hold the amount of such payment with the unapplied proceeds of the Letter of Credit as security for Tenant’s obligations under this Lease. If, at any time following Landlord’s acceptance of the financial institution issuing the Letter of Credit ( “Issuing Institution” ), Landlord determines in its reasonable discretion that the financial strength of the Issuing Institution has substantially decreased, to the extent that Landlord reasonably questions its ability to honor the Letter of Credit, Landlord shall have the right to require that Tenant obtain the Letter of Credit from another financial institution reasonably acceptable to Landlord, effective as of the time the Tenant next needs to review or reissue the Letter of Credit. Tenant shall have a reasonable period of time to obtain the Letter of Credit from another financial institution. So long as Tenant is not in default under this Lease, after expiration of applicable notice and cure periods, effective upon the first (1 ^st ) day of the tenth (10 ^th ) Lease Year of the Term, Tenant may terminate the Letter of Credit.

In the event that Landlord draws upon the Letter of Credit solely due to Tenant’s failure to renew the Letter of Credit at least forty-five (45) days before its expiration (i) such failure to renew shall not constitute a default hereunder and (ii) Tenant shall at any time thereafter be entitled to provide Landlord with a replacement Letter of Credit that satisfies the requirements hereunder, at which time Landlord shall return the cash proceeds of the original Letter of Credit drawn by Landlord.

Notwithstanding the foregoing, if Tenant’s financial position is substantially improved, whether through consistent profitability and growth, acquisition, merger, public offering or some combination of the same, Landlord will reasonably consider the appropriateness of a reduction or elimination, as the case may be, in the amount of the Letter of Credit, taking into account the then prevailing credit standards for comparable transactions.

5. Common Area; Operating Expenses .

5.1 Definition of Common Area. The term “Common Area,” as used in this Lease has the meaning given to such term in the Declaration.

5.2 Maintenance and Use of Common Area. The Common Area shall be maintained by the Association as set forth in the Declaration. The use and occupancy by Tenant of the Premises shall include the right to use the Common Area (except areas used in the maintenance or operation of the Project), in common with Landlord and other occupants of the Project and their customers and invitees, subject to (i) the Declaration, and (ii) such reasonable, nondiscriminatory rules and regulations concerning the Project as may be reasonably established by Landlord or the Association from time to time including, without limitation, the Rules and Regulations attached hereto as Exhibit “E” (the “Rules and Regulations” ). Tenant shall promptly comply with all such rules and regulations and any reasonable, nondiscriminatory amendments thereto upon receipt of written notice from Landlord. Except as required by applicable law, Tenant shall not be required to comply with any new rule or regulation of Landlord unless the same applies nondiscriminatory to all occupants of the Project owned by Landlord, does not materially increase the obligations or materially decrease the rights of Tenant under this Lease. Landlord agrees to not make any changes to the Declaration that would materially increase the obligations or materially decrease the rights of Tenant under this Lease.

5.3 Association Assessments. Throughout the Term of this Lease, commencing on the Commencement Date, Tenant shall pay Landlord as additional rent all assessments levied against the Premises by the Association as provided in the Declaration.

5.4 Operating Expenses. Throughout the Term of this Lease, commencing on the Commencement Date, Tenant shall pay Landlord as additional rent in accordance with the terms of this Section 5, the Operating Expenses for the taxes and insurance for the Premises and for all costs and expenses for the operation, maintenance, repair and replacement of the Premises including, without limitation: (i) any form of real property tax, assessment, license fee, license tax, business license fee, permit fee, inspection fee, commercial rental tax, levy, charge, improvement bond or similar imposition of any kind or nature imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof; (ii) any and all assessments under any covenants, conditions and restrictions affecting the Premises, including without limitation assessments levied by the Association as provided in the Declaration; (iii) water, sewer and other utility charges, including waste disposal, to the extent not separately metered; (iv) the portion of the Premises located outside of the Buildings, including without limitation the soil, landscaping, sprinkler system, walkways, parking areas (including periodic sweeping and restriping), signs and site lighting and pest control; (v) management costs, including without limitation commercially reasonable management and administrative fees; (vi) amortization on a straight line basis over the useful life (together with interest at the

 

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Interest Rate on the unamortized balance) of all expenditures which could be capitalized under generally accepted accounting principles, which are: (A) reasonably intended to produce a reduction in operating charges or energy consumption; or (B) required under any governmental law or regulation that was not applicable to the Premises at the time it was originally constructed; or (C) for replacement or restoration of any equipment and improvements needed to operate or maintain the Premises at the same quality levels as prior to the replacement or restoration; (vii) maintenance of signs; (viii) reasonable accounting, audit, verification, environmental, insurance, tax, legal and other consulting fees; (ix) my other costs and expenses of repairs, maintenance, painting, lighting, cleaning, and similar items; and (x) any expense incurred pursuant to Sections 5 .2 (on a pro rata basis to the extent allocable to the Premises), 7, 8.2, 9.2 and 13 (collectively, the “Operating Expenses” ). The foregoing list constitutes a nonexclusive list of costs and expenses Landlord may incur for the operation, maintenance, repair and replacement of the Premises, but does not in any way obligate Landlord to incur any particular expense. Notwithstanding the foregoing, “Operating Expenses ” shall not include and Tenant shall in no event have any obligation to perform or to pay directly, or to reimburse Landlord for, all or any portion of the following repairs, maintenance, improvements, replacements, premiums, claims, losses, fees, charges, costs and expenses (collectively, “Costs” ): (a) Costs occasioned by the act, omission or violation of any law by Landlord or its agents, employees or contractors; (b) except for the deductibles described in Section 13, costs occasioned by damage or destruction or by exercise of the power of eminent domain; (c) Costs to correct any construction defect in the Building Shell or elsewhere in the Project or to comply with any law applicable to the Building Shell as of the Commencement Date; (d) Costs of any renovation, improvement, painting or redecorating of any portion of the Project not made available for Tenant’s use; (e) Costs incurred in connection with marketing or advertising the Project; (f) Costs incurred in connection with the violation by Landlord of the terms of any lease or other agreement; (g) earthquake and flood insurance premiums (unless such insurance is customarily required by other landlords in the area and is commercially reasonable), insurance deductibles in excess of one (1) month’s Basic Rent, and co-insurance payments; (h) Costs related to the presence of any Hazardous Material, except to the extent caused by the release or omission of the Hazardous Material in question by Tenant or is Tenant’s responsibility pursuant to Section 8.4; (i) Costs of depreciation or expense reserves; (j) except when the need for repair, replacement, restoration or maintenance is caused by Tenant, Costs to repair, replace, restore or maintain the structural portions of the Premises (including the roof structure); (k) compensation for any officer of Landlord or for any employee not stationed at the Project on a full-time basis; (l) Costs which could properly be capitalized under generally accepted accounting principles, except to the extent amortized over the useful life of the capital item in question pursuant to subsection (vi) above; (m) lease payments and Costs for equipment owned or leased by Landlord; or (j) interest charges and fees incurred on debt.

5.5 Tenant’s Monthly Operating Expense Charge. From and after the Commencement Date, Tenant shall pay to Landlord, on the first day of each calendar month during the Term of this Lease, an amount estimated by Landlord to be the monthly Operating Expenses for the Premises for that month ( “Tenant’s Monthly Operating Expense Charge” ).

5.6 Estimate Statement. Prior to the Commencement Date and prior to March 31 of each subsequent calendar year during the Term, Landlord will deliver to Tenant a statement ( “Estimate Statement” ) wherein Landlord will estimate both the Operating Expenses and Tenant’s Monthly Operating Expense Charge for the then current calendar year. Concurrently with the regular monthly rent payment next due following the receipt of each such Estimate Statement, Tenant shall pay to Landlord an amount equal to one monthly installment of Tenant’s estimated Monthly Operating Expense Charge multiplied by the number of months from January, in the current calendar year, to the month of such rent payment next due, all months inclusive (less any applicable Operating Expenses already paid). If at any time during the Term of this Lease Landlord reasonably determines that Tenant’s Share of Operating Expenses for the current calendar year will be greater than the amount set forth in the then current Estimate Statement, Landlord may issue a revised Estimate Statement. Within twenty-five (25) days after delivery of the revised Estimate Statement, Tenant shall pay to Landlord the difference between the amount owed by Tenant under such revised Estimate Statement and the amount owed by Tenant under the original Estimate Statement for the portion of the then current calendar year which has expired. Thereafter Tenant shall pay Tenant’s Monthly Operating Expense Charge based on such revised Estimate Statement until Tenant receives the next calendar year’s Estimate Statement or a new revised Estimate Statement for the current calendar year.

5.7 Actual Statement. By March 31 of each calendar year during the Term, Landlord will deliver to Tenant a statement (“ Actual Statement ”) which states Tenant’s Share of the actual Operating Expenses for the preceding calendar year. If the Actual Statement reveals that Tenant’s Share of the actual Operating Expenses is more than the total Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Tenant shall pay Landlord the difference in a lump sum within twenty-five (25) days of receipt of the Actual Statement. If the Actual Statement reveals that Tenant’s Share of the actual Operating Expenses is less than the Additional Rent paid by Tenant for Operating Expenses on account of the preceding calendar year, Landlord will credit any overpayment toward the next monthly installment or installments of Tenant’s Share of the Operating Expenses due under this Lease or promptly return such overpayment to Tenant at the expiration or sooner termination of this Lease. Such obligation will be a continuing one which will survive the expiration or earlier termination of this Lease. Prior to the expiration or sooner termination of the Term and Landlord’s acceptance of Tenant’s surrender of the Premises, Landlord will have the right to estimate the actual Operating Expenses for the then current Lease Year and to collect from Tenant prior to Tenant’s surrender of the Premises, Tenant’s Share of any excess of such actual Operating Expenses over the estimated Operating Expenses paid by Tenant in such Lease Year.

 

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5.8 Audit. Landlord agrees that it will maintain complete and accurate records of all costs, expenses and disbursements paid or incurred by Landlord, its employees, agents and contracts, with respect to the Operating Expenses in accordance with generally accepted accounting principles, consistently applied. Provided Tenant is not then in default of this Lease, Tenant shall have the right to have Tenant’s financial officer or a certified public accountant audit Landlord’s Operating Expenses, subject to the terms & conditions hereof. In no event, however, shall such auditor be compensated by Tenant on a “contingency” basis, or on any other basis tied to the results of the audit. Tenant shall give notice to Landlord of Tenant’s intent to audit within ninety (90) days following delivery of the Actual Statement for each calendar year. Following at least ten (10) business days notice to Landlord, such audit shall be conducted at a mutually agreeable time during normal business hours at the office of Landlord or its management agent where the records are maintained. Landlord shall make such records available to Tenant’s employees and agents for inspection during normal business hours, Tenant’s employees and agents shall be entitled to make photostatic copies of such records, provided Tenant bears the expense of such copying and further provided that Tenant keeps such copies in a confidential manner and does not discuss, display or distribute such copies to any other third party. If Tenant’s audit determines that actual Operating Expenses have been overstated by more than ten percent (10%), then subject to Landlord’s right to review and contest the audit results, Landlord shall reimburse Tenant for the reasonable out-of-pocket costs of such audit Tenant’s Operating Expenses and the statements relating to such charges shall be appropriately adjusted to reflect any overstatement in Operating Expenses.

All of the information obtained by Tenant and its auditor in connection with such audit, as well as any compromise, settlement or adjustment reached between Landlord and Tenant as a result of the Audit shall be held in strict confidence and, except as may be required pursuant to litigation, shall not be disclosed to any third party, directly or indirectly, by Tenant or its auditor or any of their officers, agents or employees. Landlord may require Tenant’s auditor to execute a separate confidentiality agreement affirming the foregoing as a condition precedent to any audit

5.9 Miscellaneous. Any delay or failure by Landlord in delivering any Estimate Statement or Actual Statement pursuant to this Section 5 will not constitute a waiver of its right to require an increase in additional rent for Operating Expenses nor will it relieve Tenant of its obligations pursuant to this Section 5, except that Tenant will not be obligated to make any payments based on such Estimate Statement or Actual Statement until twenty-five (25) days after receipt of such Estimate Statement or Actual Statement. If Tenant does not object to any Estimate Statement or Actual Statement within ninety (90) days after Tenant receives any such statement, such statement will be deemed final and binding on Tenant and any future claims to the contrary shall be barred. Even though the Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of the actual Operating Expenses for the year in which this Lease terminates. Tenant shall promptly pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease shall promptly be rebated by Landlord to Tenant Such obligation will be a continuing one which will survive the expiration or termination of this Lease. Prior to the expiration or sooner termination of the Lease Term and Landlord’s acceptance of Tenant’s surrender of the Premises, Landlord will have the right to estimate the actual Operating Expenses for the then current Lease Year and to collect from Tenant prior to Tenant’s surrender of the Premises, any excess of such actual Operating Expenses over the estimated Operating Expenses paid by Tenant in such Lease Year.

6. Taxes .

6.1 Real Property Taxes. Tenant shall pay all general and special real property taxes, assessments (including, without limitation, change in ownership taxes or assessments), liens, bond obligations, license fees or taxes and any similar impositions in lieu of other impositions now or previously within the definition of real property taxes or assessments (collectively, “Real Property Taxes” ) which may be levied or assessed by any lawful authority against the Premises applicable to the period from the Commencement Date until the expiration or sooner termination of this Lease. Notwithstanding the foregoing provisions, if the Real Property Taxes are not levied and assessed against the entire Premises by means of a single tax bill (i.e., if the Premises is included in a larger parcel for purposes of levying and assessing the Real Property Taxes), then the Real Property Taxes levied against the Premises shall be deemed to be the sum of (i) the portion of the Real Property Taxes levied against the improvements on the larger parcel multiplied by a fraction, the numerator of which is the rentable square feet of the Buildings and the denominator of which is the rentable square feet of all buildings (including without limitation the Buildings) located on the larger parcel, plus (ii) the portion of the Real Property Taxes levied against the land in the larger parcel multiplied by a fraction, the numerator of which is the land area of the Land and the denominator of which is the land area of the larger parcel. Tenant shall pay all Real Property Taxes which may be levied or assessed by any lawful authority against the land and improvements of the separate tax parcel on which the Premises is located.

All Real Property Taxes for the tax year in which the Commencement Date occurs and for the tax year in which this Lease terminates shall be apportioned and adjusted so that Tenant shall not be responsible for any Real Property Taxes for a period of time occurring prior to the Commencement Date or subsequent to the expiration of the Term or sooner termination of the Lease.

The amount to be paid pursuant to the provisions of this Section 6.1 shall be paid monthly in advance as part of Tenant’s Monthly Operating Expense Charge as estimated by Landlord based on the most recent tax bills commencing with the month (or partial month on a prorated basis if such be the case) that the Commencement Date

 

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occurs. The initial estimated monthly charge for Tenant’s pro rata share of Real Property Taxes is included in the Monthly Operating Expense Charge as provided in Section 5.

If at any time during the Term under the laws of the United States, or the state, county, municipality or any political subdivision in which the Premises is located, a tax or excise on rent or any other tax however described is levied or assessed by any such political body against Landlord on account of rent payable to Landlord or any tax based on or measured by expenditures made by Tenant on behalf of Landlord, such tax or excise shall be considered “Real Property Taxes” for purposes of this Section 6.1, and shall be payable in full by Tenant At Landlord’s option, such taxes or excises shall be payable monthly in advance on an estimated basis as provided in this Section 6.1 or shall be payable within, twenty-five (25) days after Landlord’s delivery of the tax bill to Tenant.

Notwithstanding the foregoing, “Real Property Taxes” shall not include and Tenant shall not be required to pay any tax or assessment expense or any increase therein (i) levied on Landlord’s rental income, unless such tax or assessment expense is imposed in lieu of real property taxes; (ii) attributable to Landlord’s net income, inheritance, gift, transfer, estate or state taxes; or (iii) resulting from the improvement of any of the buildings in the Project for the sole use of other occupants. Notwithstanding the foregoing, in lieu of paying Real Property Taxes as an Operating Expense under the Lease, Tenant shall have the right to pay such taxes prior to the delinquency date thereof, provided that Landlord has delivered the tax bill to Tenant no later than thirty (30) days prior to such delinquency date. In the event Tenant fails to pay the taxes by the delinquency date after such receipt of the tax bill from Landlord, Tenant shall pay the interest and penalties related to the delinquent payment.

6.2 Personal Property Taxes. Tenant shall be liable for, and shall pay before delinquency, all taxes and assessments, real and personal, levied against (a) any personal property or trade fixtures placed by Tenant in or about the Premises (including any increase in the assessed value of the Premises based upon the value of any such personal property or trade fixtures); and (b) any Specialized Improvements or alterations in the Premises, whether installed or paid for by Landlord or Tenant. If any such taxes or assessments are levied against Landlord or Landlord’s property, Landlord may, after written notice to Tenant (and under proper protest if requested by Tenant) pay such taxes and assessments, and Tenant shall reimburse Landlord therefor within twenty-five (25) days after demand by Landlord; provided, however, Tenant, at its sole cost and expense, shall have the right, with Landlord’s cooperation, to bring suit in any court of competent jurisdiction to recover the amount of any such taxes and assessments so paid under protest.

7. Utilities and Services . Tenant shall be solely responsible for and shall promptly pay all charges for heat, air conditioning, water, gas, electricity or any other utility used, consumed or provided in, furnished to or attributable to the Premises at the rates charged by the supplying utility companies. In no event shall Landlord be liable for any interruption or failure in the supply of any such utility services to Tenant except to the extent due to Landlord’s or its agents’, employees’ or contractors’ gross negligence, willful misconduct or breach of this Lease. Tenant has the right to contract for telephone, Internet, broadband or other telecommunications services and all other utilities for Tenant’s own use only but Tenant shall not resell or distribute, directly or indirectly, any such services to any other occupant of the Project. If Tenant breaches this covenant, Tenant acknowledges that damages would be an inadequate remedy for Landlord; therefore, Landlord shall be entitled, in any such event, to seek injunctive relief against Tenant in addition to any other remedies Landlord may have at law or in equity.

8. Use .

8.1 General. Tenant shall use the Premises solely for the Permitted Use specified in Section 1.12 of the Summary, and shall not use or permit the Premises to be used for any other use or purpose whatsoever. Landlord and Tenant agree that any contrary use shall be deemed to cause material and irreparable harm to Landlord and shall entitle Landlord to injunctive relief in addition to any other available remedy. Tenant shall observe and comply with all the provisions of the Declaration and the “Rules and Regulations” attached as Exhibit “E,” and, subject to Section 5.2, all reasonable nondiscriminatory modifications of them and additions to them from time to time put into effect and furnished to Tenant by Landlord. Landlord shall endeavor to enforce the Rules and Regulations, but (so long as Landlord endeavors to enforce the Rules and Regulations) shall have no liability to Tenant for the violation or non-performance by any other tenant or occupant of the Project of any such Rules and Regulations. Tenant shall, at its sole cost and expense, observe and comply with all requirements of any board of fire underwriters or similar body relating to the Premises, and all laws, statutes, codes, rules and regulations now or hereafter in force relating to or affecting the use, occupancy, alteration or improvement, whether structural or nonstructural, of the Premises, including, without limitation, the provisions of Title III of the Americans with Disabilities Act of 1990 as it pertains to Tenant’s use, occupancy, improvement and alteration of the Premises. Nothing in the preceding sentence shall be deemed to require Tenant to make capital repairs or alterations to the Buildings Shell and the General Purpose Tenant Improvements either (i) to cause the Buildings to comply with any laws, statutes, codes, rules and regulations in effect as of the Commencement Date, or (ii) to cause the Buildings to comply with any change in any law, statute, code, rule or regulation that does not relate to Tenant’s particular use, occupancy, alteration or improvement of the Buildings (it being understood that Landlord shall make all such alterations promptly and that Tenant shall pay the cost of such capital repairs or alterations in accordance with Section 5.4(vi)). Tenant shall not use or allow the Premises to be used (a) in violation of the Declaration or any other recorded covenants, conditions and restrictions affecting the Premises or of any law or governmental rule or regulation, or of any certificate of occupancy issued for the Premises or the Buildings, or (b) for any improper, immoral, unlawful or reasonably objectionable purpose. Tenant shall not do or permit to be done anything which will obstruct or interfere with the rights of other tenants or occupants of the Project, or injure or annoy them.

 

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Tenant shall not cause, maintain or permit any nuisance in, on or about the Premises nor commit or suffer to be committed any waste in, on or about the Premises. Tenant and Tenant’s employees and agents shall not solicit business in the Common Area, nor shall Tenant distribute any handbills or other advertising matter in the Common Area. Tenant shall have no right to conduct any auction in, on or about the Premises.

8.2 Parking. Tenant and its employees shall park their vehicles only in the parking areas of the Premises. The use of the parking area shall be subject to the Parking Rules and Regulations attached as Exhibit “E” and, subject to Section 5.2, any other reasonable, nondiscriminatory rules and regulations adopted by Landlord from time to time. Tenant shall be responsible for ensuring that its employees comply with all the provisions of this Section and such other reasonable parking rules and regulations as may be adopted and implemented by Landlord from time to time. Tenant shall not use more parking spaces than the number indicated as the Maximum Vehicle Parking Spaces on the Summary of Basic Lease Information and Definitions.

8.3 Signs, Awnings and Canopies. Without Landlord’s prior written consent, which consent shall not be unreasonably withheld, Tenant will not place or suffer to be placed or maintained (i) any sign, display, decoration, lettering or other advertising materials (collectively, “Signs” ), awning or canopy on the roof, on any exterior door, wall or window, or within 48 inches of any window, of the Premises, (ii) any Sign on the glass of any window or door of the Premises, or which would be visible from the exterior of the Buildings, or (iii) any Sign in any location in, on or about the Premises (other than inside the Buildings). The size, design, graphics, material, style, color and other physical aspects of any permitted Sign, awning or canopy shall be subject to Landlord’s written approval prior to installation (which approval may be withheld in Landlord’s reasonable discretion), any covenants, conditions or restrictions encumbering the Premises, the Sign Guidelines for The Business Park at Morgan Hill Ranch, as in effect from time to time and approved by applicable governmental authorities ( “Sign Criteria” ), and any applicable municipal or other governmental permits and approvals. Tenant shall at Tenant’s sole cost and expense maintain any such Sign, awning or canopy as may be approved by Landlord in good condition and repair at all times. Upon the expiration or earlier termination of this Lease, Tenant shall (a) remove all Signs, awnings and canopies and (b) repair any damage to the Buildings or the Premises resulting from such removal all at Tenant’s sole cost and expense. If Tenant fails to maintain any approved Sign, awning or canopy, within ten (10) days after Landlord’s delivery of notice to Tenant, Landlord may do so and Tenant shall reimburse Landlord for such cost plus a ten percent (10%) overhead fee. If Tenant installs any Sign, awning or canopy without Landlord’s prior written consent, or if Tenant fails to remove any such items at the expiration or earlier termination of this Lease, Landlord may have such items removed and stored and may repair any damage to the Buildings or the Premises at Tenant’s expense. The removal, repair and storage costs shall bear interest until paid at the maximum nonnsurious rate allowed by law.

8.4 Hazardous Materials.

(a) As used in this Lease, the term “Hazardous Materials” means and includes (i) any hazardous or toxic materials, substances or wastes as now or hereafter designated under any law, statute, ordinance, rule, regulation, order or ruling of any agency of the State, the United States Government or any local governmental authority, including without limitation asbestos, petroleum, petroleum hydrocarbons and petroleum based products, urea formaldehyde foam insulation, polychlorinated biphenyls, and freon and other chlorofluorocarbons, and (ii) any substance or matter which is in excess of permitted levels set forth in any federal, California or local law or regulation pertaining to any hazardous or toxic substance, material or waste.

(b) Tenant shall not cause or permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Premises, the Common Areas or any other portion of the Project by Tenant, its agents, employees, subtenants, assignees, licensees, contractors or invitees (collectively, the “Tenant Parties” ) except in accordance with all applicable laws, ordinances and regulations. Notwithstanding the foregoing, Tenant shall have the right, without obtaining prior written consent of Landlord, to utilize within the Premises ordinary and general office supplies such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute “Hazardous Materials” as defined in this Lease), provided that (A) Tenant shall maintain such products in their original retail packaging, shall follow all instructions on such packaging with respect to the storage, use and disposal of such products, and shall otherwise comply with all applicable laws with respect to such products and (B) all of the other terms and provisions of this Section 8.4 shall apply with respect to the use and disposal of all such products. In addition, concurrently with the execution of this Lease, Tenant shall complete and deliver to Landlord an Environmental Questionnaire in the form of Exhibit “H.” Upon Landlord’s request, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials which were used, generated, stored, released or disposed of on, under or about the Premises and shall deliver to Landlord complete and legible copies of all documents reasonably requested by Landlord which relate to the use, generation, storage, release or disposal of Hazardous Materials at the Premises. Landlord may further require that Tenant demonstrate that such Hazardous Materials will be generated, stored, used and disposed of in a manner that complies with all applicable laws and regulations pertaining thereto and with good business practices. Landlord may utilize an environmental consultant to assist in determining conditions of approval in connection with the use, generation, storage, release or disposal of any Hazardous Materials by Tenant on or about the Premises or to conduct periodic inspections of the use, generation, storage, release or disposal of Hazardous Materials by Tenant, and Tenant shall upon Landlord’s demand reimburse Landlord for any costs and expenses Landlord reasonably incurs in connection therewith if it is determined that Tenant violated the provisions of this Section. Upon the expiration or earlier termination of this Lease, Tenant shall promptly remove from the Premises and the Project, at its sole cost and expense, any and all Hazardous Materials used by Tenant or any of the Tenant Parties,

 

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including any equipment or systems containing Hazardous Materials which are installed, brought upon, stored, used, generated or released upon, in, under or about the Premises, the Buildings or the Project or any portion of it by Tenant or any of the Tenant Parties as required by law. If Tenant fails to perform any obligation to perform under this Section and such failure continues for ten (10) days after Tenant’s receipt of written notice from Landlord, Landlord may, without waiving or releasing Tenant from any of Tenant’s obligations, perform such obligation on behalf of Tenant. All sums so paid by Landlord and all necessary incidental costs incurred by Landlord in performing such obligations shall be payable by Tenant to Landlord within five (5) days after demand therefor as additional rent.

(c) To the fullest extent permitted by law, Tenant shall promptly indemnify, protect, defend and hold harmless Landlord and Landlord’s partners, officers, directors, employees, agents, successors and assigns (collectively, the “Landlord Indemnified Parties” ) from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal remediation and restoration costs, sums paid in settlement of claims, attorneys’ fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials in violation of law on, in, under or about the Premises, the Buildings or any other portion of the Project and which are caused or knowingly permitted by Tenant or any of the Tenant Parties. Tenant shall promptly notify Landlord of any release of Hazardous Materials in the Premises, the Buildings or any other portion of the Project which Tenant becomes aware of during the Term, whether caused by Tenant or any other persons or entities. In the event of any release of Hazardous Materials caused or knowingly permitted by Tenant or any of the Tenant Parties, Landlord shall have the right, but not the obligation, to cause Tenant to immediately take all steps Landlord deems necessary or appropriate to remediate such release and prevent any similar future release to the reasonable satisfaction of Landlord and Landlord’s mortgagees. At all times during the Term, upon giving Tenant not less than one (1) business days’ notice, Landlord will have the right, but not the obligation, to enter upon the Premises to inspect, investigate, sample and monitor the Premises to determine if Tenant is in compliance with the terms of this Lease regarding Hazardous Materials. The provisions of this Section 8.4 will survive the expiration or earlier termination of this Lease. Notwithstanding any provision of this Section 8.4 to the contrary, in no event shall Tenant be responsible for migration or seepage of underground contamination from a source outside the Premises unless caused by Tenant or any of the Tenant Parties.

(d) To Landlord’s actual knowledge, except as disclosed in the Phase I Environmental Assessment Update dated January 6,1999, prepared by Lowney Associates, or in the Level Two Environmental Site Assessment Chemical Analysis of Soil for Morgan Hill Business Park dated January 9,1991, prepared by Earth Metrics Incorporated, (i) no Hazardous Material is present in the Premises or the soil, surface water or groundwater of the Premises; (ii) no underground storage tanks are present on the Premises; and (c) Landlord has received no notice of any action, proceeding or claim pending or threatened regarding the Premises concerning any Hazardous Material or pursuant to any environmental law. Under no circumstances shall Tenant be liable for, and Landlord shall indemnify, defend, protect and hold harmless Tenant, its agents, contractors, stockholders, directors, successors, representatives and assigns from and against all losses, costs, claims, liabilities and damages (including attorneys’ and consultant’s fees) of every type and nature, directly or indirectly arising out of or in connection with any Hazardous Materials present in, on or about the Premises, the Project or the soil, air, improvements, groundwater or surface water caused by Landlord or its agents, employees or contractors or existing on the Premises or the Project prior to the date of this Lease, or the violation of any environmental law by Landlord or its agents, employees or contractors.

8.5 Refuse and Sewage. Tenant shall not keep any trash, garbage, waste or other refuse on the Premises except in sanitary containers and shall regularly and frequently remove same from the Premises. Tenant shall keep all containers or other equipment used for storage of such materials in a clean and sanitary condition. Tenant shall properly dispose of all sanitary sewage and shall not use the sewage disposal system for the disposal of anything except sanitary sewage. Tenant shall keep the sewage disposal system free of all obstructions and in good operating condition.

8.6 Extraordinary Services. If Landlord incurs Operating Expenses or other costs for any increase in services provided to or for the benefit of Tenant above those services normally provided by Landlord to the other tenants and such increased services or costs result from any act, conduct, extraordinary use or special request by Tenant or its employees or customers, Tenant shall reimburse Landlord for the costs of such extraordinary services within thirty (30) days after Landlord delivers to Tenant written invoice for such extraordinary services. By way of example only, if Tenant requests or if Tenant’s business operation should require extraordinary security services, lighting, cleaning or repair, Landlord may bill such extraordinary services directly to Tenant as provided in this Section 8.6 and Tenant shall reimburse Landlord as provided in this Section. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises. Tenant assumes all responsibility for the protection of Tenant, its agents, invitees and property from acts of third parties.

8.7 Inspections. Tenant shall, at its own cost, retain a licensed, bonded professional HVAC service ( “HVAC Contract” ) to perform customary inspections of mechanical systems serving the Premises at reasonable intervals (but not less than once each calendar quarter) and shall promptly cause any corrective work recommended by such service to be performed. Tenant shall, at its own cost, retain a licensed, bonded professional fire protection system maintenance service ( “Fire System Contract” ) to perform customary inspections and maintenance of fire systems serving the Premises at reasonable intervals (but not less than once each calendar quarter) and shall promptly cause

 

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any corrective work recommended by such service to be performed. All such work shall be performed pursuant to written contracts, copies of which shall be delivered to Landlord by Tenant upon request.

9. Condition of Premises: Repair Obligations .

9.1 Condition of Premises. Tenant acknowledges that, except as otherwise expressly set forth in this Lease, neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or its condition, or with respect to the suitability thereof for the conduct of Tenant’s business.

9.2 Landlord’s Repair Obligations. Landlord shall, at Landlord’s sole cost and expense, repair, maintain and replace, as necessary, the Building Shell and other structural portions of the Buildings (including the roof structure, exterior walls and foundations); provided, however, to the extent such maintenance, repairs or replacements are required as a result of any act, neglect, fault or omission of Tenant or any of Tenant’s agents, employees, contractors, licensees or invitees, Tenant shall pay to Landlord, as additional rent, the costs of such maintenance, repairs or replacements. Landlord shall not be liable to Tenant for failure to perform any such repairs, replacements or maintenance, unless Landlord fails to make such repairs or replacements and such failure shall continue for an unreasonable time following written notice from Tenant to Landlord of the need therefor. Without limiting the foregoing, Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect (including the provisions of California Civil Code Section 1942 and any successive sections or statutes of a similar nature). Landlord shall perform and construct; and Tenant shall have no responsibility to perform or construct, any improvements which could be treated as a “capital expenditure” pursuant to generally accepted accounting principles provided, however, that Tenant shall pay the cost of such capital expenditures in accordance with Section 5.4(vi).

9.3 Tenant’s Repair Obligations. Except for Landlord’s obligations specifically set forth in Section 9.2, and subject to Sections 16.1 and 17.2 hereof, Tenant shall at all times and at Tenant’s sole cost and expense, keep, maintain, clean, repair, paint, preserve and replace, as necessary, the Premises and all parts thereof including, without limitation, nonstructural components, roof covering, all driveways and walkways, parking areas, Interior Improvements, Tenant Changes, utility meters, pipes and conduits, all heating, ventilating and air conditioning systems serving the Premises, all fixtures, furniture and equipment, Tenant’s storefront and signs, if any, locks, closing devices, security devices, doors, windows, window sashes, casements and frames, floors and floor coverings, shelving, restrooms, if any, and any alterations, additions and other property located within the Premises in good condition and repair, reasonable wear and tear and damage from casualty or eminent domain excepted. Nothing in the preceding sentence shall be deemed to require Tenant to perform Landlord’s maintenance obligations set forth in Section 9.2. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. As part of its maintenance obligations under this Lease, Tenant shall, at Landlord’s request, provide Landlord with copies of all maintenance schedules, records, reports and notices prepared by, for or on behalf of Tenant. Tenant shall replace, at its expense, any and all plate and other glass in and about the Premises which is damaged or broken from any cause whatsoever except due to the gross negligence or willful misconduct of Landlord, its agents or employees. Such maintenance and repairs shall be performed with due diligence, lien-free and in a good and workmanlike manner, by licensed contractor(s) or Tenant’s employees which are selected by Tenant and approved by Landlord, which approval Landlord shall not unreasonably withhold or delay. Except as otherwise expressly provided in this Lease, Landlord shall have no obligation to alter, remodel, improve, repair, renovate, redecorate or paint all or any part of the Premises.

10. Alterations .

10.1 Tenant Changes; Conditions.

(a) Tenant shall not make any alterations, additions, improvements or decorations to the Premises (collectively, “Tenant Changes,” and individually, a “Tenant Change” ) unless Tenant first obtains Landlord’s prior written approval, which approval Landlord shall not unreasonably withhold. Landlord may impose, as a condition to its consent, any reasonable requirements, including, without limitation, a requirement that all work exceeding One Hundred Thousand Dollars ($100,000) be covered by a lien and completion bond satisfactory to Landlord and requirements as to the manner, time and contractor for performance of the work. Notwithstanding the foregoing, Tenant may make nonstructural Tenant Changes without Landlord’s consent if the cost of such Tenant Change does not exceed Twenty-Five Thousand Dollars ($25,000).

(b) All Tenant Changes shall be performed: (i) in accordance with the approved plans, specifications and working drawings; (ii) lien-free and in a good and workmanlike manner; (iii) in compliance with all laws, rules and regulations of all governmental agencies and authorities including, without limitation, the provisions of Title III of the Americans with Disabilities Act of 1990; (iv) in such a manner so as not to unreasonably interfere with the occupancy of any other tenant in any other building located within the Project, nor impose any additional expense upon nor delay Landlord in the maintenance and operation of the Buildings or any other building located within the Project; and (v) at such times, in such manner and, subject to Section 5.2, subject to such rules and regulations as Landlord may from time to time reasonably designate, so long as such rules and regulations do not unreasonably interfere with Tenant’s ability to conduct its business at the Premises. v!

 

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(c) Throughout the performance of the Tenant Changes, Tenant shall obtain, or cause its contractors to obtain, workers compensation insurance and commercial general liability insurance in compliance with the provisions of Section 12 of this Lease.

10.2 Removal of Tenant Changes and Tenant Improvements . Subject to the provisions of the Work Letter, Tenant shall, at its sole cost, remove all Tenant Changes and the initial Interior Improvements in the Premises, including mechanical, electrical and plumbing systems, immediately prior to the expiration or sooner termination of this Lease and repair any damage to the Premises caused by such removal.

10.3 Removal of Personal Property . All articles of personal property owned by Tenant or installed by Tenant at its expense in the Premises (including equipment, business and trade fixtures, furniture and movable partitions) shall be, and remain, the property of Tenant, and shall be removed by Tenant from the Premises, at Tenant’s sole cost and expense, on or before the expiration or sooner termination of this Lease. Tenant shall repair any damage caused by such removal. Any such property of Tenant not removed by the expiration or sooner termination of this Lease shall be stored and disposed of by Landlord in accordance with law.

10.4 Tenant’s Failure to Remove . If Tenant fails to remove by the expiration or sooner termination of this Lease all of its personal property, or any items of Tenant Improvements or Tenant Changes identified by Landlord for removal pursuant to Section 10.2 above, Landlord may (without liability to Tenant for loss thereof), at Tenant’s sole cost and in addition to Landlord’s other rights and remedies under this Lease, at law or in equity: (a) remove and store such items in accordance with applicable law; and/or (b) upon ten (10) days’ prior notice to Tenant, sell all or any such items at private or public sale for such price as Landlord may obtain as permitted under applicable law. Landlord shall apply the proceeds of any such sale to any amounts due to Landlord under this Lease from Tenant (including Landlord’s attorneys’ fees and other-costs incurred in the removal, storage and sale of such items), with any remainder to be paid to Tenant.

11. Liens . Tenant shall not permit any mechanic’s, materialmen’s or other liens to be filed against all or any part of the Project or the Premises, nor against Tenant’s leasehold interest in the Premises, by reason of or in connection with any repairs, alterations, improvements or other work contracted for or undertaken by Tenant or any other act or omission of Tenant or Tenant’s agents, employees, contractors, licensees or invitees. Tenant shall, at Landlord’s request, provide Landlord with enforceable, conditional and final lien releases (and other reasonable evidence reasonably requested by Landlord to demonstrate protection from liens) from all persons furnishing labor or materials with respect to the Premises. Landlord shall have the right at all reasonable times to post on the Premises and record any notices of nonresponsibility which it deems necessary for protection from such liens. If any such liens are filed, Tenant shall, at its sole cost, immediately cause such lien to be released of record or bonded so that it no longer affects title to the Project or the Premises. If Tenant fails to cause such lien to be so released or bonded within twenty (20) days after Tenant receives notice of the filing of such lien, Landlord may, without waiving its rights and remedies based on such breach, and without releasing Tenant from any of its obligations, cause such lien to be released by any means it deems proper, including payment in satisfaction of the claim giving rise to such lien. Tenant shall pay to Landlord, within five (5) days after receipt of invoice from Landlord, any sum paid by Landlord to remove such liens, together with interest at the Interest Rate from the date of such payment by Landlord.

12. Tenant’s Insurance .

12.1 Types of Insurance. On or before the earlier of the Commencement Date or the date Tenant commences or causes to be commenced any work of any type in or on the Premises pursuant to this Lease, and continuing during the entire Term, Tenant shall obtain and keep in full force and effect, the following insurance:

(a) All Risk insurance, including fire and extended coverage, sprinkler leakage, vandalism and malicious mischief coverage upon property of every description and kind owned by Tenant and located in the Premises, or for which Tenant is legally liable or installed by or on behalf of Tenant including, without limitation, furniture, equipment and any other personal property, and any Tenant Changes (but excluding the initial General Purpose Improvements), in an amount not less then the full replacement cost thereof. In the event that there shall be a dispute as to the amount which comprises full replacement cost, the decision of Landlord based on insurance industry standards shall prevail.

(b) Commercial general liability insurance coverage, including personal injury, bodily injury (including wrongful death), broad form property damage, operations hazard, owner’s protective coverage, contractual liability (including Tenant’s indemnification obligations under this Lease, including Section 15, liquor liability (if Tenant serves alcohol on the Premises), products and completed operations liability, and owned/non-owned auto liability, with a general aggregate of not less than Three Million Dollars ($3,000,000) per occurrence which shall contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire and shall include fire legal liability limits of not less than One Million Dollars ($1,000,000). The general, aggregate amount of such commercial general liability insurance shall be increased every five (5) years during the Term of this Lease to an amount reasonably required by Landlord. The general liability limits will be reviewed from time to time for adequacy and if determined insufficient by insurance industry standards, shall be increased to a suitable level.

 

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(c) Worker’s Compensation in statutory amounts and limits, and Employer Liability Insurance in limits of not less than One Million Dollars ($1,000,000) per accident, injury or illness.

(d) Loss of income, extra expense and business interruption insurance in such amounts as will reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises, to Tenant’s parking areas or to the Buildings as a result of such perils.

(e) Auto liability insurance including coverage for leased, rented and hired vehicles, and pollution arising out of upset or overturns with a combined single limit of not less than One Million Dollars ($1,000,000).

(f) Pollution liability insurance to include coverage for release, seepage, migration and cleanup expenses.

(g) Any other form or forms of insurance as Tenant or Landlord or the mortgagees of Landlord may reasonably require from time to time based on insurance industry standards, in form, amounts and for insurance risks against which a prudent tenant would protect itself, but only to the extent such risks and amounts are available in the insurance market at commercially reasonable costs.

12.2 Requirements . Each policy required to be obtained by Tenant hereunder shall: (a) be issued by insurers authorized to do business in California and rated not less than financial class VIII, and not less than policyholder rating A- in the most recent version of Best’s Key Rating Guide; (b) be in form reasonably satisfactory to Landlord and Landlord’s mortgagee from time to time; (c) name Tenant as named insured thereunder and shall name Landlord and, at Landlord’s request, Landlord’s mortgagees of which Tenant has been informed in writing, as additional insureds, all as their respective interests may appear, (d) shall not have a deductible amount exceeding Twenty-Five Thousand Dollars ($25,000.00); (e) specifically provide that the insurance afforded by such policy for the benefit of Landlord and Landlord’s mortgagees shall be primary, and any insurance carried by Landlord or Landlord’s mortgagees shall be excess and non-contributing; (f) as to all the All Risk insurance described in Section 12.1 (a), contain an endorsement that the insurer waives its right to subrogation as described in Section 14 below; and (g) contain an undertaking by the insurer to notify Landlord (and the mortgagees of Landlord who are named as additional insureds) in writing not less than thirty (30) days prior to any material change, reduction in coverage, cancellation or other termination thereof. Tenant shall deliver to Landlord, as soon as practicable after the placing of the required insurance, but in no event later than ten (10) days prior to the date Tenant takes possession of all or any part of the Premises, certificates from the insurance company evidencing the existence of such insurance and Tenant’s compliance with the foregoing provisions of this Section 12. Tenant shall cause replacement certificates to be delivered to Landlord not less than thirty (30) days (but in no event less than two (2) weeks) prior to the expiration of any such policy or policies. If any such initial or replacement certificates are not furnished within ten (10) days after a written demand from Landlord, Tenant shall be deemed to be in material default under this Lease without the benefit of any additional notice or cure period provided in Section 19.1 below, and Landlord shall have the right, but not the obligation, to procure such policies and certificates at Tenant’s expense. In such event Tenant shall reimburse Landlord, within ten (10) days after written demand therefor, for all reasonable costs incurred by Landlord thereby, together with interest thereon at the Interest Rate.

12.3 Effect on Insurance . Tenant shall not do or permit to be done anything which will (a) violate or invalidate any insurance policy maintained by Landlord or Tenant under this Lease, or (b) increase the costs of any insurance policy maintained by Landlord or the Association with respect to the Premises or the Project unless Tenant pays the cost of any such increase. If Tenant’s occupancy or conduct of its business in or on the Premises results in any increase in premiums for any insurance carried by Landlord or the Association with respect to the Premises or the Project, Tenant shall pay such increase, as applicable, (i) to Landlord as additional rent immediately after being billed by Landlord, or (ii) to the Association immediately after being billed therefor by the Association. If any insurance coverage carried by Landlord or the Association with respect to the Premises or the Project shall be canceled or reduced (or cancellation or reduction is threatened) by reason of the use or occupancy of the Premises by Tenant or by anyone permitted by Tenant to be upon the Premises, and if Tenant fails to remedy such condition within five (5) days after notice thereof, Tenant shall be deemed to be in material default under this Lease, without the benefit of any additional notice or cure period specified in Section 19.1 below, and Landlord shall have all remedies provided in this Lease, at law or in equity, including, without limitation, the right (but not the obligation) to enter upon the Premises and attempt to remedy such condition at Tenant’s cost.

13. Landlord’s Insurance . During the Term, Landlord shall insure the Premises and the General Purpose Improvements initially installed in the Premises pursuant to Exhibit “C” (excluding, however, Tenant’s furniture, equipment and other personal property, Specialized Improvements and Tenant Changes) against damage by fire and standard extended coverage perils and with vandalism and malicious mischief endorsements for the full replacement cost of the Premises, rental loss coverage for not less than one (1) year and such additional coverage, at Landlord’s option, as Landlord deems appropriate. Landlord shall also carry commercial general liability insurance, in such reasonable amounts and with such reasonable deductibles as would be carried by a prudent owner of a similar building in California. At Landlord’s option, all such insurance may be carried under any blanket or umbrella policies which Landlord has in force for other land, buildings and projects. Upon Tenant’s request, Landlord shall carry earthquake insurance or such other insurance for the Premises as requested by Tenant, provided Tenant pays the cost thereof. Landlord may, but shall not be obligated to, carry any other form or forms of insurance as Landlord or Landlord’s mortgagees may reasonably determine is advisable. The cost of insurance obtained by Landlord pursuant to this Section 13 (including deductibles) shall be paid by Landlord but Tenant shall

 

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reimburse Landlord for all such costs to the extent such amounts are properly includable as Operating Expenses within thirty (30) days after Landlord’s delivery to Tenant of reasonable evidence of payment thereof by Landlord. It is the Parties’ intent that there be no overlapping insurance coverage. Notwithstanding the foregoing, in lieu of paying such insurance as an Operating Expense under the Lease, Tenant shall have the right to pay such insurance upon receipt of an invoice from Landlord on or before the due date of such invoice.

14. Waivers of Subrogation .

14.1 Mutual Waiver of Parties . Notwithstanding anything to the contrary in this Lease, Landlord and Tenant hereby waive their rights against each other and their respective agents, employees, successors, assignees and sublessees with respect to any claims or damages or losses which are caused by or result from (a) damage to property or loss of income insured against under any insurance policy carried by Landlord or Tenant (as the case may be) pursuant to the provisions of this Lease and enforceable at the time of such damage or loss without regard to the negligence or willful misconduct of the entity or person so released, or (b) damage to property or loss of income which would have been covered under any insurance required to be obtained and maintained by Landlord or Tenant (as the case may be) under Sections 12 and 13 of this Lease (as applicable) had such insurance been obtained and maintained as required without regard to the negligence or willful misconduct of the entity or person so released. The foregoing waivers shall be in addition to, and not a limitation of, any other waivers or releases contained in this Lease.

14.2 Waiver of Insurers . Each Party shall cause each property and loss of income insurance policy required to be obtained by it pursuant to Sections 12 and 13 to provide that the insurer waives all rights of recovery by way of subrogation against either Landlord or Tenant, as the case may be, in connection with any claims, losses and damages covered by such policy. If either Party fails to maintain property or loss or income insurance required under this Lease, such insurance shall be deemed to be self-insured with a deemed full waiver of subrogation as set forth in the immediately preceding sentence.

15. Indemnification and Exculpation .

15.1 Tenant’s Assumption of Risk and Waiver . Except to the extent such matter is not covered by the property insurance required to be maintained by Tenant under this Lease and such matter is attributable to the gross negligence or willful misconduct of Landlord or its agents or employees or Landlord’s breach of Landlord’s obligations or representations under this Lease, Landlord shall not be liable to Tenant, Tenant’s employees, agents or invitees for: (i) any damage to property of Tenant, or of others, located in, on or about the Premises, (ii) the loss of or damage to any property of Tenant or of others by theft or otherwise, (iii) any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or leaks from any part of the Premises or from the pipes, appliance of plumbing works or from the roof, street or subsurface or from any other places or by dampness or by any other cause of whatsoever nature, or (iv) any such damage caused by other tenants or persons in the Premises, occupants of adjacent property of the Project, or the public, or caused by operations in construction of any private, public or quasi-public work. Landlord shall in no event be liable for any consequential damages or loss of business or profits and Tenant hereby waives any and all claims for any such damages. All property of Tenant kept or stored on the Premises shall be so kept or stored at the sole risk of Tenant and Tenant shall hold Landlord harmless from any claims arising out of damage to the same, including subrogation claims by Tenant’s insurance carriers, unless such damage shall be caused by the gross negligence or willful misconduct of Landlord or its agents or employees. Landlord or its agents shall not be liable for interference with the light or other intangible rights.

15.2 Indemnification .

(a) Tenant shall be liable for, and shall indemnify, defend, protect and hold Landlord and Landlord’s partners, officers, directors, employees, agents, successors and assigns (collectively, “Landlord Indemnified Parties” ) harmless from and against, any and all claims, damages, judgments, suits, causes of action, losses, liabilities and expenses, including attorneys’ fees and court costs (collectively, “Indemnified Claims” ), arising or resulting from (a) any act or omission of Tenant or any of Tenant’s agents, employees, contractors, subtenants, assignees, licensees or with respect to acts or omissions within the Premises only, Tenant’s invitees (collectively, “Tenant Parties” ); (b) the use of the Premises and Common Areas and conduct of Tenant’s business by Tenant or any Tenant Parties, or any other activity, work or thing done, permitted or suffered by Tenant or any Tenant Parties, in or about the Premises, the Buildings or elsewhere on the Project; and (c) any default by Tenant of any obligations on Tenant’s part to be performed under the terms of this Lease. In case any action or proceeding is brought against Landlord or any Landlord Indemnified Parties by reason of any such Indemnified Claims, Tenant, upon notice from Landlord, shall defend the same at Tenant’s expense by counsel approved in writing by Landlord, which approval shall not be unreasonably withheld.

(b) Notwithstanding anything to the contrary contained in this Lease, Landlord shall not be released or indemnified from, and shall indemnify, defend, protect and hold harmless Tenant from, all losses, damages liabilities, claims, attorneys’ fees, costs and expenses arising from the gross negligence or willful misconduct of Landlord or its agents, contractors, licensees or invitees, or Landlord’s violation of any law, order or regulation or a breach of Landlord’s obligations or representations under this Lease.

 

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15.3 Survival; No Release of Insurers. Landlord’s and Tenant’s indemnification obligation under Section 15.2 shall survive the expiration or earlier termination of this Lease. Landlord’s and Tenant’s covenants, agreements and indemnification in Sections 15.1 and 15.2 above are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried by Landlord or Tenant pursuant to the provisions of this Lease.

16. Damage or Destruction .

16.1 Landlord’s Rights and Obligations . As used in this Section, “Landlord’s contractor” means a contractor reasonably acceptable to both Landlord and Tenant. If (i) the Building Shell and General Purpose Improvements (defined in the Work Letter), excluding Specialized Improvements and Tenant Changes, are damaged by fire or other casualty that Landlord is required to insure against pursuant to Section 13 of this Lease to an extent not exceeding forty percent (40%) of the full replacement cost thereof, and Landlord’s contractor estimates in a writing delivered to the Parties that the damage is such that the Premises may be repaired, reconstructed or restored to substantially its condition immediately prior to such damage within three hundred sixty-five (365) days from the date of such casualty, and Landlord will receive insurance proceeds sufficient to cover the costs of such repairs, reconstruction and restoration, or (ii) the Building Shell and General Purpose Improvements, excluding Specialized Improvements and Tenant Changes, are damaged by fire or other casualty that Landlord is not required to insure against pursuant to Section 13 of this Lease to an extent not exceeding three percent (3%) of the full replacement cost thereof, then Landlord shall commence and proceed diligently to repair, reconstruct and restore the portion of the Building Shell damaged by such casualty (including the General Purpose Improvements but not including any Specialized Improvements or Tenant Changes), in which case this Lease shall continue in full force and effect. If, however, the Building Shell and General Purpose Improvements are damaged by fire or other casualty that Landlord is required to insure against pursuant to Section 13 of this Lease to an extent exceeding forty percent (40%) of the full replacement cost thereof, or Landlord’s contractor estimates that such work of repair, reconstruction and restoration will require longer than three hundred sixty-five (365) days to complete, or the Building Shell and General Purpose Improvements are damaged by fire or other casualty that Landlord is not required to insure against pursuant to Section 13 of this Lease to an extent exceeding three percent (3%) of the full replacement cost thereof, then Landlord may elect to terminate this Lease effective as of the date which is thirty (30) days after Tenant’s receipt of Landlord’s election to so terminate.

If the Building Shell and General Purpose Improvements are damaged by fire or other casualty, whether or not Landlord is required to insure against such casualty pursuant to Section 13 of this Lease, and Landlord’s contractor estimates in a writing delivered to the Parties that such work of repair, reconstruction and restoration will require longer than two hundred seventy (270) days to complete, then Tenant may elect to terminate this Lease effective as of the date which is thirty (30) days after Landlord’s receipt of Tenant’s election to so terminate.

Under any of the conditions of this Section 16.1, either Party shall give written notice to the other Party of its intention to terminate within the earlier of one hundred twenty (120) days after the occurrence of such casualty, or fifteen (15) days after that Party’s receipt of the estimate from Landlord’s contractor. However, if Landlord elects to terminate the Lease pursuant to the terms of this Section, Tenant shall be entitled to negate Landlord’s election by paying to Landlord the amount (the “Tenant Share” ) by which the cost to repair such damage exceeds forty percent (40%) of the full replacement cost (less amounts of insurance already received by Landlord), in case of damage for which Landlord is required to insure against pursuant to Section 13, or by which the cost to repair such damage exceeds three percent (3%) of the full replacement cost, in case of damage for which Landlord is not required to insure against pursuant to Section 13.

Landlord shall not use its termination rights under this Section solely in order to obtain higher rents for the Premises from Tenant or another tenant. Landlord shall use commercially reasonable efforts to obtain insurance proceeds from the applicable insurer and to reimburse Tenant for the Tenant Share upon Landlord’s receipt of that portion of the insurance proceeds to the extent available

16.2 Tenant’s Costs and Insurance Proceeds . In the event of any damage or destruction of all or any part of the Premises, Tenant shall immediately notify Landlord of the damage or destruction.

16.3 Abatement of Rent . If as a result of any such damage, repair, reconstruction or restoration of the Premises, Tenant is prevented from using, and does not use, the Premises or any portion of it, then the rent shall be abated or reduced, as the case may be, during the period that Tenant continues to be so prevented from using and does not use the Premises or portion of it, in the proportion that the rentable square feet of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable square feet of the Premises. Except for abatement of rent as provided in this Section 16.3, Tenant shall not be entitled to any compensation or damages for loss of, or interference with, Tenant’s business or use or access of all or any part of the Premises resulting from any such damage, repair, reconstruction or restoration.

16.4 Inability to Complete . Notwithstanding anything to the contrary contained in this Section 16, if Landlord is obligated or elects to repair, reconstruct or restore the damaged portion of the Premises pursuant to Section 16.1 above, but is delayed from completing such repair, reconstruction or restoration beyond the date which is one hundred twenty (120) days after the date estimated by Landlord’s contractor for completion of the repair, reconstruction or restoration pursuant to Section 16.1, by reason of any causes beyond the reasonable control of Landlord (including, without limitation, any delay due to Force Majeure as defined in Section 31.13, and delays

 

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caused by Tenant or any Tenant Parties), then either Party may elect to terminate this Lease upon ten (10) days’ prior written notice to the other Party.

16.5 Damage Near End of Term . In addition to its termination rights in Sections 16.1 and 16.4 above, Landlord shall have the right to terminate this Lease if the Premises are damaged to an extent exceeding forty percent (40%) of the full replacement cost of the Premises occurs during the last twelve (12) months of the Term of this Lease, unless Tenant has exercised its Extension Option to extend the Lease Term.

16.6 Waiver of Termination Right . This Lease sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction. Accordingly, the Parties hereby waive the provisions of California Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 (and any successor statutes permitting the Parties to terminate this Lease as a result of any damage or destruction).

17. Eminent Domain .

17.1 Substantial Taking . Subject to the provisions of Section 17.4, in case the whole of the Premises, or such part of the Premises as shall substantially interfere with Tenant’s use and occupancy of the Premises as reasonably determined by Landlord and Tenant, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, Tenant shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority.

17.2 Partial Taking; Abatement of Rent . In the event of a taking of a portion of the Premises which does not substantially interfere with the conduct of Tenant’s business, then, except as otherwise provided in the immediately following sentence, neither Parry shall have the right to terminate this Lease and Landlord shall thereafter proceed to make a functional unit of the remaining portion of the Premises (but only to the extent Landlord receives proceeds from the condemning authority), and rent shall be abated with respect to the part of the Premises which Tenant shall be so deprived on account of such taking.

17.3 Condemnation Award . Subject to the provisions of Section 17.4, in connection with any taking of the Premises or the Buildings, Landlord shall be entitled to receive the entire amount of any award which may be made or given in such taking or condemnation, without deduction or apportionment for any estate or interest of Tenant, it being expressly understood and agreed by Tenant that no portion of any such award shall be allowed or paid to Tenant for any so-called bonus or excess value of this Lease, and such bonus or excess value shall be the sole property of Landlord. Tenant shall not assert any claim against Landlord or the taking authority for any compensation because of such taking (including any claim for bonus or excess value of this Lease); provided, however, if any portion of the Premises is taken, Tenant shall be entitled to compensation for the unamortized value of the improvements made to the Premises paid for by Tenant, and shall be entitled to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the taking of Tenant’s furniture, fixtures, equipment and other personal property within the Premises, for Tenant’s relocation expenses, and for any loss of goodwill or other damage to Tenant’s business by reason of such taking.

17.4 Temporary Taking . In the event of a taking of the Premises or any part of it for temporary use, (a) this Lease shall be and remain unaffected thereby and rent shall not abate, and (b) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall perform its obligations under Section 31 with respect to surrender of the Premises and shall pay to Landlord the portion of any award which is attributable to any period of time beyond the Term expiration date. For purpose of this Section 17.4, a temporary taking shall be defined as a taking for a period of two hundred ten (210) days or less.

17.5 Waiver of Termination Right . This Lease sets forth the terms and conditions upon which this Lease may terminate in the event of a taking. Accordingly, the Parties waive the provisions of the California Code of Civil Procedure Section 1265.130 and any successor or similar statutes permitting the Parties to terminate this Lease as a result of a taking.

18. Assignment and Subletting .

18.1 Restriction on Transfer . Tenant will not assign this Lease in whole or in part, nor sublet all or any part of the Premises (collectively and individually, a “Transfer” ), without the prior written consent of Landlord, which consent Landlord will not unreasonably withhold. The consent by Landlord to any Transfer shall not constitute a waiver of the necessity for such consent to any subsequent Transfer. This prohibition against Transfers shall be construed to include a prohibition against any assignment or subletting by operation of law. If this Lease is Transferred by Tenant, or if the Premises or any part of it are Transferred or occupied by any person or entity other than Tenant, Landlord may collect rent from the assignee, subtenant or occupant, and apply the net amount collected to the rent herein reserved, but no such Transfer, occupancy or collection shall be deemed a waiver on the part of Landlord, or the acceptance of the assignee, subtenant or occupant as Tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained unless expressly made in writing by Landlord. Irrespective of any Transfer, Tenant shall remain fully liable under this Lease and shall not be released from performing any of the terms, covenants and conditions of this Lease. Without limiting in any way

 

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Landlord’s right to withhold its consent on any reasonable grounds, it is agreed that Landlord will not be acting unreasonably in refusing to consent to a Transfer if, in Landlord’s opinion, (i) the proposed assignee or subtenant does not have the financial capability to fulfill the obligations imposed by the Transfer, or (ii) the proposed assignee or subtenant is not, in Landlord’s reasonable opinion, of reputable or good character or consistent with Landlord’s desired tenant mix for the Project. Any proposed assignee or subtenant which Landlord does not disapprove shall be deemed a “Permitted Transfer.”

18.2 Permitted Transfers . Notwithstanding anything contained in Section 18 to the contrary, (i) Landlord’s consent shall not be required pursuant to a Transfer in connection with the initial public offering of the stock of Tenant, and (ii) Tenant may Transfer this Lease without Landlord’s consent, and without payment of any amount to Landlord, to an “Affiliate” (defined below) of Tenant, so long as the financial condition of the Affiliate is sufficient to insure the transferee’s ability to perform Tenant’s obligations under this Lease. As used in this Lease, “Affiliate” means (i) an entity controlled by or under common control with Tenant; (ii) a corporation with whom Tenant merges or consolidates; or (iii) a purchaser of all or substantially all of Tenant’s assets (a “Sale of the Business” ). No such Transfer shall be deemed a release of Tenant from the further performance by Tenant of covenants on the part of Tenant contained in this Lease, and Tenant shall remain liable, jointly and severally and as a principal, and not as a guarantor or surety, under this Lease, to the same extent as though no Transfer by Tenant had been made. Neither the sale nor transfer of Tenant’s capital stock shall be deemed a Transfer. No such Transfer shall be a subterfuge by Tenant to avoid its obligations under this Lease or to deprive Landlord of its rights under this Lease.

18.3 Transfer Notice . If Tenant desires to effect a Transfer, then at least thirty (30) days prior to the date when Tenant desires the Transfer to be effective (the “Transfer Date” ), Tenant shall give Landlord a notice (the “Transfer Notice” ), stating the name, address and business of the proposed assignee, sublessee or other transferee (sometimes referred to hereinafter as “Transferee” ), reasonable information (including references) concerning the character, ownership and financial condition of the proposed Transferee, the Transfer Date, any ownership or commercial relationship between Tenant and the proposed Transferee, and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord may reasonably require.

18.4 Landlord’s Options . Within thirty (30) days of Landlord’s receipt of any Transfer Notice, and any additional information requested by Landlord concerning the proposed Transferee’s financial responsibility, Landlord will notify Tenant of its election to do one of the following: (i) consent to the proposed Transfer subject to such reasonable conditions as Landlord may impose in providing such consent; or (ii) refuse such consent, which refusal shall be on reasonable grounds.

18.5 Additional Conditions . A condition to Landlord’s consent to any Transfer, Tenant shall deliver to Landlord a true copy of the fully executed instrument of assignment, sublease, transfer or hypothecation, in form and substance reasonably satisfactory to Landlord. Tenant shall pay to Landlord, as additional rent, all sums and other consideration payable to and for the benefit of Tenant by the Transferee in excess of the rent payable under this Lease for the same period and portion of the Premises. In calculating excess rent or other consideration which may be payable to Landlord under this Section, Tenant will be entitled to deduct the unamortized value of the improvements paid for by Tenant in the Premises, including the portion of the General Purpose Improvements in excess of the Allowance, the portion of the Building Shell Costs (defined in the Work Letter) paid for by Tenant and Specialized Improvements paid for by Tenant (and including any uninsured amounts paid for by Tenant in rebuilding the same following a casualty which occurs prior to the Commencement Date) and commercially reasonable third party brokerage commissions and attorneys’ fees, alterations made to effectuate the Transfer, and other amounts reasonably and actually expended by Tenant in connection with such assignment or subletting if acceptable written evidence of such expenditures is provided to Landlord. No Transfer will release Tenant of Tenant’s obligations under this Lease or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant under this Lease. Landlord may require that any Transferee remit directly to Landlord on a monthly basis all monies due Tenan