Exhibit 10.7
STANDARD OFFICE/MULTI-TENANT LEASE — NNN
by and between
GRANITE CREEK BUSINESS CENTER
(“Landlord”)
and
VirnetX, INC.
(“Tenant”)
For the approximately 995 sq. ft. premises at
5615 Scotts Valley Drive, Suite 110, Scotts Valley, California

 

 

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TABLE OF CONTENTS

              Page  
 
       
1. PARTIES
    1  
 
       
2. PREMISES
    1  
 
       
3. DEFINITION
    1  
 
       
A. Alterations
    1  
 
       
B. Building
    1  
 
       
C. Commencement Date
    1  
 
       
D. Common Area
    1  
 
       
E. HVAC
    `1  
 
       
F. Interest Rate
    2  
 
       
G. Landlord’s Agents
    2  
 
       
H. Monthly Rent
    2  
 
       
I. Outside Area
    2  
 
       
J. Project
    2  

 

 

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              Page  
 
       
K. Real Property Taxes
    2  
 
       
L. Rent
    2  
 
       
M. Security Deposit
    2  
 
       
N. Sublet
    3  
 
       
O. Subrent
    3  
 
       
P. Subtenant
    3  
 
       
Q. Tenant Improvements
    3  
 
       
R. Tenant Improvements Allowance
    3  
 
       
S. Tenant’s Percentage
    3  
 
       
T. Tenant’s Personal Property
    3  
 
       
U. Term
    3  
 
       
V. Consent
    3  
 
       
4. LEASE TERM
    4  
 
       
A. Term
    4  
 
       
B. Early Entry
    4  

 

 

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              Page  
 
       
5. RENT
    4  
 
       
A. Monthly Rent
    4  
 
       
B. Additional Rent
    5  
 
       
6. LATE PAYMENT CHARGES
    5  
 
       
7. SECURITY DEPOSIT
    5  
 
       
8. HOLDING OVER
    6  
 
       
9. TENANT IMPROVEMENTS
    6  
 
       
10. CONDITION OF PREMISES
    6  
 
       
11. USE OF THE PREMISES
    6  
 
       
A. Tenant’s Use
    6  
 
       
B. Compliance
    6  
 
       
12. QUIET ENJOYMENT
    7  
 
       
13. ALTERATIONS
    7  
 
       
14. SURRENDER OF THE PREMISES
    8  

 

 

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              Page  
 
       
15. REAL PROPERTY TAXES
    9  
 
       
A. Payment by Tenant
    9  
 
       
B. Taxes on Tenant Improvements and Personal Property
    9  
 
       
C. Proration
    10  
 
       
16. UTILITIES AND SERVICES
    10  
 
       
17. REPAIR AND MAINTENANCE
    10  
 
       
A. Landlord’s Obligations
    10  
 
       
B. Tenant’s Obligations
    11  
 
       
C. Tenant to Pay Expenses
    11  
 
       
D. Monthly Payments
    12  
 
       
E. Compliance with Governmental Regulations
    12  
 
       
18. LIENS
    12  
 
       
19. LANDLORD’S RIGHT TO ENTER THE PREMISES
    12  
 
       
20. SIGNS
    12  

 

 

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              Page  
 
       
21. INSURANCE
    13  
 
       
A. Indemnification
    13  
 
       
B. Tenant’s Insurance
    13  
 
       
C. Premises Insurance
    14  
 
       
D. Increased Coverage
    14  
 
       
E. Co-Insurer
    14  
 
       
F. Insurance Requirements
    15  
 
       
G. Landlord’s Disclaimer
    15  
 
       
22. WAIVER OF SUBROGATION
    15  
 
       
23. DAMAGE OR DESTRUCTION
    15  
 
       
A. Landlord’s Obligation to Rebuild
    15  
 
       
B. Right to Terminate
    16  
 
       
C. Limited Obligation to Repair
    16  
 
       
D. Abatement of Rent
    16  
 
       
E. Damage Near End of Term
    17  

 

 

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              Page  
 
       
24. CONDEMNATION
    17  
 
       
25. ASSIGNMENT AND SUBLETTING
    18  
 
       
A. Landlord’s Consent
    18  
 
       
B. Information to be Furnished
    18  
 
       
C. Landlord’s Alternatives
    18  
 
       
D. Exempt Sublets
    18  
 
       
26. DEFAULT
    19  
 
       
A. Tenant’s Default
    19  
 
       
B. Remedies
    19  
 
       
C. Landlord’s Default
    21  
 
       
27. SUBORDINATION
    21  
 
       
28. ESTOPPEL CERTIFICATES
    22  
 
       
29. TRANSFER OF THE BUILDING OR THE PROJECT BY LANDLORD
    22  
 
       
30. LANDLORD’S RIGHT TO PERFORM TENANT’S COVENANTS
    23  

 

 

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              Page  
 
       
31. TENANT’S REMEDY
    23  
 
       
32. MORTGAGEE PROTECTION
    23  
 
       
33. BROKERS
    23  
 
       
34. MODIFICATIONS FOR LENDER
    23  
 
       
35. PARKING
    24  
 
       
36. GENERAL
    24  
 
       
A. Notices
    24  
 
       
B. Attorneys’ Fees
    24  
 
       
C. Acceptance
    24  
 
       
D. Captions
    24  
 
       
E. Executed Copy
    24  
 
       
F. Time
    24  
 
       
G. Separability
    25  
 
       
H. Choice of Law
    25  

 

 

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              Page  
 
       
I. Gender; Singular, Plural
    25  
 
       
J. Binding Effect
    25  
 
       
K. Waiver
    25  
 
       
L. Entire Agreement
    25  
 
       
M. Authority
    25  
 
       
N. Exhibits
    26  
 
       
O. Lease Summary
    26  
 
       
Exhibits
       

 

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LEASE AGREEMENT
1. Parties. THIS LEASE (the “Lease”), dated March 15, 2006 is entered into by
and between Granite Creek Business Center, a California general partnership
(“Landlord”), whose address is c/o Toeniskoetter & Breeding, Inc., Development,
1960 The Alameda, San Jose, CA 95126 and VirnetX Inc., a Delaware Corporation
(“Tenant”), whose address is 157 Provincetown Court, Aptos, California 95003.
2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises consisting of approximately nine hundred
ninety-five (995) rentable square feet, as shown in EXHIBIT A (the “Premises”)
in that certain building, commonly known as 5615 Scotts Valley Drive (the
“Building”), as further defined in Paragraph 3.B., in the City of Scotts Valley
(the “City”), County of Santa Cruz, (the “County”), California, together with a
right in common to the Common Area as defined in Paragraph 3.D., and a right in
common to the Outside Area, as defined in Paragraph 3.1. Tenant’s right to use
the Common Area and Outside Area shall be a right in common with other tenants
of the Building.
3. Definition. The following terms shall have the following meanings in this
Lease:
A. Alterations. Any alterations, additions or improvements made in, on or about
the Building or the Premises after the Commencement Date.
B. Building. That certain building on the Project consisting of approximately
thirty-two thousand (32,000) rentable square feet.
C. Commencement Date. The Commencement Date of this Lease shall be the first day
of the Term determined in accordance with Paragraph 4.A.
D. Common Area. All areas and facilities within the Building provided and
designated by Landlord for the general use and convenience of Tenant and other
tenants and occupants of any part of the Building, subject to the reasonable
rules and regulations and changes therein from time to time promulgated by
Landlord governing the use of the Common Area.
E. HVAC. Heating, ventilating and air conditioning.

 

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F. Interest Rate.  Twelve percent (12%) per annum, however, in no event to
exceed the maximum rate of interest permitted by law.
G. Landlord’s Agents.  Landlord’s authorized agents, partners, subsidiaries,
directors, officers, and employees.
H. Monthly Rent.  The rent payable pursuant to Paragraph 5.A., as adjusted from
time to time pursuant to the terms of this Lease.
I. Outside Area.  All areas and facilities within the Project, exclusive of the
interior of the Building and the Adjacent Buildings, provided and designated by
Landlord for the general use and convenience of Tenant and other tenants and
occupants of the Project, subject to the reasonable rules and regulations and
changes therein from time to time promulgated by Landlord governing the use of
the Outside Area.
J. Project.  That certain real property described in EXHIBIT B consisting of
approximately 5.35 acres, upon which are located the Building, together with two
(2) buildings of approximately fifty-eight thousand (58,000) total rentable
square feet (the “Adjacent Buildings”).
K. Real Property Taxes.  Any form of assessment, property tax, fee, rent tax, or
penalty (if a result of Tenant’s delinquency), imposed by any authority having
the direct or indirect power to tax, or by any city, county, state or federal
government or any improvement or other district or division thereof, whether
such tax is: (i) determined by the area of the Project or any part thereof or
the rent and other sums payable hereunder by Tenant or by other tenants;
(ii) upon any legal or equitable interest of Landlord in the Project or the
Premises or any part thereof; (iii) upon this transaction or any document to
which Tenant is a party creating or transferring any interest in the Project;
(iv) levied or assessed in lieu of, in substitution for, or in addition to,
existing or additional taxes against the Project whether or not now customary or
within the contemplation of the parties; or (v) surcharged against the parking
area.
L. Rent.  Monthly Rent plus the Additional Rent defined in Paragraph 5.B.
M. Security Deposit.  That amount paid by Tenant pursuant to Paragraph 7.

 

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N. Sublet.  Any transfer, sublet, assignment, license or concession agreement,
change of ownership, mortgage, or hypothecation of this Lease or the Tenant’s
interest in the Lease or in and to all or a portion of the Premises.
O. Subrent.  Any consideration of any kind received, or to be received, by
Tenant from a subtenant if such sums are related to Tenant’s interest in this
Lease or in the Premises, including, but not limited to, bonus money and
payments (in excess of book value) for Tenant’s assets.
P. Subtenant.  The person or entity with whom a Sublet agreement is proposed to
be or is made.
Q. Tenant Improvements.  Those certain improvements to the Premises to be
constructed by Landlord pursuant to Paragraph 9.
R. Tenant Improvements Allowance.  That allowance to be provided by Landlord for
construction of the Tenant Improvements.
S. Tenant’s Percentage.
(i) Tenant’s Building Percentage.  The percentage of the area of the Premises to
the total area of the Building.  Tenant’s Building Percentage is agreed to be
three and 11/100 percent (3.11%) for the purpose of this Lease.
(ii) Tenant’s Project Percentage.  The percentage of the area of the Premises to
the total area of all of the buildings on the Project.  Tenant’s Project
Percentage is agreed to be one and 11/100 percent (1.11%) for the purpose of
this Lease.
T. Tenant’s Personal Property.  Tenant’s trade fixtures, furniture, equipment
and other personal property in the Premises.
U. Term.  The term of this Lease set forth in Paragraph 4.A., as it may be
extended hereunder pursuant to any options to extend granted herein.
V. Consent.  Where consent is required herein by either party, such consent
shall not be unreasonably withheld or delayed.

 

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4. Lease Term.
A. Term.  The Term of this Lease shall be twelve (12) months, commencing
April 1, 2006 (the “Commencement Date”) and ending March 31, 2007, subject to
any sooner termination of this Lease pursuant to the terms hereof.  Tenant
agrees that if Landlord, for any reason whatsoever, is unable to deliver
possession of the Premises by April 1, 2006, Landlord shall not be liable to
Tenant for any loss or damage therefrom, nor shall this Lease be void or
voidable.  In such event, the Commencement Date, termination date and all other
dates of this Lease shall be extended to conform to the date of Landlord’s
tender of possession of the Premises to Tenant and Tenant shall not be obligated
to pay Monthly Rent or other sums due Landlord hereunder until possession of the
Premises is tendered to Tenant.
B. Early Entry.  If Tenant is permitted to enter the Premises prior to the
Commencement Date for the purpose of fixturing or any other purpose permitted by
Landlord, such early entry shall be at Tenant’s sole risk and subject to all the
terms and provisions hereof, except for the payment of Rent, which shall
commence on the Commencement Date.  Landlord shall have the right to impose such
additional conditions on Tenant’s early entry as Landlord shall deem
appropriate, and shall further have the right to require that Tenant execute an
early entry agreement containing such conditions prior to Tenant’s early entry.
5. Rent.
A. Monthly Rent.  Tenant shall pay to Landlord, in lawful money of the United
States, for each calendar month of the Term, net Monthly Rent in advance, on the
first day of each calendar month, without abatement, deduction, claim, offset,
prior notice or demand in accordance with the schedule set forth below.
 Additionally, Tenant shall pay, as and with the net Monthly Rent, Tenant’s
Building Percentage of the estimated monthly Common Area Expenses and Tenant’s
Project Percentage of the estimated monthly Outside Area Expenses, as set forth
in Paragraph 17.C., and Tenant’s Building Percentage of the monthly cost of
insurance premiums required pursuant to Paragraph 21.C., as adjusted from time
to time hereunder.  Tenant shall deposit with Landlord upon execution of this
Lease One Thousand One Hundred Forty-Four and 25/100 Dollars ($1,144.25) to be
applied toward the net Monthly Rent due for the first month of the Term.

 

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          Months of Term   Net Monthly Rent  
 
       
April 1, 2006 – May 31, 2006
  $ 0.00 *
June 1, 2006 – October 31, 2006
  $1,144.25/month
November 1, 2006 – March 31, 2007
  $1,243.75/month

      *   Triple net expenses to be paid during free rent period

B. Additional Rent.  All monies required to be paid by Tenant under this Lease,
including, without limitation, Real Property Taxes pursuant to Paragraph 15,
Outside Area and Common Area Expenses pursuant to Paragraph 17, and insurance
premiums pursuant to Paragraph 21, shall be deemed Additional Rent.
6. Late Payment Charges.  Tenant acknowledges that late payment by Tenant to
Landlord of Rent and other charges provided for under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
costs being extremely difficult or impracticable to fix.  Therefore, if any
installment of Rent or any other charge due from Tenant is not received by
Landlord within five (5) days of becoming due, then Tenant shall pay to Landlord
an additional sum equal to five percent (5%) of the amount overdue 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 the late
payment by Tenant.
Initials:  
Landlord           Tenant
7. Security Deposit.  Upon execution of this Lease, Tenant shall deposit with
Landlord the sum of One Thousand Two Hundred Forty Three and 75/100 Dollars
($1,243.75) as a Security Deposit.  The Security Deposit shall be held by
Landlord as security for the full and faithful performance of every provision of
this Lease to be performed by Tenant.  If Tenant defaults with respect to any
provision of this Lease, Landlord may apply all or any part of the Security
Deposit for the payment of any Rent or other sum in default, the repair of such
damage to the Premises or the payment of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant’s default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant’s default to the full extent permitted by law.  If any portion
of the Security Deposit is so applied, Tenant shall, within ten (10) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount.  If Tenant is not otherwise
in default, the Security Deposit or any balance thereof shall be returned to
Tenant within thirty (30) days after the later of the termination of the Lease
or the surrender of the Premises by Tenant.

 

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8. Holding Over.  If Tenant remains in possession of all or any part of the
Premises after the expiration of the Term, with the express or implied consent
of Landlord, such tenancy shall be month-to-month only and shall not constitute
a renewal or extension for any further term.  If Tenant remains in possession
either with or without Landlord’s consent, Monthly Rent shall be increased to an
amount equal to one hundred fifty percent (150%) of the Monthly Rent payable
during the last month of the Term, and any other sums due under this Lease shall
be payable in the amount and at the times specified in this Lease.  Such
month-to-month tenancy shall be subject to every other term, condition, and
covenant contained herein.
9. Tenant Improvements.  None – Premises delivered in as-is condition.
10. Condition of Premises.  By taking possession of the Premises, Tenant shall
be deemed to have accepted the Premises in good, clean and completed condition
and repair, subject to all applicable laws, codes and ordinances.  Any damage to
the Premises caused by Tenant’s move-in shall be repaired or corrected by
Tenant, at its expense.  Tenant acknowledges that neither Landlord nor its
Agents have made any representations or warranties as to the suitability or
fitness of the Premises for the conduct of Tenant’s business or for any other
purpose, nor has Landlord or its Agents agreed to undertake any Alterations or
construct any Tenant Improvements to the Premises except as expressly provided
in this Lease.
11. Use of the Premises.
A. Tenant’s Use.  Tenant shall use the Premises solely for general office
purposes and shall not use the Premises for any other purpose without obtaining
the prior written consent of Landlord.
B. Compliance.
(i) Tenant shall not use the Premises or suffer or permit anything to be done in
or about the Premises or the Project which will in any way conflict with any
law, statute, zoning restriction, ordinance or governmental law, rule,
regulation or requirement of public authorities now in force or which may
hereafter be in force, relating to or affecting the condition, use or occupancy
of the Premises or the Project.  Tenant shall not commit any public or private
nuisance or any other act or thing which might or would disturb the quiet
enjoyment of any other tenant of Landlord or any occupant of nearby property.
 Tenant shall place no loads upon the floors, walls or ceilings in excess of the
maximum designed load determined by Landlord or which endanger the structure;
nor place any harmful liquids in the drainage systems; nor dump or store waste
materials or refuse or allow such to remain outside the Building proper, except
in the enclosed trash areas provided.  Tenant shall not store or permit to be
stored or otherwise placed any other material of any nature whatsoever outside
the building.

 

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(ii) In particular, Tenant, at its sole cost, shall comply with all laws
relating to the storage, use and disposal of hazardous, toxic or radioactive
matter, including those materials identified in Sections 66680 through 66685 of
Title 22 of the California Administrative Code, Division 4, Chapter 30 (“Title
22”) as they may be amended from time to time (collectively “Toxic Materials”).
 If Tenant does store, use or dispose of any Toxic Materials, Tenant shall
notify Landlord in writing at least ten (10) days prior to their first
appearance on the Premises.  Tenant shall be solely responsible for and shall
defend, indemnify and hold Landlord and its Agents harmless from and against all
claims, costs and liabilities, including attorneys’ fees and costs, arising out
of or in connection with its storage, use and disposal of Toxic Materials.
 Tenant shall further be solely responsible for and shall defend, indemnify and
hold Landlord and its Agents harmless from and against any and all claims,
costs, and liabilities, including attorneys’ fees and costs, arising out of or
in connection with the removal, clean-up and restoration work and materials
necessary to return the Premises and the Project and any other property of
whatever nature to their condition existing prior to the appearance of the Toxic
Materials on the Premises.  Tenant’s obligations hereunder shall survive the
termination of this Lease.
12. Quiet Enjoyment.  Landlord covenants that Tenant, upon performing the terms,
conditions and covenants of this Lease, shall have quiet and peaceful possession
of the Premises as against any person claiming the same by, through or under
Landlord.
13. Alterations.  After the Commencement Date, Tenant shall not make or permit
any Alterations in, on or about the Premises, except for nonstructural
Alterations that do not impact the Building systems nor exceed One Thousand
Dollars ($1,000.00) in cost, without the prior written consent of Landlord, and
according to plans and specifications approved in writing by Landlord, which
consent shall not be unreasonably withheld.  Notwithstanding the foregoing
Tenant shall not, without the prior written consent of Landlord, make any:
(i) Alterations to the exterior of the Building; (ii) Alterations to and
penetrations of the roof of the Building; and (iii) Alterations visible from
outside the Premises, including the Common Area, to which Landlord may withhold
Landlord’s consent on wholly aesthetic grounds.

 

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All Alterations shall be installed at Tenant’s sole expense, in compliance with
all applicable laws, by a licensed contractor, shall be done in a good and
workmanlike manner conforming in quality and design with the Premises existing
as of the Commencement Date, and shall not diminish the value of either the
Building or the Premises.  All Alterations made by Tenant shall be and become
the property of Landlord upon installation and shall not be deemed Tenant’s
Personal Property; provided, however, that if Landlord informed Tenant at the
time of its approval of any Alterations that Tenant would be required to remove
such Alterations from the Premises at the expiration or sooner termination of
this Lease, then Tenant shall, at Tenant’s expense, remove such Alterations from
the Premises at the expiration or sooner termination of this Lease and restore
the Premises to their condition existing prior to the installation of such
Alterations.  Notwithstanding any other provision of this Lease, Tenant shall be
solely responsible for the maintenance and repair of any and all Alterations
made by it to the Premises.  Tenant shall give Landlord written notice of
Tenant’s intention to perform work on the Premises at least twenty (20) days
prior to the commencement of such work to enable Landlord to post and record a
Notice of Nonresponsibility or other notice deemed proper before the
commencement of any such work.
14. Surrender of the Premises.  Upon the expiration or earlier termination of
the Term, Tenant shall surrender the Premises to Landlord in its condition
existing as of the Commencement Date, normal wear and tear and fire or other
casualty excepted, with all interior walls repaired if damaged, all carpets
shampooed and cleaned, all broken, marred or nonconforming acoustical ceiling
tiles replaced, all windows washed, the plumbing and electric systems and
lighting in good order and repair, including replacement of any burned out or
broken light bulb or ballasts, and all floors cleaned and waxed, all to the
reasonable satisfaction of Landlord.  Tenant shall remove from the Premises all
of Tenant’s Alterations required to be removed pursuant to Paragraph 13 and all
Tenant’s Personal Property, and repair any damage and perform any restoration
work caused by such removal.  If Tenant fails to remove such Alterations and
Tenant’s Personal Property, and such failure continues after the termination of
this Lease, Landlord may retain such property and all rights of Tenant with
respect to it shall cease, or Landlord may place all or any portion of such
property in public storage for Tenant’s account.  Tenant shall be liable to
Landlord for costs of removal of any such Alterations and Tenant’s Personal
Property and storage and transportation costs of same, and the cost of repairing
and restoring the Premises, together with interest at the Interest Rate from the
date of expenditure by Landlord.  If the Premises are not so surrendered at the
termination of this Lease, Tenant shall indemnify Landlord and its Agents
against all loss or liability, including attorneys’ fees and costs, resulting
from delay by Tenant in so surrendering the Premises.
Normal wear and tear, for the purposes of this Lease, shall be construed to mean
wear and tear caused to the Premises by a natural aging process which occurs in
spite of prudent application of the best standards for maintenance, repair, and
janitorial practices.  It is not intended, nor shall it be construed, to include
items of neglected or deferred maintenance which would have or should have been
attended to during the Term of the Lease if the best standards had been applied
to properly maintain and keep the Premises at all times in good condition and
repair.

 

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15. Real Property Taxes.
A. Payment by Tenant.  On or before April 1 and December 1 of each calendar year
during the Term, Tenant shall pay to Landlord, as Additional Rent, Tenant’s
Project Percentage of all Real Property Taxes as set forth on the County
assessor’s tax statement for the Project.  Landlord shall give Tenant at least
fifteen (15) days’ prior written notice of the amount so due.  Upon Landlord’s
receipt of the Real Property Tax payment from Tenant and other tenants of the
Property, Landlord shall pay the taxes to the County.  If Tenant fails to pay
Tenant’s Project Percentage of the Real Property Taxes on or before April 1 and
December 1, respectively, Tenant shall pay to Landlord any penalty incurred by
such late payment.  Tenant shall pay Tenant’s Project Percentage of any Real
Property Tax not included within the County tax assessor’s tax statement within
thirty (30) days after being billed for same by Landlord.  The foregoing dates
are based on the dates established by the County as the dates on which Real
Property Taxes become delinquent if not paid.  If such delinquency dates change,
the dates on which Tenant must pay Tenant’s Project Percentage of such taxes
shall be at least ten (10) days prior to the delinquency dates.  Notwithstanding
the foregoing, at any time, upon prior written notice to Tenant, Landlord shall
have the right to require that Tenant pay one-twelfth (1/12th) of the Real
Property Taxes payments to Landlord directly, on the first (1st) day of each
calendar month.  Assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such purposes as fire protection, street, sidewalk,
road, utility construction and maintenance, refuse removal and for other
governmental services which may formerly have been provided without charge to
property owners or occupants.  It is the intention of the parties that all new
and increased assessments, taxes, fees, levies and charges are to be included
within the definition of Real Property Taxes for purposes of this Lease.
B. Taxes on Tenant Improvements and Personal Property.  Tenant shall pay any
increase in Real Property Taxes resulting from any and all Alterations and
Tenant Improvements of any kind whatsoever placed in, on or about the Premises
for the benefit of, at the request of, or by Tenant.  Tenant shall pay prior to
delinquency all taxes assessed or levied against Tenant’s Personal Property in,
on or about the Premises or elsewhere.  When possible, Tenant shall cause its
Personal Property to be assessed and billed separately from the real or personal
property of Landlord.
C. Proration.  Tenant’s liability to pay Real Property Taxes shall be prorated
on the basis of a 365-day year to account for any fractional portion of a fiscal
tax year included at the commencement or expiration of the Term.  With respect
to any assessments which may be levied against or upon the Property, or which
under the laws then in force may be evidenced by improvements or other bonds or
may be paid in annual installments, only the amount of such annual installment
(with appropriate proration for any partial year) and interest due thereon shall
be included within the computation of the annual Real Property Taxes levied
against the Premises.

 

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16. Utilities and Services.  Tenant shall be responsible for and shall pay
promptly all charges for water, gas, electricity, telephone, refuse pickup,
janitorial service and all other utilities, materials and services furnished
directly to or used by Tenant in, on or about the Premises during the Term,
together with any taxes thereon.  If such utilities are not separately metered
to the Premises, Landlord shall bill Tenant for Tenant’s pro rata share based on
Tenant’s Building Percentage or other equitable basis as determined by Landlord.
 Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service or other service furnished to the Premises,
except that resulting from the willful misconduct of Landlord.
17. Repair and Maintenance.
A. Landlord’s Obligations.  Landlord shall keep in good order, condition and
repair, at Landlord’s sole cost and expense, the roof membrane and the
structural parts of the Building, which structural parts include only the
foundation, subflooring, roof structure, exterior walls and exterior plumbing,
except that any damage thereto caused by the negligence or willful misconduct of
Tenant or Tenant’s agents, employees or invitees, or by reason of the failure of
Tenant to perform or comply with any terms of this Lease, or caused by
Alterations made by Tenant or by Tenant’s agents, employees or contractors,
shall be repaired at Tenant’s expense.  Landlord shall also maintain in good
order, condition and repair the Common Areas of the Building and the Outside
Area of the Project and Tenant shall reimburse Landlord for the cost thereof as
provided in Paragraphs 17.C and 17.D.  The manner in which the Common Area and
the Outside Area shall be maintained and the expenditures therefor shall be at
the sole discretion of Landlord.  Landlord shall at all times have exclusive
control of the Common Area and Outside Area and may at any time temporarily
close any part thereof, exclude and restrain anyone from any part thereof,
except the bona fide customers, employees and invitees of Tenant who use the
Common Area and Outside Area in accordance with the rules and regulations as
Landlord may from time to time promulgate, and may change the configuration or
location of the Common Area and Outside Area.  In exercising any such rights,
Landlord shall make a reasonable effort to minimize any disruption of Tenant’s
business.  Tenant waives the provisions of Sections 1941 and 1942 of the
California Civil Code and any similar or successor law regarding Tenant’s right
to make repairs and deduct the expenses of such repairs from the Rent due under
this Lease.
B. Tenant’s Obligations.  Tenant shall at all times and at its own expense
clean, keep and maintain in good order, condition and repair every part of the
Premises which is not within Landlord’s obligation pursuant to Paragraph 17.A.
 Tenant’s repair and maintenance obligations shall include, all plumbing and
sewage facilities within the Premises, fixtures, interior walls and ceiling,
floors, windows, doors, entrances, plateglass, showcases, skylights, all
electrical facilities and equipment, including lighting fixtures, lamps, fans
and any exhaust equipment and systems, any automatic fire extinguisher equipment
within the Premises, electrical motors and all other appliances and equipment of
every kind and nature located in, upon or about the Premises.  Tenant shall also
be responsible for all pest control within the Premises.

 

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C. Tenant to Pay Expenses.  Tenant shall pay, as Additional Rent, Tenant’s
Building Percentage of all reasonable costs and expenses paid or incurred by
Landlord during the Term in operating, maintaining, repairing and replacing the
Common Area (the “Common Area Expenses”), and Tenant’s Project Percentage of all
reasonable costs and expenses paid or incurred by Landlord in operating,
maintaining, repairing and replacing the Outside Area (the “Outside Area
Expenses”).  The Common Area Expenses and Outside Area Expenses may include, as
appropriate, the cost of labor, materials, supplies and services used or
consumed in operating, maintaining, repairing and replacing the HVAC system,
Common Area lighting, the Building elevator, if any, and the Outside Area,
including landscaping and sprinkler systems, concrete walkways and paved parking
areas; maintaining and repairing signs and site lighting; all utilities provided
to the Building and the Outside Area; any alterations or improvements required
by governmental authority to comply with applicable laws (excluding, however,
any alterations or improvements required by the Americans with Disabilities
Act); the cost of maintaining, repairing and replacing exterior windows; and a
management fee.  Any Common Area Expenses or Outside Area Expense that
constitute capital expenditures shall be amortized over their useful life in
accordance with generally accepted accounting principles.
D. Monthly Payments.  From and after the Commencement Date, Tenant shall pay to
Landlord on the first day of each calendar month of the Term an amount estimated
by Landlord to be Tenant’s Building Percentage of the monthly Common Area
Expenses and Tenant’s Project Percentage of the monthly Outside Area Expenses.
 The foregoing estimated monthly charges may be adjusted by Landlord at the end
of any calendar quarter on the basis of Landlord’s experience and reasonably
anticipated costs.  Any such adjustment shall be effective as of the calendar
month next succeeding receipt by Tenant of written notice of such adjustment.
 Within one hundred twenty (120) days following the end of each calendar year
Landlord shall furnish Tenant a statement of the actual Common Area Expenses and
Outside Area Expenses (“Actual Expenses”) for the calendar year and the payments
made by Tenant with respect to such period.  If Tenant’s payments for the Common
Area Expenses or the Outside Area Expenses, as the case may be, do not equal the
amount of the Actual Expenses, Tenant shall pay Landlord the deficiency within
ten (10) days after receipt of such statement.  If Tenant’s payments exceed the
Actual Expenses, Landlord shall either offset the excess against the Common Area
Expenses or Outside Area Expenses, as appropriate, next thereafter to become due
to Landlord, or shall refund the amount of the overpayments to Tenant, in cash,
as Landlord shall elect.  There shall be appropriate adjustments of the Common
Area Expenses and Outside Area Expenses as of the Commencement Date and
expiration of the Term.

 

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E. Compliance with Governmental Regulations.  Tenant shall, at its cost, comply
with all present and future regulations, rules, laws, ordinances, and
requirements of all governmental authorities (including, without limitation
state, municipal, County and federal governments and their departments, bureaus,
boards and officials) arising from Tenant’s use or occupancy of the Premises.
18. Liens.  Tenant shall keep the Building and the Project free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant and hereby indemnifies and holds Landlord and its
Agents harmless from all liability and cost, including attorneys’ fees and
costs, in connection with or arising out of any such lien or claim of lien.
 Tenant shall cause any such lien imposed to be released of record by payment or
posting of a proper bond acceptable to Landlord within ten (10) days after
written request by Landlord.  Tenant shall give Landlord written notice of
Tenant’s intention to perform work on the Premises which might result in any
claim of lien at least ten (10) days prior to the commencement of such work to
enable Landlord to post and record a Notice of Nonresponsibility.  If Tenant
fails to so remove any such lien within the prescribed ten (10) day period, then
Landlord may do so at Tenant’s expense and Tenant shall reimburse Landlord for
such amounts upon demand.  Such reimbursement shall include all costs incurred
by Landlord including Landlord’s reasonable attorneys’ fees with interest
thereon at the Interest Rate.
19. Landlord’s Right to Enter the Premises.  Tenant shall permit Landlord and
its Agents to enter the Premises at all reasonable times with reasonable notice,
except for emergencies in which case no notice shall be required, to inspect the
same, to post Notices of Nonresponsibility and similar notices, and “For Sale”
signs, to show the Premises to interested parties such as prospective lenders
and purchasers, to make necessary repairs, to discharge Tenant’s obligations
hereunder when Tenant has failed to do so within a reasonable time after written
notice from Landlord, and at any reasonable time within one hundred and eighty
(180) days prior to the expiration of the Term, to place upon the Building and
the Outside Area ordinary “For Lease” signs and to show the Premises to
prospective tenants.  The above rights are subject to reasonable security
regulations of Tenant, and to the requirement that Landlord shall at all times
act in a manner to cause the least possible interference with Tenant’s business.
20. Signs.  Landlord shall provide Tenant space for Tenant’s identification sign
on an exterior monument sign in the Outside Area in common with other tenants of
the Project and shall provide Tenant with Building-standard signage at the
entrance to the Premises and a listing in the Building directory.  Tenant shall
have no right to maintain any Tenant identification sign in any other location
in, on or about the Building or the Project, and shall not display or erect any
other Tenant identification sign, display or other advertising material that is
visible from the exterior of the Building.  The size, design, color and other
physical aspects of Tenant’s monument signage shall be subject to Landlord’s
written approval prior to installation.  Tenant shall pay all costs associated
with Tenant’s monument signage, including installation, maintenance, repair and
removal.  Upon the expiration or sooner termination of this Lease, Tenant shall
remove its signage from the monument sign and repair any damage to the monument
sign caused by the installation and/or removal of Tenant’s sign.  If Tenant
fails to maintain its sign, or, if Tenant fails to remove its sign upon
termination of this Lease and repair any damage to the monument sign as required
herein, Landlord may do so at Tenant’s expense.

 

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21. Insurance.
A. Indemnification.  Tenant hereby agree to defend, indemnify and hold harmless
Landlord and its Agents from and against any and all damage, loss, liability or
expense including attorneys’ fees and legal costs suffered directly or by reason
of any claim, suit or judgment brought by or in favor of any person or persons
for damage, loss or expense due to, but not limited to, bodily injury and
property damage sustained by such person or persons which arises out of, is
occasioned by or in any way attributable to the use or occupancy of the Premises
or the Project or any part thereof and adjacent areas by Tenant, the acts or
omissions of the Tenant, its agents, employees or any contractors brought onto
the Premises or the Project by Tenant, except to the extent caused by the gross
negligence or willful misconduct of Landlord or its Agents.  Tenant agrees that
the obligations assumed herein shall survive this Lease.
B. Tenant’s Insurance.  Tenant agrees to maintain in full force and effect at
all times during the Term, at its own expense, for the protection of Tenant and
Landlord, as their interests may appear, policies of insurance issued by a
responsible carrier or carriers which afford the following coverages:
(i) Commercial general liability insurance in an amount not less than
Two Million and no/100th Dollars ($2,000,000.00) combined single limit for both
bodily injury and property damage which includes blanket contractual liability
broad form property damage, personal injury, completed operations, products
liability, and fire damage legal (in an amount not less than Fifty Thousand
Dollars ($50,000)), naming Landlord and its Agents as additional insureds.
(ii) Special form property insurance (including, without limitation, vandalism,
malicious mischief, inflation endorsement, and sprinkler leakage endorsement) on
Tenant’s Personal Property located on or in the Premises.  Such insurance shall
be in the full amount of the replacement cost, as the same may from time to time
increase as a result of inflation or otherwise, and shall be in a form providing
coverage comparable to the coverage provided in the standard ISO All-Risk form.
 As long as this Lease is in effect, the proceeds of such policy shall be used
for the repair and replacement of such items so insured.  Landlord shall have no
interest in the insurance proceeds on Tenant’s Personal Property.

 

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(iii) Boiler and machinery insurance, including steam pipes, pressure pipes,
condensation return pipes and other pressure vessels and HVAC equipment,
including miscellaneous electrical apparatus, in an amount satisfactory to
Landlord.
C. Premises Insurance.  During the Term Landlord shall maintain special form
property insurance (including inflation endorsement, sprinkler leakage
endorsement, and, at Landlord’s option, earthquake and flood coverage) on the
Building and the Adjacent Building(s), excluding coverage of all Tenant’s
Personal Property located on or in the Premises, but including the Tenant
Improvements, if any are provided for in Paragraph 9 of this Lease.  Such
insurance shall also include insurance against loss of rents, including, at
Landlord’s option, earthquake and flood, in an amount equal to the Monthly Rent
and Additional Rent, and any other sums payable under the Lease, for a period of
at least twelve (12) months commencing on the date of loss.  Such insurance
shall name Landlord and its Agents as named insureds and include a lender’s loss
payable endorsement in favor of Landlord’s lender (Form 438 BFU Endorsement).
 Tenant shall reimburse Landlord for Tenant’s Project Percentage of Landlord’s
annual cost of such insurance as Additional Rent, monthly on the first day of
each calendar month of the Term, prorated for any partial month, or on such
other periodic basis as Landlord shall elect.  If the Project insurance premiums
are increased after the Commencement Date, due to an increase in the value of
the Building or the Adjacent Building(s) or their replacement cost, Tenant shall
pay Tenant’s Percentage of such increase within ten (10) days of notice of such
increase.  If such insurance premiums are increased due to Tenant’s use of the
Premises, improvements installed by Tenant, or any other cause solely
attributable to Tenant, Tenant shall be required to pay the full amount of the
increase.
D. Increased Coverage.  Upon demand, Tenant shall provide Landlord, at Tenant’s
expense, with such increased amount of existing insurance, and such other
insurance as Landlord or Landlord’s lender may reasonably require to afford
Landlord and Landlord’s lender adequate protection.
E. Co-Insurer.  If, on account of the failure of Tenant to comply with the
foregoing provisions, Landlord is adjudged a co-insurer by its insurance
carrier, then, any loss or damage, Landlord shall sustain by reason thereof,
including attorneys’ fees and costs, shall be borne by Tenant and shall be
immediately paid by Tenant upon receipt of a bill therefor and evidence of such
loss.

 

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F. Insurance Requirements.  All insurance shall be in a form satisfactory to
Landlord and shall be carried with companies that have a general policy holder’s
rating of not less than “A” and a financial rating of not less than Class “X” in
the most current edition of Best’s Insurance Reports; shall provide that such
policies shall not be subject to material alteration or cancellation except
after at least thirty (30) days’ prior written notice to Landlord; and shall be
primary as to Landlord.  The policy or policies, or duly executed certificates
for them, together with satisfactory evidence of payment of the premium thereon
shall be deposited with Landlord prior to the Commencement Date, and upon
renewal of such policies, not less than thirty (30) days prior to the expiration
of the term of such coverage.  If Tenant fails to procure and maintain the
insurance required hereunder, Landlord may, but shall not be required to, order
such insurance at Tenant’s expense and Tenant shall reimburse Landlord.  Such
reimbursement shall include all costs incurred by Landlord including Landlord’s
reasonable attorneys’ fees, with interest thereon at the Interest Rate.
G. Landlord’s Disclaimer.  Landlord and its Agents shall not be liable for any
loss or damage to persons or property resulting from fire, explosion, falling
plaster, glass, tile or sheetrock, steam, gas, electricity, water or rain which
may leak from any part of the Building, or from the pipes, appliances or
plumbing works therein or from the roof, street or subsurface, or from any cause
whatsoever, unless caused by or due to the sole negligence or willful acts of
Landlord.  Landlord and its Agents shall not be liable for any latent defect in
the Premises.  Tenant shall give prompt written notice to Landlord in case of a
casualty, accident or repair needed in the Premises.
22. Waiver of Subrogation.  Landlord and Tenant each hereby waive all rights of
recovery against the other on account of loss or damage occasioned to such
waiving party for its property or the property of others under its control to
the extent that such loss or damage is insured against under any property policy
then in effect or would be insured against under a standard ISO special form
causes of loss, CP 0030, policy of insurance.  Tenant and Landlord shall, upon
obtaining policies of insurance required hereunder, give notice to the insurance
carrier that the foregoing mutual waiver of subrogation is contained in this
Lease and Tenant and Landlord shall cause each insurance policy obtained by such
party to provide that the insurance company waives all right of recovery by way
of subrogation against either Landlord or Tenant in connection with any damage
covered by such policy.
23. Damage or Destruction.
A. Landlord’s Obligation to Rebuild.  If the Premises or the Building is damaged
or destroyed, Landlord shall promptly and diligently repair the same unless it
has the right to terminate this Lease as provided herein and it elects to so
terminate.

 

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B. Right to Terminate.  Landlord shall have the right to terminate this Lease in
the event any of the following events occur:
(i) Insurance proceeds together with such sums which Tenant may in its sole
discretion elect to contribute toward the cost of such repair are not available
to pay one hundred percent (100%) of the cost of such repair; excluding Tenant’s
pro rata share of the deductible for which Tenant shall be responsible;
(ii) The Premises or the Building cannot, with reasonable diligence, be fully
repaired by Landlord within one hundred eighty (180) days after the date of the
damage or destruction; or
(iii) The Premises or Building cannot be safely repaired because of the presence
of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give Tenant written
notice of its election to terminate within thirty (30) days after such damage or
destruction, and this Lease shall terminate fifteen (15) days after the date
Tenant receives such notice.  If Landlord elects not to terminate the Lease,
Landlord shall promptly, following the date of such damage or destruction,
commence the process of obtaining necessary permits and approvals, and shall
commence repair of the Premises or the Building as soon as practicable and
thereafter prosecute the same diligently to completion, in which event this
Lease will continue in full force and effect.  All insurance proceeds from
insurance under Paragraph 21., excluding proceeds for Tenant’s Personal
Property, shall be disbursed and paid to Landlord.  Tenant shall be required to
pay to Landlord the amount of any deductibles payable in connection with any
insured casualties, unless the casualty was caused by the sole negligence or
willful misconduct of Landlord.
C. Limited Obligation to Repair.  Landlord’s obligation, should it elect or be
obligated to repair or rebuild, shall be limited to the basic Premises, the
Tenant Improvements, or the basic Building, as the case may be.
D. Abatement of Rent.  Rent shall be temporarily abated proportionately during
any period when, by reason of such damage or destruction, Landlord reasonably
determines that there is substantial interference with Tenant’s use of the
Premises, having regard to the extent to which Tenant may be required to
discontinue Tenant’s use of the Premises.  Such abatement shall commence upon
such damage or destruction and end upon substantial completion by Landlord of
the repair or reconstruction which Landlord is obligated or undertakes to do.
 Tenant shall not be entitled to any compensation or damages from Landlord for
loss of the use of the Premises, damage to Tenant’s Personal Property or any
inconvenience occasioned by such damage, repair or restoration.  Tenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereinafter enacted.

 

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E. Damage Near End of Term.  Anything herein to the contrary notwithstanding, if
the Premises or the Building is destroyed or damaged during the last twelve
(12) months of the Term, then Landlord may, at its option, cancel and terminate
this Lease as of the date of the occurrence of such damage.  If Landlord does
not elect to so terminate this Lease, the repair of such damage shall be
governed by Paragraphs 23.A. and 23.B.
24. Condemnation.  If title to all of the Premises or Building or so much
thereof is taken for any public or quasi-public use under any statute or by
right of eminent domain so that reconstruction of the Premises or Building will
not, in Landlord’s and Tenant’s mutual opinion, result in the Premises being
reasonably suitable for Tenant’s continued occupancy for the uses and purposes
permitted by this Lease, this Lease shall terminate as of the date that
possession of the Premises or Building or part thereof be taken.  A sale by
Landlord to any authority having the power of eminent domain, either under
threat of condemnation or while condemnation proceedings are pending, shall be
deemed a taking under the power of eminent domain for all purposes of this
paragraph.
If any part of the Premises or Building is taken and the remaining part is
reasonably suitable for Tenant’s continued occupancy for the purposes and uses
permitted by this Lease, this Lease shall, as to the part so taken, terminate as
of the date that possession of such part of the Premises or Building is taken.
 The Rent and other sums payable hereunder shall be reduced in the same
proportion that Tenant’s use and occupancy of the Premises is reduced.  If any
portion of the Common Area or Outside Area is taken, Tenant’s Rent shall be
reduced only if such taking materially interferes with Tenant’s use of the
Common Area or Outside Area and then only to the extent that the fair market
rental value is diminished by such partial taking.  If the parties disagree as
to the amount of Rent reduction, the matter shall be resolved by arbitration and
such arbitration shall comply with and be governed by the California Arbitration
Act, Sections 1280 through 1294.2 of the California Code of Civil Procedure.
 Each party hereby waives the provisions of Section 1265.130 of the California
Code of Civil Procedure allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial taking of the Property or
Premises.
No award for any partial or entire taking shall be apportioned.  Tenant assigns
to Landlord its interest in any award which may be made in such taking or
condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof.  Nothing contained herein shall be deemed to give
Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant’s Personal Property, for the
interruption of Tenant’s business, or its moving costs, or for the loss of its
good will.

 

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25. Assignment and Subletting.
A. Landlord’s Consent.  Tenant shall not enter into a Sublet without Landlord’s
prior written consent, which consent shall not be unreasonably withheld.  Any
attempted or purported Sublet without Landlord’s prior written consent shall be
void and confer no rights upon any third person and, at Landlord’s election,
shall terminate this Lease.  Each subtenant shall agree in writing, for the
benefit of Landlord, to assume, to be bound by, and to perform the terms,
conditions and covenants of this Lease to he performed by Tenant.
 Notwithstanding anything contained herein, Tenant shall not be released from
personal liability for the performance of each term, condition and covenant of
this Lease by reason of Landlord’s consent to a Sublet unless Landlord
specifically grants such release in writing.
B. Information to be Furnished.  If Tenant desires at any time to Sublet the
Premises or any portion thereof, it shall first notify Landlord of its desire to
do so and shall submit in writing to Landlord: (i) the name of the proposed
Subtenant; (ii) the nature of the proposed Subtenant’s business to be carried on
in the Premises; (iii) the terms and provisions of the proposed Sublet and a
copy of the proposed Sublet form containing a description of the subject
premises; and (iv) such financial information, including financial statements,
as Landlord may reasonably request concerning the proposed Subtenant.
C. Landlord’s Alternatives.  Within five (5) days after Landlord’s receipt of
the information specified in Paragraph 25.B., Landlord shall, by written notice
to Tenant, elect: (i) to consent to the Sublet by Tenant; (ii) to refuse its
consent to the Sublet, or (iii) to terminate this Lease.  If Landlord consents
to the Sublet, Tenant may thereafter enter into a valid Sublet of the Premises
or portion thereof, upon the terms and conditions and with the proposed
Subtenant set forth in the information furnished by Tenant to Landlord pursuant
to Paragraph 25.B., subject, however, at Landlord’s election, to the condition
that any excess of the Subrent over the Rent required to be paid by Tenant under
this Lease less reasonable attorneys’ fees, brokerage commissions, and tenant
improvement costs paid by Tenant in connection with the Sublet, shall be paid to
Landlord.
D. Exempt Sublets.  Notwithstanding the above, Landlord’s prior written consent
shall not be required for a Sublet to (i) an entity that controls, is controlled
by, or is under common control with, Tenant, or (ii) an entity resulting from a
merger with, consolidation or other corporate reorganization of Tenant, if
Tenant gives Landlord prior written notice of the name of any such Subtenant
and, in the event of an assignment, the assignee assumes, in writing, for the
benefit of Landlord all of Tenant’s obligations under this Lease.  An assignment
or other transfer of this Lease to a purchaser of all or substantially all of
the assets of Tenant shall be deemed a Sublet requiring Landlord’s prior written
consent.

 

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26. Default.
A. Tenant’s Default.  A default under this Lease by Tenant shall exist if any of
the following occurs:
(i) If Tenant fails to pay Rent or any other sum required to be paid hereunder
when due; or
(ii) If Tenant fails to perform any term, covenant or condition of this Lease
except those requiring the payment of money, and Tenant fails to cure such
breach within twenty (20) days after written notice from Landlord where such
breach could reasonably be cured within such twenty (20) day period; provided,
however, that where such failure could not reasonably be cured within the twenty
(20) day period; that Tenant shall not be in default if it commences such
performance within the twenty (20) day period and diligently thereafter
prosecutes the same to completion; or
(iii) If Tenant assigns its assets for the benefit of its creditors; or
(iv) If the sequestration or attachment of or execution on any material part of
Tenant’s Personal Property essential to the conduct of Tenant’s business occurs,
and Tenant fails to obtain a return or release of such Personal Property within
thirty (30) days thereafter, or prior to sale pursuant to such sequestration,
attachment or levy, whichever is earlier; or
(v) If a court makes or enters any decree or order other than under the
bankruptcy laws of the United States adjudging Tenant to be insolvent; or
approving as properly filed a petition seeking reorganization of Tenant; or
directing the winding up or liquidation of Tenant and such decree or order shall
have continued for a period of thirty (30) days.
B. Remedies.  Upon a default, Landlord shall have the following remedies, in
addition to all other rights and remedies provided by law or otherwise provided
in this Lease, to which Landlord may resort cumulatively or in the alternative:
(i) Landlord may continue this Lease in full force and effect, and this Lease
shall continue in full force and effect as long as Landlord does not terminate
this Lease, and Landlord shall have the right to collect Rent when due.

 

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(ii) Landlord may terminate Tenant’s right to possession of the Premises at any
time by giving written notice to that effect, and relet the Premises or any part
thereof.  Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises or any part thereof, including, without
limitation, broker’s commissions, expenses of cleaning and redecorating the
Premises required by the reletting and like costs.  Reletting may be for a
period shorter or longer than the remaining term of this Lease.  No act by
Landlord other than giving written notice to Tenant shall terminate this Lease.
 Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord’s initiative to protect Landlord’s interest under this
Lease shall not constitute a termination of Tenant’s right to possession.  On
termination, Landlord has the right to remove all Tenant’s Personal Property and
store same at Tenant’s cost and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and other sums due and payable
which had been earned at the time of termination; plus
(b) The worth at the time of award of the amount by which the unpaid Rent and
other sums due and payable which would have been payable after termination until
the time of award exceeds the amount of such Rent loss that Tenant proves could
have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the unpaid Rent and
other sums due and payable for the balance of the Term after the time of award
exceeds the amount of such Rent loss that Tenant proves could be reasonably
avoided; plus
(d) Any other amount necessary which is to compensate Landlord for all the
detriment proximately caused by Tenant’s failure to perform Tenant’s obligations
under this Lease, or which, in the ordinary course of things, would be likely to
result therefrom, including, without limitation, and costs or expenses incurred
by Landlord: (i) in retaking possession of the Premises; (ii) in maintaining,
repairing, preserving, restoring, replacing, cleaning, altering or
rehabilitating the Premises or any portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
(e) At Landlord’s election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by the laws of the State of
California.

 

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The “worth at the time of award” of the amounts referred to in
Paragraphs 26.B(ii)(a) and 26.B(ii)(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award.  The “worth at the time of award” of
the amount referred to in Paragraph 26.B(ii)(c) is 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%).  Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, 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.
(iii) Landlord may, with or without terminating this Lease, re-enter the
Premises and remove all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of and
for the account of Tenant.  No re-entry or taking possession of the Premises by
Landlord pursuant to this paragraph shall be construed as an election to
terminate this Lease unless a written notice of such intention is given to
Tenant.
C. Landlord’s Default.  Landlord shall not be deemed to be in default in the
performance of any obligation required to be performed by it hereunder unless
and until it has failed to perform such obligation within thirty (30) days after
receipt of written notice by Tenant to Landlord specifying the nature of such
default; provided, however, that if the nature of Landlord’s obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecute the same
to completion.
27. Subordination.  This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively “Encumbrances”)
which may now or hereafter affect the Building or the Project, provided,
however, if the holder or holders of any such Encumbrance (“Holder”) shall
require that this Lease to be prior and superior thereto, within seven (7) days
of written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver any and all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes.  Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, so long as Tenant is not in default, Holder agrees to recognize
Tenant’s rights under this Lease as long as Tenant shall pay the Rent and
observe and perform all the provisions of this Lease to be observed and
performed by Tenant.  Within ten (10) days after Landlord’s written request,
Tenant shall execute any and all documents required by Landlord or the Holder
required to make this Lease subordinate to any lien of the Encumbrance.  If
Tenant fails to do so, it shall be deemed that this Lease is subordinated.

 

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Notwithstanding anything to the contrary set forth in this paragraph, Tenant
hereby attorns and agrees to attorn to any entity purchasing or otherwise
acquiring the Building or the Project at any sale or other proceeding or
pursuant to the exercise of any other rights, powers or remedies under such
Encumbrance.
28. Estoppel Certificates.  Tenant shall within seven (7) days following written
request by Landlord,
(i) Execute and deliver to Landlord any documents, including estoppel
certificates, in the form prepared by Landlord (a) certifying that this Lease is
unmodified and in fall force and effect or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect and the date to which the Rent and other charges are paid in
advance, if any; (b) acknowledging that there are not, to Tenant’s knowledge,
any uncured defaults on the part of Landlord, or, if there are uncured defaults
on the part of the Landlord, stating the nature of such uncured defaults; and
(c) evidencing the status of the Lease as may be required either by a lender
making a loan to Landlord to be secured by deed of trust or mortgage covering
the Building or the Project or a purchaser of the Building or the Project from
Landlord.  Tenant’s failure to deliver an estoppel certificate within seven
(7) days after delivery of Landlord’s written request therefor shall be
conclusive upon Tenant (a) that this Lease is in full force and effect, without
modification except as may be represented by Landlord (b) that there are now no
uncured defaults in Landlord’s performance and (c) that no Rent has been paid in
advance.
(ii) Deliver to Landlord the current financial statements of Tenant, and
financial statements of the two (2) years prior to the current financial
statements year, with an opinion of a certified public accountant, including a
balance sheet and profit and loss statement for the most recent prior year, all
prepared in accordance with generally accepted accounting principles
consistently applied.
29. Transfer of the Building or the Project by Landlord.  In the event of any
conveyance of the Building or the Project and assignment by Landlord of this
Lease, Landlord shall be and is hereby entirely released from all liability
under any and all of its covenants and obligations contained in or derived from
this Lease occurring after the date of such conveyance and assignment and Tenant
agrees to attorn to such transferee provided such transferee assumes Landlord’s
obligations under this Lease.

 

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30. Landlord’s Right to Perform Tenant’s Covenants.  If Tenant shall at any time
fail to make any payment or perform any other act on its part to be made or
performed under this Lease, Landlord may, but shall not be obligated to and
without waiving or releasing Tenant from any obligation of Tenant under this
Lease, make such payment or perform such other act to the extent Landlord may
deem desirable, and in connection therewith, pay expenses and employ counsel.
 All sums so paid by Landlord and all penalties, interest and costs in
connection therewith shall be due and payable by Tenant on the next day after
any such payment by Landlord, together with interest thereon at the Interest
Rate from such date to the date of payment by Tenant to Landlord, plus
collection costs and attorneys’ fees.  Landlord shall have the same rights and
remedies for the nonpayment thereof as in the case of default in the payment of
Rent.
31. Tenant’s Remedy.  If, as a consequence of a default by Landlord under this
Lease, Tenant recovers a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord in
the Building and out of Rent or other income from such property receivable by
Landlord or out of consideration received by Landlord from the sale or other
disposition of all or any part of Landlord’s right, title or interest in the
Building, and neither Landlord nor its agents shall be liable for any
deficiency.
32. Mortgagee Protection.  If Landlord defaults under this Lease, Tenant will
notify any beneficiary of a deed of trust or mortgagee of a mortgage covering
the Building or the Project, and offer such beneficiary or mortgagee a
reasonable opportunity to cure the default, including time to obtain possession
of the Building or the Project by power of sale or a judicial foreclosure, if
such should prove necessary to effect a cure.
33. Brokers.  Tenant and Landlord warrants and represents that it has had no
dealings with any real estate broker or agent in connection with the negotiation
of this Lease other than JR Parrish, and that it knows of no other real estate
broker or agent who is or might be entitled to a commission in connection with
this Lease.  Tenant agrees to indemnify, defend and hold Landlord and its Agents
harmless from and against any and all liabilities or expenses, including
attorneys’ fees and costs, arising out of or in connection with claims made by
any other broker or individual for commissions or fees resulting from Tenant’s
execution of this Lease.
34. Modifications for Lender.  If, in connection with obtaining financing for
the Building or the Project or any portion thereof, Landlord’s lender shall
request reasonable modification to this Lease as a condition to such financing,
Tenant shall not unreasonably withhold, delay or defer its consent thereto,
provided such modifications do not materially adversely affect Tenant’s rights
hereunder.

 

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35. Parking.  Tenant shall have the right to use its pro rata share of the
Project’s parking facilities in common with other tenants of the Project upon
terms and conditions, as may from time to time be established by Landlord.
 Tenant agrees not to overburden the parking facilities and agrees to cooperate
with Landlord and other tenants in the use of the parking facilities.  Landlord
reserves the right in its discretion to determine whether the parking facilities
are becoming crowded and to allocate and assign parking spaces among Tenant and
the other tenants.
36. General.
A. Notices.  Any notice or demand required or desired to be given under this
Lease shall be in writing and shall be personally served or in lieu of personal
service may be given by mail.  If given by mail, such notice shall be deemed to
have been given when seventy-two (72) hours have elapsed from the time when such
notice was deposited in the United States mail, registered or certified, and
postage prepaid, addressed to the party to be served.  At the date of execution
of this Lease, the addresses of Landlord and Tenant are as set forth in
Paragraph 1.  After the Commencement Date, the address of Tenant shall be the
address of the Premises.  All notices shall be served to both the Premises and
the address set forth in Paragraph 1.  Either party may change its address by
giving notice of same in accordance with this paragraph.
B. Attorneys’ Fees.  If either party brings any action or legal proceeding for
damages for an alleged breach of any provision of this Lease, to recover rent,
or other sums due, to terminate the tenancy of the Premises or to enforce,
protect or establish any term, condition or covenant of this Lease or right of
either party, the prevailing party shall be entitled to recover as a part of
such action or proceedings, or in a separate action brought for that purpose,
reasonable attorneys’ fees and costs.
C. Acceptance.  This Lease shall only become effective and binding upon full
execution hereof by Landlord and delivery of a signed copy to Tenant.  Neither
party shall record this Lease nor a short form memorandum thereof.
D. Captions.  The captions and headings used in this Lease are for the purpose
of convenience only and shall not be construed to limit or extend the meaning of
any part of this Lease.
E. Executed Copy.  Any fully executed copy of this Lease shall be deemed an
original for all purposes.
F. Time.  Time is of the essence for the performance of each term, condition and
covenant of this Lease.

 

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G. Separability.  If one or more of the provisions contained herein, except for
the payment of Rent, is for any reason held invalid, illegal or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other provisions of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had not been contained herein.
H. Choice of Law.  This Lease shall be construed and enforced in accordance with
the laws of the State of California.  The language in all parts of this Lease
shall in all cases be construed as a whole according to its fair meaning and not
strictly for or against either Landlord or Tenant.
I. Gender; Singular, Plural.  When the context of this Lease requires, the
neuter gender includes the masculine, the feminine, a partnership or corporation
or joint venture, and the singular includes the plural.
J. Binding Effect.  The covenants and agreement contained in this Lease shall be
binding on the parties hereto and on their respective successors and assigns to
the extent this Lease is assignable.
K. Waiver.  The waiver by Landlord of any breach of any term, condition or
covenant, of this Lease shall not be deemed to be a waiver of such provision or
any subsequent breach of the same or any other term, condition or covenant of
this Lease.  The subsequent acceptance of Rent hereunder by Landlord shall not
be deemed to be a waiver of any preceding breach at the time of acceptance of
such payment.  No covenant, term or condition of this Lease shall be deemed to
have been waived by Landlord unless such waiver is in writing signed by
Landlord.
L. Entire Agreement.  This Lease is the entire agreement between the parties,
and there are no agreements or representations between the parties except as
expressed herein.  Except as otherwise provided herein, no subsequent change or
addition to this Lease shall be binding unless in writing and signed by the
parties hereto.
M. Authority.  If Tenant is a corporation or a partnership, each individual
executing this Lease on behalf of said corporation or partnership, as the case
may be, represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said entity in accordance with its corporate
bylaws, statement of partnership or certificate of limited partnership, as the
case may be, and that this Lease is binding upon said entity in accordance with
its terms.  Landlord, at its option, may require a copy of such written
authorization to enter into this Lease.

 

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N. Exhibits.  All exhibits, amendments, riders and addenda attached hereto are
hereby incorporated herein and made a part hereof.
O. Lease Summary.  The Lease Summary attached to this Lease is intended to
provide general information only.  In the event of any inconsistency between the
Lease Summary and the specific provisions of this Lease, the specific provisions
of this Lease shall prevail.
THIS LEASE is effective as of the date the last signatory necessary to execute
the Lease shall have executed this Lease:

                  TENANT:     LANDLORD:
 
                VirnetX Inc., a Delaware corporation       GRANITE CREEK
BUSINESS CENTER, a
California general partnership
 
               
By:
  /s/ Kendall Larsen
 
Its: CEO       TBI-SV III, a California limited Partnership,
General Partner
 
                Date: 3/21/06       By:   /s/ Charles J. Toeniskoetter          
  Charles J. Toeniskoetter, Trustee of the
Toniskoetter Faimly Trust dated December 19, 2001
 
               
 
          Westwood Company — Scotts
Valley, a California general partnership,
General Partner
 
               
 
          By:     /s/ Anthony C. Morici
 
Anthony C. Morici, Trustee of the
 
              Morici Separate Property Trust dated
 
              June 3, 1983
 
                            Date:  3/23/06

 

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LEASE SUMMARY

     
LEASE DATE:
  March 15, 2006
 
   
LANDLORD:
  Granite Creek Business Center
 
   
LANDLORD’S ADDRESS:
  c/o Toeniskoetter & Breeding, Inc.,
 
  Development, 1960 The Alameda, San Jose, CA 95126
 
   
TENANT:
  VirnetX Inc., a Delaware corporation
 
   
TENANT’S ADDRESS:
   157 Provincetown Ct., Aptos, CA 95003
 
   
CONTACT PERSON/TELEPHONE #:
  Kendall Larsen (650) 642-4838
 
   
PREMISES:
  approximately 995 rentable square feet
 
   
BUILDING ADDRESS:
   5615 Scotts Valley Drive, Scotts Valley, Ca. 95066
 
   
BUILDING SQUARE FOOTAGE:
  approximately 38,000 rentable square feet
 
   
PROJECT SQUARE FOOTAGE:
  approximately 90,000 rentable square feet
 
   
TENANT’S BUILDING PERCENTAGE:
   3.11%
 
   
TENANT’S PROJECT PERCENTAGE:
   1.11%
 
   
ANTICIPATED COMMENCEMENT DATE:
  April 1, 2006
 
   
LEASE TERM:
  Twelve (12) months
 
   
INITIAL MONTHLY RENT:
   $1,144.25/ MONTH, NNN
 
   
SECURITY DEPOSIT:
   $1,248.75

 

 

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GRANITE CREEK BUSINESS CENTER
Scotts Valley, California

FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (“First Amendment”) is entered into as of April 1,
2007, by and between Granite Creek Business Center, a California general
partnership (“Landlord”) and VirnetX Inc., a Delaware Corporation (“Tenant”) and
is an Amendment to the Lease Agreement dated March 15, 2006 (“Lease”), relating
to the Premises consisting of approximately nine hundred ninety-five (995)
rentable square feet, as shown on EXHIBIT A of the Lease (the “Premises”) in
that certain building, commonly known as 5615 Scotts Valley Drive, Scotts
Valley, CA 95066 (the “Building”)
The parties now desire to amend the Lease as follows:
1. LEASE TERM.  Paragraph 4.A. of the Lease is amended to provide the
termination date to be March 31, 2008.
2. RENT.  Paragraph 5.A. of the Lease is amended to reflect the following
monthly rent schedule (NNN):

          Months of Term   Monthly Rent (NNN)  
April 1, 2007 – March 31, 2008
  $1,243.75 per month

Except as specifically amended herein, the Lease dated March 15, 2006 is hereby
ratified and affirmed.

                      LANDLORD       TENANT                  
 
                    GRANITE CREEK BUSINESS CENTER       VIRNETX, INC.     A
CALIFORNIA GENERAL PARTNERSHIP                
 
                   
By
  /s/ Brad Krouskup
 
Its Member       By   /s/ Kendall Larsen
 
Its President    
 
  Date 4/23/07           Date 4/17/07    

 

 

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SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (“Second Amendment”), dated as of April      ,
2008, is entered into by and between Granite Creek Business Center, a California
general partnership (“Landlord”), and VirnetX, Inc., a Delaware corporation
(“Tenant”).
RECITALS
A. Landlord and Tenant entered into that certain Lease dated March 15, 2006, and
amended by a First Amendment to Lease dated April 1, 2007 (collectively, the
“Lease”) for the premises located at 5615 Scotts Valley Drive, Scotts Valley,
California, currently consisting of approximately nine hundred ninety-five
(995) rentable square feet.
B. The Term of the Lease is scheduled to expire on March 31, 2008.
C. Landlord and Tenant now desire to extend the Term of the Lease and to
relocate Tenant to a larger suite within the Building, all on the terms and
conditions set forth herein. The parties have agreed that all existing terms of
the Lease shall remain in effect until June 1, 2008 (the date that Tenant shall
be relocated to the new Premises), and thereafter the terms of the Lease shall
be modified as provided in this Second Amendment.
AGREEMENT
In consideration of the mutual covenants set forth herein and other valuable
consideration, Landlord and Tenant agree to amend the Lease as follows:
1. Premises. Paragraph 2 of the Lease is hereby amended to provide that, as of
June 1, 2008, the Premises shall consist of the approximately three thousand
eight hundred seventy-two (3,872) rentable square feet shown on Exhibit A
attached hereto and commonly known as Suite 140. Tenant shall surrender
possession of its existing premises, known as Suite 110, on May 31, 2008 in
accordance with the provisions of paragraph 14 of the Lease.
2. Term. Paragraph 4.A. of the Lease is hereby amended to extend the Term for a
period of four (4) years and three (3) months, so that the Term shall now expire
on June 30, 2012, subject to further extension as provided in paragraph 11
below.
3. Rent. Paragraph 5.A. of the Lease is hereby amended to provide that,
commencing June 1, 2008, the Monthly Rent shall be paid in accordance with the
following schedule:

          Months of Term   Monthly Rent  
 
       
Jun 1, 2008 – Jun 30, 2008
  $0.00/month
Jul 1, 2008 – Jun 30, 2009
  $3,136.32/month
Jul 1, 2009 – Jun 30, 2010
  $4,259.20/month
Jul 1, 2010 – Jun 30, 2011
  $4,840.00/month
Jul 1, 2011 – Jun 30, 2012
  $5,033.60/month

 

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4. Tenant’s Percentage. Paragraph 3.S. of the Lease is hereby amended to provide
that, as of June 1, 2008, Tenant’s Building Percentage shall be increased to
12.10% and Tenant’s Project Percentage shall be increased to 4.30%.
5. Security Deposit. Paragraph 7 of the Lease is hereby amended to provide that
the Security Deposit shall be increased to $5,033.60. Upon execution of this
Second Amendment, Tenant shall deposit with Landlord the sum of $3,784.94 to
increase the existing Security Deposit to such required amount.
6. Tenant Improvements. Paragraph 9 of the Lease is hereby amended to provide
that Landlord shall complete the following improvements to the Premises at
Landlord’s sole cost and expense: (i) construct a conference room with a glass
side-light approximately 10 feet wide adjacent to the entry door, and one
(1) private office at the locations shown on Exhibit B attached hereto, using
Building-standard materials and finishes, and (ii) install locks on entry doors
to all interior offices (collectively, the “Tenant Improvements”).
7. Expenses. Paragraph 17.C. of the Lease is hereby amended to provide that
Common Area Expenses shall not include any capital expenditures by Landlord for
the remodeling of the Building lobby and other portions of the Common Area;
provided, however, that the foregoing is not intended to cover, and shall not be
deemed to cover, an alterations to the Common Area that may be required to
comply with applicable laws. Paragraph 17.D. of the Lease is hereby amended to
provide that, commencing with the Common Area Expenses and Outside Area Expenses
payable by Tenant for the 2009 calendar year, the Actual Expenses to be paid by
Tenant (calculated on a per rentable square foot basis) shall not increase by
more than three percent (3%) over the Actual Expenses paid by Tenant for the
prior calendar year (calculated on a per rentable square foot basis). For
example, if the Actual Expenses paid by Tenant for the 2008 calendar year were
$0.66 per rentable square foot per month, than the Actual Expenses to be paid by
Tenant for the 2009 calendar would not be more than $0.68 per rentable square
foot per month.
8. Indemnification . The first sentence in paragraph 21.A. of the Lease is
hereby deleted and replaced with the following:
Tenant hereby agree to defend, indemnify and hold harmless Landlord and its
Agents from and against any and all damage, loss, liability or expense including
attorneys’ fees and legal costs suffered directly or by reason of any claim,
suit or judgment brought by or in favor of any person or persons for damage,
loss or expense due to, but not limited to, bodily injury and property damage
sustained by such person or persons which arises out of, is occasioned by or in
any way attributable to the use or occupancy of the Premises or the Project or
any part thereof and adjacent areas by Tenant, the acts or omissions of the
Tenant, its agents, employees or any contractors brought onto the Premises or
the Project by Tenant, except to the extent caused by the gross negligence or
willful misconduct of Landlord or its Agents or by Landlord’s breach of its
obligations under this Lease.

 

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9. Damage or Destruction. Paragraph 23.B. of the Lease is hereby amended to add
the following sentences at the end of the paragraph:
Tenant shall have the right to terminate this Lease if the Premises or the
Building cannot, with reasonable diligence, be fully restored within one hundred
eighty (180) days after the date of the damage or destruction. If Tenant elects
to terminate this Lease, Tenant shall give Landlord written notice of its
election to terminate within thirty (30) days after such damage or destruction.
10. Default. Paragraphs 26.A.(iv) and (v) of the Lease are hereby amended to
increase the 30-day period set forth therein to 90 days.
11. Option to Extend. The Lease is hereby amended to add the following
provisions as Paragraph 37:
37. Option to Extend.
A. Option Period. Provided that Tenant is not in default under this Lease either
at the time of exercise or at the time the extended Term commences, Tenant shall
have the option to extend the Term of this Lease for one (1) additional period
of three (3) years (“Option Period”) on the same terms, covenants and conditions
provided herein, except that upon such renewal (1) the Monthly Rent due
hereunder shall be the greater of (a) the then fair market rental value of the
Premises, and (b) $1.30 per square foot per month, and (2) the limitation on
increases in Common Area Expenses and Outside Area Expenses payable by Tenant
shall no longer be applicable. Tenant shall exercise its option by giving
Landlord written notice (“Option Notice”) at least one hundred eighty
(180) days, but not more than two hundred seventy (270) days, prior to the
expiration of the initial Term of this Lease. This option to extend is personal
to Tenant and may not be transferred or assigned to any third party.
B. Option Period Rent. The then fair market rental value of the Premises for the
Option Period shall be determined as follows:
(i) The parties shall have thirty (30) days after Landlord receives the Option
Notice within which to agree on the then fair market rental value of the
Premises as defined in Paragraph 37.B.(ii). If the parties agree on the then
fair market rental value of the Premises for the Option Period within thirty
(30) days, they shall immediately execute an amendment to this Lease stating the
Monthly Rent for the Option Period. If the parties are unable to agree on the
then fair market rental value of the Premises for the Option Period within
thirty (30) days, then, the then fair market rental value of the Premises shall
be determined as provided in Paragraph 37.B.(iii).

 

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(ii) The “then fair market rental value of the Premises” shall be defined to
mean the fair market rental value of the Premises as of the commencement of the
Option Period, taking into consideration all relevant factors, including the
uses permitted under this Lease, the quality, size, design and location of the
Premises, and the rent for comparable office/R&D space located in Scotts Valley,
California.
(iii) Within seven (7) days after the expiration of the thirty (30)-day period
set forth in paragraph 37.B.(i), each party, at its cost and by giving notice to
the other party, shall appoint a real estate appraiser with at least five
(5) years’ full-time commercial appraisal experience in the area in which the
Premises are located to appraise and set the then fair market rental value of
the Premises. If a party does not appoint an appraiser within ten (10) days
after the other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and shall set the then fair
market rental value of the Premises. If the two appraisers are appointed by the
parties as stated in this paragraph, they shall meet promptly and attempt to set
the then fair market rental value of the Premises. If they are unable to agree
within thirty (30) days after the second appraiser has been appointed, they
shall attempt to elect a third appraiser meeting the qualifications stated in
this paragraph within ten (10) days after the last day the two appraisers are
given to set the then fair market rental value of the Premises. If they are
unable to agree on the third appraiser, either of the parties to this Lease, by
giving ten (10) days’ notice to the other party, can apply to the then Presiding
Judge of the Santa Clara County Superior Court, for the selection of a third
appraiser who meets the qualifications stated in this paragraph. Each of the
parties shall bear one-half (1/2) of the cost of appointing the third appraiser
and of paying the third appraiser’s fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a majority
of the appraisers shall set the then fair market rental value of the Premises.
If a majority of the appraisers are unable to set the then fair market rental
value of the Premises within the stipulated period of time, the three appraisals
shall be added together and their total divided by three; the resulting quotient
shall be the then fair market rental value of the Premises. If, however, the low
appraisal and/or the high appraisal are/is more than ten percent (10%) lower
and/or higher than the middle appraisal, the low appraisal and/or the high
appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two appraisals shall be added together and their total divided by two;
the resulting quotient shall be the then fair market rental value of the
Premises. If both the low appraisal and the high appraisal are disregarded as
stated in this paragraph, then only the middle appraisal shall be used as the
result of the appraisal. After the fair market rental value of the Premises has
been set, the appraisers shall immediately notify the parties and the parties
shall amend this Lease to set forth the Monthly Rent for the Option Period.

 

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12. Brokers. Landlord and Tenant each represent and warrant it has had no
dealings with any real estate broker or agent in connection with the negotiation
of this Second Amendment other than JR Parrish Commercial Real Estate, and it
knows of no other real estate broker or agent who is or might be entitled to a
commission in connection with this Second Amendment. Landlord and Tenant shall
indemnify, defend and hold each other harmless from any and all liabilities and
expenses, including attorneys’ fees and costs, arising out of or in connection
with any claims asserted by any other broker or agent who represented, or
allegedly represented, the indemnifying party in connection with this Second
Amendment.
13. No Other Modifications. Except as set forth in this Second Amendment, the
Lease is unmodified and in full force and effect.

                          LANDLORD       TENANT    
 
                        GRANITE CREEK BUSINESS CENTER,
a California general partnership       VIRNETX, INC., a Delaware corporation    
 
                       
 
              By:   /s/ Kathleen J. Sheehan    
 
                 
 
    By:   TBI-SV III, a California general partnership,
General Partner       Its:   CAO     
 
                       
 
  By:   /s/ Charles J. Toeniskoetter                 
 
     
 
               
 
      Charles J. Toeniskoetter, Trustee of
the Toeniskoetter 2001 Living Trust
dated December 19, 2001                
 
                        By:   Westwood Company Scotts Valley,
a California general partnership,
General Partner                
 
                       
 
  By:   /s/ Anthony C. Morici                 
 
     
 
               
 
      Anthony C. Morici, Trustee of the
Morici Separate Property Trust
dated June 3, 1983                

 

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