Exhibit 10.1

 

[California Gross Lease with Stops]

 

LEASE AGREEMENT

 

THIS LEASE AGREEMENT is made this 9th day of          March            , 2004,
between ProLogis, a Maryland Real Estate Investment Trust (“Landlord”), and the
Tenant named below.

 

Tenant:

 

Restoration Hardware, Inc.

 

 

 

Tenant’s representative,
address, and phone no.:

 

Director of Real Estate
15 Koch Road
Corte Madera, CA 94925
415/924-1005

 

 

 

Premises:

 

The Building located on that parcel of land more commonly known as 2900 N.
MacArthur Drive, Tracy, CA, containing approximately 283,712 rentable square
feet, as determined by Landlord, as shown and described on Exhibit A.

 

 

 

Project:

 

Building 4 (EB A01204) Central Valley Industrial Center

 

 

 

Building:

 

Building 4 (EBA01204) Central Valley Industrial Center

 

 

 

Tenant’s Proportionate Share of Project:

 

100%

 

 

 

Tenant’s Proportionate Share of Building:

 

100%

 

 

 

Lease Term:

 

Beginning on the Commencement Date and ending on the last day of the 88th full
calendar month thereafter.

 

 

 

Commencement Date:

 

The later of June 1, 2004 or the Substantial Completion of the Improvements
described in Addendum 2  to this Lease.

 

 

 

Initial Monthly Base Rent:

 

$0

 

 

 

Base Year:

 

2004

 

 

 

Security Deposit:

 

Cash or Letter of Credit in the amount of $400,000 as set forth in Addendum 5.

 

 

 

Broker:

 

Dave Haggerty and Duane Fitch, CB Richard Ellis

 

 

 

Addenda:

 

Addendum 1 (Rent Schedule), Addendum 2 (Tenant Improvements), Addendum 3 (Moving
Allowance), Addendum 4 (Option to Renew), Addendum 5 (Letter of Credit for
Security Deposit), Addendum 6 (Satellite Dish)

 

 

 

Exhibits:

 

Exhibit A (Site Plan, Selling Products location on Premises, Allocated Parking),
Exhibit B (Floor Plan), Exhibit B-1 (Work Letter Agreement) Exhibit C (Legal
Description) Exhibit D (Sign Criteria)

 

1.                                       Granting Clause.  In consideration of
the obligation of Tenant to pay rent as herein provided and in consideration of
the other terms, covenants, and conditions hereof, Landlord leases to Tenant,
and Tenant takes from Landlord, the Premises, to have and to hold for the Lease
Term, subject to the terms, covenants and conditions of this Lease and hereby
grants to Tenant, its customers, guests, invitees, employees, agents and
licensees all easements, rights and privileges appurtenant thereto, including
the right free of charge to use the parking areas, driveways, roads, alleys,
means of ingress and egress and other portions of the Project, subject, however,
to matters filed of record as of the date hereof. Tenant and Tenant’s agents,
employees and contractors shall have access to the Premises 24 hours per day, 7
days per week.  Landlord may not change the Site Plan, Project, Premises or
Building in a way which would materially and adversely affect Tenant.

 

2.                                       Acceptance of Premises.  Subject to
Landlord’s Substantial Completion of the Initial Improvements, Tenant shall
accept the Premises in its condition as of the Commencement Date, subject to all
applicable laws, ordinances, regulations, covenants and restrictions.  Except as
otherwise provided herein, Landlord has made no representation or warranty as to
the suitability of the Premises for the conduct of Tenant’s business, and Tenant
waives any implied warranty that the Premises are suitable for Tenant’s intended
purposes.  Except as otherwise provided herein , in no event shall Landlord have
any obligation for any defects in the Premises or any limitation on its use. 
Subject to Landlord’s Substantial Completion of the Initial Improvements, the
taking of possession of the Premises shall be conclusive evidence that Tenant
accepts the Premises and that the Premises were in good condition at the time
possession was taken except for items that are Landlord’s responsibility under
Paragraph 10 and any punchlist items agreed to in writing by Landlord and
Tenant.

 

3.                                       Use.  The Premises shall be used only
for the purpose of receiving, storing, shipping and Selling Products, materials
and merchandise made and/or distributed by Tenant and for such other lawful
purposes as may be incidental thereto; provided, however, with Landlord’s prior
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed, Tenant may also use the Premises for light manufacturing.  “Selling
Products” shall be

 

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limited to the approximately 10,000 square feet of space located in the
northwest corner of the Premises as shown on Exhibit A.   Tenant shall not
conduct or give notice of any auction, liquidation, or going out of business
sale on the Premises.  Tenant will use the Premises in a careful, safe and
proper manner and will not commit waste, except for ordinary wear and tear,
overload the floor or structure of the Premises or subject the Premises to use
that would damage the Premises.  Tenant shall not permit any objectionable or
unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the
Premises, or take any other action that would constitute a nuisance or would
disturb, unreasonably interfere with, or endanger Landlord.  Outside storage,
including without limitation, storage of inoperable trucks and other personal
vehicles, is prohibited without Landlord’s prior written consent, which consent
shall not be unreasonably withheld, conditioned or delayed.  Tenant, at its sole
expense, shall use and occupy the Premises in compliance with all laws,
including, without limitation, the Americans With Disabilities Act, orders,
judgments, ordinances, regulations, codes, directives, permits, licenses,
covenants and restrictions now or hereafter applicable to the Premises
(collectively, “Legal Requirements”), except that Landlord shall be responsible
for the compliance with such Legal Requirements as the same relate to the
structural portions of the Premises and the Project.  Tenant shall, at its
expense, make any alterations or modifications, within or without the Premises,
that are required by Legal Requirements related to Tenant’s use or occupation of
the Premises, except that Landlord shall be responsible for the compliance with
such Legal Requirements as the same relate to the structural portions of the
Premises and the Project.  Tenant will not use or permit the Premises to be used
for any purpose or in any manner that would void Tenant’s or Landlord’s
insurance, increase the insurance risk, or cause the disallowance of any
sprinkler credits unless such use has been approved by Landlord and Tenant is
responsible for all of the increased costs resulting therefrom.  If any increase
in the cost of any insurance on the Premises or the Project is caused by
Tenant’s use or occupation of the Premises, or because Tenant vacates the
Premises, then Tenant shall pay the amount of such increase to Landlord.  Except
for the payment of rent, which shall be due and payable as of the Commencement
Date, any occupation of the Premises by Tenant prior to the Commencement Date
shall be subject to all other obligations of Tenant under this Lease.

 

Notwithstanding anything contained herein to the contrary, Tenant’s obligations
hereunder shall relate only to the interior of the Premises and any changes to
the Project that relate solely to Tenant’s use of the Premises.  Landlord shall
make all other additions to or modifications of the Project required from time
to time in accordance with Legal Requirements.  The cost of such additions or
modifications made by Landlord shall be included in Operating Expenses pursuant
to Paragraph 6 of this Lease, except for those additions or modifications which
are Landlord’s sole responsibility pursuant to Paragraph 10 of this Lease.

 

4.                                       Base Rent.  Tenant shall pay Base Rent
in the amount set forth in Addendum I.  The fifth month’s Base Rent and Security
Deposit shall be due and payable on the date hereof, and Tenant promises to pay
to Landlord in advance, without demand, deduction or set-off, monthly
installments of Base Rent on or before the first day of each calendar month
succeeding the Commencement Date.  Payments of Base Rent for any fractional
calendar month shall be prorated.  All payments required to be made by Tenant to
Landlord hereunder (or to such other party as Landlord may from time to time
specify in writing) shall be made, at such place, within the continental United
States, as Landlord may from time to time designate to Tenant in writing. 
Except as otherwise provided herein, the obligation of Tenant to pay Base Rent
and other sums to Landlord and the obligations of Landlord under this Lease are
independent obligations.  Tenant shall have no right at any time to abate,
reduce, or set-off any rent due hereunder except as may be expressly provided in
this Lease.  If Tenant is delinquent in any monthly installment of Base Rent or
of estimated Excess Operating Expenses (as hereinafter defined) for more than 5
days, and after notice as provided below, Tenant shall pay to Landlord on demand
a late charge equal to five (5.0%) percent of such delinquent sum.  Tenant shall
not be obligated to pay the late charge until Landlord has given Tenant five (5)
days written notice of the delinquent payment (which may be given at any time
during the delinquency); provided, however, that such notice shall not be
required more than twice in any 12-month period.  The provision for such late
charge shall be in addition to all of Landlord’s other rights and remedies
hereunder or at law and shall not be construed as a penalty or as limiting
Landlord’s remedies in any manner.

 

5.                                       Security Deposit.  The Security Deposit
shall be held by Landlord as security for the performance of Tenant’s
obligations under this Lease.  The Security Deposit is not an advance rental
deposit or a measure of Landlord’s damages in case of Tenant’s default.  Upon
each occurrence of an Event of Default (hereinafter defined), Landlord may use
all or part of the Security Deposit to pay delinquent payments due under this
Lease, and the cost of any damage, injury, expense or liability caused by such
Event of Default, without prejudice to any other remedy provided herein or
provided by law.  Tenant shall pay Landlord on demand the amount that will
restore the Security Deposit to its original amount.  Landlord’s obligation
respecting the Security Deposit is that of a debtor, not a trustee; no interest
shall accrue thereon.  The Security Deposit shall be the property of Landlord,
but shall be paid to Tenant when Tenant’s obligations under this Lease have been
completely fulfilled.  Landlord shall be released from any obligation with
respect to the Security Deposit upon transfer of this Lease and the Premises to
a person or entity assuming Landlord’s obligations under this Paragraph 5.

 

The Security Deposit may be in the form of cash or an unconditional, irrevocable
letter of credit from Fleet Bank or another bank reasonably acceptable to
Landlord in accordance with Addendum 5.  If the letter of credit is ever drawn
upon by Landlord pursuant to the terms of the Lease, Tenant shall within 10 days
thereafter cause the letter of credit to be restored to the amount required and
in accordance with Addendum 5.

 

6.                                       Operating Expense Payments.  During
each month of the Lease Term subsequent to the Base Year, on the same date that
Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the
annual cost, as reasonably estimated by Landlord from time to time, of Tenant’s
Proportionate Share (hereinafter defined) of Excess Operating Expenses for the
Project.  Payments thereof for any fractional calendar month shall be prorated. 
The term “Excess Operating Expenses” means Operating Expenses for the applicable
year in excess of Operating Expenses for the

 

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Base Year.  The term “Operating Expenses” means all costs and expenses
reasonably incurred by Landlord with respect to the ownership, maintenance, and
operation of the Project including, but not limited to, without duplication of
any other cost Tenant pays hereunder, costs of: Taxes (hereinafter defined) and
fees payable to tax consultants and attorneys for consultation and contesting
taxes (but only to the extent that a tax savings is realized); insurance; 
utilities; maintenance, repair and replacement of all portions of the Project,
including without limitation, paving and parking areas, roads, roofs (including
the roof membrane), alleys, and driveways, mowing, landscaping, exterior
painting, utility lines, heating, ventilation and air conditioning systems,
lighting, electrical systems and other mechanical and building systems; amounts
paid to contractors and subcontractors for work or services performed in
connection with any of the foregoing; charges or assessments of any association
to which the Project is subject; property management fees payable to a property
manager, including any affiliate of Landlord,  not to exceed three percent (3%)
of gross rents including Operating Expenses; security services, if any; trash
collection, sweeping and removal; and additions or alterations made by Landlord
to the Project or the Building in order to comply with Legal Requirements (other
than those expressly required herein to be made by Tenant) or that are
appropriate to the continued operation of the Project or the Building as a bulk
warehouse facility in the market area, provided that the cost of additions or
alterations that are required to be capitalized for federal income tax purposes
shall be amortized on a straight line basis over a period equal to the lesser of
the useful life thereof for federal income tax purposes or 10 years.  Operating
Expenses do not include costs, expenses, depreciation or amortization for
capital repairs and capital replacements required to be made by Landlord under
Paragraph 10 of this Lease, debt service under mortgages or ground rent under
ground leases, costs of restoration to the extent of net insurance proceeds
received by Landlord with respect thereto, leasing commissions. Further,
Operating Expenses shall not include, without limitation, the following items:

 

(a)                                  The cost of preparing any space for any
tenant or prospective tenant of the Building or costs associated with any space
presently deemed to be rentable space;

 

(b)                                 The cost of repairs or other work required
as a result of fire, windstorm, casualty or any other occurrence covered by the
insurance which Landlord is required to obtain hereunder, including costs
subject to any self-insured retention, but excluding any deductible;

 

(c)                                  Costs incurred in leasing or obtaining new
tenants or retaining existing tenants, including leasing commissions, attorneys;
fees, or the cost of advertising and promotion;

 

(d)                                 Attorneys’ fees incurred in enforcing the
terms of any lease;

 

(e)                                  The cost of any item or service that
Landlord provides selectively to one or more tenants of the Building, whether or
not Landlord is reimbursed by such other tenants;

 

(f)                                    Any amount paid to an entity or
individual affiliated with or otherwise related to Landlord which exceeds the
amount which would be paid for similar goods or services on an arms-length basis
between unrelated parties;

 

(g)                                 The cost of correcting defects in the
initial construction of the Building or any of the Initial Improvements whether
or not covered by any warranty;

 

(h)                                 Any cost incurred to test, clean up,
contain, abate, remove or undertake any other remedial action as a result of the
violation of any environmental law or environmental regulation applicable to the
Building;

 

(i)                                     Any cost incurred by Landlord as a
result of the gross negligence or willful misconduct of Landlord;

 

(j)                                     Any costs incurred in complying with the
provisions of the Americans with Disabilities Act and implementing regulations;
and

 

(k)                                  Any costs associated with the replacement
of the roof.

 

Upon Tenant’s written request (which request shall be limited to once in a
calendar year), Landlord shall provide Tenant with photocopies of invoices,
bills and other verification to substantiate the Operating Expenses for such
year. If Tenant’s total payments of Operating Expenses for any year are less
than Tenant’s Proportionate Share of Excess Operating Expenses for such year,
then Tenant shall pay the difference to Landlord within 30 days after demand,
and if more, then Landlord shall retain such excess and credit it against
Tenant’s next payments or refund to Tenant, if it is at the end of the Lease
Term.  For purposes of calculating Tenant’s Proportionate Share of Excess
Operating Expenses, a year shall mean a calendar year except the last year,
which shall end on the expiration of this Lease.  For purposes of calculating
Excess Operating Expenses for the last year of the Lease Term, Operating
Expenses for the Base Year shall be reduced proportionately based upon the
number of days that this Lease is in effect during such last year.  With respect
to Operating Expenses which Landlord allocates to the entire Project, Tenant’s
“Proportionate Share” shall be the percentage set forth on the first page of
this Lease as Tenant’s Proportionate Share of the Project as reasonably adjusted
by Landlord in the future for changes in the physical size of the Premises or
the Project; and, with respect to Operating Expenses which Landlord allocates
only to the Building, Tenant’s “Proportionate Share” shall be the percentage set
forth on the first page of this Lease as Tenant’s Proportionate Share of the
Building as reasonably adjusted by Landlord in the future for changes in the
physical size of the Premises or the Building.

 

7.                                       Utilities.  Tenant shall pay for all
water, gas, electricity, heat, light, power, telephone, sewer, sprinkler
services, refuse and trash collection, and other utilities and services used on
the Premises, all maintenance charges for utilities, and any storm sewer charges
or other similar charges for utilities imposed by any governmental entity or
utility provider, together with any taxes, penalties, surcharges or the like
pertaining to Tenant’s use of the Premises.  Landlord may cause at Tenant’s
expense any utilities to be separately metered or charged directly to Tenant by
the provider.

 

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Tenant shall pay its share of all charges for jointly metered utilities based
upon consumption, as reasonably determined by Landlord.  No interruption or
failure of utilities shall result in the termination of this Lease or the
abatement of rent.  Tenant agrees to limit use of water and sewer for normal
restroom use.

 

Notwithstanding anything to the contrary contained in this Paragraph 7 of this
Lease, if an interruption or cessation of utilities results from a cause within
the Landlord’s reasonable control and the Premises are not usable by Tenant for
the conduct of Tenant’s business as a result thereof, Base Rent and applicable
Operating Expenses not actually incurred by Tenant shall be abated for the
period which commences five (5) business days after the date Tenant gives to
Landlord notice of such interruption until such utilities are restored.

 

8.                                       Taxes.  Landlord shall pay Tenant’s
Proportionate Share of all taxes, assessments and governmental charges
(collectively referred to as “Taxes”) that accrue against the Project during the
Lease Term, which shall be included as part of the Operating Expenses charged to
Tenant.  Landlord may contest by appropriate legal proceedings the amount,
validity, or application of any Taxes or liens thereof.  If Landlord fails to
contest the real estate taxes, Tenant shall have the right to request Landlord
to contest such taxes, and Landlord shall so contest, at Tenant’s sole cost and
expense (including, without limitation, Landlord’s reasonable attorneys’ fees
and reasonable fees payable to tax consultants and attorneys for consultation
and contesting taxes), if, in Landlord’s reasonable judgment, such contest is
warranted; provided, however, Tenant’s request of such contesting of Taxes shall
be limited to one request in a calendar year.  Landlord shall cooperate in the
institution and prosecution of any such proceedings of contesting taxes and will
execute any documents reasonably required therefor.  All reductions, refunds, or
rebates of Taxes paid or payable by Tenant shall belong to Tenant whether as a
consequence of a Tenant proceeding or otherwise.  All capital levies or other
taxes assessed or imposed on Landlord upon the rents payable to Landlord under
this Lease and any franchise tax, any excise, transaction, sales or privilege
tax, assessment, levy or charge measured by or based, in whole or in part, upon
such rents from the Premises and/or the Project or any portion thereof shall be
paid by Tenant to Landlord monthly in estimated installments or upon demand, at
the option of Landlord, as additional rent; provided, however, in no event shall
Tenant be liable for any net income taxes imposed on Landlord unless such net
income taxes are in substitution for any Taxes payable hereunder.  If any such
tax or excise is levied or assessed directly against Tenant, then Tenant shall
be responsible for and shall pay the same at such times and in such manner as
the taxing authority shall require.  Tenant shall be liable for all taxes levied
or assessed against any personal property or fixtures placed in the Premises,
whether levied or assessed against Landlord or Tenant.    Taxes shall not
include (i) federal, state or local income taxes, (ii) franchise, gift,
transfer, excise, capital stock, estate, succession, or inheritance taxes, or
(iii) penalties or interest for late payment of taxes.

 

9.                                       Insurance.  Landlord shall maintain all
risk property insurance covering the full replacement cost of the Building. 
Landlord may, but is not obligated to, maintain such other insurance and
additional coverages as it may deem necessary, including, but not limited to,
commercial liability insurance and rent loss insurance.  All such insurance
shall be included as part of the Operating Expenses charged to Tenant.  The
Project or Building may be included in a blanket policy (in which case the cost
of such insurance allocable to the Project or Building will be reasonably
determined by Landlord based upon the insurer’s cost calculations).  Tenant
shall also reimburse Landlord for any increased premiums or additional insurance
which Landlord reasonably deems necessary as a result of Tenant’s use of the
Premises.

 

Tenant, at its expense, shall maintain during the Lease Term:  all risk property
insurance covering the full replacement cost of all property and improvements
installed or placed in the Premises by Tenant at Tenant’s expense; worker’s
compensation insurance with no less than the minimum limits required by law;
employer’s liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together with such
additional umbrella coverage as Landlord may reasonably require) for property
damage, personal injuries, or deaths of persons occurring in or about the
Premises.  Landlord may from time to time require reasonable increases in any
such limits.  The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claims-made basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days’ prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant’s policies).  Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance.

 

The all risk property insurance obtained by Landlord and Tenant shall include a
waiver of subrogation by the insurers and all rights based upon an assignment
from its insured, against Landlord or Tenant, their officers, directors,
employees, managers, agents, invitees and contractors, in connection with any
loss or damage thereby insured against.  Neither party nor its officers,
directors, employees, managers, agents, invitees or contractors shall be liable
to the other for loss or damage caused by any risk coverable by all risk
property insurance, and each party waives any claims against the other party,
and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage.  The failure of a party to insure its
property shall not void this waiver.  Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.

 

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Tenant and its subtenants, assignees, invitees, employees, contractors and
agents shall not be liable for, and Landlord hereby waives all claims against
Tenant and its subtenants, assignees, invitees, employees, contractors and
agents for damage to property sustained by Landlord or any person claiming
through Landlord resulting from any accident or occurrence in or upon the
Premises or in or about the Project from any cause whatsoever, including,
without limitation, damage caused in whole or in part, directly or indirectly,
by the negligence of Tenant or its subtenants, assignees, invitees, employees,
contractors or agents; provided, however, such waiver shall only apply to claims
in excess of the commercially reasonable deductible under Landlord’s insurance
policy.

 

10.                                 Landlord’s Repairs.  Landlord shall
maintain, at its expense (without contribution by Tenant), the structural
soundness of the roof, foundation, and exterior walls of the Building in good
repair, reasonable wear and tear and damages caused by Tenant, its agents and
contractors excluded.  The term “walls” as used in this Paragraph 10 shall not
include windows, glass or plate glass, doors or overhead doors, special store
fronts, dock bumpers, dock plates or levelers, or office entries.  Tenant shall
promptly give Landlord written notice of any repair required by Landlord
pursuant to this Paragraph 10, after which Landlord shall complete such repair
within 30 days unless such repair cannot be completed within 30 days in which
case Landlord shall complete such repair within a reasonable time provided
Landlord works diligently and continuously to complete such repair, subject to
Force Majeure event and Tenant-caused delays.

 

11.                                 Tenant’s Repairs.  Landlord, at Tenant’s
expense as provided in Paragraph 6, shall maintain in good repair and condition
the parking areas and other areas of the Building, including, but not limited to
driveways, alleys, landscape and grounds surrounding the Premises.  Subject to
Landlord’s obligation in Paragraph 10 and subject to Paragraphs 9 and 15,
Tenant, at its expense, shall repair, replace and maintain in good condition all
portions of the Premises and all areas, improvements and systems exclusively
serving the Premises including, without limitation, dock and loading areas,
truck doors, plumbing, water and sewer lines up to points of common connection,
fire sprinklers and fire protection systems, entries, doors, ceilings, windows,
interior walls, and the interior side of demising walls, and heating,
ventilation and air conditioning systems.  Such repair and replacements include
capital expenditures and repairs whose benefit may extend beyond the Term, and
such capital expenditures and repairs shall be fully amortized in accordance
with the Formula (defined hereafter) over the remainder of the Lease term,
without regard to any extension or renewal option not then exercised.  The
“Formula” shall mean that number, the numerator of which shall be the number of
months of the Lease term remaining after the replacement of any such capital
expenditures, and the denominator of which shall be the lesser of the maximum
amortization period (in months) allowable for determining depreciation of such
capital expenditures for federal income tax purposes or ten (10) years. 
Landlord shall pay for such capital expenditures and repairs and Tenant shall
reimburse Landlord for its amortized share of same (determined as hereinabove
set forth) in equal monthly installments in the same manner as the payment by
Tenant to Landlord of the Operating Expenses.  Heating, ventilation and air
conditioning systems and other mechanical and building systems serving the
Premises shall be maintained at Tenant’s expense pursuant to maintenance service
contracts entered into by Tenant.  The scope of services and contractors under
such maintenance contracts shall be reasonably approved by Landlord.    If
Tenant fails to perform any repair or replacement for which it is responsible,
Landlord may after notice and the expiration of the cure period in Paragraph
23(vii) perform such work and be reimbursed by Tenant within 30 days after
demand therefor.  Subject to Paragraphs 9 and 15, Tenant shall bear the full
reasonable cost of any repair or replacement to any part of the Building or
Project that results from damage caused by Tenant, its agents, contractors, or
invitees and any repair that benefits only the Premises.

 

12.                                 Tenant-Made Alterations and Trade Fixtures. 
Except as otherwise provided herein, any alterations, additions, or improvements
made by or on behalf of Tenant to the Premises (“Tenant-Made Alterations”) shall
be subject to Landlord’s prior written consent, such consent not to be
unreasonably withheld, conditioned or delayed provided that such alteration does
not materially affect the structure or the roof of the Project, or modify the
utility systems of the Project.  Notwithstanding the foregoing, Tenant shall not
be required to obtain Landlord’s consent for those Tenant-Made Alterations that
are non-structural and the total aggregate cost of such non-structural
Tenant-Made Alterations do not exceed Fifteen Thousand and No/100 Dollars
($15,000).  Tenant shall cause, at its expense, all Tenant-Made Alterations to
comply with insurance requirements and with Legal Requirements and shall
construct at its expense any alteration or modification required by Legal
Requirements as a result of any Tenant-Made Alterations.  All Tenant-Made
Alterations shall be constructed in a good and workmanlike manner by contractors
reasonably acceptable to Landlord and only good grades of materials shall be
used.  If Landlord’s consent or approval is required for such Tenant-Made
Alterations under the terms of this Lease, all plans and specifications for any
Tenant-Made Alterations shall be submitted to Landlord for its approval, which
approval shall not be unreasonably withheld, conditioned or delayed provided
that such alteration does not materially affect the structure or the roof of the
Project, or modify the utility systems of the Project.  Landlord may monitor
construction of the Tenant-Made Alterations. Tenant shall reimburse Landlord for
its costs in reviewing plans and specifications and in monitoring construction
in an amount not to exceed $1,000.00.  Landlord’s right to review plans and
specifications and to monitor construction shall be solely for its own benefit,
and Landlord shall have no duty to see that such plans and specifications or
construction comply with applicable laws, codes, rules and regulations.  Tenant
shall provide Landlord with the identities and mailing addresses of all persons
performing work or supplying materials, prior to beginning such construction,
and Landlord may post on and about the Premises notices of non-responsibility
pursuant to applicable law.  Tenant shall complete all work free and clear of
liens and shall provide certificates of insurance for worker’s compensation and
other coverage in amounts and from an insurance company reasonably satisfactory
to Landlord protecting Landlord against liability for personal injury or
property damage during construction.  Upon completion of any Tenant-Made
Alterations, Tenant shall deliver to Landlord:  (a) sworn statements setting
forth the names of all contractors and subcontractors who performed the
Tenant-Made Alterations; and (b) final lien waivers from all such contractors
and subcontractors.  Upon surrender of the Premises, all Tenant-Made Alterations
and any leasehold improvements constructed by Landlord or Tenant shall remain on
the Premises as Landlord’s property,

 

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except to the extent Landlord requires removal at Tenant’s expense of any such
items or Landlord and Tenant have otherwise agreed in writing in connection with
Landlord’s consent to any Tenant-Made Alterations.  Upon Tenant’s written
request, Landlord shall provide Tenant, at the time of Tenant’s request for
approval of Tenant-Made Alterations, a list of which Tenant-Made Alterations
Landlord will require Tenant to remove upon surrender of the Premises.  Tenant
shall repair any damage caused by such removal.

 

Tenant, at its own cost and expense and without Landlord’s prior approval, may
erect such shelves, bins, machinery and trade fixtures (collectively “Trade
Fixtures”) in the ordinary course of its business provided that such items do
not alter the basic character of the Premises, do not overload or damage the
Premises, and may be removed without injury to the Premises, and the
construction, erection, and installation thereof complies with all Legal
Requirements and with Landlord’s requirements set forth above.  Tenant shall
remove its Trade Fixtures and shall repair any damage caused by such removal.

 

13.                                 Signs.  Tenant shall not make any changes to
the exterior of the Premises, install any exterior lights, decorations,
balloons, flags, pennants, banners, or painting, or erect or install any signs,
windows or door lettering, placards, decorations, or advertising media of any
type which can be viewed from the exterior of the Premises, without Landlord’s
prior written consent, which consent shall not be unreasonably withheld,
conditioned or delayed.  Upon surrender or vacation of the Premises, Tenant
shall have removed all signs and repair, paint, and/or replace the building
facia surface to which its signs are attached.  Tenant shall obtain all
applicable governmental permits and approvals for sign and exterior treatments
and Landlord, so long as there is no cost to Landlord, shall cooperate with
Tenant in such regard.  All signs, decorations, advertising media, blinds,
draperies and other window treatment or bars or other security installations
visible from outside the Premises shall be subject to Landlord’s approval, which
approval not shall be unreasonably withheld, conditioned or delayed.

 

14.                                 Parking.  Tenant shall be allocated the
parking areas of the Building as more fully described on Exhibit A.  Landlord
shall not be responsible for enforcing Tenant’s parking rights against any third
parties.

 

15.                                 Restoration.  If at any time during the
Lease Term the Premises are damaged by a fire or other casualty, Landlord shall
notify Tenant within 30 days after such damage as to the amount of time Landlord
reasonably estimates it will take to restore the Premises.  If the restoration
time is estimated to exceed 6 months, either Landlord or Tenant may elect to
terminate this Lease upon notice to the other party given no later than 30 days
after Landlord’s notice.  If neither party elects to terminate this Lease or if
Landlord estimates that restoration will take 6 months or less, then, subject to
receipt of sufficient insurance proceeds, Landlord shall promptly restore the
Premises excluding the improvements installed by Tenant or by Landlord and paid
by Tenant, subject to delays arising from the collection of insurance proceeds
or from Force Majeure events. Tenant at Tenant’s expense shall promptly perform,
subject to delays arising from the collection of insurance proceeds, or from
Force Majeure events, all repairs or restoration not required to be done by
Landlord and shall promptly re-enter the Premises and commence doing business in
accordance with this Lease.  Notwithstanding the foregoing, either party may
terminate this Lease if the Premises are damaged during the last year of the
Lease Term and Tenant has not exercised its option to renew, as applicable, (as
hereinafter described in Addendum 4), and Landlord reasonably estimates that it
will take more than one month to repair such damage.  Base Rent and Operating
Expenses shall be abated for the period of repair and restoration in the
proportion which the area of the Premises, if any, which is not usable by Tenant
bears to the total area of the Premises.  Such abatement shall be the sole
remedy of Tenant, and except as provided herein, Tenant waives any right to
terminate the Lease by reason of damage or casualty loss.

 

16.                                 Condemnation.    If any part of the Premises
or the Project should be taken for any public or quasi-public use under
governmental law, ordinance, or regulation, or by right of eminent domain, or by
private purchase in lieu thereof (a “Taking” or “Taken”), and the Taking would
prevent or materially interfere with Tenant’s use of the Premises or in
Landlord’s judgment would materially interfere with or impair its ownership or
operation of the Project, then upon written notice by Landlord this Lease shall
terminate and Base Rent shall be apportioned as of said date.  If part of the
Premises shall be Taken, and this Lease is not terminated as provided above, the
Base Rent payable hereunder during the unexpired Lease Term shall be reduced to
such extent as may be fair and reasonable under the circumstances.  In the event
of any such Taking, Landlord shall be entitled to receive the entire price or
award from any such Taking without any payment to Tenant, and Tenant hereby
assigns to Landlord Tenant’s interest, if any, in such award.  Tenant shall have
the right, to the extent that same shall not diminish Landlord’s award, to make
a separate claim against the condemning authority (but not Landlord) for such
compensation as may be separately awarded or recoverable by Tenant for moving
expenses and damage to Tenant’s Trade Fixtures, if a separate award for such
items is made to Tenant.

 

17.                                 Assignment and Subletting.  Without
Landlord’s prior written consent, which Landlord shall not unreasonably
withhold, condition or delay, Tenant shall not assign this Lease or sublease the
Premises or any part thereof or mortgage, pledge, or hypothecate its leasehold
interest or grant any concession or license within the Premises and any attempt
to do any of the foregoing shall be void and of no effect.  For purposes of this
paragraph, a transfer of the ownership interests controlling Tenant shall be
deemed an assignment of this Lease unless such ownership interests are publicly
traded.  Notwithstanding the above, Tenant may assign or sublet the Premises, or
any part thereof, to any entity controlling Tenant, controlled by Tenant or
under common control with Tenant (a “Tenant Affiliate”), without the prior
written consent of Landlord.  Tenant shall reimburse Landlord for all of
Landlord’s reasonable out-of-pocket expenses in connection with any assignment
or sublease up to a maximum amount of $1,000.  Upon Landlord’s receipt of
Tenant’s written notice of a desire to assign or sublet the Premises, or any
part thereof (other than to a Tenant Affiliate), Landlord may, by giving written
notice to Tenant within 30 days after receipt of Tenant’s notice, terminate this
Lease with respect to the space described in Tenant’s notice, as of the date
specified in Tenant’s notice for the commencement of the

 

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proposed assignment or sublease.  If Landlord so terminates the Lease, Landlord
may enter into a lease directly with the proposed sublessee or assignee.  Tenant
may withdraw its notice to sublease or assign by notifying Landlord within 10
days after Landlord has given Tenant notice of such termination, in which case
the Lease shall not terminate but shall continue.

 

Provided no default has occurred and is continuing under this Lease, upon 10
days prior written notice to Landlord, Tenant may, without Landlord’s prior
written consent, assign this Lease to an entity into which Tenant is merged or
consolidated or to an entity to which all or substantially all of Tenant’s
assets are transferred, provided (x) such merger, consolidation, or transfer of
assets is for a good business purpose and not principal for the purpose of
transferring Tenant’s leasehold estate, and (y) the assignee or successor entity
has a net worth at least equal to Tenant immediately prior to such merger,
consolidation, or transfer.

 

It shall be reasonable for the Landlord to withhold its consent to any
assignment or sublease in any of the following instances: (i) an Event of
Default has occurred and is continuing that would not be cured upon the proposed
sublease or assignment; (ii) the assignee does not have a tangible net worth
calculated according to generally accepted accounting principles at least equal
to or greater than $100,000,000; (iii) the intended use of the Premises by the
assignee or sublessee is not reasonably satisfactory to Landlord; (iv) the
intended use of the Premises by the assignee or sublessee would materially
increase the pedestrian or vehicular traffic to the Premises or the Project; (v)
occupancy of the Premises by the assignee or sublessee would, in Landlord’s
opinion, violate an agreement binding upon Landlord or the Project with regard
to the identity of tenants, usage in the Project, or similar matters; (vi) the
identity or business reputation of the assignee or sublessee will, in the good
faith judgment of Landlord, tend to damage the goodwill or reputation of the
Project; (vii) in the case of a sublease, the subtenant has not acknowledged
that the Lease controls over any inconsistent provision in the sublease; or
(viii) the proposed assignee or sublessee is a governmental agency.  Tenant and
Landlord acknowledge that each of the foregoing criteria are reasonable as of
the date of execution of this Lease.  The foregoing criteria shall not exclude
any other reasonable basis for Landlord to refuse its consent to such assignment
or sublease.  Any approved assignment or sublease shall be expressly subject to
the terms and conditions of this Lease.  Tenant shall provide to Landlord all
information concerning the assignee or sublessee as Landlord may request.

 

Notwithstanding any assignment or subletting, Tenant shall at all times remain
fully responsible and liable for the payment of the rent and for compliance with
all of Tenant’s other obligations under this Lease (regardless of whether
Landlord’s approval has been obtained for any such assignments or sublettings). 
In the event that the rent due and payable by a sublessee or assignee exceeds
the rental payable under this Lease, then Tenant shall be bound and obligated to
pay Landlord as additional rent hereunder fifty percent (50%) of all such excess
rental within 10 days following receipt thereof by Tenant, less reimbursement of
Tenant’s reasonable costs incurred in such assignment or subletting provided
that the reasonable costs shall be paid to Tenant in equal monthly installments
over the Lease Term.

 

If this Lease be assigned or if the Premises be subleased (whether in whole or
in part) or in the event of the mortgage, pledge, or hypothecation of Tenant’s
leasehold interest or grant of any concession or license within the Premises or
if the Premises be occupied in whole or in part by anyone other than Tenant,
then upon a default by Tenant hereunder Landlord may collect rent from the
assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest
was hypothecated, concessionee or licensee or other occupant and, except to the
extent set forth in the preceding paragraph, apply the amount collected to the
next rent payable hereunder; and all such rentals collected by Tenant shall be
held in trust for Landlord and immediately forwarded to Landlord.  No such
transaction or collection of rent or application thereof by Landlord, however,
shall be deemed a waiver of these provisions or a release of Tenant from the
further performance by Tenant of its covenants, duties, or obligations
hereunder.  Nothing herein shall prohibit Tenant herein from granting a security
interest in Tenant’s personal property in the Premises.

 

18.                                 Indemnification.  Except for the negligence
or willful misconduct of Landlord, its agents, employees or contractors, and to
the extent permitted by law, Tenant agrees to indemnify, defend and hold
harmless Landlord, and Landlord’s agents, employees and contractors, from and
against any and all losses, liabilities, damages, costs and expenses (including
reasonable attorneys’ fees) resulting from claims by third parties for injuries
to any person and damage to or theft or misappropriation or loss of property
occurring in or about the Project and arising from the use and occupancy of the
Premises or from any activity, work, or thing done, permitted or suffered by
Tenant in or about the Premises or due to any other act or omission of Tenant,
its subtenants, assignees, invitees, employees, contractors and agents.  The
furnishing of insurance required hereunder shall not be deemed to limit Tenant’s
obligations under this Paragraph 18.

 

Subject to Landlord’s liability limitation in Paragraph 25 of this Lease,
Landlord covenants and agrees to indemnify and save Tenant, its employees and
agents harmless of and from any and all claims, costs, expenses and liabilities,
including, without limitation, reasonable attorneys’ fees, arising on account of
or by reason of claims by third parties for injuries or death to persons or
damages to property resulting from the negligence or willful misconduct of
Landlord or its agents, employees, or contractors, to the extent not
attributable to any negligence of Tenant, any assignee or subtenant of Tenant,
or their respective employees, agents, or contracts.  If a claim under the
foregoing indemnity is made against the indemnitee which the indemnitee believes
to be covered by an indemnitor’s indemnification obligations hereunder, the
indemnitee shall promptly notify the indemnitor of the claim and, in such notice
shall offer to the indemnitor the opportunity to assume the defense of the claim
within 10 business days after receipt of the notice (with counsel reasonably
acceptable to the indemnitee).  If the indemnitor timely elects to assume the
defense of the claim, the indemnitor shall have the right to settle the claim on
any terms it considers reasonable and without the indemnitee’s prior written
consent, as long as the settlement shall not require the indemnitee to render
any performance or pay any consideration, and the indemnitee shall not have the
right to settle any such claim.  If the indemnitor fails timely to elect

 

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to assume the defense of the claim or fails to defend the claim with diligence,
then the indemnitee shall have the right to take over the defense of the claim
and to settle the claim on any terms the indemnitee considers reasonable.  Any
such settlement shall be valid as against the indemnitor.  If the indemnitor
assumes the defense of a claim, the indemnitee may employ its own counsel but
such employment shall be at the sole expense of the indemnitee.  If any such
claim arises out of the negligence of both Landlord and Tenant, responsibility
for such claim shall be allocated between Landlord and Tenant based on their
respective degrees of negligence.  This indemnity does not cover claims arising
from the presence or release of Hazardous Materials.

 

19.                                 Inspection and Access.  Landlord and its
agents, representatives, and contractors may, upon reasonable prior notice, but
in no event less than 24 hours notice (except in the case of an emergency),
enter the Premises at any reasonable time to inspect the Premises and to make
such repairs as may be required or permitted pursuant to this Lease and for any
other business purpose.  Landlord and Landlord’s representatives may, upon
reasonable prior notice, but in no event less than 24 hours notice, enter the
Premises during business hours for the purpose of showing the Premises to
prospective purchasers and, during the last year of the Lease Term, to
prospective tenants.  Landlord may erect a suitable sign on the Premises stating
the Premises are available to let or that the Project is available for sale. 
Landlord may grant easements, make public dedications, designate common areas
and create restrictions on or about the Premises, provided that no such
easement, dedication, designation or restriction materially interferes with
Tenant’s use or occupancy of the Premises.  At Landlord’s request, Tenant shall
execute such instruments as may be necessary for such easements, dedications or
restrictions.

 

20.                                 Quiet Enjoyment.  If Tenant shall perform
all of the covenants and agreements herein required to be performed by Tenant,
Tenant shall, subject to the terms of this Lease, at all times during the Lease
Term, have peaceful and quiet enjoyment of the Premises against any person
claiming by, through or under Landlord.

 

To Landlord’s knowledge, (a) Landlord is the fee simple owner and record title
holder of the Premises and the Project, subject to no mortgage or deed of trust
liens; (b) Landlord has not received any notice and does not have any knowledge
of any eminent domain or similar proceeding which would affect all, or any
portion, of the Premises or Project; and (c) Landlord has the right, power and
authority to make this Lease and no joinder or approval of another person is
required with respect to Landlord’s right and authority to enter into this
Lease.

 

21.                                 Surrender.  Upon termination of the Lease
Term or earlier termination of Tenant’s right of possession in accordance with
this Lease, Tenant shall surrender the Premises to Landlord in good condition,
broom clean, ordinary wear and tear and casualty loss and condemnation covered
by Paragraphs 15 and 16 excepted.  Any Trade Fixtures, Tenant-Made Alterations
and property not so removed by Tenant as permitted or required herein shall be
deemed abandoned and may be stored, removed, and disposed of by Landlord at
Tenant’s reasonable expense, and Tenant waives all claims against Landlord for
any damages resulting from Landlord’s retention and disposition of such property
except for Landlord’s gross negligence or willful misconduct.  All obligations
of the parties hereunder not fully performed as of the termination of the Lease
Term shall survive the termination of the Lease Term, including without
limitation, indemnity obligations, payment obligations with respect to Excess
Operating Expenses and all obligations concerning the condition and repair of
the Premises.

 

22.                                 Holding Over.  If Tenant retains possession
of the Premises after the termination of the Lease Term, unless otherwise agreed
in writing, such possession shall be subject to immediate termination by
Landlord at any time, and all of the other terms and provisions of this Lease
(excluding any expansion or renewal option or other similar right or option)
shall be applicable during such holdover period, except that Tenant shall pay
Landlord from time to time, upon demand, as Base Rent for the holdover period,
an amount equal to one hundred and twenty five percent (125%) of the Base Rent
in effect on the termination date, computed on a monthly basis for each month or
part thereof during such holding over.  All other payments shall continue under
the terms of this Lease.  In addition, Tenant shall be liable for all damages
incurred by Landlord as a result of such holding over.  No holding over by
Tenant, whether with or without consent of Landlord, shall operate to extend
this Lease except as otherwise expressly provided, and this Paragraph 22 shall
not be construed as consent for Tenant to retain possession of the Premises.

 

23.                                 Events of Default.  Each of the following
events shall be an event of default (“Event of Default”) by Tenant under this
Lease:

 

(i)                                     Tenant shall fail to pay any installment
of Base Rent or any other payment required herein when due, and such failure
shall continue for a period of 5 days after notice from Landlord to Tenant that
such payment was due; provided, however, that landlord shall not be obligated to
provide written notice of such failure more than 2 times in any consecutive
12-month period, and the failure of Tenant to pay an third or subsequent
installment of Base Rent or any other payment required herein when due in any
consecutive 12-month period shall constitute an Event of Default by Tenant under
this Lease without the requirement of notice or opportunity to cure.

 

(ii)                                  Tenant shall (A) make a general assignment
for the benefit of creditors; (B) commence any case, proceeding or other action
seeking to have an order for relief entered on its behalf as a debtor or to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or of any substantial part of its property (collectively a
“proceeding for relief”); (C) become the subject of any proceeding for relief
which is not dismissed within 90 days of its filing or entry; or (D) die or
suffer a legal disability (if Tenant, guarantor, or surety is an individual) or
be dissolved or

 

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otherwise fail to maintain its legal existence (if Tenant, guarantor or surety
is a corporation, partnership or other entity).

 

(iii)                               Any insurance required to be maintained by
Tenant pursuant to this Lease shall be cancelled or terminated or shall expire
or shall be reduced or materially changed, except, in each case, as permitted in
this Lease.

 

(iv)                              Tenant shall vacate the Premises for the
permitted use set forth herein, whether or not Tenant is in monetary or other
default under this Lease.  Tenant’s vacating of the Premises shall not
constitute an Event of Default if, prior to vacating the Premises, Tenant has
made arrangements reasonably acceptable to Landlord to (a) insure that Tenant’s
insurance for the Premises will not be voided or cancelled with respect to the
Premises as a result of such vacancy, (b) insure that the Premises are secured
and not subject to vandalism, and (c) insure that the Premises will be properly
maintained after such vacation.  Tenant shall inspect the Premises at least once
each month and report monthly in writing to Landlord on the condition of the
Premises.

 

(v)                                 Tenant shall attempt or there shall occur
any assignment, subleasing or other transfer of Tenant’s interest in or with
respect to this Lease except as otherwise permitted in this Lease.

 

(vi)                              Tenant shall fail to discharge any lien placed
upon the Premises in violation of this Lease within 30 days after any such lien
or encumbrance is filed against the Premises.

 

(vii)                           Tenant shall fail to comply with any provision
of this Lease other than those specifically referred to in this Paragraph 23,
and except as otherwise expressly provided herein, such default shall continue
for more than 30 days after Landlord shall have given Tenant written notice of
such default, or if such default is incapable of being cured within such 30 day
period, then for so long as reasonably necessary, so long as Tenant is
diligently pursuing such cure, but in no event longer than 90 days from the date
Landlord shall have given Tenant written notice of such default.

 

24.                                 Landlord’s Remedies.  Upon each occurrence
of an Event of Default and so long as such Event of Default shall be continuing,
Landlord may at any time thereafter at its election:  terminate this Lease or
Tenant’s right of possession, (but Tenant shall remain liable as hereinafter
provided) and/or pursue any other remedies at law or in equity.  Upon the
termination of this Lease or termination of Tenant’s right of possession, it
shall be lawful for Landlord, without formal demand or notice of any kind, to
re-enter the Premises by summary dispossession proceedings or any other action
or proceeding authorized by law and to remove Tenant and all persons and
property therefrom.  If Landlord re-enters the Premises, Landlord shall have the
right to keep in place and use, or remove and store, all of the furniture,
fixtures and equipment at the Premises.

 

Except as otherwise provided in the next paragraph, if Tenant breaches this
Lease and abandoned the Premises prior to the end of the term hereof (other than
as provided in Paragraph 23(iv) herein) or if Tenant’s right to possession is
terminated by Landlord because of an Event of Default by Tenant under this
Lease, this Lease shall terminate.  Upon such termination, Landlord may recover
from Tenant the following, as provided in Section 1951.2 of the Civil Code of
California: (i) the worth at the time of award of the unpaid Base Rent and other
charges under this Lease that had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the reasonable value of
the unpaid Base Rent and other charges under this Lease which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonable avoided; (iii) the
worth at the time of award by which the reasonable value of the unpaid Base Rent
and other charges under this Lease for the balance of the term of this Lease
after the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; and (iv) any other amount necessary
to compensate Landlord for all the detriment proximately caused by Tenant’s
failure to perform its obligations under this Lease or that in the ordinary
course of things would be likely to result therefrom.  As used herein, the
following terms are defined: (a) The “worth at the time of award” of the amounts
referred to in Sections (i) and (ii) is computed by allowing interest at the
lesser of 18 percent per annum or the maximum lawful rate.  The “worth at the
time of award” of the amount referred to in Section (iii) 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; (b) The “time of award” as used
in clauses (i), (ii), and (iii) above is the date on which judgment is entered
by a court of competent jurisdiction; (c) The “reasonable value” of the amount
referred to in clause (ii) above is computed by determining the mathematical
product of (1) the “reasonable annual rental value” (as defined herein) and (2)
the number of years, including fractional parts thereof, between the date of
termination and the time of award.  The “reasonable value” of the amount
referred to in clause (iii) is computed by determining the mathematical product
of (1) the annual Base Rent and other charges under this Lease and (2) the
number of years including fractional parts thereof remaining in the balance of
the term of this Lease after the time of award.

 

Even though Tenant has breached this Lease and abandoned the Premises (other
than as provided in Paragraph 23(iv) herein), this Lease shall continue in
effect for so long as Landlord does not terminate Tenant’s right to possession,
and Landlord may enforce all its rights and remedies under this Lease, including
the right to recover rent as it becomes due.  This remedy is intended to be the
remedy described in California Civil Code Section 1951.4, and the following
provision from such Civil Code Section is hereby repeated:  “The Lessor has the
remedy described in California Civil Code Section 1951.4 (lessor may continue
lease in effect after lessee’s breach and abandonment and recover rent as it
becomes due, if lessee has right to sublet or assign subject only to reasonable
limitations).”  Any such payments due Landlord shall be made upon demand
therefor from time to time and Tenant agrees that Landlord may file

 

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suit to recover any sums falling due from time to time.  Notwithstanding any
such reletting without termination, Landlord may at any time thereafter elect in
writing to terminate this Lease for such previous breach.

 

Exercise by Landlord of any one or more remedies hereunder granted or otherwise
available shall not be deemed to be an acceptance of surrender of the Premises
and/or a termination of this Lease by Landlord, whether by agreement or by
operation of law, it being understood that such surrender and/or termination can
be effected only by the written agreement of Landlord and Tenant.  Any law,
usage, or custom to the contrary notwithstanding, Landlord shall have the right
at all times to enforce the provisions of this Lease in strict accordance with
the terms hereof; and the failure of Landlord at any time to enforce its rights
under this Lease strictly in accordance with same shall not be construed as
having created a custom in any way or manner contrary to the specific terms,
provisions, and covenants of this Lease or as having modified the same.  Tenant
and Landlord further agree that forbearance or waiver by Landlord to enforce its
rights pursuant to this Lease or at law or in equity, shall not be a waiver of
Landlord’s right to enforce one or more of its rights in connection with any
subsequent default.  A receipt by Landlord of rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord.  To
the greatest extent permitted by law, Tenant waives the service of notice of
Landlord’s intention to re-enter as provided for in any statute, or to institute
legal proceedings to that end, and also waives all right of redemption in case
Tenant shall be dispossessed by a judgment or by warrant of any court or judge. 
The terms “enter,” “re-enter,” “entry” or “re-entry,” as used in this Lease, are
not restricted to their technical legal meanings.  Any reletting of the Premises
shall be on such terms and conditions as Landlord in its sole discretion may
reasonably determine (including without limitation a term different than the
remaining Lease Term, rental concessions, alterations and repair of the
Premises, lease of less than the entire Premises to any tenant and leasing any
or all other portions of the Project before reletting the Premises).  Landlord
shall not be liable, nor shall Tenant’s obligations hereunder be diminished
because of, Landlord’s failure to relet the Premises or collect rent due in
respect of such reletting.  If Landlord terminates Tenant’s right of possession
without terminating the Lease after an Event of Default, Landlord shall use
commercially reasonable efforts to relet the Premises; provided, however, (a)
Landlord shall not be obligated to accept any tenant proposed by Tenant, (b)
Landlord shall have the right to lease any other space controlled by Landlord
first, and (c) any proposed tenant shall meet all of Landlord’s reasonable
leasing criteria.

 

25.                                 Tenant’s Remedies/Limitation of Liability. 
Landlord shall not be in default hereunder unless Landlord fails to perform any
of its obligations hereunder within 30 days after written notice from Tenant
specifying such failure (unless such performance will, due to the nature of the
obligation, require a period of time in excess of 30 days, then after such
period of time as is reasonably necessary), provided Landlord works diligently
and continuously to cure such default, subject to Force Majeure events and
Tenant-caused delays.  If such default by Landlord shall occur, Tenant shall
have the right, in addition to its other remedies, in law or equity, to take
such commercially reasonable acts as Tenant deems necessary to cure Landlord’s
default and, Landlord shall reimburse Tenant for the reasonable costs, fees and
expenses incurred by Tenant in taking such curative actions, in an amount up to
but not to $50,000 with respect to any such default, within 30 days after demand
therefor, accompanied by supporting evidence of the expenses incurred by
Tenant.   All obligations of Landlord hereunder shall be construed as covenants,
not conditions; and, except as may be otherwise expressly provided in this
Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations
hereunder.  All obligations of Landlord under this Lease will be binding upon
Landlord only during the period of its ownership of the Premises and not
thereafter.  The term “Landlord” in this Lease shall mean only the owner, for
the time being of the Premises, and in the event of the transfer by such owner
of its interest in the Premises, such owner shall thereupon be released and
discharged from all obligations of Landlord thereafter accruing, but such
obligations shall be binding during the Lease Term upon each new owner for the
duration of such owner’s ownership.  Any liability of Landlord under this Lease
shall be limited solely to its interest in the Project, and in no event shall
any personal liability be asserted against Landlord in connection with this
Lease nor shall any recourse be had to any other property or assets of Landlord.

 

Any liability of Landlord for a default by Landlord under the Lease, or a breach
by Landlord of any of its obligations under the Lease, shall be limited solely
to its interest in the Premises, and in no event shall any personal liability be
asserted against Landlord in connection with the Lease nor shall any recourse be
had to any other property or assets of Landlord.  Landlord’s interest in the
Premises shall be deemed to include:  (i) the rents or other income from the
Premises received by Landlord after Tenant obtains a final judgment against
Landlord, (ii) the net proceeds received by Landlord from the sale or other
disposition of all or any part of Landlord’s right, title and interest in the
Premises after Tenant obtains a final judgment against Landlord, (iii) the net
proceeds received by Landlord from any condemnation or conveyance in lieu of
condemnation of all or any portion of the Premises after Tenant obtains a final
judgment against Landlord, and (iv) the net proceeds of insurance received by
Landlord from any casualty loss of all or any portion of the Premises after
Tenant obtains a final judgment against Landlord.

 

26.                                 Intentionally Omitted.

 

27.                                 Subordination.  This Lease and Tenant’s
interest and rights hereunder are and shall be subject and subordinate at all
times to the lien of any mortgage, now existing or hereafter created on or
against the Project or the Premises, and all amendments, restatements, renewals,
modifications, consolidations, refinancing, assignments and extensions thereof,
without the necessity of any further instrument or act on the part of Tenant. 
Tenant agrees, at the election of the holder of any such mortgage, to attorn to
any such holder.  Tenant agrees upon demand to execute, acknowledge and deliver
such instruments, confirming such subordination and such instruments of
attornment as shall be requested by any such holder.  Notwithstanding the
foregoing, any such holder may at any time subordinate its mortgage to this
Lease, without Tenant’s consent, by notice in writing to Tenant, and thereupon
this Lease shall be deemed prior to

 

10

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such mortgage without regard to their respective dates of execution, delivery or
recording and in that event such holder shall have the same rights with respect
to this Lease as though this Lease had been executed prior to the execution,
delivery and recording of such mortgage and had been assigned to such holder. 
The term “mortgage” whenever used in this Lease shall be deemed to include deeds
of trust, security assignments and any other encumbrances, and any reference to
the “holder” of a mortgage shall be deemed to include the beneficiary under a
deed of trust.  Landlord represents to Tenant that as of the date hereof the
Project is not subject to or encumbered by a mortgage.

 

Tenant shall not be obligated to subordinate the Lease or its interest therein
to any future mortgage, deed of trust or ground lease on the Project unless
concurrently with such subordination the holder of such mortgage or deed of
trust or the ground lessor under such ground lease agrees not to disturb
Tenant’s possession of the Premises under the terms of the Lease in the event
such holder or ground lessor acquires title to the Premises through foreclosure,
deed in lieu of foreclosure or otherwise.  Tenant shall be solely responsible
for any fees or expenses charged by the holder of such mortgage or deed of trust
in connection with the granting of such non-disturbance agreement.

 

28.                                 Mechanic’s Liens.  Tenant has no express or
implied authority to create or place any lien or encumbrance of any kind upon,
or in any manner to bind the interest of Landlord or Tenant in, the Premises or
to charge the rentals payable hereunder for any claim in favor of any person
dealing with Tenant, including those who may furnish materials or perform labor
for any construction or repairs. Tenant covenants and agrees that it will pay or
cause to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost or
expense based on or arising out of asserted claims or liens against the
leasehold estate or against the interest of Landlord in the Premises or under
this Lease.  Tenant shall give Landlord immediate written notice of the placing
of any lien or encumbrance against the Premises of which Tenant has actual
knowledge and cause such lien or encumbrance to be discharged within 30 days of
Tenant receipt of notice of the filing or recording thereof; provided, however,
Tenant may contest such liens or encumbrances as long as such contest prevents
foreclosure of the lien or encumbrance and Tenant causes such lien or
encumbrance to be bonded or insured over in a manner reasonably satisfactory to
Landlord within such 30 day period.

 

29.                                 Estoppel Certificates.   Each of Landlord
and Tenant agrees, from time to time, within 21 days after request of the other
party, but no more than twice per calendar year, to execute and deliver to such
party, or such party’s designee, any estoppel certificate reasonably requested,
stating that this Lease is in full force and effect, the date to which rent has
been paid, that, to the best of that party’s knowledge, the other party is not
in default hereunder (or specifying in detail the nature of such party’s
default), the expiration date of this Lease and such other matters pertaining to
this Lease as may be reasonably requested.  Tenant’s obligation to furnish each
estoppel certificate in a timely fashion is a material inducement for Landlord’s
execution of this Lease.   No cure or grace period shall apply to Tenant’s or
Landlord’s obligations to timely deliver an estoppel certificate, except that
either Tenant or Landlord shall have an additional 10 day grace period from
expiration of the 21 day period referenced above to deliver the requested
estoppel certificate.

 

30.                                 Environmental Requirements.  Except for
Hazardous Material contained in products used by Tenant in de minimis quantities
for ordinary cleaning and office purposes, Tenant shall not permit or cause any
party to bring any Hazardous Material upon the Premises or transport, store,
use, generate, manufacture or release any Hazardous Material in or about the
Premises without Landlord’s prior written consent.  Tenant, at its sole cost and
expense, shall operate its business in the Premises in strict compliance with
all Environmental Requirements and shall remediate in a manner satisfactory to
Landlord any Hazardous Materials released on or from the Project by Tenant, its
agents, employees, contractors, subtenants or invitees.  Tenant shall complete
and certify to disclosure statements as requested by Landlord from time to time
relating to Tenant’s transportation, storage, use, generation, manufacture or
release of Hazardous Materials on the Premises.  The term “Environmental
Requirements” means all applicable present and future statutes, regulations,
ordinances, rules, codes, judgments, orders or other similar enactments of any
governmental authority or agency regulating or relating to health, safety, or
environmental conditions on, under, or about the Premises or the environment,
including without limitation, the following:  the Comprehensive Environmental
Response, Compensation and Liability Act; the Resource Conservation and Recovery
Act; and all state and local counterparts thereto, and any regulations or
policies promulgated or issued thereunder.  The term “Hazardous Materials” means
and includes any substance, material, waste, pollutant, or contaminant listed or
defined as hazardous or toxic, under any Environmental Requirements, asbestos
and petroleum, including crude oil or any fraction thereof, natural gas liquids,
liquified natural gas, or synthetic gas usable for fuel (or mixtures of natural
gas and such synthetic gas).  As defined in Environmental Requirements, Tenant
is and shall be deemed to be the “operator” of Tenant’s “facility” and the
“owner” of all Hazardous Materials brought on the Premises by Tenant, its
agents, employees, contractors or invitees, and the wastes, by-products, or
residues generated, resulting, or produced therefrom.

 

Tenant shall indemnify, defend, and hold Landlord harmless from and against any
and all losses, claims, demands, actions, suits, damages, expenses (including,
without limitation, remediation, removal, repair, corrective action, or cleanup
expenses), and costs (including, without limitation, actual attorneys’ fees,
consultant fees or expert fees and including, without limitation, removal or
management of any asbestos brought into the property or disturbed in breach of
the requirements of this Paragraph 30, regardless of whether such removal or
management is required by law) which are brought or recoverable against, or
suffered or incurred by Landlord as a result of any release of Hazardous
Materials for which Tenant is obligated to remediate as provided above or any
other breach of the requirements under this Paragraph 30 by Tenant, its agents,
employees, contractors, subtenants, assignees or invitees, regardless of whether
Tenant had knowledge of such noncompliance.  The obligations of Tenant under
this Paragraph 30 shall survive any termination of this Lease.

 

11

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Landlord shall have access to, and a right to perform inspections and tests of,
the Premises to determine Tenant’s compliance with Environmental Requirements,
its obligations under this Paragraph 30, or the environmental condition of the
Premises.  Access shall be granted to Landlord upon Landlord’s prior notice to
Tenant and at such times so as to minimize, so far as may be reasonable under
the circumstances, any disturbance to Tenant’s operations.  Such inspections and
tests shall be conducted at Landlord’s expense, unless such inspections or tests
reveal that Tenant has not complied with any Environmental Requirement, in which
case Tenant shall reimburse Landlord for the reasonable cost of such inspection
and tests.  Landlord’s receipt of or satisfaction with any environmental
assessment in no way waives any rights that Landlord holds against Tenant.

 

Landlord has delivered to Tenant the Environmental reports described below.  It
is understood by Tenant that Landlord has not made any independent
investigations to confirm the accuracy or completeness of the Environmental
Reports, and Landlord makes no representation or warranty as to the accuracy or
completeness of such reports.  Tenant agrees to keep the Environmental Reports
confidential and not to disclose the contents thereof to any other party without
the prior written consent of Landlord.

 

Environmental Reports:  Phase I Environmental Site Assessment Report, dated
October 29, 2001, prepared by Dave DeKrey, Staff Scientist and Reviewed by D.
Howe Gates, Senior Project Manager of Secor International Incorporated.

 

Notwithstanding anything to the contrary in this Paragraph 30, Tenant shall have
no liability of any kind to the Landlord as to Hazardous Materials on the
Premises caused or permitted by (i) Landlord, its agents, employees, contractors
or invitees; or (ii) any other person or entity located outside of the Premises.

 

Landlord shall indemnify, defend and save Tenant harmless from any claims,
fines, penalties, liabilities, losses, damages, costs and expenses (including
reasonable attorney’s fees, expert witness fees and other costs of defense)
which arise from any environmental condition existing prior to the Commencement
Date adversely affecting the Premises and in violation of Environmental
Requirements.

 

31.                                 Rules and Regulations.  Tenant shall, at all
times during the Lease Term and any extension thereof, comply with all
reasonable rules and regulations at any time or from time to time established by
Landlord covering use of the Premises and the Project.  The current rules and
regulations are attached hereto.  In the event of any conflict between said
rules and regulations and other provisions of this Lease, the other terms and
provisions of this Lease shall control.

 

32.                                 Security Service.  Tenant acknowledges and
agrees that, while Landlord may patrol the Project, Landlord is not providing
any security services with respect to the Premises and that Landlord shall not
be liable to Tenant for, and Tenant waives any claim against Landlord with
respect to, any loss by theft or any other damage suffered or incurred by Tenant
in connection with any unauthorized entry into the Premises or any other breach
of security with respect to the Premises except for Landlord’s gross negligence
or willful misconduct.

 

33.                                 Force Majeure.  Except for monetary
obligations, Landlord and Tenant, as applicable, shall not be held responsible
for delays in the performance of their obligations hereunder when caused by
strikes, lockouts, labor disputes, acts of God, inability to obtain labor or
materials or reasonable substitutes therefor, governmental restrictions,
governmental regulations, governmental controls, delay in issuance of permits,
enemy or hostile governmental action, civil commotion, fire or other casualty,
and other causes beyond the reasonable control of Landlord or Tenant, as
applicable (“Force Majeure”).

 

34.                                 Entire Agreement.  This Lease constitutes
the complete agreement of Landlord and Tenant with respect to the subject matter
hereof.  No representations, inducements, promises or agreements, oral or
written, have been made by Landlord or Tenant, or anyone acting on behalf of
Landlord or Tenant, which are not contained herein, and any prior agreements,
promises, negotiations, or representations are superseded by this Lease.  This
Lease may not be amended except by an instrument in writing signed by both
parties hereto.

 

35.                                 Severability.  If any clause or provision of
this Lease is illegal, invalid or unenforceable under present or future laws,
then and in that event, it is the intention of the parties hereto that the
remainder of this Lease shall not be affected thereby.  It is also the intention
of the parties to this Lease that in lieu of each clause or provision of this
Lease that is illegal, invalid or unenforceable, there be added, as a part of
this Lease, a clause or provision as similar in terms to such illegal, invalid
or unenforceable clause or provision as may be possible and be legal, valid and
enforceable.

 

36.                                 Brokers.   Each of Landlord and Tenant
represents and warrants that it has dealt with no broker, agent or other person
in connection with this transaction and that no broker, agent or other person
brought about this transaction, other than the broker, if any, set forth on the
first page of this Lease, and Landlord and Tenant agrees to indemnify and hold
the other harmless from and against any claims by any other broker, agent or
other person claiming a commission or other form of compensation by virtue of
having dealt with Landlord or Tenant with regard to this leasing transaction.
Landlord hereby acknowledges and agrees that the Broker referenced on Page One
of this Lease shall be entitled to a leasing commission from Landlord by virtue
of this Lease, which leasing commission shall be deemed earned and shall be paid
by Landlord to Broker in accordance with, and subject to the terms of, a
separate written agreement.

 

37.                                 Miscellaneous.  (a)   Any payments or
charges due from Tenant to Landlord hereunder shall be considered rent for all
purposes of this Lease.

 

12

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(b)                                 If and when included within the term
“Tenant,” as used in this instrument, there is more than one person, firm or
corporation, each shall be jointly and severally liable for the obligations of
Tenant.

 

(c)                                  All notices required or permitted to be
given under this Lease shall be in writing and shall be sent by registered or
certified mail, return receipt requested, or by a reputable national overnight
courier service, postage prepaid, or by hand delivery addressed to the parties
at their addresses below, and with a copy sent to Landlord at 14100 East 35th
Place, Aurora, Colorado 80011.  Either party may by notice given aforesaid
change its address for all subsequent notices.  Except where otherwise expressly
provided to the contrary, notice shall be deemed given upon delivery.

 

(d)                                 Except as otherwise expressly provided in
this Lease or as otherwise required by law, Landlord right to withhold any
consent or approval shall not be unreasonably withheld, conditioned or delayed.

 

(e)                                  Intentionally Deleted.

 

(f)                                    Neither this Lease nor a memorandum of
lease shall be filed by or on behalf of Tenant in any public record.  Landlord
may prepare and file, and upon request by Landlord Tenant will execute, a
memorandum of lease, in form reasonably acceptable to Tenant.

 

(g)                                 The normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Lease or any exhibits or
amendments hereto.

 

(h)                                 The submission by Landlord to Tenant of this
Lease shall have no binding force or effect, shall not constitute an option for
the leasing of the Premises, nor confer any right or impose any obligations upon
either party until execution of this Lease by both parties.

 

(i)                                     Words of any gender used in this Lease
shall be held and construed to include any other gender, and words in the
singular number shall be held to include the plural, unless the context
otherwise requires.  The captions inserted in this Lease are for convenience
only and in no way define, limit or otherwise describe the scope or intent of
this Lease, or any provision hereof, or in any way affect the interpretation of
this Lease.

 

(j)                                     Any amount not paid by a party hereto in
accordance with the terms of this Lease within five (5) days after notice from
Landlord to Tenant that such payment was due; provided, however, that Landlord
shall not be obligated to provide written notice of such failure more than 2
times in any consecutive 12-month period, shall bear interest from such due date
until paid in full at the lesser of the highest rate permitted by applicable law
or 10 percent per year.  It is expressly the intent of Landlord and Tenant at
all times to comply with applicable law governing the maximum rate or amount of
any interest payable on or in connection with this Lease.  If applicable law is
ever judicially interpreted so as to render usurious any interest called for
under this Lease, or contracted for, charged, taken , reserved, or received with
respect to this Lease, then it is Landlord’s and Tenant’s express intent that
all excess amounts theretofore collected by Landlord or Tenant, as applicable,
be credited on the applicable obligation (or, if the obligation has been or
would thereby be paid in full, refunded to Tenant or Landlord, as applicable),
and the provisions of this Lease immediately shall be deemed reformed and the
amounts thereafter collectible hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder.

 

(k)                                  Construction and interpretation of this
Lease shall be governed by the laws of the state in which the Project is
located, excluding any principles of conflicts of laws.

 

(l)                                     Time is of the essence as to the
performance of Tenant and Landlord’s obligations under this Lease.

 

(m)                               All exhibits and addenda attached hereto are
hereby incorporated into this Lease and made a part hereof.  In the event of any
conflict between such exhibits or addenda and the terms of this Lease, such
exhibits or addenda shall control.

 

(n)                                 In the event either party initiates
litigation to enforce the terms and provisions of this Lease, the prevailing
party in such action shall be reimbursed for any and all reasonable costs
incurred in prosecuting such action, including (without limitation) attorney’s
fees, filing fees, and court costs.

 

38.                                 Intentionally Deleted.

 

39.                                 Limitation of Liability of Trustees,
Shareholders, and Officers of ProLogis.  Any obligation or liability whatsoever
of ProLogis, a Maryland real estate investment trust, which may arise at any
time under this Lease or any obligation or liability which may be incurred by it
pursuant to any other instrument, transaction, or undertaking contemplated
hereby shall not be personally binding upon, nor shall resort for the
enforcement thereof be had to the property of, its trustees, directors,
shareholders, officers, employees or agents, regardless of whether such
obligation or liability is in the nature of contract, tort, or otherwise.

 

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day
and year first above written.

 

13

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TENANT:

 

 

 

Restoration Hardware, Inc., a Delaware corporation

 

 

 

By:

/s/  Patricia McKay

 

 

Name:

Patricia McKay

 

Title:

CFO

 

 

 

Address:

 

 

 

Attn:  Director of Real Estate

 

15 Koch Road

 

Corte Madera, CA 94925

 

415/924-1005

 

 

 

 

 

LANDLORD:

 

ProLogis, a Maryland Real Estate Investment Trust

 

 

 

 

 

By:

/s/ Larry H. Harmsen

 

 

Name:

Larry H. Harmsen

 

 

Title:

Senior Vice President

 

 

 

 

Address:

 

 

 

47775 Fremont Blvd

 

 

 

Fremont, CA 94538

 

 

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Rules and Regulations

 

1.                                       The sidewalk, entries, and driveways of
the Project shall not be obstructed by Tenant, or its agents, or used by them
for any purpose other than ingress and egress to and from the Premises.

 

2.                                       Tenant shall not place any objects,
including antennas, outdoor furniture, etc., in the parking areas, landscaped
areas or other areas outside of its Premises, or on the roof of the Project.
Notwithstanding the foregoing, Tenant shall be allowed to set up an outdoor
patio or eating area, subject to plans or designs mutually acceptable to
Landlord and Tenant.

 

3.                                       Except for seeing-eye dogs, no animals
shall be allowed in the offices, halls, or corridors in the Project.

 

4.                                       Tenant shall not disturb the occupants
of the Project or adjoining buildings by the use of any radio or musical
instrument or by the making of loud or improper noises.

 

5.                                       If Tenant desires telegraphic,
telephonic or other electric connections in the Premises, Landlord or its agent
will direct the electrician as to where and how the wires may be introduced;
and, without such direction, no boring or cutting of wires will be permitted. 
Any such installation or connection shall be made at Tenant’s expense.

 

6.                                       Tenant shall not install or operate any
steam or gas engine or boiler, or other mechanical apparatus in the Premises,
except as specifically approved in the Lease.  The use of oil, gas or
inflammable liquids for heating, lighting or any other purpose is expressly
prohibited.  Explosives or other articles deemed extra hazardous shall not be
brought into the Project.

 

7.                                       Parking any type of recreational
vehicles is specifically prohibited on or about the Project.  Except for the
overnight parking of operative vehicles, no vehicle of any type shall be stored
in the parking areas at any time.  In the event that a vehicle is disabled, it
shall be removed within 48 hours.  There shall be no “For Sale” or other
advertising signs on or about any parked vehicle.  All vehicles shall be parked
in the designated parking areas in conformity with all signs and other
markings.  All parking will be open parking, and no reserved parking, numbering
or lettering of individual spaces will be permitted except as specified by
Landlord.

 

8.                                       Tenant shall maintain the Premises free
from rodents, insects and other pests.

 

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

 

10.                                 Tenant shall not cause any unnecessary labor
by reason of Tenant’s carelessness or indifference in the preservation of good
order and cleanliness.  Except as may arise out of the gross negligence or
willful misconduct of Landlord, or its agents, employees or contractors,
Landlord shall not be responsible to Tenant for any loss of property on the
Premises, however occurring, or for any damage done to the effects of Tenant by
the janitors or any other employee or person.

 

11.                                 Tenant shall give Landlord prompt notice of
any defects in the water, lawn sprinkler, sewage, gas pipes, electrical lights
and fixtures, heating apparatus, or any other service equipment affecting the
Premises of which Tenant has knowledge.

 

12.                                 Tenant shall not permit storage outside the
Premises, including without limitation, outside storage of inoperable trucks and
other vehicles, or dumping of waste or refuse or permit any harmful materials to
be placed in any drainage system or sanitary system in or about the Premises.

 

13.                                 All moveable trash receptacles provided by
the trash disposal firm for the Premises must be kept in the trash enclosure
areas, if any, provided for that purpose.

 

14.                                 No auction, public or private, will be
permitted on the Premises or the Project, other than in accordance with
Paragraph 3 of this Lease.

 

15.                                 No awnings shall be placed over the windows
in the Premises except with the prior written consent of Landlord.

 

16.                                 The Premises shall not be used for lodging,
sleeping or cooking or for any immoral or illegal purposes or for any purpose
other than that specified in the Lease.  No gaming devices shall be operated in
the Premises.

 

17.                                 Tenant shall ascertain from Landlord the
maximum amount of electrical current which can safely be used in the Premises,
taking into account the capacity of the electrical wiring in the Project and the
Premises and the needs of other tenants, if any, and shall not use more than
such safe capacity.  Landlord’s consent to the installation of electric
equipment shall not relieve Tenant from the obligation not to use more
electricity than such safe capacity.

 

18.                                 Tenant assumes full responsibility for
protecting the Premises from theft, robbery and pilferage, except as may arise
out of the gross negligence or willful misconduct of Landlord.

 

19.                                 Tenant shall not install or operate on the
Premises any machinery or mechanical devices of a nature not directly related to
Tenant’s ordinary use of the Premises and shall keep all such machinery free of
vibration, noise and air waves which may be transmitted beyond the Premises.

 

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ADDENDUM 1

 

BASE RENT ADJUSTMENTS

 

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED March 9th, 2004 BETWEEN

ProLogis

and

Restoration Hardware, Inc.

 

 

Base Rent shall equal the following amounts for the respective periods set forth
below:

 

Periods

 

Monthly Base Rent

 

 

 

 

 

Months 1 (following the Commencement Date) through 4

 

$

0.00

 

Months 5 through 8

 

$

68,375.00

*

Months 9 through 30

 

$

99,300.00

 

Months 31 through 60

 

$

107,811.00

 

Months 61 through 88

 

$

117,741.00

 

 

--------------------------------------------------------------------------------

*  Landlord shall initially deliver 195,052 square feet (11 bays as shown on
Exhibit B) and the Premises will be expanded to 283,712 square feet as of
February 1, 2005.   Notwithstanding the above rent schedule, on February 1, 2005
the Monthly Base Rent shall be increased to $99,300.00 and shall continue at
that rate until the scheduled increase on month 31 as indicated above.

 

If Tenant requires the use of the expansion portion of the Premises prior to
February 1, 2005, the rent will be increased at the rate of $0.35 per square
foot per month with minimum increments of 17,732 square feet (1 bay).

 

16

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ADDENDUM 2

 

 

CONSTRUCTION

(TURNKEY)

 

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED March 9th, 2004, BETWEEN
Prologis
and
Restoration Hardware, Inc.

 

(a)                                  Landlord agrees to furnish or perform at
Landlord’s sole cost and expense those items of construction and those
improvements (the “Initial Improvements”) specified below, pursuant to plans and
specifications to be prepared by Landlord and submitted to Tenant by no later
than 10 days following the date of this Lease, for Tenant’s review and approval:

 

1.               Approximately 10,000 sf of air conditioned office space
constructed to Landlord’s standards as shown on Exhibit B-1 and in compliance
with all laws and ordinances.

2.               Metal halide warehouse lighting in a pattern a quantity
sufficient to provide illumination of 25 foot candles in the warehouse.

3.               Power distribution to the new office area.

4.               Dock equipment as specified by Tenant.

5.               Architectural plans and permits for the tenant improvements.

 

Exclusions:   The Initial Improvements shall not include the following:

 

1.               Electrical data gathering lines and security equipment

2.               Electrical connections and distribution to Tenant’s production
equipment.

3.               Mechanical, electrical or plumbing connections and distribution
necessary for Tenant’s equipment.

4.               Fire code issues and/or sprinkler modifications, including
without limitation, fire sprinkler systems, fire hose racks, in-rack sprinklers,
smoke curtains and type (or quantity) of smoke vents.

5.               Compressed air and any associated plumbing.

6.               Telephonic or other communications equiment and cabling
systems.

7.               Signage.

 

Landlord shall contribute a Tenant Improvement Allowance of SEVEN HUNDRED AND
FIFTY THOUSAND DOLLARS ($750,000) towards the construction cost of the initial
improvements.  Tenant shall be responsible for any cost in excess of the
allowance and shall be paid prior to the commencement of construction.  Please
be advised that Landlord will charge a construction management fee of 5% on any
improvement cost in excess for the Tenant Improvement Allowance.

 

(b)                                 If Tenant shall desire any changes, Tenant
shall so advise Landlord in writing and Landlord shall determine whether such
changes can be made in a reasonable and feasible manner.  Any and all costs of
reviewing any requested changes, and any and all costs of making any changes to
the Initial Improvements which Tenant may request and which Landlord may agree
to shall be at Tenant’s sole cost and expense and shall be paid to Landlord upon
demand and before execution of the change order.

 

(c)                                  Landlord shall proceed with and complete
the construction of the Initial Improvements.  As soon as such improvements have
been Substantially Completed, Landlord shall notify Tenant in writing of the
date that the Initial Improvements were Substantially Completed.  Such date,
unless an earlier date is specified as the Commencement Date in this Lease or
otherwise agreed to in writing between Landlord and Tenant, shall be the
“Commencement Date,”  unless the completion of such improvements was delayed due
to any act or omission of, or delay caused by, Tenant including, without
limitation, Tenant’s failure to approve plans, complete submittals or obtain
permits within the time periods agreed to by the parties, in which case the
Commencement Date shall be the date such improvements would have been completed
but for the delays caused by Tenant.  The Initial Improvements shall be deemed
substantially completed (“Substantially Completed”) when, in the reasonable
opinion of Peter Blakely, the architect of record, or his replacement, if
applicable (whether an employee or agent of Landlord or a third party architect)
(“Architect”), the Premises are substantially completed except for punch list
items which do not prevent in any material way the use of the Premises for the
purposes for which they were intended.  In the event Tenant, its employees,
agents, or contractors cause construction of such improvements to be delayed,
the date of Substantial Completion shall be deemed to be the date that, in the
reasonable opinion of the Construction Manager, Substantial Completion would
have occurred if such delays had not taken place.  Without limiting the
foregoing, Tenant shall be solely responsible for delays caused by Tenant’s
request for any changes in the plans, Tenant’s request for long lead items or
Tenant’s interference with the construction of the Initial Improvements, and
such delays shall not cause a deferral of the Commencement Date beyond what it
otherwise would have been.  After the Commencement Date Tenant shall, upon
demand, execute and deliver to Landlord a letter of acceptance of delivery of
the Premises.  In the event of any dispute as to the Initial Improvements,
including the Commencement Date, the certificate of the Architect shall be
conclusive absent manifest error.

 

17

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(d)                                 The failure of Tenant to take possession of
or to occupy the Premises shall not serve to relieve Tenant of obligations
arising on the Commencement Date or delay the payment of rent by Tenant. 
Subject to applicable ordinances and building codes governing Tenant’s right to
occupy or perform in the Premises, Tenant shall be allowed to install its tenant
improvements, machinery, equipment, fixtures, or other property on the Premises
during the final stages of completion of construction provided that Tenant does
not thereby interfere with the completion of construction or cause any labor
dispute as a result of such installations, and provided further that Tenant does
hereby agree to indemnify, defend, and hold Landlord harmless from any loss or
damage to such property, and all liability, loss, or damage arising from any
injury to the Project or the property of Landlord, its contractors,
subcontractors, or materialmen, and any death or personal injury to any person
or persons arising out of such installations, unless any such loss, damage,
liability, death, or personal injury was caused by Landlord’s negligence or
willful misconduct.  Any such occupancy or performance in the Premises shall be
in accordance with the provisions governing Tenant-Made Alterations and Trade
Fixtures in the Lease, and shall be subject to Tenant providing to Landlord
satisfactory evidence of insurance for personal injury and property damage
related to such installations and satisfactory payment arrangements with respect
to installations permitted hereunder.  Delay in putting Tenant in possession of
the Premises shall not serve to extend the term of this Lease or to make
Landlord liable for any damages arising therefrom, except for Landlord’s gross
negligence or willful misconduct.

 

(e)                                  Except for incomplete punch list items,
Tenant upon the Commencement Date shall have and hold the Premises as the same
shall then be without any liability or obligation on the part of Landlord for
making any further alterations or improvements of any kind in or about the
Premises.

 

18

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ADDENDUM 3

 

MOVING ALLOWANCE

 

ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED March 9th, 2004, BETWEEN
Prologis
and
Restoration Hardware, Inc.

 

Landlord shall provide Tenant with a moving allowance of up to $500,000.  Tenant
shall provide Landlord documentation, as reasonably determined by Landlord,
including , but not limited to, third party invoices and contracts and estimated
Tenant generated labor costs (“Moving Costs”) to substantiate Tenant’s costs in
relocating from its existing facility.  Said Moving Costs may include, but are
not limited to, disassembly of rack and personal property in existing facility,
assembly of rack and personal property in the Premises, costs associated with
the setup of the telecommunications systems, labor costs (which may include
Tenant’s employees), new stationary and other related items, movers’ fees
(related to moving the furniture, office equipment, etc. from the existing
facility to the Premises) and other costs that are attributable to Tenant’s move
from its existing facility to the Premises.

 

Landlord shall pay $120,000 of the moving allowance within 15 business day from
the date of execution of this Lease.  The remainder shall be paid within 15
business days from the Commencement Date, provided Landlord is in receipt of the
required documentation of Moving Costs and the Security Deposit.

 

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ADDENDUM 4

 

MARKET OPTIONS

 

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED March 9th, 2004    , BETWEEN

 

Prologis

and

Restoration Hardware, Inc.

 

(a)                                  Provided that as of the time of the giving
of the First Extension Notice and the Commencement Date of the First Extension
Term, (x) Tenant actually occupies at least 75% of the Premises initially
demised under this Lease and any space added to the Premises, and (y) no Event
of Default exists or would exist but for the passage of time or the giving of
notice, or both; then Tenant shall have the right to extend the Lease Term for
an additional term of five (5) years (such additional term is hereinafter called
the “First Extension Term”) commencing on the day following the expiration of
the Lease Term (hereinafter referred to as the “Commencement Date of the First
Extension Term”).  Tenant shall give Landlord notice (hereinafter called the
“First Extension Notice”) of its election to extend the term of the Lease Term
at least nine (9) months, but not more than twelve (12) months, prior to the
scheduled expiration date of the Lease Term.

 

(b)                                 Provided that as of the time of the giving
of the Second Extension Notice and the Commencement Date of the Second Extension
Term, (x) Tenant actually occupies at least 75% of the Premises initially
demised under this Lease and any space added to the Premises, and (y) no Event
of Default exists or would exist but for the passage of time or the giving of
notice, or both and provided Tenant has exercised its option for the First
Extension Term; then Tenant shall have the right to extend the Lease Term for an
additional term of five (5)  years (such additional term is hereinafter called
the “Second Extension Term”) commencing on the day following the expiration of
the First Extension Term (hereinafter referred to as the “Commencement Date of
the Second Extension Term”).  Tenant shall give Landlord notice (hereinafter
called the “Second Extension Notice”) of its election to extend the term of the
Lease Term at least nine (9) months, but not more than twelve (12) months, prior
to the scheduled expiration date of the First Extension Term.

 

(c)                                  The Base Rent payable by Tenant to Landlord
during the First Extension Term shall be the greater of:

 

(i)                                     The Base Rent in effect on the
expiration of the Lease Term, and

 

(ii)                                  95% of the Fair Market Rent, as defined
and determined pursuant to Paragraphs (e), (f), and (g) below.

 

(d)                                 The Base Rent payable by Tenant to Landlord
during the Second Extension Term shall be the greater of:

 

(i)                                     The Base Rent in effect on the
expiration of the First Extension Term, and

 

(ii)                                  95% of the Fair Market Rent, as defined
and determined pursuant to Paragraphs (e), (f), and (g) below.

 

(e)                                  The term “Fair Market Rent” shall mean the
Base Rent, expressed as an annual rent per square foot of floor area, which
Landlord would have received from leasing the Premises for the First Extension
Term or the Second Extension Term, as applicable, to an unaffiliated person
which is not then a tenant in the Project, assuming that such space were to be
delivered in “as-is” condition, and taking into account the rental which such
other tenant would most likely have paid for such premises, provided that Fair
Market Rent shall not in any event be less than the Base Rent for the Premises
as of the expiration of the Lease Term or the First Extension Term, as
applicable.  Fair Market Rent shall not be further reduced by reason of any
costs or expenses saved by Landlord by reason of Landlord’s not having to find a
new tenant for the Premises (including without limitation brokerage commissions,
cost of improvements necessary to prepare the space for such tenant’s occupancy,
rent concession, or lost rental income during any vacancy period).  Fair Market
Rent means only the rent component defined as Base Rent in the Lease and does
not include reimbursements and payments by Tenant to landlord with respect to
Operating Expenses and other items payable or reimbursable by Tenant under the
Lease.  In addition to its obligation to pay Base Rent (as determined herein),
Tenant shall continue to pay and reimburse Landlord as set forth in the Lease
with respect to such Operating Expenses and other items with respect to the
Premises during the First Extension Term or the Second Extension Term, as
applicable.  The arbitration process described below shall be limited to the
determination of the Base Rent and shall not affect or otherwise reduce or
modify the Tenant’s obligation to pay or reimburse Landlord for such Operating
Expenses and other reimbursable items.

 

(f)                                    No later than 7 months prior to
expiration of the Lease Term, Landlord shall notify Tenant of its determination
of the Fair Market Rent (which shall be made in Landlord’s sole discretion and
shall in any event be not less than the Base Rent in effect as of the expiration
of the Lease Term or the First Extension Term, as applicable) for the First
Extension Term or the Second Extension Term, as applicable, and Tenant shall
advise Landlord of any objection within 15 business days of receipt of
Landlord’s notice.  Failure to respond within the 15 business day period shall
constitute Tenant’s acceptance of such Fair Market Rent.  If Tenant objects,
Landlord and Tenant shall commence negotiations to attempt to agree upon the
Fair Market Rent within 30 days of Landlord’s receipt of Tenant’s notice.  If
the

 

20

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parties cannot agree, each acting in good faith but without any obligation to
agree, then the Lease Term shall not be extended and shall terminate on its
scheduled termination date and Tenant shall have no further right hereunder or
any remedy by reason of the parties’ failure to agree unless Tenant or Landlord
invokes the arbitration procedure provided below to determine the Fair Market
Rent.

 

(g)                                 Arbitration to determine the Fair Market
Rent shall be in accordance with the Real Estate Valuation Arbitration Rules of
the American Arbitration Association.  Unless otherwise required by state law,
arbitration shall be conducted in the metropolitan area where the Project is
located by a single arbitrator unaffiliated with either party.  Either party may
elect to arbitrate by sending written notice to the other party and the Regional
Office of the American Arbitration Association within 5 business days after the
30-day negotiating period provided in Paragraph (f) above, invoking binding
arbitration provisions of this paragraph.  Landlord and Tenant shall each submit
to the arbitrator their respective proposal of Fair Market Rent.  The arbitrator
must choose between the Landlord’s proposal and the Tenant’s proposal and may
not compromise between the two or select some other amount.  Notwithstanding any
other provision herein, the Fair Market Rent determined by the arbitrator shall
not be less than, and the arbitrator shall have no authority to determine a Fair
Market Rent less than, the Base Rent in effect as of the scheduled expiration of
the Lease Term or the First Extension Term, as applicable.  The decision of the
arbitrator shall be final, binding and non-appealable.  The cost of the
arbitration shall be paid by Landlord if the Fair Market Rent is that proposed
by Tenant, and by Tenant if the Fair Market Rent is that proposed by Landlord;
and shall be borne equally otherwise.  If the arbitrator has not determined the
Fair Market Rent as of the end of the Lease Term or the First Extension Term, as
applicable, Tenant shall pay 105 percent of the Base Rent in effect under the
Lease as of the end of the Lease Term or the First Extension Term, as
applicable, until the Fair Market Rent is determined as provided herein.  Upon
such determination, Landlord and Tenant shall make the appropriate adjustments
to the payments between them.

 

(h)                                 The parties consent to the jurisdiction of
any appropriate court to enforce the arbitration provisions of this Addendum and
to enter judgment upon the decision of the arbitrator.

 

(i)                                     Except for the Base Rent as determined
above, Tenant’s occupancy of the Premises during the First Extension Term or the
Second Extension Term, as applicable, shall be on the same terms and conditions
as are in effect immediately prior to the expiration of the initial Lease Term
or the First Extension Term, as applicable; provided, however, Tenant shall have
no further right to extend the Lease Term pursuant to this addendum or to any
allowances, credits or abatements or any options to expand, contract, renew or
extend the Lease.

 

(j)                                     If Tenant does not send the First
Extension Notice or the Second Extension Notice, as applicable, within the
period set forth in Paragraphs (a) and (b) above, Tenant’s right to extend the
Lease Term shall automatically terminate.  If Tenant does not give the Second
Extension Notice within the period set forth in paragraph (b) above, Tenant’s
right to extend the Lease Term for the Second Extension Term shall automatically
terminate.  Time is of the essence as to the giving of the First Extension
Notice and Second Extension Notice, as applicable, and the notice of Tenant’s
objection under Paragraph (f) above.

 

(k)                                  Landlord shall have no obligation to
refurbish or otherwise improve the Premises for the First Extension Term or the
Second Extension Term, as applicable, but in no event shall Landlord be relieved
of its continuing repair, maintenance and other obligations under the Lease. 
Subject to the foregoing, the Premises shall be tendered on the Commencement
Date of the First Extension Term and the Second Extension Term, as applicable, 
in “as-is” condition.

 

(l)                                     If the Lease is extended for either the
First Extension Term or Second Extension Term, then Landlord shall prepare and
Tenant shall execute an amendment to the Lease confirming the extension of the
Lease Term and the other provisions applicable thereto (the “Amendment”).

 

(m)                               If Tenant exercises its right to extend the
term of the Lease for the First Extension Term or the Second Extension Term, as
applicable, pursuant to this Addendum, the term “Lease Term” as used in the
Lease, shall be construed to include, when practicable, the First Extension Term
and the Second Extension Term, except as provided in (i) above.

 

21

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ADDENDUM 5

 

LETTER OF CREDIT FOR SECURITY DEPOSIT

 

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED March 9th 2004, BETWEEN

 

ProLogis

and

Restoration Hardware, Inc.

 

The Security Deposit set forth on the cover page of this Lease shall be in the
form of cash or an unconditional, irrevocable letter of credit from Fleet Bank
or a bank reasonably acceptable to Landlord (an example is identified as Item 1
and attached hereto).  The letter of credit shall either provide that it does
not expire until forty-five (45) days after the end of the Lease term or, if it
is for less than the full term of the Lease, shall be renewed by Tenant at least
30 days prior to its expiration during the term of the Lease.  The letter of
credit shall provide that it may be drawn down upon by Landlord at any time
Landlord delivers its site draft to the bank.  If Landlord sells or conveys the
Premises, Tenant shall, at Landlord’s request, cooperate in having the letter of
credit transferred to the purchaser.  If the letter of credit is ever drawn upon
by Landlord pursuant to the terms of the Lease and this Addendum, Tenant shall
within ten (10) days thereafter cause the letter of credit to be restored to the
amount required hereinbelow.

 

The Letter of Credit shall be in the amount of four hundred thousand dollars
($400,000.00). Provided that, (x) Tenant continues to remain liable for the
obligations herein, and (y) no Event of Default exists or would exist but for
the passage of time or both; then the letter of credit shall be reduced in
accordance with the following schedule:

 

Period

 

Letter of Credit Amount

 

Year 1

 

$

400,000.00

 

Year 2

 

$

350,000.00

 

Year 3

 

$

300,000.00

 

Year 4

 

$

250,000.00

 

Year 5

 

$

200,000.00

 

Year 6

 

$

150,000.00

 

Years 7 through the end of the Term

 

$

120,000.00

 

 

If Tenant meets the following financial benchmarks, as reasonably determined by
Landlord, (beginning with fiscal year 2003, ended January 31, 2004), as
documented by SEC filings, the Letter of Credit shall be reduced to $200,000:

 

(a) achieve a 3% EBITDA (“Earnings Before Interest, Taxes, Depreciation,
Amortization, and Non-Cash Asset Impairment Charges”) margin (EBITDA divided by
net sales) or better for two consecutive fiscal years;

 

(b) achieve an interest coverage ratio (EBITDA less capital expenditures net of
Landlord contributions divided by cash interest expense) of 3 times or better
for two consecutive years; and

 

(c) achieve net cash provided by operating activities, as determined by
generally accepted accounting principles, of $10,000,000 or better for two
consecutive fiscal years.

 

If Tenant satisfies (a), (b) and (c) above, as reasonably determined by
Landlord, for 3 consecutive years, the Security Deposit will be reduced to
$120,000.

 

If Tenant provides Landlord with written notice and evidence, as reasonably
determined by Landlord, subtantiating that Tenant has a Standard & Poor’s rating
of BB+ or higher, the Security Deposit will be reduced to zero for such period
of time as Tenant continues to provide Landlord, at Landlord’s written request,
of evidence of its continued Standard & Poor’s rating of BB+ or higher.

 

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ADDENDUM 6

 

SATELLITE DISH

 

ATTACHED TO AND A PART OF THE LEASE AGREEMENT

DATED March 9th, 2004 BETWEEN

 

Prologis

and

Restoration Hardware, Inc.

 

Landlord hereby grants Tenant the right to install, maintain and replace from
time to time a satellite dish antennae device (hereinafter “Satellite Dish”) on
the roof of the Premises, subject to the following:  (a) applicable governmental
laws; (b) the right of Landlord to supervise any roof penetrations; (c)
compliance with the conditions of any roof bond maintained by Landlord on the
Premises; and (d) the Satellite Dish not being visible at street level.  Tenant
shall be responsible for the repair of any damage to any portion of the Premises
caused by Tenant’s installation, use or removal of the Satellite Dish.  The
Satellite Dish shall remain the exclusive property of Tenant, and Tenant shall
have the right to remove same at any time during the term of the Lease.  Tenant
shall protect, defend, indemnify and hold harmless Landlord from and against any
and all claims, damages, liabilities, costs or expenses of every kind and nature
(including without limitation reasonable attorney fees) imposed upon or incurred
against Landlord arising out of Tenant’s installation, maintenance, use or
removal of the Satellite Dish.

 

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ITEM 1

 

FORM OF LETTER OF CREDIT

 

[LETTERHEAD OF LETTER OF CREDIT BANK]

 

Date of Issue:

Our Irrevocable Standby Letter of Credit No. ASL-XXXXXXX-160XXX

Date of Expiry:

Place of Expiry:  Atlanta, Georgia

Beneficiary:  ProLogis

 

Attention:                                

 

Re:                               Irrevocable Transferable Letter of Credit

No.

 

Beneficiary:

 

By order of our client,                                   (the “Applicant”), we
hereby establish this Irrevocable Transferable Letter of Credit
No.                 in your favor for an amount up to but not exceeding the
aggregate sum of                                        and No/100 Dollars
($                  ) (as reduced from time to time in accordance with the terms
hereof, the “Letter of Credit Amount”), effective immediately, and expiring on
the close of business at our office at the address set forth above one year from
the date hereof unless renewed as hereinafter provided.

 

Funds under this Letter of Credit are available to you on or prior to the expiry
date against presentation by you of your (i) sight drafts drawn on us in the
form of Annex 1 hereto, indicating this Letter of Credit number and (ii) request
in the form of Annex 2 hereto (such sight draft and request, together referred
to as a “Drawing Request”), sight draft(s), completed and signed by one of your
officers.  Presentation of your Drawing Requests may be made by you to us at the
address set forth above.   You may present to us one or more Drawing Requests
from time to time prior to the expiry date in an aggregate amount not to exceed
the Letter of Credit Amount then in effect (it being understood that the
honoring by us of each Drawing Request shall reduce the Letter of Credit Amount
then in effect).

 

This Letter of Credit will be automatically renewed for a one-year period upon
the expiration date set forth above and upon each anniversary of such date,
unless at least sixty (60) days prior to such expiration date, or prior to any
anniversary of such date, we notify both you and the Applicant in writing by
certified mail or by courier service that we elect not to so renew the Letter of
Credit.

 

This Letter of Credit sets forth in full the terms of our undertaking and such
undertaking shall not in any way be modified, amended or amplified by reference
to any document or instrument referred to herein or in which this Letter of
Credit is referred to or to which this Letter of Credit relates, and no such
reference shall be deemed to incorporate herein by reference any document or
instrument.

 

All bank charges and commissions incurred in this transaction are for the
Applicant’s account.

 

 

This Letter of Credit is transferable in its entirety to any Transferee as
requested by Beneficiary in writing and approved by us.  Upon such transfer, all
references herein to the Beneficiary shall be automatically changed to such
Transferee and the draft(s) may be issued by such Transferee rather than the
Beneficiary.  The executed transfer form in the form of Annex 3 hereto must be
presented to us with the original Letter of Credit and accompanied by payment of
our customary commission of 1/4% (minimum USD 250.00) of the face value of the
Letter of Credit.

 

Each Drawing must be submitted during days and hours when Fleet National Bank
(the “Issuing Bank”) is open for commercial business (“Business Days”), at the
office of the Issuing Bank indicated below.  The Issuing Bank agrees to pay the
amount requested in any Drawing to the Beneficiary in immediately available
funds not later than one Business Day after the day on which a Drawing has been
submitted by the Beneficiary, provided that such Drawing and the manner in which
it is submitted is in strict compliance with the requirements of this Letter of
Credit and that such Drawing is submitted before the expiration date.  The
Issuing Bank shall make all payments under this Letter of Credit with its own
funds. “Business Day” shall mean any day which is not a Saturday, Sunday or day
on which we are required or authorized by law to be closed in New York, New York
or Atlanta, Georgia.

 

We hereby engage with you that all drafts drawn under and in strict compliance
with the terms and conditions of this Irrevocable Letter of Credit will be duly
honored upon presentation to our Letter of Credit Department at 400

 

24

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Galleria Parkway, Suite 1950, Atlanta, Georgia 30339.

 

To the extent not inconsistent with the express terms hereof, this Letter of
Credit shall be governed by, and construed in accordance with, the terms of the
Uniform Customs and Practice for Commercial Documentary Credits (1993 Revision),
I.C.C. Publication No. 500 (the “UCP 500”) and as to matters not governed by the
UCP 500, this Letter of Credit shall be governed by and construed in accordance
with the laws of the State of New York.

 

 

Very truly yours,

 

 

 

[NAME OF LETTER OF CREDIT BANK]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

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ANNEX 1

 

SIGHT DRAFT

 

             , 20      

 

For value received, at sight pay to the order of PROLOGIS, the sum of [Amount in
words] [Amount in Figures] United States Dollars drawn under [Name of Letter of
Credit Bank] Irrevocable Transferable Letter of Credit No.                 
dated                                   , 20     .

 

 

 

PROLOGIS

 

 

 

 

 

By:

 

 

 

 

 

 

 W. Scott Lamson

 

 

Title:

Senior Vice President

 

26

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ANNEX 2

 

DRAWING REQUEST

 

              , 200    

 

[NAME AND ADDRESS OF LETTER
OF CREDIT BANK]

 

Re:  Irrevocable Transferable Letter of Credit No.         (the “Letter of
Credit”)

 

The undersigned (the “Beneficiary”), hereby certifies to [Name of Letter of
Credit Bank] (the “Issuer”) that:

 

(a)                                  The Beneficiary is making a request for
payment in lawful currency of the United States of America under Irrevocable
Transferable Letter of Credit No.                (the “Letter of Credit”) in the
amount of $           .

 

(b)                                 The Letter of Credit Amount (as defined in
the Letter of Credit) as of the date hereof and prior to payment of the amount
demanded in this Drawing Request is $          .  The amount requested by this
Drawing Request does not exceed the Letter of Credit Amount.

 

[(c)  Demand is made for payment under the Letter of Credit as a result of the
occurrence and continuation of an Event of Default (as defined in the Lease
Agreement).]

 

Please wire transfer the proceeds of the drawing to the following account of the
Beneficiary at the financial institution indicated below:

 

 

Unless otherwise defined, all capitalized terms used herein have the meanings
provided in, or by reference in, the Letter of Credit.

 

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Drawing
Request as of the        day of                               , 200    .

 

 

PROLOGIS

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

W. Scott Lamson

 

 

Title:

Senior Vice President

 

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ANNEX 3

 

NOTICE OF ASSIGNMENT

 

                        , 200      

 

[NAME AND ADDRESS OF
LETTER OF CREDIT BANK]

 

Re:  Irrevocable Transferable Letter of Credit No.

 

The undersigned (the “Beneficiary”), hereby notifies [Name of Letter of Credit
Bank] (the “Issuer”) that it has irrevocably assigned the above-referenced
Letter of Credit to          (the “Assignee”) with an address at
                                 effective as of the date the Issuer receives
this Notice of Assignment.  The Assignee acknowledges and agrees that the Letter
of Credit Amount may have been reduced pursuant to the terms thereof, and that
the Assignee is bound by any such reduction.

 

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Notice
of Assignment as of this            day of               , 20    .

 

 

PROLOGIS

 

 

 

 

 

 

 

 

By:  W. Scott Lamson

 

Title:  Senior Vice President

 

 

Agreed:

 

[Assignee]

 

28

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