Exhibit 10.7

 

AMENDED AND RESTATED OFFICE LEASE

 

AND SETTLEMENT AGREEMENT

 

KILROY CENTRE DEL MAR

 

KILROY REALTY, L.P.,

a Delaware limited partnership

 

as Landlord,

 

 

and

 

 

PEREGRINE SYSTEMS, INC.,

a Delaware corporation

 

as Tenant

 

BUILDING 2

 

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TABLE OF CONTENTS

 

ARTICLE 1

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

 

1.1

Premises, Building, Project and Common Areas

 

1.2

Stipulation of Rentable Square Feet of Premises and Building

 

 

 

 

ARTICLE 2

LEASE TERM

 

 

 

 

ARTICLE 3

BASE RENT

 

 

 

 

ARTICLE 4

ADDITIONAL RENT

 

4.1

General Terms

 

4.2

Definitions of Key Terms Relating to Additional Rent

 

4.3

Allocation of Direct Expenses

 

4.4

Calculation and Payment of Additional Rent

 

4.5

Taxes and Other Charges for Which Tenant is Directly Responsible

 

 

 

 

ARTICLE 5

USE OF PREMISES

 

5.1

Permitted Use

 

5.2

Prohibited Uses

 

5.3

CC&R’s

 

5.4

Building Lobby

 

 

 

 

ARTICLE 6

SERVICES AND UTILITIES

 

6.1

Standard Tenant Services

 

6.2

Overstandard Tenant Use

 

6.3

Interruption of Use

 

6.4

Additional Services

 

6.5

Intentionally Omitted

 

6.6

Emergency Generator

 

6.7

Building Reconfiguration Costs

 

6.9

Abatement Event

 

 

 

 

ARTICLE 7

REPAIRS

 

7.1

Obligations

 

7.2

Tenant’s Failure to Comply

 

 

 

 

ARTICLE 8

ADDITIONS AND ALTERATIONS

 

8.1

Landlord’s Consent to Alterations

 

8.2

Manner of Construction

 

8.3

Payment for Improvements

 

8.4

Construction Insurance

 

8.5

Landlord’s Property

 

 

 

 

ARTICLE 9

COVENANT AGAINST LIENS

 

 

 

 

ARTICLE 10

INSURANCE

 

10.1

Indemnification and Waiver

 

10.2

Tenant’s Compliance with Landlord’s Fire and Casualty Insurance

 

10.3

Tenant’s Insurance

 

10.4

Fire and Casualty Insurance of Landlord

 

10.5

Form of Policies

 

10.6

Subrogation

 

10.7

Additional Insurance Obligations

 

 

 

 

ARTICLE 11

DAMAGE AND DESTRUCTION

 

11.1

Repair of Damage to Premises by Landlord

 

11.2

Landlord’s Option to Repair

 

11.3

Landlord’s Option to Repair

 

11.4

Waiver of Statutory Provisions

 

11.5

Damage Near End of Term

 

 

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ARTICLE 12

NONWAIVER

 

 

 

 

ARTICLE 13

CONDEMNATION

 

13.1

Permanent Taking

 

13.2

Temporary Taking

 

 

 

 

ARTICLE 14

ASSIGNMENT AND SUBLETTING

 

14.1

Transfers

 

14.2

Landlord’s Consent

 

14.3

Transfer Premium

 

14.4

Landlord’s Option as to Subject Space

 

14.5

Effect of Transfer

 

14.6

Additional Transfers

 

14.7

Affiliated Transfers

 

 

 

 

ARTICLE I5

SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES

 

15.1

Surrender of Premises

 

15.2

Removal of Tenant Property by Tenant

 

15.3

Removal of Tenant’s Property by Landlord

 

15.4

Landlord’s Actions on Premises

 

 

 

 

ARTICLE 16

HOLDING OVER

 

 

 

 

ARTICLE 17

ESTOPPEL CERTIFICATES

 

 

 

 

ARTICLE 18

SUBORDINATION

 

 

 

 

ARTICLE 19

DEFAULTS; REMEDIES

 

19.1

Defaults

 

19.2

Remedies Upon Default

 

19.3

Sublessees of Tenant

 

19.4

Form of Payment After Default

 

19.5

Waiver of Default

 

19.6

Efforts to Relet

 

 

 

 

ARTICLE 20

COVENANT OF QUIET ENJOYMENT

 

 

 

 

ARTICLE 21

LETTER OF CREDIT

 

 

 

 

ARTICLE 22

ROOF RIGHTS

 

 

 

 

ARTICLE 23

SIGNAGE

 

23.1

General

 

23.2

Tenant’s Exterior Signage Rights

 

23.3

Tenant’s Interior Signage Rights

 

 

 

 

ARTICLE 24

COMPLIANCE WITH LAW

 

 

 

 

ARTICLE 25

LATE PAYMENTS

 

 

 

 

ARTICLE 26

LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

 

26.1

Landlord’s Cure

 

26.2

Tenant’s Reimbursement

 

 

 

 

ARTICLE 27

ENTRY BY LANDLORD

 

 

 

 

ARTICLE 28

TENANT PARKING

 

 

 

 

ARTICLE 29

MISCELLANEOUS PROVISIONS

 

29.1

Binding Effect

 

29.2

Modification of Lease/Memorandum of Lease

 

29.3

Transfer of Landlord’s Interest

 

29.4

Consents by the Parties

 

 

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29.5

Captions

 

29.6

Time of Essence

 

29.1

Partial Invalidity

 

29.8

No Warranty

 

29.9

Construction

 

29.10

Entire Agreement

 

29.11

Right to Lease

 

29.12

Force Majeute

 

29.13

Notices

 

29.14

Joint and Several

 

29.15

Authority

 

29.16

Governing Law

 

29.17

Submission of Lease

 

29.18

Brokers

 

29.19

Independent Covenants

 

29.20

Intentionally Omitted

 

29.21

Transportation Management

 

29.22

No Discrimination

 

29.23

Hazardous Material

 

29.24

Development of the Project

 

29.25

Landlord Exculpation

 

29.26

Waiver of Redemption by Tenant

 

29.27

Attorneys’ Fees

 

29.28

Communications and Computer Lines

 

29.29

No Air Rights

 

29.30

Counterparts

 

29.31

Confidentiality

 

29.32

Disclosures and Mutual Release

 

29.33

Central Security Office

 

29.34

Effectiveness

 

 

 

 

ARTICLE 30

SETTLEMENT OF LANDLORD CLAIMS

 

30.1

Landlord’s Allowed Claim

 

30.2

Release of Landlord

 

30.3

Waiver of 1542

 

 

EXHIBIT “A”

OUTLINE OF PREMISES

 

EXHIBIT “B”

INTENTIONALLY OMITTED

 

EXHIBIT “C”

INTENTIONALLY OMITTED

 

EXHIBIT “D”

RULES AND REGULATIONS

 

EXHIBIT “E”

FORM OF TENANT’S ESTOPPEL CERTIFICATE

 

EXHIBIT “F”

FORM OF RECOGNITION OF COVENANTS CONDITIONS AND RESTRICTIONS

 

EXHIBIT “G”

INTENTIONALLY OMITTED

 

EXHIBIT “H”

INTENTIONALLY OMITTED

 

EXHIBIT “I”

INTENTIONALLY OMITTED

 

EXHIBIT “J”

SIGNAGE CRITERIA

 

EXHIBIT “K”

FORM OF BILL, OF SALE, PERSONAL PROPERTY

 

EXHIBIT “L”

REMOVABLE PROPERTY

 

EXHIBIT “M”

FORM OF LETTER OF CREDIT

 

EXHIBIT “N”

FORM OF BILL OF SALE, FF&E

 

 

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KILROY CENTRE DEL MAR AMENDED AND RESTATED

OFFICE LEASE AND SETTLEMENT AGREEMENT

 

SUMMARY OF BASIC LEASE INFORMATION

 

The undersigned hereby agree to the following terms of this Summary of Basic
Lease Information (the “Summary”). This Summary is hereby incorporated into and
made a part of the attached Amended and Restated Office Lease and Settlement
Agreement (the “Office Lease”) which pertains to the “Project,” as that term is
defined in the Office Lease, to be known as “Kilroy Centre Del Mar”. This
Summary and the Office Lease are collectively referred to herein as the “Lease”.
Each reference in the Office Lease to any term of this Summary shall have the
meaning set forth in this Summary for such term. In the event of a conflict
between the terms of this Summary and the Office Lease, the terms of the Office
Lease shall prevail. Any capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Office Lease.

 

TERMS OF LEASE
(References are to the
Office Lease)

 

DESCRIPTION

 

 

 

 

1.

Date:

 

For reference purposes only, April 1, 2003.

 

 

 

 

2.

Landlord:

 

KILROY REALTY, L.P., a Delaware limited partnership.

 

 

 

 

3.

Tenant:

 

PEREGRINE SYSTEMS, INC., a Delaware corporation.

 

 

 

 

4.

Premises (Article 1):

 

A total of 78,037 rentable (73,242 usable) square feet of space consisting of
approximately 27,689 rentable (24,338 usable) square feet of space located on
the first (lst) floor, approximately 24,375 rentable (23,653 usable) square feet
of space located on the second (2nd) floor, and approximately 25,973 rentable
(25,251 usable) square feet of space located on the third (3rd) floor of that
certain office building located at 3611 Valley Centre Drive, San Diego,
California 92130 (the “Building”), as generally depicted on Exhibit A attached
hereto.

 

 

 

 

5.

Lease Term (Article 2):

 

The Lease Term for Tenant’s lease of the Premises shall be approximately eleven
(11) years and eight (8) months commencing on the Effective Date and ending on
April 30, 2013 (the “Lease Expiration Date”). The “Effective Date” shall be
August 28, 2003.

 

 

 

 

6.

Initial Base Rent (Article 3):

 

 

 

????

 

????

 

????

 

????

 

 

 

 

 

 

 

 

 

Effective Date through April 30, 2004

 

$

2,273,873.28

 

$

189,489.44

 

$

2.4282

 

May 1, 2004 through April 30, 2006

 

$

2,421,675.88

 

$

201,806.25

 

$

2.5860

 

May 1, 2006 through April 30,2008

 

$

2,579.083.37

 

$

214,923.66

 

$

2.7541

 

May 1, 2008 through April 30, 2010

 

$

2,746,724.40

 

$

228,893.70

 

$

2.9331

 

May 1, 2010 through April 30, 2012

 

$

2,925,261.48

 

$

243,771.79

 

$

3.1238

 

 

1

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7.

 

Additional Rent (Article 4):

 

 

 

 

 

 

 

 

 

7.1

Base Year:

 

2000

 

 

 

 

 

 

 

7.2

Tenant’s Share:

 

Approximately 60.18%.

 

 

 

 

 

8.

 

Letter of Credit:

 

See Article 21.

 

 

 

 

 

9.

 

Parking Privileges (Article 28):

 

Four and one-half (4 1/2) parking permits for every 1,000 usable square feet of
the Premises as such square footage is specified in Section 4 of the Summary.
Each permit shall entitle Tenant to utilize one (1) parking space on an
unreserved basis in the Project parking facilities.

 

 

 

 

 

 

10.

 

Brokers (Section 29.18):

 

None.

 

 

 

 

 

11.

 

Address of Tenant:

 

See Section 29.13.

 

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KILROY CENTRE DEL MAR

 

AMENDED AND RESTATED OFFICE LEASE

 

AND SETTLEMENT AGREEMENT

 

R E C I T A L S :

 

A.                                   This Amended and Restated Office Lease and
Settlement Agreement (“Office Lease”), which includes the preceding Summary of
Basic Lease Information (the “Summary”) attached hereto and incorporated herein
by this reference (the Office Lease and Summary are sometimes collectively
referred to herein as the “Lease”), dated as of the date set forth in Section 1
of the Summary is made by and between KILROY REALTY, L.P., a Delaware limited
partnership  (“Landlord”), and PEREGRINE SYSTEMS, INC., a Delaware corporation
(“Tenant”).

 

B.                                     KR-Carmel Partners, LLC, a Delaware
limited liability company (the “Original Landlord”), predecessor-in-interest to
Landlord, and Tenant previously entered into that certain Office Lease dated
June 9, 1999 (the “Original Lease”), as amended by that certain First Amendment
to Office Lease  (Building 2) dated as of January 17, 2003 (the  “First
Amendment”) (the Office Lease and the First Amendment are, collectively, the
“Existing Lease”) for office premises consisting of the entirety of that certain
office building located at 3611 Valley Centre Drive, San Diego, California
92130.  In addition to the Existing Lease, Original Landlord and Tenant were
parties to four (4) other leases with respect to four (4) other buildings
located at 3579 Valley Centre Drive (“Building 1 Lease”), 3661 Valley Centre
Drive (“Building 3 Lease”), 3721 Valley Centre Drive (“Building 4 Lease”), and
3811 Valley Centre Drive (“Building 5 Lease”), all in San Diego, California
92130.

 

C.                                     On September 22, 2002, Tenant, as well as
its wholly-owned subsidiary Peregrine Remedy, Inc., filed voluntary petitions
for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101, et seq.
(the “Bankruptcy Code”), in the United States Bankruptcy Court for the District
of Delaware (the “Bankruptcy Court”), commencing Tenant’s bankruptcy case, Case
No. 02-12740 (the “Bankruptcy Case”).

 

D.                                    On September 23, 2002, Tenant Filed a
motion seeking approval to reject the Building 1 Lease, the Building 3 Lease and
the Building 4 Lease (the “Rejection Motion”). On September 24, 2002, the
Bankruptcy Court entered its order, effective as of September 23, 2002, granting
the Rejection Motion, provided no lessor timely filed an opposition. Landlord
filed an opposition to Tenant’s rejection of the Building 1, 3 and 4 Leases. On
January 17, 2003, Tenant and Landlord entered into that certain “Stipulated
Agreement Regarding: (i) Lease Rejection, (ii) Ownership of Certain FF&E; and
(iii) Waiver of Claims” (the “Stipulation”), pursuant to which the parties
entered into an agreement regarding, among other things, (i) the rejection of
the Building 1, 3 and 4 Leases; (ii) the modification of the Existing Lease and
the Building 5 Lease to reflect, among other things, the modification in total
space leased by Tenant, (iii) the disposition of certain personal property, and
(iv) the waiver of Landlord’s administrative claims in respect of the Building
1, 3 and 4 Leases.  The parties also entered into various ancillary agreements
effecting the terms of the Stipulation. On February 14, 2003, the Bankruptcy
Court entered its Order Granting Debtors’ Motion for Order Approving Settlement
(Related to Docket No. 16), pursuant to which it approved the Stipulation.

 

E.                                      On December 23, 2002, Landlord filed
five (5) proofs of claim in Tenant’s bankruptcy case in respect of claims
arising in connection with each of the potential rejection of the Existing Lease
and the Building 5 Lease and the actual rejection of the Building 1, 3 and 4
Leases (collectively, the “Landlord Claims”), in the aggregate minimum amount of
$27,953,497.85.  On March 14, 2003, Landlord amended the Landlord Claims
alleging that, assuming section 502(b)(6) applies to limit the Landlord Claims,
the Landlord Claims would be capped at a maximum amount of $30,467,462.00.
Landlord has reserved the right to claim additional amounts arising in
connection with each of the leases, including the right to assert that
section 502(b)(6) does not, in any way, limit the Landlord Claims based upon
Tenant’s alleged pre-petition misstatements of its financial condition. Tenant
disputes the amounts alleged in the Landlord Claims.

 

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F.                                      Landlord and Tenant desire to resolve
the disputes between them concerning the Building 5 Lease and the Existing Lease
and to amend and restate the terms of the Existing Lease in their entirety as
set forth herein. Landlord and Tenant shall continue to perform all of their
obligations set forth in the Existing Lease through the day immediately
preceding August 28, 2003 (the “Effective Date”). Subject to the foregoing,
effective from and after the Effective Date, this Lease amends and restates the
Existing Lease in its entirety and supersedes the Existing Lease.

 

A G R E M E N T :

 

ARTICLE 1

 

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

 

1.1                                 Premises, Building, Project and Common
Areas.

 

1.1.1                        The Premises. Upon and subject to the terms
hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the premises set forth in Section 4 of the Summary
(the “Premises”). The outline of the Premises is set forth in Exhibit A attached
hereto and each floor or floors of the Premises has approximately the number of
rentable square feet as set forth in Section 4 of the Summary. The parties
hereto agree that the lease of the Premises is upon and subject to the terms,
covenants and conditions herein set forth, and Tenant covenants as a material
part of the consideration for this Lease to keep and perform each and all of
such terms, covenants and conditions by it to be kept and performed and that
this Lease is made upon the condition of such performance. The parties hereto
hereby acknowledge that the purpose of Exhibit A is to show the approximate
location of the Premises in the “Building,” as that term is defined in
Section 1.1.2, below, only, and such Exhibit is not meant to constitute an
agreement, representation or warranty as to the construction of the Premises,
the precise area thereof or the specific location of the Common Areas, as that
term is defined in Section 1.1.3 below and the elements thereof or of the
accessways to the Premises or the “Project,” as that term is defined in
Section 1.1.2 below. Landlord and Tenant acknowledge that Tenant has been
occupying the Premises pursuant to the Existing Lease and therefore Tenant
continues to accept the Premises in its presently existing, “as is” condition.
Except as specifically set forth in this Lease, Landlord shall not be obligated
to provide or pay for any improvement work or services related to the
improvement of the Premises. Tenant also acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty regarding the
condition of the Premises, the Building, the “Adjacent Buildings,” as defined in
Section 1.1.2, below, or the Project or with respect to the suitability of any
of the foregoing for the conduct of Tenant’s business, except as specifically
set forth in this Lease.

 

1.1.2                        The Building and The Project.  The Premises are a
part of the building set forth in Section 4 of the Summary (the “Building”). The
Building is part of an office project known as “Kilroy Centre Del Mar.” The term
“Project,” as used in this Lease, shall mean (i) the Building, the Adjacent
Buildings and the “Common Areas,” as that term is defined in Section 1.1.3,
below, and (ii) the land (which is or will be improved with landscaping, parking
facilities and other improvements) upon which the Buildings and the Common Areas
are to be located.  For purposes of this Lease, (A) the term “Building 1” shall
mean that certain building with an address of 3579 Valley Centre Drive, (B) the
term “Building 3” shall mean that certain building with an address of 3661
Valley Centre Drive, (C) the term “Building 4” shall mean that certain building
with an address of 3721 Valley Centre, (D) the term “Building 5” shall mean that
certain office building with an address of 3811 Valley Centre Drive, and (E) the
term “Adjacent Buildings” shall mean, collectively, Building 1, Building 3,
Building 4 and Building 5.

 

1.1.3                        Common Areas.  Tenant shall have the non-exclusive
right to use in common with other tenants in the Building and the Project, and
subject to the rules and regulations referred to in Article 5 of this Lease,
those portions of the Building and the Project which are provided, from time to
time, for use in common by Landlord, Tenant and any other tenants of the
Building and the Project, whether or not those areas are open to the general
public (such areas, together with such other portions of the Project designated
by Landlord, in its discretion, specifically including the “Central Security
Office,” as that term is defined in

 

2

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Section 29.33, below, and also including certain areas designated for the
exclusive use of certain tenants, or to be shared by Landlord and certain
tenants, are collectively referred to herein as the “Common Areas”). The Common
Areas shall consist of the Project Common Areas and the Building Common Areas.
The term “Project Common Areas,” as used in this Lease, shall mean the portion
of the Project designated as such by Landlord. The Project Common Areas shall
consist of all parking facilities, entrances and exits, driveways, exterior
walkways, first-class landscaped and hardscaped areas which are generally
consistent with the quality of landscaped and hardscaped areas of Comparable
Buildings in existence as of the date of this Lease, open space areas and plazas
on the real property comprising the Project. The term “Building Common Areas,”
as used in this Lease, shall mean the portions of the Common Areas located
within the Building designated as such by Landlord. The manner in which the
Common Areas are maintained and operated shall be in accordance with a standard
which is not less than that customarily followed in the operation and
maintenance of first class mid-rise office buildings located within the
University Towne Center (i.e., the area from two (2) blocks to the North of La
Jolla Village Drive to two (2) blocks to the South of La Jolla Village Drive
between the I-5 and 1-805 freeways), Del Mar, Carmel Valley and Torrey Hills
geographical areas, provided that Landlord shall manage, maintain and operate
the same in a manner consistent with that of Comparable Buildings, and the use
thereof shall be subject to such rules and regulations as Landlord reasonably
may make from time to time. As used herein, “Comparable Buildings” shall mean
the first class mid-rise office buildings (now existing or subsequently
constructed) within the projects located within the University Towne Center, Del
Mar, Carmel Valley and Torrey Hills geographical areas and having substantially
similar characteristics to the Building pertaining to size, accessibility,
design, quality, amenities and tenancies. Landlord reserves the right to make
alterations or additions to, or to change the location of, elements of the
Project and the Common Areas, provided that if any such changes might affect
Tenant’s use of the Premises (in other than an immaterial manner), Landlord
obtains Tenant’s prior written approval of any such alterations, additions and
changes and such alterations, additions and changes do not unreasonably
interfere with Tenant’s access to the Premises. Except when and where Tenant’s
right of access is specifically excluded in this Lease, Tenant shall have the
right of access to the Building and the parking facilities designated by
Landlord for Tenant’s use twenty-four (24) hours per day, seven (7) days per
week during the Lease Term.

 

1.2                                 Stipulation of Rentable Square Feet of
Premises and Building.  For purposes of this Lease, the “rentable square feet”
and “usable square feet” of the Premises shall be deemed as set forth in
Section 4 of the Summary, and the “rentable square feet” of the Building shall
be deemed as set forth in Section 4.2.9, below.

 

1.3                                 Fourth and Fifth Floor Premises.  Landlord
and Tenant hereby acknowledge that as of the date of this Lease, Tenant is, and
as of the Effective Date Tenant may be, in possession of all or a portion of
fourth (4th) and fifth (5th) floors of the Building (such portion shall be
referred to herein as the “4th and 5th Floor Premises”) pursuant to the terms
and conditions of the Existing Lease. Tenant shall have up to sixty (60) days
following the Effective Date to vacate and surrender exclusive possession of the
4th and 5th Floor Premises to Landlord in accordance with the removal and repair
obligations set forth in the Existing Lease (or, to the extent that as of the
Effective Date Tenant has not commenced the permitting process required for the
construction and/or reconfiguration of the Premises in order to accommodate
Tenant’s property and personnel from the 4th and 5th Floor Premises, Tenant
shall have up to ninety (90) days) (the “Permitted Holdover Period”).
Notwithstanding the foregoing, Landlord and Tenant hereby acknowledge and agree
that throughout the Permitted Holdover Period, (i) the 4th and 5th Floor
Premises shall be deemed to be a part of the Premises, (ii) the “Premises” shall
consist of the entire Building, and (iii) the 4th and 5th Floor Premises shall
be subject to all of the applicable provisions of this Lease, including, but not
limited to the payment of “Base Rent” and “Additional Rent,” as those terms are
defined in Articles 3 and 4, respectively, below; provided, however with respect
to the payment of Base Rent, throughout the remainder of the Permitted Holdover
Period, Tenant shall pay monthly installments of Base Rent for the entire
Building in the amount of Three Hundred Fourteen Thousand Eight Hundred
Eighty-Eight and 97/100 Dollars ($314,888.97) (i.e., $2.4282 per rentable square
foot of the Building per month times 129,680 rentable square feet); provided
further, however, with respect to the payment of Additional Rent, for purposes
of calculating the amount of Tenant’s Share of Direct Expenses for the entire
Building throughout the remainder of the Permitted Holdover Period, Tenant’s
Share shall be equal to one hundred percent (100%).

 

3

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ARTICLE 2

 

LEASE TERM; OPTION TERM

 

2.1                                 Initial Term.  The terms, covenants and
conditions and provisions of this Lease shall be effective as of the Effective
Date. The term of this Lease (the “Least Term”) shall be as set forth in
Section 5 of the Summary and shall commence on the Effective Date. The Lease
Term shall terminate on April 30, 2012 (the “Lease Expiration Date”), unless
this Lease is sooner terminated or extended as hereinafter provided.

 

2.2                                 Option to Extend.  Tenant shall have one (1)
option to extend (the “Extension Option”) the Lease Term for a five (5) year
period (the foregoing option term shall be referred to hereinafter sometimes as
the “Extension Term”), by delivering a written notice of exercise to Landlord
(“Extension Notice”) with respect to the Extension Term, which Extension Notice
may not be delivered earlier than the date which is eighteen (18) months prior
to the end of the initial Lease Term and may not be delivered later than the
date which is thirty (30) days after the “Reminder Notice”. If Landlord has not
received an Extension Notice by the date which is twelve (12) months prior to
the end of the initial Lease Term, Landlord may provide written notice
(“Reminder Notice”) to Tenant that the Extension Option will expire if Tenant
fails to deliver the Extension Notice to Landlord within thirty (30) days after
the date of such notice from Landlord. If Tenant fails to deliver the Extension
Notice within said thirty (30) day period, Tenant shall be deemed to have waived
its right to exercise such Extension Option. The parties acknowledge that
Tenant’s Extension Option will not lapse until the date which is thirty (30)
days after Landlord’s delivery of the Reminder Notice pursuant to this
Section 2.2. The Extension Option shall apply to all space (and not a portion of
the space) then leased by Tenant in the Building. Tenant may exercise the
Extension Option only if this Lease is in full force and effect and there is no
uncured Event of Default under this Lease, at the time of exercise of Such
Extension Option and/or at the time of the commencement of the Extension Term,
but Landlord shall have the right to waive such conditions herein. The rights of
Tenant contained in this Section 2.2 shall be personal to the original Tenant
named in the Summary (“Original Tenant”) and any Permitted Affiliate and may
only be exercised by the Original Tenant or such Permitted Affiliate if Tenant’s
or such Permitted Affiliate’s net worth and financial standing are, as of the
date of Tenant’s Extension Notice, are no less than Tenant’s or such Permitted
Affiliate’s net worth and financial standing as of the effective dale (the
“Financial Standards”). The Base Rent during the Extension Term (“Extension Term
Base Rent”) shall be an amount equal to the then “Fair Market Rental Value” of
the Premises (as such term is defined in Section 2.2.5, below), as stated on a
monthly basis and determined pursuant to this Section 2.2 as of the first (1st)
day of the Extension Term (“Extension Term Commencement Date”); provided,
however, the Base Year shall remain calendar year 2000 and in no event shall the
Base Rent payable during the Extension Term for the Premises be less than the
Base Rent payable during the period immediately preceding such Extension Term
for the Premises and provided further that, on the first anniversary of the
Extension Term Commencement Date, and on each subsequent anniversary thereof
during such Extension Term, the then payable monthly Extension Term Base Rent
shall be increased in accordance with market rate increases, as mutually agreed
to by Landlord and Tenant or, if Landlord and Tenant cannot agree, as determined
by the appraisal process described below. Upon receipt by Landlord of Tenant’s
Extension Notice under this Section 2.2, above, Landlord and Tenant shall meet
in an effort to negotiate, in good faith, the Extension Term Base Rent which
shall become effective as of the Extension Term Commencement Date. If Landlord
and Tenant have not agreed upon the Extension Term Base Rent (including the
annual market rate increases) on or before the “Withdrawal Date” (as that term
is defined below), Tenant may elect to withdraw the Extension Notice thereby
canceling Tenant’s exercise of the Extension Option. The term “Withdrawal Date”
shall mean (i) if Landlord delivers the Reminder Notice prior to Tenant’s
delivery of the Extension Notice, the date which is thirty (30) days after the
date of the Reminder Notice, or (ii) if Landlord has not yet delivered a
Reminder Notice at the time of Tenant’s delivery of the Extension Notice, the
date which is the earlier of (1) the date which is eleven (11) months prior to
the end of the initial Lease Term, or (2) the date which is sixty (60) days
after the date of Tenant’s delivery of the Extension Notice. If Tenant fails to
deliver written notice to Landlord so withdrawing the Extension Notice on or
before the Withdrawal Date and if Landlord and Tenant have not agreed upon the
Extension Term Base Rent (including the annual market rate increases) within
sixty (60) days after the delivery of Tenant’s Extension Notice, the Extension
Term Base Rent shall be determined as follows:

 

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2.2.1                        Landlord and Tenant shall attempt to agree in good
faith upon a single appraiser not later than the date (“Single Appraiser Date”)
which is forty-five (45) days after delivery of Tenant’s Extension Notice. If
Landlord and Tenant are unable to agree upon a single appraiser within such time
period, then Landlord and Tenant shall each appoint one appraiser not later than
five (5) days after the deadline for selecting a single appraiser.  Landlord and
Tenant shall each give written notice to the other as to the name of the
appraiser it has selected, within five (5) days after the deadline for selecting
a single appraiser.  Within ten (10) days thereafter, the two (2) appointed
appraisers shall appoint a third appraiser.  All appraisers shall be independent
from, and disinterested in, both Landlord and Tenant.

 

2.2.2                        The only tasks which the appraiser(s) shall perform
shall be forming and reporting to Landlord and Tenant an opinion of the Fair
Market Rental Value (including annual market rate increases) of the Premises for
use in determining the Extension Term Base Rent.

 

2.2.3                        If either Landlord or Tenant fails to appoint its
appraiser within the prescribed time period, the single appraiser appointed
shall determine the Fair Market Rental Value of the Premises.  If both parties
fail to appoint appraisers within the prescribed time periods, or if the two (2)
appointed appraisers cannot agree on a third appraiser then either party shall
have the right to apply to the presiding judge of the Superior Court of San
Diego County for the appointment of an appraiser meeting the qualifications
hereof to determine the Fair Market Rental Value of such Premises.

 

2.2.4                        Each party shall bear the cost of its own appraiser
and the parties shall share equally the cost of any single or third appraiser,
if applicable. All appraisers so designated herein shall have at least ten (10)
years’ experience in the appraisal of commercial properties similar to the
Premises and Comparable Buildings and shall be members of professional
organizations such as MAI or its equivalent.

 

2.2.5                        For the purpose of such appraisal and this
subsection (e), the term “Fair Market Rental Value” shall mean the price that a
ready and willing, non-equity, non-sublease tenant would pay as annual rent as
of the Extension Term Commencement Date (taking into consideration the annual
market rate increases specified in Section2.2.2, above) and a ready and willing
landlord would accept on a non-sublease, non-renewal basis, at arm’s length,
from creditworthy tenants (provided Tenant is then in compliance with the
Financial Standards) for a five (5) year term for unencumbered “space comparable
to the Premises” in Comparable Buildings. Such “space comparable to the
Premises” shall mean office space of comparable size, with tenant improvements
of substantially similar quality and layout as the Premises.  Fair Market Rental
Value shall include or take into consideration any lease concessions offered by
landlords in lease transactions from and after the date which is twelve (12)
months prior to the Single Appraiser Date (the “Qualifying Period”) for space
comparable to the Premises within such Comparable Buildings, including, without
limitation, free rent, tenant improvement allowances or any other payments or
concessions; however, Fair Market Rental Value shall also take into
consideration (i) the market trend (i.e., all other factors being equal,
comparable transactions entered into earlier in the Qualifying Period shall be
accorded less weight than comparable transactions entered into later in the
Qualifying Period), and (ii) the value in the market of the existing
improvements in the Premises, as compared to the value in the market of the
existing improvements in such space comparable to the Premises. Further, in
calculating the Fair Market Rental Rate, no consideration shall be given to the
fact that Landlord is or is not required to pay a real estate brokerage
commission in connection with the Extension Term or the fact that comparable
deals do or do not involve the payment of real estate brokerage commissions.  If
there are less than two (2) lease transactions for “space comparable to the
Premises,” as defined in this Section 2.2.5, entered into during the Qualifying
Period, then the term “space comparable to the Premises” shall be expanded as
necessary to allow appraiser(s) to consider lease transactions covering multiple
floors in a building (but less than an entire building).

 

2.2.6                        If a single appraiser is chosen, then such
appraiser shall determine the Fair Market Rental Value of the Premises. 
Otherwise, the Fair Market Rental Value of the Premises shall be the arithmetic
average of the two (2) appraisals which are closest in amount, and the third
appraisal shall be disregarded.

 

2.2.7                        Landlord and Tenant shall instruct the
appraiser(s), in writing, to complete their written determination of the Fair
Market Rental Value not later than thirty

 

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(30) days after their selection. If the Fair Market Rental Value has not been
determined by such date, then the Fair Market Rental Value shall be determined
thereafter, and if it has not been determined by the Extension Term Commencement
Date, then Tenant shall continue to pay Landlord monthly installments of Base
Rent in the amount applicable to the Premises immediately prior to the Extension
Term Commencement Date until the Fair Market Rental Value is determined. When
the Fair Market Rental Value of the Premises is determined, Landlord shall
deliver notice thereof to Tenant, and Tenant shall pay to Landlord, within ten
(10) days after receipt of such notice, the difference between the monthly
installments ofBase Rent actually paid by Tenant to Landlord subsequent to the
Extension Term Commencement Date and the new monthly installments of Base Rent
which are determined to have been actually owing during such period in
accordance with this Section 2.2, plus interest at the Interest Rate from the
date the applicable monthly installments were due until such difference is
actually paid.

 

ARTICLE 3

 

BASE RENT

 

Tenant shall pay, without notice or demand, to Landlord or Landlord’s agent at
the management office of the Project, or at such other place as Landlord may
from time to time designate in writing, in currency or a check for currency
which, at the time of payment, is legal tender for private or public debts in
the United States of America, base rent (“Base Rent”) as set forth in Section 6
of the Summary, payable in equal monthly installments as set forth in Section 6
of the Summary in advance on or before the first day of each and every month
during the Lease Term, without any offset or deduction whatsoever except as
otherwise expressly set forth in this Lease. Base Rent shall commence on the
Effective Date. If any Rent payment date (including the Effective Date) falls on
a day of the month other than the first day of such month or if any payment of
Rent is for a period which is shorter than one month, the Rent for any
fractional month shall accrue on a daily basis for the period from the date such
payment is due to the end of such calendar month or to the end of the Lease Term
at a rate per day which is equal to 1/365 (or 1/366 in a leap year) of the Rent.
All other payments or adjustments required to be made under the terms of this
Lease that require proration on a time basis shall be prorated on the same
basis.

 

ARTICLE 4

 

ADDITIONAL RENT

 

4.1                                 General Terms.  In addition to paying the
Base Rent specified in Article 3 of this Lease, Tenant shall pay “Tenant’s
Share” of the annual “Building Direct Expenses,” as those terms are defined in
Sections 4.2.9 and 4.2.2 of this Lease, respectively, which are in excess of the
amount of Building Direct Expenses applicable to the “Base Year” for such
Building, as that term is defined in Section 4.2.1, below.  Further, in no event
shall any decrease in Building Direct Expenses for such Building for any
“Expense Year” for the Building as that term is defined in Section 4.2.6 below,
below Building Direct Expenses for the Base Year entitle Tenant to any decrease
in Base Rent for the Building or any credit against sums due under this Lease.
It is the intent of Landlord and Tenant hereunder that Building Direct Expenses
be calculated for the Building separately based on the Building Direct Expenses
allocated to such Building. Such payments by Tenant, together with any and all
other amounts payable by Tenant to Landlord pursuant to the terms of this Lease,
are collectively referred to in this Lease as the “Additional Rent”, and the
Base Rent and the Additional Rent are collectively referred to in this Lease as
“Rent.” All amounts due under this Article 4 as Additional Rent shall be payable
for the same periods and in the same manner as the Base Rent.  Without
limitation on other obligations of Tenant which Survive the expiration of the
Lease Term, the obligations of Tenant to pay the Additional Rent provided for in
this Article 4, and the obligation of Landlord to refund to Tenant any
overpayment of Building Direct Expenses pursuant to Section 4.2 below, shall
survive the expiration of the Lease Term.

 

4.2                                 Definitions of Key Terms Relating to
Additional Rent. As used in this Article.4, the following terms shall have the
meanings hereinafter set forth:

 

4.2.1                        “Base Year” shall mean the period set forth in
Section 7.1 of the Summary.

 

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4.2.2                        “Building Direct Expenses” shall mean “Building
Operating Expenses” and “Building Tax Expenses,” as those terms are defined in
Sections 4.2.3 and 4.2.4 below, respectively.

 

4.2.3                        “Building Operating Expenses” shall mean the
portion of “Operating Expenses,” as that term is defined in Section 4.2.7 below,
allocated to the tenants of the Building pursuant to the terms of Section 4.3.1
below.

 

4.2.4                        “Building Tax Expenses” shall mean that portion of
“Tax Expenses,” as that term is defined in Section 4.2.8 below, allocated to the
tenants of the Building pursuant to the terms of Section 4.3.1 below.

 

4.2.5                        “Direct Expenses” shall mean “Operating Expenses”
and “Tax Expenses.”

 

4.2.6                        “Expense Year” shall mean each calendar year in
which any portion of the Lease Term falls, through and including the calendar
year in which the Lease Term expires.

 

4.2.7                        “Operating Expenses” shall mean all expenses, costs
and amounts which Landlord pays or accrues during any Expense Year because of or
in connection with the ownership, management, maintenance, security, repair,
replacement, restoration or operation of the Project, or any portion thereof. 
Without limiting the generality of the foregoing, Operating Expenses shall
specifically include any and all of the following: (i) the cost of supplying all
utilities to the Project, the cost of operating, repairing, maintaining, and
renovating the utility, telephone, mechanical, sanitary, storm drainage, and
elevator systems, and the cost of maintenance and service contracts in
connection therewith; (ii) the cost of licenses, certificates, permits and
inspections and the cost of contesting any governmental enactments which may
affect Operating Expenses, and the costs incurred in connection with a
governmentally mandated transportation system management program or similar
program; (iii) the cost of all insurance carried by Landlord in connection with
the Project as reasonably determined by Landlord; (iv) the cost of landscaping,
relamping, and supplies, tools, equipment and materials used in the operation,
repair and maintenance of the Project, or any portion thereof; (v) the cost of
parking area (including any parking structures) repair, restoration, and
maintenance; (vi) reasonable fees and other costs, including a five (5%)
management fee, and the consulting, legal and accounting fees of all contractors
and consultants in connection with the management, operation, maintenance and
repair of the Project; (vii) payments under any equipment rental agreements and
the fair rental value of any on-site or off-site management office space for the
Project (as described in Section 6.1.4 below) not to exceed 2,000 rentable
square feet (which fair rental value for the purpose of determining the Direct
Expenses for the Base Year and any subsequent Expense Years shall be the same
rate per rentable square foot as the monthly fair market rental rate per
rentable square foot charged by the landlords of the Comparable Buildings, but
in no event less than the rental rate per rentable square foot utilized in
calculating the Base Year Direct Expenses for the Building); (viii) wages,
salaries and other compensation and benefits, including taxes levied thereon, of
all non-executive persons reasonably engaged in the operation, maintenance and
security of the Project; (ix) costs under any instrument pertaining to the
reasonable sharing of costs by the Project and the additional land and
improvements subject to the CC&R’s (including, without limitation, any
assessments and association dues under the CC&R’s); (x) operation, repair,
maintenance and replacement of all systems and equipment and components thereof
of the Project including, but not limited to HVAC systems, electrical, plumbing
and life-safety systems, elevators, any Project locker rooms and workout
facilities; (xi) the cost of janitorial, alarm, security and other services,
replacement of wall and floor coverings, ceiling tiles and fixtures in common
areas, maintenance and replacement of curbs, roadways, driveways, and walkways,
repair to roofs and re-roofing; (xii) amortization (including interest on the
unamortized cost) over the useful life as Landlord shall reasonably determine,
of the cost of acquiring or the rental expense of personal property used in the
maintenance, operation and repair of the Project, or any portion thereof; (xiii)
the cost of capital improvements or other costs incurred in connection with the
Project (A) which are intended, in good faith, to effect economies in the
operation or maintenance of the Project, or any portion thereof, and only to the
extent such anticipated economies exceed the cost of such item, (B) that are
required to comply with present or anticipated conservation programs, (C)
required by laws, ordinances or regulations enacted after the date permits for
the construction of the Building were obtained, (D) that are made in connection
with the “Project Reconfiguration,” as that term is set forth in Section 6.8,
below, and (E) includable in Operating Expenses pursuant to consistently applied

 

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and sound accounting and management principles (including, but not limited to,
the repair, resurfacing and replacement of parking lots and Project roadways and
driveways); provided, however, that any capital expenditure shall be amortized
(including interest at the greater of ten percent (10%) or the amortized cost at
Landlord’s actual cost of funds) over its useful life as Landlord shall
reasonably determine; and (xiv) costs, fees, charges or assessments imposed by,
or resulting from any mandate imposed on Landlord by, any federal, state or
local government for fire and police protection, trash removal, community
services, of other services which do not constitute “Tax Expenses” as that term
is defined in Section 4.2.8 below. Notwithstanding the foregoing, for purposes
of this Lease, Operating Expenses shall not, however, include:

 

(a)                                  non-cash items such as deductions for
depreciation and amortization of the initial costs of the construction of the
Building and the Building Systems and Equipment;

 

(b)                                 costs, including marketing costs, legal
fees, space planners’ fees, and brokerage fees incurred in connection with the
original or future leasing of the Project, and costs, including permit, license
and inspection costs and allowances and other concessions, incurred with respect
to the installation of tenant improvements made for new tenants in the Project
or incurred in renovating or otherwise improving, decorating, painting or
redecorating vacant leasable space for tenants or other occupants (or
prospective tenants or occupants) of the Project;

 

(c)                                  except as set forth in items (v), (xii),
(xiii), and (xiv) above, depreciation, interest and principal payments on
mortgages and other debt costs, if any, penalties and interest, costs of capital
repairs and alterations, and costs of capital improvements and equipment;

 

(d)                                 costs for which Landlord is reimbursed by
any tenant or occupant of the Project or by insurance by its carrier or any
tenant’s carrier (or if Landlord fails to carry the insurance required to be
carried by Landlord pursuant to Section 10.4 below, costs which would have been
covered by insurance had Landlord obtained the coverage required to be carried
under this Lease) or by the “Association” under the CC&R’s or by anyone else,
and electric power costs for which any tenant directly contracts with the local
public service company;

 

(e)                                  any bad debt loss, rent loss, or reserves
for bad debts or rent loss;

 

(f)                                    costs associated with the operation of
the business of the partnership or entity which constitutes Landlord, as the
same are distinguished from the costs of operation of the Project (which shall
specifically include, but not be limited to, accounting costs associated with
the operation of the Project).  Costs associated with the operation of the
business of the partnership or entity which constitutes Landlord including costs
of partnership accounting and legal matters, costs of defending any lawsuits
with any mortgagee (except as the actions of the Tenant may be in issue), costs
of selling, syndicating, financing, mortgaging or hypothecating any of
Landlord’s interest in the Project, and costs incurred in connection with any
disputes between Landlord and its employees, between Landlord and Project
management, or between Landlord and other tenants or occupants, and Landlord’s
general corporate overhead and general and administrative expenses;

 

(g)                                 the wages and benefits of any employee who
does not devote substantially all of his or her employed time to the Project
unless such wages and benefits are prorated to reflect time spent on operating
and managing the Project vis-à-vis time spent on matters unrelated to operating
and managing the Project, or the wages and/or benefits attributable to personnel
above the level of asset manager;

 

(h)                                 amount paid as ground rental for the Project
by Landlord;

 

(i)                                     any compensation paid to clerks,
attendants or other persons in commercial concessions operated by Landlord,
provided that any compensation paid to any concierge at the Project and any
compensation paid regarding parking operations shall be includable as an
Operating Expense;

 

(j)                                     rentals and other related expenses
incurred in leasing air conditioning systems, elevators or other equipment which
if purchased the cost of which would be excluded from Operating Expenses as a
capital cost, except equipment not affixed to the Project which is used in
providing janitorial or similar services and, further excepting from this
exclusion such

 

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equipment rented or leased to remedy or ameliorate an emergency condition in the
Project, or during periods when the systems or equipment is being repaired;

 

(k)                                  all items and services for which Tenant or
any other tenant in the Project reimburses Landlord or which Landlord provides
selectively to one or more tenants (other than Tenant) without reimbursement;

 

(1)                                  costs, other than those incurred in
ordinary maintenance and repair, for sculpture, paintings, fountains or other
objects of art;

 

(m)                               any costs expressly excluded from Operating
Expenses elsewhere in this Lease;

 

(n)                                 costs incurred to comply with laws or
otherwise relating to the removal or abatement of hazardous material in the soil
and costs incurred to comply with laws or otherwise relating to the removal or
abatement of hazardous material in the Building or any Common Area improvements
except where such removal or abatement in the Building or Common Area
improvements in required to be performed during the Lease Term by laws not in
effect as of April 1. 2003;

 

(o)                                 costs arising from Landlord’s charitable or
political contributions;

 

(p)                                 expenses directly resulting from the active
or gross negligence of Landlord, its agents, servants or employees;

 

(q)                                 rental for any space in the Building set
aside for conference facilities, storage facilities or exercise facilities;

 

(r)                                    the amounts of any payments by Landlord
or to its affiliates for goods or services in the Project in excess of a
competitive (but not necessarily the lowest) rate;

 

(s)                                  costs (not including Tax Expenses),
incurred in connection with the sale, financing, refinancing, mortgaging,
selling or change of ownership of the Building, including brokerage commissions,
consultant’s, attorneys’ and accountant’s fees, closing costs, title insurance
premiums, transfer taxes and interest charges;

 

(t)                                    intentionally omitted;

 

(u)                                 intentionally omitted; and

 

(v)                                 assessments, charges, and dues under the
CC&R’s which would result in a duplicative charge to Tenant or a charge which is
otherwise precluded under this Section 4.2.7 or other provisions of this Lease
including without limitation (1) any expense, cost or charge which would be
duplicative of a charge for which Tenant already is responsible under this
Lease; (2) any expense for property management which would be duplicative of a
charge for which Tenant already is responsible under this Lease; (3) special
assessments levied under the CC&R’s which would be precluded by
subsection 4.2.7(c) above; and (4) any expense precluded by Section 5.3 below.

 

There shall be deducted from Operating Expenses the following items in the year
in which they are applicable: (i) insurance and condemnation proceeds to the
extent that such proceeds relate to costs and expenses previously included in
Operating Expenses, (ii) all other funds recovered from any tenant of the
Building, contractors, or other parties as payment for expenses which were
previously included in Operating Expenses, other than tenants’ contributions for
their proportionate share of Operating Expenses, and (iii) all funds available
through the CC&R’s which were previously included in Operating Expenses.
Operating Expenses shall reflect reductions for cash discounts and trade
discounts taken by Landlord.

 

If Landlord does not carry a form of insurance coverage (e.g., earthquake
insurance) for the Building during any part of the Base Year but subsequently
obtains such insurance for the Building during the Lease Term, then from and
after the date upon which Landlord obtains such insurance coverage and
continuing throughout the period during which Landlord maintains such insurance.
Operating Expenses for the Base Year shall be deemed to be increased by the
amount of the premium Landlord reasonably estimates it would have incurred had
Landlord maintained

 

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such insurance for the same period of time during the Base Year as such
insurance was maintained by Landlord during such subsequent calendar year.
Conversely, if Landlord carries a form of insurance coverage (e.g., earthquake
insurance) for the Building during any part of the Bass Year but subsequently no
longer carries such form of insurance coverage, then from and after the date
upon which Landlord no longer carries such insurance coverage and continuing
throughout the period during which Landlord no longer maintains such insurance
coverage, Operating Expenses for the Base Year shall be deemed to be decreased
by the amount of premium Landlord incurred for such insurance for the same
period of time during the Base Year as such insurance was no longer maintained
by Landlord during such subsequent calendar year.

 

If Landlord is not furnishing any particular work or service (the cost of which,
if performed by Landlord, would be included in Operating Expenses) to a tenant
who has undertaken to perform such work or service in lieu of the performance
thereof by Landlord, then Operating Expenses shall be deemed to be increased by
an amount equal to the additional Operating Expenses which would reasonably have
been incurred during such period by Landlord if it had at its own expense
furnished such work or service to such tenant. If the Building is not at least
ninety-five percent (95%) occupied during all or a portion of the Base Year or
any Expense Year, Landlord shall make an appropriate adjustment to the
components of Operating Expenses for such year to determine the amount of
Operating Expenses that would have been paid had such Building been ninety-five
percent (95%) occupied; and the amount reasonably so determined shall be deemed
to have been the amount of Operating Expenses for such year.

 

4.2.8                        Taxes.

 

4.2.8.1               “Tax Expenses” shall mean all federal, state, county, or
local governmental or municipal taxes, fees, charges or other impositions of
every kind and nature, whether general, special, ordinary or extraordinary,
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the receipt of
rent, including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Project, or
any portion thereof), which shall be paid or accrued during any Expense Year
(without regard to any different fiscal year used by such governmental or
municipal authority) because of or in connection with the ownership, leasing and
operation of the Project, or any portion thereof.  Tax Expenses for the Base
Year of the Lease Term for the Building (and the underlying land for the tax
parcel) shall be calculated as if the value of such Building, the Base, Shell
and Core of such Building and the Tenant Improvements thereto and related
improvements to the Common Area as reasonably allocated to such Building were
fully assessed. With respect to Tenant Improvements in each Building, such Tax
Expenses shall be calculated to include the actual “soft” and “hard” costs of
such improvements.

 

4.2.8.2               Tax Expenses shall include, without limitation: (i) any
tax on the rent, right to rent or other income From the Project, or any portion
thereof, or as against the business of leasing the Project, or any portion
thereof; (ii) any assessment, tax, fee, levy or charge in addition to, or in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real property tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election (“Proposition 13”)
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street, sidewalk and
road maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants, and, in further
recognition of the decrease in the level and quality of governmental services
and amenities as a result of Proposition 13, Tax Expenses shall also include any
governmental or private assessments or the Project’s contribution towards a
governmental or private cost-sharing agreement for the purpose of augmenting or
improving the quality of services and amenities normally provided by
governmental agencies; (iii) any assessment, tax, fee, levy, or charge allocable
to or measured by the area of the Premises or the Rent payable hereunder,
including, without limitation, any business or gross income tax or excise tax or
business license tax with respect to the receipt of or measured by the amount of
such rent, or upon or with respect to the possession, leasing, Operating,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof; and (iv) any assessment, tax, fee, levy or
charge, upon this

 

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transaction or any document to which Tenant is a party, creating or transferring
an interest or an estate in the Premises.

 

4.2.8.3               Any costs and expenses (including, without limitation,
reasonable attorneys’ fees) incurred in attempting to protest, reduce or
minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such
expenses are paid.  Tax refunds shall be credited against Tax Expenses and
refunded to Tenant regardless of when received, based on the Expense Year to
which the refund is applicable, provided that in no event shall the amount to be
refunded to Tenant for any such Expense Year exceed the total amount paid by
Tenant as Additional Rent under this Article 4 for such Expense Year.  If Tax
Expenses for any period during the Lease Term or any extension thereof are
increased after payment thereof for any reason, including, without limitation,
error or reassessment by applicable governmental or municipal authorities,
Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax
Expenses included by Landlord as Building Tax Expenses pursuant to the terms of
this Lease.  Notwithstanding anything to the contrary contained in this
Section 4.2.8 (except as set forth in Section 4.2.8.1, above), there shall be
excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift
taxes, capital stock taxes, inheritance and succession taxes, estate taxes,
federal and State income taxes, and other taxes to the extent applicable to
Landlord’s general or net income (as opposed to rents, receipts or income
attributable to operations at the Project), (ii) any items included as Operating
Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

 

4.2.8.4               If in any Expense Year subsequent to the Base Year (the
“Adjustment Year”), the amount of Tax Expenses decreases below the amount of Tax
Expenses for the Base Year as a result of a Proposition 8 reduction, then for
purposes of all subsequent Expense Years, including the Expense Year in which
such decrease in Tax Expenses occurs, the Building Direct Expenses for the Base
Year shall be decreased by an amount equal to such decrease in assessed value or
direct assessments, as applicable, in the Adjustment Year. Conversely, if the
Tax Expenses thereafter are decreased by a lesser amount during any comparison
year subsequent to the Adjustment Year (the “Readjustment Year”) as a result of
Landlord’s failure to secure a Proposition 8 reduction which is greater than or
equal to the Proposition 8 reduction secured during the Adjustment Year, then
for purposes of all subsequent comparison years, including the comparison year
in which such lesser decrease in Tax Expenses occurs, the Building Direct
Expenses for the Base Year shall only be decreased by an amount equal to the
decrease in assessed value or direct assessments, as applicable, during such
Readjustment Year which resulted from Landlord’s failure to secure a Proposition
8 reduction greater than or equal to the Proposition 8 reduction secured during
the Adjustment Year; provided that any costs and expenses incurred by Landlord
in securing any Proposition 8 reduction shall not be included in Building Direct
Expenses for purposes of this Lease. Landlord and Tenant acknowledge that this
Section 4.2.8.4 is not intended to in any way affect (A) the inclusion in Tax
Expenses of the statutory two percent (2%) annual increase in Tax Expenses (as
such statutory increase may be modified by subsequent legislation), or (B) the
inclusion or exclusion of Tax Expenses pursuant to the terms of Proposition 13,
which shall be governed pursuant to the terms of Sections 4.2.8.1 through
4.2.8.3. above and Section 4.4.4 below. Notwithstanding the foregoing, in the
event that the Project is reassessed (the “Reassessment”) for real estate tax
purposes by the appropriate governmental authority pursuant to the terms of
Proposition 13, and such Reassessment results in a decrease in Tax Expenses, the
component of Tax Expenses for the Base Year which is attributable to the
assessed value of the Project under Proposition 13 prior to the Reassessment
(without taking into account any Proposition 8 reductions) shall be reduced for
the purposes of comparison to all subsequent Expense Years (commencing with the
Expense Year for which the Reassessment is first attributable) to an amount
equal to the real estate taxes based Upon such Reassessment.

 

4.2.9                        “Tenant’s Share” shall equal the percentage set
forth in Section 7.2 of the Summary. Tenant’s Share was calculated by
multiplying the number of rentable square feet of the Premises, as set forth in
Section 4 of the Summary, by 100, and dividing the product by the 129,680
rentable square feet in the Building.

 

4.3                                 Allocation of Direct Expenses.

 

4.3.1                        Method of Allocation. The parties acknowledge that
the Building will be a part of a multi-building project and that the costs and
expenses incurred in connection with the Project (i.e. the Direct Expenses)
should be shared among the tenants of the Building and the

 

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tenants of the Adjacent Buildings in the Project. Direct Expenses shall also
include cost and expenses (or assessments charged in connection therewith) to
maintain, repair and operate additional common areas (including parking areas
and landscape areas) westerly of the Project, and also subject to the CC&R’s,
and allocated to the Building and Adjacent Buildings. Such allocation shall be
made in accordance with the CC&R’s; provided, however, that to the extent such
allocation is not addressed in the CC&R’s, Landlord shall, in Landlord’s
reasonable judgment, determine which Direct Expenses are properly allocable to
an individual building (because the expense applies to only such building) and
which Direct Expenses shall be allocable to tenants of more than one (1)
building (in which case Building Direct Expenses shall include those expenses so
allocated to the Building based upon the relative square footages of the
affected buildings). Such portion of Direct Expenses allocated to Tenant shall
include (i) Tenant’s Share of all Direct Expenses attributable solely to the
Building, and (ii) Tenant’s Share of all Direct Expenses attributable to the
Project Common Areas (as opposed to Direct Expenses which are solely and
directly attributable to any other building in the Project).

 

4.3.2                        Cost Pools. Notwithstanding anything to the
contrary contained herein, Landlord shall have the right, from time to time, to
equitably allocate some or all of the Direct Expenses for the Project among
different portions or occupants of the Project (the “Cost Pools”), in Landlord’s
reasonable judgment. Such Cost Pools may include, but shall not be limited to,
the office space tenants of a building of the Project or of the Project, and the
retail space tenants of a building of the Project or of the Project. The Direct
Expenses within each such Cost Pool shall be allocated and charged to the
tenants within such Cost Pool in an equitable manner.

 

4.4                                 Calculation and Payment of Additional Rent. 
If for any Expense Year ending or commencing within the Lease Term, Tenant’s
Share of Building Direct Expenses for such Expense Year exceeds Tenant’s Share
of Building Direct Expenses applicable to the Base Year, then Tenant shall pay
to Landlord, in the manner set forth in Section 4.4.1, below, and as Additional
Rent, an amount equal to the excess (the “Excess”).

 

4.4.1                        Statement of Estimated Building Direct Expenses. 
By May 1 of each year, Landlord shall give Tenant a yearly expense estimate
statement (the “Estimate Statement”) which shall set forth Landlord’s reasonable
estimate (the “Estimate”) of what the total amount of Building Direct Expenses
for the then-current Expense Year shall be and the estimated excess (the
“Estimated Excess”) as calculated by comparing the Building Direct Expenses for
such Expense Year, which shall be based upon the Estimate, to the amount of
Building Direct Expenses for the Base Year.  The failure of Landlord to timely
furnish the Estimate Statement for any Expense Year shall not preclude Landlord
from enforcing its rights to collect any Estimated Excess under this Article 4,
nor shall Landlord be prohibited from revising any Estimate Statement or
Estimated Excess theretofore delivered to the extent necessary but Landlord
shall not do so more than twice during any Expense Year.  Thereafter, Tenant
shall pay, with its next installment of Base Rent due, a fraction of the
Estimated Excess for the then-current Expense Year (reduced by any amounts paid
pursuant to the next to last sentence of this Section 4.4.1).  Such fraction
shall have as its numerator the number of months which have elapsed in such
current Expense Year, including the month of such payment, and twelve (12) as
its denominator.  Until a new Estimate Statement is furnished (which Landlord
shall have the right to deliver to Tenant at any time), Tenant shall pay
monthly, with the monthly Base Rent installments, an amount equal to one-twelfth
(1/12th) of the total Estimated Excess set forth in the previous Estimate
Statement delivered by Landlord to Tenant.  Landlord shall maintain books and
records with respect to Building Direct Expenses in accordance with generally
accepted and sound accounting and management practices, consistently applied.

 

4.4.2                        Statement of Actual Building Direct Expenses and
Payment by Tenant.  In addition, Landlord shall give to Tenant following the end
of each Expense Year, a statement (the “Statement”) which shall state the
Building Direct Expenses incurred or accrued for such preceding Expense Year for
the Building, and which shall indicate the amount of the Excess. Upon receipt of
the Statement for each Expense Year commencing or ending during the Lease Term,
if an Excess is present, Tenant shall pay, with its next installment of Base
Rent due, the full amount of the Excess for such Expense Year, less the amounts,
if any, paid during such Expense Year as Estimated Excess, and if Tenant paid
more as Estimated Excess than the actual Excess, Tenant shall receive a credit
in the amount of Tenant’s overpayment against Rent next due under this Lease. In
addition, Landlord shall, within ten (10) days after written request from
Tenant, distribute (or if Landlord does not control the Association, request the
Association to distribute) to Tenant a copy of (1) the budget, notice and
summary prepared pursuant to

 

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Section 3.3 of the CC&R’s and (2) the accounting prepared pursuant to
Section 3.6(c) of the CC&R’s. The failure of Landlord to timely furnish the
Statement, or any other information required under this Section 4.4.2, for any
Expense Year shall not prejudice Landlord or Tenant from enforcing its rights
under this Article 4. Even though the Lease Term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant’s Share of
Building Direct Expenses for the Expense Year in which this Lease terminates, if
an Excess if present, Tenant shall pay to Landlord such amount within thirty
(30) days, and if Tenant paid more as Estimated Excess than the actual Excess,
Landlord shall, within thirty (30) days, deliver a check payable to Tenant in
the amount of the overpayment. The provisions of this Section 4.4.2 shall
survive the expiration or earlier termination of the Lease Term.

 

4.4.3                        Tenant’s Audit Right.  Within six (6) months after
receipt of a Statement by Tenant (“Review Period”), if Tenant disputes the
amount set forth in the Statement, an independent certified public accountant
(which accountant is a member of a nationally or regionally recognized
accounting firm), designated by Tenant, may, at Tenant’s sole cost and expense
subject to reimbursement, as provided for herein and after reasonable notice to
Landlord and at reasonable times, inspect Landlord’s records at Landlord’s
offices, provided that Tenant is not then in default in the payment of Bast Rent
or Building Direct Expenses after expiration of all applicable cure periods and
provided further that Tenant and such accountant or representative shall execute
a confidentiality agreement, in a form reasonably acceptable to Landlord in
Landlord’s reasonable discretion sole discretion, to maintain all information
contained in Landlord’s records in strict confidence.  Landlord shall cooperate
with Tenant in obtaining all necessary or appropriate information from the
Association.  Notwithstanding the foregoing, Tenant shall only have the right to
review Landlord’s records one (1) time during any twelve (12) month period.
Tenant’s failure to dispute the amounts set forth in any Statement by written
notice to Landlord within thirty (30) days after the Review Period shall be
deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives
the right or ability to dispute the amounts set forth in such Statement. If
after such inspection, but within thirty (30) days after the Review Period,
Tenant notifies Landlord in writing that Tenant still disputes such amounts, a
certification as to the proper amount shall be made by an independent certified
public accountant selected by Landlord and reasonably approved by Tenant who is
a member of a nationally or regionally recognized accounting firm.  Landlord
shall cooperate in good faith with Tenant and the accountant to show Tenant and
the accountant the information upon which the certification is to be based. If
such certification by the accountant proves that the Building Direct Expenses
set forth in the Statement were (i) overstated by less than four percent (4%),
then the cost of the accountant and the cost of such certification shall be paid
for by Tenant, (ii) overstated by four percent (4%) or more but less than six
percent (6%), then the cost of the accountant and the cost of certification
shall be split evenly between Landlord and Tenant, or (iii) overstated by six
percent (6%) or more, then the cost of the accountant and the cost of such
certification shall be paid for by Landlord.  Promptly following the parties
receipt of such certification, the parties shall make such appropriate payments
or reimbursements, as the ease may be, to each other, as are determined to be
owing pursuant to such certification.

 

4.4.4                        Intentionally Omitted.

 

4.5                                 Taxes and Other Charges for Which Tenant Is
Directly Responsible.

 

4.5.1                        Tenant shall be liable for and shall pay ten (10)
days before delinquency, taxes levied against Tenant’s equipment, furniture,
fixtures and any other personal property located in or about the Premises.  If
any such taxes on Tenant’s equipment, furniture, fixtures and any other personal
property are levied against Landlord or Landlord’s property or if the assessed
value of Landlord’s property is increased by the inclusion therein of a value
placed upon such equipment, furniture, fixtures or any other personal property
and if Landlord pays the taxes based upon such increased assessment, which
Landlord shall have the right to do regardless of the validity thereof but only
under proper protest if requested by Tenant, Tenant shall upon demand repay to
Landlord the taxes so levied against Landlord or the proportion of such taxes
resulting from such increase in the assessment, as the case may be.

 

4.5.2                        If the tenant improvements in the Premises, whether
installed and/or paid for by Landlord or Tenant and whether or not affixed to
the real property so as to become a part thereof, are assessed for real property
tax purposes at a valuation higher than the “Tenant Improvement Allowance,” as
that term is used in Section 2.1 of the Tenant Work Letter attached to the
Original Lease, actually used to build-out the Premises then the Tax Expenses
levied

 

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against Landlord or the property by reason of such excess assessed valuation
shall be deemed to be taxes levied against personal property of Tenant and shall
be governed by the provisions of Section 4.5.1, above.

 

4.5.3                        Notwithstanding any contrary provision herein,
Tenant shall pay prior to delinquency any (i) rent tax or sales tax, service
tax, transfer tax or value added tax, or any other applicable tax on the rent or
services herein or otherwise respecting this Lease, (ii) taxes assessed upon or
with respect to the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises or any portion of
the Project, including the Project parking facilities; or (iii) taxes assessed
upon this transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises.

 

ARTICLE 5

 

USE OF PREMISES

 

5.1                                 Permitted Use.  Tenant shall use the
Premises for office, software development, training, research and development,
storage, distribution and other lawful uses permitted under the CC&R’s (as
defined below) and the Project’s permitted zoning and for no other purpose or
purposes whatsoever without Landlord’s consent, which may be withheld in
Landlord’s sole discretion.

 

5.2                                 Prohibited Uses. Tenant further covenants
and agrees that Tenant shall not use, or suffer or permit any person or persons
to use, the Premises or any part thereof for (i) offices of any agency or bureau
of the United States or any state or political subdivision thereof; (ii) offices
or agencies of any foreign governmental or political subdivision thereof; (iii)
offices of any health care professionals or service organization; (iv) schools
or other training facilities which are not ancillary to corporate, executive or
professional office use; (v) retail or restaurant uses (as opposed to Tenant’s
employee cafeteria); (vi) communications firms such as radio and/or television
stations, or (vii) any use or purpose contrary to the provisions of the Rules
and Regulations set forth in Exhibit D. attached hereto, or in violation of the
laws of the United States of America, the State of California, or the
ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the Project.
Tenant shall not do or permit anything to be done in or about the Premises which
will obstruct or interfere with the rights of other tenants or occupants of the
Buildings or Project, or injure them or use or allow the Premises to be used for
any unlawful purpose, nor shall Tenant cause or maintain any nuisance in, on or
about the Premises. Tenant shall not use or knowingly allow another person or
entity to use any part of the Premises for the storage, use, treatment,
manufacture or sale of “Hazardous Material,” (as that term is defined in
Section 29.23 of this Lease); provided, however, Tenant may use commercially
reasonable amounts of any Hazardous Material in accordance with the terms and
conditions set forth in Section 29.23, below.

 

5.3                                 CC&R’s.  Tenant continues to acknowledge and
agree that the Project is subject     to those certain covenants, conditions,
and restrictions contained within that certain Agreement Between Landowners
Including Covenants, Conditions and Restrictions and Grants of Easements for
Carmel Center and Including Amendment and Restatement of Former Declaration and
Termination of Prior Grants of Easements, recorded March 25, 2002 (the “Amended
CC&R’s”), including the Site Plan attached thereto as Exhibit A, and the Carmel
Center Parking Management Plan attached thereto as Exhibit D (the “CC&R’s
Parking Plan”).  In addition, Tenant acknowledges that the Project may be
subject to any future covenants, conditions and restrictions (the “Future
CC&R’s”) which Landlord, in Landlord’s discretion, deems reasonably necessary or
desirable, and Tenant agrees that the Lease, as hereby amended, shall be subject
and subordinate to such Future CC&R’s. Landlord shall have the right to require
Tenant to execute and acknowledge, within fifteen (15) business days of a
request by Landlord, a “Recognition of Covenants, Conditions, and Restriction,”
in a form substantially similar to that attached hereto as Exhibit F, agreeing
to and acknowledging the Future CC&R’s.

 

5.4                                 Building Lobby.  Tenant acknowledges and
agrees that the lobby area located on the ground floor of the Building (the
“Building Lobby”) is Building Common Area. Notwithstanding the foregoing,
subject to the terms of this Section 5.4. Tenant shall have the right to use and
maintain, throughout the Lease Term, Tenant’s current reception desk (which
reception desk shall be staffed by no more than (2) individuals), located in the
eastern portion of such Building Lobby, and that such reception desk shall be
identified by a desk placard approved

 

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by Landlord, and staffed, used and maintained by Tenant in a first-class,
professional manner. Tenant hereby expressly acknowledges Landlord’s continued
right (i) to itself utilize the Building Lobby, and (ii) to install the
“Building Directory,” as that term is defined in Section 23.3, below, and any
other signage in the Building Lobby, for Landlord or any other tenant of the
Building, as determined by Landlord, in Landlord’s sole and absolute discretion.

 

ARTICLE 6

 

SERVICES AND UTILITIES

 

6.1                                 Standard Tenant Services.  Landlord shall
provide the following services on all days (unless otherwise stated below)
during the Lease Term.

 

6.1.1                        Subject to all governmental rules, regulations and
guidelines applicable thereto, Landlord shall provide heating, ventilation and
air conditioning (“HVAC”) from Monday through Friday, during the period from
7:00 A.M. to 7:00 P.M. and on Saturday during the period from 9:00 A.M. to 1:00
P.M. (the “Building Hours”), except for the dates of observation of New Year’s
Day, Presidents Day, Independence Day, Labor Day, Memorial Day, Thanksgiving
Day, and Christmas Day and other nationally recognized holidays that are not
nationally recognized as of the date of this Lease (collectively, the
“Holidays”).  Notwithstanding the foregoing, Landlord shall change the Building
Hours as requested by Tenant from time to time (but not more than two (2) times
per calendar year) so long as (i) the total Building Hours for the weekly period
(i.e., Monday through Sunday) do not exceed sixty-four (64) hours, (ii) Tenant
leases the entire Premises, (iii) any such Building Hours so designated by
Tenant for any day must be consecutive hours, and (iv) Tenant shall be
responsible for any additional reasonable costs incurred by Landlord as a result
of such change in hours requested by Tenant (which costs shall be payable as
Additional Rent within thirty (30) days after Tenant’s receipt of invoice
therefor).  Tenant shall be entitled to install as an Alteration dedicated
heating, ventilation and air conditioning units (“Package Units”) within or
serving the Premises at Tenant’s sole cost and expense (but not window units).
The plans and specifications for any Package Units shall, as indicated in
Article 8 below and the Tenant Work Letter (as applicable), be subject to
Landlord’s reasonable approval and the electricity required to power such
Package Units shall be included within the allotment set forth in Section 6.1.2
below and such electricity and any other utilities used by such Package Units
shall be payable by Tenant in accordance with Section 6.2 below.  Tenant shall
be solely responsible for maintenance and repair of the Package Units and such
units shall be considered to be a fixture within the Premises and shall remain
upon the Premises upon the expiration or earlier termination of Lease Term
unless Landlord requires Tenant to remove such items upon expiration or earlier
termination of this Lease pursuant to the provisions of Section 8.5 below. 
Notwithstanding the foregoing, Tenant may remove any “Libert” or similar type
HVAC units from the Premises at any time prior to expiration or earlier
termination of the Lease Term provided that Tenant removes all associated wiring
and cabling, repairs any damage resulting from such removal and restores the
Premises to the condition prior to the placement of such unit(s), reasonable
wear and tear excepted.

 

6.1.2                        Landlord shall provide adequate electrical wiring,
facilities and power for connection to Tenant’s equipment, provided that the
connected electrical load of such equipment does not exceed an average of four
(4) watts per rentable square foot of the Premises during each of the Building
Hours on a monthly basis (i.e., the total number of watts per rentable square
foot allocable to such equipment during a given month divided by the number of
Building Hours that occur during such given month shall not exceed four (4)
watts per rentable square foot) and sufficient to provide an additional one
point five (1.5) watts (per rentable square foot of thePremises during the
Building Hours on a monthly basis) of connected electrical load for Tenant’s
lighting fixtures. Any such electrical usage shall be subject to applicable laws
and regulations.  Tenant shall bear the cost of replacement of any non-Building
standard lamps, starters and ballasts for lighting fixtures within the Premises;
replacement of any such Building standard items (as shown on the
“Specifications,” as that term was defined in Section 2.3 of the Tenant Work
Letter attached to the Original Lease) shall be included in Operating Expenses.

 

6.1.3                        Landlord shall provide city water from the regular
Building outlets for drinking, lavatory and toilet purposes.

 

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6.1.4                        Landlord shall manage the Project and employ
qualified property management personnel and maintenance personnel to operate and
manage the Project in accordance with a standard which is not less than
customarily observed in the operation and management of Comparable Buildings.

 

6.1.5                        Landlord shall provide janitorial services five (5)
days per week except the date of observation of the Holidays, in and about the
Building and window washing services in accordance with a standard which is not
less than that customarily observed in other Comparable Buildings.

 

6.1.6                        Landlord shall provide nonexclusive, non-attended
automatic passenger elevator service during the Building Hours; Landlord shall
have one elevator available at all other times, including Holidays.

 

6. 1.7                     Landlord shall provide security services to the
Project and Building in a commercially reasonable manner.

 

6.1.8                        Tenant hereby acknowledges that Landlord shall have
no obligation to provide guard service or other security measures for the
benefit of the Premises. Any such security measures for the benefit of the
Premises shall be provided by Tenant, at Tenant’s sole cost and expense. Tenant
hereby assumes all responsibility for the protection of Tenant and its agents,
employees, contractors, invitees and guests, and the property thereof, from acts
of third parties, including keeping doors locked and other means of entry to the
Premises closed.

 

Tenant shall cooperate fully with Landlord at all times and abide by all
regulations and requirements that Landlord may reasonably prescribe for the
proper functioning and protection of the HVAC, electrical, mechanical and
plumbing systems (collectively, “Building Systems and Equipment”).

 

6.2                                 Overstandard Tenant Use.

 

6.2.1                        In General.  Tenant shall not, without Landlord’s
prior written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
Building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of
Section 6.1 of this Lease. If such consent is given, Landlord shall have the
right to install supplementary air conditioning units or other facilities in the
Premises, including supplementary or additional metering devices, and the cost
thereof, including the cost of installation, operation and maintenance,
increased wear and tear on existing equipment and other similar charges, shall
be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water,
heat or air conditioning in excess of that supplied by Landlord pursuant to
Section 6.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost
of such excess consumption, the cost of the installation, operation, and
maintenance of equipment which is installed in order to supply such excess
consumption, and the cost of the increased wear and tear on existing equipment
caused by such excess consumption; and Landlord may install devices to
separately meter any increased use and in such event Tenant shall pay the
increased cost directly to Landlord, on demand, at the rates charged by the
public utility company furnishing the same, including the cost of such
additional metering devices. Tenant’s use of electricity shall never exceed the
capacity of the feeders to the Project or the risers or wiring installation, and
subject to the terms of Section 29.28, below, Tenant shall not install or use or
permit the installation or use of any computer or electronic data processing
equipment in the Premises, without the prior written consent of Landlord.
Landlord hereby acknowledges Tenant’s current use, as of April 1, 2003, of the
Premises, does not constitute an over-standard use as set forth in this
Section 6.2.1, and hereby approves Tenant’s current use of Tenant’s computers
and data processing equipment located in the Premises.

 

6.2.2                        Tenant shall pay for all electricity attributable
to its use of the entire Premises (including, without limitation, electricity
required in order to provide HVAC to the Premises) and Tenant shall timely pay
all charges for such service directly to Landlord, on demand, at the rates
charged by the public utility company furnishing the same. The actual cost of
electricity provided to the Premises (including, without limitation, electricity
required in order to provide HVAC to the Premises which Tenant shall be
responsible for pursuant to the terms of

 

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Section 6.2.3, below) shall, notwithstanding anything to the contrary contained
in this Lease, not be included in Operating Expenses (including, without
limitation, Operating Expenses for the Base Year) for the Building (except for
electricity relating to the Common Areas, which shall be included in Operating
Expenses (including, without limitation, Operating Expenses for the Base Year)
and paid by Tenant as part of Building Direct Expenses).

 

6.2.3                        HVAC. If Tenant desires to use HVAC during hours
other than those for which Landlord is obligated to supply such HVAC pursuant to
the terms of Section 6.1 of this Lease (i.e., in excess of sixty-four (64) hours
in any week), Tenant shall not be required to give Landlord prior notice of
Tenant’s desired use but rather Tenant may control its after-hours HVAC use from
within the Premises. Landlord shall supply such after-hours HVAC to Tenant
subject to Tenant’s payment to Landlord of an amount reasonably determined by
Landlord to be directly attributable to increased wear and tear on existing
Building Systems and Equipment caused by such after-hours use, any engineer’s
over-time and a nominal amount attributable to overhead and accounting costs.
Amounts payable by Tenant to Landlord for such use of additional HVAC shall be
deemed Additional Rent hereunder and shall be paid within thirty (30) days after
Tenant’s receipt of invoice therefor.

 

6.3                                 Interruption of Use.  Tenant agrees that
Landlord shall not be liable for damages, by abatement of Rent (except for
abatement as specifically provided in Section 6.8 below), or otherwise, for
failure to furnish or delay in furnishing any service (including telephone,
electrical and telecommunication services), or for any diminution in the quality
or quantity thereof, when such failure or delay or diminution is occasioned, in
whole or in part, by repairs, replacements, or improvements, by any strike,
lockout or other labor trouble, by inability to secure electricity, gas, water,
or other fuel at the Building or the Project after diligent and reasonable
efforts to do so, by any accident or casualty whatsoever, by act or default of
Tenant or other parties, or by any other cause beyond Landlord’s reasonable
control; and such failures or delays or diminution shall never be deemed to
constitute an eviction or disturbance of Tenant’s use and possession of the
Premises or relieve Tenant from paying Rent (except for abatement as
specifically provided in Section 6.8 below), or performing any of its
obligations under this Lease. Furthermore, Landlord shall not be liable under
any circumstances for a loss of, or injury to, property or for injury to, or
interference with, Tenant’s business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any of the services or utilities as set forth in this
Article 6, except in any circumstances where the failure to furnish any such
services or utilities arises out of or is a result of, Landlord’s sole or gross
negligence or intentional misconduct (in which case Landlord shall be
responsible to the extent such item is not covered by insurance required to be
carried by Tenant under this Lease or actually carried by Tenant). Landlord
shall be entitled to cooperate in a reasonable manner with the mandatory
requirements of national, state or local governmental agencies or utilities
suppliers in reducing the consumption of energy or other resources (including
temporary stoppages in the supply of any utilities), and Landlord shall not be
in default hereunder or be liable for any damages directly or indirectly
resulting from, nor shall the Rent herein reserved be abated (except as
expressly provided in Section 6.8 below) by reason of such cooperation by
Landlord.

 

6.4                                 Additional Services.  Landlord shall also
provide any additional services which may be reasonably requested by Tenant,
including, without limitation, locksmithing, lamp replacement, additional
janitorial service, and additional repairs and maintenance, provided that Tenant
shall pay to Landlord within fifteen (15) days after receipt of written notice
from Landlord, the sum of all costs to Landlord of such additional services plus
a reasonable administration fee.  Charges for any service for which Tenant is
required to pay from time to time hereunder shall be deemed Additional Rent
hereunder and shall be billed on a monthly basis.  Tenant shall not be required
to use Landlord for such any additional services; provided, however, that
Landlord shall have the right to reasonably approve any other provider of such
services should Tenant elect not to use Landlord for the providing of such
services.  However, nothing in this Section 6.4 shall be construed as requiring
Landlord to provide any such service which would, in Landlord’s reasonable
judgment, result in the receipt by Landlord of amounts that would fail to
qualify as “rents from real property” within the meaning of Section 856(d) of
the Internal Revenue Code of 1986, as amended, or any successor section thereto.

 

6.5                                 Intentionally Omitted.

 

6.6                                 Emergency Generator.  Subject to Tenant’s
compliance with all Applicable Laws, Landlord shall permit Tenant to maintain,
at Tenant’s sole cost and expense, the above-ground

 

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emergency generator (as a Miscellaneous Common Area Item) previously installed
by Tenant pursuant to the Existing Lease for Tenant’s use in the Premises (the
“Emergency Generator”); provided, however, Tenant hereby acknowledges and agrees
that promptly following the execution of this Lease, Tenant shall, at Tenant’s
sole cost and expense, disconnect and/or remove all cabling, wiring, conduit and
other such connections of the Emergency Generator, which cabling, wiring,
conduit or other such connections are connected to any non-Premises portions of
the Building, in accordance with the removal and repair requirements set forth
in Section 8.5, below. Such Emergency Generator shall be used by Tenant only
during (i) testing and regular maintenance, and (ii) any period of electrical
power outage in the Building. Tenant shall be entitled to operate the Emergency
Generator for testing and regular maintenance only upon notice to Landlord and
at times reasonably approved by Landlord. Any repairs and maintenance of such
Emergency Generator shall be the sole responsibility of Tenant. Upon the
expiration or earlier termination of the Lease, Tenant may, at Tenant’s sole
cost and expense, remove the Emergency Generator and all associated cabling and
wiring and repair all damage resulting from such removal; provided, however, to
the extent this Lease is terminated prior to the Lease Expiration date pursuant
to Article 19 of this Lease, then, unless Landlord provides prior written notice
to Tenant requiring Tenant to remove such Emergency Generator in accordance with
the removal and repair obligations in Section 8.5, below, such Emergency
Generator shall become the sole property of Landlord in accordance with the
terms of Section 8.5, below. Landlord makes no representation or warranty with
respect to the Emergency Generator or its suitability for use by Tenant and
Article 10 of the Lease shall apply with respect to Tenant’s use, maintenance,
repair and operation of the Emergency Generator.

 

6.7                                 Building Reconfiguration Costs.  Tenant
acknowledges and agrees that Tenant shall pay the costs incurred by Landlord in
connection with the reconfiguration of the Building, including, but not limited
to: (i) the cost of installing submeters on each floor of the Building and in
the Building Common Areas, as determined by Landlord, which submeters shall be
for the use of monitoring Tenant’s utility usage in the Premises as well the
utility usage by other tenants in the Building and of the Building Common Areas,
(ii) the cost of reconfiguring and/or replacing the access control panels of the
Building elevators, and (iii) the cost to replace all of the master locks and
master keys in the Building (collectively, the “Building Reconfiguration
Costs”). Tenant shall pay such Building Reconfiguration Costs to Landlord within
thirty (30) days following Tenant’s receipt of an invoice which shall provide a
reasonable description of such Building Reconfiguration Costs. To the extent
practicable, (i) Landlord shall not, in connection with the performance of the
work set forth in this Section 6.7, cause material interference with Tenant’s
ongoing business operations in the Premises, (ii) Landlord shall only perform
such work after prior written notice thereof to Tenant, and (iii) Landlord shall
use commercially reasonable efforts to coordinate the work to be performed
pursuant to this Section 6.7 with the work that Tenant is anticipating
performing in the Premises in connection with the reduction of Tenant’s
occupancy of the entire Building under the terms of the Existing Lease to the
Premises set forth in this Lease.

 

6.8                                 Project Reconfiguration.  Landlord and
Tenant hereby acknowledge and agree that due to the changing nature of the
Project from a single-tenant Project to a multi-tenant Project, certain
reconfigurations of the Common Areas are required.  Landlord shall implement the
changes that are reasonably required in connection therewith (collectively, the
“Project Reconfiguration”). All such costs incurred in connection with the
Project Reconfiguration shall initially be paid for by Landlord, but shall be
included as an Operating Expense under the terras of Section 4.2.7, above.

 

6.9                                 Abatement Event.  An “Abatement Event” shall
be defined as an event that prevents Tenant from using the Premises or any
portion thereof, as a result of any failure to provide services or access to the
Premises, whether directly or as a result of any failure to provide services or
access to the Common Area of the Building in which the Premises are a part where
(i) Tenant does not actually use the Premises or such portion thereof, and (ii)
such event is not caused by the negligence or willful misconduct of Tenant, its
agents, employees or contractors.  Tenant shall give Landlord notice (“Abatement
Notice”) of any such Abatement Event, and if such Abatement Event continues
beyond the “Eligibility Period” (as that term is defined below), then the Base
Rent and Tenant’s Share of Direct Expenses shall be abated entirely or reduced,
as the case may be, after expiration of the Eligibility Period for such time
that Tenant continues to be so prevented from using, and does not use, the
Premises or a portion thereof, in the proportion that the rentable area of the
portion of the Premises that Tenant is prevented from using, and does not use,
bears to the total rentable area of the Premises leased by

 

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Tenant; provided, however, in the event that Tenant is prevented from using, and
does not use, a portion of the Premises for a period of time in excess of the
Eligibility Period and the remaining portion of the Premises is not sufficient
to allow Tenant to effectively conduct its business therein, and if Tenant does
not conduct its business from such remaining portion, then for such time after
expiration of the Eligibility Period during which Tenant is so prevented from
effectively conducting its business therein, the Base Rent and Tenant’s Share of
Direct Expenses for the entire Premises shall be abated entirely for such time
as Tenant continues to be so prevented from using, and does not use, the
Premises for Tenant’s business purposes. If, however, Tenant reoccupies any
portion of the Premises during such period, the Base Rent and Tenant’s Share of
Direct Expenses allocable to such reoccupied portion, based on the proportion
that the rentable area of such reoccupied portion of the Premises bears to the
total rentable area of the Premises, shall be payable by Tenant from the date
Tenant reoccupies such portion of the Premises. The term “Eligibility Period”
shall mean a period of five (5) consecutive business days after Landlord’s
receipt of any Abatement Notice(s). If the Abatement Event is caused by the
negligence or willful misconduct of Tenant, the Abatement described in this
Section 6.8 shall not apply; however, Tenant may seek recovery from its business
interruption insurance. Except as provided in Article 11 and Article 13, such
right to abate Base Rent and Tenant’s Share of Direct Expenses shall be Tenant’s
sole and exclusive remedy at law or in equity for an Abatement Event.

 

ARTICLE 7

 

REPAIRS

 

7.1                                 Obligations.  Landlord shall maintain and
repair any and all defects in the base, shell and core of the Building (the
“Base, Shell and Core”), including, without limitation, the foundations,
floor/ceiling slabs, structural portions of the roof (including the roof
membrane), curtain wall, exterior glass, columns, beams, shafts, stairs,
stairwells, and elevator cabs, and shall also maintain and repair the basic
mechanical, electrical, life safety, plumbing, sprinkler systems and heating,
ventilating and air conditioning systems of the Building (i.e., all of such
systems except for distribution within the Premises, in which case (i) Landlord
shall be responsible for repair of construction defects, (ii) with respect to
design defects, that party that retained the consultant to design such
distribution shall be responsible for repair of the defect and any additional
costs incurred as a result of such defect (to the extent not covered by warranty
or insurance), and (iii) Tenant shall be responsible for all other repairs and
maintenance to interior of Premises), the exterior portions of the Building and
the Common Areas. In addition, Landlord shall make repairs necessitated by the
acts or omissions of Landlord or its respective agents, employees or
contractors. Tenant shall, at Tenant’s own expense, keep the Premises and
specifically all tenant improvements, fixtures and furnishings therein, in good
order, repair and condition at all times during the Lease Term, and in this
regard, Tenant shall at Tenant’s own expense within a reasonable period of time
but under the supervision and subject to the prior approval of Landlord with
respect to any repairs for which a building permit is required, adequately
repair all such damage thereto. Except with respect to the express maintenance
and repair obligations of Tenant under this Lease, Landlord shall maintain and
repair the Building and the Project (including the Common Areas) and replace or
repair all damaged, broken, or worn fixtures and appurtenances, the cost of
which shall be included in Operating Expenses (subject to the provisions of
Article 4 above). Landlord may enter the Premises at all reasonable times upon
reasonable prior notice to Tenant (except that no notice will be required in
case of emergency) to make such repairs, alterations, improvements or additions
to the Buildings or to the Project or to any equipment located in the Project as
Landlord is obligated under this Lease or Landlord shall deem reasonably
necessary or as Landlord may be required to do by governmental or
quasi-governmental authority or court order or decree.

 

7.2                                 Tenant’s Failure to Comply. If Tenant fails
to make any repairs required of Tenant under this Lease, after written notice to
Tenant and the expiration of a reasonable cure period, Landlord may (but need
not) enter the Premises pursuant to Section 7.1 above to make such repairs and
replacements, and Tenant shall pay Landlord the cost thereof, including a
percentage (not to exceed five percent (5%)) of the cost thereof to compensate
Landlord for all overhead, general conditions, fees and other costs or expenses
arising from Landlord’s involvement with such repairs and replacements within
fifteen (15) days of being billed for same. Tenant hereby waives and releases
its right to make repairs at Landlord’s expense under Sections 1941 and 1942 of
the California Civil Code or under any similar law, statute, or ordinance now or
hereafter in effect.

 

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ARTICLE 8

 

ADDITIONS AND ALTERATIONS

 

8.1                                 Landlord’s Consent to Alterations.  Tenant
may not make any improvements, alterations, additions or changes to the Premises
(collectively, the “Alterations”) without first procuring the prior written
consent of Landlord to such Alterations, which consent shall be requested by
Tenant not less than thirty (30) days prior to the commencement thereof, and
which consent (as indicated in Section 29.4 below) shall not be unreasonably
withheld by Landlord. However, Tenant may make (i) cosmetic changes to the
finish work in the Premises, not requiring any structural or other substantial
modifications to the Premises (e.g., voice/data cabling), without Landlord’s
prior consent, (ii) cosmetic changes to the interior of any Tenant space within
the Building  (e.g., changes to the carpet, wallcovering and paint)  and (iii)
nonstructural changes to the interior of any Tenant space within the Building
(such cosmetic and nonstructural changes to be referred to hereafter
collectively as the “Acceptable Changes”) upon at least tan (10)days prior
notice to Landlord but without Landlord’s prior consent provided (a) with
respect to the changes described in Subsection 8.1(iii) above only, such changes
do not cost in excess of Seventy-Five Thousand and No/100 Dollars ($75,000.00)
for any one (l) job, (b) such Acceptable Changes do not affect the exterior
appearance of the Building or Common Areas, the structural aspects of the
Building, or any Building System or Equipment, and (c) Tenant shall perform such
Acceptable Changes in a good and workmanlike manner and in conformance with any
and all applicable federal, state, county or municipal laws, rules or
regulations (collectively, “Applicable Laws”).  At any time Tenant proposes to
make Alterations which require the consent of Landlord pursuant to this
Section.8.1. Tenant’s notice regarding the proposed Alterations shall be
provided together with plans and specifications for the Alterations, and
Landlord shall approve or disapprove of the same within fifteen (15) days after
Landlord’s receipt thereof.  The term “Alterations” does not refer to any tenant
improvements installed pursuant to the Tenant Work Letter attached to the
Original Lease.

 

8.2                                 Manner of Construction.  Landlord may
impose, as a condition of its consent to any and all Alterations or repairs of
the Premises or about the Premises, such requirements as Landlord may reasonably
require, including, but not limited to, the requirement that Tenant shall, at
Tenant’s expense, remove such Alterations upon the expiration or any early
termination of the Lease Term, provided Landlord imposed such removal
requirement as a condition to consenting to such Alterations when they arc
installed, and/or the requirement that Tenant utilize for such purposes only
contractors, subcontractors, materials, mechanics and materialmen approved by
Landlord (which approval (as indicated in Section 29.4 below) shall not be
unreasonably withheld or delayed). In any event, Tenant shall utilize
subcontractors of Landlord’s selection to perform any and all work that may
affect the Building Systems and Equipment, structural aspects of the Building,
the Base Shell or Core or exterior appearance of the Building or Common Areas
provided that (i) if such subcontractors are unwilling or unable to perform such
work, Tenant may utilize the services of any other qualified subcontractor which
normally and regularly performs similar work in comparable first-class,
institutional quality, office buildings in the San Diego, California area, and
(ii) Landlord shall cause such subcontractor selected by Landlord to charge
Tenant for such work in an amount equal to the cost that a comparable,
first-class, reputable and reliable subcontractor would have charged Tenant if
selected pursuant to competitive bidding procedures (and if such subcontractor
refuses to meet such pricing requirements, Landlord shall have the option to
either pay the excess charges of such subcontractor or to permit Tenant to
utilize any other qualified subcontractor which meets the requirements of
Subsection 8.2(i) above).  Tenant shall construct such Alterations and perform
such repairs in conformance with any and all Applicable Laws and pursuant to a
valid building permit, issued by the City of San Diego, all in conformance with
Landlord’s construction rules and regulations.  All work with respect to any
Alterations must be done in a good and workmanlike manner and diligently
prosecuted in completion to the end that the Premises shall at all times be a
complete unit except during the period of work. In performing the work of any
such Alterations, Tenant shall have the work performed in such manner so as not
to obstruct access to the Project or any portion thereof by any other tenant of
the Project, and so as not to obstruct the business of other tenants in the
Project.  In addition to Tenant’s obligations under Article 9 of this Lease,
upon completion of any Alterations, Tenant agrees to cause a Notice of
Completion to be recorded in the office of the Recorder of the County of San
Diego in accordance with California Civil Code Section 3093 or any successor
statute, and Tenant shall

 

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deliver to the Project management office a reproducible copy of the “as built”
drawings of the Alterations.

 

8.3                                 Payment for Improvements.  The cost of all
Alterations shall be paid for by Tenant.  In the event Tenant orders any
Alterations or repair work directly from Landlord, the charges for such work
shall be deemed Additional Rent under this Lease, payable within fifteen (15)
days of billing therefor, either periodically during construction in reasonable
progress payments or upon the substantial completion of such work, at Landlord’s
option.  Upon completion of such work, Tenant shall deliver to Landlord evidence
of payment, contractors’ affidavits and full and final waivers of all liens for
labor, services or materials. If Tenant orders any work directly from Landlord,
Tenant shall pay to Landlord a percentage of the cost of such work not to exceed
three percent (3%) of such cost to compensate Landlord for all overhead, general
conditions, fees and other costs and expenses arising from Landlord’s
involvement with such work.  If Tenant does not order such work directly from
Landlord, Tenant shall pay to Landlord a fee equal to one percent (1%) of the
cost of such work and shall reimburse Landlord for Landlord’s reasonable
out-of-pocket costs and expenses actually incurred in connection with review of
such work; provided, however, that this sentence shall not apply to Acceptable
Changes.

 

8.4                                 Construction Insurance.  In the event that
Tenant makes any Alterations (other than work described in Subsections 8.1(i)
and (ii) above). Tenant agrees to carry “Builder’s All Risk” insurance in a
reasonable amount covering the construction of such Alterations, and such other
insurance as Landlord may reasonably require, it being understood and agreed
that all of such Alterations shall be insured by Tenant pursuant to Article 10
of this Lease immediately upon completion thereof.  In addition, if the cost of
the Alteration exceeds One Hundred Thousand Dollars ($100,000.00), Landlord may,
in its reasonable discretion, require Tenant to obtain a lien and completion
bond or some alternate form of security satisfactory to Landlord in an amount
sufficient to ensure the lien-free completion of such Alterations and naming
Landlord as a co-obligee.

 

8.5                                 Landlord’s Property.  All Alterations,
“Tenant Improvements,” as that term was defined in Section 2.1 of the Tenant
Work Letter attached to the Original Lease, fixtures and/or equipment which may
be installed or placed in or about the Premises, and all signs installed in, on
or about the Premises, from time to time, shall be at the sole cost of Tenant
and shall be and become the property of Landlord; provided, however, Tenant may
remove any fixtures, equipment and/or personal property owned by Tenant
(including, without limitation, property that was purchased by Tenant pursuant
to the terms of Section 2.2.10 of the Tenant Work Letter attached to the
Original Lease), to the extent such property is expressly identified on Exhibit
L, attached hereto (such identified property to be the “Removable Property”);
provided, however, (i) Tenant shall repair any damage to the Premises and
Building caused by any such removal, (ii) Tenant shall give Landlord at least
ten (10) business days prior written notice before any such Removable Property
shall be removed from the Premises, and (iii) during such ten (10)-day period,
Landlord shall be given a reasonable opportunity to inspect the Removable
Property and to make a first offer to Tenant to purchase all or a portion of
such Removable Property. Furthermore, Landlord may require Tenant, at Tenant’s
expense, to remove any Alterations, the rotunda previously constructed by Tenant
pursuant to the terms of the Tenant Work Letter attached to the Original Lease,
Tenant’s data center, Tenant’s engineering laboratory on the third (3rd) floor
of the Building, and any item indicated as a “must remove” items on Exhibit L
and to repair any damage to the Premises and Building caused by such removal;
provided, however, that with regard to the Alterations {as opposed to the
above-referenced rotunda, data center or engineering laboratory), Landlord shall
give Tenant written notice concurrently with Landlord’s consent to such
Alterations, and within ten (10) business days of Landlord’s receipt of notice
of any Acceptable Changes, that Landlord would require such removal at the end
of the Lease Term or following any earlier termination of this Lease.  If Tenant
fails to complete such removal and/or to repair any damage caused by the removal
of such Alterations or Tenant Improvements, Landlord may do so and may charge
the actual cost thereof to Tenant.

 

ARTICLE 9

 

COVENANT AGAINST LIENS

 

Landlord shall have the right at all times to post and keep posted on the
Premises any notice which it deems necessary for protection from mechanics’
liens.  Tenant covenants and

 

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agrees not to suffer or permit any lien of mechanics or materialmen or others to
be placed against the Project, the Building or the Premises, or any portion
thereof, with respect to work or services claimed to have been performed for or
materials claimed to have been furnished to Tenant or the Premises, and, in case
of any such lien attaching or notice of any lien, Tenant covenants and agrees to
cause it to be promptly released and removed of record. Notwithstanding anything
to the contrary set forth in this Lease, in the event that such lien is not
released and removed by bond or otherwise on or before the date occurring thirty
(30) days after notice of such lien is delivered by Landlord to Tenant (which
thirty (30) day period shall be subject to reduction as provided in the next
sentence below), Landlord, at its sole option, may immediately take all action
necessary to release and remove such lien, without any duly to investigate the
validity thereof, and all sums, costs and expenses, including reasonable
attorneys’ fees and costs, incurred by Landlord in connection with such lien
shall he deemed Additional Rent under this Lease and shall immediately be due
and payable by Tenant, However, if Landlord’s notice of such lien to Tenant
indicates that Landlord is in escrow to sell or finance the Building or has an
executed letter of intent to sell or a commitment letter to finance the Building
(or a substantially similar document), Landlord may indicate in such notice that
such thirty (30) day period shall be reduced to a period designated by Landlord
which is not less than ten (10) business days.

 

ARTICLE 10

 

INSURANCE

 

10.1                           Indemnification and Waiver.  To the extent not
prohibited by law, Landlord, its members, partners, subpartners and affiliates
and their respective officers, agents, servants, employees, and independent
contractors (collectively, “Landlord Parties”) shall not be liable for, any
damage either to person or properly or resulting from the loss of use thereof,
which damage is sustained by Tenant. Tenant shall indemnify, defend, protect,
and hold harmless Landlord Parties from any and all loss, cost, damage, expense
and liability, including without limitation court costs and reasonable
attorneys’ fees (collectively, “Claims”) incurred in connection with or arising
from any cause in, on or about the Premises during the Lease Term, provided that
the terms of the foregoing indemnity by Tenant shall not apply to the gross
negligence or willful misconduct of Landlord or its agents, contractors,
servants, employees or licensees in connection with Landlord’s activities in the
Project and Landlord shall indemnify, defend, protect and hold Tenant, its
officers, directors, agents, servants and employees harmless from any such
Claims (except for damage to the Tenant Improvements and Tenant’s personal
property, fixtures, furniture and equipment in the Premises, to the extent
Tenant is required to obtain the requisite insurance coverage pursuant to this
Lease). The provisions of this Section 10.1 shall survive the expiration or
sooner termination of this Lease with respect to any claims or liability
occurring prior to such expiration or termination.

 

10.2                           Tenant’s Compliance with Landlord’s Fire and
Casuality Insurance.  Tenant shall, at Tenant’s expense, comply with all
insurance company requirements pertaining to the use of the Premises. If
Tenant’s conduct or use of the Premises causes any increase in the premium for
such insurance policies then Tenant shall reimburse Landlord for any such
increase. Tenant, at Tenant’s expense, shall comply with all rules, orders,
regulations or requirements of the American Insurance Association (formerly the
National Board of Fire Underwriters) and with any similar body.

 

10.3                           Tenant’s Insurance.  Tenant shall maintain the
following coverages in the following amounts.

 

10.3.1                  Commercial/Comprehensive General Liability Insurance
covering the insured against claims of bodily injury, personal injury and
property damage arising out of Tenant’s operations, assumed liabilities or use
of the Premises, including a comprehensive general liability endorsement with
broad form covering the insuring provisions of this Lease and the performance by
Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for
limits of liability not less than:

 

Bodily Injury and

 

$5,000,000 each occurrence

Property Damage Liability

 

$5,000,000 annual aggregate, or any combination of primary insurance and excess
liability

 

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Personal Injury Liability

 

$5,000,000 each occurrence

 

 

$5,000,000 annual aggregate, or any combination of primary insurance and excess
liability

 

10.3.2                  Property Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant’s
property on the Premises installed by, for, or at the expense of Tenant, (ii)
the Tenant Improvements, and (iii) all Other improvements, alterations and
additions to die Premises.  Such insurance shall be written on a special form
“all risk” basis, for the full replacement cost value, with a special theft form
for the covered items and in amounts that meet any co-insurance clauses of the
policies of insurance and shall include sprinkler leakage coverage.

 

10.3.3                  Worker’s Compensation and Employer’s Liability
Insurance, with a waiver of subrogation endorsement, with minimum limits of
$1,000,000 per employee and $ 1,000,000 per occurrence.

 

10.3.4                  Business Interruption, loss of income find extra expense
insurance in such amounts as will reimburse Tenant for actual direct or indirect
loss of earnings for up to one (l) year attributable to the risks outlined in
Section 10.3.2 above; however, Tenant shall be entitled to self-insure the
coverage described in this Section 10.3.4 only, in which case such self-
insurance shall be deemed to contain all of the terms and conditions applicable
to the coverage described in this Section 10.3.4 including, without limitation,
a deemed waiver of subrogation and, consequently, Landlord shall be treated, for
all purposes, as if Tenant had actually purchased such insurance from a third
party.

 

10.3.5                  Comprehensive Automobile Liability Insurance covering
all owned, hired, or non-owned vehicles with the following limits of
liability:    One Million Dollars ($1,000,000.00) combined single limit for
bodily injury and property damage.

 

10.4                           Fire and Casualty Insurance of Landlord. 
Landlord shall maintain during the Lease Term and as an Operating Expense, a
policy or policies of insurance insuring the Building and Project Common Areas
and Landlord’s remaining interest in the Tenant Improvements and Alterations
against loss or damage due to fire and other casualties covered within the
classification of fire and extended coverage, vandalism coverage and malicious
mischief, sprinkler leakage, water damage and special extended coverage.  Such
coverage shall be in the amount of full replacement cost for the Building
(including coverages for enforcement of Applicable Laws requiring the upgrading,
demolition, reconstruction or replacement of any portion of the Building as the
result of a covered loss) and other improvements and may include, at the option
of Landlord, the risks of earthquakes and/or flood damage and additional
hazards, a rental loss endorsement for a period of one (1) year and one or more
loss payee endorsements in favor of the holders of any mortgages or deeds of
trust encumbering the interest of Landlord in the Building or any ground or
underlying lessors of the Building.

 

10.5                           Form of Policies.  The minimum limits of policies
of insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease.  All insurance shall be issued on an
occurrence basis and shall be (i) be issued by an insurance company having a
rating of not less than A-X in Best’s Insurance Guide or which is otherwise
acceptable to Landlord and licensed to do business in the State of California;
and (ii) provide that said insurance shall not be canceled or coverage changed
unless thirty (30) days’ prior written notice shall have been given to Landlord
and any mortgagee or ground or underlying lessor of Landlord. In addition, the
insurance described in Section 10.3.1 above shall (a) name Landlord, and any
other party reasonably specified by Landlord, as an additional insured; (b)
specifically cover the liability assumed by Tenant under this Lease including,
but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (c)
be primary insurance as to all claims thereunder and provide that any insurance
obtained by Landlord is excess and is non-contributing with any insurance
requirement of Tenant; and (d) contain a cross-liability endorsement or
severability of interest clause acceptable to Landlord. Tenant shall deliver
said policy or policies or certificates thereof to Landlord before the Effective
Date and at least thirty (30) days before the expiration dates thereof.  In the
event Tenant shall fail to procure such insurance, or to deliver such
certificate, Landlord may, at its option, procure such policies for the account
of Tenant, and the costs of it shall be paid to Landlord as Additional Rent
within fifteen (15) days after delivery to Tenant of bills therefor. Tenant may
satisfy the insurance coverage described in this Article. 10

 

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through one or more blanket policies so long as such policies otherwise meet the
requirements specified above.

 

10.6                           Subrogation.  Landlord and Tenant agree to have
their respective insurance companies issuing property damage and loss of
insurance and extra expense insurance waive any rights of subrogation that such
companies may have against Landlord or Tenant, as the case may be, so long as
the insurance carried by Landlord and Tenant, respectively, is not invalidated
thereby.  As long as such waivers of subrogation are contained in their
respective insurance policies (or are deemed to be contained in any
self-insurance maintained by Tenant pursuant to the provisions of Section 10.3.4
above), Landlord and Tenant hereby waive any right that either may have against
the other on account of any loss or damage to the extent such loss or damage is
insurable under such policies of insurance.

 

10.7                           Additional Insurance Obligations.  Tenant shall
carry and maintain during the entire Lease Term, at Tenant’s sole cost and
expense, increased amounts of the insurance required to be carried by Tenant
pursuant to this Article 10, and such other reasonable types of insurance
coverage and in such reasonable amounts covering the Premises and Tenant’s
operations therein, as may be reasonably requested by Landlord. Notwithstanding
the foregoing, Landlord’s request shall only be considered reasonable if such
increased amounts and any such other coverages are standard amounts and
coverages for Comparable Buildings, and Landlord shall not increase amounts and
require additional coverages during the first five (5) years of the Lease Term
and thereafter not more often than one time in any five (5) year period.

 

ARTICLE 11

 

DAMAGE AND DESTRUCTION

 

11.1                           Repair of Damage to Premises by Landlord.  Tenant
shall promptly notify Landlord of any damage to the Building or other portion of
the Project resulting from fire or any other casualty. If such Building or any
Common Areas serving or providing access to such Building shall be damaged by
fire or other casualty, Landlord shall promptly and diligently, subject to
reasonable delays for insurance adjustment or other matters beyond Landlord’s
reasonable control, and subject to all other terms of this Article 11, restore
the Base, Shell, and Core of such Building and such Common Areas. Such
restoration shall be to substantially the same condition of the Base, Shell, and
Core of the Premises and the Common Areas prior to the casually, except for
modifications required by zoning and building codes and other laws or by the
holder of a mortgage on the Building or Project or any other modifications to
the Common Areas deemed desirable by Landlord and reasonably approved by Tenant,
provided that access to the Building shall not be materially impaired. Upon the
occurrence of any damage to such Building, Tenant shall assign to Landlord (or
to any party designated by Landlord) all insurance proceeds payable to Tenant
under Tenant’s physical damage and property damage insurance required under
Section 10.3 of this Lease (excluding, however, proceeds payable with respect to
any damage to Tenant’s furniture, equipment and other personal property on the
Premises), and Landlord shall repair any injury or damage to the Tenant
Improvements installed in the Premises and shall return such Tenant Improvements
and Alterations to their original condition; provided that if the cost of such
repair by Landlord exceeds the amount of insurance proceeds received by Landlord
from Tenant’s insurance carrier, as assigned by Tenant, plus the amount of
insurance proceeds received by Landlord from Landlord’s insurance carrier to the
extent allocable to damage of such Tenant Improvements and Alterations, the cost
of such repairs shall be paid by Tenant to Landlord in reasonable progress
payments as Landlord repairs the damage (provided that if any mortgage holder or
deed of trust beneficiary so requires, Tenant shall deposit such cost of repairs
with such mortgage holder or deed of trust beneficiary prior to the commencement
of repair by Landlord of such injury or damage, in which case Tenant shall be
entitled to interest on such funds to the extent permitted by such lender). In
connection with such repairs and replacements, Tenant shall, prior to the
commencement of construction, submit to Landlord, for Landlord’s review and
approval, all plans, specifications and working drawings relating thereto, and
Landlord shall select the contractors (subject to Tenant’s approval thereof, not
to be unreasonable withheld or delayed (as indicated in Section 29.4 below)) to
perform such improvement work. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s
business resulting in any way from such damage or the repair thereof; provided
however, that if such fire or other casualty shall have damaged the Building or
Common Areas necessary to Tenant’s occupancy, Landlord shall allow Tenant a
proportionate abatement of Base Rent during the time and to the extent the
Building is unfit for occupancy for

 

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the purposes permitted under this Lease, and not occupied by Tenant as a result
thereof for the conduct of Tenant’s business; provided, however, that if such
damage is the result of the negligence or willful misconduct of Tenant or
Tenant’s employees, contractors, licensees or invitees, such abatement of Base
Rent shall apply only to the extent Landlord is reimbursed from the proceeds of
rental interruption insurance purchased by Landlord as a part of Operating
Expenses.

 

11.2                           Landlord’s Option to Repair.  Notwithstanding the
terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or
restore the Building; and instead terminate this Lease by notifying Tenant in
writing of such termination within ninety (90) days after the date Landlord
learns of the necessity for repairs as the result of damage, such notice to
include a termination date giving Tenant ninety (90) days to vacate the
Building, but Landlord may so elect only if (i) the Building shall be damaged by
fire or other casualty or cause, and the damage is not fully covered, except for
deductible amounts, by insurance policies required to be carried by Landlord
under this Lease and (ii) Tenant is not willing to fund the amount of the
shortfall in excess of deductible amounts.

 

11.3                           Landlord’s Option to Repair.  Notwithstanding the
terms of Section 11.l of this Lease, Landlord may elect to terminate this Lease
by notifying Tenant in writing of such termination with ninety (90) days after
the date Landlord learns of the necessity for repairs as a result of such
damage, such notice to include a termination date giving Tenant ninety (90) days
to vacate the Building, but Landlord may so elect only if the Building shall be
damaged by fire or other casualty or cause and one or more of the following
conditions is present: (i) the repair or restoration is reasonably estimated to
cost more than sixty percent (60%) of the replacement cost of such Building, or
(ii) repairs cannot reasonably be substantially completed within three hundred
sixty (360) days after the date Landlord learns of the necessity for repairs as
the result of damage (when such repairs are made without the payment of overtime
or other premiums).

 

11.4                           Waiver of Statutory Provisions.  The provisions
of this Lease, including this Article 11, constitute an express agreement
between Landlord and Tenant with respect to any and all damage to, or
destruction of, all or any part of the Premises, the Building or the Project,
and any statute or regulation of the State of California, including, without
limitation, California Civil Code Sections 1932(2) and 1933(4), with respect to
any rights or obligations concerning damage or destruction in the absence of an
express agreement between the parties, and any other statute or regulation, now
or hereafter in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises, the Buildings or the Project.

 

11.5                           Damage Near End of Term.  In the event that the
Building is destroyed or damaged during the last twelve (12) months of the Lease
Term and the repair or restoration is reasonably estimated to cost more than the
“Threshold Level” (as that term is defined below), then notwithstanding anything
contained in this Article 11, Landlord shall have the option to terminate this
Lease by giving written termination notice to Tenant of the exercise of such
option within thirty (30) days after Landlord learns of the necessity for
repairs as the result of such damage or destruction, and, to the extent such
damage or destruction was not caused as a result of the negligence or willful
misconduct of Tenant or any of Tenant’s employees, agents, contractors,
licensees or invitees and the repair of same is reasonably expected by Landlord
to require more than three (3) months to complete, Tenant shall have the option
to terminate this Lease by giving written termination notice to Landlord of the
exercise of such option within thirty (30) days after Landlord learns of the
necessity for repairs as the result of such damage or destruction. The term
“Threshold Level” shall mean twenty percent (20%) of the replacement cost of the
Building where the damage occurs during the period from the first day of the
ninth (9th) month prior to the scheduled date of expiration of the Lease Term to
the last day of the twelfth (I2th) month prior to the scheduled date of
expiration of the Lease Term, fifteen percent (15%) of the replacement cost of
the Building where the damage occurs during the period from the first day of the
fifth (5th) month prior to the scheduled date of expiration of the Lease Term
until the last day of the eighth (8th) month prior to the scheduled date of
expiration of the Lease Term, and ten percent (10%) of the replacement cost of
the Building where the damage occurs during the last four (4) months of the
Lease Term. If either Landlord or Tenant exercises such option to terminate this
Lease as provided above (i) this Lease shall cease and terminate as of the
earlier of (1) the date ninety (90) days after the date of such notice, or (2)
the expiration date of this Lease, (ii) Tenant shall pay the Base Rent and
Additional Rent, properly apportioned up to such date of termination, and (iii)
both parties hereto shall thereafter be freed and discharged of

 

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all further obligations hereunder, except as provided for in provisions of this
Lease which by their terms survive the expiration or earlier termination of the
Lease Term.

 

ARTICLE 12

 

NONWAIVER

 

No waiver of any provision of this Lease shall be implied by any failure of
either party to enforce any remedy on account of the violation of such
provision, even if such violation shall continue or be repeated subsequently.
Any waiver by either party of any provision of this Lease may only be in
writing. Additionally, no express waiver shall affect any provision other than
the one specified in such waiver and then only for the time and in the manner
specifically stated. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant’s right of possession hereunder, or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit, or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.

 

ARTICLE 13

 

CONDEMNATION

 

13.1                           Permanent Taking.  If more than twenty-five
percent (25%) of the rentable square feet of the Premises or of the Building
Common Area shall be taken by power of eminent domain or condemned by any
competent authority for any public or quasi-public use or purpose, or if
Landlord shall grant a deed or other instrument in lieu of such taking by
eminent domain or condemnation, Landlord shall have the option to terminate this
Lease upon ninety (90) days’ notice, provided such notice is given no later than
one hundred twenty (120) days after the date of such taking, condemnation,
reconfiguration, vacation, deed or other instrument. If more than twenty-five
percent (25%) of the rentable square feet of the Premises or of the Building
Common is taken, Tenant shall have the option to terminate this Lease upon
ninety (90) days’ notice, provided such notice is given no later than one
hundred twenty (120) days after the date of such taking. Landlord shall be
entitled to the entire award or payment in connection therewith, except that
Tenant shall have the right to file any separate claim available to Tenant for
any taking of Tenant’s personal property and fixtures belonging to Tenant and
removable by Tenant upon expiration of the Lease Term pursuant to the terms of
this Lease, and for moving expenses, so long as such claims do not diminish the
award available to Landlord, its ground lessor with respect to such Building or
Project or its mortgagee, and such claim is payable separately to Tenant.  All
Rent shall be apportioned as of the date of such termination, or the date of.
such taking, whichever shall first occur.  If any part of the Premises shall be
taken, and this Lease is not terminated pursuant to this Section 13.1, the Rent
shall be abated proportionately based on the percentage of the rentable square
feet of the Building which is taken. Tenant hereby waives any and all rights it
might otherwise have pursuant to California Code of Civil Procedure
Section 1265.130.

 

13.2                           Temporary Taking.  Notwithstanding anything to
the contrary contained in this Article 13. in the event of a temporary taking of
all or any portion of the Premises for a period of one (1) year or less, then
this Lease shall not terminate but the Base Rent shall be abated for the period
of such taking for the number of rentable square feet of the Premises so taken.
Landlord shall be entitled to receive the entire award made in connection with
any such temporary taking.

 

ARTICLE 14

 

ASSIGNMENT AND SUBLETTING

 

14.1                           Transfers.  Tenant shall not, without the prior
written consent of Landlord, except as otherwise expressly provided herein,
assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach
to, or otherwise transfer, this Lease or any interest hereunder, permit any
assignment, or other transfer of this Lease or any interest hereunder by
operation of law, sublet the Premises or any part thereof, or permit the use of
the Premises by any persons other than Tenant and its employees (all of the
foregoing are hereinafter sometimes referred to

 

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collectively as “Transfers” and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a “Transferee”). Where
Landlord’s consent to a proposed Transfer is required under this Article 14, if
Tenant desires Landlord’s consent to any Transfer, Tenant shall notify landlord
in writing, which notice (the “Transfer Notice”) shall include (i) the proposed
effective date of the Transfer, which shall not be less than fifteen (15)
business days nor more than one hundred eighty (180) days after the date of
delivery of the Transfer Notice, (ii) a description of the portion of the
Premises to be transferred (the “Subject Space”), (iii) all of the material
terms of the proposed Transfer and the consideration therefor (including
calculation of the “Transfer Premium,” as that term is defined in Section 14.3
below, in connection with such Transfer), the name and address of the proposed
Transferee, and a copy of all existing executed and/or proposed documentation
pertaining to the proposed Transfer, including all existing operative documents
to be executed to evidence such Transfer or the agreements incidental or related
to such Transfer, and (iv) current financial statements of the proposed
Transferee certified by an officer, partner or owner thereof, and any other
information reasonably required by Landlord to determine the financial
responsibility, character, and reputation of the proposed Transferee, nature of
such Transferee’s business and proposed use of the Subject Space, and such other
information as Landlord may reasonably require. Landlord shall approve or
disapprove of the proposed Transfer within fifteen (15) business days after
Landlord’s receipt of the applicable Transfer Notice including all items
required pursuant to the immediately preceding sentence. Where Landlord’s
consent to a proposed Transfer is required under this Article 14, any Transfer
made without Landlord’s prior written consent shall, at Landlord’s option, be
null, void and of no effect, and shall, at Landlord’s option, constitute a
default by Tenant under Section 19.1.2 of this Lease. Where Landlord’s consent
to a proposed Transfer isrequired under this Article 14, whether or not Landlord
consents to such proposed Transfer, for each proposed Transfer Tenant shall pay
to Landlord a review and processing fee in an amount equal to $500.00 and any
reasonable legal fees incurred by Landlord (which legal fees shall not exceed
$1,000 per proposed Transfer during the Lease Term), upon request by Landlord.

 

14.2                           Landlord’s Consent. Where Landlord’s consent to a
proposed Transfer is required under this Article 14, Landlord shall not
unreasonably withhold its consent to any proposed Transfer of the Subject Space
to the Transferee on the terms specified in the Transfer Notice. Without
limitation as to other reasonable grounds for withholding consent, the parties
hereby agree that it shall be reasonable under this Lease and under any
applicable law for Landlord to withhold consent to any proposed Transfer where
one or more of the following apply:

 

14.2.1                  The Transferee is of a character or reputation or
engaged in a business which Landlord reasonably determines is not consistent
with the quality of the Project as a first- class, institutional quality office
project;

 

14.2.2                  The Transferee is either a governmental agency or
instrumentality thereof which Landlord reasonably determines is not consistent
with the quality of the Project as a first-class, institutional quality office
project;

 

14.2.3                  The Transferee intends to use the Subject Space for
purposes which are not permitted under this Lease;

 

14.2.4                  The Transfer will result in more than a reasonable and
safe number of occupants per floor within the Subject Space;

 

14.2.5                  The Transferee is not a party of reasonable financial
worth and/or financial stability in light of the responsibilities involved under
the Transfer on the date consent is requested (provided, however, that this
Section 14.2.5 shall only apply if the Transfer is for a full floor or more of
the Building);

 

14.2.6                  The proposed Transfer would cause a violation of another
lease for space in the Project, or would give an occupant of the Project a right
to cancel its lease or bring an action against Landlord.

 

14.2.7                  The Transfer occurs during the period from the Effective
Date until the earlier of (i) the fourth anniversary of the Effective Date or
(ii) the date at least ninety-five percent (95%) of the rentable square feet of
the Building is leased, and the rent charged by

 

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Tenant to such Transferee during the term of such Transfer (the “Transferee’s
Rent”), calculated using a present value analysis, is less than ninety-five
percent (95%) of the rent being quoted by Landlord at the time of such Transfer
for computable space in the Project for a comparable terra (the “Quoted Rent”),
calculated using a present value analysis;

 

14.2.8                  The terms of the proposed Transfer will allow the
Transferee to exercise a right of renewal, right of expansion, right of first
offer, or other similar right held by Tenant (or will allow the Transferee to
occupy space leased by Tenant pursuant to any such right); or

 

14.2.9                  Either the proposed Transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Project at the
time of the request for consent, or (ii) is negotiating with Landlord to lease
space in the Project at such time, or (iii) has negotiated with Landlord during
the twelve (12)-month period immediately preceding the Transfer Notice; or

 

14.2.10            The Transferee does not intend to occupy the entire Premises
and conduct its business therefrom for a substantial portion of the term of the
Transfer.

 

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2
(and does not exercise any recapture rights Landlord may have under Section 14.4
of this Lease), Tenant may within six (6) months after Landlord’s consent, but
not later than the expiration of said six-month period, enter into such Transfer
of the Premises or portion thereof, upon substantially the same terms and
conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease, provided that if there are any
material changes in the terms and conditions from those specified in the
Transfer Notice (i) such that Landlord would initially have been entitled to
refuse its consent to such Transfer under this Section 14.2. or (ii) which would
cause the proposed Transfer to be more favorable to Tenant than the terms set
forth in Tenant’s original Transfer Notice, Tenant shall again submit the
Transfer to Landlord for its approval and other action under this Article 14
(including Landlord’s right of recapture, if any, under Section 14.4 of this
Lease). Notwithstanding any contrary provisions of this Lease, if Tenant claims
that Landlord has unreasonably withheld or delayed its consent to a proposed
Transfer or otherwise has breached its obligations under this Article, Tenant’s
only remedies shall be to seek a declaratory judgment and/or injunctive relief
and/or monetary damages, and Tenant waives the right to terminate this Lease as
to all or any portion of the Premises.

 

14.3                           Transfer Premium.

 

14.3.1                  Definition of Transfer Premium.  If Landlord consents to
a Transfer, as a condition thereto which the parties hereby agree is reasonable,
Tenant shall, except as otherwise provided in this Article 14, pay to Landlord
fifty percent (50%) of any “Transfer Premium,” as that term is defined in this
Section 14.3, received by Tenant from such Transferee (the amount which may be
so payable to Landlord may be referred to herein as the “Premium Base Amount”). 
“Transfer Premium” shall mean all rent, additional rent or other consideration
payable by such Transferee in excess of the Rent and Additional Rent payable by
Tenant under this Lease on a per rentable square foot basis if less than all of
the Premises is transferred, after deducting the reasonable expenses incurred by
Landlord or Tenant for (i) any changes, alterations and improvements to the
Premises in connection with the Transfer, (ii) any brokerage commissions,
reasonable attorneys’ and architectural fees and reasonable advertising costs
incurred in connection with the Transfer, (iii) any Rent and Additional Rent
paid by Tenant for the portion of the Premises transferred while such space is
being actively marketed for sublease or assignment to the extent Tenant is not
occupying such space, and (iv) any other out-of-pocket costs reasonably incurred
by Tenant in connection with such Transfer (collectively, the “Subleasing
Costs”), “Transfer Premium” shall also include, but not be limited to, key money
and bonus money paid by Transferee to Tenant in connection with such Transfer,
and any payment in excess of fair market value for services rendered by Tenant
to Transferee or for assets, fixtures, inventory, equipment, or furniture
transferred by Tenant to Transferee in connection with such Transfer.

 

14.3.2                  Payment of Transfer Premiums.  The determination of the
amount of the Transfer Premium shall be made on an annual basis in accordance
with the terms of this Section 14.3.2, but an estimate of the amount of the
Transfer Premium shall be made each month and one-twelfth (1/12th) of such
estimated amount shall be paid to Landlord promptly, but in no event later than
the next date for payment of Base Rent hereunder, subject to an annual

 

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reconciliation on each anniversary date of the Transfer. If the payments to
Landlord under this Section 14.3.2 during the twelve (12) months preceding each
annual reconciliation exceed the amount of Transfer Premium determined on an
annual basis and actually received by Tenant, then Landlord shall promptly
refund the excess to Tenant. If Tenant has underpaid the Transfer Premium, as
determined by such annual reconciliation. Tenant shall pay the amount of such
deficiency to Landlord promptly, but in no event later than the next date for
payment of Basic Rent hereunder. For purposes of calculating the Transfer
Premium on an annual basis, Tenant’s Subleasing Costs shall be amortized on a
slight-line basis over the term of the Transfer.

 

14.3.3                  Limitation on Amount and Timing.  Notwithstanding the
foregoing provisions of this Section.14, Tenant shall have no obligation to pay,
and shall not pay, any percentage of the foregoing Transfer Premium under this
or any oilier section of this Lease in any calendar year, to the extent Tenant
is advised by Landlord that such payment would exceed the sum of; (A) the
maximum amount (if any) that can be paid to Landlord without causing Kilroy
Realty Corporation, a Maryland corporation (“KRC”) to fail to meet the
requirements of sections 856(c)(2) and (3) of the Internal Revenue Code of 1986,
as amended (the “Code”) for such year determined as if (i) the payment of such
amount did not constitute income described in sections 856(c)(2)(A)-(H) and
856(c)(3)(A)-(I) of the Code (“Qualifying Income”), (ii) the payment of such
amount resulted in all other amounts received by Landlord from Tenant pursuant
to this Lease during such year failing to constitute Qualifying Income, and
(iii) KRC had $1,000,000 of income from unknown sources during such year which
was not Qualifying Income (in addition to any known or anticipated income of KRC
which was not Qualifying Income), in each case as determined by KRC’s
independent accountants, and (B) the Premium Base Amount less the amounts paid
under clause (A) in the event KRC receives and provides Tenant with a copy of a
reasoned opinion from outside counsel or a ruling from the Internal Revenue
Service (the “Premium Guidance”) indicating that Landlord’s receipt of the
Premium Base Amount would constitute Qualifying Income and would not cause other
amounts paid by Tenant to Landlord to fail to constitute Qualifying Income (the
“RE1T Requirements”).  In the event that Landlord is not able to receive the
full Premium Base Amount due to the above limitation, Tenant shall not pay any
amounts in excess of such limit unless and until KRC receives (and delivers to
Tenant) any one or combination of the following, once or more often:  (i) a
letter from KRC’s independent accountants indicating the maximum amount that can
be paid by Tenant to Landlord at that time without causing KRC to fail to meet
the REIT Requirements (calculated as described above) or (ii) the Premium
Guidance; in which event Tenant shall pay to Landlord the lesser of the unpaid
Transfer Premium or the maximum amount stated in the letter referred to in (i)
above. Tenant’s obligation to pay any unpaid portion of the Transfer Premium
shall terminate on the December 31 following the date which is three (3) years
after the date such payment would (without regard to the limitations in this
subparagraph) have initially been due.  Any amounts paid shall first be applied
to the Transfer Premium which is the oldest.  Tenant shall cooperate with
Landlord and KRC and provide them with any information or documents that are
necessary or helpful to Landlord or KRC in obtaining any Premium Guidance or in
calculating the amount of any payment due hereunder.

 

14.4                           Landlord’s Option as to Subject Space.  Landlord
shall have the option, by giving written notice (“Recapture Notice”) to Tenant
within fifteen (15) days after receipt of any Transfer Notice, to recapture the
Subject Space. Such recapture shall cancel and terminate this Lease, with
respect to the Subject Space as of the date stated in the Transfer Notice as the
effective date of the proposed Transfer until the last day of the term of the
Transfer as set forth in the Transfer Notice. However, if Landlord delivers a
Recapture Notice to Tenant, Tenant may, within ten (10) days after Tenant’s
receipt of the Recapture Notice, deliver written notice to Landlord indicating
that Tenant is rescinding its request for consent to the proposed Transfer, in
which case such Transfer shall not be consummated and this Lease shall remain in
full force and effect as to the portion of the Premises that was the subject of
the Transfer. Tenant’s failure to so notify Landlord in writing within said ten
(10) day period shall be deemed to constitute Tenant’s election to allow the
Recapture Notice to be effective. In the event of a recapture by Landlord, if
this Lease shall be canceled with respect to less than all of the rentable
square feet within the Building, the Rent reserved herein shall be prorated on
the basis of the number of rentable square feet retained by Tenant in proportion
to the number of rentable square feet contained in the Building, and this Lease
as so amended shall continue thereafter in full force and effect, and upon
request of either party, the parties shall execute written confirmation of the
same.  If Landlord declines, or fails to timely elect to recapture the Subject
Space under this Section 14.4, then, provided Landlord has consented to the
proposed Transfer with respect to any Transfer

 

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which such consent is required, Tenant shall be entitled to transfer the Subject
Space to the proposed Transferee, subject to the provisions of this Article 14.

 

14.5                           Effect of Transfer.  If Landlord consents to a
Transfer, (i) the terms and conditions of this Lease shall in no way be deemed
to have been waived or modified, (ii) such consent shall not be deemed consent
to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall
deliver to Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord’s request a complete
statement, certified by an independent certified public accountant, or Tenant’s
chief financial officer, setting forth in detail the computation of any Transfer
Premium Tenant has derived and shall derive from such Transfer, and (v) no
Transfer relating to this Lease or agreement entered into with respect thereto,
whether with or without Landlord’s consent, shall relieve Tenant from liability
under this Lease. Landlord or its authorized representatives shall have the
right at all reasonable times (but no more than one (1) time per calendar year)
to audit the books, records and papers of Tenant relating to any Transfer, and
shall have the right to make copies thereof.  If the Transfer Premium respecting
any Transfer shall be found understated, Tenant shall, within thirty (30) days
after demand, pay the deficiency and, in addition, if understated by more than
(a) two percent (2%), Tenant shall pay Landlord’s cost of such audit within
thirty (30) days after demand, and (b) ten percent (10%), Landlord shall be
entitled to interest on the understated amount at the rate of ten percent (10%)
per annum from the date upon which the understated amount would have been paid
if the Transfer Premium had been accurately determined in the first place to the
date Tenant pays to Landlord in full such understated amounts; Landlord’s rights
pursuant to the immediately preceding sentence shall constitute Landlord’s sole
remedy for any understatement of the Transfer Premium (in the absence of fraud
by Tenant).

 

14.6                           Additional Transfers.  For purposes of this
Lease, the term “Transfer” shall also include (i) if Tenant is a partnership or
limited liability company, the withdrawal or change, voluntary, involuntary or
by operation of law, of fifty percent (50%) or more of the partners or members,
or transfer of fifty percent (50%) or more of partnership or membership
interests, within a twelve (12)-month period, or the dissolution of the
partnership or company without immediate reconstitution thereof, and (ii) except
as otherwise provided in Section 14.7 below, if Tenant is a closely held
corporation (i.e., whose stock is not publicly held and not traded through an
exchange or over the counter), (A) the dissolution, merger, consolidation or
other reorganization of Tenant or, (B) the sale or other transfer of more than
an aggregate of fifty percent (50%) of the voting shares of Tenant (other than
to immediate family members by reason of gift or death) within a twelve
(12)-month period, or (C) the sale, mortgage, hypothecation or pledge of more
than an aggregate of fifty percent (50%) of the value of the unencumbered assets
of Tenant within a twelve (12)-month period.

 

14.7                           Affiliated Transfers.  Notwithstanding anything
contained in this Lease to the contrary, an assignment, subletting or permitting
the use of all or any portion of the Premises to or by a Permitted Affiliate (as
defined below) of Tenant shall not be deemed a Transfer under this Article 14
and thus shall not be subject to (i) any requirement of obtaining Landlord’s
consent thereto under this Article 14, (ii) Landlord’s right to receive fifty
percent (50%) of any Transfer Premium in connection therewith under Section 14.3
or (iii) Landlord’s right to recapture the Premises under Section 14.4, provided
that (a) Tenant notifies Landlord of such assignment or sublease and the
identity of the Permitted Affiliate prior to the effective date thereof and
promptly after request from Landlord supplies Landlord with any documents or
information reasonably requested by Landlord regarding such assignment or
sublease and/or such Permitted Affiliate; (b) such assignment or sublease is not
a subterfuge by Tenant to avoid its obligations under this Lease or the
restrictions on Transfers pursuant to this Article 14, and (c) as of the date of
such assignment, subletting or use, such Permitted Affiliate’s net worth and
financial standing are no less than that of Tenant’s net worth and financial
standing as of the Effective Date.  As used in this Section 14.7. “Permitted
Affiliate” shall mean (1) any person, corporation or other entity which is
controlled by, controls, or in common control with Tenant, or (2) any entity
which merges with Tenant or acquires substantially all of Tenant’s stock or
assets, and in either case of (1) or (2) above, such person, corporation or
other entity has a net worth as of the effective date of the assignment or
sublease at least equal to the net worth of Tenant as of the date of execution
of this Lease.  “Control,” as used in this Section 14.7, shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person or entity, whether through the ownership
of voting securities, by contract or otherwise.

 

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ARTICLE 15

 

SURRENDER OF PREMISES;
REMOVAL OF TRADE FIXTURES

 

15.1                           Surrender of Premises.  No act or thing done by
Landlord or any agent or employee of Landlord during the Lease Term shall be
deemed to constitute an acceptance by Landlord of a surrender of the Premises
unless such intent is specifically acknowledged in a writing signed by Landlord.
The delivery of keys to any portion of the Premises to Landlord or any agent or
employee of Landlord shall not constitute a surrender of the Premises or any
portion thereof or effect a termination or partial termination of this Lease,
whether or not the keys are thereafter retained by Landlord, and notwithstanding
such delivery Tenant shall be entitled to the return of such keys at any
reasonable time upon request until this Lease shall have been properly
terminated.  The voluntary or other surrender of this Lease by Tenant, whether
accepted by Landlord or not, or a mutual termination hereof, shall not work a
merger, and at the option of Landlord shall operate as an assignment to Landlord
of all subleases or subtenancies affecting the Premises.

 

15.2                           Removal of Tenant Property by Tenant.  Upon the
expiration of the Lease Term, or upon any earlier termination of this Lease,
Tenant shall, subject to the provisions of this Article 15, quit and surrender
possession of the Premises to Landlord in as good order and condition as when
Tenant took possession and as thereafter improved by Landlord and/or Tenant,
reasonable wear and tear and repairs which are specifically made the
responsibility of Landlord hereunder excepted.  Upon such expiration or
termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all debris and rubbish, and such items of furniture,
equipment, Alterations and Tenant Improvements which do not conform to the
Specifications (provided Landlord conditioned its approval of their installation
under Section 8.5 above upon Tenant’s removal of such Alterations or
non-standard Tenant Improvements (as applicable) upon the expiration or earlier
termination of this Lease), free- standing cabinet work, and other articles of
personal property owned by Tenant or installed or placed by Tenant at its
expense in the Premises, and such similar articles of any other persons claiming
under Tenant, as Landlord may, in its sole discretion, require to be removed,
and Tenant shall repair at its own expense all damage to the Building resulting
from such removal. Tenant also shall comply with the provisions of Section 8.5
of this Lease. Notwithstanding the foregoing, with respect to Tenant’s cabling,
Landlord shall have the option, exercisable by written notice to Tenant on or
before the day which is thirty (30) days prior to the expiration or earlier
termination of this Lease, to require Tenant to remove any or all of its cabling
from the Premises and to repair any damage to the Premises resulting from such
removal; provided, however, that if Landlord so requires Tenant to remove such
cabling and if, within six (6) months after the date of expiration or earlier
termination of this Lease, leasehold improvements within the Premises are
demolished in a manner such that the amount expended to remove such cabling as a
part of such demolition would have been less than the amount previously incurred
by Tenant to remove such cabling, Landlord shall promptly rebate to Tenant the
difference between the amount expended by Tenant to remove such cabling and the
amount which would have been incurred by Landlord to remove such cabling as a
part of the demolition process described herein.

 

15.3                           Removal of Tenant’s Property by Landlord. 
Whenever Landlord shall re-enter the Premises as provided in this Lease, any
personal property of Tenant not removed by Tenant upon the expiration of the
Lease Term, or within five (5) days after a termination by reason of Tenant’s
default as provided in this Lease, shall be deemed abandoned by Tenant and may
be disposed of by Landlord in accordance with California Civil Code Sections
1980 through 1991 and California Code of Civil Procedure Section 1174, or in
accordance with any laws or judicial decisions which may supplement or supplant
those provisions from time to time.

 

15.4                           Landlord’s Actions on Premises.  Excepting any
claims for damages or other liability arising out of Landlord’s or its agents’
or its representatives’ gross negligence or willful misconduct, Tenant hereby
waives, and releases Landlord from, all claims for damages or other liability in
connection with Landlord’s or its agents’ or representatives’ reentering and
taking possession of the Premises or removing, retaining, storing or selling the
property of Tenant as herein provided, and Tenant hereby indemnifies and holds
Landlord harmless from any such damages or other liability, and no such re-entry
shall be considered or construed to be a forcible entry.

 

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ARTICLE 16

 

HOLDING OVER

 

If Tenant holds over after the expiration of the Lease Term or earlier
termination thereof, with or without the express or implied consent of Landlord,
such tenancy shall be from month-to-month only, and shall not constitute a
renewal hereof or an extension for any further term, and in such case Rent shall
be payable at a monthly rate equal to one hundred and fifty percent (150%) of
the Rent applicable during the last rental period of the Lease Term under this
Lease.  Such month-to-month tenancy shall be subject to every other applicable
term, covenant and agreement contained herein. Notwithstanding the foregoing,
Tenant shall have the one-time right, upon notice (the “Holdover Notice”) to
Landlord not less than twelve (12) months prior to the expiration of the then
Lease Term, to extend the Lease Term for a period of up to two (2) months (the
“Permitted Holdover Term”), in which case the Rent payable by Tenant during such
Permitted Holdover Term shall equal one hundred twenty-five percent (125%) of
the Rent applicable during the last rental period of the Lease Term under this
Lease for the first (1st) month of such Permitted Holdover Term and one hundred
fifty percent (150%) for the second (2nd) months of such Permitted Holdover
Term. Nothing contained in this Article 16 shall be construed as consent by
Landlord to any holding over by Tenant, and Landlord expressly reserves the
right to require Tenant to surrender possession of the Premises to Landlord as
provided in this Lease upon the expiration or other termination of this Lease. 
The provisions of this Article 16 shall not be deemed to limit or constitute a
waiver of any other rights or remedies of Landlord provided herein or at law. If
Tenant fails to surrender the Premises upon the termination or expiration of
this Lease, in addition to any other liabilities to Landlord accruing therefrom,
Tenant shall protect, defend, indemnify and hold Landlord harmless from all
loss, costs (including reasonable attorneys’ fees) and liability resulting from
such failure, including, without limiting the generality of the foregoing, any
claims made by any succeeding tenant founded upon such failure to surrender and
any lost profits to Landlord resulting therefrom; , provided Landlord promptly
notified Tenant in writing of any lease or signed letter of intent for all or
any portion of the Premises.

 

ARTICLE 17

 

ESTOPPEL CERTIFICATES

 

Within fifteen (15) days following a request in writing by either party to the
other, but in no event more frequently than three (3) times in any twelve (12)
month period, the recipient party shall execute and deliver to the requesting
party an estoppel certificate, which shall be substantially in the form of
Exhibit E, attached hereto (or such other form as may be reasonably required by
any prospective mortgagee or purchaser of the Building or other portion of the
Project, or any portion thereof), indicating therein any exceptions thereto that
may exist at that time, and shall also contain any other information reasonably
requested by Landlord or Landlord’s mortgagee or prospective mortgagee. Tenant
shall execute and deliver whatever other instruments may be reasonably required
for such purposes. Failure of either party to timely execute and deliver such
estoppel certificate or other instruments shall constitute an acceptance of the
Premises (if addressed to Tenant) and an acknowledgment by such party that the
statements included in the estoppel certificate in good faith are true and
correct, without exception. At any time during the Lease Term, Landlord may
require Tenant to provide Landlord with a current financial statement and
financial statements of the two (2) years prior to the current financial
statement year. Such statements shall be prepared in accordance with generally
accepted accounting principles, shall be certified by Tenant’s board of
directors or by an officer of Tenant, and, if such is the normal practice of
Tenant, shall be audited by an independent certified public accountant.

 

ARTICLE 18

 

SUBORDINATION

 

This Lease shall be subject and subordinate to all present and future ground or
underlying leases of the Building or Project and to the lien of any first
mortgage or trust deed, now or hereafter in force against the Building or
Project, if any, and to all renewals, extensions, modifications, consolidations
and replacements thereof, and to all advances made or hereafter to be made upon
the security of such mortgages or trust deeds, unless the holders of such
mortgages

 

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or trust deeds, or the lessors under such ground lease or underlying leases,
require in writing that this Lease be superior thereto. Landlord agrees to
provide Tenant, within sixty (60) days after written request by Tenant, with
commercially reasonable nondisturbance agreements(s) in favor of Tenant from any
ground lessors, mortgage holders or deed of trust beneficiaries under any ground
lease, mortgage or deed of trust affecting the Project or any portion thereof
leased by Tenant (whether now existing or coming into existence at any time
after the date of execution of this Lease but prior to the expiration of the
Lease Term) and in consideration of, and as a condition precedent to, Tenant’s
agreement to be bound by the terms of this Article 18. Tenant covenants and
agrees in the event any proceedings are brought for the foreclosure of any such
mortgage or deed in lieu thereof, to attorn, without any deductions or set-offs
whatsoever, to the purchaser or any successors thereto upon any such foreclosure
sale or deed in lieu thereof if so requested to do so by such purchaser, and to
recognize such purchaser as the lessor under this Lease. Tenant shall, within
fifteen (15) days of request by Landlord, execute such further instruments or
assurances as Landlord or any mortgage holder or deed of trust beneficiary may
reasonably deem necessary to evidence or confirm the subordination or
superiority of this Lease to any such mortgages, trust deeds, ground leases or
underlying leases or other typical provisions contained in Subordination,
Non-Disturbance and Attornment Agreements. Tenant waives the provisions of any
current or future statute, rule or law which may give or purport to give Tenant
any right or election to terminate or otherwise adversely affect this Lease and
the obligations of Tenant hereunder in the event of any foreclosure proceeding
or sale.

 

ARTICLE 19

 

DEFAULTS; REMEDIES

 

19.1                           Defaults.  The occurrence of any of the following
shall constitute a default of this Lease by Tenant:

 

19.1.1                  Any failure by Tenant to pay any Rent or any other
charge required to be paid under this Lease, or any part thereof, when due,
where such failure continues for five (5) days after written notice thereof from
Landlord to Tenant; or

 

19.1.2                  Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided, however, if the nature of such a
default is such that the same cannot be reasonably be cured within a thirty (30)
day period, Tenant shall not be deemed to be in default if it diligently
commences such cure within such period and thereafter diligently proceeds to
rectify and cure said default as soon as is reasonably possible under the
circumstances; or

 

19.1.3                  To the extent permitted by law, a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors, or the filing
by or against Tenant or any guarantor of any proceeding under an insolvency or
bankruptcy law, unless in the case of a proceeding filed against Tenant or any
guarantor the same is dismissed within sixty (60) days, or the appointment of a
trustee or receiver to take possession of all or substantially all of the assets
of Tenant or any guarantor, unless possession is restored to Tenant or such
guarantor within thirty (30) days, or any execution or other judicially
authorized seizure of all or substantially all of Tenant’s assets located upon
the Premises or of Tenant’s interest in this Lease, unless such seizure is
discharged within thirty (30) days; or

 

19.1.4                  The hypothecation or assignment of this Lease or
subletting of the Premises in violation of Article 14 hereof; or

 

19.2                           Remedies Upon Default.  Upon the occurrence of
any event of default by Tenant, Landlord shall have, in addition to any other
remedies available to Landlord at law or in equity, the option to pursue any one
or more of the following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever.

 

19.2.1                  Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession of arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or

 

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damages therefor; and subject to the liquidated damages provision set forth in
Article 31 of this Lease, Landlord may recover from Tenant the following
(collectively, the “1951.2 Damage Amount”):

 

(i)            The worth at the time of award of any unpaid rent which has been
earned at the time of such termination; plus

 

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

 

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

 

(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 which in the ordinary course of things would be likely to
result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, and an amortized portion (over
the balance of the Lease Term compared to the term of any new lease) of any
expenses of remodeling the Premises or any portion thereof for a new tenant,
whether for the same or a different use, and any special concessions made to
obtain a new tenant; and

 

(v)           At Landlord’s election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable law.

 

The term “rent” as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Sections 19.2.1(i) and
(ii) above, the “worth at the time of award” shall be computed by allowing
interest at the rate set forth in Article 25 of this Lease, but in no case
greater than the maximum amount of such interest permitted by law. As used in
Section 19.2.1(iii) above, the “worth at the time of award” shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).

 

19.2.2                  Landlord shall have 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 the
right to sublet or assign, subject only to reasonable limitations). Accordingly,
if Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all Rent as it becomes due.

 

19.3                           Sublessees of Tenant. Whether or not Landlord
elects to terminate this Lease on account of any default by Tenant as set forth
in this Article 19, Landlord shall have the right to terminate any and all
subleases, licenses, concessions or other consensual arrangements for possession
entered into by Tenant and affecting the Premises or may, in Landlord’s sole
discretion, succeed to Tenant’s interest in such subleases, licenses,
concessions or arrangements. In the event of Landlord’s election to succeed to
Tenant’s interest in any such subleases, licenses, concessions or arrangements,
Tenant shall, as of the date of notice by Landlord of such election, have no
further right to or interest in the rent or other consideration receivable
thereunder.

 

19.4                           Form of Payment After Default.  Following the
occurrence of more than two (2) monetary events of default by Tenant in any
twelve (12) month period during the Lease Term, landlord shall have the right to
require that any or all subsequent amounts paid by Tenant to Landlord hereunder,
whether in the cure of the default in question or otherwise, be paid in the form
of cash, money order, cashier’s or certified check drawn on an institution
acceptable to Landlord, or by other means approved by Landlord, notwithstanding
any prior practice of accepting payments in any different form.

 

19.5                           Waiver of Default. No waiver by Landlord or
Tenant of any violation or breach of any of the terms, provisions and covenants
herein contained shall be deemed or construed to

 

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constitute a waiver of any other or later violation or breach of the same or any
other of the terms, provisions, and covenants herein contained.  Forbearance by
Landlord in enforcement of one or more of the remedies herein provided upon an
event of default shall not be deemed or construed to constitute a waiver of such
default.  The acceptance of any Rent hereunder by Landlord following the
occurrence of any default, whether or not known to Landlord, shall not be deemed
a waiver of any such default, except only a default in the payment of the Rent
so accepted.

 

19.6                           Efforts to Relet.  For the purposes of this
Article 19, Tenant’s right to possession shall not be deemed to have been
terminated by efforts of Landlord to relet the Premises, by its acts of
maintenance or preservation with respect to the Premises, or by appointment of a
receiver to protect Landlord’s interest hereunder.  The foregoing enumeration is
not exhaustive, but merely illustrative of acts which may be performed by
Landlord without terminating Tenant’s right to possession.

 

19.7                           Landlord Default.  Notwithstanding anything to
the contrary set forth in this Lease, Landlord shall be in default in the
performance of any obligation required to be performed by Landlord pursuant to
this Lease if Landlord fails to perform such obligation within thirty (30) days
after the receipt of notice from Tenant specifying in detail Landlord’s failure
to perform; provided, however, if the nature of Landlord’s obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be in default under this Lease if it shall commence such performance
within such thirty (30) day period and thereafter diligently pursues the same to
completion.  Upon any such default by Landlord under this Lease, Tenant may,
except as otherwise specifically provided in this Lease to the contrary,
exercise any of its rights provided at law or in equity. Any award from a court
or arbitrator in favor of Tenant requiring payment by Landlord which is not paid
by Landlord within the time period directed by such award, may be offset by
Tenant from Rent next due and payable under this Lease; provided, however,
Tenant may not deduct the amount of the award against more than fifty percent (
0 ) of ?ase Rent next due and owing (until such time as the entire amount of
such ?udgment is deducted) to the extent following a foreclosure or a deed in
lieu of foreclosure

 

ARTICLE 20

 

COVENANT OF QUIET ENJOYMENT

 

Landlord covenants that Tenant, on paying the Rent, charges for services and
other payments herein reserved and on keeping, observing and performing all the
other terms, covenants, conditions, provisions and agreements herein contained
on the part of Tenant to be kept, observed and performed, shall, during the
Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to
the terms, covenants, conditions, provisions and agreements hereof without
interference by any persons lawfully claiming by or through Landlord.  The
foregoing covenant is in lieu of any other covenant express or implied.

 

ARTICLE 21

 

LETTER OF CREDIT

 

21.1                           Delivery of Letter of Credit.  Tenant shall
deliver to Landlord, within ten (10) business days following the entry of the
“Court Order,” as that term is defined in Section 29.34, below, an
unconditional, clean, irrevocable letter of credit (the “L-C”) in an amount
equal to Two Million Three Hundred Thousand and No/100  Dollars ($2,300,000.00);
the “L-C Amount”), which L-C shall be issued by a money-center bank (a bank
which accepts deposits, maintains accounts, has a Southern California office
which will negotiate a letter of credit, and whose deposits are insured by the
FDIC) reasonably acceptable to Landlord, and which L-C shall be in the form of
Exhibit M, attached hereto. Tenant shall pay all expenses, points and/or fees
incurred by Tenant in obtaining the L-C.

 

21.2                           Application of Letter of Credit. Landlord shall
have the immediate right to draw upon the L-C, in whole or in part and without
prior notice to Tenant, other than that required under the Lease, at any time
and from time to time: (i) if a default occurs under this Lease (beyond any
applicable notice and cure period), or (ii) Tenant either files a voluntary
petition, or an involuntary petition is filed against Tenant by an entity other
than Landlord, under any chapter of the Federal Bankruptcy Code or Tenant
executes an assignment for the benefit of creditors.  No condition or term of
this Lease shall be deemed to render the L-C conditional,

 

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thereby justifying the issuer of the L-C in failing to honor a drawing upon such
L-C in a timely manner. The L-C and its proceeds shall constitute Landlord’s
sole and separate property (and not Tenant’s property or, in the event of a
bankruptcy filing by Tenant, property of Tenant’s bankruptcy estate) and
Landlord may immediately upon any draw (and without notice to Tenant) apply or
offset the proceeds of the L-C: (i) against any amounts payable by Tenant under
this Lease that are not paid when due, after the expiration of any applicable
notice and cure period; (ii) against all losses and damages that Landlord has
suffered or may reasonably estimate that it may suffer as a result of any
default by Tenant under this Lease, including any damages arising under Section
1951.2 of the California Civil Code for rent due following termination of this
Lease; (iii) against any costs incurred by Landlord in connection with this
Lease (including attorneys’ fees); and (iv) against any other amount that
Landlord may spend or become obligated to spend by reason of Tenant’s default
under this Lease but in no event in excess of amounts to which the Landlord
would be entitled under the law. Provided Tenant has performed all of its
obligations under this Lease, Landlord agrees to pay to Tenant within thirty
(30) days after the Lease Expiration Date the amount of any proceeds of the L-C
received by Landlord and not applied as allowed above, and return the L-C to
Tenant within the foregoing thirty (30) day period; provided that if prior to
the Lease Expiration Date a voluntary petition is filed by Tenant, or an
involuntary petition is filed against Tenant by any of Tenant’s creditors other
than Landlord, under the Federal Bankruptcy Code, or Tenant executes an
assignment for the benefit of creditors, then Landlord shall not be obligated to
return the L-C or any proceeds of the L-C until all statutes of limitations for
any preference avoidance statutes applicable to such bankruptcy or assignment
for the benefit of creditors have elapsed or the bankruptcy court or assignee,
whichever is applicable, has executed a binding release releasing the Landlord
of any and all liability for preferential transfers relating to payments made
under this Lease, and Landlord may retain and offset against any remaining L-C
proceeds the full amount Landlord is required to pay to any third party on
account of preferential transfers relating to this Lease.  If Landlord draws on
the L-C as permitted in this Section 21.2, then, upon demand of Landlord, Tenant
shall restore the amount available under the L-C to the amount set forth in
Section 21.1, above, by providing Landlord with an amendment to the L-C
evidencing that the amount available under the L-C has been restored to the
amount set forth in Section 21.1, above. In the alternative, Tenant may provide
Landlord with cash, to be held by Landlord in accordance with this Section 21.2
in an amount equal to the restoration amount required under this Section 21.2. 
Tenant shall pay all expenses, points and fees incurred by Tenant or Landlord in
renewing, replacing, drawing or transferring the L-C. Landlord and Tenant (a)
acknowledge and agree that in no event or circumstance shall the L-C or any
renewal thereof or substitute therefor or any proceeds thereof be deemed to be
or treated as a “security deposit” under any law applicable to security deposits
in the commercial context, including, but not limited to, Section 1950.7 of the
California Civil Code, as such Section now exists or as it may be hereafter
amended or succeeded (the “Security Deposit Laws”), (b) acknowledge and agree
that the L-C (including any renewal thereof or substitute therefor or any
proceeds thereof) is not intended to serve as a security deposit, and the
Security Deposit Laws shall have no applicability or relevancy thereto, and (c)
waive any and all rights, duties and obligations that any such party may now, or
in the future will, have relating to or arising from the Security Deposit Laws.
Tenant hereby waives the provisions of Section 1950.7 of the California Civil
Code and all other provisions of law, now or thereafter in effect, which (A)
establish the time frame by which a landlord must refund a security deposit
under a lease, and/or (B) provide that a landlord may claim from a security
deposit only those sums reasonably necessary to remedy defaults in the payment
of rent, to repair damage caused by a tenant or to clean the premises, it being
agreed that Landlord may, in addition, claim those sums specified in this
Section 21.2 and/or those sums reasonably necessary to compensate Landlord for
any loss or damage caused by Tenant’s breach of this Lease, including any
damages Landlord suffers following termination of this Lease.

 

ARTICLE 22

ROOF RIGHTS

 

Subject to all governmental laws, rules and regulations and compliance with the
CC&R’s, Tenant and Tenant’s contractors (which shall first be approved by
Landlord but which approval shall not be unreasonably withheld or delayed (as
specified in Section 29.4 below)) shall have the nonexclusive right and access,
without further payment of Rent to Landlord, to install, repair, replace,
remove, operate and maintain satellite dishes and/or microwave dishes, and other
radio transmitting and receiving antennae, together with all necessary cable,
wiring, conduits and

 

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related equipment (collectively, “Communication Equipment”), for the purpose of
receiving and sending telephone and other communication signals servicing the
business conducted by Tenant from within the Premises, at a location on the roof
of the Building as reasonably requested by Tenant and reasonably approved by
Landlord in writing; provided, however, in no event shall Tenant be permitted to
use more than twenty-five percent (25%) of the space available for such
Communications Equipment on the roof of the Building. Subject to the applicable
restrictions below, as of April 1, 2003, Landlord hereby approves Tenant’s
existing Tenant’s Communication Equipment.  Tenant’s installation and operation
of the Communication Equipment shall be governed by the following terms and
conditions:

 

(i)                                     Tenant’s right to install, replace,
repair, remove, operate and maintain the Communication Equipment shall be
subject to all governmental laws, rules and regulations and Landlord makes no
representations that such laws, rules and regulations permit such installation
and operation. Any such installation shall be under the supervision of Landlord,
by a contractor approved by Landlord and shall be installed in a lien-free
manner in accordance with the provisions of this Lease.

 

(ii)                                  The exact size, quality, materials and
aesthetics of, and any required screening for, the Communication Equipment shall
be subject to Landlord’s prior written consent which shall not be unreasonably
withheld or delayed. In addition, the installation, protection for roof
membrane, specifications for roof penetration and flashing shall be subject to
Landlord’s prior written consent, which shall not be unreasonably withheld or
delayed.

 

(iii)                               All costs of installation, operation and
maintenance of the Communication Equipment and any necessary related equipment
(including, without limitation, costs of obtaining any necessary permits and of
connections to the Building’s electrical system) shall be borne by Tenant. All
such Communication Equipment shall be screened to commercially reasonable
standards and to prevent visual impairment. Tenant shall be responsible for the
replacement, repair and maintenance, at Tenant’s sole cost and expense, of those
areas on the roof of the Building surrounding Tenant’s Communication Equipment
to the extent any such replacement, repair or maintenance is required by virtue
of Tenant’s installation, operation or maintenance of Tenant’s Communication
Equipment, notwithstanding anything to the contrary contained in this Lease.

 

(iv)                              Tenant shall endeavor to use the Communication
Equipment so as not to cause any interference (i) with any other communications
from or to the Project or (ii) to other existing tenants or occupants in the
Project who may use the communication facilities located at the Project and/or
related facilities.

 

(v)                                 Landlord shall not have any obligations with
respect to the Communication Equipment. Landlord makes no representation that
the Communication Equipment will be able to receive or transmit communication
signals without interference or disturbance and Tenant agrees that Landlord
shall not be liable to Tenant therefor.

 

(vi)                              Tenant’s rights with respect to such
Communication Equipment shall be personal to the Original Tenant executing this
Lease and may not be assigned or transferred to, or utilized by, any other
person or entity with the exception of any Permitted Affiliate (“Qualifying
Transferee”); provided, however, such Qualifying Transferee’s rights with
respect to Communication Equipment shall be subject to all the terms and
conditions of this Article 22.  Other than Qualifying Transferees, Tenant shall
not be permitted to allow any third party to use any portion of the roof for
Communication Equipment or otherwise without Landlord’s consent, which shall not
be unreasonably withheld.

 

(vii)                           Tenant shall (i) be solely responsible for any
damage caused as a result of the Communication Equipment, (ii) promptly pay any
tax, license or permit fees charged pursuant to any laws or regulations in
connection with the installation, maintenance or use of the Communication
Equipment and comply with all precautions and safeguards recommended by all
governmental authorities, and (iii) pay for all necessary repairs, replacements
to or maintenance of the Communication Equipment and all roof repairs required
by the installation and maintenance of the Communication Equipment.

 

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(viii)                        The Communication Equipment shall remain the sole
property of Tenant. Tenant shall remove the Communication Equipment and related
equipment at Tenant’s sole expense upon the expiration or sooner termination of
this Lease or upon the imposition of any governmental law or regulation which
may require removal, and shall repair the Building upon such removal to the
extent required by such work of removal. If Tenant fails to remove the
Communication Equipment and repair the Building within thirty (30) days after
the expiration or earlier termination of this Lease with respect to such
Building, Landlord may do so at Tenant’s expense.

 

(ix)                                Tenant hereby expressly acknowledges
Landlord’s continued right (i) to itself utilize any rooftop space, and (ii) to
re-sell, license or lease of any rooftop space to an unaffiliated third party;
provided, however, such Landlord (or third-party) use shall not materially
interfere with (or preclude the installation of) Tenant’s Communication
Equipment.

 

ARTICLE 23

 

SIGNAGE

 

23.1                           General. Other than as contemplated by Section
23.2 below, Tenant shall have no right to install or maintain any Tenant
identification signs (or any other signs, banners or other such displays) in any
location on the Building or in the Project which may be visible from the
exterior of the Building, except as may be approved by Landlord in writing prior
to installation (which approval shall not be unreasonably withheld, and are
consistent and compatible with (a) the restrictions contained in this Article
23, (b) all governmental regulations and requirements, (c) the Project’s signage
criteria, a copy of which is attached hereto as Exhibit J (“Signage Criteria”),
and (d) the CC&R’s.

 

23.2                           Tenant’s Exterior Signage Rights.

 

23.2.1                  Subject to Landlord’s prior written consent (which
consent shall not be unreasonably withheld, conditioned or delayed), Tenant
shall have the right, at Tenant’s sole cost and expense, to install during the
Lease Term one (1) identity sign on the exterior of the Building (the “Building
Top Sign”). Subject to the terms of Section 23.2.9, below, Landlord hereby
approves Tenant’s current Building Top Sign.

 

23.2.2                  Tenant’s right to the Building Top Sign shall be
personal to the Original Tenant, any Permitted Affiliate and any other assignee
of Tenant’s entire interest in this Lease (collectively, “Permitted Signage
Entities”) and may not be transferred to any other person or entity, except
that, subject to the occupancy requirements of Section 23.2.4 below, Tenant may
assign Tenant’s rights to the Building Top Sign to any Transferee occupying at
least 65,000 rentable square feet of the Premises where Landlord reasonably
determines that the name of the Transferee is not an “Objectionable Name,” as
that term is defined below.  The term “Objectionable Name” shall mean any name
that (i) relates to an entity that is of a character or reputation, or is
associated with a political orientation or faction, that is inconsistent with
the quality of the Project as a first-class, institutional quality office
project, or which a landlord of a first-class, institutional quality office
project would reasonably find to be offensive, taking into consideration the
level and visibility of the Building Top Sign, or (ii) conflicts with any
exclusive use covenants in other leases of space in the Project.

 

23.2.3                  To the extent Landlord constructs a monument sign for
the Building, Tenant shall be entitled to use, on a non-exclusive basis.
Tenant’s then-existing pro-rata share of such monument sign’s signage area to
have its professional name and logo displayed.  Notwithstanding the foregoing,
Landlord shall have the right, in Landlord’s sole and absolute discretion, in
construct additional monument signs for the Project and Tenant shall have no
rights in connection therewith.

 

23.2.4                  To the extent that (i) Tenant’s (or any other Permitted
Signage Entity’s) occupancy of the Premises falls below 53,000 rentable square
feet of the Premises, (ii) Tenant has been in default under the Lease (beyond
any applicable notice and cure periods) more than once during the immediately
preceding twelve (12) months, or (iii) Tenant is in default of the Lease
pursuant to the terms and conditions of Section 19.1.3, above, then upon notice
to Tenant, Tenant’s right to the Building Top Sign shall terminate and Tenant
shall remove such sign in accordance with Section 23.2.8 below.

 

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23.2.5                  Any utility costs for illuminated signs shall be charged
to Tenant pursuant to Article 6.

 

23.2.6                  Notwithstanding the foregoing, Landlord hereby reserves
and retains the right to identify Landlord (or its successor) as owner and/or
manager of the Project on monument signage and at the entry to the Building.

 

23.2.7                  Tenant’s Building Top Sign shall remain on the west
elevation of the Building in such Building Top Sign’s current location.  The
Building Top Sign shall be maintained, at the sole cost and expense of Tenant,
pursuant to a maintenance program approved by Landlord.

 

23.2.8                  Tenant shall, at Tenant’s sole cost and expense (subject
to Landlord’s supervision, but without charge to Tenant for such supervision),
cause the Building Top Sign to be removed and the Building to be restored to the
condition existing prior to the placement of such Building Top Sign(reasonable
wear and tear excepted) at the expiration or earlier termination of this Lease
(or such earlier time as Tenant elects or is required to remove any such
Building Top Sign).  If Tenant fails to remove Building Top Sign and restore the
Building as provided above within thirty (30) days following Landlord’s demand
therefor, then Landlord may perform such work and all costs and expenses
incurred by Landlord in so performing such work shall be reimbursed by Tenant to
Landlord within fifteen (15) days following Landlord’s delivery to Tenant of an
invoice therefor.

 

23.2.9                  Notwithstanding anything in this Article 23 to the
contrary, Landlord shall be permitted to install (or permit to be installed) one
(1) other building top sign on the Building in Landlord’s sole and absolute
discretion.  To the extent that Tenant’s Building Top Sign should need to be
reduced in size in order to accommodate such other building top sign, Landlord
shall have the right, upon prior written notice to Tenant and at Landlord’s sole
cost and expense, to cause Tenant’s Building Top Sign to be reduced in size (but
in no event to less than a total of 100 square feet in size).

 

23.3                           Tenant’s Interior Signage Rights. A building
directory will be installed by Landlord, at Landlord’s sole cost and expense,
and shall be located in the lobby of the Building (“Directory Board”). Tenant
shall be entitled to its Building pro-rata share of the space on such Directory
Board. In addition, Tenant shall have the right to use Tenant’s pro-rata share
of the available signage area on the signage wall in the Building Lobby (the
“Signage Wall”). In no event shall Landlord install (or allow to be installed)
any tenant’s signage on such Signage Wall to the extent such tenant occupies
less than one-half (1/2) of a full-floor of the Building. Tenant acknowledges
and agrees that notwithstanding anything to the contrary in the Existing Lease,
that consistent with the multi-tenant nature of the Building, except to the
extent set forth herein, all Tenant signage currently located in the Building
Lobby shall be removed by Tenant, at Tenant’s sole cost and expense, and any
additional Tenant signage located and or installed in the Building Lobby
(“Tenant’s Lobby Signage”) shall be subject to Landlord’s reasonable approval
and the Signage Criteria, and, to the extent that Tenant’s Lobby Signage should
need to be moved and/or reduced in size or number in order to accommodate the
multi-tenant nature of the Building, as reasonably determined by Landlord,
Landlord shall have the right, upon prior written notice to Tenant and at
Landlord’s sole cost and expense, to move and/or reduced in size or number
Tenant’s Lobby Signage; provided however, in no event shall Landlord install (or
permit to be installed) any “eyebrow” signage other than Tenant’s in the east
elevation portion of the Building Lobby. Tenant shall also have the right to
install other signage identifying Tenant within the Premises, including, but not
limited to, one (1) sign identifying Tenant’s Premises, which signage shall be
in compliance with the Signage Criteria.

 

ARTICLE 24

 

COMPLIANCE WITH LAW

 

Tenant shall not do anything or suffer anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. At its sole cost and expense, Tenant shall
promptly comply with all such governmental measures, other than the making of
(i) structural changes to the Building or (ii) changes to the Building’s life
safety system, or (iii) any capital improvements to the Project the requirement
of which is not related to

 

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Tenant’s particular use of the Premises or Alterations made by Tenant. 
Compliance with the items described in subsections (i), (ii) and (iii) above
shall be Landlord’s responsibility and shall, subject to the terms of Article 4
above, be included in Operating Expenses. Should any standard or regulation now
or hereafter be imposed on Landlord or Tenant by a state, federal or local
governmental body charged with the establishment, regulation and enforcement of
occupational, health or safety standards for employers, employees, landlords or
tenants, then Tenant agrees, at its sole cost and expense, to comply promptly
with such standards or regulations. The judgment of any court of competent
jurisdiction or the admission of Tenant in any judicial action, regardless of
whether Landlord is a party thereto, that Tenant has violated any of said
governmental measures, shall be conclusive of that fact as between Landlord and
Tenant. Notwithstanding the foregoing or anything to the contrary contained in
this Lease, Landlord hereby warrants to Tenant that the Building shall be in
compliance with the requirements of the Americans With Disabilities Act (“ADA”) 
and California Administrative Code Title 24 (“Title 24”) in effect at the time
Landlord obtains the certificate of occupancy (or its equivalent) for the Base,
Shell and Core; provided, however, that if the requirements of ADA and/or Title
24 change after the date upon which Landlord obtains the permit for the initial
construction of the Building and Landlord is not required by law to comply with
such change, Landlord shall not be in violation of this provision so long as
Landlord not making such change does not increase the cost of construction of
the Tenant Improvements or delay the construction of the Tenant Improvements. 
Landlord will be fully responsible for making all alterations and repairs to the
Building, at Landlord’s cost (which shall not be included in Operating Expenses)
resulting from or necessitated by the failure of Landlord or Landlord’s
contractors to comply with the foregoing ADA and Title 24 warranty. The
obtaining of a Certificate of Occupancy by either Landlord or Tenant permitting
Tenant occupy the Building shall be prima facia evidence that Landlord has
complied with the foregoing requirements of this Article 24 (“Requirements”) as
of the date of such Certificate of Occupancy, unless refuted or reversed by any
applicable governmental authorities.  However, notwithstanding anything to the
contrary contained in this Article 24.  Tenant, at Tenant’s sole cost and
expense, shall promptly make all repairs, replacements, alterations or
improvements needed to comply with the Requirements to the extent that the
Requirements relate to or are triggered by (a) Tenant’s particular use of the
Building for other than general office use, or (b) any Alterations made to the
Building by Tenant.

 

ARTICLE 25

 

LATE PAYMENTS

 

If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord’s designee within five (5) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the overdue amount plus any attorneys’ fees incurred by Landlord
by reason of Tenant’s failure to pay Rent and/or other charges when due
hereunder. The late charge shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord’s other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord’s remedies in any manner.  In addition to the late charge
described above, any Rent or other amounts owing hereunder which are not paid
within five (5) days alter the date they are due shall bear interest from the
date when due until paid at a rate per annum (“Interest Rate”) equal to the
lesser of (i) the annual “Bank Prime Loan” rate cited in the Federal Reserve
Statistical Release Publication G.13(415), published on the first Tuesday of
each calendar month (or such other comparable index as Landlord and Tenant shall
reasonably agree upon if such rate ceases to be published) plus four (4)
percentage points, and (ii) the highest rate permitted by applicable law.

 

ARTICLE 26

 

LANDLORD’S RIGHT TO CURE DEFAULT;
PAYMENTS BY TENANT

 

26.1                           Landlord’s Cure.  All covenants and agreements to
be kept or performed by Tenant under this Lease shall be performed by Tenant at
Tenant’s sole cost and expense and without any reduction of Rent.  If Tenant
shall fail to perform any of its obligations under this Lease, within a
reasonable time after such performance is required by the terms of this Lease,
Landlord may, but shall not be obligated to, after reasonable prior notice to
Tenant (except in the case of an emergency), make any such payment or perform
any such act on Tenant’s part without

 

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waiving its rights based upon any default of Tenant and without releasing Tenant
from any obligations hereunder.

 

26.2                           Tenant’s Reimbursement.  Except as may be
specifically provided to the contrary in this Lease, Tenant shall pay to
Landlord, within fifteen (15) days after delivery by Landlord to Tenant of
statements therefor: (i) sums equal to expenditures reasonably made and
obligations incurred by Landlord in connection with the remedying by Landlord of
Tenant’s defaults pursuant to the provisions of Section 26.1; (ii) sums equal to
all losses, costs, liabilities, damages and expenses referred to in Article 10
of this Lease; and (iii) sums equal to all expenditures reasonably made and
obligations incurred by Landlord in collecting or attempting to collect the Rent
or in enforcing or attempting to enforce any rights of Landlord under this Lease
or pursuant to law, including, without limitation, all legal fees and other
amounts so expended. Tenant’s obligations under this Section 26.2 shall survive
the expiration or sooner termination of the Lease Term.

 

ARTICLE 27

 

ENTRY BY LANDLORD

 

Landlord reserves the right at all reasonable times and upon reasonable notice
to Tenant (except in the case of an emergency) to enter the Premises to (i)
inspect them; (ii) show the Premises to prospective purchasers, mortgagees or
tenants (but as to prospective tenants, only during the last twelve (12) months
of the initial Lease Term), or to the ground or underlying lessors; (iii) post
notices of nonresponsibility; or (iv) alter, improve or repair the Premises or
the Building if necessary to comply with current building codes or other
applicable laws, or for structural alterations, repairs or improvements to the
Building. Tenant shall be offered an opportunity to accompany Landlord in
connection with any such entry and Landlord shall use reasonable efforts to
comply with Tenant’s security procedures in connection with such entry (except
that these restrictions shall not apply in the case of an emergency where Tenant
is not available to accompany Landlord). Notwithstanding anything to the
contrary contained in this Article 27, Landlord may enter the Premises at any
time to (A) perform services required of Landlord; (B) take possession due to
any breach of this Lease in the manner provided herein; and (C) perform any
covenants of Tenant which Tenant fails to perform. Landlord may make any such
entries without the abatement of Rent so long as Tenant can continue to occupy
and use any affected portion of the Premises for the same business purposes as
Tenant had been using such affected portion prior to Landlord’s entry, and
Landlord may take such reasonable steps as required to accomplish the stated
purposes, provided, however, that any such entry shall be accomplished as
expeditiously as reasonably possible and in a manner so as to not materially and
adversely interfere with Tenant’s normal business functions. Tenant hereby
waives any claims for damages or for any injuries or inconvenience to or
interference with Tenant’s business, lost profits, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby except
any claims arising out of Landlord’s gross negligence or willful misconduct. For
each of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises, excluding Tenant’s vaults, safes and
special security areas designated from time to time in advance by Tenant. In an
emergency, Landlord shall have the right to use any means that Landlord may deem
proper to open the doors in and to the Premises. Any entry into the Premises by
Landlord in the manner hereinbefore described shall not be deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from any portion of the Premises.

 

ARTICLE 28

 

TENANT PARKING

 

Commencing on the Effective Date, Tenant shall have the right, at no cost to
Tenant during the initial Lease Term to the use of the number of parking permits
set forth in Section 9 of the Summary, which parking permits shall pertain to
the Project parking facilities. Such parking permits shall permit Tenant and its
employees and invitees to use, on a nonexclusive basis, together with other
tenants and their respective employees and invitees, any undesignated,
unreserved spaces available in only those parking areas designated in the CC&R’s
Parking Plan as Section 6 (the “Parking Structure”) and Section 7 (the surface
parking areas between Buildings 2-5 and the Parking Structure), and no others.
Tenant shall be responsible for the full amount of any taxes imposed by any
governmental authority in connection with the renting of

 

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such parking passes by Tenant or the use of the Project parking facility by
Tenant. Tenant shall abide by the CC&R’s Parking Plan and all rules and
regulations which are prescribed from time to time for the orderly operation and
use of the Project parking facility (including without limitation those attached
hereto as Exhibit D). provided that Landlord shall not prescribe any other rules
and regulations which unreasonably and adversely affect Tenant’s use of the
Project parking facility. Such rules and regulations shall provide that Tenant
shall pay Landlord’s then current nominal charge for any replacement of any
Tenant parking pass card, if any, which is lost, stolen, damaged or destroyed.
Tenant understands and agrees that, pursuant to the CC&R’s, other owners of
adjacent property to the Project have been or will be granted reciprocal rights
of access and parking over certain portions of the Project as more particularly
set forth in the CC&R’s; provided, however, the use of the parking structure
will be limited to tenants of the Project. Tenant acknowledges and agrees that
Landlord may, without incurring any liability to Tenant and without any
abatement of Rent under this Lease, from time to time, temporarily restrict
access to the Project parking facility for purposes of permitting any such
construction, alteration or improvements so long as Landlord takes all
reasonable measures to minimize any disruption to Tenant’s use or access of the
Project parking facilities for the duration of any such construction, alteration
or improvements. Notwithstanding the foregoing, Landlord may, without Tenant’s
prior, written approval, make such changes to the Project parking facilities to
the extent such changes are mandated by any applicable governmental law, rule or
regulation or any changes to any governmental law, rule or regulation. If
Landlord is forced to relocate Tenant’s parking off site of the Project parking
facility, any such relocation shall be temporary and Landlord shall use
commercially reasonable efforts to cause such relocation to be within a
reasonable walking or shuttle distance of the Project. Landlord may delegate its
responsibilities hereunder to a parking operator in which case such parking
operator shall have all the rights of control attributed hereby to the Landlord.
Tenant’s parking permits under this Article 28 are provided to Tenant solely for
use by Tenant’s own personnel and such privileges may not be transferred,
assigned, subleased or otherwise alienated by Tenant without Landlord’s prior
approval other than on a pro rata basis to Permitted Affiliates. Tenant’s
invitees and guests may use parking spaces in such parking (limited to the
Section 6 and Section 7 parking areas designated in the CC&R’s Parking Plan)
facility which are not allocated or reserved for Tenant or other occupants or
visitors of the Building or Project on a first-come, first-serve basis. The
parking permits allocated to Tenant are not for long term (i.e., more than
ninety-six (96) hours) storage of automobiles, and are not for short or long
term storage of boats, trailers, recreational vehicles, motorcycles or other
vehicles or equipment.

 

ARTICLE 29

 

MISCELLANEOUS PROVISIONS

 

29.1                           Binding Effect.  Subject to all other provisions
of this Lease, each of the provisions of this Lease shall extend to and shall,
as the case may require, bind or inure to the benefit not only of Landlord and
of Tenant, but also of their respective successors or assigns, provided this
clause shall not permit any assignment by Tenant contrary to the provisions of
Article 14 of this Lease.

 

29.2                           Modification of Lease/Memorandum of Lease. Should
any current or prospective mortgagee or ground lessor for the Building or
Project require a modification or modifications of this Lease, which
modification or modifications will not cause an increased cost or expense to
Tenant or in any other way change the rights and obligations of Tenant hereunder
(as reasonably determined by Tenant), then and in such event, Tenant agrees that
this Lease may be so modified and agrees to execute whatever documents are
reasonably required therefor and to deliver the same to Landlord within ten (10)
days following a request therefor.  Landlord agrees to pay to Tenant, within,
thirty (30) days after invoice, any reasonable attorneys’ fees incurred by
Tenant in connection with any modification to this Lease executed by Tenant
pursuant to the immediately preceding sentence.  Should Landlord or any such
prospective mortgagee or ground lessor request execution of a short form
Memorandum of Lease for recording, containing, among other customary provisions,
the names of the parties, a description of the Premises and the Lease Term,
Tenant agrees to execute and deliver such short form Memorandum of Lease to
Landlord within twenty (20) days following the request therefor.

 

29.3                           Transfer of Landlord’s Interest. Tenant
acknowledges that Landlord has the right to transfer all or any portion of its
interest in the Project and in this Lease, and Tenant agrees that in the event
of any such transfer, Landlord shall automatically be released from all
liability under

 

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this Lease for obligations accruing after the date of transfer and Tenant agrees
to look solely to such transferee for the performance of Landlord’s obligations
to be performed hereunder after the date of transfer. Tenant further
acknowledges that Landlord may assign its interest in this Lease to the holder
of any mortgage or deed of trust as additional security, but agrees that an
assignment shall not release Landlord from its obligations hereunder and Tenant
shall continue to look to Landlord for the performance of its obligations
hereunder.

 

29.4                           Consents by the Parties.  The parties intend that
whenever Landlord’s or Tenant’s consent or approval is expressly or impliedly
required by any provision of this Lease, the consent or approval may not be
unreasonably or arbitrarily withheld, conditioned or delayed; and on the
contrary, shall be approved or disapproved by a party acting in a commercially
reasonable manner.  Notwithstanding anything to the contrary contained in this
Lease, except as expressly provided in Section 14.2 above, an action for
declaratory judgment or specific performance shall be Tenant’s or Landlord’s
sole right and remedy in any dispute as to whether Tenant or Landlord has
breached this Section 29.4 concerning a consent or approval.

 

29.5                           Captions.  The captions of articles and sections
are for convenience only and shall not be deemed to limit, construe, affect or
alter the meaning of such articles and sections.

 

29.6                           Time of Essence. Time is of the essence of this
Lease and each of its provisions.

 

29.7                           Partial Invalidity.  If any term, provision or
condition contained in this Lease shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
provision or condition to persons or circumstances other than those with respect
to which it is invalid or unenforceable, shall not be affected thereby, and each
and every other term, provision and condition of this Lease shall be valid and
enforceable to the fullest extent possible permitted by law.

 

29.8                           No Warranty.  In executing and delivering this
Lease, Tenant has not relied on any representations, including, but not limited
to, any representation as to the amount of any item comprising Additional Rent
or the amount of the Additional Rent in the aggregate or that Landlord is
furnishing the same services to other tenants, at all. On the same level or on
the same basis, or any warranty or any statement of Landlord which is not set
forth herein or in one or more of the exhibits attached hereto.

 

29.9                           Construction.  Should any provision of this Lease
require interpretation by a court of law, it is agreed that the court
interpreting or construing this Lease shall not apply a presumption that the
terms shall be more strictly construed against one party who by itself or
through its agents prepared this document.

 

29.10                     Entire Agreement.  It is understood and acknowledged
that there are no oral agreements between the parties hereto affecting this
Lease and this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements arid understandings, if any, between the
parties hereto or displayed by Landlord to Tenant with respect to the subject
matter thereof, and none thereof shall he used to interpret or construe this
Lease. This Lease and any side letter or separate agreement executed by Landlord
and Tenant in connection with this Lease and dated of even date herewith,
contain all of the terms, covenants, conditions, warranties and agreements of
the parties relating in any manner to the rental, use and occupancy of the
Premises and shall be considered to be the only agreements between the parties
hereto and their representatives and agents. None of the terms, covenants,
conditions or provisions of this Lease can be modified, deleted or added to
except in writing signed by the parties hereto.

 

29.11                     Right to Lease.  Subject to Tenant’s rights hereunder,
Landlord reserves the absolute right to effect such other tenancies in the
Project as Landlord in the exercise of its sole business judgment shall
determine to best promote the interests of the Building or Project, provided
that Landlord shall lease space in the Project only to tenants who are
consistent with the quality of the Project as a first-class, institutional
quality office project. Tenant does not rely on the fact, nor does Landlord
represent, that any specific tenant or type or number of tenants shall, during
the Lease Term, occupy any space in the Building or Project.

 

29.12                     Force Majeure. Any prevention, delay or stoppage due
to strikes, lockouts, labor disputes, acts of God, inability to obtain services,
labor, or materials or reasonable substitutes therefor, governmental actions,
civil commotions, fire or other casualty, and other causes beyond

 

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the reasonable control of the party obligated to perform, except with respect to
the obligations imposed with regard to Rent and other charges to be paid by
Tenant pursuant to this Lease (collectively, the “Force Majeure”),
notwithstanding anything to the contrary contained in this Lease, shall excuse
the performance of such party for a period equal to any such prevention, delay
or stoppage and, therefore, if this Lease specifies a time period for
performance of an obligation of either party, that time period shall be extended
by the period of any delay in such party’s performance caused by a Force
Majeure.

 

29.13                     Notices.  All notices, demands, statements,
designations, approvals or other communications (collectively, “Notices”) given
or required to be given by either party to the other hereunder shall be in
writing, shall be sent by (i) United States certified or registered mail,
postage prepaid, return receipt requested, (ii) nationally recognized and
reputable overnight courier (e.g.. Federal Express and Network Courier), or
(iii) delivered personally. Notice shall be sent to Landlord or Tenant at the
following addresses, or to such other firm or to such other place as Landlord or
Tenant may from time to time designate in a Notice to the other party;

 

if to Landlord:

Kilroy Realty Company

 

12200 W. Olympic Boulevard, Suite 200

 

Los Angeles, California 90064

 

Attention: Jeffrey Hawken

 

Facsimile: (310)481-6540

 

Telephone; (310) 481-8400

 

 

 

and

 

 

 

Kilroy Realty

 

3811 Valley Centre Drive, Suite 300

 

San Diego, California 92130

 

Attention: Asset Manager

 

Facsimile: (858) 523-0330

 

Telephone; (310) 523-0300

 

 

 

and

 

 

 

Allen, Matkins, Leek, Gamble & Mallory

 

1901 Avenue of the Stars

 

Suite 1800

 

Los Angeles, California 90067

 

Attention; Anton N. Natais, Esq.

 

Facsimile: (310) 788-2410

 

Telephone: (310) 788-2400

 

 

if to Tenant:

Peregrine Systems, Inc.

 

3611 Valley Centre Drive

 

San Diego, California 92130

 

Attention; Director, Global Real Estate and Facilities

 

Facsimile: (858) 430-3983

 

Telephone: (858) 481-5000

 

 

 

and

 

 

 

Peregrine Systems, Inc.

 

3611 Valley Centre Drive

 

San Diego, California 92130

 

Attention; General Counsel

 

Facsimile: (858) 480-3989

 

Telephone: (858) 481-5000

 

 

 

and

 

 

 

Gray Cary Ware A, Freidenrich LLP

 

4365 Executive Drive, Suite 1100

 

San Diego, California 92121-2133

 

Attention: Joseph Delaney, Esq.

 

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Facsimile: (858) 677-1477

 

Telephone; (858) 677-1400

 

 

 

and

 

 

 

Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C.

 

10100 Santa Monica Boulevard, Suite 1100

 

Los Angeles, California 90067

 

Attention: Linda Kirios, Esq.

 

 

Jeremy V, Richards, Esq.

 

Facsimile: (310)201-0760

 

Telephone: (310) 277-6910

 

Any Notice will be deemed given on the date which is three (3) business days
after the date it is mailed as provided in this Section 29.13, the next business
day if sent by overnight courier, or upon the date personal delivery is made or
refused. If Tenant is notified of the identity and address of the holder of any
deed of trust or ground or underlying lessor, Tenant shall give to such
mortgagee or ground or underlying lessor written notice of any default by
Landlord under the terms of this Lease by registered or certified mail, and such
mortgagee or ground or underlying lessor shall be given the same opportunity to
cure such default as is available to Landlord, prior to Tenant’s exercising any
remedy available to Tenant.

 

29.14                     Joint and Several.  If there is more than one Tenant,
the obligations imposed upon Tenant under this Lease shall be joint and several.

 

29.15                     Authority.  Upon the entry of the Bankruptcy Court
order referenced in Section 29-34, below, if Tenant is 11 corporation or
partnership, each individual executing this Lease on behalf of Tenant hereby
represents and warrants that Tenant is a duly formed and existing entity
qualified to do business in California and that Tenant has full right and
authority to execute and deliver this Lease and that each person signing on
behalf of Tenant is authorized to do so.  If only one (1) officer executes this
Lease for Tenant, Tenant agrees to provide to Landlord evidence reasonably
satisfactory to Landlord confirming the authority of the signing officer of
Tenant to bind Tenant to this Lease.

 

29.16       Governing Law.  This Lease shall be construed and enforced in
accordance with the laws of the State of California. IN ANY ACTION OR PROCEEDING
ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (l)THE JURISDICTION OF
ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, AND (II) SERVICE OF PROCESS
BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW. EACH PARTY HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION (FOR UNLAWFUL DETAINER OR OTHERWISE) BY LANDLORD TO
RECOVER POSSESSION OF THE PREMISES.

 

29.17                     Submission of Lease.  Submission of this instrument
for examination or signature by Tenant does not constitute a reservation of or
an option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant, and the Effective Date has
occurred.

 

29.18                     Brokers.  Landlord and Tenant hereby warrant to each
other that they have had no dealings with any real estate broker or agent in
connection with the negotiation of this Lease and that they know of no real
estate broker or agent who is entitled to a commission in connection with this
Lease. Each party agrees to indemnify and defend the other party against and
hold the other party harmless from any and all claims, demands, losses,
liabilities, lawsuits, judgments, and costs and expenses (including without
limitation reasonable attorneys’ fees) with respect to any leasing commission or
equivalent compensation alleged to be owing on account of any dealings with any
real estate broker or agent occurring by, through, or under the indemnifying
party.

 

29.19                     Independent Covenants.  This Lease shall be construed
as though the covenants herein between Landlord and Tenant are independent and
not dependent and Tenant hereby expressly waives the benefit of any statute to
the contrary and agrees that if Landlord fails to perform its obligations set
forth herein, Tenant shall not be entitled to make any repairs or perform any
acts hereunder at Landlord’s expense or to any setoff of the Rent or other
amounts

 

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owing hereunder against Landlord except as expressly set forth in this Lease;
provided, however, that the foregoing shall in no way impair the right of Tenant
to commence a separate action against Landlord for any violation by Landlord of
the provisions hereof so long as notice is first given to Landlord.

 

29.20                     Intentionally Omitted.

 

29.21                     Transportation Management.  Tenant shall fully comply
with all present or future mandatory programs imposed by statute or ordinance
intended to manage parking, transportation or traffic in and around the Project
or Building, and in connection therewith, Tenant shall take responsible action
for the transportation planning and management of all employees located at the
Premises by working directly with Landlord, any governmental transportation
management organization or any other transportation-related committees or
entities. If any of the foregoing are not imposed by statute or ordinance,
Tenant may participate, in its discretion, on a voluntary basis. Such programs
may include, without limitation: (i) restrictions on the number of peak-hour
vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii)
implementation of an in-house ridesharing program and an employee transportation
coordinator; (iv) working with employees and any Project, Buildings or area-wide
ridesharing program manager; (v) instituting employer-sponsored incentives
(financial or in-kind) to encourage employees to rideshare; and (vi) utilizing
flexible work shifts for employees. Tenant shall be entitled to the benefit of
any governmental incentives (financial or in-kind) available or otherwise
offered to induce compliance with such programs to the extent such incentives
arc applicable to Tenant’s implementation of any such programs.

 

29.22                     No Discrimination.  Tenant covenants by and for
itself, its heirs, executors, administrators and assigns, and all persons
claiming under or through Tenant, and this Lease is made and accepted upon and
subject to the following Conditions; that there shall be no discrimination
against or segregation of any person or group of persons, on account of race,
color, creed, sex, religion, marital status, ancestry or national origin in the
leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall
Tenant itself, or any person claiming under or through Tenant, establish or
permit such practice or practices of discrimination or segregation with
reference to the selection, location, number, use or occupancy, of tenants,
lessees, sublessees, subtenants or vendees in the Premises.

 

29.23                     Hazardous Material.  For purposes of this Lease, the
following definitions shall apply: “Hazardous Material(s)” shall mean any solid,
liquid or gaseous substance or material that is described or characterized as a
toxic or hazardous substance, waste, material, pollutant, contaminant or
infectious waste, or any matter that in certain specified quantities would be
injurious to the public health or welfare, or words of similar import, in any of
the “Environmental Laws,” as that term is defined below, or any other words
which are intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity or reproductive toxicity and includes, without
limitation, asbestos, petroleum (including crude oil or any fraction thereof,
natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable
for fuel, or any mixture thereof), petroleum products, polychlorinated
biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical
waste, soot, vapors, fumes, acids, alkalis, chemicals, microbia1 matters (such
as molds, fungi or other bacterial matters), biological agents and chemicals
which may cause adverse health effects, including but not limited to, cancers
and /or toxicity, “Environmental Laws” shall mean any and all federal, state,
local or quasi-governmental laws (whether under common law, statute or
otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or
guidance or policy documents now or hereafter enacted or promulgated and as
amended from time to time, in any way relating to a) the protection of the
environment, the health and safety of persons (including employees), property or
the public welfare from actual or potential release, discharge, escape or
emission (whether past or present) of any Hazardous Materials or b) the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of any Hazardous Materials.

 

29.2.3.1         Compliance with Environmental Laws.  Landlord covenants that
during the Lease Term, Landlord shall comply with all Environmental Laws in
accordance with, and as required by, the terms and conditions of Article 24 of
this Lease. Tenant represents and warrants that, except as herein set forth, it
will not use, store or dispose of any Hazardous Materials in or on the Premises.
However, notwithstanding the preceding sentence, Landlord agrees that Tenant may
use, store and properly dispose of commonly available household cleaners and
chemicals to

 

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maintain the Premises and Tenant’s routine office operations (such as printer
toner and copier toner) (hereinafter the “Permitted Chemicals”), Landlord and
Tenant acknowledge that any or all of the Permitted Chemicals described in this
paragraph may constitute Hazardous Materials. However, Tenant may use, store and
dispose of same, provided that in doing so, Tenant fully complies with all
Environmental Laws.

 

23.23.2            Landlord’s Right of Environmental Audit.  Landlord may, upon
reasonable notice to Tenant, be granted access to and enter the Premises no more
than once annually to perform or cause to have performed an environmental
inspection, site assessment or audit. Such environmental inspector or auditor
may be chosen by Landlord, in its sole discretion, and be performed at
Landlord’s sole expense. To the extent that the report prepared upon such
inspection, assessment or audit, indicates the presence of Hazardous Materials
caused by Tenant in violation of Environmental Laws, or provides recommendations
or suggestions to prohibit the release, discharge, escape or emission of any
Hazardous Materials by Tenant at, upon, under or within the Premises, or to
comply with any Environmental Laws, with which are Tenant’s responsibility to
comply, Tenant shall promptly, at Tenant’s sole expense, comply with such
recommendations or suggestions, including, hut not limited to performing such
additional investigative or subsurface investigations or remediation(s) as
recommended by such inspector or auditor. Notwithstanding the above, if at any
time, Landlord has actual notice or reasonable cause to believe that Tenant has
violated, or permitted any violations of any Environmental Law, then Landlord
will be entitled to perform its environmental inspection, assessment or audit at
any time, notwithstanding the above mentioned annual limitation, and Tenant must
reimburse Landlord for the cost or fees incurred for such as Additional Rent, if
it is determined that Tenant has violated or permitted any violations.

 

29.23.3            Indemnifications.  Landlord agrees to indemnify, defend,
protect and hold harmless the Tenant Parties from and against any liability,
obligation, damage or costs, including without limitation, attorneys’ fees and
costs, resulting directly or indirectly from any use, presence, removal or
disposal of any Hazardous Materials to the extent such liability, obligation,
damage or costs was a result of actions caused or permitted by Landlord or a
Landlord Party.  Tenant agrees to indemnify, defend, protect and hold harmless
the Landlord Parties from and against any liability, obligation, damage or
costs, including without limitation, attorneys’ fees and costs, resulting
directly or indirectly from any use, presence, removal or disposal of any
Hazardous Materials or breach of any provision of this section, to the extent
such liability, obligation, damage or costs was a result of actions caused or
permitted by Tenant or a Tenant Party.

 

29.24                     Development of the Project.

 

29.24.1            Subdivision.  Tenant acknowledges that the Project has been,
or is in the process of being, subdivided. Landlord reserves the right to
further subdivide all or a portion of the buildings and Common Areas in the
Project. Tenant agrees to execute and deliver, within ten (10) days after demand
by Landlord and in the form reasonably requested by Landlord, any additional
documents needed to conform this Lease to the circumstances resulting from a
subdivision and any all maps in connection therewith provided Tenant shall not
be required to incur any cost, undue burden or diminution of Tenant’s rights
hereunder in connection therewith. Notwithstanding anything to the contrary set
forth in this Lease, the separate ownership of any buildings and/or Common Areas
of the Project by an entity other than Landlord shall not affect the calculation
of Direct Expenses or Tenant’s payment of Tenant’s Share of Direct Expenses.

 

29.24.2            The Other Improvements.  If portions of the Project or
property adjacent to the Project (collectively, the “Other Improvements”) arc
Owned by an entity other than Landlord, Landlord, at its option, may enter into
an agreement with the owner or owners of any of the Other Improvements to
provide (i) for reciprocal rights of access, use and/or enjoyment of the Project
and the Other Improvements, (ii) for the common management, operation,
maintenance, improvement and/or repair of all or any portion of the Project and
all or any portion of the Other Improvements, (iii) for the allocation of a
portion of the Project Expenses to the Other Improvements and the allocation of
a portion of the operating expenses and taxes for the Other Improvements to the
Project, (iv)for the use or improvement of the Other Improvements and/or the
Project in connection with the improvement, construction, and/or excavation of
the Other Improvements and/or the Project, and (v) for any other matter which
Landlord deems necessary. Nothing contained herein shall be deemed or construed
to limit or

 

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otherwise affect Landlord’s right to sell all or any portion of the Project or
any other of Landlord’s rights described in this Lease.

 

29.24.3            Construction of Project and Other Improvements.  Tenant
acknowledges that portions of the Project and/or the Other Improvements may be
under construction following Tenant’s occupancy of the Premises, and that such
construction may result in levels of noise, dust, obstruction of access, etc.
which are in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction, provided that Landlord shall
take all reasonable measures to minimize any interference or disruption to
Tenant’s use of the Premises.

 

29.25                     Landlord Exculpation.  It is expressly understood and
agreed that notwithstanding anything in this Lease to the contrary, and
notwithstanding any applicable law to the contrary, the liability of Landlord
hereunder (including any successor landlord hereunder) and any recourse by
Tenant against Landlord from and after Landlord’s Substantial Completion of the
Building and delivery of the same to Tenant in accordance with Landlord’s
obligations under this Lease, shall be limited solely and exclusively to the
lesser of (a) the equity interest of Landlord in the Project or (b) the equity
interest Landlord would have in such Project if such Project were encumbered by
third-party debt in an amount equal to eighty percent (80%) of the value of the
Project, except to the extent any such claims and liability are covered by
insurance carried by Landlord. None of Landlord’s constituent members, owners,
partners or subpartners, shall have any liability far the obligations of
Landlord under this Lease, and Tenant, on behalf of itself and all persons
claiming by, through or under Tenant, hereby expressly waives and releases such
members, owners, partners and subpartners from any and all liability.

 

29.26                     Waiver of Redemption by Tenant.  Tenant hereby waives
for Tenant and for all those claiming under Tenant, all rights now or hereafter
existing to redeem by order or judgment of any court or by any legal process or
writ, Tenant’s right of occupancy of the Premises after any termination of this
Lease.

 

29.27                     Attorneys’ Fees.  If cither party commences litigation
against the other for the specific performance of this Lease, for damages for
the breach hereof or otherwise for enforcement of any remedy hereunder, the
prevailing party shall be entitled to recover from the other party such costs
and reasonable attorneys’ fees as may have been incurred, including any and all
costs incurred in enforcing, perfecting and executing such judgment.

 

29.28                     Communications and Computer Lines.  Tenant may
install, maintain, replace, remove or use any communications or computer wires
and cables (collectively, the “Lines”) at underground locations in the Project
in or serving the Premises, provided that (i) Tenant shall use an experienced
and qualified contractor approved in writing by Landlord (which approval shall
not be unreasonably withheld or delayed), and comply with all of the other
provisions of Articles 7 and 8 of this Lease, (ii) an acceptable number of
conduits for additional Lines shall be maintained for existing and future
occupants of the Project, as determined in Landlord’s reasonable opinion, (iii)
conduits for the Lines therefor (including riser cables unless originally
installed by Landlord) shall be appropriately insulated to prevent excessive
electromagnetic fields or radiation, and shall be surrounded by a protective
conduit reasonably acceptable to Landlord, (iv) any new or existing Lines
servicing the Premises shall comply with all applicable governmental laws and
regulations, and (v) Tenant shall pay all costs in connection therewith (except
that Tenant shall have no obligation to remove any Lines between the Buildings
upon the expiration or earlier termination of this Lease). However, Landlord
reserves the right to require that Tenant remove any Lines located in or serving
the Premises which are installed in violation of these provisions, or which are
at any time in violation of any laws or represent a dangerous or potentially
dangerous condition.

 

29.29                     No Air Rights. No rights to any view or to light or
air over any property, whether belonging to Landlord or any other person, are
granted to Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason of
any repairs, improvements, maintenance or cleaning in or about the Project, the
same shall be without liability to Landlord and without any reduction or
diminution of Tenant’s obligations under this Lease.

 

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29.30                     Counterparts. This Lease may be executed in
counterparts with the same effect as if both parties hereto had executed the
same document.  Both counterparts shall be construed together and shall
constitute a single lease.

 

29.31                     Confidentiality. Except as expressly provided herein
below, Landlord and Tenant acknowledge that the content of this Lease and any
related documents are confidential information. Landlord and Tenant shall keep
such confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than (i) their financial,
legal, and space planning consultants, (ii) as may be required by any public
reporting requirements applicable to Landlord or Tenant or any of their
respective affiliates, (iii) in connection with press releases, analyst calls
and similar matters related to the announcement of quarterly or annual operating
results for Landlord or their respective affiliates, and (iv) as may be required
by any applicable governmental law, rule or regulation. Notwithstanding the
foregoing, the parties hereto acknowledge and agree that the document comprising
this Lease shall be a public record attached to Tenant’s Bankruptcy Court
filings, and in connection therewith, shall not be confidential; provided,
however, any modifications or amendments to this Lease entered into after the
Effective Date and which are not required to be made part of the public record
by the Bankruptcy Court shall be kept confidential as set forth in this Section
29.31.

 

29.32                     Disclosures and Mutual Release.  Tenant acknowledges
that Landlord has advised Tenant (i) that an earthquake fault may be located
under a portion of the Project, and (ii) of the proximity of the Project to the
Miramar military air base’s vectored departure corridors and the potential
overflights and associated noise generated by various military aircraft in the
area. Landlord and Tenant hereby mutually release, acquit and discharge each
other from any and all Claims which either party may have against the other
party arising out of or in connection with (a) any earthquake affecting all or
any portion of the Project (subject to Landlord’s and Tenant’s rights and
obligations under Article 11 above), and (b) any such overflights and associated
noise.

 

29.33                     Central Security Office.  Landlord and Tenant hereby
acknowledge that Building 2 contains, on the ground floor, an approximately 145
square foot room commonly known as the “Central Security Office,” which operates
as the centralized point from which the coordinated security systems of the
Project are operated. Landlord and Tenant acknowledge and agree that prior to
the Effective Date of this Lease, auth Central Security Office formed a portion
of Tenant’s premises under the terms of the Existing Lease, and that such
Central Security Office was licensed by Landlord from Tenant pursuant to the
terms of that certain Central Security Office License Agreement, dated as of
January 17, 2003, by and between Landlord and Tenant (the “License Agreement”). 
Effective as of the Effective Date, the License Agreement shall terminate and be
of no further force or effect, and, except as set forth in this Section 29.33,
Landlord and Tenant shall be fully and unconditionally released and discharged
from their respective obligations arising from or connected with the License
Agreement.  In connection therewith, Landlord and Tenant further acknowledge and
agree that as of the Effective Date of this Lease, the Central Security Office
shall deemed to be Building Common Area; provided, however. Tenant shall retain
“Access Rights” to such Central Security Office. For purposes of this Lease, the
term “Access Rights” shall mean the right of Tenant, its employees and agents,
to be provided with occasional, limited and supervised access to, and usage of,
those certain security system elements and/or components which are located
within the Central Security Office and which affect or are related to the
internal security requirements of the Premises; provided, however, that such
access and/or usage rights shall only apply to the extent the same do not
materially interfere (in Landlord’s reasonable judgment) with the security
services then being provided to other tenants of the Building or Project (as
opposed to Tenant). In connection therewith, Landlord and Tenant agree to
execute (and deliver to Landlord within three (3) business days following the
Effective Date) a Bill of Sale in the form set forth on Exhibit K attached
hereto whereby those certain items of personal property owned by Tenant and
located in, or used in connection with, the Central Security Office
(collectively, the “Personal Property”) shall be transferred to Landlord, except
for the Removable Property.

 

29.34                     Effectiveness.  The terms and conditions of this
Lease, and the obligations of the parties hereunder, are expressly conditioned
upon the entry by the Bankruptcy Court of a final, immediately effective and
nonappealabte order (the “Court Order”) that: (i) expressly approves this Lease;
(ii) assumes the Existing Lease, as amended and restated by this Lease; (iii)
authorizes and directs Tenant to enter into that certain Third Amendment to
Office Lease (Building 5), dated as of April 1, 2003, by and between Landlord
and Tenant (the “Third Amendment”); (iv) rejects the Building 5 Lease effective
as of August 28, 2003 (provided that

 

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Tenant shall be permitted to reject such Building 5 Lease prior to August 28,
2003, by providing written notice thereof to the Bankruptcy Court and Landlord,
but in no event shall Tenant be permitted to reject such Building 5 Lease any
earlier than My 31, 2003), except to the extent any space within Building 5 has
previously been surrendered to Landlord pursuant to the terms of the Third
Amendment; (v) approves the final allowance of the Landlord Claims in accordance
with Articlc.30, below; and (vi) grants; Landlord limited relief from the
automatic stay to exercise its rights under the Third Amendment. In the event
that such Court Order has not been obtained on or before December 31, 2003 (the
“Outside Approval Date”), this Lease shall be null and void and of no further
force or effect.

 

29.35                     Bill of Sale for FF&E on the Fourth (4th) and Fifth
(5th) floors of Building.  Landlord and Tenant acknowledge that Tenant owns
certain items of fixtures, furnishings and equipment currently located on or
used in connection with the fourth (4th) and fifth (5th) floors of the Building
(the “FF&E”). Tenant has agreed to transfer such FF&E to Landlord, and therefore
Tenant acknowledges and agrees that in addition to the Bill of Sale regarding
personal property in the Central Security Office, us set forth in Section 29.33,
above, Tenant shall execute and deliver to Landlord within three (3) business
days following the Effective Date (or, to the extent there is a Permitted
Holdover Period in accordance with the terms and conditions of Section 1.3,
above, within three (3) business days following the expiration of such Permitted
Holdover Period) a Bill of Sale for such FF&E in the form attached hereto as
Exhibit N.

 

ARTICLE 30

 

SETTLEMENT OF LANDLORD CLAIMS

 

30.1                           Landlord’s Allowed Claim.  Upon the entry of the
Court Order, the Landlord Claims shall be deemed to be a fully and finally
allowed general unsecured claim against Tenant and its bankruptcy estate in the
amount of aggregate $30,467,462.00, which claim shall not be subject to any
defense or right of offset by Tenant, its bankruptcy estate, or any other party.

 

30.2                           Release of Landlord.  Tenant hereby releases,
acquits, and forever discharges, both for itself, its bankruptcy estate and its
successors and assigns, Landlord and its subsidiaries and affiliates, and their
present and former agents, successors, employees, and attorneys from any and all
claims, defenses, rights of offset, or causes of action of any nature
whatsoever, whether in contract or in tort, at law or in equity, known or
unknown, including any cause of action or rights under section 544, 545, 546,
547, 548, 549, 550 and 502(d) of the Bankruptcy Code, and al1 reasonable
attorneys fees and cost incurred relating thereto, relating to, pertaining to or
affecting the Landlord Claims or constituting an offset to in any way reduce the
Landlord Claims; provided, however, that nothing herein shall be deemed to
release any covenants, obligations, or agreements undertaken under or pursuant
to this Agreement.

 

30.3                           Waiver of 1542.  To the extent released pursuant
to the terms of Section 30.2, above. Tenant expressly waives the provisions of
California Civil Code Section 1542, which provides;

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS

WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT

TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING

THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE

MATERIALLY AFFECTED HIS SETTLEMENT WITH THE

DEBTOR,”

 

Tenant has received the advice of legal counsel with respect to the
aforementioned waiver and understands the terms thereof.

 

ARTICLE 31

 

LIQUIDATED DAMAGES

 

NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 19.2.1 (i)-(v) OF
THIS LEASE, AS THE SAME RELATES TO THE CALCULATION OF LEASE TERMINATION DAMAGES
PURSUANT TO CALIFORNIA CIVIL CODE SECTION 1951.2, TO THE EXTENT THAT THIS LEASE
IS TERMINATED

 

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AS A RESULT OF A TENANT DEFAULT UNDER THE TERMS OF THIS LEASE OCCURRING ON OR
BEFORE THE SECOND (2ND) ANNIVERSARY OF THE EFFECTIVE DATE, THEN TENANT SHALL BE
OBLIGATED TO PAY LANDLORD AN AMOUNT EQUAL TO NINE MILLION ONE HUNDRED FORTY
THOUSAND TWO HUNDRED THIRTY-NINE AND NO/100 DOLLARS (59,140,239.00) AS
LIQUIDATED DAMAGES FOR SUCH 1951.2 DAMAGE AMOUNT, LANDLORD AND TENANT HEREBY
ACKNOWLEDGE AND AGREE THAT DUE TO THE NATURE OF THE LANDLORD CLAIMS AND THE
PROPOSED SETTLEMENT OF SUCH CLAIMS AS PROVIDED FOR IN THIS LEASE (SPECIFICALLY
INCLUDING, BUT NOT LIMITED TO, ARTICLE 30 HEREOF), IT WOULD BE IMPRACTICABLE AND
EXTREMELY DIFFICULT TO ASCERTAIN (AND CALCULATE PURSUANT TO SECTION 19.2.1 OF
THIS LEASE, ABOVE) THE ACTUAL DAMAGES SUFFERED BY LANDLORD AS A RESULT OF SUCH
TERMINATION OF THIS LEASE, AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE
DATE OF THIS LEASE, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS ARTICLE 31
REPRESENT A REASONABLE ESTIMATE OF THE DAMAGES WHICH LANDLORD WILL INCUR AS A
RESULT OF SUCH TERMINATION OF THIS LEASE AND THE RECEIPT OF SUCH LIQUIDATED
DAMAGES SHALL BE LANDLORD’S SOLE REMEDY WITH REGARD TO LEASE TERMINATION
DAMAGES, PROVIDED, HOWEVER, THAT THIS ARTICLE 31 SHALL NOT LIMIT LANDLORD’S
RIGHTS TO RECEIVE REIMBURSEMENT FOR ATTORNEYS’ FEES, NOR WAIVE OR AFFECT
LANDLORD’S RIGHTS AND TENANT’S INDEMNITY OBLIGATIONS UNDER OTHER SECTIONS OF
THIS LEASE (SPECIFICALLY INCLUDING. BUT NOT LIMITED TO, TENANT’S RESTORATION,
INDEMNIFICATION AND REIMBURSEMENT OBLIGATIONS PURSUANT TO ARTICLE 8 AND SECTIONS
10.1 AND 26.2 OF THIS LEASE, RESPECTIVELY, WHICH SHALL, FOR PURPOSES OF THIS
ARTICLE 31. BE DEEMED TO BE SEPARATE AND APART FROM TERMINATION DAMAGES). THE
PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED DAMAGES IS NOT INTENDED
AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTION
3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO LANDLORD
PURSUANT TO CALIFORNIA CIVIL CODE SECTION 1671. THE PARTIES HAVE SET FORTH THEIR
INITIALS BELOW TO INDICATE THEIR AGREEMENT WITH THE LIQUIDATED DAMAGES PROVISION
CONTAINED IN THIS ARTICLE 31.

 

TENANTS INITIALS:

[ILLEGIBLE]

 

 

 

 

LANDLORD’S INITIALS:

[ILLEGIBLE]

 

 

51

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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed
the day and date first above written to be effective on the Effective Date.

 

“LANDLORD”:

KILROY REALTY, L.P.,

 

a Delaware limited partnership

 

 

 

 

 

By:

Kilroy Realty Corporation,

 

 

a Maryland corporation

 

 

General Partner

 

 

 

 

 

 

By:

/s/ Steve Scott

 

 

Name:

Steve Scott

 

 

 

Its:

Senior Vice President

 

 

 

 

 

 

By:

/s/ Jeffrey C. Hawken

 

 

Name:

JEFFREY C. HAWKEN

 

 

 

Its:

EXECUTIVE VICE PRESIDENT
CHIEF OPERATING OFFICER

 

 

“TENANT”:

PEREGRINE SYSTEMS, INC.,

 

a Delaware corporation

 

 

 

 

By:

Gary G. Greenfield

 

 

CEO

 

 

[Print Name and Office of Person Signing]

 

 

 

 

 

By:

Ken Sexton

 

 

CFO

 

 

[Print Name and Office of Person Signing]

 

52

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