Exhibit 10.10

 

LEASE AGREEMENT

 

Between

 

 

LINCOLN PO BENICIA LIMITED PARTNERSHIP, Landlord

 

and

 

BEBE STORES, INC., Tenant

 

 

Lincoln Distribution Center

 

Benicia, California

 

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TABLE OF CONTENTS

 

1.

PREMISES, TERM, AND INITIAL IMPROVEMENTS

2.

BASE RENT, SECURITY DEPOSIT AND ADDITIONAL RENT

3.

TAXES

4.

LANDLORD’S MAINTENANCE

5.

TENANT’S MAINTENANCE AND REPAIR OBLIGATIONS

6.

ALTERATIONS

7.

SIGNS

8.

UTILITIES

9.

INSURANCE

10.

CASUALTY DAMAGE

11.

LIABILITY, INDEMNIFICATION, WAIVER OF SUBROGATION AND NEGLIGENCE

12.

USE

13.

INSPECTION

14.

ASSIGNMENT AND SUBLETTING

15.

CONDEMNATION

16.

SURRENDER OF PREMISES, HOLDING OVER

17.

QUIET ENJOYMENT

18.

EVENTS OF DEFAULT

19.

REMEDIES

20.

LANDLORD’S DEFAULT

21.

MORTGAGES

22.

ENCUMBRANCES

23.

MISCELLANEOUS

24.

NOTICES

25.

HAZARDOUS WASTE

26.

RENEWAL OPTION

27.

RIGHT OF FIRST OFFER

 

Exhibit A-1

Legal Description of Property

Exhibit A-2

Site Plan

Exhibit B

Tenant Work Letter

Exhibit B-1

Description of Landlord’s Work

Exhibit C

Tenant’s Personal Property

Exhibit D

Rules and Regulations

Exhibit E

Renewal Option

Exhibit F

Right of First Offer

 

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LEASE AGREEMENT

 

This Lease Agreement (this “Lease”) is entered into as of October 24, 2000 by
and between LINCOLN PO BENICIA LIMITED PARTNERSHIP, a Delaware limited
partnership (“Landlord”), and BEBE STORES, INC., a California corporation
(“Tenant”).

 

1.                                       PREMISES, TERM, AND INITIAL
IMPROVEMENTS.

 

(a)                                  Subject to and upon the terms, provisions
and conditions hereinafter set forth, and each in consideration of the duties,
covenants and obligations of the other hereunder, Landlord hereby leases to
Tenant, and Tenant hereby leases and takes from Landlord, 144,000 square feet of
Net Rentable Area (hereinafter defined) (the “Premises”) located in a building
(the “Building”) to be constructed upon certain land situated in the City of
Benicia, California (the “Land”).  The Building contains an aggregate of
approximately 240,000 square feet of Net Rentable Area on the Land known as the
“Lincoln Distribution Center” (the “Project”).  A legal description of the Land
is attached hereto as Exhibit “A-1”.  A preliminary Site Plan depicting the
Premises is attached hereto as Exhibit “A-2”.  Landlord anticipates that it may
be necessary for Landlord to make certain modifications to the Site Plan;
accordingly, if and when such Site Plan is revised by Landlord, such revised
Site Plan shall be initialed by Landlord and Tenant and substituted in place of
the then current Site Plan attached to this Lease.  The term “Net Rentable Area”
refers to the square footage of the Premises, as calculated within the
boundaries defined by (i) the exterior surface of the exterior walls and windows
of the Building, and (ii) the center line of any demising walls separating the
Premises from space to be occupied by another tenant.  The Net Rentable Area in
the Premises has been calculated on the basis of the foregoing definition and is
hereby stipulated to be 144,000 square feet.

 

(b)                                 The term of this Lease (the “Term”) shall be
twelve (12) years, beginning ninety (90) days following the later to occur of
(i) “Building Shell Completion” (as defined in Exhibit “B”) or (ii) January 4,
2001 (the “Commencement Date”) and, unless extended by Tenant pursuant to the
terms and conditions contained in Exhibit “E” attached hereto, ending on the
last day of the calendar month in which the twelve (12) year anniversary of the
Commencement Date shall occur; provided, however, that if the Commencement Date
shall occur on the first day of a calendar month, the Expiration Date shall be
the last day of the calendar month immediately preceding the twelve (12) year
anniversary of the Commencement Date (“Expiration Date”).  Notwithstanding the
foregoing, if Landlord is unable to deliver possession of the Premises to Tenant
on or before January 4, 2001 for any reason, then, subject to the provisions of
Section 1.(d) below, (1) this Lease shall not be void or voidable by either
party, and (2) Landlord shall not be liable to Tenant for any loss or damage
resulting therefrom.  Although the Term may not commence until after the date
hereof, from and after the date hereof, this Lease shall be deemed to be a
contract between Landlord and Tenant and the provisions hereof shall be
effective for all purposes.

 

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(c)                                  Landlord shall construct the Building Shell
in a good and workmanlike manner in substantial accordance with the plans and
specifications referenced on Exhibit “B-1”, and, by occupying the Premises,
Tenant shall be deemed to have accepted the Premises in their then “as is”
condition, subject only to the completion of any punch-list items and any latent
defects noted by Tenant in writing to Landlord within one (1) year following
Building Shell Completion.  Neither Landlord nor Landlord’s agents have made any
express or implied representations or promises with respect to the Building or
the Premises or the repair or alteration thereof, except as expressly set forth
in this Lease, and no rights or easements or licenses are acquired by Tenant by
implication or otherwise, except as expressly set forth herein.

 

(d)                                 In the event that Building Shell Completion
does not occur on or before April 1, 2001 (the “Outside Building Completion
Deadline”), Tenant, as its sole remedy, shall have the right to terminate this
Lease by giving written notice of such termination to Landlord at any time after
the Outside Building Completion Deadline and prior to the date Building Shell
Completion occurs, in which case this Lease shall be terminated effective thirty
(30) days after Landlord’s receipt of Tenant’s termination notice, unless
Building Shell Completion occurs within said thirty (30) day period; provided,
however, that the Outside Building Completion Deadline shall be extended by the
number of days that Building Shell Completion is delayed due to a Tenant Delay
(as defined in Exhibit “B” attached hereto).  In the event Tenant terminates
this Lease pursuant to this Section 1.(d), neither party shall have any
obligations to the other under this Lease, except for obligations arising before
such termination.  For purposes of this Lease, the term “Tenant Delay” shall
mean any delay in Building Shell Completion caused by or attributable to any
act, neglect, failure or omission of Tenant or any of Tenant’s agents,
employees, contractors or subcontractors.

 

2.                                       BASE RENT, SECURITY DEPOSIT AND
ADDITIONAL RENT.

 

(a)                                  Tenant shall pay to Landlord monthly “Base
Rent”, in advance, without demand, deduction or set off, the sums specified
below:

 

Months in Term

 

Monthly Base Rent

 

Rate Per Square
Foot Per Year

 

1-36

 

$

53,280

 

$

4.44

 

37-72

 

$

56,520

 

$

4.71

 

73-108

 

$

60,480

 

$

5.04

 

109-144

 

$

64,080

 

$

5.34

 

 

(b)                                 The first monthly installment, plus the
other monthly charges for Tenant’s Proportionate Share of Operating Expenses (as
defined and set forth in Section 2.(c) below), shall be due on the date hereof;
thereafter, monthly installments of Base Rent shall be due on the first day of
each calendar month following the Commencement Date.  If the Term begins on a
day other than the first day of a month or ends on a day other than the last day
of a month, then Base Rent and additional rent for such partial month shall be
prorated.

 

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(c)                                  Intentionally Omitted

 

(d)                                 Tenant shall pay, as additional rent,
Tenant’s Proportionate Share (herein-after defined) of all costs incurred by
Landlord in owning, operating, maintaining, repairing and replacing the Land and
Project and the facilities and services provided for the common use of Tenant
and any other tenants of the Project (collectively, “Operating Expenses”),
including the following items: (1) Taxes (as defined below) and the cost of any
tax consultant employed to assist Landlord in determining the fair tax valuation
of the Project and Land or otherwise in contesting the Taxes; (2) the cost of
all utilities used in the Project which are not billed separately to a tenant of
the Project for above standard utility consumption; (3) insurance premiums
(including the related deductibles); (4) the cost of repairs, replacement,
management fees and expenses, landscape maintenance and replacement, security
service (if provided), sewer service (if provided), trash service (if provided);
(5) the cost of dues, assessments, and other charges applicable to the Land
payable to any property or community owner association under restrictive
covenants or deed restrictions to which the Premises are subject; and (6)
alterations, additions, and improvements made by Landlord to comply with any
change in any applicable Laws (defined in Section 23.(a) below) enacted
subsequent to the time of construction of the Building.  Throughout the Term on
the same day that Base Rent is due, Tenant shall pay to Landlord an amount equal
to 1/12 of Landlord’s estimate of Tenant’s Proportionate Share of annual
Operating Expenses.  The initial monthly payments are based upon Landlord’s
estimate of the Operating Expenses for the calendar year in question, and shall
be increased or decreased annually to reflect the actual Operating Expenses
determined by Landlord for that calendar year.  If Tenant’s total payments in
respect of Operating Expenses for any calendar year are less than Tenant’s
Proportionate Share of actual Operating Expenses for that calendar year, Tenant
shall pay the difference to Landlord within ten days after Landlord’s request
therefor; if such payments are more than Tenant’s Proportionate Share of actual
Operating Expenses for that calendar year, Landlord shall retain such excess and
credit it against Tenant’s future annual payments.  Operating Expenses shall not
include the following: (A) any costs for interest, amortization, or other
payments on loans to Landlord, except as provided in clause (H) below; (B)
expenses incurred in leasing or procuring tenants; (C) legal expenses other than
those incurred for the general benefit of the Project’s tenants; (D) allowances,
concessions, and other costs of renovating or otherwise improving space for
occupants of the Project or vacant space in the Project; (E) income taxes
imposed on or measured by the income of Landlord from the operation of the
Project; (F) rents under ground leases; (G) costs incurred in selling,
syndicating, financing, mortgaging, or hypothecating any of Landlord’s interests
in the Project; (H) the cost of any capital improvements (except for the
amortization over such reasonable period as Landlord shall determine, with
interest at a rate per annum equal to the “Reference Rate” defined in Section
23.(k) below, of the cost of (1) capital improvements made by Landlord or
equipment purchased by Landlord as a means to accomplish savings in operating,
repairing, managing or maintaining the Project, and (2) capital improvements
made by Landlord to comply with any change in any applicable Laws enacted
subsequent to the time of construction of the Building); (I) depreciation of the
Project; (J) management fees in excess of three percent (3%) of total rent
payable hereunder; and (K) the cost of repairs or other work occasioned by

 

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fire, windstorm or other insured casualty or hazard, to the extent that Landlord
shall receive proceeds of such insurance or would have received such proceeds
had Landlord maintained the insurance coverage required under this Lease (costs
of repairing an insured casualty to the extent of the commercially reasonable
deductible amount under the applicable insurance policy shall constitute an
Operating Expense).  There shall be no duplication of costs or reimbursements in
calculating Operating Expenses.

 

(e)                                  If during any calendar year the Project is
less than 100% occupied, then, for purposes of calculating Tenant’s
Proportionate Share of water and sewer charges for that calendar year, the
amount of such charges shall be “grossed-up” to the amount which, in Landlord’s
estimation, would have been incurred by Landlord had the Project been 100%
occupied for that entire calendar year.

 

(f)                                    If any payment required of Tenant under
this Lease is not paid when due, such late payment will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult to fix.  Such costs include, without limitation, processing
and accounting charges, and late charges that may be imposed on Landlord by the
terms of any encumbrance and/or note secured by an encumbrance covering the
Premises.  Therefore, if any payment required of Tenant under this Lease is not
paid when due, except to the extent limited by any applicable Laws, and not in
limitation or waiver of any of Landlord’s other rights and remedies under this
Lease, Landlord may charge Tenant and Tenant shall pay to Landlord a fee equal
to five percent (5%) of the delinquent payment as a late charge.  The parties
agree that this late charge represents a fair and reasonable estimate of the
costs that Landlord will incur by reason of late payment of rent by Tenant.

 

(g)                                 All payments and reimbursements required to
be made by Tenant under this Lease shall constitute “rent” (herein so called).

 

(h)                                 The term “Tenant’s Proportionate Share”
means the ratio from time to time of the Net Rentable Area of the Premises to
the Net Rentable Area of the Project.  Tenant’s Proportionate Share has been
initially determined to be sixty percent (60%).  If the Net Rentable Area of the
Premises changes, Tenant’s Proportionate Share shall change accordingly.

 

(i)                                     Tenant shall have the right, at Tenant’s
sole cost upon thirty (30) days’ written notice to Landlord, during the sixty
(60) day period following the end of each calendar year, to review in Landlord’s
offices Landlord’s records of Operating Expenses for the subject calendar year. 
Such review shall be carried out only by regular employees of Tenant or by a
major national or regional accounting firm and not by any other third party.  No
person conducting such an audit shall be compensated on a “contingency” or other
incentive basis.  Tenant shall keep any information gained from its inspection
of Landlord’s books and records confidential and shall not disclose any such
information to any other party, except as required by applicable Law, as defined
in Section 23(a) below.  If, as of the sixtieth (60th) day after the end of the
calendar year, Tenant shall not have delivered to Landlord an objection
statement (as defined below),

 

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then the calculation of Operating Expenses for the subject calendar year shall
be final and binding upon Landlord and Tenant, and Tenant shall have no further
right to object to such calculation of Operating Expenses.  If within such sixty
(60) day period, Tenant delivers to Landlord a written statement specifying
objections to the calculation of Operating Expenses for the subject calendar
year (an “objection statement”), then Tenant and Landlord shall meet to attempt
to resolve such objection within thirty (30) days after delivery of the
objection statement.  Notwithstanding that any such dispute remains unresolved,
Tenant shall be obligated to pay Landlord all amounts payable in accordance with
this Section 2 (including any disputed amount).  If such objection is not
resolved within such thirty (30) day period, then either party shall have the
right to require that the dispute be submitted to binding arbitration under the
rules of the American Arbitration Association.  All costs and expenses of
Tenant’s initial review of Landlord’s records shall be paid by Tenant.  In the
event either party shall submit the dispute over Tenant’s objection statement to
arbitration as provided above, the prevailing party shall be entitled to receive
from the non-prevailing party, in addition to the arbitration costs incurred by
the prevailing party, such amount as the arbitrator may adjudge to be reasonable
attorneys’ fees for the services rendered the prevailing party in such
proceeding.  Landlord and Tenant agree that, notwithstanding any provision of
this Lease or any provision of the rules of the American Arbitration Association
to the contrary, Landlord shall be deemed the prevailing party in any
arbitration proceeding brought by either party under this Section 2 unless the
final determination of such arbitration proceeding is that Landlord overstated
Tenant’s Proportionate Share of Operating Expenses, in the aggregate, for the
applicable calendar year by more than ten percent (10%).  If such dispute
results in an agreement or determination that Tenant is entitled to a refund,
Landlord shall, at its option, either pay such refund or credit the amount
thereof to the Base Rent next becoming due from Tenant.

 

3.                                       TAXES.

 

(a)                                  Landlord shall pay all taxes, assessments
and governmental charges whether federal, state, county, or municipal and
whether they are imposed by taxing or management districts or authorities
presently existing or hereafter created but excluding any interest or penalties
for late or delinquent payments (collectively, “Taxes”) that accrue against the
Premises, the Land and the Project.  If, during the Term, there is levied,
assessed or imposed on Landlord a capital levy or other tax directly on the rent
or a franchise tax, assessment, levy or charge measured by or based, in whole or
in part, upon rent, then all such taxes, assessments, levies or charges, or the
part thereof so measured or based, shall be included within the term “Taxes”. 
Taxes shall not include income, franchise, transfer, inheritance or capital
stock taxes, unless, due to a change in the method of taxation, any of such
taxes is levied or assessed against Landlord in lieu of, as a substitute (in
whole or in part) for, or as an addition to, any other charge which would
otherwise constitute a part of Taxes.  Further, Taxes shall not include
penalties and interest on Taxes caused by the failure of Landlord to make timely
payment (not due to any failure of Tenant to make timely payment of Tenant’s
Proportionate Share of Taxes to Landlord).  Tenant shall pay, as additional
rent, Tenant’s Proportionate Share of Taxes as specified in Section 2.(d) above;
provided, however, if the Project is occupied by more than one tenant and the

 

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cost of any improvements constructed in the Premises is disproportionately
higher than the cost of improvements constructed in the premises of other
tenants of the Project, then Landlord may require that Tenant pay the amount of
Taxes attributable to such improvements in addition to Tenant’s Proportionate
Share of other Taxes.

 

(b)                                 Tenant shall (1) pay when due all taxes
levied or assessed against any personal property, fixtures or alterations placed
in the Premises and (2) upon the request of Landlord, deliver to Landlord
receipts from the applicable taxing authority or other evidence acceptable to
Landlord to verify that such taxes have been paid.  If any such taxes are levied
or assessed against Landlord or Landlord’s property and (A) Landlord pays them
or (B) the assessed value of Landlord’s property is increased thereby and
Landlord pays the increased taxes, then Tenant shall pay to Landlord such taxes
immediately upon Landlord’s request therefor.

 

4.                                       LANDLORD’S MAINTENANCE.

 

(a)                                  This Lease is intended by Landlord and
Tenant to be a net lease; accordingly, Landlord’s maintenance obligations are
limited to the replacement of the Building’s roof and maintenance of the
foundation and structural members of the exterior walls and load bearing columns
within the Premises (collectively, the “Building’s Structure”); however,
Landlord shall not be responsible (1) for any such work until Tenant delivers to
Landlord written notice of the need therefor, or (2) for alterations to the
Building’s Structure required by any applicable Law (including, without
limitation, the Americans with Disabilities Act of 1990) because of Tenant’s use
of the Premises (which alterations shall be performed by Tenant at Tenant’s sole
cost and expense).  The Building’s Structure does not include skylights,
windows, glass or plate glass, doors, special store fronts or office entries,
all of which shall be maintained by Tenant at Tenant’s sole cost and expense. 
Landlord’s liability for any defects, repairs, replacement or maintenance for
which Landlord is responsible hereunder shall be limited to the cost of
performing such work.  Landlord shall perform all maintenance work hereunder as
expeditiously as reasonably practicable (without overtime or premium time labor)
and shall make commercially reasonable efforts to minimize any interference with
Tenant’s use.

 

(b)                                 Landlord shall maintain the parking areas,
driveways, alleys and grounds surrounding the Premises in a clean and sanitary
condition, including, without limitation, maintenance, repairs and replacements
of (i) any drill or spur track servicing the Premises, (ii) the exterior of the
Building (including painting), (iii) sprinkler systems and sewage lines, and
(iv) any other items normally associated with the foregoing.  Tenant shall
repair or replace, as applicable, and pay for any damage caused to such parking
areas, driveways, alleys and grounds by a Tenant Party (as defined in Section
23.(a) below) or caused by Tenant’s default hereunder.

 

(c)                                  The cost of performing Landlord’s
maintenance and repair obligations shall be an Operating Expense (except to the
limited extent any such cost is specifically excluded from being an Operating
Expense pursuant to Section 2.(c) above).

 

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5.                                       TENANT’S MAINTENANCE AND REPAIR
OBLIGATIONS.

 

(a)                                  Tenant shall maintain all parts of the
Premises (except for maintenance work for which Landlord is expressly
responsible under Section 4 above) in good condition and promptly make all
necessary repairs and replacements to the Premises, and Tenant waives all rights
under, and benefits of, subsection 1 of Section 1932 and Sections 1941 and 1942
of the California Civil Code and under any similar law or ordinance now or
hereafter in effect.  Tenant shall also be responsible for the cleaning and
sweeping of the Premises and for the removal of any trash which originates from
the Premises.  Tenant shall be responsible for disposal of its trash from the
Premises and will maintain adequate receptacles for such disposal, the design,
placement and capacity of such receptacles to be subject to the prior approval
of Landlord.  Outdoor storage of trash or any other material and receptacles or
containers not approved by Landlord is strictly prohibited.  At its sole cost
and expense, Tenant shall provide interior pest and insect extermination at the
Premises as often as is reasonably necessary to eliminate any pests or insects,
whether endemic to the Building or specific to the Premises or Tenant’s use
thereof.

 

(b)                                 Subject to Landlord’s obligations set forth
in Section 4.(c) above, Tenant shall maintain the hot water equipment and the
HVAC System in good repair and condition and in accordance with all applicable
Laws and with such equipment manufacturers’ suggested operation/maintenance
service program. Tenant shall enter into a regularly scheduled (at least
monthly) preventive maintenance/service contract for the hot water equipment and
the HVAC System, in form and substance and with a contractor reasonably
acceptable to Landlord, and deliver copies thereof to Landlord. At least
fourteen (14) days before the end of the Term, Tenant shall deliver to Landlord
a certificate from an engineer reasonably acceptable to Landlord certifying that
the hot water equipment and the HVAC System are then in good repair and working
order.

 

(c)                                  If Tenant fails to perform any of Tenant’s
maintenance or repair obligations, and if such failure continues for thirty (30)
days after written notice thereof is delivered to Tenant, then Landlord may
perform such obligation, in which event Tenant shall pay to Landlord the
reasonable cost incurred by Landlord in performing such obligation within thirty
(30) days after Landlord’s written request therefor; provided, however, that if,
by the nature of such maintenance or repair, Tenant cannot reasonably complete
the work within the 30-day period described above, Landlord shall not perform
such maintenance or repair obligation so long as Tenant commences such
maintenance or repair with due diligence and dispatch within the 30-day period
described above, and, having so commenced, thereafter performance such
maintenance and repair with diligence and dispatch and completes the same.

 

(d)                                 Tenant acknowledges that Landlord is not
providing security services of any kind to the Premises or for Tenant’s property
and that the keys given to Tenant for the Premises may not be secure.  At its
expense, Tenant shall provide whatever security and/or alarm systems Tenant
deems necessary or appropriate for the protection of the Premises and of
Tenant’s personal property and personnel located therein, including, if Tenant
desires to do so, installing new locks for the Premises with

 

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new keys. Tenant shall provide to Landlord copies of all keys and access codes
to allow Landlord entry to the Premises. In no event shall Landlord be
responsible for, and Tenant waives any and all claims arising from, the loss or
damage to any of Tenant’s personal property situated in and on the Premises,
even though Landlord may have provided general area security or guard services.
Landlord may elect to, but shall have no obligation to, provide general area
security or guard services. In the event Landlord elects to provide general area
security or guard services, it may discontinue such security or guard services
with at least thirty (30) days’ notice. At its expense, Tenant is also
responsible for the maintenance, repair, or replacement of any mechanical,
security, and fire protection systems which Tenant has installed within the
Premises. Tenant is expressly advised that if Tenant should place any fixtures,
inventory or equipment in or on the Premises prior to the time the Premises are
completed and delivered to the Tenant, the risk of loss or damage to such
inventory, fixtures, or equipment will be greatly increased in view of the fact
that, out of necessity, numerous people will be permitted access to the Premises
for the purpose of completion of any work. All such risk of loss or damage shall
be borne exclusively by the Tenant and not by the Landlord, and the Tenant
hereby waives any claim for any such loss or damage against the Landlord.

 

6.                                       ALTERATIONS.   Tenant shall not make
any alterations, additions or improvements to the Premises (collectively,
“Alterations”) without the prior written consent of Landlord; provided, however,
that Landlord’s consent shall not be required for Alterations to the interior of
the Premises that are reasonably anticipated to cost less than Fifty Thousand
Dollars ($50,000.00), provided that such Alterations do not affect, or require
work to be performed on, the Building’s Structure, the HVAC System or any
Building systems, including, without limitation, the electrical, life-safety,
plumbing and fire protection systems (collectively, the “Building Systems”)
(such alterations, additions or improvements are herein referred to as “Minor
Alterations”).  Landlord shall not be required to notify Tenant of whether it
consents to any Alterations until it (a) has received plans and specifications
therefor which are sufficiently detailed to allow construction of the work
depicted thereon to be performed in a good and workmanlike manner, and (b) has
had a reasonable opportunity to review them. If the Alterations will affect the
Building’s Structure, HVAC System, or other Building Systems, then the plans and
specifications therefor must be prepared by a licensed engineer acceptable to
Landlord. Landlord’s approval of any plans and specifications shall not be a
representation or warranty that the plans or the work depicted thereon will
comply with applicable Laws or be adequate for any purpose, but shall merely be
Landlord’s consent to performance of the work by Tenant. Upon completion of any
Alterations, Tenant shall deliver to Landlord accurate, reproducible as-built
plans therefor. Tenant may erect shelves, bins, machinery and trade fixtures
provided that such items (1) do not alter the basic character of the Premises or
the Building; (2) do not overload or damage the same; and (3) may be removed
without damage to the Premises. Unless Landlord specifies in writing otherwise,
all Alterations shall be Landlord’s property when installed in the Premises;
provided, however, the following shall remain Tenant’s property: (i) furniture,
movable equipment and other personal property that is not attached to the
floors, walls, or ceiling of the Premises; and (ii) any other fixture,
equipment, or other item, regardless of the manner of attachment, that is used
primarily in Tenant’s trade or

 

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business and that can be removed as a separate physical unit without damage to
the Building and without interference with other tenants’ use and enjoyment of
their leased premises. All work performed by a Tenant Party in the Premises
(including that relating to the installation, repair, replacement, or removal of
any item) shall be performed in accordance with all applicable Laws and with
Landlord’s specifications and requirements, in a good and workmanlike, lien-free
manner, and so as not to damage or alter the Building’s Structure or the
Premises. In connection with any such Alterations, Tenant shall pay to Landlord
an administration fee of five percent (5%) of all costs incurred for such work.
Upon expiration of the Term or termination of Tenant’s right to possess the
Premises, Landlord may require Tenant to remove Alterations installed in the
Premises by or at the request of Tenant (excluding the Initial Improvements
described on Exhibit “B”), to repair any damage to the Premises caused by such
removal, and to restore the Premises to good condition and repair, ordinary wear
and tear excepted. If Landlord elects to require Tenant to remove any
Alterations, it may do so by delivering to Tenant written notice thereof at the
time Landlord consented to the Alterations or at any time thereafter. Attached
hereto as Exhibit “C” is a list of trade fixtures, equipment, or other items
that shall remain the property of Tenant. Subject to Landlord’s prior written
approval, this list may be updated as Alterations are made to the Premises.

 

7.                                       SIGNS.   Tenant shall not place,
install or attach any signage, decorations, advertising media, blinds,
draperies, window treatments, bars, or security installations to the Premises or
the Building without Landlord’s prior written consent; provided, however, that
Landlord agrees that Tenant may install the signage approved by Landlord and
shown on the Final Working Drawings (as defined in Exhibit “B” attached hereto)
(the “Pre-Approved Signage”). Tenant shall repair, paint, and/or replace any
portion of the Premises or the Building damaged or altered as a result of its
signage when it is removed (including, without limitation, any discoloration of
the Building). Except for the Pre-Approved Signage, Tenant shall not (a) make
any changes to the exterior of the Premises or the Building, (b) install any
exterior lights, decorations, balloons, flags, pennants, banners or paintings;
or (c) erect or install any signs, windows or door lettering, decals, window or
storefront stickers, placards, decorations or advertising media of any type that
is visible from the exterior of the Premises without Landlord’s prior written
consent. Landlord shall not be required to notify Tenant of whether it consents
to any sign until it (1) has received detailed, to-scale drawings thereof
specifying design, material composition, color scheme, and method of
installation, and (2) has had a reasonable opportunity to review them.

 

8.                                       UTILITIES.

 

(a)                          Tenant shall obtain and pay for all water, gas,
electricity, heat, telephone, sewer, sprinkler charges and other utilities and
services used at the Premises, together with any taxes, penalties, surcharges,
deposits, maintenance charges, and the like pertaining to Tenant’s use of such
utilities within the Premises. Tenant or Landlord may, at Tenant’s expense,
separately meter and bill Tenant directly for its use of any such utility
service, in which case, the amount separately billed to Tenant for
Building—standard utility service shall not be duplicated in Tenant’s obligation

 

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to pay Tenant’s Proportionate Share of Operating Expenses under Section 2.(c)
above. All amounts due from Tenant under this Section 8 shall be payable
immediately upon Landlord’s request therefor.

 

(b)                                 If solely as a result of Landlord’s gross
negligence or willful misconduct, Landlord fails to provide an Essential Service
(as hereinafter defined) which Landlord is required to provide to the Premises
pursuant to the terms of this to Section 8 (an “Abatement Condition”), which
prevents Tenant from occupying all or a material portion of the Premises (the
“Abatement Space”), then Tenant may elect, by notice to Landlord, to have Base
Rent and Tenant’s Proportionate Share of Operating Expenses and Taxes abate,
subject to the following additional conditions having been satisfied in each
instance:

 

(i)                                     With respect to the Abatement Condition
in question, Tenant shall have given notice to Landlord of the occurrence
thereof, which notice shall designate the cause or suspected cause of the
Abatement Condition, if known to Tenant, and the portion of the Premises which
is not usable by Tenant, and the Abatement Condition in question shall have
continued after Tenant has given such notice for a period of not less than seven
(7) consecutive days; and

 

(ii)                                  Tenant, solely because of the occurrence
of the Abatement Condition, shall have actually vacated the Abatement Space for
not less than seven (7) consecutive days after giving its notice to Landlord of
the Abatement Condition.

 

If, with respect to the Abatement Condition in question, the conditions of this
Section 8.(b) are fulfilled, then Base Rent and Tenant’s Proportionate Share of
Operating Expenses and Taxes shall abate, in the proportion that the rentable
square foot area of the Abatement Space actually vacated bears to the rentable
square foot area of the Premises, for a period equal to the lesser of (A) the
period during which Tenant has actually vacated the Abatement Space, or (B) the
period of time between Tenant’s having vacated the Abatement Space and the date
Tenant receives notice from Landlord that the Abatement Condition has been
cured, provided that such time periods shall not commence to run until the day
after Tenant gives Landlord notice of the Abatement Condition as required above.
For purposes of this Section 8.(b), vacation of the Abatement Space shall not
require Tenant to remove furniture, fixtures or equipment. Tenant shall be
deemed to have vacated the Abatement Space if, due to the Abatement Condition,
the Abatement Space is not occupiable by Tenant, and Tenant does not in fact
conduct any business in or use the Abatement Space. Tenant agrees that
furnishing Landlord with notice of the Abatement Condition shall be an election
of remedies, and Tenant shall be deemed to have waived any other rights against
Landlord at law or in equity, including, but not limited to, an action for money
damages in connection with the Abatement Condition in question. Nothing
contained herein shall limit Tenant’s right to an abatement of rent or
termination of this Lease in the case of a Casualty as provided in Section 10
hereof. For purposes hereof, an “Essential Service” shall mean the standard
services to be provided by the heating, ventilation and air conditioning
systems, life safety systems, mechanical systems, plumbing and waste disposal
systems and electrical systems to the extent Landlord is

 

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required to provide such services to the Premises pursuant to the terms of this
Section 8.

 

(c)                                  Except as expressly provided above,
Landlord shall not be liable for any interruption or failure of utility service
to the Premises, and Tenant hereby waives the provisions of California Civil
Code Section 1932(1) or any other applicable Laws permitting the termination of
this Lease due to such failure or interruption.

 

9.                                    INSURANCE.   Tenant shall maintain (a)
workers’ compensation insurance (with a waiver of subrogation endorsement
reasonably acceptable to Landlord) and commercial general liability insurance
(with contractual liability endorsement), including personal injury and property
damage in the amount of $2,000,000 per occurrence combined single limit for
personal injuries and death of persons and property damage occurring in or about
the Premises, plus umbrella coverage of at least $5,000,000 per occurrence, (b)
fire and extended coverage insurance covering (1) the replacement cost of all
alterations, additions, partitions and improvements installed in the Premises by
or on behalf of a Tenant Party (including the Initial Improvements described on
Exhibit “B”), and (2) the replacement cost of all of Tenant’s personal property
in the Premises, and (c) business interruption insurance and such other
insurance as any Landlord’s Mortgagee (as defined in Section 21.(a) below) may
reasonably require, provided that any such other insurance shall be reasonably
consistent with the insurance requirements of prudent landlords of comparable
projects in the vicinity of the Project. Such policies shall (A) name Landlord,
Landlord’s agents, and their respective affiliates (as defined in Section 23.(a)
below), as additional insureds (and as loss payees on the fire and extended
coverage insurance), (B) be issued by an insurance company licensed to do
business in the State of California with a Best’s Guide Insurance Rating of
A-VII, or better, and otherwise acceptable to Landlord, (C) provide that such
insurance may not be canceled unless thirty (30) days’ prior written notice is
first given to Landlord, (D) be delivered to Landlord by Tenant before the
Commencement Date and at least 30 days before each renewal thereof, and (E)
provide primary coverage to Landlord when any policy issued to Landlord is
similar or duplicate in coverage, in which case Landlord’s policy shall be
excess over Tenant’s policies.

 

Landlord shall procure and maintain throughout the Term, the cost of which shall
be included as an Operating Expense, (1) fire and extended coverage insurance
covering the Building in an amount not less than the full replacement cost of
the Building, and (2) such other insurance as Landlord or Landlord’s Mortgagee
(hereinafter defined) shall require.

 

10.                              CASUALTY DAMAGE.

 

(a)                                  Tenant immediately shall give written
notice to Landlord of any damage to the Premises or the Building. If the
Premises or the Building are totally destroyed by an insured peril, or so
damaged by an insured peril that, in Landlord’s reasonable estimation,
rebuilding or repairs cannot be substantially completed within 180 days after
the date of Landlord’s actual knowledge of such damage, then either

 

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Landlord or (if a Tenant Party did not cause such damage) Tenant may terminate
this Lease by delivering to the other written notice thereof within thirty (30)
days after such damage, in which case, the rent shall be abated during the
unexpired portion of this Lease, effective upon the date such damage occurred.
Time is of the essence with respect to the delivery of such notices.

 

(b)                                 Subject to Section 10.(c) below, if this
Lease is not terminated under Section 10.(a), then Landlord shall restore the
Premises to substantially its previous condition, except that Landlord shall not
be required to rebuild, repair or replace any part of the partitions, fixtures,
additions and other improvements or personal property required to be covered by
Tenant’s insurance under Section 9. If the Premises are untenantable, in whole
or in part, during the period beginning on the date such damage occurred and
ending on the date of substantial completion of Landlord’s repair or restoration
work (the “Repair Period”), then the rent for such period shall be reduced to
such extent as may be fair and reasonable under the circumstances and the Term
shall be extended by the number of days in the Repair Period.

 

(c)                                  If the Premises are destroyed or damaged by
any peril not covered by the insurance maintained by Landlord or any Landlord’s
Mortgagee requires that insurance proceeds be applied to the indebtedness
secured by its Mortgage (defined below) or to the Primary Lease (defined below)
obligations, Landlord may terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after such destruction or damage
or such requirement is made known by any such Landlord’s Mortgagee, as
applicable, whereupon all rights and obligations hereunder shall cease and
terminate, except for any liabilities of Tenant which accrued before this Lease
is terminated.

 

(d)                                 If the Premises are destroyed or damaged by
any peril not covered by the insurance maintained by Landlord and, in Landlord’s
reasonable estimation, rebuilding or repairs cannot be substantially completed
within 180 days after the date of such damage, then (if a Tenant Party did not
cause such damage) Tenant may terminate this Lease by delivering to Landlord
written notice thereof within thirty (30) days after Tenant’s receipt of
Landlord’s estimation of the time to repair such damage, in which case, the rent
shall be abated during the unexpired portion of this Lease, effective upon the
date such damage occurred. Time is of the essence with respect to the delivery
of such notices.

 

(e)                                  The provisions of this Lease, including
this Section 10, constitute an express agreement between Landlord and Tenant
with respect to any and all damage to, or destruction of, all or any part of the
Premises or the Building, and any statute or regulation of the State of
California, including, without limitation, subsection 2 of Section 1932,
subsection 4 of Section 1933, and Sections 1941 and 1942 of the California Civil
Code, with respect to any rights or obligations concerning damage or destruction
in the absence of an express agreement between the parties, and any other
statute or regulation, now or hereafter in effect, shall have no application to
this Lease or any damage or destruction to all or any part of the Premises or
the Building.

 

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11.                                 LIABILITY, INDEMNIFICATION, WAIVER OF
SUBROGATION AND NEGLIGENCE.

 

(a)                                  Subject to Section 11.(b) below, Tenant
shall, to the maximum extent permitted by Law, protect, indemnify, defend, and
hold harmless Landlord, its successors, assigns, agents, employees, contractors,
partners, directors, officers and affiliates (collectively, the “Indemnified
Parties”) from and against all fines, suits, losses, costs, liabilities, claims,
demands, actions and judgments of every kind or character (1) arising from
Tenant’s failure to perform its covenants hereunder, (2) arising from, or
caused, wholly or in part, by a Tenant Party or any other person entering upon
the Premises under or with a Tenant Party’s express or implied invitation or
permission, (3) arising from or out of the occupancy or use of the Premises by a
Tenant Party or arising from or out of any occurrence in the Premises, howsoever
caused, or (4) suffered by, recovered from or asserted against any of the
Indemnified Parties by the employees, agents, contractors, or invitees of Tenant
or its subtenants or assignees. However, such indemnification of the Indemnified
Parties by Tenant shall not be applicable if such loss, damage, or injury is
caused by the sole active negligence or willful misconduct of Landlord or any of
its duly authorized agents or employees.

 

(b)                                 Landlord and Tenant both waive any claim it
might have against the other for any damage to or theft, destruction, loss, or
loss of use of any property, to the extent the same is insured against under any
insurance policy maintained by it that covers the Building, the Premises,
Landlord’s or Tenant’s fixtures, personal property, leasehold improvements, or
business, or is required to be insured against by the waiving party under the
terms hereof, regardless of whether the negligence or fault of the other party
caused such loss. Each party shall cause its insurance carrier to endorse all
applicable policies waiving the carrier’s rights of recovery under subrogation
or otherwise against the other party.

 

12.                                 USE.

 

(a)                                  The Premises shall be used only for
receiving, storing, shipping and selling clothing products, materials and
merchandise made or distributed by Tenant and for such other lawful purposes as
may be incidental thereto; however, no retail sales may be made from the
Premises. Tenant shall not use, or permit the use of, the Premises to receive,
store or handle any product, material or merchandise that is explosive or highly
inflammable or hazardous. Outside storage is prohibited. Tenant shall be solely
responsible for complying with all Laws applicable to the use, occupancy, and
condition of the Premises. Tenant and all Tenant Parties shall comply with all
reasonable non-arbitrary rules and regulations governing the use and occupancy
of the Premises which are now or hereafter imposed by Landlord. A copy of the
rules and regulations now in force are attached as Exhibit “D”. Tenant shall not
cause or permit any objectionable or unpleasant odors, smoke, dust, gas, light,
noise or vibrations to emanate from the Premises; nor take or permit any other
action that would constitute a nuisance or would disturb, unreasonably interfere
with, or endanger Landlord or any other person; nor cause or permit the Premises
to be used for any purpose or in any manner that would (1) void the insurance
thereon, (2) materially increase the insurance

 

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risk, or (3) cause the disallowance of any sprinkler credits. Tenant shall pay
to Landlord on demand any increase in the cost of any insurance on the Premises
or the Building incurred by Landlord which is caused by Tenant’s use of the
Premises.

 

(b)                                 Tenant and its employees and invitees shall
have the non-exclusive right to use, in common with others, a proportionate
share of the parking spaces in the Project (based on the ratio from time to time
of the Net Rentable Area of the Premises to the Net Rentable Area of the
Project) which Landlord has designated for such use, subject to (1) such
reasonable rules and regulations as Landlord may promulgate from time to time
and (2) rights of ingress and egress of other tenants and their employees,
agents and invitees. Landlord shall not be responsible for enforcing Tenant’s
parking rights against third parties.

 

13.                                 INSPECTION.   Landlord and Landlord’s agents
and representatives may enter the Premises during business hours to: inspect the
Premises; to make such repairs as may be required or permitted under this Lease;
to perform any unperformed obligations of Tenant hereunder; and to show the
Premises to prospective purchasers, mortgagees, ground lessors, and (during the
last six (6) months of the Term) tenants. During the last six (6) months of the
Term, Landlord may erect a sign on the Premises indicating that the Premises are
available. Tenant shall notify Landlord in writing of its intention to vacate
the Premises at least sixty (60) days before Tenant will vacate the Premises;
such notice shall specify the date on which Tenant intends to vacate the
Premises (the “Vacation Date”). At least thirty (30) days before the Vacation
Date, Tenant shall arrange to meet with Landlord for a joint inspection of the
Premises. After such inspection, Landlord shall prepare a list of items, if any,
that Tenant must perform before the Vacation Date. If Tenant fails to arrange
for such inspection, then Landlord may conduct such inspection and Landlord’s
determination of the work Tenant is required to perform before the Vacation Date
shall be conclusive.  If Tenant fails to perform such work before the Vacation
Date, then Landlord may perform such work at Tenant’s cost. Tenant shall pay all
reasonable costs incurred by Landlord in performing such work within ten days
after Landlord’s request therefor.

 

14.                                 ASSIGNMENT AND SUBLETTING.

 

(a)                                  Tenant shall not, without the prior written
consent of Landlord, which consent Landlord shall not unreasonably withhold, (1)
advertise that any portion of the Premises is available for lease or cause or
allow any such advertisement, (2) assign, transfer, or encumber this Lease or
any estate or interest herein, whether directly or by operation of law, (3) if
Tenant is an entity other than a corporation whose stock is publicly traded,
permit the transfer of an ownership interest in Tenant so as to result in a
change in the current control of Tenant, (4) sublet any portion of the Premises,
(5) grant any license, concession, or other right of occupancy of any portion of
the Premises, or (6) permit the use of the Premises by any parties other than
Tenant (any of the events listed in Sections 14.(a)(2) through 14.(a)(6) being a
“Transfer” and any person or entity to whom any Transfer is made or sought to be
made is hereinafter sometimes referred to as a “Transferee”).

 

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(b)                                 If Tenant requests Landlord’s consent to a
Transfer, then Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of the proposed
documentation, the portion of the Premises to be Transferred (herein called the
“Subject Space”) and the following information about the proposed Transferee:
name and address; satisfactory information about its business and business
history; its proposed use of the Premises; banking, financial, and other credit
information; and general references sufficient to enable Landlord to determine
the proposed Transferee’s creditworthiness and character (collectively, the
“Notice of Proposed Transfer”). Tenant shall reimburse Landlord for its
reasonable attorneys’ fees and other expenses incurred in connection with
considering any request for its consent to a Transfer, up to a maximum of One
Thousand Five Hundred Dollars ($1,500.00).

 

(c)                                  If Landlord consents to a proposed
Transfer, then the proposed Transferee shall deliver to Landlord a written
agreement whereby it expressly assumes the Tenant’s obligations hereunder
(however, any Transferee of less than all of the space in the Premises shall be
liable only for obligations under this Lease that are properly allocable to the
space subject to the Transfer, and only to the extent of the rent it has agreed
to pay Tenant therefor).  Landlord’s consent to a Transfer shall not release
Tenant from performing its obligations under this Lease, but rather Tenant and
its Transferee shall be jointly and severally liable therefor. Tenant hereby
waives its rights under Section 2819 of the California Civil Code or any similar
statute or law now or hereafter in effect, and agrees that Landlord may consent
to subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto,
and such action shall not relieve Tenant of its liability under this Lease. If
an Event of Default occurs while the Premises or any part thereof are subject to
a Transfer, then Landlord, in addition to its other remedies, may collect
directly from such transferee all rents becoming due to Tenant and apply such
rents against Tenant’s rent obligations. Tenant authorizes its transferees to
make payments of rent directly to Landlord upon receipt of notice from Landlord
to do so.

 

(d)                                 Notwithstanding the foregoing, Landlord’s
consent shall not be required for the following Transfers (herein referred to as
“Permitted Transfers” and a Transferee under any such Permitted Transfer is
herein referred to as a “Permitted Transferee”): (i) an assignment of this Lease
to a Transferee that purchases all or substantially all of the assets of Tenant,
or to a Transferee that is the resulting entity of a merger or consolidation of
Tenant with another entity, or (ii) an assignment or subletting of all or a
portion of the Premises to an affiliate of Tenant; provided that (1) Tenant
shall not be in default (beyond applicable notice and cure periods ) in the
performance of any of its obligations under this Lease at the time of the
Transfer; (2) Tenant delivers to Landlord a Notice of Proposed Transfer with
respect to such proposed Transfer at least thirty (30) days prior to the
effective date thereof and promptly supplies Landlord with any documents or
information reasonably requested by Landlord regarding such Transfer or
Transferee, including, but not limited to, copies of the sublease or instrument
of assignment, copies of documents establishing to the reasonable satisfaction
of Landlord that the transaction in question is one described in

 

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clause (i) or (ii) above; and (3) any such proposed Transfer is made for a good
faith operating business purpose and not, whether in a single transaction or in
a series of transactions, be entered into as a subterfuge to evade the
obligations and restrictions relating to Transfers set forth in this Section 14.
In the event of a transfer to a Permitted Transferee, Tenant shall not be
released from performing its obligations under this Lease, but rather Tenant and
the Permitted Transferee shall be jointly and severally liable therefor.

 

(e)                                  Tenant hereby assigns, transfers and
conveys one-half of all consideration received by Tenant under any Transfer
(excluding Permitted Transfers), which are in excess of (i) the rents payable by
Tenant under this Lease, plus (ii) the unamortized cost of the Initial
Improvements, and any other Alterations to the Premises paid for by Tenant (such
amortization to be made on a straight-line basis over the initial Term), and
Tenant shall hold such amounts in trust for Landlord and pay them to Landlord
within twenty (20) days after receipt.

 

15.                                 CONDEMNATION.   If more than 50% of the
Premises is taken for any public or quasi—public use by right of eminent domain
or private purchase in lieu thereof (a “Taking”), and the Taking prevents or
materially interferes with the use of the remainder of the Premises for the
purpose for which they were leased to Tenant, either party may terminate this
Lease by delivering to the other written notice thereof within thirty (30) days
after the Taking, in which case rent shall be abated during the unexpired
portion of the Term, effective as of the date of such Taking. If (a) less than
50% of the Premises are subject to a Taking or (b) more than 50% of the Premises
are subject to a Taking, but the Taking does not prevent or materially interfere
with the use of the remainder of the Premises for the purpose for which they
were leased to Tenant, then neither party may terminate this Lease, but the rent
payable during the unexpired portion of the Term shall be reduced to such extent
as may be fair and reasonable under the circumstances. All compensation awarded
for any Taking shall be the property of Landlord and Tenant assigns any interest
it may have in any such award to Landlord. Specifically, and without limiting
the generality of the foregoing, said assignment is intended to include: (i) the
“bonus value” represented by the difference, if any, between rent under this
Lease and market rent for the unexpired Term; (ii) the value of improvements to
the Premises, whether said improvements were paid for by Landlord or by Tenant;
and (iii) the value of any and all other items and categories of property for
which payment of compensation may be made in any such proceeding.
Notwithstanding the foregoing, Tenant shall be entitled to receive any award of
compensation for (1) loss of or damage to the goodwill of Tenant’s business and
lost profits (but only to the extent the same does not constitute “bonus
value”), (2) the taking of trade fixtures and equipment owned and paid for by
Tenant (meaning the trade fixtures, furniture, and personal property placed in
the Premises by Tenant and described on Exhibit “C”), and (3) any moving or
relocation expenses which Tenant is entitled under the law to recover directly
from the public agency which acquires the Premises. Tenant hereby waives
sections 1265.110 through 1265.160 of the California Code of Civil Procedure.

 

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16.                                 SURRENDER OF PREMISES, HOLDING OVER.

 

(a)                                  No act by Landlord shall be an acceptance
of a surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless it is in writing and signed by Landlord. At the
end of the Term or the termination of Tenant’s right to possess the Premises,
Tenant shall (1) deliver to Landlord the Premises with all improvements located
thereon in good repair and condition, reasonable wear and tear (subject however
to Tenant’s maintenance obligations) excepted, and with the HVAC System and hot
water equipment, any remaining light fixtures (including ballasts), and overhead
doors and related equipment in good working order, (2) deliver to Landlord all
keys to the Premises, and (3) remove all signage placed on the Premises, the
Building, or the Land by or at Tenant’s request. All fixtures, alterations,
additions, and improvements (whether temporary or permanent) shall be Landlord’s
property and shall remain on the Premises except as provided in the next two
sentences. Tenant may remove all trade fixtures, furniture, and personal
property placed in the Premises by Tenant and described on Exhibit “C” (but
Tenant shall not remove any such item which was paid for, in whole or in part,
by Landlord). Additionally, Tenant shall remove such alterations, additions,
improvements, fixtures, equipment, wiring, furniture, and other property as
Landlord may request in writing (excluding the Initial Improvements described on
Exhibit “B”), provided such request is made within six (6) months after the end
of the Term. All items so requested to be moved which are not so removed shall,
at the option of Landlord, be deemed abandoned by Tenant and may be
appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items
and Tenant shall pay for the costs incurred by Landlord in connection therewith.
Any such disposition shall not be considered a strict foreclosure or other
exercise of Landlord’s rights in respect of the security interest granted under
Section 26 below. All work required of Tenant under this Section 16.(a) shall be
coordinated with Landlord and be done in a good and workmanlike manner, in
accordance with all applicable Laws, and so as not to damage the Building or
unreasonably interfere with other tenants’ use of their premises. Tenant shall,
at its expense, repair all damage caused by any work performed by Tenant under
this Section 16.(a). Without limiting the generality of the foregoing, delivery
of the Premises in compliance with this Section 16.(a) shall require that Tenant
cause the following (which is not an exclusive list) to be true as of the date
of surrender:

 

(i)                                     All interior lights are operational and
burning.

 

(ii)                                  All exhaust, ceiling and overhead fans are
operational.

 

(iii)                               Warehouse floor is broom swept and clean of
all trash and materials.

 

(iv)                              Warehouse floor is cleaned of excessive oils,
fluids and other foreign materials.

 

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(v)                                 All electrical, plumbing, and other
utilities which are terminated are disconnected, capped and/or terminated
according to applicable building codes and all other governmental requirements.

 

(vi)                              Overhead interior and exterior doors are
operational and in good condition.

 

(vii)                           Any bolts secured to floor are cut off flush and
sealed with epoxy.

 

(viii)                        All furniture, trash and debris are removed.

 

(ix)                                All pictures, posters, signage, stickers and
all similar items are removed from all walls, windows, doors and all other
interior and exterior surfaces of the Premises.

 

(x)                                   Carpet areas are vacuumed.

 

(xi)                                All uncarpeted office floors are swept and
any excess wax buildup on tile and vinyl floors is removed.

 

(xii)                             All Tenant installed computer cable is removed
to point of origin.

 

(xiii)                          All doors, windows, and miscellaneous hardware
are operational if Landlord so requires.

 

(xiv)                         All heating, air conditioning and mechanical
equipment is operational and in good working condition.

 

(xv)                            Ceiling tiles, grid, light lenses, air grills
and diffusers are in place with no holes or stains.

 

(xvi)                         There are no broken windows or other glass items.

 

(xvii)                      Bathroom walls, floors, and fixtures are clean.

 

(xviii)                   All plumbing fixtures are intact and operational and
do not leak.

 

(xix)                           Inside walls are reasonably clean and any holes
in the walls or roof are properly and permanently patched.

 

(xx)                              If Tenant fails to vacate the Premises at the
end of the Term, then Tenant shall be a Tenant at sufferance and Tenant shall
pay, in addition to the other rent due hereunder, a daily Base Rent equal to (i)
for the first sixty (60) days, One Hundred Fifty Percent (150%) of the daily
Base Rent payable during the last month of the Term, and (ii) thereafter and
until such time as the Premises are surrendered, Two

 

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Hundred Percent (200%) of the daily Base Rent payable during the last month of
the Term.  Additionally, Tenant shall defend, indemnify, and hold harmless
Landlord from any damage, liability and expense (including attorneys’ fees and
expenses) incurred because of such holding over.  No payments of money by Tenant
to Landlord after the Term shall reinstate, continue or extend the Term, and no
extension of this Term shall be valid unless it is in writing and signed by
Landlord and Tenant.

 

17.                                 QUIET ENJOYMENT.   Provided Tenant has fully
performed its obligations under this Lease, Tenant shall peaceably and quietly
hold and enjoy the Premises for the Term, without hindrance from any party
claiming by, through, or under Landlord.

 

18.                                 EVENTS OF DEFAULT.   Each of the following
events shall constitute an “Event of Default” under this Lease:

 

(a)                                  Tenant fails to pay any rent when due or
any payment or reimbursement required under any other lease with Landlord when
due.

 

(b)                                 The filing of a petition by or against
Tenant or any guarantor of Tenant’s obligations hereunder (1) in any bankruptcy
or other insolvency proceeding; (2) seeking any relief under any debtor relief
Law; (3) for the appointment of a liquidator, receiver, trustee, custodian, or
similar official for all or substantially all of Tenant’s property or for
Tenant’s interest in this Lease; or (4) for reorganization or modification of
Tenant’s capital structure (however, if any such petition is filed against
Tenant, then the filing of such petition shall not constitute an Event of
Default, unless it is not dismissed within 60 days after the filing thereof).

 

(c)                                  Tenant fails to discharge any lien placed
upon the Premises in violation of Section 22 below within thirty (30) days after
any such lien or encumbrance is filed against the Premises.

 

(d)                                 Tenant fails to comply with any term,
provision or covenant of this Lease (other than those listed above in this
Section 18), and such failure continues for thirty (30) days after written
notice thereof to Tenant.

 

19.                                 REMEDIES.

 

(a)                                  If an Event of Default occurs, Landlord
shall have the right at any time to give a written termination notice to Tenant
and, on the date specified in such notice, Tenant’s right to possession shall
terminate and this Lease shall terminate.  Upon such termination, Landlord shall
have the right to recover from Tenant:

 

(i)                                     The worth at the time of award of all
unpaid rent which had been earned at the time of termination;

 

(ii)                                  The worth at the time of award of the
amount by which all unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided;

 

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(iii)                               The worth at the time of award of the amount
by which all unpaid rent for the balance of the Lease Term after the time of
award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; and

 

(iv)                              All other amounts necessary to compensate
Landlord for all the detriment proximately caused by Tenant’s failure to perform
all of Tenant’s obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom.  The “worth at the time of award” of
the amounts referred to in clauses (i) and (ii) above shall be computed by
allowing interest at the Interest Rate set forth in Section 23.(k).  The “worth
at the time of award” of the amount referred to in clause (iii) above shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).  For the
purpose of determining unpaid rent under clauses (i), (ii) and (iii) above, the
rent reserved in this Lease shall be deemed to be the total rent payable by
Tenant under Sections 2 and 3 hereof.  For purposes of computing the amount of
rent hereunder that would have accrued after the time of award, the amounts of
Tenant’s obligations to pay increases in Operating Expenses and Taxes shall be
projected based upon the average rate of increase, if any, in such items from
the Commencement Date through the time of award.

 

(b)                                 Even though Tenant has breached this Lease,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant’s right to possession, and Landlord shall have all of its rights and
remedies, including the right, pursuant to California Civil Code Section 1951.4,
to recover all rent as it becomes due under this Lease, if Tenant has the right
to sublet or assign, subject only to reasonable limitations.  Acts of
maintenance or preservation or efforts to relet the Premises or the appointment
of a receiver upon initiative of Landlord to protect Landlord’s interest under
this Lease shall not constitute a termination of Tenant’s right to possession
unless written notice of termination is given by Landlord to Tenant.

 

(c)                                  If Tenant shall fail to perform any act
required to be performed by it hereunder or to pay any sum of money required to
be paid by it hereunder (other than Base Rent), or shall fail to cure any
default and such failure shall continue beyond any applicable notice and grace
period set forth herein, then Landlord may, at its option, and without waiving
or releasing Tenant from any of its obligations hereunder, make any such payment
or perform any such act on behalf of Tenant.  All sums so paid and all costs
incurred by Landlord in taking such action shall be deemed additional rent and
shall be paid to Landlord on demand.

 

(d)                                 The remedies provided for in this Lease are
in addition to all other remedies available to Landlord at law or in equity by
statute or otherwise.  Tenant, to the greatest extent permitted by law, waives
redemption or relief from forfeiture under Section 1174 and 1179 of the
California Code of Civil Procedure, or under any other present or future law, in
the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any default of Tenant hereunder.

 

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20.                                 LANDLORD’S DEFAULT.    If Landlord fails to
perform any of its obligations hereunder within thirty (30) days after written
notice from Tenant specifying such failure, Tenant’s exclusive remedy shall be
an action for damages.  Unless Landlord fails to so cure such default after such
notice, Tenant shall not have any remedy or cause of action by reason thereof. 
In the event Landlord shall be delayed, hindered or prevented from the
performance of any act required hereunder of Landlord by reason of acts of God,
strikes, lockouts, labor disputes, weather, labor troubles, inability to procure
materials, the acts of Tenant or other causes beyond the reasonable control of
Landlord, then the performance of such act shall be excused for the period of
the delay and the period for the performance of any such act shall be extended
for a period equivalent to the period of such delay.  Liability of Landlord to
Tenant for any default by Landlord shall be limited to the actual and direct,
but not consequential, special or punitive, damages therefor and shall be
recoverable only from the interest of Landlord in the Building and the Land, and
neither Landlord nor Landlord’s partners, shareholders, officers, directors,
employees, agents or attorneys shall have any personal liability therefor.

 

21.                                 MORTGAGES.

 

(a)                                  This Lease shall be subordinate to any deed
of trust, mortgage or other security instrument (a “Mortgage”), and any ground
lease, master lease, or primary lease (a “Primary Lease”) that now or hereafter
covers any portion of the Premises (the mortgagee under any Mortgage or the
lessor under any Primary Lease is referred to herein as “Landlord’s Mortgagee”),
and to increases, renewals, modifications, consolidations, replacements, and
extensions thereof.  However, any Landlord’s Mortgagee may elect to subordinate
its Mortgage or Primary Lease (as the case may be) to this Lease by delivering
written notice thereof to Tenant.  The provisions of this Section 21 shall be
self-operative, and no further instrument shall be required to effect such
subordination; however, Tenant shall from time to time within twenty (20) days
after request therefor, execute any instruments that may be required by any
Landlord’s Mortgagee to evidence the subordination of this Lease to any such
Mortgage or Primary Lease.  If Tenant fails to execute the same within such
20-day period, Landlord may execute the same as attorney-in-fact for Tenant. 
Tenant also agrees to modify this Lease as reasonably requested by Landlord’s
Mortgagee which does not cause increased expense to Tenant, a decrease in
Tenant’s rights under this Lease, or otherwise materially adversely affect
Tenant’s interest under this Lease.

 

(b)                                 With respect to any Mortgage or Primary
Lease to which this Lease is now or shall hereafter become subordinate, Landlord
shall use commercially reasonable efforts to obtain from the Landlord’s
Mortgagee, for the benefit of Tenant, a non-disturbance agreement, in the usual
form of such Landlord’s Mortgagee, providing generally that as long as Tenant is
not in default under this Lease, this Lease will not be terminated if such
Landlord’s Mortgagee acquires title to the Project by reason of foreclosure
proceedings, acceptance of a deed in lieu of foreclosure, or termination of the
leasehold interest of Landlord, provided that Tenant attorns to such Landlord’s
Mortgagee in accordance with its requirements.  Except for making such
commercially reasonable efforts, Landlord will be under no duty or obligation
hereunder with respect

 

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to any Mortgage or Primary Lease, nor will the failure or refusal of any
Landlord’s Mortgagee(s) to grant a non-disturbance agreement render Landlord
liable to Tenant, or affect this Lease, in any manner.  Tenant will bear all
costs and expenses (including attorneys’ fees) of the Landlord Mortgagee(s) in
connection with Landlord’s reasonable efforts to obtain a non-disturbance
agreement.

 

(c)                                  Tenant shall attorn to any party succeeding
to Landlord’s interest in the Premises, whether by purchase, foreclosure, deed
in lieu of foreclosure, power of sale, termination of lease, or otherwise, upon
such party’s request, and shall execute such agreements confirming such
attornment as such party may reasonably request.  Tenant shall not seek to
enforce any remedy it may have for any default on the part of Landlord without
first giving written notice by certified mail, return receipt requested,
specifying the default in reasonable detail to any Landlord’s Mortgagee whose
address has been given to Tenant, and affording such Landlord’s Mortgagee a
reasonable opportunity to perform Landlord’s obligations hereunder.

 

(d)                                 Notwithstanding any such attornment or
subordination of a Mortgage or Primary Lease to this Lease, the Landlord’s
Mortgagee shall not be liable for any acts of any previous landlord, shall not
be obligated to install the Initial Improvements, and shall not be bound by any
amendment to which it did not consent in writing nor any payment of rent made
more than one month in advance.

 

22.                                 ENCUMBRANCES.    Tenant has no authority,
express or implied, to create or place any lien or encumbrance of any kind or
nature whatsoever upon, or in any manner to bind Landlord’s property or the
interest of Landlord or Tenant in the Premises or the Building or to charge the
rent for any claim in favor of any person dealing with Tenant, including those
who may furnish materials or perform labor for any construction or repairs. 
Tenant shall pay or cause to be paid all sums due for any labor performed or
materials furnished in connection with any work performed on the Premises by or
at the request of Tenant.  Tenant shall give Landlord immediate written notice
of the placing of any lien or encumbrance against the Premises.

 

23.                                 MISCELLANEOUS.

 

(a)                                  Words of any gender used in this Lease
shall include any other gender, and words in the singular shall include the
plural, unless the context otherwise requires.  The captions inserted in this
Lease are for convenience only and in no way affect the interpretation of this
Lease.  The following terms shall have the following meanings: “Laws” shall mean
all federal, state, and local laws, rules, and regulations; all court orders,
governmental directives, and governmental orders; and all restrictive covenants
affecting Tenant or the Premises, and “Law” shall mean any of the foregoing;
“affiliate” shall mean any person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with the party in
question; and “Tenant Party” shall include Tenant, any assignees claiming by,
through, or under Tenant, any subtenants claiming by, through, or under Tenant,
and any of their respective agents, contractors, employees, and invitees.

 

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(b)                                 Landlord may transfer and assign, in whole
or in part, its rights and obligations in the Building and property that are the
subject of this Lease, in which case Landlord shall have no further liability
hereunder provided that Landlord’s assignee assumes all of Landlord’s
obligations under this Lease.  Each party shall furnish to the other, promptly
upon demand, a corporate resolution, proof of due authorization by partners, or
other appropriate documentation evidencing the due authorization of such party
to enter into this Lease.

 

(c)                                  Tenant shall, from time to time, within 20
days after request of Landlord, deliver to Landlord, or Landlord’s designee, a
certificate of occupancy for the Premises, financial statements for itself and
any guarantor of its obligations hereunder, evidence reasonably satisfactory to
Landlord that Tenant has performed its obligations under this Lease, and an
estoppel certificate stating that this Lease is in full effect, the date to
which rent has been paid, the unexpired Term and such other factual matters
pertaining to this Lease as may be requested by Landlord.  Tenant’s obligation
to furnish the above-described items in a timely fashion is a material
inducement for Landlord’s execution of this Lease. Tenant’s failure to deliver
said statement in the time required shall be conclusive upon Tenant that: (i)
this Lease is in full force and effect, without modification except as may be
represented by Landlord, (ii) there are no uncured defaults in Landlord’s
performance and Tenant has no right of offset, counterclaim or deduction against
rent under this Lease and (iii) no more than one month’s Base Rent has been paid
in advance.

 

(d)                                 This Lease constitutes the entire agreement
of the Landlord and Tenant with respect to the subject matter of this Lease, and
contains all of the covenants and agreements of Landlord and Tenant with respect
thereto.  Landlord and Tenant each acknowledge that no representations,
inducements, promises or agreements, oral or written, have been made by Landlord
or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not
contained herein, and any prior agreements, promises, negotiations, or
representations not expressly set forth in this Lease are of no effect.  This
Lease may not be altered, changed or amended except by an instrument in writing
signed by both parties hereto.

 

(e)                                  All obligations of Tenant hereunder not
fully performed by the end of the Term shall survive, including, without
limitation, all payment obligations with respect to Taxes and insurance and all
obligations concerning the condition and repair of the Premises. Tenant shall,
prior to vacating the Premises, pay to Landlord the prorated amount, as
estimated by Landlord, of Tenant’s obligation hereunder for Operating Expenses
for the year in which the Term ends.  All such amounts shall be used and held by
Landlord for payment of such obligations of Tenant hereunder, with Tenant being
liable for any additional costs therefor upon demand by Landlord or with any
excess to be returned to Tenant after all such obligations have been determined
and satisfied as the case may be.

 

(f)                                    The parties acknowledge and agree that no
rule of construction to the effect that any ambiguities are to be resolved
against the drafting parties shall be employed in the interpretation of this
Lease.  This Lease shall be construed and

 

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interpreted in accordance with the laws of the State of California.  If any
provision of this Lease is illegal, invalid or unenforceable, then the remainder
of this Lease shall not be affected thereby, and in lieu of each such provision,
there shall be added, as a part of this Lease, a provision as similar in terms
to such illegal, invalid or unenforceable clause or provision as may be possible
and be legal, valid and enforceable.  Time is of the essence of each provision
of this Lease.

 

(g)                                 All references in this Lease to “the date
hereof” or similar references shall be deemed to refer to the last date, in
point of time, on which all parties hereto have executed this Lease.

 

(h)                                 Landlord and Tenant each warrant to the
other that it has not dealt with any broker or agent in connection with this
Lease except for Colliers International.  Tenant and Landlord shall each
indemnify the other against all costs, attorneys’ fees, and other liabilities
for commissions or other compensation claimed by any broker or agent claiming
the same by, through, or under the indemnifying party.  Landlord shall pay
Colliers International a real estate commission as per separate agreement.

 

(i)                                     If and when included within the term
“Tenant”, as used in this instrument, there is more than one person, firm or
corporation, all shall jointly arrange among themselves for their joint
execution of a notice specifying an individual at a specific address within the
continental United States for the receipt of notices and payments to Tenant. 
All parties included within the terms “Landlord” and “Tenant”, respectively,
shall be bound by notices given in accordance with the provisions of Section 24
to the same effect as if each had received such notice.

 

(j)                                     The terms and conditions of this Lease
are confidential and Tenant shall not disclose the terms of this Lease to any
third party except as may be required by law or to enforce its rights hereunder.

 

(k)                                  Tenant shall pay interest on all past-due
rent from the date due until paid at an annual rate of interest (the “Interest
Rate”) equal to the greater of (i) eighteen percent (18%) per year, or (ii) a
rate equal to the sum of five (5) percentage points over the publicly announced
reference rate (the “Reference Rate”) charged on such due date by the San
Francisco Main Office of Bank of America NT & SA (or any successor bank thereto)
(or if there is no such publicly announced rate, the rate quoted by such bank in
pricing ninety (90) day commercial loans to substantial commercial borrowers);
provided, however, Tenant’s total liability for interest payments under this
Lease shall not exceed the limits, if any, imposed on such payments by the usury
laws of the State of California.

 

(l)                                     This Lease may be executed in any number
of counterparts, each of which shall be an original, but such counterparts
together shall constitute one and the same instrument.

 

(m)                               In case any suit or other proceeding shall be
brought for an unlawful detainer of the Premises or for the recovery of any rent
due under the

 

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provisions of this Lease or because of the failure of performance or observance
of any other term or covenant herein contained on the part of Landlord or
Tenant, the unsuccessful party in such suit or proceeding shall pay to the
prevailing party therein reasonable attorneys’ fees and costs which shall
include fees and costs of any appeal, all as fixed by the court.  Any such
attorneys’ fees and other expenses incurred by either party in enforcing a
judgment in its favor under this Lease shall be recoverable separately from and
in addition to any other amount included in such judgment, and such attorneys’
fees obligation is intended to be severable from the other provisions of this
Lease and to survive and not be merged into any such judgment.

 

(n)                                 Each party hereto shall not seek a jury
trial, hereby waives trial by jury, and hereby further waives any objection to
venue in the County of Solano and agrees and consents to personal jurisdiction
of the courts of the State of California, in any action or proceeding or
counterclaim brought by any party hereto against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant’s use or occupancy of the Premises,
or any claim of injury or damage, or the enforcement of any remedy under any
statute, emergency or otherwise, whether any of the foregoing is based on this
Lease or on tort law.  No party will seek to consolidate any such action in
which a jury has been waived with any other action in which a jury trial cannot
or has not been waived.  It is the intention of the parties that these
provisions shall be subject to no exceptions.  By execution of this Lease the
parties agree that this provision may be filed by any party hereto with the
clerk or judge before whom any action is instituted, which filing shall
constitute the written consent to a waiver of jury trial pursuant to and in
accordance with Section 631 of the California Code of Civil Procedure.  No party
has in any way agreed with or represented to any other party that the provisions
of this Section 23.(n) will not be fully enforced in all instances.  The
provisions of this Section 23.(n) shall survive the expiration or earlier
termination of this Lease.

 

24.                                 NOTICES.    Each provision of this
instrument or of any applicable Laws and other requirements with reference to
the sending, mailing or delivering of notice or the making of any payment
hereunder shall be deemed to be complied with when and if the following steps
are taken:

 

(a)                                  All rent shall be payable to Landlord at
the address for Landlord set forth below or at such other address as Landlord
may specify from time to time by written notice delivered in accordance
herewith.  Tenant’s obligation to pay rent shall not be deemed satisfied until
such rent has been actually received by Landlord.

 

(b)                                 All payments required to be made by Landlord
to Tenant hereunder shall be payable to Tenant at the address set forth below,
or at such other address within the continental United States as Tenant may
specify from time to time by written notice delivered in accordance herewith.

 

(c)                                  Any notice or document required or
permitted to be delivered hereunder or under the laws of the State of
California, including, but not limited to, notice under the provisions of
Section 1161 of the California Code of Civil Procedure

 

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and Section 1946 of the California Civil Code (each, a “Notice”), shall be made
in writing and shall be deemed to be delivered upon the earlier to occur of (1)
tender of delivery (in the case of a hand delivered notice), (2) deposit in the
United States Mail, postage prepaid, certified mail, return receipt requested,
or (3) receipt by facsimile transmission, in each case, addressed to the parties
hereto at the respective addresses set out next to their signatures below, or at
such other address as they have theretofore specified by written notice
delivered in accordance herewith; or, in the case of notice given to Tenant
subsequent to Tenant’s vacating, deserting, abandoning or surrendering the
Premises, if delivered to the Premises or any place where Tenant or any agent or
employee of Tenant may be found.  Tenant hereby appoints as its agent to receive
the service of process in any action, or any notice required by law to be given
prior to the commencement of any action, for recovery of possession of the
Premises or any part thereof, and to receive service of all dispossessory or
distraint proceedings and notices thereunder, the person in charge of or
occupying the Premises at the time, and, if no person shall be in charge of or
occupying the same, then such service may be made by attaching the same on the
main entrance of the Premises.  Tenant hereby agrees that service of notice in
accordance with the terms of this Lease shall be in lieu of the methods of
service specified in Section 1162 of the California Code of Civil Procedure. 
The provisions of subdivision (a) of Section 1013 of the California Code of
Civil Procedure, extending the time within which a right may be exercised or an
act may be done, shall not apply to a notice given pursuant to this Lease. 
Landlord may act through its property manager for the Project, through its legal
counsel or through any other person who may from time to time be designated by
Landlord in writing.

 

25.                                 HAZARDOUS WASTE.   The term “Hazardous
Substances”, as used in this Lease, shall mean pollutants, contaminants, toxic
or hazardous wastes, or any other substances, the removal of which is required
or the use of which is restricted, prohibited or penalized by any “Environmental
Law”, which term shall mean any Law relating to health, pollution, or protection
of the environment.  Tenant hereby agrees that (a) no activity will be conducted
on the Premises that will produce any Hazardous Substances; (b) the Premises
will not be used in any manner for the storage of any Hazardous Substances,
except for de minimis quantities of general office supplies customarily used by
office tenants in the ordinary course of Tenant’s business their business, such
as copier toner, liquid paper, glue, ink and cleaning solvents (the “Permitted
Materials”), provided such Permitted Materials are properly stored in a manner
and location satisfying all Environmental Laws; (c) no portion of the Premises
will be used as a landfill or a dump; (d) Tenant will not install any
underground tanks of any type; (e) Tenant will not cause any surface or
subsurface conditions to exist or come into existence that constitute, or with
the passage of time may constitute a public or private nuisance; and (f) Tenant
will not permit any Hazardous Substances to be brought onto the Premises, except
for the Permitted Materials, and if so brought or found located thereon, the
same shall be immediately removed by Tenant, with proper disposal, and all
required cleanup procedures shall be diligently undertaken pursuant to all
Environmental Laws.  If at any time during or after the Term, the Premises are
found to be so contaminated or subject to such conditions as a result of
Tenant’s use of the Premises or breach of this Lease, Tenant shall defend,
indemnify and hold Landlord harmless from all claims, demands, actions,
liabilities, costs, expenses, damages and

 

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obligations of any nature arising from or as a result of the use of the Premises
by Tenant. Landlord may enter the Premises and conduct environmental inspections
and tests therein as it may require from time to time, provided that Landlord
shall use reasonable efforts to minimize the interference with Tenant’s
business.  Such inspections and tests shall be conducted at Landlord’s expense,
unless they reveal the presence of Hazardous Substances (other than Permitted
Materials) or that Tenant has not complied with the requirements set forth in
this Section 25, in which case Tenant shall reimburse Landlord for the
reasonable cost thereof within ten days after Landlord’s request therefor. 
Nothing in this Section shall require Tenant to indemnify Landlord for any
matters arising out of or caused by the actions or omissions of Landlord, its
employees, agents, contractors, licensees, or invitees.

 

26.                                 RENEWAL OPTION.    Tenant shall be granted
one (1) option to renew this Lease for an additional term of ten (10) years on
the terms and conditions set forth in EXHIBIT “E”.

 

27.                                 RIGHT OF FIRST OFFER.    Tenant shall be
granted a conditional right to make a first offer to lease additional space in
the Project on the terms and conditions set forth in EXHIBIT “F”

 

TENANT ACKNOWLEDGES THAT (1) NO REPRESENTATIONS AS TO THE REPAIR OF THE
PREMISES, NOR PROMISES TO ALTER, REMODEL OR IMPROVE THE PREMISES HAVE BEEN MADE
BY LANDLORD (EXCEPT AS MAY BE SET FORTH IN EXHIBIT “B” ATTACHED TO THIS LEASE),
AND (2) THERE ARE NO REPRESENTATIONS OR WARRANTIES, EXPRESSED, IMPLIED OR
STATUTORY, THAT EXTEND BEYOND THE DESCRIPTION OF THE PREMISES.

 

SIGNATURES ON FOLLOWING PAGE

 

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TENANT:

LANDLORD:

 

 

BEBE STORES, INC.,

LINCOLN PO BENICIA LIMITED

a California corporation

PARTNERSHIP,

 

a Delaware limited partnership

 

 

 

By:

Lincoln-Benicia LLC,

 

 

a Delaware limited liability company,

 

 

its general partner

 

 

By:

/s/ Manny Mashouf

 

 

By:

Lincoln MM Benicia, Inc.

 

Name:

Manny Mashouf

 

 

a Texas corporation,

 

Title:

President & CEO

 

 

its managing member

 

 

 

 

By:

/s/ Lilliemae Stephens

 

By:

/s/ John Herr

 

Name:

Lilliemae Stephens

 

 

Name:

John Herr

 

Title:

Vice President and General Counsel

 

 

Title:

VICE PRESIDENT

 

 

Address:

Address:

 

 

380 Valley Drive

Lincoln Property Company

Brisbane, CA 94005

500 North Akard Street

 

3300 Lincoln Plaza

 

Dallas, TX 75201-3394

Attention: Manny Mashouf

Attention: Gregory Courtwright

 

 

Telephone: (415) 715-3900

Telephone: (214) 740-3300

Fax: (415) 715-3939

Fax: (214) 740-3460

 

 

Dated:

 

 

Dated:

10-27-00

 

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EXHIBIT “A-1”

 

LEGAL DESCRIPTION

 

REAL PROPERTY in the City of Benicia, County of Solano, State of California,
described as follows:

 

PARCEL ONE:

 

Beginning at the most southerly corner of Lot 6 as shown on the Subdivision Map
for “Fleetside Industrial Park”, recorded July 24, 1985 in Book 45 of Maps, at
Pages 57 - 50, Solano County Records, said point being a point on a curve
concave to the southeast having a radius of 2,032 feet and whose radial bears
North 53º 48’ 41” West; thence North 58º 33’ 10” West 698.33 feet; thence North
33º 26’ 50” East 82.16 feet to the beginning of a non-tangent curve concave to
the southeast having a radius of 11,359.17 feet and whose radial bears North 56º
39’ 25” West; thence northerly along the curve 123.91 feet through a central
angle of 0º 37’ 30” to a point on a compound curve concave to the southeast
having a radius of 5,629.60 feet and whose radial bears North 55º 55’ 35” West;
thence northerly along the curve 629.34 feet (629.35 record) through a central
angle of 6º 24’ 19”; thence South 52º 07’ 58” East 710.95 feet to a point on a
non-tangent curve concave to the northwest having a radius of 968.00 feet and
whose radial bears North 58º 41’ 58” West; thence southerly along the curve
110.94 feet through a central angle of 6º 34’ 00”; thence South 37º 52’ 02” West
610.43 feet to the beginning of a tangent curve concave to the southeast having
a radius of 2,032 feet; thence southerly along the curve 59.53 feet through a
central angle of 1º 40’ 43” to the point of beginning.

 

PARCEL TWO:

 

A non-exclusive storm drain easement for construction, maintenance of storm
drainage facilities, works, structures and lines, including reasonable rights of
access thereto, as granted in the Easement Deed recorded April 9, 1996, Series
No. 96-22958, Solano County Records, and being described as follows:

 

Being a portion of “New Lot 7” as shown on the Lot Line Adjustment Map recorded
Jun 15, 1994, Series No. 1994-58782, Solano County Records, beginning at the
most southerly corner of said “New Lot 7”; thence along the general southwest
property line North 52º 07’ 58” West 10.03 feet; thence North 30º 42’ 31” East
8.75 feet; thence South 59º 17’ 29” East 10.00 feet to a point on a curve
concave to the northwest having a radius of 968.00 feet and whose radial bears
North 59º 17’ 29” West; thence southwest along the curve 10.00 feet through a
central angle of 0º 35’ 31” to the point of beginning.

 

A.P. Nos.:  080-301-200 and 210

 

****

 

A-1

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EXHIBIT “A-2”

 

SITE PLAN OF PREMISES

 

[GRAPHIC]

 

A-2

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EXHIBIT “B”

 

TENANT WORK LETTER

 

This Tenant Work Letter is attached to and forms a part of the Lease dated as of
October 24, 2000 (the “Lease”), by and among LINCOLN PO BENICIA LIMITED
PARTNERSHIP, a Delaware limited partnership (“Landlord”), and BEBE STORES, INC.,
a California corporation (“Tenant”) pertaining to certain premises located in
the Lincoln Distribution Center, Benicia, California.  Except where clearly
inconsistent or inapplicable, the provisions of the Lease are incorporated into
this Tenant Work Letter, and capitalized terms used without being defined in
this Tenant Work Letter shall have the meanings given them in the Lease.

 

The purpose of this Tenant Work Letter is to set forth the respective
responsibilities of Landlord and Tenant with respect to the design and
construction of the Building and all alterations, additions and improvements
which Tenant may deem necessary or appropriate to prepare the Premises for
occupancy by Tenant under the Lease.

 

Landlord and Tenant agree as follows:

 

1.                                       Definitions.  Wherever used in the
Lease or this Tenant Work Letter, the following terms are defined as follows:

 

1.1                                 “Building Shell”  means the portion of the
Premises being constructed by Landlord as part of Landlord’s Work, including the
building structure, exterior walls, exterior glass, floor slab, roof, parking
lot, landscaping and the base for any street monument sign.  The Building Shell
does not include any elevators, stairs, HVAC, roof screens or thermal
insulation.  Tenant shall be responsible for installing the HVAC system for the
Building.

 

1.2                                 “Initial Improvements”  means the
alterations, additions and improvements which Tenant may deem necessary or
appropriate to prepare the Premises for occupancy by Tenant under the Lease
(excluding the Personal Property shown on Exhibit “C” to the Lease).

 

1.3                                 “Landlord’s Work”  means the work
specifically described in Exhibit B-1 attached hereto.  Landlord’s Work shall
also include bringing telecommunications, electrical and plumbing service to the
Building (i.e., stubbed but not distributed) and for installing the main fire
sprinkler trunks (i.e., installed but not distributed or “dropped”).

 

1.4                                 “Outside Opening Date”  means the date six
(6) months following Building Shell Completion; provided, however, that the
Outside Opening Date shall be extended one day for each day that completion of
the Initial Improvements is delayed by strikes, lockouts, labor disputes, acts
of God, inability to obtain services, labor, or materials or reasonable
substitutes therefor, governmental actions, civil commotion, fire or other
casualty, and other causes beyond Tenant’s reasonable control.

 

B-1

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1.5                                 “Building Shell Completion”  means the date
when a notice of completion (or equivalent) is issued for the Building Shell by
the City of Benicia.  Tenant agrees and acknowledges that Building Shell
Completion may occur notwithstanding the fact that certain tasks to be performed
by Landlord have yet to be completed.  For instance, Tenant agrees that Building
Shell Completion may occur notwithstanding the fact that Landlord has not
completed certain “punch list” items, the parking lot and landscape installation
and/or street improvements, so long as such uncompleted items do not materially
affect Tenant’s ability to commence without interruption the construction of the
Initial Improvements.

 

1.6                                 “Tenant Delay”  means any delay in Building
Shell Completion caused by or attributable to (a) any failure by Tenant to
perform its obligations under this Tenant Work Letter by or within the time
specified for such performance, or (b) any act, neglect, failure or omission of
Tenant or any of Tenant’s agents, employees, contractors or subcontractors which
interferes with Landlord’s ability to perform the Landlord’s Work.

 

1.7                                 “Tenant Improvement Work”  means the work of
constructing the Initial Improvements.

 

2.                                       Delivery of Premises.

 

2.1                                 Landlord’s Work.  Landlord shall, at its
sole cost of expense, perform Landlord’s Work.

 

2.2                                 Tenant’s Early Entry.  On reasonable prior
notice, Landlord will permit Tenant and Tenant’s Agents (as defined below) to
enter the Premises from time to time prior to Building Shell Completion as may
be reasonably necessary or appropriate.  Tenant shall indemnify, protect, defend
and hold Landlord and the other Indemnitees harmless from and against any and
all claims, losses, liability, damages, costs or expenses (including, without
limitation, attorneys’ fees and costs) suffered or incurred by the Indemnified
Parties arising from such entry.

 

3.                                       Design and Approval of the Initial
Improvements.

 

3.1                                 Selection of Tenant’s Architect;
Construction Drawings.

 

(a)                                  Tenant shall retain an architect/space
planner (“Tenant’s Architect”) to prepare the Construction Drawings.  Tenant’s
Architect shall be subject to the written approval of Landlord, which approval
will not be unreasonably withheld, conditioned or delayed; provided, however,
Landlord approves Berger/Detmer as Tenant’s Architect.  Tenant shall retain
engineering consultants approved by Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed, to prepare all plans and
engineering working drawings relating to the structural, mechanical, electrical,
plumbing, HVAC, life-safety and sprinkler work in the Premises in connection
with the Initial Improvements.  The plans and drawings to be prepared by
Tenant’s Architect and the engineers hereunder shall be known, collectively, as
the “Construction Drawings”.

 

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(b)                                 All Construction Drawings shall be subject
to Landlord’s approval, which approval shall not be unreasonably withheld,
conditioned or delayed.  Landlord’s sole interest in reviewing and approving the
Construction Drawings is to protect the Building and Landlord’s interests, and
no such review or approval by Landlord shall be deemed to create any liability
of any kind on the part of Landlord, or constitute a representation on the part
of Landlord or any person consulted by Landlord in connection with such review
and approval that the Construction Drawings are correct or accurate, or are in
compliance with any applicable Laws.  Prior to execution of the Lease, Landlord
has supplied Tenant with a set of drawings of the Building which Tenant may use
in connection with the preparation of the Construction Drawings, but Tenant
agrees that Landlord shall have no liability for the completeness or accuracy
thereof, and Tenant’s Architect shall be responsible for performing all
necessary field measurements and confirming the completeness and accuracy of
such drawings.

 

3.2                                 Space Plans.  Prior to drafting any
Construction Drawings, Tenant shall furnish Landlord with Tenant’s final space
plans for the Premises (“Space Plans”).  The Space Plans shall show locations of
all proposed improvements, including partitions, cabinetry, equipment and
fixtures, shall identify materials and finishes by location, and shall specify
the location of any proposed structural floor penetrations, any special HVAC
requirements, the location and description of any special plumbing requirements,
and any special electrical requirements.  In addition, the Space Plans shall
show telephone and telecommunications facilities, and computer and electronic
data facilities.  Landlord shall approve or disapprove the Space Plans by
written notice given to Tenant within five (5) business days after receipt of
the Space Plans.  Landlord shall not unreasonably withhold or condition its
approval of the Space Plans. If Landlord disapproves the Space Plans, Landlord
shall return the Space Plans to Tenant with a statement of Landlord’s reasons
for disapproval, or specifying any required corrections and/or revisions. 
Landlord shall approve or disapprove of any revisions to the Space Plans by
written notice given to Tenant within five (5) business days after receipt of
such revisions.  This procedure shall be repeated until Landlord approves the
Space Plans.

 

3.3                                 Final Working Drawings.  Following
Landlord’s approval of the Space Plans, Tenant shall cause Tenant’s Architect
and the Engineers to prepare and submit for Landlord’s approval complete and
detailed construction plans and specifications, including a fully coordinated
set of architectural, structural, mechanical, fire protection, electrical and
plumbing working drawings for the Tenant Improvement Work, in a form which is
sufficiently complete to permit subcontractors to bid on the work, obtain all
required Permits (as hereinafter defined) and commence construction (the “Final
Working Drawings”).  Tenant shall furnish Landlord with four (4) copies signed
by Tenant of such Final Working Drawings.  Landlord shall approve or disapprove
of the Final Working Drawings by giving written notice to Tenant within five (5)
business days after receipt thereof.  Landlord shall not unreasonably withhold,
condition or delay its approval of the Final Working Drawings, provided that,
without limiting the generality of the foregoing, Landlord shall be entitled to
withhold its consent to the Final Working Drawings if in Landlord’s good faith
judgment, the Final Working Drawings are inconsistent with, or do not conform
to, the Space Plans.  If Landlord

 

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disapproves the Final Working Drawings, Landlord shall return the Final Working
Drawings to Tenant with a statement of Landlord’s reasons for disapproval and/or
specifying any required corrections or revisions.  Landlord shall approve or
disapprove of any such revisions to the Final Working Drawings within five (5)
business days after receipt of such revisions.  This procedure shall be repeated
until Landlord approves the Final Working Drawings (as so approved, the
“Approved Working Drawings”).

 

4.                                       Construction of Initial Improvements.

 

4.1                                 Contracts with Tenant’s Contractor and
Subcontractors.

 

(a)                                  Tenant shall retain a licensed general
contractor as the contractor for the construction of the Initial Improvements
(“Tenant’s Contractor”).  Tenant’s Contractor must be experienced in the
performance of work comparable to the work of the Initial Improvements in
buildings comparable to the Building, and shall be subject to Landlord’s prior
approval, which approval shall not be unreasonably withheld, conditioned or
delayed.  All subcontractors, laborers, materialmen and suppliers used by Tenant
(such subcontractors, laborers, materialmen and suppliers, together with
Tenant’s Contractor, are collectively referred to herein as “Tenant’s Agents”)
must be approved in writing by Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed.

 

(b)                                 Tenant shall furnish Landlord with true and
correct copies of all construction contracts between or among Tenant, Tenant’s
Contractor and all subcontractors relating to the Tenant Improvement Work,
provided that Landlord’s review of such contracts shall not relieve Tenant from
its obligations under this Tenant Work Letter nor shall such review be deemed to
constitute Landlord’s representation that such contracts comply with the
requirements of this Tenant Work Letter.  All such contracts shall expressly
provide that (i) the work to be performed thereunder shall be subject to the
terms and conditions of this Tenant Work Letter, and (ii) the Tenant Improvement
Work (or in the case of a subcontractor, the portion thereof performed by such
subcontractor) shall be warranted in writing to Tenant and Landlord to be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion of the Tenant Improvement Work.  Tenant
agrees to give to Landlord any assignment or other assurances which may be
necessary to permit Landlord to directly enforce such warranties (such
warranties shall include, without additional charge, the repair of any portion
of the Building or Common Areas which may be damaged as a result of the removal
or replacement of the defective Initial Improvements).  Tenant shall cause
Tenant’s Agents to engage only labor that is harmonious and compatible with
other labor working in the Building.  In the event of any labor disturbance
caused by persons employed by Tenant or Tenant’s Contractor, Tenant shall
immediately take all actions necessary to eliminate such disturbance.  If at any
time any of Tenant’s Agents interferes with any other occupant of the Building,
or hinders or delays any other work of improvement in the Building, or performs
any work which may or does impair the quality, integrity or performance of any
portion of the Building, including any building systems, Tenant shall cause such
subcontractor, laborer, materialman or supplier to leave the Building and remove
all tools, equipment

 

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and materials immediately upon written notice delivered to Tenant, and, without
limiting Tenant’s indemnity obligations set forth in Section 11 of the Lease,
Tenant shall reimburse Landlord for all costs, expenses, losses or damages
incurred or suffered by Landlord resulting from the acts or omissions of
Tenant’s Agents in or about the Building.

 

4.2                                 Permits.  Tenant shall obtain all building
permits and other permits, authorizations and approvals which may be required in
connection with, or to satisfy all applicable Laws applicable to, the
construction of the Initial Improvements in accordance with the Approved Working
Drawings (the “Permits”).  Tenant agrees that neither Landlord nor Landlord’s
consultants shall be responsible for obtaining any Permits or the certificate of
occupancy for the Premises, and that obtaining the same shall be Tenant’s
responsibility; provided, however, that Landlord will cooperate with Tenant in
executing permit applications and performing other ministerial acts reasonably
necessary to enable Tenant to obtain any such Permit or certificate of
occupancy.  Any amendments or revisions to the Approved Working Drawings that
may be necessary to obtain any such Permits or certificate of occupancy, or
which may be required by city officials or inspectors to comply with code
rulings or interpretations, shall be prepared by Tenant’s Architect, at Tenant’s
expense, and submitted to Landlord for Landlord’s review and approval as a
Change Order under Section 6 below.  If Landlord disapproves of such amendments
or revisions, Landlord shall return the same to Tenant with a statement of
Landlord’s reasons for disapproval, or specifying any required corrections. 
This procedure shall be repeated until Landlord approves the amendments or
revisions and all Permits have been obtained for the Approved Working Drawings,
as so amended.

 

4.3                                 Commencement of Work.  At least ten (10)
days prior to the commencement of construction of the Initial Improvements, or
the delivery of any construction materials for the Tenant Improvement Work to
the Building, whichever is earlier, Tenant shall submit to Landlord a notice
specifying the date Tenant will commence construction of the Initial
Improvements, the estimated date of completion of the Initial Improvements and
the construction schedule provided by Tenant’s Contractor.  In addition, prior
to the commencement of construction of the Initial Improvements, or the delivery
of any construction materials for the Tenant Improvement Work to the Building,
whichever is earlier, Tenant shall submit to Landlord the following: (a) all
Permits required to commence construction of the Initial Improvements; (b) a
certificate from Tenant stating that the costs which have theretofore been
incurred in connection with the design and construction of the Initial
Improvements, which costs of construction form a basis for the amount of the
construction contract; and (c) original certificates of insurance policies
obtained pursuant to this Tenant Work Letter, together with any endorsements
referred to in Section 4.6 below, confirming to Landlord’s reasonable
satisfaction compliance with the insurance requirements of this Tenant Work
Letter.

 

4.4                                 Performance of Work.

 

(a)                                  Following Building Shell Completion, Tenant
shall be permitted to enter the Premises for the sole purpose of constructing
the Initial

 

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Improvements, provided that Tenant’s occupancy of the Premises prior to the
Commencement Date shall be subject to all of the terms, covenants and conditions
of the Lease (including, without limitation, Tenant’s obligations under Section
11 (regarding Tenant’s indemnity obligations).  Notwithstanding any provision of
the Lease to the contrary, Tenant shall pay for all utility and other costs
incurred by Landlord to the extent they relate to Tenant’s work prior to the
Commencement Date.  Further, if Tenant occupies any part of the Premises prior
to the Commencement Date for purposes of doing business (as opposed to
constructing the Initial Improvements), then Tenant shall pay all Base Rent and
Tenant’s Proportionate Share of Operating Expenses and Real Property Taxes at
the rate for the first Lease Year prorated for any partial month.

 

(b)                                 Without limiting the provisions of Section
4.4(a) above, all work performed by Tenant’s Contractor shall strictly conform
to the Approved Working Drawings, shall comply with all applicable Laws
(including building codes) and all applicable standards of the American
Insurance Association and the National Electrical Code and all building material
manufacturer’s specifications, shall comply with all reasonable non-arbitrary
rules and regulations from time to time adopted by Landlord to govern
construction in or about the Building, and shall be performed in a good and
professional manner and so as not to interfere with the performance of any other
work within the Building, or with Landlord’s maintenance or operation of the
Building.  At all times during construction of the Initial Improvements,
Landlord and Landlord’s employees and agents shall have the right to enter the
Premises to perform Landlord’s Work, inspect the Tenant Improvement Work, and to
require the correction of any faulty work or any material deviation from the
Approved Working Drawings by written notice to Tenant.  Tenant shall deliver
notice to Landlord at least two (2) business days prior to Tenant’s closing-up
of any Tenant Improvement Work affecting the life safety, telecommunications,
heating, ventilation and air conditioning, plumbing, electrical or other
building systems in the Premises, in order to give Landlord or Landlord’s agents
an opportunity to inspect and approve the same.  No inspection or approval by
Landlord of any such work shall constitute an endorsement thereof or any
representation as to the adequacy thereof for any purpose or the conformance
thereof with any applicable Laws, and Tenant shall be fully responsible and
liable therefor.  Tenant shall reimburse Landlord for the cost of any repairs,
corrections or restoration which must be made, in Landlord’s good faith
judgment, to the Premises or any other portion of the Building, if caused by
Tenant’s Contractor or any other of Tenant’s Agents.

 

4.5                                 Outside Opening Date.  Tenant agrees to
complete the Tenant Improvement Work and open for business in the Premises on or
before the Outside Opening Date.

 

4.6                                 Insurance.  At all times during the
construction of the Initial Improvements, in addition to the insurance required
to be maintained by Tenant under the Lease, Tenant shall require all of Tenant’s
Agents to maintain (i) Commercial General Liability Insurance with limits of not
less than $2,000,000 combined single limit for bodily injury and property
damage, including personal injury and death, and Products and Completed
Operations Coverage;  (ii) Comprehensive automobile liability insurance with a
policy limit of not less than $1,000,000 each accident for bodily injury and

 

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property damage, providing coverage at least as broad as the Insurance Services
Office (ISO) Business Auto Coverage form covering Automobile Liability, code 1
“any auto”, and insuring against all loss in connection with the ownership,
maintenance and operation of automotive equipment that is owned, hired or
non-owned; (iii) Worker’s Compensation with statutory limits and Employer’s
Liability Insurance with limits of not less than $100,000 per accident, $500,000
aggregate disease coverage and $100,000 disease coverage per employee.  In
addition, Tenant shall carry “Builder’s Risk” insurance on a replacement cost,
agreed value basis, in an amount equal to at least the initial sum of the
construction contract(s) for the construction of the Initial Improvements, and
shall include loss or damage to the work of Tenant’s Contractor and any
subcontractors (the amount of this insurance to be adjusted as needed to reflect
any subsequent material changes), it being understood and agreed that the
Initial Improvements shall be insured by Tenant pursuant to Section 9 of the
Lease immediately upon completion thereof.  Tenant’s liability insurance shall
be written on an “occurrence” basis and shall name Landlord and Landlord’s
Mortgagee(s) as additional insureds (by endorsement reasonably acceptable to
Landlord).  The “Builder’s Risk” insurance shall name Landlord and such other
parties as Landlord may reasonably specify as the loss payee(s), as their
interest may appear, with respect to all proceeds received therefrom.  All of
the insurance required to be carried by Tenant hereunder shall provide that it
is primary insurance, and not excess over or contributory with any other valid,
existing, and applicable insurance in force for or on behalf of Landlord, shall
provide that Landlord shall receive thirty (30) days’ written notice from the
insurer prior to any cancellation or material reduction of coverage, and shall
be placed with companies which are rated A:VII or better by Best’s Insurance
Guide and licensed to business in the State of California.  All deductibles and
self-insured retentions under Tenant’s policies are subject to Landlord’s
reasonable approval, and all insurance, except Workers’ Compensation, maintained
by Tenant’s Agents shall preclude subrogation claims by the insurer against
anyone insured thereunder.  Tenant’s compliance with the provisions of this
Section shall in no way limit Tenant’s liability under any of the other
provisions of the Lease.

 

4.7                                 Liens.  Tenant shall keep the Premises and
the Building free from any liens arising out of work performed, materials
furnished or obligations incurred by Tenant; provided, however, Tenant shall
have the right, at its sole cost and expense, to contest in good faith any such
mechanics’ or other liens so long as Tenant has posted a release bond in an
amount equal to one hundred fifty percent (150%) of the amount of the lien and
otherwise in accordance with applicable Laws.  Should Tenant fail to remove any
such lien (or record a bond as provided above) within five (5) business days
after notice to do so from Landlord, Landlord may, in addition to any other
remedies, record a bond pursuant to California Civil Code Section 3143 and all
costs and obligations incurred by Landlord in so doing shall immediately become
due and payable by Tenant to Landlord as additional rent under the Lease. 
Landlord shall have the right to post and keep posted on the Premises any
notices that may be required or permitted by applicable Laws, or which Landlord
may deem to be proper, for the protection of Landlord and the Building from such
liens.  Promptly following completion of construction, Tenant shall provide
Landlord a copy of a final unconditional lien release from Tenant’s Contractor
and each of Tenant’s Agents who performed work or supplied

 

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materials for the Initial Improvements.  Upon completion of construction, Tenant
shall promptly record a Notice of Completion in accordance with California Civil
Code Section 3093 and provide a copy thereof to Landlord.

 

5.                                       Responsibility for Design and
Construction Costs.  Landlord’s Work shall be performed by Landlord at
Landlord’s sole cost and expense and the Tenant Improvement Work shall be
performed by Tenant at Tenant’s sole cost and expense.  Except as otherwise
provided in the Lease, Tenant shall not be obligated to pay for any chargebacks,
reimbursables, fees, bonds, security deposits or barricades in connection with
Landlord’s Work or the Initial Improvements.

 

6.                                       Change Orders.  Landlord will not
unreasonably withhold its approval of (a) any request by Tenant, or by Tenant’s
Contractor with Tenant’s approval, to amend or change the Approved Working
Drawings, or (b) any change or amendment to the Approved Working Drawings that
may be necessary to obtain any Permits, or which may be required by city
officials or inspectors to comply with code rulings or interpretations (any of
the foregoing, a “Change Order”).  No material changes or modifications to the
Approved Working Drawings shall be made unless by written Change Order signed by
Landlord and Tenant.  Tenant shall pay all costs attributable to Change Orders,
including reasonable costs incurred by Landlord in reviewing proposed Change
Orders.  Landlord agrees to respond to any request for approval of a Change
Order within three (3) business days following Landlord’s receipt of such
request.

 

7.                                       Ownership of Initial Improvements.  The
Initial Improvements shall be deemed, effective upon installation, to be a part
of the Premises and the Building and shall be deemed to be the property of
Landlord (subject to Tenant’s right to use the same during the Term of the
Lease), and shall be surrendered at the expiration or earlier termination of the
Term, unless Landlord shall have conditioned its approval of the Final Working
Drawings or any Change Order on Tenant’s agreement to remove any items thereof,
in which event, prior to the expiration or termination of the Term, the
specified items shall be removed at Tenant’s expense, any damage caused by such
removal shall be repaired, and the Premises shall be restored to their condition
existing prior to the installation of the items in question, normal wear and
tear excepted.  The removal, repair and restoration described above shall, at
Landlord’s sole election, be performed either by Tenant or by Landlord; and if
such work shall be performed by Landlord, Tenant shall pay to Landlord, within
twenty (20) days following Landlord’s demand, the reasonable cost and expense of
such work.

 

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EXHIBIT B-1

 

DESCRIPTION OF LANDLORD’S WORK

 

Landlord’s Work is shown on those certain plans prepared by Tulloch Construction
dated January 16, 1998, and identified as Job No. 2147.

 

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EXHIBIT “C”

 

TENANT’S PERSONAL PROPERTY

 

All furniture, movable equipment and other personal property that is not
attached to the floors, walls or ceiling of the Premises; and any other fixture,
equipment, or other item, regardless of the manner of attachment, that is used
primarily in Tenant’s trade or business and that can be removed as a separate
physical unit without material damage to the Building and without unreasonable
interference with other tenants’ use and enjoyment of their leased premises,
including, without limitation, the following:

 

1.                                       the personal property and fixtures of
Tenant’s Customers, Contractors or Employees; and

 

2.                                       lighting fixtures.

 

 

[To be completed by Tenant after execution of Lease, with final Exhibit C to be
slip sheeted into original executed Lease]

 

C-1

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EXHIBIT “D”

 

RULES AND REGULATIONS

 

1.                                       Landlord shall have the right to
prescribe the weight, position and manner of installation of heavy equipment
which, if considered necessary by Landlord, shall be installed in a manner which
shall insure satisfactory weight distribution.  The time, routing and manner of
moving such heavy equipment shall be subject to prior approval by Landlord.

 

2.                                       Tenant, or the employees, agents,
visitors or licensees of Tenant, shall not at any time place, leave or discard
any rubbish, paper, articles or objects of any kind whatsoever outside the doors
of the Premises or the Property.  No animals or birds shall be brought or kept
in or about the Premises or the Property.

 

3.                                       Canvassing, soliciting or peddling in
or about the Premises or the Property is prohibited and Tenant shall cooperate
to prevent same.

 

4.                                       Landlord shall have the right to
exclude any person from the Property other than during customary business hours,
and any person in the Property will be subject to identification by employees
and agents of Landlord.  All persons in or entering the Property shall be
required to comply with the security policies of the Property.  If Tenant
desires any additional security service for the Premises or the Property, Tenant
shall have the right (with the prior written consent of Landlord) to obtain such
additional service at Tenant’s sole cost and expense.  Tenant shall keep doors
to unattended areas locked and shall otherwise exercise reasonable precautions
to protect its property from theft, loss or damage.  Landlord shall not be
responsible for the theft, loss or damage of any property or for any error with
regard to the exclusion from or admission to the Premises or the Property of any
person.  In case of invasion, mob, riot or public excitement, Landlord reserves
the right to prevent access to the Premises or the Property during the
continuance of same by closing the doors or taking other measures for the safety
of the tenants and protection of the Premises or the Property and property or
persons therewith.

 

5.                                       Tenant shall not cause or permit any
odors to permeate in or emanate from the Premises or the Property, or permit or
suffer the Premises or the Property to be occupied or used in a manner offensive
or objectionable to Landlord or other occupants of the Premises or the Property
by reason of light, radiation, magnetism, noise, odors, and/or vibrations, or
interfere in any way with other tenants or those having business in the Premises
or the Property.

 

6.                                       All keys shall be returned to Landlord
upon the termination of this Lease and Tenant shall give to Landlord the
explanations of the combinations of all safes, vaults and combination locks
remaining with the Premises.  Landlord may at all times keep a pass key to the
Premises.  All entrance doors to the Premises shall be left closed at all times
and left locked when the Premises are not in use.

 

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7.                                       Tenant shall give immediate notice to
Landlord in case of any known emergency at the Premises or the Property.

 

8.                                       Tenant shall not advertise for
temporary laborers giving the Premises or the Property as an address, nor pay
such laborers at a location in the Premises or the Property.

 

9.                                       No portion of the Premises or any part
of the Property shall at any time be used or occupied as sleeping or lodging
quarters.

 

10.                                 The toilet rooms, urinals, wash bowls and
other apparatus in the Premises shall not be used for any purpose other than
that for which they were constructed and no foreign substance of any kind
whatsoever shall be thrown therein and the expense of any breakage, stoppage or
damage resulting from the violation of this rule shall be borne by the Tenant
who or whose employees or invitees shall have caused it.

 

11.                                 Landlord reserves the right to exclude or
expel from the Property any person who, in the judgment of Landlord, is
intoxicated or under the influence of liquor or drugs, or who shall in any
manner do any act in violation of any of the Rules and Regulations of the
Premises or the Property.

 

12.                                 Landlord reserves the right to rescind any
of these rules and regulations and to make such other and further rules and
regulations as in its reasonable judgment shall, from time to time, be required
for the safety, protection, care and cleanliness of the Property, the operation
thereof, the preservation of good order therein and the protection and comfort
of the tenants and their agents, employees, and invitees, which rules and
regulations shall be binding upon it in like manner as if originally herein
prescribed.

 

13.                                 Tenant shall park trailers and other
oversized vehicles only in areas designated by Landlord for the parking of
trailers or oversized vehicles.

 

14.                                 Tenant shall not utilize the Premises for
outside storage except with the written consent of Landlord.

 

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EXHIBIT “E”

 

RENEWAL OPTION

 

If, at the end of the primary term of this Lease, Tenant is not in default of
any of the terms, conditions, or covenants of the Lease after notice and the
expiration of applicable cure periods, Tenant, but not any assignee or subtenant
of Tenant, is hereby granted one (1) option to renew this Lease for an
additional term of ten (10) years upon the same terms and conditions contained
in this Lease with the following exceptions:

 

1.                                       Renewal option term will contain no
further renewal options unless granted by Landlord in writing; and

 

2.                                       Base rent for the renewal term shall be
based on ninety-five percent (95%) of the then prevailing rental rates for
properties of equivalent quality, size, utility and location, with the length of
the Lease term and credit standing of Tenant to be taken into account; provided,
however, that in no event will the base rent for any year of the renewal term be
less than the base rent payable by Tenant for the twelve (12) month period
immediately preceding the commencement of the renewal term (without regard to
any periods of rent abatement on account of casualty, etc.).  If Tenant desires
to renew this Lease, Tenant will notify Landlord in writing of its intention to
renew no later than six (6) months prior to the expiration date of the Lease,
the time of such exercise being of the essence; Landlord shall, within the next
fifteen (15) days, after receipt of such notice, deliver to Tenant the proposed
rent and terms with respect to the renewal term.  Tenant shall have fifteen (15)
days to accept or reject such proposed rent and terms.  In the event Tenant
rejects such proposed rent and terms and Landlord and Tenant are thereafter
unable to agree upon the rent and terms to be applicable during the renewal term
within the thirty (30) days after such rejection by Tenant after reasonably and
in good faith attempting to reach such an agreement, Tenant’s renewal option
shall terminate and thereafter be of no force or effect.

 

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EXHIBIT “F”

 

RIGHT OF FIRST OFFER

 

Subject to the conditions set forth in this Exhibit “F”, Tenant shall have a
right of first offer to lease the remainder of the Building in which the
Premises is located (the “First Offer Space”), in the event the First Offer
Space becomes available for lease to third parties during the Term (excluding
the Renewal Term) following the initial leasing thereof after the Commencement
Date.  Prior to leasing the First Offer Space to a third party, Landlord will
give notice to Tenant (an “Offering Notice”) specifying Landlord’s good faith
estimate of (i) the Base Rent which Landlord proposes to charge for the First
Offer Space, which Base Rent shall equal Landlord’s good faith estimate of the
prevailing market rate for the First Offer Space for a term equal to the
remainder of the Term (taking into account the Renewal Term), (ii) the
approximate date upon which the First Offer Space is anticipated to be available
for delivery, and (iii) any other material conditions or provisions relating to
the leasing of the First Offer Space which vary from the provisions of this
Lease.  If Tenant wishes to lease the First Offer Space on the terms specified
by Landlord in the Offering Notice, Tenant shall so notify Landlord within ten
(10) business days after receipt thereof, which notice shall be unconditional
and irrevocable.  Tenant may exercise its right of first offer only with respect
to all of the First Offer Space identified in the Offering Notice, and only if
Tenant intends to occupy such First Offer Space in connection with its own
reasonably foreseeable needs.

 

If Tenant timely exercises its right to lease the First Offer Space, then except
as specified in this Exhibit “F” or in the Offering Notice (which shall govern
to the extent of any conflict with this Lease), the First Offer Space shall
become a portion of the Premises on all of the terms and conditions of this
Lease for the remainder of the Term (including any Renewal Term), provided that
(i) Base Rent for the First Offer Space shall be determined as specified above,
(ii) Tenant’s Proportionate Share of Operating Expenses and Taxes shall be
adjusted to reflect the addition of the First Offer Space, and (iii) the First
Offer Space shall be delivered in its then existing “as is” condition, without
obligation on the part of Landlord to make any repairs or construct any
improvements to the First Offer Space in connection with Tenant’s contemplated
use, or to demolish existing improvements therein, and Tenant shall be
responsible for the construction and installation, in accordance with the
provisions of Section 6 of the Lease, of any tenant improvements it desires to
install within the First Offer Space, at Tenant’s sole cost and expense.  Tenant
shall commence paying Base Rent and all additional rent with respect to the
First Offer Space on the date of delivery of the First Offer Space to Tenant in
the condition required hereunder.  Landlord shall promptly prepare and Landlord
and Tenant shall promptly execute an amendment to this Lease reflecting the
addition of the First Offer Space.  Tenant’s right of first offer under this
Exhibit “F” shall be a one-time right as to the First Offer Space.  If Tenant
fails to timely notify Landlord that it wishes to lease the First Offer Space,
or if Tenant fails to execute and deliver said lease amendment to Landlord
within ten (10) business days following receipt thereof by Tenant, Landlord may
thereafter lease the First Offer Space to any person on any terms and conditions
it may deem appropriate, including terms and conditions more favorable than the
terms and conditions set forth in the Offering Notice,

 

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and Tenant shall have no further rights with respect to the First Offer Space,
either at such time or at any future time.

 

If Tenant timely exercises its right to lease the First Offer Space, and
Landlord fails to deliver possession of all or any portion of the First Offer
Space to Tenant on or before the scheduled date for delivery of possession for
any reason, this Lease shall not be void or voidable and Landlord shall not be
deemed in default or otherwise liable to Tenant for any claims, damages, or
liabilities in connection therewith or by reason thereof, but Tenant shall have
no obligation to pay Base Rent or Tenant’s Proportionate Share of Operating
Expenses or Taxes with respect to the First Offer Space until possession of the
First Offer Space has been delivered to Tenant.  Notwithstanding anything to the
contrary set forth herein, if Tenant is in default under this Lease beyond
applicable notice and cure periods at the time an Offering Notice would
otherwise be required to be sent under this Exhibit, or any other time following
Tenant’s exercise of its right to lease the First Offer Space and prior to the
date upon which possession of the First Offer Space is to be delivered to
Tenant, Landlord shall have, in addition to any other remedies, the right to
terminate Tenant’s rights under this Exhibit “F”, and in such event Landlord
shall not be required to deliver the Offering Notice or to deliver possession of
the First Offer Space to Tenant.  If not earlier terminated, the rights of
Tenant pursuant to this Exhibit “F” shall automatically terminate upon the
Expiration Date.  Nothing contained in this Exhibit “F” shall be deemed to
impose any obligation on Landlord to refrain from negotiating with existing or
future tenants of the First Offer Space, to withhold the First Offer Space from
the market, or to take any other action or omit to take any other action in
order to make the First Offer Space available to Tenant.

 

F-2

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FIRST AMENDMENT OF LEASE

 

THIS FIRST AMENDMENT OF LEASE (this “Amendment”) is made as of the “Effective
Date” (defined in Section 1.2 below), by and between LINCOLN PO BENICIA LIMITED
PARTNERSHIP, a Delaware limited partnership (“Landlord”), and BEBE STORES, INC.,
a California corporation (“Tenant”).

 

R E C I T A L S:

 

A.            Landlord and Tenant entered into a certain Lease Agreement dated
as of October 24, 2000 (the “Lease”), for certain premises located in the
Lincoln Distribution Center, Benicia, California, as more particularly described
in the Lease (the “Premises”).  Capitalized terms used but not defined herein
shall have their respective meanings set forth in the Lease.

 

B.            As provided in the Tenant Work Letter, attached to the Lease as
Exhibit “B”, Landlord shall perform certain improvements to the Premises
(referred to in the Tenant Work Letter as “Landlord’s Work”).  Landlord and
Tenant desire to modify the definition of Landlord’s Work under the Lease as
more particularly described herein.

 

NOW, THEREFORE, in consideration of the agreements of Landlord and Tenant herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

 

1.             Addition to Landlord’s Work.  In addition to the Landlord’s Work
described in Exhibit B-1 attached to the Lease, Landlord shall, at its cost
(except as specified below), (i) provide electrical service to the Premises at
1200 amps, 277/480 volts (such service to be provided to a main panel and meter
section within the Premises); and (ii) construct and install a full height
demising wall of approximately 400 linear feet separating the Premises from the
adjacent 96,000 square feet in the Building.  Within thirty (30) days following
receipt of reasonably detailed invoices therefor, Tenant shall reimburse
Landlord, as additional rent under the Lease, for the cost of labor and
materials (per bid from Tulloch Construction) associated with the installation
of the sheet rock on Tenant’s side of such demising wall.

 

2.             Miscellaneous.  Except as modified by this Amendment, all of the
terms, conditions and provisions of the Lease shall remain in full force and
effect and are hereby ratified and confirmed.  This Amendment contains the
entire agreement of Landlord and Tenant with respect to the subject matter
hereof.  Tenant acknowledges that all prior communications

 

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from Landlord or its agents are not and were not, and shall not be construed to
be, representations or warranties of Landlord or its agents as to the matters
communicated, and have not and will not be relied upon by Tenant.

 

IN WITNESS WHEREOF, the parties have caused this First Amendment of Lease to be
executed as of the day and year first written above.

 

TENANT:

 

LANDLORD:

 

 

 

BEBE STORES, INC.,

 

LINCOLN PO BENICIA LIMITED PARTNERSHIP,

a California corporation

 

a Delaware limited partnership

 

 

 

 

 

By:

Lincoln-Benicia LLC,

 

 

 

a Delaware limited liability company,

 

 

 

its general partner

 

 

 

 

 

 

 

By:

Lincoln MM Benicia, Inc.

By:

/s/ Manny Mashouf

 

 

 

a Texas corporation,

 

Name:

Manny Mashouf

 

 

 

its managing member

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Lilliemae Stephens

 

 

 

By:

/s/ John Herr

 

Name:

Lilliemae Stephens

 

 

 

Name:

John Herr

 

Title:

V.P. & General Counsel

 

 

 

Title:

VICE PRESIDENT

 

 

 

 

 

 

 

 

Dated:

11/21/00

 

Dated:

11-22-00

 

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