TRIPLE NET SPACE LEASE

Exhibit 10.1

 

TRIPLE NET SPACE LEASE

 

between

 

MARY AVENUE OFFICE LLC

 

as

 

LESSOR

 

and

 

BLUE COAT SYSTEMS, INC.,

 

a Delaware corporation

 

as

 

LESSEE

 

for

 

PREMISES

 

at

 

420 North Mary Avenue

 

Sunnyvale, California

 

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ARTICLE I

PARTIES

 

Section 1.01 Parties .

 

This Lease, dated for reference purposes, and effective as of April 21, 2005, is made by and between MARY AVENUE OFFICE LLC, a California limited liability company (“ Lessor ”) and BLUE COAT SYSTEMS, INC., a Delaware corporation (“ Lessee ”).

 

ARTICLE II

PREMISES

 

Section 2.01 Demise of Premises .

 

Lessor hereby leases to Lessee and Lessee leases from Lessor for the Lease Term, at the rental, and upon all of the terms and conditions set forth herein, certain space consisting of an agreed one hundred sixteen thousand five hundred eighty-six (116,586) square foot building (the “ Building ”) commonly known as 420 North Mary Avenue in Santa Clara, California which is one of three free standing , office and research and development buildings (“ Buildings ”) on real property situated in the City of Sunnyvale, County of Santa Clara, State of California and commonly known as 410 through 430 North Mary Avenue. The Building, together with the real property described in Exhibit A attached hereto are hereinafter referred to as the “ Premises .” Lessor reserves the right to access and use the restrooms and janitor, telephone and electrical closets (as well as the space above any dropped ceilings), and any MPOEs on the Premises for cabling, wiring, pipes and other Building system elements. The rentable square footage of the Premises, Building and other Buildings (the “ Rentable Area ”) has been determined and certified by Lessor’s architect by a method described as “dripline,” whereby the measurement encompasses the outermost perimeter of the constructed building, including every projection thereof and all area beneath each such projection, whether or not enclosed, with no deduction for any inward deviation of structure and with the measurement being made floor by floor, but beginning from the top of the Building. The Premises, the Buildings and appurtenances described herein, including Common Area (defined below), and all other improvements at 410 through 430 North Mary Avenue together with the land on which the same are located are together designated as the project (“ Project ”).

 

Section 2.02 Common Area .

 

During the Lease Term, Lessee shall have the non-exclusive right to use the Common Area defined herein. Lessor reserves the right to modify the Common Area, including increasing or reducing the size, adding additional buildings, structures or other improvements or changing the use, configuration and elements thereof in its sole discretion and to close or restrict access from time to time for repair, maintenance or construction or to prevent a dedication thereof, provided that Lessee nonetheless (i) shall have reasonable access to parking and the Premises during such activities; and (ii) such modifications, when completed, shall not unreasonably interfere with or restrict Lessee’s possession and use of the Premises. Lessor further reserves the right to establish, repeal and amend from time to time rules and regulations for the use of the Common Area and to grant reciprocal easements or other rights to use the

 

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Common Area to owners of other property provided that no amendment to the rules and regulations shall unreasonably interfere with or restrict Lessee’s use of the Premises or unreasonably and materially increase Lessee’s Share of Operating Expenses and provided further, to the extent of any conflict between an express provision of this Lease (other than the attached Rules and Regulations) and such amended Common Area rules and regulations, this Lease controls. “Common Area” means all portions of the Project other than the Buildings, including landscaping, sidewalks, walkways, driveways, curbs, parking lots (including striping), roadways within the Project, sprinkler systems, lighting, surface water drainage systems and additional or different facilities as Lessor may from time to time designate or install or make available for the use by Lessee in common with others.

 

Section 2.03 Parking .

 

Lessee shall have the non-exclusive use of Lessee’s proportionate share (calculated using the same method as Lessee’s Share below) of the parking spaces located within the Common Area, which is currently three and one half (3.5) spaces per one thousand (1,000) square feet of useable space within the Premises; provided, however, that: (i) ten (10) of such parking spaces shall be provided to Lessee on an exclusive basis for the visitors of Lessee at a location in front of the Premises in the approximate locations indicated on Schedule 2 attached hereto and marked in stencil to state “Blue Coat Systems Visitor,” and (ii) that the parking podium, while still considered part of the Common Area, shall be for the exclusive use of Lessee. In the event Lessor elects or is required by any law to limit or control parking at the Premises, whether by validation of parking tickets or any other method of assessment, Lessee agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Lessor. Lessor agrees that Lessee’s access to parking shall not be unreasonably limited beyond any requirement of law by any such rules and regulations. All costs associated with parking shall be an element of Common Area costs payable hereunder in Article VI for reimbursement of repair, replacement and maintenance costs and expenses, and in Article IX for payment or reimbursement of any real property taxes including governmental or public authority charges, fees or impositions of any nature hereafter imposed.

 

Section 2.04 Furniture .

 

During the Lease Term and any properly exercised Extension Term Lessor shall also lease to Lessee the furniture described in Schedule 1 attached hereto (collectively, the “Furniture”). Lessee shall not have, or at any time acquire, any right, title or interest in the Furniture (event to the extent that Lessee uses the Allowance (as defined in Section 6.05 below) for modifications to or purchase of additional Furniture to the Premises, except the right to possession and use of the Furniture during the Lease Term. Lessee shall maintain the Furniture in good working order and condition during the Lease Term, at Lessee’s sole expense, ordinary wear and tear excepted. Lessee shall not modify or alter the Furniture, or remove the Furniture without the prior written consent of Lessor and, upon the expiration or earlier termination of this Lease, deliver the Furniture to Lessor in the same condition in which it was received from Lessor on the Commencement Date, reasonable wear and tear excepted. Lessor shall, at Lessor’s sole expense, perform one of the following modifications to the Furniture, at Lessee’s election: (i) increase the height of all 51” high panels to 64 ½” using an add-on privacy screen panel provided

 

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by Sidemark with the following specifications: ¼” thick x 14 ½” high with two (2) end posts and center bracket, using 3-form with varia/solo panel material, or (ii) increase the height of seventy-five percent (75%) of the existing 51” panels to 64 ½” by replacing the existing 51” panel with a new 64 ½” panel to match existing finishes. In addition, Lessor shall, at Lessor’s sole expense, replace the perforated panel in the storage wall with a solid panel to match the existing finish. Lessor shall also provide Lessee with an improvement allowance (the “Workstation Allowance”) in an amount of up to Ten Thousand Dollars ($10,000) to be used to reconfigure up to fifteen percent (15%) of the existing workstations. The Workstation Allowance shall be paid to Lessee in one lump sum payment upon Lessee’s delivery of invoices evidencing such expenses, along with lien releases (as relevant) for such work. The Workstation Allowance must be used by Lessee on or before June 30, 2006 or it shall be deemed forfeited by Lessee.

 

ARTICLE III

TERM

 

Section 3.01 Lease Term .

 

(a) Commencement Date .

 

The term of this Lease (“ Lease Term ”) shall begin on September 1, 2005 or any earlier date on which Lessee or Lessee’s invitees commences Lessee’s business operations at the Premises (the “ Commencement Date ”) and expire, unless sooner terminated as provided for herein, on August 31, 2010 (“ Expiration Date ”). The parties shall execute a “Memorandum of Commencement of Lease Term” on the Commencement Date and shall be substantially in the form attached hereto as Exhibit “B”.

 

Section 3.02 Option to Extend .

 

(a) Exercise .

 

Lessee is given one (1) option to extend the Lease Term (the “Option to Extend”) for one (1) five (5) year period (“Extended Term”) following the date on which the initial Lease Term would otherwise expire, which option may be exercised only by written notice (“Option Notice”) from Lessee to Lessor given not less than twelve (12) months prior to the end of the initial Lease Term (“Option Exercise Date”); provided, however, if any of the Conditions to the Option to Extend are not met on the Option Exercise Date or on any day thereafter on or before the last day of the initial Lease Term, the Option Notice shall be totally ineffective, and this Lease shall expire on the last day of the initial Lease Term, if not sooner terminated. As used herein, the term “Conditions to the Option to Extend” shall mean all of the following conditions to the effectiveness of Lessee’s exercise of the Option to Extend: (i) Lessee is not in default under this Lease, (ii) Lessee has not assigned this Lease to any party other then an Affiliate, (iii) Lessee has not sublet more than fifty percent (50%) of the rentable square footage of the Premises to any party other than an Affiliate, (iv) Lessee or any Affiliate thereof is then in physical occupancy of at least fifty percent (50%) of the then-existing rentable square footage of the Premises and (v) Lessee has not been in default beyond any applicable grace and cure periods hereunder during the initial Lease Term on more than three (3) occasions.

 

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(b) Extended Term Rent .

 

In the event Lessee exercises the Option to Extend set forth herein, all the terms and conditions of this Lease shall continue to apply to the Extended Term, except that the Base Rent payable by Lessee during the Extended Term shall be equal to ninety-five percent ( 95% ) of Fair Market Rent (defined below), as determined under subparagraph (c) below. “ FairMarket Rent ” shall mean the effective rate being charged (including periodic adjustments thereto as applicable during the period of the Extended Term), for comparable space in similar buildings in the vicinity, i.e., of a similar age and quality considering any recent renovations or modernization, and floor plate size or, if such comparable space is not available, adjustments shall be made in the determination of Fair Market Rent to reflect the age and quality of the Building and Premises as contrasted to other buildings used for comparison purposes, with similar amenities, taking into consideration: size, location, floor level, leasehold improvements or allowances provided or to be provided, term of the lease, extent of services to be provided, the time that the particular rate under consideration became or is to become effective, and any other relevant terms or conditions applicable to both new and renewing tenants.

 

(c) Determination of Fair Market Rent.

 

(i) Negotiation .

 

At any time prior to Lessee’s delivery of the Option Notice to Lessor, but in no event earlier than fifteen (15) months prior to the expiration of the initial Lease Term, Lessee may request in writing that Lessor provide Lessee with a written estimate (the “Rent Estimate”) in the form of a range of potential rental rates, of Lessor’s determination of the Fair Market Rent for the Premises for the Extended Term. Lessor shall deliver such Rent Estimate to Lessee within fifteen (15) business days of receipt of Lessee’s request therefor. The parties hereto acknowledge and agree that the Rent Estimate shall not be a binding agreement upon either party as to the Fair Market Rent for the Extended Term or an exercise by Lessee of Lessee’s Option to Extend. Such Rent Estimate is to be provided merely as an accommodation to Lessee in order to assist Lessee in determining whether to exercise Lessee’s Option to Extend hereunder. If Lessee so exercises its Option to Extend in a timely manner, the parties shall then meet in good faith to negotiate the Base Rent for the Premises for the Extended Term, during the first thirty (30) days after the date of the delivery by Lessee of the Option Notice (the “ Negotiation Period ”). If, during the Negotiation Period, the parties agree on the Base Rent applicable to the Premises for the corresponding Extended Term, then such agreed amount shall be the Base Rent payable by Lessee during such Extended Term.

 

(ii) Arbitration .

 

In the event that the parties are unable to agree on the Base Rent for the Premises within the Negotiation Period, then within ten (10) business days after the expiration of the Negotiation Period, each party shall separately designate to the other in writing an appraiser to make this determination. Each appraiser designated shall be a member of MAI and shall have at least ten (10) years experience in appraising commercial real property, of similar quality and use as the Premises, in Santa Clara County. The failure of either party to appoint an appraiser within the time allowed shall be deemed equivalent to appointing the appraiser appointed by the other party, who shall then determine the Fair Market Rent for the Premises for the Extended Term. Within five (5) business days of their appointment, the two designated appraisers shall jointly

 

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designate a third similarly qualified appraiser. Within thirty (30) days after their appointment, each of the two appointed appraisers shall submit to the third appraiser a sealed envelope containing such appointed appraiser’s good faith determination of the Fair Market Rent for the Premises for the Extended Term in accordance with the procedures and guidelines set forth herein; concurrently with such delivery, each such appraiser shall deliver a copy of his or her determination to the other appraiser. The third appraiser shall within ten (10) days following receipt of such submissions, then determine which of the two appraisers’ determinations most closely reflects Fair Market Rent as defined above. The determination most closely reflecting the third appraiser’s determination shall be deemed to be the Fair Market Rent for the Premises during the Extended Term; the third appraiser shall have no rights to adjust, amend or otherwise alter the determinations made by the appraiser selected by the parties, but must select one or the other of such appraisers’ submissions. The determination by such third appraiser shall be final and binding upon the parties. Said third appraiser shall, upon selecting the determination which most closely reflects Fair Market Rent, concurrently notify both parties hereto. The Base Rent for the Extended Term shall be the determination so selected. The parties shall share the appraisal expenses equally. If the Extended Term begins prior to the determination of Fair Market Rent, Lessee shall pay monthly installments of Base Rent equal to one hundred ten percent (110%) of the monthly installment of Base Rent in effect for the last year of the initial Lease Term (in lieu of “holdover rent” payable under Section 17.09(b)). Once a determination is made, any over payment or under payment shall be reimbursed as a credit against, or paid by adding to, the monthly installment of Base Rent next falling due.

 

Section 3.03 Early Entry .

 

Notwithstanding anything herein to the contrary, upon the execution of this Lease by Lessor and Lessee, provided that Lessee has delivered to Lessor the Letter of Credit Security, the first month’s Base Rent and certificates evidencing the insurance described in Article VII below, Lessee and Lessee’s invitees may enter the Premises, at Lessee’s sole risk, for the sole purpose of installation of Lessee’s trade fixtures, equipment, telecommunications systems and other equipment thereon. Lessee’s occupancy of the Premises prior to the Commencement Date shall be on all of the terms and conditions of this Lease (including the obligation to pay utilities described in Section 10.01 below), except the obligation to pay Base Rent, Operating Expenses and real property taxes. Lessee and Lessee’s agents, employees, representatives and contractors shall at all times during such period of early entry avoid interfering with Lessor’s ongoing work in substantially completing the improvements to be constructed by Lessor therein.

 

ARTICLE IV

RENT: TRIPLE NET LEASE

 

Section 4.01 Base Ren t.

 

Subject to the terms of this Section 4.01 below, Lessee shall pay to Lessor the Base Rent described below, in advance, on the first day of each calendar month of the Lease Term, commencing on September 1, 2005. The Base Rent due hereunder for the ninth month of the Lease Term shall be paid upon execution of this Lease. Base Rent for any period during the Lease Term which is for less than one month shall be a pro rata portion of the monthly installment (based on the actual days in that month). Lessee may (but shall not be required to)

 

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make payment to Lessor by electronic funds transfer or direct deposit account of all amounts required by the terms of this Lease to be paid by Lessee. The monthly Base Rent installments due hereunder shall be as described below. Notwithstanding anything herein to the contrary, provided that Lessee is never in default hereunder beyond any applicable cure period during the first twelve (12) months of the Lease Term so that Lessor properly exercises Lessor’s remedies pursuant to Subsection 12.02 of this Lease, then the Base Rent for the first six (6) months of the Lease Term in the aggregate amount of Five Hundred Seventy-Three Thousand Six Hundred Three and 12/100 Dollars ($573,603.12) (the “Excused Base Rent”) shall be excused and Lessee shall have no obligation whatsoever to pay such Excused Base Rent. However, should Lessee default hereunder beyond any applicable cure period during such twelve (12) month period such that Lessor properly exercises Lessor’s remedies pursuant to Subsection 12.02 of this Lease, then the Excused Base Rent shall no longer be excused and shall become an obligation of Lessee hereunder, and Lessor shall be entitled to seek recovery of the Excused Base Rent as part of the damages to which Lessor is entitled pursuant to the terms of this Lease.

 

 

Section 4.02 Absolute Triple Net Lease .

 

This Lease is what is commonly called a “Absolute Triple Net Lease,” it being understood that Lessor shall receive the Base Rent set forth in Section 4.01 free and clear of any and all expenses, costs, impositions, taxes, assessments, liens or charges of any nature whatsoever. Lessee shall pay all rent in lawful money of the United States of America to Lessor at the notice address stated herein or to such other persons or at such other places as Lessor may designate in writing on or before the due date specified for same without prior demand, set-off or deduction of any nature whatsoever. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by Lessee and that Lessee shall in no event be entitled to any abatement of or reduction in rent payable under this Lease, except as herein expressly provided in Articles VIII and XIII, concerning destruction and condemnation. Any present or future law to the contrary shall not alter this agreement of the parties.

 

Section 4.03 Additional Rent .

 

In addition to the Base Rent reserved by Section 4.01, Lessee shall pay, beginning on the Commencement Date and continuing throughout the Lease Term (and notwithstanding the waiver of Base Rent payments as provided in Section 4.01) as Additional Rent (i) 100% as to amounts applicable solely to the Premises and Lessee’s Share (as defined in

 

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Section 4.04(c) below) as to amounts applicable to Building, the Project and the Common Area of all taxes, assessments, fees and other impositions payable by Lessee in accordance with the provisions of Article IX and insurance premiums in accordance with the provisions of Article VII, (ii) Lessee’s Share of Operating Expenses defined below, and (iii) any other charges, costs and expenses whether or not contemplated which may arise under any provision of this Lease during the Lease Term, plus a Management Fee to Lessor equal to three percent (3%) of the Base Rent (the monthly Base Rent for the first six (6) months of the Lease Term is hereby agreed to be Ninety-Five Thousand Six Hundred and 52/100 Dollars ($95,600.52) for the purposes of calculation of the Management Fee during such initial six (6) month period). The Management Fee is due and payable, in advance, with each installment of Base Rent . All of such charges, costs, expenses, Management Fee and all other amounts payable by Lessee hereunder, shall constitute Additional Rent, and upon the failure of Lessee to pay any of such charges, costs or expenses, Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay Base Rent.

 

Section 4.04 Operating Expenses .

 

(a) Definition .

 

“ Operating Expenses ” shall mean and include those actual costs or expenses of the Premises, Building or Project described in Articles VI, VII or IX, as well as all actual costs and expenses of every kind and nature paid or incurred by Lessor (whether obligated to do so or undertaken at Lessor’s discretion) in the ownership, operation, maintenance, repair and replacement of the Common Areas. Such cost and expenses shall include, but not be limited to, costs of cleaning; lighting; maintaining, repairing and replacing all Common Area improvements and elements and if a capital item, to be amortized as set forth hereafter (replacing shall be deemed to include but not be limited to the replacement of light poles and fixtures, storm and sanitary sewers, parking lots, driveways and roads as well as roof, roof membrane and other Building elements which are the responsibility of Lessor to maintain, repair and replace under this Lease), supplies, tools, equipment and materials used in the operation and maintenance of the Project; snow removal; parking lot striping; removal of trash, rubbish, garbage and other refuse; painting; removal of graffiti; painting of exterior walls; landscaping; providing security to the extent Lessor determines in its sole discretion to do so (including security systems and/or systems designed to safeguard life or property against acts of God and/or criminal and/or negligent acts, and the costs of maintaining of same); personal property taxes; fire protection and fire hydrant charges (including fire protection system signaling devices, now or hereafter required, and the costs of maintaining of same); water and sewer charges; utility charges; license and permit fees necessary to operate and maintain the Project; the initial cost or the reasonable depreciation of equipment used in operating and maintaining the Common Areas which is expensed or amortized, as hereafter provided: respectively by Lessor in its good faith discretion using accounting practices commonly utilized in the commercial real estate industry, consistently applied and rent paid for leasing any such equipment; reasonable cost of on or off site storage space of any and all items used in conjunction with the operation, maintenance and management of the Project, including but not limited to tools, machinery, records, decorations, tables, benches, supplies and meters; the cost of and installation cost of any and all items which are installed for the purpose of reducing Operating Expenses, increasing building or public safety or which may be then required by governmental authority, laws, statutes, ordinances and/or

 

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regulations; total compensation and benefits (including premiums for workers’ compensation and other insurance) paid to or on behalf of Lessor’s employees, agents, consultants and contractors, including but not limited to full or part time on-site management or maintenance personnel.

 

Notwithstanding the above, if Lessee’s Share of the cost of any particular capital expenditure to the Project exceeds Fifteen Thousand Dollars ($15,000), or if Lessee’s Share of the cost of any particular capital expenditure to the Building exceeds Thirty Thousand Dollars ($30,000), then such cost shall be amortized over its useful life, and the amount includible in Operating Expenses shall be limited to the monthly amortized cost thereof. The determination of what constitutes a capital expenditure and the useful life applicable thereto shall be made by Lessor in its good faith discretion using accounting practices commonly utilized in the commercial real estate industry, consistently applied. Notwithstanding the foregoing, capital expenditures shall be limited to the following four (4) events only: those that are (a) reasonably intended to reduce operating costs or energy consumption; (b) required after the date of this Lease under any governmental law or regulations that was not applicable to the Project at the time it was original constructed; (c) for repair or replacement of any equipment or improvements needed to operate and/or maintain the Building, the Common Areas and/or the Project at the same quality levels as prior to the repair or replacement; or (d) for capital items in which the useful life has run out, or which have deteriorated to the extent that Lessor, in Lessor’s reasonable opinion, feels that the repair or replacement of such capital items is necessary.

 

(b) Payment .

 

Lessee shall pay Lessee’s Share of Operating Expenses, as Additional Rent, in monthly installments on the first day of each month in an amount set forth in a written estimate by Lessor. Lessor agrees that it will base its estimate on Lessor’s experience in managing the Project and in a reasonable manner. As soon as available following the time period used by Lessor in determining Lessor’s annual Operating Expenses, Lessor shall furnish to Lessee a statement (hereinafter referred to as “Lessor’s Statement”) of the actual amount of Lessee’s Share of such Operating Expenses for such period. Within thirty (30) days thereafter, Lessee shall pay to Lessor, as Additional Rent, or Lessor shall apply as a credit to Additional Rent next falling due (or if the Lease Term has expired or terminated and there remains no money due to Lessor, remit to Lessee), as the case may be, the difference between the estimated amounts paid by Lessee and the actual amount of Lessee’s Share of Operating Expenses for such period as shown by such Statement. Lessee’s Share of Operating Expenses for the ensuing estimation period shall be adjusted upward or downward based upon Lessor’s Statement.

 

(c) Lessee’s Share .

 

For purposes hereof, “Lessee’s Share” shall mean (i) as to amounts incurred by Lessor for the sole benefit of Lessee which are billed directly to Lessee, all of such amounts, (ii) as to amounts allocable solely to Building, one hundred percent (100%), and (iii) as to amounts allocable to the Project or Common Area, the Rentable Area of Building divided by the Rentable Area of all Buildings at the Project (irrespective of whether they are rented), in each case measured (at the time in question) on a dripline basis. Subject to being increased or decreased (in an amount Lessor shall, in good faith, determine), upon the increase or reduction in the Rentable Area of the Building and Project, respectively, Lessee’s Share of expenses incurred by

 

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Lessor for the sole benefit of Lessee which are billed directly to Lessee shall be one hundred percent (100%) and Lessee’s Share of Operating Expenses for the Project shall be thirty-three and one third percent (33.3%); provided, however, that during the first eighteen (18) months of the Lease Term, Lessee’s Share of the Operating Expenses incurred solely for the Building shall be sixty-six and two thirds percent (66.66%) and Lessee’s Share of Operating Expenses for the Project shall be twenty-two and twenty-two hundreths percent (22.22%). Rentable Area of Building and of all Buildings at the Project shall not be reduced for vacancies in the ordinary course of business.

 

(d) Exclusions .

 

For purposes of this Lease, the term Operating Expenses shall not include (and Lessee shall have no liability for) any of the following: (i) any expenses incurred by Lessor for the sole benefit of Lessee, which expenses are reimbursed by Lessee pursuant to the other terms of this Lease, (ii) any expenses incurred by Lessor for the benefit of all of the other tenants of the Project, but not Lessee, which expenses are in fact reimbursed by all such other tenants, (iii) any payments of interest or principal relating to any debt secured by Building or the Project (except for any amounts due pursuant to Section 9.01(a) hereof), (iv) Lessor’s non-cash depreciation and amortization of the initial construction of any Common Area improvements; provided that nothing herein shall limit Lessor’s ability to collect the cost of other capitalized items pursuant to the terms of this Lease, (v) the cost of relocating any tenants of the Project, (vi) the cost of any item for which Lessor is actually reimbursed by insurance, condemnations, refund or rebate.(vii) any amount paid to any entity related to Lessor which is in excess of the amount which would have been paid in the absence of such relationship, (viii) any expenses for repairs or maintenance to the extent actually recovered under any warranties or guarantees applicable to Building or the Project, (ix) any cost of removing, encapsulating or handling asbestos at the Project, (x) any cost or expense arising from any defaults by Lessor under this Lease or any other lease in the Project, (xi) marketing costs, costs of leasing commissions, attorneys’ fees and other costs and expenses incurred in connection with negotiations or disputes with prospective tenants or other occupants of the Building or Project, (xii) the cost of special services, goods or materials provided to any other Lessee of the Project, and (xiii) Lessor’s general overhead expenses not related to the Project.

 

Section 4.05 Lessee’s Right to Review Supporting Data .

 

(a) Exercise of Right by Lessee .

 

Provided that Lessee is not in default under this Lease and provided further that Lessee strictly complies with the provisions of this Section 4.05, Lessee shall have the right to reasonably review supporting data for any portion of a Lessor’s statement that Lessee claims is incorrect. In order for Lessee to exercise its right under this Section 4.05, Lessee shall, within thirty (30) days after any Lessor’s Statement is sent, deliver a written notice to Lessor specifying the portions of the Lessor’s statement that are claimed to be incorrect, and Lessee shall simultaneously pay to Lessor all amounts due from Lessee to Lessor as specified in the Lessor’s Statement. Except as expressly set forth in subparagraph (c) below, in no event shall Lessee be entitled to withhold, deduct, or offset any monetary obligation of Lessee to Lessor under the Lease including, without limitation, Lessee’s obligation to make all Base Rent payments and all

 

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payments for Additional Rent pending the completion of, and regardless of the results of, any review under this Section 4.05. The right to review granted to Lessee under this Section 4.05 may only be exercised once for any Lessor’s Statement, and if Lessee fails to meet any of the above conditions as a prerequisite to the exercise of such right, the right of Lessee under this Section 4.05 for a particular Lessor’s Statement shall be deemed waived.

 

(b) Procedures for Review .

 

Lessee acknowledges that Lessor maintains its books and records for 420 N. Mary and the Project at its offices in San Francisco, and Lessee therefore agrees that any review and audit of the same and supporting data under this Section shall occur at such location. Any review to be conducted by Lessee under this Section shall be at the sole expense of Lessee and shall be conducted by an independent (i.e., no then engaged by Lessee for any other purpose) firm of certified public accountants of national standing on a non-contingency fee basis. Lessee acknowledges and agrees that any supporting data reviewed under this Section shall constitute confidential information of Lessor, which shall not be disclosed to anyone other than the accountants performing the review and the principals of Lessee who receive the results of the review. The disclosure of such information or results of the review to any other person, by Lessee or its agents, whether or not caused by the conduct of Lessee, shall constitute a material breach of this Lease.

 

(c) Finding of Error .

 

Any errors disclosed by the review of supporting data under this Section shall be promptly corrected, provided that Lessor shall have the right to cause another review of the supporting data to be made by an independent (i.e., not then engaged by Lessor for any other purposes) firm of certified public accountants of Lessor’s choice. In the event of a disagreement between the two accounting firms, the review that discloses the least amount of deviation from the Lessor’s statement shall be deemed to be correct and its review shall be final and binding on both Lessor and Lessee If the results of the review of supporting data taking into account, if applicable, the results of any additional review caused by Lessor reveal that Lessee has overpaid obligations for a preceding period, the amount of such overpayment shall be credited against Lessee’s subsequent installment obligations to pay Lessee’s Share of Additional Rent, or if no Rent is owed, such overpayment shall be promptly refunded to Lessee. In the event that such results show that Lessee has underpaid its obligations for a preceding period, the amount of such underpayment shall be paid by Lessee to Lessor with the next succeeding installment obligation of Additional Rent or, if the Lease has terminated, in cash within thirty (30) days after the determination of underpayment is delivered to Lessee. Each party shall pay the cost and expense of its chosen accounting firm.

 

(d) Effect of Lessee’s Default .

 

In the event that Lessee becomes in default of its obligations under this Lease at any time during the pendency of a review of records under this Section, said right to review shall immediately cease and the matters originally set forth in the Lessor’s statement shall be deemed to be correct.

 

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Section 4.06 Letter of Credit Security .

 

(a) Deposit of Letter of Credit Security

 

Lessee shall deposit with Lessor, no later than ten (10) business days after the execution of this Lease, an unconditional, irrevocable letter of credit (“Letter of Credit”) on a form acceptable to Lessor and, if required, Lessor’s lender(s), and in favor of Beneficiary, defined below, in the amount of Three Hundred Sixty-One Thousand Four Hundred Sixteen and 60/100 Dollars ($361,416.60) (the “Letter of Credit Security”). “Beneficiary,” as used herein refers to either: (x) Lessor as beneficiary, or (y) if required by Lessor’s lender(s), Lessor and Lessor’s lender(s) as co-beneficiaries under the Letter of Credit Security. The Letter of Credit Security shall: (i) be issued by a commercial money center bank reasonably satisfactory to Lessor with retail branches in San Francisco, California (the “Issuer”); (ii) be a standby, at-sight, irrevocable letter of credit; (iii) be payable to Beneficiary; (iv) permit multiple, partial draws, (v) provide that any draw on the Letter of Credit Security shall be made upon receipt by the Issuer of a sight draft accompanied by a letter from Lessor stating that Lessor is entitled to draw on the Letter of Credit Security; (vi) provide for automatic annual extensions, without amendment (so-called “evergreen” provision) with a final expiry date no sooner than ninety (90) days after the end of the Lease Term; (vii) provide that is governed by the Uniform Customs and Practice for Documentary Credits (1993 revisions) International Chamber of Commerce Publication 500; and (viii) be cancelable if, and only if, Issuer delivers to Beneficiary no less than sixty (60) days advance written notice of Issuer’s intent to cancel. Lessee shall pay all costs, expenses, points and/or fees incurred by Lessee in obtaining the Letter of Credit Security.

 

(b) Lessor’s Right to Draw on Letter of Credit Security

 

The Letter of Credit Security shall be held by Lessor as security for the faithful performance by Lessee of all of the terms, covenants, and conditions this Lease applicable to Lessee. Lessor shall have the immediate right to draw upon the Letter of Credit Security, in whole or in part and without prior notice to Lessee, other than as required under this Lease, at any time and from time to time: (i) if a default occurs under this Lease (beyond any applicable notice and cure period), or (ii) Lessee either files a voluntary bankruptcy petition or an involuntary bankruptcy petition is filed against Lessee by an entity or entities other than Lessor, under 11 U.S.C. §101 et seq., or Lessee executes an assignment for the benefit of creditors. No condition or term of this Lease shall be deemed to render the Letter of Credit Security conditional, thereby justifying the Issuer of the Letter of Credit Security in failing to honor a drawing upon such Letter of Credit Security in a timely manner. The Letter of Credit Security and its proceeds shall constitute Lessor’s sole and separate property (and not Lessee’s property or, in the event of a bankruptcy filing by or against Lessee, property of Lessee’s bankruptcy estate) and Lessor shall immediately upon any draw (and without notice to Lessee) apply or offset the proceeds of the Letter of Credit Security against: (i) any amounts payable by Lessee under the Lease that are not paid when due, after the expiration of any applicable notice and cure period; (ii) subject to the limitations of Section 7.07(d) below, all losses and damages that Lessor has suffered or may reasonably estimate that it may suffer as a result of any default by Lessee under this Lease, including any damages arising under Section 1951.2 of the California Civil Code for rent due following termination of this Lease; (iii) any costs incurred by Lessor in connection with a default by Lessee under this Lease (including attorney’s fees); and (iv)subject

 

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to the limitations of Section 7.07(d) below, any other amount that Lessor may spend or become obligated to spend by reason of Lessee’s default under this Lease but in no event in excess of amounts to which the Lessor would be entitled under the law. If any portion of the Letter of Credit Security is so drawn upon or applied, Lessee shall, within five (5) business days after written demand therefor, deposit cash with Issuer in an amount sufficient to restore the Letter of Credit Security to its original amount; Lessee’s failure to do so shall be a Default by Lessee. It is expressly understood that Lessor shall be relying on Issuer rather than Lessee for the timely payment of proceeds under the Letter of Credit Security and the rights of Lessor pursuant to this Section are in addition to any rights which Lessor may have against Lessee pursuant to Article XII below. Lessor shall not be required to keep the proceeds from the Letter of Credit Security separate from Lessor’s general funds or be deemed a trustee of same. Lessee hereby waives any and all rights Lessee may now or hereinafter acquire pursuant to California Civil Code Section 1950.7, except with respect to Lessee’s priority rights to the security deposit as it relates to Lessor’s creditors or trustee in bankruptcy.

 

(c) Replacement Letter of Credit Security

 

If, for any reason whatsoever, the Letter of Credit Security becomes subject to cancellation or expiration during the Lease Term, within thirty (30) days prior to expiration of the Letter of Credit Security, Lessee shall cause the Issuer or another bank satisfying the conditions of Section 4.06(a) above to issue and deliver to Lessor a Letter of Credit Security to replace the expiring Letter of Credit Security (the “Replacement Letter of Credit Security”). The Replacement Letter of Credit Security shall be in the same amount as the original Letter of Credit Security and shall be on the terms and conditions set forth in items (i) through (viii) of Section 4.05(a) above. Failure of Lessee to cause the Replacement Letter of Credit Security to be issued thirty (30) days prior to the then pending expiration or cancellation shall entitle Lessor to fully draw down on the existing Letter of Credit Security and, at Lessor’s election, shall be an event of default under this Lease without any relevant notice and cure period.

 

(d) Transfer of Beneficiary

 

During the Lease Term Lessor may transfer its interest in the Lease or Lessor’s lender may change. Lessor may request a change to Beneficiary under the Letter of Credit Security to the successor of Lessor and/or Lessor’s lender (the “Transferee”). Lessor and Lessee agree to cooperate in causing Issuer, at Lessor’s cost, to timely issue a new Letter of Credit Security on the same terms and conditions as the original Letter of Credit Security, except that the new Letter of Credit Security shall be payable to the Transferee. Lessor shall surrender the existing Letter of Credit Security to Lessee simultaneously with Lessee’s delivery of the new Letter of Credit Security to Transferee.

 

(e) Return of the Letter of Credit Security

 

If Lessee fully and faithfully performs every provision of this Lease to be performed by it, the Letter of Credit Security or any balance thereof shall be returned (without interest) to Lessee (or, at Lessee’s option, to the last assignee of Lessee’s interests hereunder) within thirty (30) days after the expiration or earlier termination of the Lease and after Lessee has vacated the Premises and surrendered possession; provided that if prior to the Lease

 

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Expiration Date a voluntary bankruptcy provision is filed by Lessee, or an involuntary bankruptcy is filed against Lessee by any of Lessee’s creditors other than Lessor, under 11 U.S.C. § 101 et seq., or Lessee executes an assignment for the benefit of creditors, then Lessor shall not be obligated to return the Letter of Credit Security or any proceeds of the Letter of Credit Security until all statutes of limitations for any preference avoidance statutes applicable to such bankruptcy or assignment for the benefit of creditors have elapsed or the bankruptcy court or assignee, whichever is applicable, has executed a binding release releasing Lessor of any and all liability for the preferential transfers relating to payments made under this Lease, and Lessor may retain and offset against any remaining Letter of Credit Security proceeds the full amount Lessor is required to pay to any third party on account of preferential transfers relating to this Lease. Lessor agrees it will cooperate in providing Issuer with a letter of cancellation or such other reasonable documentation as Issuer requests to effect the return and extinguishment of the credit issued under the Letter of Credit Security.

 

(f) Acknowledgment of Parties

 

So long as the Letter of Credit Security is not reduced to cash in excess of the damage and held by Lessor, Lessor and Lessee (a) acknowledge and agree that in no event or circumstance shall the Letter of Credit Security or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context, including, but not limited to Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the “Security Deposit Laws”), (b) acknowledge and agree that the Letter of Credit Security (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (c) waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws. Lessee hereby waives the provisions of Section 1950.7 of the California Civil Code and all other provisions of law, now or hereafter in effect, which (i) establish the time frame by which a Lessor must refund a security deposit under a lease, and/or (ii) provide that a Lessor may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a Lessee or to clean the premises, it being agreed that, subject to the limitations of Section 7.07(d) below, Lessor may, in addition, claim those sums specified in this Section 4.05 and/or those sums reasonably necessary to compensate Lessor for any loss or damage caused by Lessee’s breach of this Lease, including any damages Lessor suffers following termination of this Lease.

 

ARTICLE V

USE

 

Section 5.01 Permitted Use and Limitations on Use .

 

The Premises shall be used and occupied only for the following purposes: general office, research and development, software or hardware laboratory purposes and sales and for no other use, without Lessor’s prior written consent which shall not be unreasonably withheld, conditioned or delayed so long as such use is lawful and does not conflict with any other provision of this Lease including without limitation the restrictions set forth in the following

 

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provisions of this Section. Lessee shall not use, suffer or permit the use of the Premises in any manner that will tend to constitute waste, nuisance or unlawful acts provided, that biological and chemical and other waste generated and disposed of in the ordinary course of business for the permitted uses in full and timely compliance with all applicable laws shall not be deemed a violation of this Section 5.01. In no event shall it be unreasonable for Lessor to withhold its consent as to uses other than those expressly permitted above which it determines would tend to increase materially the wear of the Premises or any part thereof or increase the potential liability of Lessor or decrease the marketability, financability, leasability or value of the Premises or Project. Lessee shall not do anything in or about the Premises which will (i) cause structural injury to the Building or Premises, or (ii) cause damage to any part of the Building or Premises except to the extent reasonably necessary for the installation of Lessee’s trade fixtures and Lessee’s Alterations, and then only in a manner and to the extent consistent with this Lease. Lessee shall not operate any equipment within the Building or Premises which will (a) materially damage the Building or the Common Area, (b) overload existing electrical systems or other mechanical equipment servicing the Building, (c) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning (“HVAC”) equipment within or servicing the Building, (d) damage, overload or corrode the sanitary sewer system, or (e) damage the Common Area or any other part of the Project. Lessee shall not attach, hang or suspend anything from the ceiling, roof, walls (other than artwork and standard wall hangings that are hung on the interior walls of the Premises and do not affect the structural components of the building) or columns of the Building or set any load on the floor in excess of the load limits for which such items are designed nor operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Lessee’s use of the Premises shall be contained and disposed so that they do not (1) create an unreasonable fire or health hazard, (2) damage the Premises, or (3) result in the violation of any law. Except as approved by Lessor, Lessee shall not change the exterior of the Building, or the outside area of the Premises, or install any equipment or antennas on or make any penetrations of the exterior or roof of the Building. Lessee shall not conduct on any portion of the Premises any sale of any kind (but nothing herein is meant to prohibit sales and marketing activities of Lessee’s products and services in the normal course of business consistent with the permitted uses), including any public or private auction, fire sale, going-out-of-business sale, distress sale or other liquidation sale, and any such sale shall be an immediate event of default hereunder without the benefit of a notice and cure period from Lessor, notwithstanding anything to the contrary in this Lease. No materials, supplies, tanks or containers, equipment, finished products or semifinished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain within the outside areas of the Premises except in fully fenced and screened areas outside the Building which have been designed for such purpose and have been approved in writing by Lessor for such use by Lessee and for which Lessee has obtained all appropriate permits from governmental agencies having jurisdiction over such articles.

 

Section 5.02 Compliance with Law .

 

(a) Lessor shall deliver the Premises to Lessee on the Commencement Date (without regard to the use for which Lessee will use the Premises) free of violations of Title III of the Americans with Disabilities Act of 1990, as such Act existed as of the date the Premises were built.

 

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(b) Except as provided in paragraph 5.02(a), Lessee shall, at Lessee’s cost and expense, comply promptly with all statutes, ordinances, codes, rules, regulations, orders, covenants and restrictions of record, and requirements applicable to the Premises and Lessee’s particular use and occupancy of same in effect during any part of the Lease Term, whether the same are presently foreseeable or not, and without regard to the cost or expense of compliance provided that any Alteration(s) required for compliance shall be subject to the provisions of this Lease.

 

(c) By executing this Lease, Lessee acknowledges that it has reviewed and satisfied itself as to its compliance, or intended compliance with the applicable zoning and permit laws, hazardous materials and waste requirements, and all other statutes, laws, or ordinances relevant to the uses stated in Section 5.01, above.

 

Section 5.03 Condition of Premises at Commencement Date .

 

Lessor shall deliver the Premises to Lessee on the Commencement Date with the Building roof and the base building plumbing, lighting, heating, ventilating, air conditioning (excluding the Liebert units on the first and second floors), gas, electrical (excluding the two UPS units located on the first floor), and sprinkler systems (but not any supplemental portions thereof added to such base building systems and surrendered by any previous tenants of the Building) in good operating condition, subject to any damage thereto caused by Lessee while at the Premises prior to the Commencement Date. Additionally, on or before the Commencement Date, Lessor shall, at Lessor’s expense, (i) raise the existing separating wall height in the cubes to sixty-six inches, replace the perforated panel between the cubes with a solid panel, and shall add on an additional work surface (24 inches or 36 inches) in the cubes pursuant to mutually agreed upon specifications, (ii) shall be responsible for a one-time reconfiguration of up to fifteen percent (15%) of the existing cubicles in the Premises, provided that Lessor shall not be obligated to spend more than Ten Thousand Dollars ($10,000) in connection with such reconfiguration. Further, the obligations of Lessor hereunder shall not apply to the extent that Lessee’s actions on the Premises shall result in the termination or invalidity of any warranty that Lessor has received from a third party in connection with those building systems. Subject only to the foregoing sentence, Section 5.02(a) above and Sections 5.04 and 6.01(b) below, and having made such inspection of the Premises, Furniture, Building and Project as it deemed prudent and appropriate (including, without limitation, testing for the presence of mold), Lessee hereby accepts the Premises and Furniture in their condition existing as of the Commencement Date, “AS-IS” and “WITH ALL FAULTS” subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use and condition of the Premises, and any covenants or restrictions, liens, encumbrances and title exceptions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Except as otherwise expressly provided in Section 5.02(a) and Section 5.03 above as to the condition of the Premises on the Commencement Date, Lessee acknowledges that neither Lessor nor any agent of Lessor has made any representation or warranty as to the present or future suitability of the Premises or Furniture for the conduct of Lessee’s business.

 

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Section 5.04 Defective Condition at Commencement Date .

 

In the event that Lessee determines, and Lessee notifies Lessor in writing within six (6) months after the Commencement Date, that any of the obligations of Lessor set forth in Section 5.02(a) or Section 5.03 were not performed, and such failure is not due to Alterations to the Premises made by Lessee or Lessee’s activities at the Premises, then it shall be the obligation of Lessor (and together with its rights under Section 12.03 the sole right and remedy of Lessee), after receipt of written notice from Lessee setting forth with specificity the nature of the failed performance, to promptly, within a reasonable time and at Lessor’s sole cost, correct same. Except as to certain defects which remain Lessor’s responsibility under Section 6.01(b) Lessee’s failure to give such written notice to Lessor within six (6) months after the Commencement Date shall constitute a conclusive presumption that Lessor has complied with all of Lessor’s obligations under the foregoing Section 5.02(a) and Section 5.03, and any required correction after that date shall be performed by Lessee, at its sole cost and expense.

 

Section 5.05 Building Security .

 

Lessee acknowledges and agrees that it assumes sole responsibility for security at the Premises for its agents, employees, invitees, licensees, contractors, guests and visitors and will provide such systems and personnel for same including, without limitation, while such person(s) are using the Common Area, as it deems necessary or appropriate and at its sole cost and expense. Lessor shall have absolutely no liability whatsoever with respect to the security of Lessee’s agents, employees or invitees or their respective personal property at the Project. Lessee acknowledges and agrees that Lessor does not intend to provide any security system or security personnel at the Premises or Project, including, without limitation, at the Common Area, provided, however, that nothing herein shall be deemed to prevent Lessor from providing such system or personnel in the future, the cost of which will be included in those items for which Lessee pays additional rent. Lessee may, at Lessee’s sole expense and at Lessee’s sole risk, connect its own building security system to any existing security system built into the Building by Lessor; provided, however, that: (i) no such activities by Lessee shall be permitted if the effect would be to terminate or lessen any warranties that Lessor has received on such security system, and (ii) Lessor shall have absolutely no liability whatsoever to Lessee, nor shall Lessee be entitled to any reduction in the Base Rent due hereunder, due to any failure, defect of such security system or failure of such systems to prevent theft, loss or injury.

 

Section 5.06 Rules and Regulations .

 

Lessor may from time to time promulgate reasonable and nondiscriminatory rules and regulations applicable for the care and orderly management of the Premises, the Project and/or its Common Area. Such rules and regulations shall be binding upon Lessee upon delivery of a copy thereof to Lessee, and Lessee agrees to abide by such rules and regulations. A copy of the initial Rules and Regulations is attached hereto as Exhibit ”D.” If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Lessor shall not be responsible for the violation of any such rules and regulations by any person, including, without limitation, Lessee or its employees, agents, invitees, licensees, guests, visitors or contractors.

 

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ARTICLE VI

MAINTENANCE, REPAIRS AND ALTERATIONS

 

Section 6.01 Maintenance of Premises and Building .

 

(a) Throughout the Lease Term, Lessee , at its sole cost and expense, shall keep , maintain , repair and replace the Premises and every part thereof (except as provided in 6.01(b) and also except for uninsured maintenance, repairs or replacement costs caused solely by an act of negligence or intentional misconduct by Lessor during the Lease Term) and all improvements and appurtenances in the Premises, including, without limitation, all interior walls, all doors and windows, all wall surfaces and floor coverings, the Furniture and Alterations, additions and improvements installed by or on behalf of Lessee during the Lease Term, all sewer, plumbing, electrical, lighting, heating, ventilation and cooling systems and fixtures, fire sprinklers, fire safety and security systems and fixtures and all wiring and glazing, in the same good order, condition and repair as they are in on the Commencement Date, or may be improved during the Lease Term, reasonable wear excepted, provided that wear which could be prevented by first class maintenance shall not be deemed reasonable.

 

(b) Lessor, at its sole cost and expense, (and in addition to its obligations set forth in Section 5.04) shall repair defects in the exterior walls (including all exterior glass which is damaged by structural defects in such exterior walls), supporting pillars, structural walls, roof structure and foundations of the Building and sewer and plumbing systems outside the Building. Notwithstanding the foregoing, if the need for such repair is caused by Lessee, Lessor shall, at Lessee’s sole cost and expense, repair same. Lessor, subject to recovering the cost and expense of same as an Operating Expense (except for damage, other than normal wear and tear, caused by Lessee or its employees, agents, contractors, invitees or visitors, the cost and expense of which shall be paid by Lessee within thirty (30) days after presentation of Lessor’s bill for same), shall maintain and repair the roof membrane of the Building; provided, however, that Lessor’s obligation under this Section 6.01(b) in any instance where the damage, other than normal wear and tear, was caused by Lessor or its employees, agents or contractors and is not covered by insurance maintained by Lessee or which Lessee is required to maintain hereunder shall not be recovered by Lessor from Lessee as Operating Expenses or in any other manner. Lessee shall give Lessor written notice of any needed repairs which are the obligation of Lessor hereunder. It shall then be the obligation of Lessor, after receipt of such notice, to perform the same within ten (10) business days after such notice; provided, however, that if the nature of the repairs is such that more than ten (10) business days are reasonably required for performance, then Lessor shall not be deemed to be in default hereunder if Lessor commences such repairs within said ten (10) business day period and thereafter diligently completes them and provided further, that for purposes of this sentence “commences” includes any steps taken by Lessor to investigate, design, consult, bid or seek permit or other governmental approval in connection with such repair. Should Lessor default as provided in Section 12.03 with respect to its obligation to make any of the repairs assumed by it hereunder with respect to the Premises or Building, Lessee shall have the right to perform such repairs and Lessor agrees that within thirty (30) days after written demand accompanied by detailed invoice(s), it shall pay to Lessee the cost of any such repairs together with accrued interest from the date of Lessee’s payment at the Agreed Rate. Lessor shall not be liable to Lessee for any damage to person or property as a result of any failure to

 

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timely perform any of its obligations with respect to the repair, maintenance or replacement of the Premises, Buildings or Project or any part thereof, and Lessee’s sole right and remedy (together with its rights under Section 12.03 below) shall be the performance of said repairs by Lessee with right of reimbursement from Lessor of the reasonable fair market cost of said repairs, not exceeding the out-of-pocket sums actually expended by Lessee, together with accrued interest from the date of Lessee’s payment at the Agreed Rate, provided that nothing herein shall be deemed to create a right of setoff or withholding by Lessee of Base Rent or Additional Rent or any other amounts due herein. Lessee hereby expressly waives all rights under and benefits of Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect to make repairs and offset the cost of same against rent or to withhold or delay any payment of rent or any other of its obligations hereunder as a result of any default by Lessor under this Section 6.01(b).

 

(c) Lessee agrees to keep the Premises, both inside and out, clean and in sanitary condition as required by the health, sanitary and police ordinances and regulations of any political subdivision having jurisdiction and to remove all trash and debris which may be found in or around the Premises. Lessee further agrees to keep the interior surfaces of the Premises, including, without limitation, windows, floors, walls, doors, showcases and fixtures clean and neat in appearance.

 

(d) If Lessee refuses or neglects to commence such repairs and/or maintenance for which Lessee is responsible under this Article VI within a ten (10) day period (or as soon as practical and in no event later than five (5) days, if the failure to initiate the repair threatens to cause further damage to the Premises) after written notice from Lessor and thereafter diligently prosecute the same to completion, then Lessor may (i) enter the Premises (except in an emergency, upon at least 24 hours advance written notice) during Lessor’s business hours and cause such repairs and/or maintenance to be made and shall not be responsible to Lessee for any loss or damage occasioned thereby other than physical damage to the Premises caused by the negligence of Lessor which damage Lessor shall repair at its sole cost as Lessor’s sole obligation and Lessee’s sole right and remedy with respect to such damages, and Lessee agrees that upon demand, it shall pay to Lessor the reasonable cost of any such repairs, not exceeding the amount of out-of-pocket expenses actually expended by Lessor, together with accrued interest from the date of Lessor’s payment at the Agreed Rate, and (ii) if Lessor becomes entitled to enter the Premises as aforesaid more than once in any twelve (12) calendar months or more than twice during the Lease Term, elect to enter into a maintenance contract at a market rate for first-rate maintenance with a third party for the performance of all or a part of Lessee’s maintenance obligations, whereupon, Lessee shall be relieved from its obligations to perform only those maintenance obligations covered by such maintenance contract, and Lessee shall bear the entire cost of such maintenance contract which shall be paid in advance, as Additional Rent, on a monthly basis with Lessee’s Base Rent payments.

 

Section 6.02 Maintenance of Common Areas .

 

Lessor shall maintain, repair and replace all landscape, hardscape and other improvements within the Common Area and shall operate and manage the Common Area features and facilities described in Section 2.02 including, without limitation, all landscape, hardscape and other improvements within the outside areas of Building and the other Buildings

 

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located within the Project, including without limitation, landscaping, curbs, walkways, driveways, roadways, parking areas and lighting, sprinkler, drainage, sewer, plumbing systems. Notwithstanding the foregoing, any damage thereto, except for normal wear, caused by Lessee or its employees, agents, contractors, invitees or visitors which shall be repaired by Lessor and the cost thereof shall be paid by Lessee within thirty (30) days after presentation of Lessor’s bill for same. The cost and expense of Lessor’s obligations hereunder shall be Operating Expenses as to which Lessee shall pay Lessee’s Share pursuant to Section 4.04; provided, however, that Lessor’s obligation under this Section 6.02(b) in any instance where the damage, other than normal wear and tear, was caused by Lessor or its employees, agents or contractors shall not be recovered by Lessor from Lessee as Operating Expense or in any other manner.

 

Section 6.03 Alterations, Additions and Improvements .

 

No alterations, additions, or improvements (“ Alterations ”) shall be made to the Premises by Lessee without the prior written consent of Lessors which Lessor will not unreasonably withhold, condition or delay, provided, however, that Lessee may make Alterations (including removal and rearrangement of the prior Alterations) which do not affect the Building systems, exterior appearance, structural components or structural integrity, which do not require a building permit and which do not exceed collectively One Hundred Twenty Thousand Dollars ($120,000) in cost within any twelve (12) month period, without Lessor’s prior written consent. As a condition to Lessor’s obligation to consider any request for consent hereunder, Lessee shall pay Lessor upon demand for the reasonable out-of-pocket costs and expenses of consultants, engineers, architects and others for reviewing plans and specifications and for monitoring the construction of any proposed Alterations. Lessor may require Lessee to remove any such Alterations at the expiration or sooner termination of the Lease Term and to restore the Premises to their prior condition pursuant to the terms of Section 17.09 hereof; provided, however, that if requested in writing by Lessee to do so at the time consent for such Alteration is requested, Lessor shall inform Lessee at the time Lessor consents to such Alteration whether such Alteration must be removed from the Premises upon the expiration or earlier termination of this Lease. All Alterations to be made to the Premises shall be made under the supervision of a competent, California licensed architect and/or competent California licensed structural engineer (each of whom has been approved by Lessor) and shall be made in accordance with plans and specifications which have been furnished to and approved by Lessor in writing prior to commencement of work. All Alterations shall be designed, constructed and installed at the sole cost and expense of Lessee by California licensed architects, engineers, and contractors approved by Lessor, in compliance with all applicable law, and in good and workmanlike manner, and shall have been approved in writing by the City of Sunnyvale and any other applicable governmental agencies. Such approvals shall not be unreasonably withheld, conditioned or delayed by Lessor. Subject to Lessor’s right to have Lessee retain ownership and remove same, any Alteration, including, without limitation, all lighting, electrical, heating, ventilation, air conditioning and full height partitioning, drapery and carpeting installations made by Lessee, together with all property that has become an integral part of the Premises, shall not be deemed trade fixtures and shall become the property of Lessor at the expiration or sooner termination of the Lease. For those Alterations which do not require Lessor’s consent, to the extent specifically requested of Lessor in writing by Lessee at the time such Alteration is made, Lessor shall by written notice to Lessee advise Lessee whether Lessee is required to remove such Alterations upon the expiration or earlier termination of this Lease. Lessee shall retain title to all furniture

 

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and trade fixtures placed on the Premises. Within thirty (30) days after completion of any Alteration, Lessee shall provide Lessor with a complete set of “as built” plans for same.

 

Section 6.04 Covenant Against Liens .

 

Lessee shall not allow any liens arising from any act or omission of Lessee to exist, attach to, be placed on, or encumber Lessor’s or Lessee’s interest in the Premises, Building or Project, or any portion of either, by operation of law or otherwise. Lessee shall not suffer or permit any lien of mechanics, material suppliers, or others to be placed against the Premises, Building or Project, or any portion of either, with respect to work or services performed or claimed to have been performed for Lessee or materials furnished or claimed to have been furnished to Lessee or the Premises. Lessor has the right at all times to post and keep posted on the Premises any notice that it considers necessary for protection from such liens. At least ten (10) days before beginning construction of any Alteration, Lessee shall give Lessor written notice of the expected commencement date of that construction to permit Lessor to post and record a notice of nonresponsibility. If any such lien attaches or Lessee received notice of any such lien, Lessee shall cause the lien to be immediately released and removed of record. Despite any other provision of this Lease, if the lien is not released and removed within twenty (20) days after Lessor delivers notice of the lien to Lessee, Lessor may immediately take all action necessary to release and remove the lien, without any duty to investigate the validity of it. All expenses (including reasonable attorney fees and the cost of any bond) incurred by Lessor in connection with a lien incurred by Lessee or its removal shall be considered Additional Rent under this Lease and be immediately due and payable by Lessee. Notwithstanding the foregoing, If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Premises, Building and Project against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one hundred fifty percent (150%) of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in or is made a party to any such action, Lessee shall reimburse Lessor’s attorneys’ fees and costs within thirty (30) days after demand.

 

Section 6.05 Lessee Improvements .

 

Upon execution of this Lease, Lessor and Lessee shall also execute a Work Letter for Lessee Improvements in the form of the agreement attached hereto as Exhibit E (the “Work Letter”). Lessee shall install certain Lessee improvements in the Premises pursuant to the terms of the Work Letter.

 

ARTICLE VII

INSURANCE

 

Section 7.01 Property/Rental Insurance for Premises .

 

At all times during the Lease Term, Lessor shall keep the Premises, Building and Project insured against loss or damage by fire and those risks normally included in the term “all risk,” extended coverage, fire and casualty insurance, including, without limitation, coverage for

 

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(i) earthquake and earthquake sprinkler leakage, (ii) flood, (iii) loss of rents and extra expense for eighteen (18) months, including scheduled rent increases, (iv) boiler and machinery, and (v) fire damage legal liability form, including waiver of subrogation. Lessee shall pay Lessee’s Share of any deductibles; provided, however, that in no event shall Lessee’s Share of any deductible exceed Five Hundred Thousand Dollars ($500,000). The amount of such insurance shall not be less than 100% of replacement cost. Insurance shall include a Building Ordinance and Increased Cost of Construction Endorsement insuring the increased cost of reconstructing the Premises incurred due to the need to comply with applicable statutes, ordinances and requirements of all municipal, state and federal authorities now in force, which or may be in force hereafter. Any recovery received from said insurance policy shall be paid to Lessor and thereafter applied by Lessor to the reconstruction of the Premises in accordance with the provisions of Article VIII below. Lessee, as part of the Operating Expenses, shall reimburse Lessor for Lessee’s Share of the estimated cost of the premiums for all such insurance on a monthly basis in accordance with Article IV; provided, however, that at Lessor’s election, such reimbursement and shall be made on a lump sum basis instead, within thirty (30) days of Lessee’s receipt of a copy of Lessor’s statement therefor.

 

Section 7.02 Property Insurance for Fixtures and Inventory .

 

At all times during the Lease Term, Lessee shall, at its sole expense, maintain fire and property insurance: (i) with “all risk” coverage on any trade fixtures, furnishings, merchandise, equipment, artwork or other personal property and on the Furniture, and (ii) with “all risk” coverage, which includes the same coverage as required of Lessor in Section 7.01 above, on all Alterations, whether or not presented to Lessor for its consent in or on the Premises, whether in place as of the date hereof or installed hereafter. Notwithstanding the foregoing, if Lessee, in its sole discretion determined that it cannot maintain earthquake and earthquake sprinkler leakage insurance coverage, or flood coverage, at commercially reasonable premiums, then Lessee can instead request that Lessor carry such earthquake and/or flood insurance coverage on Lessee’s behalf, and the cost of such additional coverage shall be reimbursed by Lessee to Lessor within thirty (30) days of the date of invoice therefor by Lessor. In connection therewith, Lessee acknowledges and agrees that Lessor shall have no obligation to maintain any such earthquake and/or flood insurance coverage on any Alterations made to the Premises by Lessee unless Lessee informs Lessor of such Alterations in writing, which notice shall include a description of the Alteration and the replacement value thereof, and if Lessee fails to provide Lessor with written notice of such Alterations, then Lessee shall be deemed to have self-insured any such Alteration, and shall be responsible, at Lessee’s sole expense, for the replacement of such Alteration in accordance with the terms of this Lease. Further, to the extent that Lessor provides such earthquake and/or flood insurance hereunder, then Lessor’s sole obligations in the event of such a casualty shall be to deliver any proceeds of such a policy to Lessee in order for Lessee to perform Lessee’s rebuilding or replacement obligations hereunder. The amount of such insurance shall not be less than one hundred percent (100%) of the replacement cost thereof with commercially reasonable deductibles, and, except as provided for herein, Lessor shall not have any responsibility nor pay any cost for maintaining any types of such insurance. Lessee shall pay all deductibles, subject to the terms of Section 7.01 above.

 

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Section 7.03 Lessor’s Liability Insurance .

 

During the Lease Term, Lessor shall maintain a policy or policies of commercial general liability insurance naming Lessor (and such others as designated by Lessor) against claims and liability for bodily injury, personal injury and property damage on our about the Premises and Project, with combined single limit coverage in an amount determined by Lessor in its sole discretion; provided that if such policy is a blanket policy that covers properties (other than the Project) owned by Lessor, only that portion allocable to the Project shall be payable hereunder. Lessee, in addition to the rent and other charges provided herein, agrees to pay Lessee’s Share of the premiums for all such insurance in accordance with Article IV.

 

Section 7.04 Liability Insurance Carried by Lessee .

 

At all times during the Lease Term (and any holdover period) Lessee shall obtain and keep in force a commercial general liability policy of insurance protecting Lessee, Lessor and any lender(s) whose names are provided to Lessee as additional insureds against claims and liability for bodily injury, personal injury and property damage based upon involving or arising out of ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing a single limit coverage in amount of not less than Ten Million Dollars ($10,000,000) per occurrence. Such insurance shall include coverage for additional lessors or Premises and coverage for “amendment of the pollution exclusion” to provide coverage for damage caused by heat, smoke, fumes from a hostile fire. The limits of said insurance required by this Lease as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by the Lessee shall be primary to and not contributory with, any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

 

Section 7.05 Proof of Insurance .

 

Lessee shall furnish to Lessor prior to the Commencement Date, and at least fifteen (15) days prior to the expiration date of any policy, certificates indicating that the property insurance and liability insurance required to be maintained by Lessee is in full force and effect for the twelve (12) month period following such expiration date; that Lessor has been named as an additional insured to the extent of contractual liability assumed in Section 7.07 “indemnification” and Section 7.08 “Lessor as Party Defendant”; and that all such policies will not be canceled unless thirty (30) days’ prior written notice of the proposed cancellation has been given to Lessor. The insurance shall be with insurers approved by Lessor, provided, however, that such approval shall not be unreasonably withheld so long as Lessee’s insurance carrier has a Best’s Insurance Guide rating not less than A- VIII and is licensed to do business in California. Lessor shall furnish to Lessee reasonable evidence of its insurance coverage required hereunder within fifteen (15) business days after demand made not more than once in any calendar year.

 

Section 7.06 Mutual Waiver of Claims and Subrogation Rights .

 

Lessor and Lessee hereby release and relieve the other, and waive their entire claim of recovery for loss or damage to property arising out of or incident to fire, lightning, and the other perils included in a standard “all risk” insurance policy of a type described in

 

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Sections 7.01 and 7.02 above, when such property constitutes the Premises, or is in, on or about the Premises, whether or not such loss or damage is due to the negligence of Lessor or Lessee, or their respective agents, employees, guests, licensees, invitees, or contractors. Lessee and Lessor waive all rights of subrogation against each other on behalf of, and shall obtain a waiver of all subrogation rights from, all property insurers referenced above.

 

Section 7.07 Indemnification and Exculpation .

 

(a) Except as otherwise provided in Section 7.07(b), Lessee shall indemnify and hold Lessor free and harmless from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines, and penalties of any kind, including without limitation, reasonable attorney fees, expert witness fees and costs, arising by reason of the death or injury of any person, including any person who is an employee, agent, invitee, licensee, permitee, visitor, guest or contractor of Lessee, or by reason of damage to or destruction of any property, including property owned by Lessee or by any person who is an employee, agent, invitee, permitee, visitor, or contractor of Lessee, caused or allegedly caused (1) while that person or property is in or about the Premises; (2) by some condition of the Premises; (3) by some act or omission by Lessee or its agent, employee, licensee, invitee, guest, visitor or contractor or any person in, adjacent, on, or about the Premises with the permission, consent or sufferance of Lessee; (4) by any matter connected to or arising out of Lessee’s occupation and use of the Premises; or (5) by any breach or default in timely observance or performance of any obligation on Lessee’s part to be observed or performed under this Lease.

 

(b) Notwithstanding the provisions of Section 7.07(a) of this Lease, Lessee’s duty to indemnify and hold Lessor harmless shall not apply to any liability, claims, loss or damages arising from Lessor’s negligence or willful act of misconduct and Lessor shall indemnify and hold Lessee harmless from any and all liability claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines, and penalties of any kind, including without limitation, reasonable attorney fees, expert witness fees and costs, arising by reason of the death or injury of any person, including any person who is an employee, agent, invitee, licensee, permitee, visitor, guest or contractor of Lessee, or by reason of damage to or destruction of any property, including property owned by Lessor or by any person who is an employee, agent, invitee, permitee, visitor, or contractor of Lessor, caused or allegedly caused by Lessor’s willful act of misconduct.

 

(c) Lessee hereby waives all claims against Lessor for damages to goods, wares and merchandise and all other personal property in, on or about the Premises and for injury or death to persons in, on or about the Premises from any cause arising at any time to the fullest extent permitted by law. Notwithstanding the provisions of Section 7.07(b) above, or any other provision of this Lease, in no event shall Lessor be liable (i) for lost profits or other consequential damages arising from any cause or (ii) for any damage which is or could be covered by the insurance Lessee is required to carry under this Lease.

 

(d) In no event shall either party be liable for any damage which is covered by the insurance the other party is required to carry under this Lease or to the extent it would be covered but for the other party’s failure to carry same.

 

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Section 7.08 Lessor as Party Defendant .

 

If by reason of an act or omission of Lessee or any of its employees, agents, invitees, licensee, visitors, guests or contractors, Lessor is made a party defendant or a cross-defendant to any action involving the Premises or this Lease, Lessee shall hold harmless and indemnify Lessor from all liability or claims of liability, including all damages, attorney fees and costs of suit.

 

ARTICLE VIII

DAMAGE OR DESTRUCTION

 

Section 8.01 Destruction of the Premises .

 

(a) In the event of a partial destruction of the Premises (i.e., less than fifty percent (50%) of its Rentable Area) during the Lease Term from any cause, Lessor, upon receipt of, and to the extent of, insurance proceeds paid in connection with such casualty and the deductible from Lessee (to the extent Lessee is required to pay such deductible under Article VII) which Lessee shall pay to Lessor within thirty (30) days after demand, shall forthwith repair the same, provided the repairs can be made within a reasonable time under state, federal, county and municipal applicable law, but such partial destruction shall in no way annul or void this Lease, (except as provided in Section 8.01(b) below) provided that Lessee shall be entitled, as of the date Lessee’s use of the Premises is impaired due to such casualty, to a proportionate credit for rent equal to rental income insurance proceeds received by Lessor (or which would have been received by Lessor had Lessor maintained the rental income insurance specified in Subsection 7.01(iii) above) and provided further that Lessee shall repair all damage and destruction to those items as to which Lessee is required to maintain fire and casualty insurance under Section 7.02 above. Lessor and Lessee each shall use diligence in making such repairs within a reasonable time period, subject to the Force Majeure provisions of Section 17.21, in which instance the time period shall be extended accordingly, and this Lease shall remain in full force and effect, with the rent to be proportionately reduced as provided above in this Section. If the Premises are damaged by any peril within twelve (12) months prior to the last day of the Lease Term and, in the reasonable opinion of the Lessor’s architect or construction consultant, the restoration of the Premises cannot be substantially completed within ninety (90) days after the date of such damage Lessor may terminate this Lease on sixty (60) days written notice to Lessee.

 

(b) If the Premises or any portion of the Project are damaged or destroyed by any cause to the extent of more than thirty-five percent (35%) of their total Rentable Area during the Lease Term, Lessor shall notify Lessee within sixty (60) days after such damage or destruction whether it will repair the same within nine (9) months (subject to the Force Majeure provision of Section 17.21) from the date of such notice. If Lessor states that it will not repair within said nine (9) months (subject to Force Majeure) this Lease shall terminate thirty (30) business days after Lessor gives its notice. In the event of such termination, Lessee shall pay to Lessor all insurance proceeds, if any, received by Lessee as a result of the damage or destruction to the extent allocable to the Alterations installed therein by Lessee with or without the prior written consent of Lessor. If Lessor states that it will repair within said nine (9) months (subject to Force Majeure), Lessor shall, upon receipt of and to the extent of insurance proceeds paid in connection with such casualty and the deductible amount from Lessee (to the extent required to

 

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be paid pursuant to Article VII hereof), forthwith conduct the repair and diligently pursue the same to completion, but such destruction shall in no way annul or void this Lease, provided that Lessee shall be entitled, as of the date Lessee’s use of the Premises is impaired due to such casualty, to a proportionate credit for rent equal to rental income insurance proceeds received by Lessor (or which would have been received by Lessor had Lessor maintained the rental income insurance specified in Subsection 7.01(iii) above).

 

(c) Notwithstanding anything contained to the contrary in this Section 8.01, Lessee shall have the right to terminate this Lease in the event any of the following occurs, which right may be exercised only by delivery to Lessor of a written notice of election to terminate within thirty (30) days after Lessee receives from Lessor the estimate of the time needed to complete such restoration:

 

(i) The Premises are damaged by any peril not caused by Lessee and, in the reasonable opinion of Lessor’s architect or construction consultant, the restoration of the Premises cannot be substantially completed within two hundred seventy (270) days after the date of such damage; or

 

(ii) The Premises are damaged by any peril within twelve (12) months of the last day of the Lease Term and, in the reasonable opinion of Lessor’s architect or construction consultant, the restoration of the Premises cannot be substantially completed within ninety (90) days after the date of such damage.

 

Section 8.02 Waiver of Civil Code Remedies .

 

Except as is provided for in Section 8.01 above, Lessee hereby expressly waives any rights to terminate this Lease upon damage or destruction to the Premises, including without limitation any rights pursuant to the provisions of Section 1932, Subdivisions 1 and 2 and Section 1933, Subdivision 4, of the California Civil Code, as amended from time-to-time, and the provisions of any similar law hereinafter enacted.

 

Section 8.03 No Abatement of Rentals .

 

The Base Rent, Additional Rent and other charges due under this Lease shall not be reduced or abated by reason of any damage or destruction to the Premises (but will be subject to credit as provided in Section 8.01(a) and (b) above with respect to rental loss insurance proceeds received or which would have been received had Lessor maintained the rental loss insurance specified in Subsection 7.01(iii) above), and Lessor shall be entitled to all proceeds of the insurance maintained pursuant to Section 7.01 above during the period of rebuilding pursuant to Section 8.01 above, or if the Lease is terminated pursuant to Section 8.01 above, to the extent the insured item in question is or would become the property of Lessor upon the expiration or earlier termination of this Lease. Lessee shall have no claim against Lessor, including, without limitation, for compensation for inconvenience or loss of business, profits or goodwill during any period of repair or reconstruction.

 

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Section 8.04 No Liability for Lessee’s Alterations or Personal Property .

 

In no event shall Lessor have any liability for, nor shall it be required to repair or restore, any injury or damage to Lessee’s Alterations or personal property or to any other personal property of other in or upon the Premises, Building or Project.

 

ARTICLE IX

REAL PROPERTY TAXES

 

Section 9.01 Payment of Taxes .

 

(a) Subject to Lessee timely paying Lessor L