Exhibit 10.12

 

OFFICE LEASE

 

between

 

OTR, an OHIO GENERAL PARTNERSHIP,

as Nominee of The State Teachers Retirement Board of Ohio,

a statutory organization created by the laws of Ohio

 

(Landlord)

 

and

 

DAILY JOURNAL CORPORATION,

a SOUTH CAROLINA CORPORATION

 

(Tenant)

 

for Premises

 

44 Montgomery Street, Suite 250

San Francisco, California

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OFFICE LEASE

 

THIS OFFICE LEASE (this “Lease”), dated December 15, 2003, is made and entered
into by and between OTR, an OHIO GENERAL PARTNERSHIP, as Nominee of The State
Teachers Retirement Board of Ohio, a statutory organization created by the laws
of Ohio (“Landlord”), and DAILY JOURNAL CORPORATION, a SOUTH CAROLINA
CORPORATION (“Tenant”), upon the following terms and conditions.

 

 

ARTICLE I – SUMMARY AND CERTAIN DEFINITIONS

 

Unless the context otherwise specifies or requires, the following terms shall
have the meanings specified herein:

 

  1.1   Building.

 

The term “Building” shall mean that certain office building located at 44
MONTGOMERY STREET in San Francisco, California, commonly known as 44 Montgomery
Street, together with any related land, improvements, common areas, driveways,
sidewalks and landscaping.

 

 

  1.2   Premises.

 

The term “Premises” shall mean Suite 250 in the Building, as more particularly
outlined on the “Floor Plan of Premises” attached hereto as Exhibit “A” and
incorporated herein by reference. As used herein, “Premises” shall not include
any storage area in the Building or rooftop area on the Building, which areas
shall (if applicable) be leased or rented pursuant to separate written
agreements.

 

 

  1.3   Rentable Area of the Premises.

 

The term “Rentable Area of the Premises” shall mean ten thousand four hundred
twenty-one (10,421) square feet, which Landlord and Tenant have stipulated as
the Rentable Area of the Premises.

 

 

  1.4   Lease Year.

 

The term “Lease Year” shall mean such consecutive twelve (12) month period
following the Commencement Date.

 

 

  1.5   Lease Term.

 

The term of this Lease (the “Lease Term”) shall be for a period of five (5)
consecutive Lease Years plus two (2) consecutive calendar months following the
Commencement Date, unless sooner terminated as otherwise provided in this Lease.

 

 

  1.6   Commencement Date.

 

Subject to adjustment as provided in Section 3.1, the term “Commencement Date”
shall mean February 1, 2004.

 

 

  1.7   Expiration Date.

 

Subject to adjustment as provided in Section 3.1, the term “Expiration Date”
shall mean March 31, 2009.

 

 

  1.8   Base Rent.

 

Subject to adjustment as provided in Article IV, the term “Base Rent” shall mean
the following amounts for the following period:

 

PERIOD

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MONTHLY

BASE RENT

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ANNUAL

RATE/RSF

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ANNUAL

BASE RENT

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02/01/04 – 03/15/04

   $0    N/A    N/A

03/16/04 – 03/31/04

   $9,553*    N/A    N/A

04/01/04 – 03/31/09

   $19,105    $22    $229,260

  *   prorated for partial month

 

 

  1.9   Tenant’s Percentage Share.

 

The Building consists of six hundred twenty-two thousand two hundred nineteen
(622,219) rentable square feet. The Premises consists of ten thousand four
hundred twenty-one (10,421) square feet,

 

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which represents one and sixty-eight hundredths of one percent (1.68%) of the
Building’s total rentable area. Therefore, the term “Tenant’s Percentage Share”
shall mean one and sixty-eight hundredths of one percent (1.68%) with respect to
increases in Property Taxes and Operating Expenses (as such terms are
hereinafter defined).

 

 

  1.10   Prepaid Rent.

 

The term “Prepaid Rent” shall mean nine thousand five hundred fifty-three
dollars ($9,553) delivered by Tenant to Landlord upon execution of this Lease in
agreement of the terms set forth herein.

 

 

  1.11   Security Deposit.

 

The term “Security Deposit” shall mean eighteen thousand five hundred dollars
($18,500) delivered by Tenant to Landlord to secure Tenant’s performance of its
obligations hereunder.

 

 

  1.12   Tenant’s Permitted Use.

 

The term “Tenant’s Permitted Use” shall mean general and administrative office
use, and no other use.

 

 

  1.13   Business Hours.

 

The term “Business Hours” shall mean the hours of 8:00 a.m. to 6:00 p.m. Monday
through Friday, and 9:00 a.m. to 1:00 p.m. Saturdays (federal and state holidays
excepted). “Holidays” are defined to be the following days: New Years Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day,
and to the extent of utilities or services provided by union members engaged at
the Building, such other holidays observed by such unions.

 

 

  1.14   Landlord’s Address for Notices.

 

The term “Landlord’s Address for Notices” shall mean: OTR:44 Montgomery, Attn:
Property Manager, 44 Montgomery Street, Suite 1710, San Francisco, California
94104-4704, with a copy (but which copy shall not constitute notice) to OTR,
Attn: Director of Real Estate, 275 Broad Street, Columbus, Ohio 43215-3771.

 

 

  1.15   Tenant’s Address for Notices.

 

The term “Tenant’s Address for Notices” shall mean: 1145 Market Stret, 8th
Floor, San Francisco, CA 94103-1545, before occupancy. Upon occupancy, “Tenant’s
Address for Notices” shall mean: 44 Montgomery Street, Suite 250, San Francisco,
CA 94104-4630.

 

 

  1.16   Landlord’s Address for Payment.

 

The term “Landlord’s Address for Payment” shall mean: 44 Montgomery, P.O. Box
633176, Cincinnati, OH 45263-3176.

 

 

  1.17   Brokers.

 

The term “Brokers” shall mean SEAGATE PROPERTIES, INC. and CB RICHARD ELLIS.

 

 

ARTICLE II – PREMISES

 

  2.1   Lease of Premises.

 

Commencing on the Commencement Date, Landlord agrees to and shall lease the
Premises to Tenant, and Tenant agrees to and shall lease and hire the Premises
from Landlord, upon all of the terms, covenants and conditions contained in this
Lease.

 

 

  2.2   Acceptance of Premises.

 

Unless otherwise specifically set forth in this Lease, Tenant acknowledges that
Landlord has not made any representation or warranty with respect to the
condition of the Premises or the Building or with respect to the suitability or
fitness of either for the conduct of Tenant’s Permitted Use or for any other
purpose. Prior to Tenant’s taking possession of the Premises, Landlord or its
designee and Tenant will walk the Premises for the purpose of reviewing the
condition of the Premises. If at such review Landlord and Tenant reasonably
determine that the condition of the Premises corresponds with the conditions
agreed to in this Lease and the Work Letter Agreement (attached hereto as
Exhibit B), then within ten (10) business days after such review, Landlord and
Tenant shall execute and deliver to each other duplicate original counterparts
of the Acceptance Letter (attached hereto as Exhibit E). Except as is expressly
set forth in this Lease or Work Letter Agreement, or as may be expressly set
forth in the Acceptance Letter, Tenant agrees to accept the Premises in its “as
is” physical condition without any

 

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agreements, representations, understandings or obligations on the part of
Landlord to perform any alterations, repairs, or improvements (or to provide any
allowance for same).

 

 

ARTICLE III – TERM

 

  3.1   Term.

 

Except as otherwise provided in this Lease, the Lease Term shall be for the
period described in Section 1.5 of this Lease, commencing on the Commencement
Date described in Section 1.6 of this Lease and ending on the Expiration Date
described in Section 1.7 of this Lease; provided, however, that, for any reason,
Landlord is unable to deliver possession of the Premises on the date described
in Section 1.6 of this Lease, Landlord shall not be liable for any damage caused
thereby, but if Landlord is unable to deliver possession within ninety (90) days
of the Commencement Date, Tenant may, at its option, declare this Lease to be
void, and Tenant and Landlord will be released from their rights and
responsibilities hereunder. If Landlord delivers possession within ninety (90)
days of the Commencement Date, or if Tenant elects to honor the Lease despite
Landlord’s failure to make timely delivery of the Premises, then the Lease Term
shall commence upon, and the Commencement Date shall be the date that possession
of the Premises is so tendered to Tenant (except for unreasonable Tenant-caused
delays which shall not be deemed to delay commencement of the Lease Term), and,
unless Landlord elects otherwise, the Expiration Date described in Section 1.7
of this Lease shall be extended by an equal number of days, but in no event
shall the Expiration Date be earlier than the last day of the calendar month.
Notwithstanding the above, if Landlord fails to deliver the Premises within
seven (7) days of the date described in Section 1.6 of this Lease, Landlord will
compensate Tenant in the form of an additional Base Rent credit in an amount
equal to the amount that Tenant must pay its current Landlord in addition to its
regular rent as provided by the “holding over” provision of Tenant’s present
Lease. This amount is acknowledged by Landlord and Tenant to be fifty percent
(50%) of Tenant’s present monthly minimum lease payment of twenty-seven thousand
three hundred twenty and 42/100 dollars ($27,320.42).

 

 

  3.2   Option to Extend Term.

 

Tenant shall have an option (the “Renewal Option”) to renew the Lease Term with
respect to all (but not less than all) of the Premises demised under or pursuant
to this Lease as of the Expiration Date for one additional term (the “Renewal
Term”) of five (5) years, commencing on the day immediately following the
Expiration Date, under the following terms and conditions:

 

(i) No material breach or default under the Lease by Tenant has occurred, either
on the date Tenant exercises the Renewal Option or at any time through and
including the proposed commencement date of the Renewal Term;

 

(ii) The Renewal Option is personal to Tenant and Tenant shall not have assigned
the Lease or sublet the Premises;

 

(iii) Tenant gives Landlord written notice (the “Renewal Notice”), of its
election to exercise the Renewal Option no earlier than nine (9) months prior to
the Expiration Date and no later than six (6) months prior to the Expiration
Date;

 

(iv) If Tenant exercises the Renewal Option exactly in the manner provided
herein:

 

(a) the Base Rent payable for the Renewal Term shall be ninety-five percent
(95%) of the “Fair Market Value” (the “Fair Market Value”), of the Premises, but
in no event shall the Base Rent for the Renewal Term be less than the Base Rent
payable under the Lease on the Expiration Date. Landlord shall give Tenant
written notice setting forth the Fair Market Value, which notice shall be given
prior to the commencement date of the Renewal Term. If the parties are unable to
agree on the Fair Market Value within sixty (60) days after Landlord’s receipt
of the Notice to Renew, either party may request that the Fair Market Value be
determined pursuant to the ADR Process described in Section 18.30 of the Lease.
Such determination shall be final and binding on the parties. If the Fair Market
Value is not determined until after the commencement date of the Renewal Term,
Tenant shall pay, during the Renewal Term, until the Fair Market Value is
determined, Base Rent in the amount of one-hundred percent (100%) of the amount
of the Base Rent in effect on the Expiration Date, including, but not limited to
any adjustments for Property Taxes and Operating Expenses.

 

(b) Tenant shall have no further options to renew the Lease Term beyond the
expiration date of the Renewal Term.

 

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(c) Landlord shall not be obligated to perform any leasehold improvement work in
the Premises or give Tenant an allowance or other economic concession for any
such work or for any other purposes;

 

(d) Except as otherwise provided herein, all of the terms and provisions of this
Lease shall remain the same and in full force and effect during the Renewal
Term.

 

(v) If Tenant exercises the Renewal Option, Landlord and Tenant shall execute
and deliver an amendment to the Lease reflecting the lease of the Premises by
Landlord to Tenant for the Renewal Term on the terms provided herein.

 

 

  3.3   Option to Terminate.

 

Tenant shall have an option to terminate the Lease (the “Termination Option”) on
the first (1st) day of the thirty-seventh (37th) calendar month of the Lease
Term (the “Termination Date”), under the following terms and conditions:

 

(i) The Termination Option is personal to Tenant and may not be transferred or
assigned unless it is transferred or assigned to an affiliate (which transfer or
assignment has been approved by Landlord);

 

(ii) Tenant delivers to Landlord irrevocable written notice of its exercise of
the Termination Option no later than six (6) months prior to the Termination
Date;

 

(iii) On or prior to the Termination Date, Tenant shall pay a fee (the
“Termination Fee”) in the amount of the sum of the unamortized tenant
improvement costs paid by Landlord, plus the unamortized real estate brokerage
commissions paid by Landlord, plus two (2) months’ rent at the then-current
rate;

 

(iv) On or prior to the Termination date, Tenant surrenders the Premises and all
improvements, alterations, and additions to Landlord in the condition required
under the Lease; and,

 

(v) Notwithstanding anything contained in the Lease to the contrary: (a) Tenant
shall pay to Landlord rent and other charges which accrue under the Lease until
the Termination Date, said rent and charges shall be payable at the same time
and place as they would have been payable under the Lease; (b) rent and charges
for any partial month shall be prorated, and Tenant shall remain liable
following the termination of the Lease to pay the full amount of all adjustment
to rental and charges payable on an estimated basis or otherwise subject to
adjustments, including, without limitation, payment of taxes and other operating
expenses payable under this Lease through the Termination Date; and (c) the
termination of this Lease shall not terminate Tenant’s obligations under this
Lease which expressly survive the termination of this Lease, including, without
limitation, any of Tenant’s indemnification obligations under this Lease.

 

 

ARTICLE IV – RENTAL

 

  3.4   Definitions.

 

Unless the context otherwise specifies or requires, the following terms shall
have the meanings specified herein:

 

 

   4.1.1   Base Year.

 

The term “Base Year” shall mean calendar year 2004.

 

 

   4.1.2   Property Taxes.

 

The term “Property Taxes” shall mean the aggregate amount of all real estate
taxes, assessments (whether they be general or special), sewer rents and
charges, transit taxes, taxes based upon the receipt of rent and any other
federal, state or local governmental charge, general, special, ordinary or
extraordinary (but not including income or franchise taxes, capital stock,
inheritance, estate, gift, or any other taxes imposed upon or measured by
Landlord’s gross income or profits, unless the same shall be imposed in lieu of
real estate taxes or other ad valorem taxes), which Landlord shall pay or become
obligated to pay in connection with the Building, or any part thereof. Property
Taxes shall also include all reasonable fees and costs, including attorney’s
fees, appraisals and consultants’ fees, incurred by Landlord in seeking to
obtain a reassessment, reduction of, or a limit on the increase in, any Property
Taxes. Property Taxes for any calendar year shall be Property Taxes which are
due for payment or paid in such year, rather than Property Taxes which are
assessed or become a lien during such year. Property

 

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Taxes shall include any tax, assessment, levy, imposition or charge imposed upon
Landlord and measured by or based in whole or in part upon the Building or the
rents or other income from the Building, to the extent that such items would be
payable if the Building was the only property of Landlord subject to same and
the income received by Landlord from the Building was the only income of
Landlord. Property Taxes shall also include any personal property taxes imposed
upon the furniture, fixtures, machinery, equipment, apparatus, systems and
appurtenances of Landlord used in connection with the Building.

 

  4.1.3   Operating Expenses.

 

The term “Operating Expenses” shall mean all reasonable costs, fees,
disbursements and expenses paid or incurred by or on behalf of Landlord directly
connected to the operation, ownership, maintenance, insurance, management,
replacement and repair of the Building (excluding Property Taxes) including
without limitation:

 

(i) Premiums for property, casualty, liability, earthquake, rental interruption
or other types of insurance carried by Landlord to the extent carried by other
institutional owners and operators of first class office buildings.

 

(ii) Salaries, wages, and other amounts paid or payable for personnel including
the Building manager, superintendent, operation and maintenance staff, and other
employees of Landlord involved in the maintenance and operation of the Building,
including contributions and premiums towards fringe benefits, unemployment,
disability and worker’s compensation insurance, pension plan contributions and
similar premiums and contributions and the total charges of any independent
contractors or property managers engaged in the operation, repair, care,
maintenance and cleaning of any portion of the Building.

 

(iii) Cleaning expenses, including without limitation janitorial services,
window cleaning, and garbage and refuse plants.

 

(iv) Landscape expenses, including without limitation irrigation, trimming,
mowing, fertilizing, seeding, and replacing plants.

 

(v) Heating, ventilating, air conditioning and steam/utilities expenses,
including fuel, gas, electricity, water, sewer, telephone, and other services.

 

(vi) Maintaining operating, repairing and replacing components of equipment or
machinery, including without limitation heating, refrigeration, ventilation,
electrical, plumbing, mechanical, elevator, escalator, sprinklers, fire/life
safety, security and energy management system, including service contractors,
maintenance contracts, supplies and parts.

 

(vii) Other items of repair or maintenance of elements of the Building.

 

(viii) The costs of policing, security and supervision of the Building.

 

(ix) Fair market rental and other costs with respect to the management office
for the Building, as long as such costs do not exceed the costs for similar
class A buildings in the San Francisco Central Business District.

 

(x) The cost of the rental of any machinery or equipment (which would be
considered, under GAAP standards, a capital expense if purchased), or the cost
of supplies used in the maintenance and operation of the Building, and the costs
of policing, security and supervision of the Building.

 

(xi) Audit fees and the cost of accounting services incurred in the preparation
of statements referred to in this Lease and financial statements, and in the
computation of the rents and charges payable by tenants of the Building.

 

(xii) Capital expenditures (a) made primarily to reduce Operating Expenses or to
comply with any laws or other governmental requirements applicable to the
Building, or (b) for replacements (as opposed to additions or new improvements)
of items located in the common areas of the Building, required to keep such
areas in good condition; provided all such permitted capital expenditures
(together with reasonable financing charges) shall be amortized for purposes of
this Lease over the shorter of (x) their useful lives, (y) the period during
which the reasonably estimated savings in Operating Expenses equals the
expenditures, or (z) five (5) years.

 

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(xiii) Legal fees and expenses.

 

(xiv) A reasonable fee for the administration and management of the Building as
reasonably determined by Landlord from time to time, provided that such fee does
not exceed the fee charged for administration and management for similar class A
buildings in the San Francisco Central Business District.

 

  4.1.4   Exclusions from Operating Expenses.

 

Operating Expenses shall not include costs of alteration of the Premises of
tenants of the Building, capital improvements (if so considered under GAAP),
payments under any ground lease or master lease, casualty losses, rentals for
items which, if purchased rather than rented, would constitute a capital
improvement, depreciation charges, interest and principal payments on mortgages,
real estate brokerage and leasing commissions, expenses incurred in enforcing
obligations of other tenants of the Building, costs incurred by Landlord due to
the violation by Landlord or any tenant of the terms and conditions of any lease
in the Building, salaries and other compensation of executive officers of the
managing agent of the Building senior to the Building manager, Landlord’s
general administrative costs and corporate overhead not directly attributable to
the Operating Expenses of the Building, costs incurred in connection with
upgrading the Building to comply with Applicable Law as later defined in Section
6.2.1 of this Lease, tax penalties, costs arising from the negligence of
Landlord or its agents, costs arising from Landlord’s charitable or political
contributions, costs of any special service provided to any one tenant of the
Building but not to tenants of the Building generally, and costs of marketing or
advertising the Building.

 

  4.1.5   Adjustment.

 

If the Building does not have ninety-five percent (95%) occupancy during an
entire calendar year, including the Base Year, then the variable cost component
of “Property Tax” and “Operating Expenses” shall be equitably adjusted so that
the total amount of Property Tax and Operating Expenses equals the total amount
which would have been paid or incurred by Landlord had the Building been one
hundred percent (100%) occupied for the entire calendar year. In no event shall
Landlord be entitled to receive from Tenant and any other tenants in the
Building an aggregate amount in excess of actual Operating Expenses as a result
of the foregoing provision.

 

  4.2   Base Rent.

 

  4.2.1   Rent Adjustment.

 

During the Lease Term, Tenant shall pay to Landlord as rental for the Premises
the Base Rent described in Section 1.8 above.

 

  4.2.2   Tax and Operating Expense Adjustment.

 

In addition to the Rent Adjustment, during each calendar year subsequent to the
Base Year, the Base Rent shall be increased by (collectively, the “Tax and
Operating Expense Adjustment”): (i) Tenant’s Percentage Share of the total
dollar increase, if any, in Property Taxes for such year over Property Taxes for
the Base Year; and (ii) Tenant’s Percentage Share of the total dollar increase,
if any, in Operating Expenses paid or incurred by Landlord during such year over
Operating Expenses paid or incurred by Landlord during the Base Year; provided,
however, that in any one (1) calendar year, Tenant’s Percentage Share of the
total dollar increase in the Tax and Operating Expense Adjustment may not be
increased more than ten percent (10%) from the total dollar cost of Tenant’s
Percentage Share for the previous calendar year. A decrease in Property Taxes or
Operating Expenses below the Base Year amounts shall not decrease the amount of
the Base Rent due hereunder or give rise to a credit in favor of Tenant.

 

If Tenant’s Additional Rent as finally determined for any calendar year exceeds
the total payments made by Tenant on account thereof, Tenant shall pay Landlord
the deficiency within ten (10) days of Tenant’s receipt of Landlord’s statement.
If the total payments made by Tenant on account thereof exceed Tenant’s
Additional Rent as finally determined for such year, Tenant’s excess payment
shall be credited toward the rent next due from Tenant under this Lease. For any
partial calendar year at the beginning or end of the Term, Additional Rent shall
be prorated on the basis of a 365-day year by computing Tenant’s Share of the
increases in Operating Costs and Taxes for the entire year and then prorating
such amount for the number of days during such year included in the Lease Term.
Notwithstanding the termination of this Lease, Landlord shall pay to Tenant or
Tenant shall pay to Landlord, as the case may be, within ten (10) days after
Tenant’s receipt of Landlord’s final statement for the calendar year in which
this Lease terminates, the difference between Tenant’s Additional Rent for that
year, as finally determined by Landlord, and the total amount previously paid by
Tenant on account thereof.

 

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  4.2.3   Tax Exempt Tenant.

 

If for any reason Base Taxes or Taxes for any year during the Lease Term are
reduced, refunded or otherwise changed, Tenant’s Additional Rent shall be
reduced, refunded or adjusted accordingly. If Taxes are temporarily reduced as a
result of space in the Building being leased to a tenant that is entitled to an
exemption from property taxes or other taxes, then for purposes of determining
Additional Rent for each year in which Taxes are reduced by any such exemption,
Taxes for such year shall be calculated on the basis of the amount the Taxes for
the year would have been in the absence of the exemption. The obligations of
Landlord to refund any overpayment of Additional Rent and of Tenant to pay any
Additional Rent not previously paid shall survive the expiration of the Term.
Notwithstanding anything to the contrary in this Lease, if there is at any time
a decrease in Taxes below the amount of the Taxes for the Base Year, then for
purposes of calculating Additional Rent for the year in which such decrease
occurs and all subsequent periods, Base Taxes shall be reduced to equal the
Taxes for the year in which the decrease occurs.

 

  4.3   Adjustment Procedure; Estimates.

 

The Tax and Operating Expense Adjustment shall be determined and paid as
follows:

 

  4.3.1   Estimates.

 

During each calendar year subsequent to the Base Year, Landlord shall give
Tenant written notice of its estimate of any increased amounts payable under
Section 4.2.2 for that calendar year. On or before the first day of each
calendar month during the calendar year, Tenant shall pay to Landlord
one-twelfth ( 1/12th) of such estimated amounts; provided, however, that, not
more often than quarterly, Landlord may, by written notice to Tenant, revise its
estimate for such year, and subsequent payments by Tenant for such year shall be
based upon such revised estimate.

 

  4.3.2   Landlord’s Statement.

 

Within one hundred twenty (120) days after the close of each calendar year or as
soon thereafter as is practicable, Landlord shall deliver to Tenant a statement
of that year’s Property Taxes and Operating Expenses, and the actual Tax and
Operating Expense Adjustment to be made pursuant to Section 4.2.2 for such
calendar year, as determined by Landlord (the “Landlord’s Statement”). Such
Landlord’s Statement shall be binding upon Tenant, except as specifically
provided in Section 4.4 below. If the amount of the actual Tax and Operating
Expense Adjustment is more than the estimated payments for such calendar year
made by Tenant, Tenant shall pay the deficiency to Landlord within ten (10) days
of receipt of Landlord’s Statement. If the amount of the actual Tax and
Operating Expense Adjustment is less than the estimated payments for such
calendar year made by Tenant, any excess shall be credited against Rent (as
hereinafter defined) next payable by Tenant under this Lease or, if the Lease
Term has expired, any excess shall be paid to Tenant. No delay in providing the
Statement shall act as a waiver of Landlord’s right to increase in payment
pursuant to the Tax and Operating Expense Adjustment.

 

  4.3.3   Termination.

 

If this Lease shall terminate on a day other than the end of a calendar year,
the amount of the Tax and Operating Expense Adjustment to be paid that is
applicable to the calendar year in which such termination occurs shall be
prorated on the basis of the number of days from January 1 of the calendar year
to the termination date bears to 365. The termination of this Lease shall not
affect the obligations of Landlord and Tenant pursuant to Section 4.3.2 to be
performed after such termination.

 

  4.4   Review of Landlord’s Statement.

 

Provided that Tenant is not then in default beyond any applicable cure period of
its obligations to pay Base Rent, additional rent described in Section 4.2.2 or
any other payments required to be made by it under this Lease, and provided
further that Tenant strictly complies with the provisions of this Section 4.4,
Tenant shall have the right, once each calendar year, to reasonably review
supporting data for any portion of a Landlord’s Statement (provided, however,
Tenant may not have an audit or review right to all documentation relating to
Building operations as this would far exceed the relevant information necessary
to properly document a pass-through billing statement, but real estate tax
statements, and information on utilities, repairs, maintenance and insurance
will be available and provided further that such audit or review shall be of
information relating to Landlord’s Statement not more than one (1) year before
the Landlord’s Statement in question), in accordance with the following
procedure:

 

  4.4.1   Notice.

 

Tenant shall, within ten (10) business days after any such Landlord’s Statement
is delivered, deliver a written notice to Landlord specifying the portions of
the Landlord’s Statement that are claimed to be incorrect, and Tenant shall
simultaneously pay to Landlord all amounts due from Tenant to Landlord as
specified in the Landlord’s Statement. Except as expressly set forth below, in
no event shall Tenant be entitled to withhold, deduct, or offset any monetary
obligation of Tenant to Landlord under the Lease (including, without limitation,
Tenant’s obligation to make all payments of Base Rent and all payments of
Tenant’s Tax and Operating Expense Adjustment) pending the completion of and
regardless

 

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of the results of any review of records under this Section 4.4. The right of
Tenant under this Section 4.4 may only be exercised once for any Landlord’s
Statement and must be exercised within one year after the date of the Landlord’s
Statement, and if Tenant fails to meet any of the above conditions as a
prerequisite to the exercise of such right, the right of Tenant under this
Section 4.4 for a particular Landlord’s Statement shall be deemed waived.

 

  4.4.2   Records.

 

Tenant acknowledges that Landlord maintains its records for the Building at
Landlord’s manager’s corporate offices presently located at the address set
forth in Section 1.14 and Tenant agrees that any review of records under this
Section 4.4 shall be at the sole expense of Tenant and shall be conducted by an
independent firm of certified public accountants of national standing. Tenant
acknowledges and agrees that any records reviewed under this Section 4.4
constitute confidential information of Landlord, which shall not be disclosed to
anyone other than the accountants performing the review, the principals of
Tenant, and its agents, officers, staff, and legal counsel who receive the
results of the review. The disclosure of such information to any other person by
Tenant, or its agents, officers, staff, and legal counsel, shall constitute a
material breach of this Lease.

 

  4.4.3   Landlord’s Review; Reconciliation.

 

Any errors disclosed by the review shall be promptly corrected by Landlord,
provided, however, that if Landlord disagrees with any such claimed errors,
Landlord shall have the right to cause another review to be made by an
independent firm of certified public accountants of national standing. In the
event of a disagreement between the two accounting firms, the review that
discloses the least amount of deviation from the Landlord’s Statement shall be
deemed to be correct. In the event that the results of the review of records
(taking into account, if applicable, the results of any additional review caused
by Landlord) reveal that Tenant has overpaid obligations for a preceding period,
the amount of such overpayment shall be credited against Tenant’s subsequent
installment obligations to pay the estimated Tax and Operating Expense
Adjustment. In the event that such results show that Tenant has underpaid its
obligations for a preceding period, Tenant shall be liable for Landlord’s actual
accounting fees, and the amount of such underpayment shall be paid by Tenant to
Landlord with the next succeeding installment obligation of estimated Tax and
Operating Expense Adjustment.

 

  4.5   Payment.

 

Concurrently with the execution hereof, Tenant shall pay Landlord Base Rent for
the first one-half ( 1/2) calendar month of the Lease Term. Thereafter the Base
Rent described in Section 1.8, as adjusted in accordance with Section 4.2, shall
be payable in advance on the first day of each calendar month. If the
Commencement Date is other than the first day of a calendar month, the prepaid
Base Rent for such partial month shall be prorated in the proportion that the
number of days this Lease is in effect during such partial month bears to the
total number of days in the calendar month. All Rent, and all other amounts
payable to Landlord by Tenant pursuant to the provisions of this Lease, shall be
paid to Landlord, without notice, demand, abatement, deduction or offset, in
lawful money of the United States at Landlord’s office in the Building or to
such other person or at such other place as Landlord may designate from time to
time by written notice given to Tenant. No payment by Tenant or receipt by
Landlord of a lesser amount than the correct Rent due hereunder shall be deemed
to be other than a payment on account; nor shall any endorsement or statement on
any check or any letter accompanying any check or payment be deemed to effect or
evidence an accord and satisfaction; and Landlord may accept such check or
payment without prejudice to Landlord’s right to recover the balance or pursue
any other remedy in this Lease or at law or in equity provided.

 

  4.6   Late Charge; Interest.

 

Tenant acknowledges that the late payment of Base Rent or any other amounts
payable by Tenant to Landlord hereunder (all of which shall constitute
additional rental to the same extent as Base Rent) will cause Landlord to incur
administrative costs and other damages, the exact amount of which would be
impracticable or extremely difficult to ascertain. Landlord and Tenant agree
that if Landlord does not receive any such payment on or before ten (10) days
after the date the payment is due, Tenant shall pay to Landlord, as additional
rent, (a) a late charge equal to five percent (5%) of the overdue amount to
cover such additional administrative costs; and (b) interest on the delinquent
amounts at the lesser of the maximum rate permitted by law (if any) or twelve
percent (12%) per annum from the date due to the date paid.

 

  4.7   Additional Rent.

 

For purposes of this Lease, all amounts payable by Tenant to Landlord pursuant
to this Lease, whether or not denominated as such, shall constitute additional
rental hereunder. Such additional rental, together with the Base Rent, Rent
Adjustment, and Tax and Operating Expense Adjustment, shall sometimes be
referred to in this Lease as “Rent”.

 

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  4.8   Additional Taxes.

 

Notwithstanding anything in Section 4.1.2 to the contrary, Tenant shall
reimburse Landlord upon demand for any and all taxes payable by or imposed upon
Landlord upon or with respect to: any fixtures or personal property located in
the Premises; any leasehold improvements made in or to the Premises by or for
Tenant; the Rent payable hereunder, including, without limitation, any gross
receipts tax, license fee or excise tax levied by any governmental authority;
the possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy of any portion of the Premises (including without limitation
any applicable possessory interest taxes); or this transaction or any document
to which Tenant is a party creating or transferring an interest or an estate in
the Premises.

 

  4.9   Base Rent Abatement.

 

If Landlord fails to perform the obligations required of Landlord under the
terms of this Lease, and such failure causes the Premises to be completely
untenantable and unusable by Tenant because solely of the failure of the HVAC
system in the Premises, the electricity in the Premises, the failure of the
elevator service to the Premises, or a total failure to provide access to the
Premises, Tenant shall give Landlord notice (the “Initial Notice”), specifying
such failure to perform by Landlord (the “Landlord Default”). If Landlord has
not cured such Landlord Default within ten (10) days after the receipt of the
Initial Notice, Tenant may deliver an additional notice to Landlord (the
“Additional Notice”), specifying such Landlord Default and Tenant’s intention to
abate the payment of rent under this Lease. If Landlord does not cure such
Landlord Default within ten (10) days of receipt of the Additional Notice (the
“Abatement Date”), Tenant may, upon written notice to Landlord, immediately
abate Base Rent payable under this Lease for the Premises rendered untenantable,
for the period beginning on the Abatement Date and the nonuse of the Premises by
Tenant to the earlier of the date Landlord cures such Landlord Default or the
date Tenant recommences the use of the Premises. Such right to abate Base Rent
shall be Tenant’s sole and exclusive remedy at law or in equity for a Landlord
Default. In no event shall Tenant have the right to terminate this Lease as a
result of a Landlord Default. Except as provided in this Section 4.9, nothing
contained herein shall be interpreted to mean that Tenant is excused from paying
Rent due hereunder.

 

ARTICLE V – SECURITY DEPOSIT

 

Upon the execution of this Lease, Tenant shall deposit with Landlord the
Security Deposit described in Section 1.11 above. The Security Deposit is made
by Tenant to secure the faithful performance of all the terms, covenants and
conditions of this Lease to be performed by Tenant. If Tenant shall default with
respect to any covenant or provision hereof, Landlord may use, apply or retain
all or any portion of the Security Deposit to cure such default or to compensate
Landlord for any loss or damage which Landlord may suffer thereby. If Landlord
so uses or applies all or any portion of the Security Deposit, Tenant shall
immediately upon written demand deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to the full amount hereinabove
stated. Landlord may from time to time require Tenant to increase the amount of
the Security Deposit in order for the Security Deposit to bear the same ratio to
the then Base Rent as the initial Security Deposit bears to the initial Base
Rent. Tenant’s failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep the Security Deposit separate from its
general accounts. If Tenant performs all of Tenant’s obligations hereunder, the
Security Deposit, or so much thereof as has not theretofore been applied by
Landlord, shall be returned, without payment of interest or other increment for
its use, to Tenant (or, at Landlord’s option, to the last assignee, if any, of
Tenant’s interest hereunder) within a reasonable period of time (not to exceed
thirty (30) days) after the expiration or termination of this Lease and
surrender of the Premises by Tenant; provided that Landlord may retain the
Security Deposit as security for the payment of any Rent Adjustment for up to
thirty (30) days following an expiration or termination pursuant to Section
4.2.1 above and shall, upon the determination of such adjustment, apply the
retained Security Deposit against any deficiency due Landlord and return the
balance, if any, to Tenant. No trust relationship is created herein between
Landlord and Tenant with respect to the Security Deposit. The Security Deposit
shall not be considered an advance payment of rental or a measure of Landlord’s
damages in case of default by Tenant.

 

ARTICLE VI – USE OF PREMISES

 

  6.1   Tenant’s Permitted Use.

 

Tenant shall use the Premises only for Tenant’s Permitted Use as set forth in
Section 1.12 above and shall not use or permit the Premises to be used for any
other purpose. Tenant shall, at its sole cost and expense, obtain all
governmental licenses and permits required to allow Tenant to conduct Tenant’s
Permitted Use. Landlord disclaims any warranty that the Premises are suitable
for Tenant’s use and Tenant acknowledges that it has had a full opportunity to
make its own determination in this regard.

 

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  6.2   Compliance With Laws and Other Requirements.

 

  6.2.1   Applicable Law.

 

Tenant shall not modify the Premises so that it violates any laws, statues,
ordinances and governmental rules, regulations or requirements now in force or
which may hereafter be in force (including, without limitation, the Americans
With Disabilities Act and Environmental Requirements), with the requirements of
any board of fire underwriters or other similar body now or hereafter
constituted, with any direction or occupancy certificate issued pursuant to any
law by any public officer or officers, as well as the provisions of all recorded
documents affecting the Premises, as they related to or affect the condition,
use or occupancy of the Premises, excluding requirements of structural changes
not related to or affected by improvements made by or for Tenant or Tenant’s use
of the Premises (collectively, the “Applicable Law”). The parties acknowledge
and agree that Tenant’s obligation to comply with the Applicable Law as provided
herein is a material part of the bargained for consideration for this Lease.
Subject to the last sentence of this Section 6.2.1, Tenant’s obligation under
this paragraph shall include, without limitation, the responsibility of Tenant
to make substantial repairs and alterations to the Premises, regardless of,
among other factors, the relationship of the cost of curative action to the
rental payable under this Lease, the length of the then remaining term hereof,
the relative benefit of the repairs to Tenant, the degree in which the curative
action may interfere with Tenant’s use or enjoyment of the Premises, the
likelihood that the parties contemplated the particular law involved, and
whether the law involved is related to Tenant’s particular use of the Premises.
Tenant waives any rights now or hereafter in whole or in part to otherwise seek
redress against the Applicable Law to terminate this Lease, to receive any
abatement, diminution, reduction or suspension of payment of rent, or to compel
Landlord to make any repairs to comply with any such legal requirements, on
account of any such occurrence or situation. Notwithstanding the foregoing
provisions of this Section 6.2.1, Tenant shall not be required to perform any
structural changes to the Premises or other portions of the Building unless such
changes relate to or are affected or triggered by (i) Tenant’s Alterations, or
(ii) Tenant’s particular use of the Premises (as opposed to Tenant’s use of the
Premises for general office purposes in a normal and customary manner). In no
event shall Tenant be required to remove any ACM, as defined in Section 18.29
herein, nor will Tenant be required to make Alterations or improvements to the
Premises as delivered on the Commencement Date in order to make the Premises
comply with the Applicable Law, if such violations of the Applicable Law existed
at the Commencement Date, or would have existed at the Commencement Date had the
Applicable law been in effect at that time.

 

  6.2.2   No Violation.

 

Tenant shall not use the Premises, or permit the Premises to be used, in any
manner which: (a) violates any Applicable Law; (b) causes or is reasonably
likely to cause damage to the Building or the Premises; (c) violates a
requirement or condition of any fire and extended insurance policy covering the
Building and/or the Premises, or increases the cost of such policy; (d)
constitutes or is reasonably likely to constitute a nuisance, annoyance or
inconvenience to other tenants or occupants of the Building or its equipment,
facilities or systems; (e) interferes with, or is reasonably likely to interfere
with, the transmission or reception of microwave, television, radio, telephone
or other communication signals by antennae or other facilities located in the
Building; or (f) violates the Rules and Regulations described in Section 18.2.

 

  6.3   Hazardous Materials.

 

  6.3.1   Prohibition.

 

No Hazardous Materials (as defined herein), shall be Handled (as also defined
herein), upon, about, above or beneath the Premises or any portion of the
Building by or on behalf of Tenant, its subtenants or its assignees, or their
respective contractors, clients, officers, directors, employees, agents, or
invitees. Notwithstanding the foregoing, normal quantities of Tenant’s Hazardous
Materials customarily used in the conduct of general administrative and
executive office activities (e.g., copier fluids, cleaning supplies, batteries,
etc.) may be Handled in accordance with applicable Environmental Law (as defined
herein) at the Premises without Landlord’s prior written consent.

 

  6.3.2   Remediation.

 

Notwithstanding the obligation of Tenant to indemnify Landlord pursuant to this
Lease, Tenant shall, at its sole cost and expense, promptly take all actions
required by any Regulatory Authority (as defined herein), or necessary for
Landlord to make full economic use of the Premises or any portion of the
Building, which requirements or necessity arises from the Handling of Tenant’s
Hazardous Materials upon, about, above or beneath the Premises or any portion of
the Building. Such actions shall include, but not be limited to, the
investigation of the environmental condition of the Premises or any portion of
the Building, the preparation of any feasibility studies or reports and the
performance of any cleanup, remedial, removal or restoration work. Tenant shall
take all actions necessary to restore the Premises or any portion of the
Building to the condition existing prior to the introduction of Tenant’s
Hazardous Materials, notwithstanding any less stringent standards or remediation
allowable under applicable Environmental Laws. Tenant shall nevertheless obtain
Landlord’s written approval prior to undertaking

 

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any actions required by this Section, which approval shall not be unreasonably
withheld so long as such actions would not potentially have a material adverse
long-term or short-term effect on the Premises or any portion of the Building.

 

  6.3.3   Additional Documents.

 

Tenant agrees to execute affidavits, representations, and the like from time to
time at Landlord’s request stating Tenant’s best knowledge and belief regarding
the presence of Hazardous Materials on the Premises.

 

  6.3.4   Environmental Laws.

 

As used herein, “Environmental Laws” means and includes all now and hereafter
existing statutes, laws, ordinances, codes, regulations, rules, rulings, orders,
decrees, directives, policies and requirements by any Regulatory Authority
regulating, relating to, or imposing liability or standards of conduct
concerning public health and safety or the environment.

 

  6.3.5   Hazardous Materials.

 

As used herein, “Hazardous Materials” means: (a) any material or substance: (i)
which is defined or becomes defined as a “hazardous substance”, “hazardous
waste,” “infectious waste,” “chemical mixture or substance,” or “air pollutant”
under Environmental Laws; (ii) containing petroleum, crude oil or any fraction
thereof; (iii) containing polychlorinated biphenyls (PCB’s); (iv) containing
asbestos; (v) which is radioactive; or (vi) which is infectious; or (b) any
other material or substance displaying toxic, reactive, ignitable or corrosive
characteristics, as all such terms are used in their broadest sense, and are
defined, or become defined by environmental laws; or (c) materials which cause a
nuisance upon or waste to the Premises or any portion of the Building.

 

  6.3.6   Handle.

 

As used herein, “Handle,” “handle,” “Handled,” “handled,” “Handling,” or
“handling” shall mean any installation, handling, generation, storage,
treatment, use, disposal, discharge, release, manufacture, refinement, presence,
migration, emission, abatement, removal, transportation, or any other activity
of any type in connection with or involving Hazardous Materials.

 

  6.3.7   Regulatory Authority.

 

As used herein, “Regulatory Authority” shall mean any federal, state or local
governmental agency, commission, board or political subdivision.

 

ARTICLE VII – UTILITIES AND SERVICES

 

  7.1   Building Services.

 

As long as Tenant is not in monetary default under this Lease, Landlord agrees
to furnish or cause to be furnished to the Premises the following utilities and
services, subject to the conditions and standards set forth herein:

 

  7.1.1   Elevator Service.

 

Non-attended automatic elevator service (if the Building has such equipment
serving the Premises), in common with Landlord and other tenants and occupants
and their agents and invitees.

 

  7.1.2   HVAC.

 

During Business Hours, such air conditioning, heating and ventilation as, in
Landlord’s reasonable judgment, are required for the comfortable use and
occupancy of the Premises; provided, however, that if Tenant shall require
heating, ventilation or air conditioning in excess of that which Landlord shall
be required to provide hereunder, Landlord may provide such additional heating,
ventilation or air conditioning at such rates and upon such additional
conditions as shall be determined by Landlord from time to time. Notwithstanding
the above, Landlord represents that Non-Business Hours HVAC service shall be
made available to Tenant upon written request to Landlord. The current rate
charged by Landlord for Non-Business Hours HVAC service is one hundred
eighty-five dollars ($185) per hour for chilled-air service and eighty-five
dollars ($85) per hour for fan-only service, excepting Sunday service, which is
one hundred eighty-five dollars ($185) per hour for both chilled-air and
fan-only service. Landlord may increase these rates only if, and to the extent
higher rates are charged for similarly sized tenant spaces for similar class A
buildings in the San Francisco Central Business District

 

  7.1.3   Water.

 

Water for drinking and if rest rooms are within the Premises, rest room
purposes.

 

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  7.1.4   Janitorial and Cleaning.

 

Reasonable janitorial and cleaning services (performed at least every business
day), provided that the Premises are used exclusively for office purposes and
are kept reasonably in order by Tenant. If the Premises are not used exclusively
as offices, Landlord, at Landlord’s sole discretion, may require that the
Premises be kept clean and in order by Tenant, at Tenant’s expense, to the
satisfaction of Landlord and by persons approved by Landlord; and, in all
events, Tenant shall pay to Landlord the cost of removal of Tenant’s refuse and
rubbish, to the extent that the same exceeds the refuse and rubbish attendant to
normal office usage.

 

  7.1.5   Electricity.

 

At all reasonable times, electric service which from time to time may fluctuate
but in no event shall be less than the product of one kilowatt per square foot
multiplied by the rentable square feet of the Premises, and not more than the
product of six (6) kilowatts per square foot multiplied by the rentable square
feet of the Premises (collectively, said minimum and maximum products shall be
referred to as the “wattage allowance”); provided, however, that: (i) without
Landlord’s consent, Tenant shall not install, or permit the installation, in the
Premises of any computers, word processors, electronic data processing equipment
or other type of equipment or machines which will increase Tenant’s use of
electric current in excess of the wattage allowance; (ii) if Tenant shall
require electric service which may disrupt the provision of electrical service
to other tenants or be in excess of the wattage allowance, Landlord may refuse
to grant its consent or may condition its consent upon Tenant’s payment of the
cost of installing and providing any additional facilities required to furnish
such excess power to the Premises and upon the installation in the Premises of
electric current meters to measure the amount of electricity consumed, in which
latter event Tenant shall pay for the cost of such meter(s) and the cost of
installation, and repair thereof, as well as for all excess electric current
consumed at the rates charged by the applicable local public utility, plus a
reasonable amount to cover the additional expenses incurred by Landlord in
keeping account of the electricity so consumed; and (iii) if Tenant’s increased
electrical requirements will materially affect the temperature level in the
Premises or the Building, Landlord’s consent may be conditioned upon Tenant’s
requirement to pay such amounts as will be incurred by Landlord to install and
operate any machinery or equipment necessary to restore the temperature level to
that otherwise required to be provided by Landlord, including but not limited to
the cost of modifications to the air conditioning system. In the event of any
utility deregulation whereby California utility customers may choose service
providers, Landlord may select such utility service provider which it deems to
be appropriate to service the utility needs of tenants of the Building, with or
without regard to the rates charged by such utility service provider, so long as
Landlord’s selection is commercially reasonable. Landlord shall not, in any way,
be liable or responsible to Tenant for any loss or damage or expense which
Tenant may incur or sustain if, for any reasons beyond Landlord’s reasonable
control, either the quantity or character of electric service is changed or is
no longer available or suitable for Tenant’s requirements. Tenant covenants that
at all times its use of electric current shall never exceed the capacity of the
feeders, risers or electrical installations of the Building. If submetering of
electricity in the Building will not be permitted under future laws or
regulations, the Rent will then be equitably and periodically adjusted to
include an additional payment to Landlord reflecting the cost to Landlord for
furnishing electricity to Tenant in the Premises.

 

  7.1.6   Payments.

 

Any amounts which Tenant is required to pay to Landlord pursuant to this Section
7.1 shall be payable upon demand by Landlord and shall constitute additional
rent.

 

  7.2   Interruption of Service.

 

Landlord shall not be liable for any failure to furnish, stoppage of, or
interruption in furnishing any of the services or utilities described in Section
7.1, when such failure is caused by accident, breakage, repairs, strikes,
lockouts, labor disputes, labor disturbances, governmental regulation, civil
disturbances, acts of war, moratorium or other governmental action, or any other
cause beyond Landlord’s reasonable control, and, in such event, Tenant shall not
be entitled to any damages nor shall any failure or interruption abate or
suspend Tenant’s obligation to pay Rent, Base Rent and additional rent required
under this Lease or constitute or be construed as a constructive or other
eviction of Tenant. Further, in the event any governmental authority or public
utility promulgates or revises any law, ordinance, rule or regulation, or issues
mandatory controls or voluntary controls relating to the use or conservation of
energy, water, gas, light or electricity, the reduction of automobile or other
emissions, or the provision of any other utility or service, Landlord may take
any reasonably appropriate action to comply with such law, ordinance, rule,
regulation, mandatory control or voluntary guideline and Tenant’s obligations
hereunder shall not be affected by any such action of Landlord. The parties
acknowledge that safety and security devices, services and programs provided by
Landlord, if any, while intended to deter crime and ensure safety, may not in
given instances prevent theft or other criminal acts, or ensure safety of
persons or property. The risk that any safety or security device, service or
program may not be effective, or may malfunction, or be circumvented by a
criminal, is assumed by Tenant with respect to Tenant’s property and interests,
and Tenant shall obtain insurance coverage to the extent Tenant desires
protection against

 

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such criminal acts and other losses, as further described in this Lease. Tenant
agrees to cooperate in any reasonable safety or security program developed by
Landlord or required by Law.

 

  7.3   Utility Deregulation.

 

  7.3.1   Landlord Controls Selection.

 

Landlord has advised Tenant that presently Pacific Gas & Electric (“Electric
Service Provider”) is the utility company selected by Landlord to provide
electricity service for 44 Montgomery Street. Notwithstanding the foregoing, if
permitted by law, Landlord shall have the right at any time and from time to
time during the Lease Term to either contract for service from a different
company or companies providing electricity service (each such company shall
hereinafter be referred to as an “Alternate Service Provider”) or continue to
contract for service from the Electric Service Provider.

 

  7.3.2   Tenant Shall Give Landlord Access.

 

Tenant shall cooperate with Landlord, the Electric Service Provider, and any
Alternate Service Provider at all reasonable times and, as reasonable necessary,
shall allow Landlord, Electric Service Provider, and any Alternate Service
Provider reasonable access to 44 Montgomery Street’s electric lines, feeders,
risers, wiring and any other machinery within the Premises.

 

ARTICLE VIII – MAINTENANCE AND REPAIRS

 

  8.1   Landlord’s Obligations.

 

Except as expressly provided in Sections 8.2 and 8.3 below, Landlord shall
maintain the Building in reasonable order and repair throughout the Lease Term;
provided, however, that Landlord shall not be liable for any failure to make any
repairs or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need for such repairs or
maintenance is given to Landlord by Tenant. Except as provided in Article XI,
and in Section 4.9, there shall be no abatement of Rent, nor shall there be any
liability of Landlord, by reason of any injury or inconvenience to, or
interference with, Tenant’s business or operations arising from the making of,
or failure to make, any maintenance or repairs in or to any portion of the
Building.

 

  8.2   Tenant’s Obligations.

 

During the Lease Term, Tenant shall, at its sole cost and expense, maintain the
Premises in good order and repair (including, without limitation, the carpet,
wall covering, doors, plumbing and other fixtures, equipment, alterations and
improvements, whether installed by Landlord or Tenant). Further, Tenant shall be
responsible for, and upon demand by Landlord shall promptly reimburse Landlord
for, any damage to any portion of the Building or the Premises caused by (a)
Tenant’s activities in the Building or the Premises; (b) the performance or
existence of any alterations, additions or improvements made by Tenant in or to
the Premises; (c) the installation, use, operation or movement of Tenant’s
property in or about the Building or the Premises; or (d) any act or omission by
Tenant or its officers, partners, employees, agents, contractors or invitees.

 

  8.3   Landlord’s Rights.

 

Landlord and its contractors shall have the right, at all reasonable times and
upon prior written, oral or telephonic notice to Tenant at the Premises, other
than in the case of any emergency in which case no notice shall be required, to
enter upon the Premises to make any repairs to the Premises or the Building
reasonably or deemed reasonably necessary by Landlord and to erect such
equipment, including scaffolding, as is reasonably necessary to effect such
repairs.

 

ARTICLE IX – ALTERATIONS, ADDITIONS, AND IMPROVEMENTS

 

  9.1   Landlord’s Consent; Conditions.

 

Tenant shall not make or permit to be made any alterations, additions, or
improvements in or to the Premises (collectively, the “Alterations”) without the
prior written consent of Landlord, which consent may be given or withheld in
Landlord’s reasonable discretion. Landlord may impose as a condition to making
any Alterations such requirements as Landlord in its reasonable discretion deems
necessary or desirable including without limitation: Tenant’s submission to
Landlord, for Landlord’s prior written approval, of all plans and specifications
relating to the Alterations, and upon completion of the Alterations, Tenant’s
delivery to Landlord for its permanent files on reproducible set of “as built”
drawings showing the Alterations as constructed or installed in the Premises;
Landlord’s prior written approval of the time or times when the Alterations are
to be performed; Landlord’s prior written approval of the contractors and
subcontractors performing work in connection with the Alterations; employment of

 

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union contractors and subcontractors who shall not cause labor disharmony;
Tenant’s receipt of all necessary permits and approvals from all governmental
authorities having jurisdiction over the Premises prior to the construction of
the Alterations; Tenant’s delivery to Landlord of such bonds and insurance as
Landlord shall reasonably require; Tenant’s payment to Landlord of all costs and
expenses incurred by Landlord because of Tenant’s Alterations, including but not
limited to costs incurred in reviewing the plans and specifications for, and the
progress of, the Alterations; and payment to Landlord a construction supervision
in the amount of five percent (5%) of the costs of the Alterations. Tenant is
required to provide Landlord written notice of whether the Alterations include
the Handling of any Hazardous Materials and whether these materials are of a
customary and typical nature for industry practices. Upon completion of the
Alterations, Tenant shall provide Landlord with copies of as-built plans.
Neither the approval by Landlord of plans and specifications relating to any
Alterations nor Landlord’s supervision or monitoring of any Alterations shall
constitute any warranty by Landlord to Tenant of the adequacy of the design for
Tenant’s intended use or the proper performance of the Alterations.

 

  9.2   Performance of Alterations Work.

 

All work relating to the Alterations shall be performed in compliance with the
plans and specifications approved by Landlord, all applicable laws, ordinances,
rules, regulations and directives of all governmental authorities having
jurisdiction over the Premises and the requirements of all carriers of insurance
insuring the Premises and the Building, the Board of Underwriters, Fire Rating
Bureau, or similar organization. All work shall be performed in a diligent,
first class manner and so as not to unreasonably interfere with any other
tenants or occupants of the Building. All costs incurred by Landlord relating to
the Alterations shall be payable to Landlord by Tenant as additional rent upon
demand. No asbestos-containing materials shall be used or incorporated in the
Alterations. No lead-containing surfacing material, solder, or other
construction materials or fixtures where the presence of lead might create a
condition of exposure not in compliance with Environmental Laws shall be
incorporated in the Alterations.

 

  9.3   Liens.

 

Tenant shall pay when due all costs for work performed and materials supplied to
the Premises. Tenant shall keep Landlord, the Premises and the Building free
from all liens, stop notices and violation notices relating to the Alterations
or any other work performed for, materials furnished to or obligations incurred
by or for Tenant and Tenant shall protect, indemnify, hold harmless and defend
Landlord, the Premises and the Building of and from any and all loss, cost,
damage, liability and expense, including attorneys’ fees, arising out of or
related to any such liens or notices. Further, Tenant shall give Landlord not
less than seven (7) business days prior written notice before commencing any
Alterations in or about the Premises to permit Landlord to post appropriate
notices of non-responsibility. Tenant shall also secure, prior to commencing any
Alterations, at Tenant’s sole expense, a completion and lien indemnity bond
satisfactory to Landlord for such work. During the progress of such work, Tenant
shall, upon Landlord’s request, furnish Landlord with lien releases covering all
work theretofore performed. Tenant shall satisfy or otherwise discharge all
liens, stop notices or other claims or encumbrances within ten (10) days after
Landlord notifies Tenant in writing that any such lien, stop notice, claim or
encumbrance has been filed. If Tenant fails to pay and remove such lien, claim
or encumbrance within such ten (10) days, Landlord, at its election, may pay and
satisfy the same and in such event the sums so paid by Landlord, with interest
from the date of payment at the rate set forth in this Lease for amounts owed
Landlord by Tenant shall be deemed to be additional rent due and payable by
Tenant at once without notice or demand.

 

  9.4   Lease Termination.

 

Except as provided herein, upon expiration or earlier termination of this Lease
Tenant shall surrender the Premises to Landlord in the same condition as existed
on the date Tenant first occupied the Premises (whether pursuant to this Lease
or an earlier lease), subject to reasonable wear and tear. All Alterations shall
become a part of the Premises and shall become the property of Landlord upon the
expiration or earlier termination of this Lease, unless Landlord shall, by
written notice given to Tenant, require Tenant to remove some or all of Tenant’s
Alterations, in which event Tenant shall promptly remove the designated
Alterations and shall promptly repair any resulting damage, all at Tenant’s sole
expense. All business and trade fixtures, machinery and equipment, furniture,
movable partitions and items of personal property owned by Tenant or installed
by Tenant at its expense in the Premises shall be and remain the property of
Tenant; upon the expiration or earlier termination of this Lease, Tenant shall,
at its sole expense, remove all such items and repair any damage to the Premises
or the Building caused by such removal. If Tenant fails to remove any such items
or repair such damage promptly after the expiration or earlier termination of
the Lease, Landlord may, but need not, do so with no liability to Tenant, and
Tenant shall pay Landlord the cost thereof upon demand. Notwithstanding the
foregoing to the contrary, in the event that Landlord gives its consent,
pursuant to the provisions of this Article IX, to allow Tenant to make an
Alteration in the Premises, Landlord agrees, upon Tenant’s written request, to
notify Tenant in writing at the time of the giving of such consent whether
Landlord will require Tenant, at Tenant’s cost, to remove such Alteration at the
end of the Lease Term.

 

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ARTICLE X – INDEMNIFICATION AND INSURANCE

 

  10.1   Indemnification.

 

  10.1.1   Tenant.

 

Tenant agrees to protect, indemnify, hold harmless and defend Landlord and any
Mortgagee, as defined herein, and each of their respective partners, directors,
officers, agents and employees, successors and assigns (except to the extent the
losses described below are caused by the gross negligence or intentional
misconduct of Landlord, its agents and employees), from and against:

 

(i) any and all loss, cost, damage, liability or expense as incurred (including
but not limited to reasonable attorneys’ fees and legal costs) arising out of or
related to any claim, suit or judgment brought by or in favor of any person or
persons for damage, loss or expense due to, but not limited to, bodily injury,
including death or property damage sustained by such person or persons which
arises out of, or is in any way attributable to the use or occupancy of the
Premises or any portion of the Building by Tenant or the acts or omissions of
Tenant or its agents, employees, contractors, clients, invitees or subtenants
except to the extent caused by the negligence or intentional misconduct of
Landlord or its agents or employees. Such loss or damage shall include, but not
be limited to, any injury or damage to, or death of, Landlord’s employees or
agents or damage to the Premises or any portion of the Building.

 

(ii) any and all environmental damages which arise from the Tenant’s Handling of
any Hazardous Materials, as defined in Section 6.3. For the purpose of this
Lease, “environmental damages” shall mean (a) all claims, judgments, damages,
penalties, fines, costs, liabilities, and losses (including without limitation,
diminution in the value of the Premises or any portion of the Building, damages
for the loss of or restriction on use of rentable or usable space or of any
amenity of the Premises or any portion of the Building, and from any adverse
impact of Landlord’s marketing of space); (b) all reasonable sums paid for
settlement of claims, attorneys’ fees, consultants’ fees and experts’ fees; and
(c) all costs incurred by Landlord in connection with investigation or
remediation relating to the Tenant’s Handling of Hazardous Materials. To the
extent that Landlord is held strictly liable by a court or other governmental
agency of competent jurisdiction under any Environmental Laws, Tenant’s
obligation to Landlord and the other indemnities under the foregoing
indemnification shall likewise be without regard to fault on Tenant’s part with
respect to the violation of any Environmental Law which results in liability to
the Landlord. Tenant’s obligations and liabilities pursuant to this Section 10.1
shall survive the expiration or earlier termination of this Lease.

 

  10.1.2   Landlord.

 

Landlord agrees to protect, indemnify, hold harmless and defend Tenant from and
against any and all loss, cost, damage, liability or expense, including
reasonable attorneys’ fees, with respect to any claim of damage or injury to
persons or property at the Premises, to the extent caused by the gross
negligence or intentional misconduct of Landlord or its authorized agents or
employees.

 

  10.1.3   No Limitation.

 

Notwithstanding anything to the contrary contained herein, nothing shall be
interpreted or used to (a) in any way affect, limit, reduce or abrogate any
insurance coverage provided by any insurers to either Tenant or Landlord, or (b)
infer or imply that Tenant is a partner, joint venturer, agent, employee, or
otherwise acting by or at the direction of Landlord.

 

  10.2   Property Insurance.

 

  10.2.1   Tenant All-Risk.

 

At all times during the Lease Term, Tenant shall procure and maintain, at its
sole expense, “all-risk” property insurance, for damage or other loss caused by
fire or other casualty or cause including, but not limited to, vandalism and
malicious mischief, theft, water damage of any type, including sprinkler
leakage, bursting of pipes, and explosion, in an amount not less than one
hundred percent (100%) of the replacement cost covering (a) all Alterations made
by or for Tenant in the Premises; and (b) Tenant’s trade fixtures, equipment and
other personal property from time to time situated in the Premises. The proceeds
of such insurance shall be used for the repair or replacement of the property so
insured, except that if not so applied or if this Lease is terminated following
a casualty, the proceeds applicable to the leasehold improvements shall be paid
to Landlord and the proceeds applicable to Tenant’s personal property shall be
paid to Tenant.

 

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  10.2.2   Landlord All-Risk.

 

Landlord shall, at all times during the Lease Term, procure and maintain
“all-risk” property insurance in the amount not less than ninety percent (90%)
of the insurable replacement cost covering the Building in which the Premises
are located and such other insurance as may be required by a Mortgagee (defined
hereafter) or otherwise desired by Landlord.

 

  10.3   Liability Insurance.

 

  10.3.1   Tenant.

 

At all times during the Lease Term, Tenant shall procure and maintain, at its
sole expense, commercial general liability insurance applying to the use and
occupancy of the Premises and the business operated by Tenant. Such insurance
shall have a minimum combined single limit of liability of at least Two Million
Dollars ($2,000,000) per occurrence and a general aggregate limit of at least
Two Million Dollars ($2,000,000). All such policies shall be written to apply to
all bodily injury, property damage, and personal injury losses, and shall be
endorsed to include Landlord and its agents, beneficiaries, partners, employees,
and any deed of trust holder or mortgagee of Landlord or any ground lessor as
additional insureds. Such liability insurance shall be written as primary
policies, not excess or contributing with or secondary to any other insurance as
may be available to the additional insureds.

 

  10.3.2   Alcohol.

 

Prior to the sale, storage, use or giving away of alcoholic beverages on or from
the Premises by Tenant or another person, Tenant, at its own expense, shall
obtain a policy or policies of insurance issued by a responsible insurance
company and in a form acceptable to Landlord saving harmless and protecting
Landlord and the Premises against any and all damages, claims, liens, judgments,
expenses and costs, including actual attorneys’ fees, arising under any present
or future law, statute, or ordinance of the State of California or other
governmental authority having jurisdiction of the Premises, by reason of any
storage, sale, use or giving away of alcoholic beverages on or from the
Premises. Such policy or policies of insurance shall have a minimum combined
single limit of One Million Dollars ($1,000,000) per occurrence and shall apply
to bodily injury, fatal or nonfatal; injury to means of support; and injury to
property of any person. Such policy or policies of insurance shall name Landlord
and its agents, beneficiaries, partners, employees and any mortgagee of Landlord
or any ground lessor of Landlord as additional insureds.

 

  10.3.3   Landlord.

 

Landlord shall, at all times during the Lease Term, procure and maintain
commercial general liability insurance for the Building in which the Premises
are located. Such insurance shall have minimum combined single limit of
liability of at least Two Million Dollars ($2,000,000) per occurrence, and a
general aggregate limit of at least Two Million Dollars ($2,000,000).

 

  10.4   Workers’ Compensation Insurance.

 

At all times during the Lease Term, Tenant shall procure and maintain Workers’
Compensation Insurance in accordance with the laws of the State of California,
and Employer’s Liability insurance with a limit not less than One Million
Dollars ($1,000,000) Bodily Injury Each Accident; One Million Dollars
($1,000,000) Bodily Injury By Disease—Each Person; and One Million Dollars
($1,000,000) Bodily Injury to Disease—Policy Limit.

 

  10.5   Policy Requirements.

 

All insurance required to be maintained by Tenant shall be issued by insurance
companies authorized to do insurance business in the State of California and,
except for Workers’ Compensation Insurance as defined in Section 10.4 above,
rated not less than A-VIII in Best’s Insurance Guide. A certificate of insurance
(or, at Landlord’s option, copies of the applicable policies) evidencing the
insurance required under this Article X shall be delivered to Landlord not less
than thirty (30) days prior to the Commencement Date. No such policy shall be
subject to cancellation or modification without thirty (30) days prior written
notice to Landlord and to any deed of trust holder, mortgagee or ground lessor
designated by Landlord to Tenant. Tenant shall furnish Landlord with a
replacement certificate with respect to any insurance not less than thirty (30)
days prior to the expiration of the current policy.

 

  10.6   Waiver of Subrogation.

 

Each party hereby waives any right of recovery against the other for injury or
loss due to hazards covered by insurance or required to be covered, to the
extent of the injury or loss covered thereby. Any policy of insurance to be
provided by Tenant or Landlord pursuant to this Article X shall contain a clause
denying the applicable insurer any right of subrogation against the other party.

 

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  10.7   Failure to Insure.

 

If Tenant fails to maintain any insurance which Tenant is required to maintain
pursuant to this Article X, Tenant shall be liable to Landlord for any loss or
cost resulting from such failure to maintain. Tenant may not self-insure against
any risks required to be covered by insurance without Landlord’s prior written
consent, which consent may be given or withheld in Landlord’s sole and absolute
discretion.

 

ARTICLE XI – DAMAGE OR DESTRUCTION

 

  11.1   Total Destruction.

 

Except as provided in Section 11.3 below, this Lease shall terminate if the
Building is totally destroyed.

 

  11.2   Partial Destruction of Premises.

 

If the Premises are damaged by any casualty and, in Landlord’s reasonable
opinion, the Premises (exclusive of any Alterations made to the Premises by
Tenant) can be restored to its pre-existing condition within one hundred eighty
(180) days after the date of the damage or destruction, Landlord shall, upon
written notice from Tenant to Landlord of such damage, except as provided in
Section 11.3, promptly and with due diligence repair any damage to the Premises
(exclusive of any Alterations to the Premises made by Tenant, which shall be
promptly repaired by Tenant at its sole expense) and, until such repairs are
completed, the Rent shall be abated from the date of damage or destruction in
the same proportion that the rentable area of the portion of the Premises which
is unusable by Tenant in the conduct of its business bears to the total rentable
area of the Premises. If such repairs cannot, in Landlord’s opinion, be made
within said one hundred eighty (180) day period, then Landlord may, at its
option, exercisable by written notice given to Tenant within thirty (30) days
after the date of the damage or destruction, elect to make the repairs within a
reasonable time after the damage or destruction, in which event this Lease shall
remain in full force and effect but the Rent shall be abated as provided in the
preceding sentence; if Landlord does not so elect to make the repairs, then
either Landlord or Tenant shall have the right, by written notice given to the
other within sixty (60) days after the date of the damage or destruction, to
terminate this Lease as of the date of the damage or destruction.

 

  11.3   Exceptions to Landlord’s Obligations.

 

Notwithstanding anything to the contrary contained in this Article XI, Landlord
shall have no obligation to repair the Premises if either: (a) the Building in
which the Premises are located is so damaged as to require repairs to the
Building exceeding twenty percent (20%) of the full insurable value of the
Building; or (b) Landlord elects to demolish the Building in which the Premises
are located; or (c) the damage or destruction occurs less than one (1) year
prior to the Expiration Date, exclusive of option periods. Further, Tenant’s
Rent shall not be abated if either (i) the damage or destruction is repaired
within five (5) business days after Landlord receives written notice from Tenant
of the casualty, or (ii) to the extent that Tenant, or any officers, partners,
employees, agents or invitees of Tenant, or any assignee or subtenant of Tenant,
is, in whole or in part, responsible for the damage or destruction.

 

  11.4   Waiver.

 

The provisions contained in this Lease shall supersede any laws (whether
statutory, common law or otherwise) now or hereafter in effect relating to
damage, destruction, self-help or termination, including California Civil Code
Sections 1932 and 1933.

 

ARTICLE XII – CONDEMNATION

 

  12.1   Taking.

 

If the entire Premises or so much of the Premises as to render the balance
unusable by Tenant shall be taken by condemnation, sale in lieu of condemnation
or in any other manner for any public or quasi-public purpose (collectively
“Condemnation”), then this Lease shall terminate on the date that title or
possession to the Premises is taken by the condemning authority.

 

  12.2   Award.

 

In the event of any Condemnation, the entire award for such taking shall belong
to Landlord. Tenant shall have no claim against Landlord or the award for the
value of any unexpired term of this Lease or otherwise. Tenant shall be entitled
to independently pursue a separate award in a separate proceeding for Tenant’s
relocation costs directly associated with the taking, provided such separate
award does not diminish Landlord’s award.

 

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  12.3   Temporary Taking.

 

No temporary taking of the Premises shall terminate this Lease or entitle Tenant
to any abatement of the Rent payable to Landlord under this Lease; provided,
further, that any award for such temporary taking shall belong to Tenant to the
extent that the award applies to any time period during the Lease Term and to
Landlord to the extent that the award applies to any time period outside the
Lease Term.

 

ARTICLE XIII – RELOCATION

 

Intentionally Deleted.

 

ARTICLE XIV – ASSIGNMENT AND SUBLETTING

 

  14.1   Restriction.

 

Without the prior written consent of Landlord, Tenant shall not, either
voluntarily or by operation of law, assign, encumber, or otherwise transfer this
Lease or any interest herein, or sublet the Premises or any part thereof, or
permit the Premises to be occupied by anyone other than Tenant or Tenant’s
employees (any such assignment, encumbrance, subletting, occupation or transfer
is hereinafter referred to as a “Transfer”). For purposes of this Lease the term
“Transfer” shall also include (a) if Tenant is a partnership the withdrawal or
change, voluntary, involuntary or by operation of law, of a partner, or a
transfer of partnership interests, or the dissolution of the partnership, and
(b) 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) or a limited
liability company, the dissolution, merger, consolidation, division, liquidation
or other reorganization of Tenant, or within a twelve month period: (i) the sale
or other transfer of more than an aggregate of 20% of the voting securities of
Tenant (other than to immediate family members by reason of gift or death) or
(ii) the sale, mortgage, hypothecation or pledge of more than an aggregate of
50% of Tenant’s net assets. A Transfer in violation of the foregoing shall be
void and, at Landlord’s option, shall constitute a material breach of this
Lease. Notwithstanding anything contained in this Article XIV to the contrary,
Tenant expressly covenants and agrees not to enter into any lease, sublease,
license, concession or other agreement for use, occupancy or utilization of the
Premises which provides for rental or other payment for such use, occupancy or
utilization based in whole or in part on the net income or profits derived by
any person from the property leased, used, occupied or utilized (other than an
amount based on a fixed percentage or percentages of receipts or sales), and
that any such purported lease, sublease, license, concession or other agreement
shall be absolutely void and ineffective as a conveyance of any right or
interest in the possession, use, occupancy or utilization of any part of the
Premises. Notwithstanding anything contained in this Lease to the contrary,
Tenant may effectuate a Transfer to any of the following entities without
Landlord’s consent; provided, however, that Tenant shall provide Landlord with
prior written notice thereof and provided that the tangible net worth of the
proposed Transferee is such that such Transferee is capable of performing
Tenant’s obligation under this Lease, as reasonably determined by Landlord:

 

(i) Any entity controlling, controlled by or under common control with Tenant (a
“Corporate Affiliate”);

 

(ii) Any entity with which Tenant has merged or consolidated, or

 

(iii) Any entity which acquires all or substantially all of the shares of stock
or assets of Tenant, and which continues to operate substantially the same
business at the Premises as had been maintained by Tenant (each, an “Affiliate
Transferee”).

 

  14.2   Notice to Landlord.

 

If Tenant desires to assign this Lease or any interest herein, or to sublet all
or any part of the Premises, then at least fifteen (15) days but not more than
one hundred eighty (180) days prior to the effective date of the proposed
assignment or subletting, Tenant shall submit to Landlord in connection with
Tenant’s request for Landlord’s consent:

 

  14.2.1   Statement.

 

A statement containing (a) the name and address of the proposed assignee or
subtenant; (b) such financial information with respect to the proposed assignee
or subtenant as Landlord shall reasonably require; (c) the type of use proposed
for the Premises; and (d) all of the principal terms of the proposed assignment
or subletting; and

 

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  14.2.2   Original Documents.

 

Four (4) originals of the assignment or sublease on a form approved by Landlord
and four (4) originals of the Landlord’s Consent to Sublease or Assignment and
Assumption of Lease and Consent.

 

  14.3   Landlord’s Recapture Rights.

 

At any time within twenty (20) business days after Landlord’s receipt of all
(but not less than all) of the information and documents described in Section
14.2 above, Landlord may, at its option by written notice to Tenant, elect to:
(a) sublease the Premises or the portion thereof proposed to be sublet by Tenant
upon the same terms as those offered to the proposed subtenant; (b) take an
assignment of the Lease upon the same terms as those offered to the proposed
assignee; or (c) terminate the Lease in its entirety or as to the portion of the
Premises proposed to be assigned or sublet, with a proportionate adjustment in
the Rent payable hereunder if the Lease is terminated as to less than all of the
Premises. If Landlord does not exercise any of the options described in the
preceding sentence, then, during the above-described twenty (20) business day
period, Landlord shall either consent or deny its consent to the proposed
assignment or subletting.

 

  14.4   Landlord’s Consent; Standards.

 

Landlord’s consent to a proposed assignment or subletting shall not be
unreasonably withheld; but, in addition to any other grounds for denial,
Landlord’s consent shall be deemed reasonably withheld if, in Landlord’s good
faith judgment: (a) the proposed assignee or subtenant does not have in
Landlord’s reasonable judgment the financial strength to perform its obligations
under this Lease or any proposed sublease; (b) the business and operations of
the proposed assignee or subtenant are not of comparable quality to the business
and operations being conducted by other tenants in the Building; (c) the
proposed assignee or subtenant intends to use any part of the Premises for a
purpose not permitted under this Lease; (d) either the proposed assignee or
subtenant, or any person which directly or indirectly controls, is controlled
by, or is under common control with the proposed assignee or subtenant occupies
space in the Building, or is negotiating with Landlord to lease space in the
Building; (e) the proposed assignee or subtenant is disreputable; or (f) the use
of the Premises or the Building by the proposed assignee or subtenant would, in
Landlord’s reasonable judgment, impact the Building in a negative manner,
including but not limited to significantly increasing the pedestrian traffic in
and out of the Building or requiring any alterations to the Building to comply
with applicable laws; (g) the subject space is not regular in shape with
appropriate means of ingress and egress suitable for normal renting purposes;
(h) the transferee is a government (or agency or instrumentality thereof), or
(i) Tenant has failed to cure a default at the time Tenant requests consent to
the proposed Transfer. Tenant shall not be entitled to and Tenant hereby waives
any right it may have to make any claim for, money damages (nor shall Tenant
claim any money damages by way of set-off, counterclaim or defense) based upon
any claim or assertion by Tenant that Landlord has unreasonably withheld or
unreasonably delayed its consent or approval to a proposed assignment or
subletting or as provided for in this Section 14.4. Tenant’s sole remedy shall
be an action or proceeding to enforce any provision hereof, or for specific
performance, injunction or declaratory judgment. Tenant acknowledges that
Tenant’s rights under this Section 14.4 satisfy the conditions set forth in
Section 1951.4 of the California Civil Code with respect to the availability to
Landlord of certain remedies for a default by Tenant under this Lease, and which
provides, in part: “The lessor has the remedy described in California Civil Code
Section 1951.4 (lessor may continue the 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).”

 

  14.5   Additional Rent.

 

If Landlord consents to any such assignment or subletting, the amount by which
all sums or other economic consideration payable to Tenant in connection with
such assignment or subletting, whether denominated as rental or otherwise,
exceeds, in the aggregate, the total sum which Tenant is obligated to pay
Landlord under this Lease (prorated to reflect obligations allocable to less
than all of the Premises under a sublease) shall be paid to Landlord promptly
after receipt as additional Rent under the Lease without affecting or reducing
any other obligation of Tenant hereunder.

 

  14.6   Landlord’s Costs.

 

If Tenant shall Transfer this Lease or all or any part of the Premises or shall
request the consent of Landlord to any Transfer, Tenant shall pay to Landlord as
additional rent Landlord’s reasonable costs related thereto, including, without
limitation, a minimum fee to Landlord of Five Hundred Dollars ($500.00) and
Landlord’s actual attorney’s fees and costs.

 

  14.7   Continuing Liability of Tenant.

 

Notwithstanding any Transfer, Tenant shall remain as fully and primarily liable
for the payment of Rent and for the performance of all other obligations of
Tenant contained in this Lease to the same extent as if the Transfer had not
occurred; provided, however, that any act or omission of any transferee, other
than Landlord, that violates the terms of this Lease shall be deemed a violation
of this Lease by Tenant.

 

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  14.8   Non-Waiver.

 

The consent by Landlord to any Transfer shall not relieve Tenant, or any person
claiming through or by Tenant, terms, of the obligation to obtain the consent of
Landlord, pursuant to this Article XIV, to any further Transfer. In the event of
an assignment or subletting, Landlord may collect rent from the assignee or the
subtenant without waiving any rights hereunder and collection of the rent from a
person other than Tenant shall not be a waiver of any of Landlord’s rights under
this Article XIV, an acceptance of assignee or subtenant as Tenant, or a release
of Tenant from the performance of Tenant’s obligations under this Lease. If
Tenant shall default under this Lease and fail to cure within the time
permitted, Landlord is irrevocably authorized, as Tenant’s agent and
attorney-in-fact, to direct any transferee to make all payments under or in
connection with the Transfer directly to Landlord (which Landlord shall apply
towards Tenant’s obligations under this Lease) until such default is cured.

 

ARTICLE XV – DEFAULT AND REMEDIES

 

  15.1   Events of Default By Tenant.

 

The occurrence of any of the following shall constitute a material default and
breach of this Lease by Tenant:

 

  15.1.1   Failure to Pay Rent.

 

The failure by Tenant to pay Base Rent or make any other payment required to be
made by Tenant hereunder within three (3) days of receiving written notice of
delinquency from Landlord. Any payment of Base Rent or any other payment
required to be made by Tenant that is not paid as and when due under the terms
of this Lease shall be required to be paid by hand delivery to the on-site
property management office. Landlord’s acceptance of any partial payment of Base
Rent or any other payments made by Tenant hereunder shall not constitute a
waiver of any of Landlord’s rights, including the right to recover possession
base on a properly served default notice.

 

  15.1.2   Abandonment.

 

The abandonment of the Premises by Tenant for fourteen (14) consecutive days
without the payment of Rent.

 

  15.1.3   Failure to Perform.

 

The failure by Tenant to observe or perform any other provision of this Lease to
be observed or performed by Tenant, other than those described in Sections
15.1.1 and 15.1.2 above, if such failure continues for thirty (30) days after
written notice thereof by Landlord to Tenant; provided, however, that if the
nature of the default is such that it cannot be cured within the thirty (30) day
period, no default shall exist if Tenant commences the curing of the default
within the thirty (30) day period and thereafter diligently prosecutes the same
to completion. The thirty (30) day notice described herein shall be in lieu of,
and not in addition to, any notice required under Section 1161 of the California
Code of Civil Procedure or any other law now or hereafter in effect requiring
that notice of default be given prior to the commencement of an unlawful
detainer or other legal proceeding.

 

  15.1.4   Bankruptcy.

 

The making by Tenant or its Guarantor of any general assignment for the benefit
of creditors, the filing by or against Tenant or its Guarantor of a petition
under any federal or state bankruptcy or insolvency laws (unless, in the case of
a petition filed against Tenant or its Guarantor the same is dismissed within
thirty (30) days after filing); the appointment of a trustee or receiver to take
possession of substantially all of Tenant’s assets at the Premises or Tenant’s
interest in this Lease or the Premises, when possession is not restored to
Tenant within thirty (30) days; or the attachment, execution or other seizure of
substantially all of Tenant’s assets located at the Premises or Tenant’s
interest in this Lease or the Premises, if such seizure is not discharged within
thirty (30) days.

 

  15.1.5   Misstatement.

 

Any material misrepresentation herein, or material misrepresentation or omission
in any financial statements provided by Tenant or any Guarantor in connection
with negotiating or entering into this Lease or in connection with any Transfer
under Section 14.1.

 

  15.2   Landlord’s Right To Terminate Upon Tenant Default.

 

In the event of any material default by Tenant as provided in Section 15.1
above, Landlord shall have, to the extent permitted by California Law, the right
to terminate this Lease and recover possession of the Premises by giving written
notice to Tenant of Landlord’s election to terminate this Lease, in which event
Landlord shall be entitled to receive from Tenant: (a) the worth at the time of
award of any unpaid

 

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Rent which had been earned at the time of such on award; plus (b) 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 Tenant proves could have been reasonably avoided; plus (c) the worth
at the time of award of the amount by which the unpaid Rent for the balance of
the term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; plus (d) 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; and (e) at Landlord’s
election, such other amounts in addition to or in lieu of the foregoing as may
be permitted from time to time by applicable law. As used in subsections (a) and
(b) above, “worth at the time of award” shall be computed by allowing interest
on such amounts at the then highest lawful rate of interest, but in no event to
exceed one percent (1%) per annum plus the rate established by the Federal
Reserve Bank of San Francisco on advances made to banks under Sections 13 and
13a of the Reserve Act (“discount rate”) prevailing at the time of award. As
used in subsection (c) above, “worth at the time of award” shall be computed by
discounting such amount by (x) the discount rate of the Federal Reserve Bank of
San Francisco prevailing at the time of award plus (y) one percent (1%).

 

  15.3   Mitigation of Damages.

 

If Landlord terminates this Lease or Tenant’s right to possession of the
Premises, Landlord shall have no obligation to mitigate Landlord’s damages
except to the extent required by applicable law. If Landlord has not terminated
this Lease or Tenant’s right to possession of the Premises, Landlord shall have
no obligation to mitigate under any circumstances and may permit the Premises to
remain vacant or abandoned. If Landlord is required to mitigate damages as
provided herein: (a) Landlord shall be required only to use reasonable efforts
to mitigate, which shall not exceed such efforts as Landlord generally uses to
lease other space in the Building, (b) Landlord will not be deemed to have
failed to mitigate if Landlord or its affiliates lease any other portions of the
Building or other projects owned by Landlord or its affiliates in the same
geographic area, before re-letting the Premises or any portion of the Premises,
and (c) any failure to mitigate as described herein with respect to any period
of time shall only reduce the Rent and other amounts to which Landlord is
entitled hereunder by the reasonable rental value of the Premises during such
period.

 

  15.4   Landlord’s Right to Continue Lease Upon Tenant Default.

 

In the event of a default of this Lease by Tenant, and if Landlord does not
elect to terminate this Lease as provided in Section 15.2 above, Landlord may,
from time to time, without terminating this Lease, enforce all of its rights and
remedies under this Lease or at law or in equity. Without limiting the
foregoing, Landlord has the remedy described in California Civil Code Section
1951.4 (Landlord may continue this Lease in effect after Tenant’s default and
recover Rent as it becomes due, if Tenant has the right to Transfer, subject
only to reasonable limitations). In the event Landlord re-lets the Premises, to
the fullest extent permitted by law, the proceeds of any re–letting shall be
applied first to pay to Landlord all costs and expenses of such re–letting
(including without limitation, costs and expenses of retaking or repossessing
the Premises, removing persons and property therefrom, securing new tenants,
including expenses for redecoration, alterations and other costs in connection
with preparing the Premises for the new tenant, and if Landlord shall maintain
and operate the Premises, the costs thereof) and receivers’ fees incurred in
connection with the appointment of and performance by a receiver to protect the
Premises and Landlord’s interest under this Lease and any necessary or
reasonable alterations; and second, to the payment of any indebtedness of Tenant
to Landlord other than Rent due and unpaid hereunder; third, to the payment of
Rent due and unpaid hereunder; and the residue, if any, shall be held by
Landlord and applied in payment of other or future obligations of Tenant to
Landlord as the same may be due and payable, and the remainder shall promptly be
returned to Tenant.

 

  15.5   Right of Landlord to Perform.

 

All covenants and agreements to be performed by Tenant under this Lease shall be
performed by Tenant at Tenant’s sole cost and expense. If Tenant shall fail to
pay any sum of money, other than Rent, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder,
Landlord may, but shall not be obligated to, make any payment or perform any
such other act on Tenant’s part to be made or performed, without waiving or
releasing Tenant of its obligations under this Lease. Any sums so paid by
Landlord and all necessary incidental costs, together with interest thereon at
the lesser of the maximum rate permitted by law if any or twelve percent (12%)
per annum from the date of such payment, shall be payable to Landlord as
additional rent on demand and Landlord shall have the same rights and remedies
in the event of nonpayment as in the case of default by Tenant in the payment of
Rent.

 

  15.6   Non-Waiver.

 

Nothing in this Article shall be deemed to affect Landlord’s rights to
indemnification for liability or liabilities arising prior to termination of
this Lease or Tenant’s right to possession for personal injury or property
damages under the indemnification clause or clauses contained in this Lease. No
acceptance by

 

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Landlord of a lesser sum than the Rent then due shall be deemed to be other than
on account of the earliest installment of such rent due, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord’s right to recover the
balance of such installment or pursue any other remedy in the Lease provided.
The delivery of keys to any employee of Landlord or to Landlord’s agent or any
employee thereof shall not operate as a termination of this Lease or a surrender
of the Premises.

 

  15.7   Cumulative Remedies.

 

The specific remedies to which Landlord may resort under the terms of the Lease
are cumulative and are not intended to be exclusive of any other remedies or
means of redress to which it may be lawfully entitled in case of any breach or
threatened breach by Tenant of any provisions of the Lease. In addition to the
other remedies provided in the Lease, Landlord shall be entitled to a restraint
by injunction of the violation or attempted or threatened violation of any of
the covenants, conditions or provisions of the Lease or to a decree compelling
specific performance of any such covenants, conditions or provisions.

 

  15.8   Default by Landlord.

 

Landlord’s failure to perform or observe any of its obligations under this Lease
shall constitute a default by Landlord under this Lease only if such failure
shall continue for a period of thirty (30) days (or if the cure reasonably takes
more than thirty (30) days, and Landlord commences to undertake the cure within
the thirty (30) day period, then the additional time, if any, which is
reasonably necessary to promptly and diligently cure the failure) after Landlord
receives written notice from Tenant specifying the default. The notice shall
give in reasonable detail the nature and extent of the failure and shall
identify the Lease provision(s) containing the obligation(s). If Landlord shall
default in the performance of any of its obligations under this Lease (after
notice and opportunity to cure as provided herein), Tenant may pursue any
remedies available to it under the law and this Lease, except that in no event
shall Landlord be liable for punitive damages, lost profits, business
interruption, speculative, consequential or other such damages. In recognition
that Landlord must receive timely payments of Rent and operate the Building,
Tenant shall have no right of self-help to perform repairs or any other
obligation of Landlord, and shall have no right to withhold, set-off, or abate
Rent, except as specifically set forth in this Lease.

 

ARTICLE XVI – ATTORNEY’S FEES; INDEMNIFICATION

 

  16.1   Attorneys’ Fees.

 

If either Landlord or Tenant shall commence any action or other proceeding
against the other arising out of, or relating to, this Lease or the Premises,
the prevailing party shall be entitled to recover from the losing party, in
addition to any other relief, its actual attorneys’ fees irrespective of whether
or not the action or other proceeding is prosecuted to judgment and irrespective
of any court schedule of reasonable attorneys’ fees. In addition, Tenant shall
reimburse Landlord, upon demand, for all reasonable attorneys’ fees incurred in
collecting Rent or otherwise seeking interpretation of this Lease or enforcement
against Tenant, its sublessees and assigns, of Tenant’s obligations under this
Lease.

 

  16.2   Indemnification.

 

Should Landlord be made a party to any litigation instituted by Tenant against a
party other than Landlord, or by a third party against Tenant, Tenant shall
indemnify, hold harmless and defend Landlord from any and all loss, cost,
liability, damage or expense incurred by Landlord, including attorneys’ fees, in
connection with the litigation.

 

ARTICLE XVII – SUBORDINATION AND ATTORNMENT

 

  17.1   Subordination.

 

This Lease, and the rights of Tenant hereunder, are and shall be subject and
subordinate to the interests of (i) all present and future ground leases and
master leases of all or any part of the Building; (ii) present and future
mortgages and deeds of trust encumbering all or any part of the Building; (iii)
all past and future advances made under any such mortgages or deeds of trust;
and (iv) all renewals, modifications, replacements and extensions of any such
ground leases, master leases, mortgages and deeds of trust; provided, however,
that any lessor under any such ground lease or master lease or any mortgagee or
beneficiary under any such mortgage or deed of trust (any such lessor, mortgagee
or beneficiary is hereinafter referred to as a “Mortgagee”) shall have the right
to elect, by written notice given to Tenant, to have this Lease made superior in
whole or in part to any such ground lease, master lease, mortgage or deed of
trust (or subject and subordinate to such ground lease, master lease, mortgage

 

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or deed of trust but superior to any junior mortgage or junior deed of trust).
Upon demand, Tenant shall execute, acknowledge and deliver any instruments
reasonably requested by Landlord or any such Mortgagee to effect the purposes of
this Section 17.1. Such instruments may contain, among other things, provisions
to the effect that such Mortgagee (hereafter, for the purposes of this Section
17.1, a “Successor Landlord”) shall (a) not be liable for any act or omission of
Landlord or its predecessors, if any, prior to the date of such Successor
Landlord’s succession to Landlord’s interest under this Lease; (b) not be
subject to any offsets or defenses which Tenant might have been able to assert
against Landlord or its predecessors, if any, prior to the date of such
Successor Landlord’s succession to Landlord’s interest under this Lease; (c) not
be liable for the return of any security deposit under the Lease unless the same
shall have actually been deposited with such Successor Landlord; (d) be entitled
to receive notice of any Landlord default under this Lease plus a reasonable
opportunity to cure such default prior to Tenant having any right or ability to
terminate this Lease as a result of such Landlord default; (e) not be bound by
any rent or additional rent which Tenant might have paid for more than the
current month to Landlord; (f) not be bound by any amendment or modification of
the Lease or any cancellation of the same made without Successor Landlord’s
prior written consent; (g) not be bound by any obligation to make any payment to
Tenant which was required to be made prior to the time such Successor Landlord
succeeded to Landlord’s interest, and (h) not be bound by any obligation under
the Lease to perform any work or to make any improvements to the demised
Premises. Any obligations of any Successor Landlord under its respective lease
shall be non-recourse as to any assets of such Successor Landlord other than its
interest in the Building and its related improvements. Not withstanding the
foregoing, Tenant’s Subordination shall only be effective as to the extent that
the future Mortgagee agrees that this Lease shall survive the termination of the
Mortgagee’s interest by lapse of time, foreclosure or otherwise so long as
Tenant is not in default under this Lease.

 

  17.2   Attornment.

 

If the interests of Landlord under the Lease shall be transferred to any
superior Mortgagee or Successor Landlord or other purchaser or person taking
title to the Building by reason of the termination of any superior lease or the
foreclosure of any superior mortgage or deed of trust, and so long as such
Successor Landlord or Mortgagee agrees not to disturb Tenant’s possession of the
Premises under this Lease, Tenant shall be bound to such Successor Landlord
under all of the terms, covenants and conditions of the Lease for the balance of
the term thereof remaining and any extensions or renewals thereof which may be
effected in accordance with any option therefor in the Lease, with the same
force and effect as if Successor Landlord were the landlord under the Lease, and
Tenant shall attorn to and recognize as Tenant’s landlord under this Lease such
Successor Landlord, as its landlord, said attornment to be effective and
self-operative without the execution of any further instruments upon Successor
Landlord’s succeeding to the interest of Landlord under the Lease. Tenant
acknowledges that Landlord is (a) the assignee of the lessor’s interest in that
certain Ground Lease dated June 11, 1963 (“Existing Ground Lease”) for the land
underlying the Building, and (b) the assignee of the lessee’s interest in the
Ground Lease. Upon expiration or termination of the Existing Ground Lease,
Tenant will attorn to and continue to recognize Landlord as the landlord under
this Lease. Tenant shall, upon demand, execute any documents reasonably
requested by any such person to evidence the attornment described in this
Section 17.2. Concurrently, upon written request from Tenant, and provided
Tenant is not in default under this Lease, Landlord agrees to use diligent,
commercially reasonable efforts to obtain a Non-Disturbance Agreement from the
Successor Landlord, ground lessor or master lessor (if different from Landlord),
or any Mortgagee. Such Non-Disturbance Agreement may be embodied in the
Mortgagee’s customary form of Subordination and Non-Disturbance Agreement. If,
after exerting diligent, commercially reasonable efforts, Landlord is unable to
obtain a Non-Disturbance Agreement from any such Mortgagee, Landlord shall have
no further obligation to Tenant with respect thereto.

 

  17.3   Mortgagee Protection.

 

Tenant agrees to give any Mortgagee, by registered or certified mail, a copy of
any notice of default served upon Landlord by Tenant, provided that prior to
such notice Tenant has been notified in writing (by way of service on Tenant of
a copy of Assignment of Rents and Leases, or otherwise) of the address of such
Mortgagee (hereafter the “Notified Party”). Tenant further agrees that if
Landlord shall have failed to cure such default within twenty (20) days after
such notice to Landlord (or if such default cannot be cured or corrected within
that time, then such additional time as may be necessary if Landlord has
commenced within such twenty (20) days and is diligently pursuing the remedies
or steps necessary to cure or correct such default), then the Notified Party
shall have an additional thirty (30) days within which to cure or correct such
default (or if such default cannot be cured or corrected within that time, then
such additional time as may be necessary if the Notified Party has commenced
within such thirty (30) days and is diligently pursuing the remedies or steps
necessary to cure or correct such default). Until the time allowed, as
aforesaid, for the Notified Party to cure such default has expired without cure,
Tenant shall have no right to, and shall not, terminate this Lease on account of
Landlord’s default.

 

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ARTICLE XVIII – MISCELLANEOUS

 

  18.1   Quiet Enjoyment.

 

Provided that Tenant performs all of its obligations hereunder, Tenant shall
have and peaceably enjoy the Premises during the Lease Term free of claims by or
through Landlord, subject to all of the terms and conditions contained in this
Lease.

 

  18.2   Rules and Regulations.

 

The Rules and Regulations attached hereto as Exhibit C are hereby incorporated
by reference herein and made a part hereof. Tenant shall abide by, and
faithfully observe and comply with the Rules and Regulations and any reasonable
and non-discriminatory amendments, modifications and/or additions thereto as may
hereafter be adopted and published by written notice to tenants by Landlord for
the safety, care, security, good order and/or cleanliness of the Premises and/or
the Building. Landlord shall enforce the Rules and Regulations in a
non-discriminatory manner, but will not be liable to Tenant for any violation of
rules or regulations by any other tenant or occupant of the Building.

 

  18.3   Estoppel Certificates.

 

Tenant agrees at any time and from time to time, upon not less than twenty (20)
days’ prior written notice from Landlord, to execute, acknowledge and deliver to
Landlord a statement in writing addressed and certifying to Landlord, to any
current or prospective Mortgagee or any assignee thereof, to any prospective
purchaser of the land, improvements or both comprising the Building, and to any
other party designated by Landlord, that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications); that Tenant has
accepted possession of the Premises, which are acceptable in all respects, and
that any improvements required by the terms of this Lease to be made by Landlord
have been completed to the satisfaction of Tenant (or if such improvements have
not been completed to the satisfaction of Tenant, stating in what way the
improvements are unsatisfactory under the terms of this Lease or the Work Letter
Agreement); that Tenant is in full occupancy of the Premises; that no rent has
been paid more than thirty (30) days in advance; that the first month’s Base
Rent has been paid; that Tenant is entitled to no free rent or other concessions
except as stated in this Lease; that Tenant has not been notified of any
previous assignment of Landlord’s or any predecessor landlord’s interest under
this Lease; the dates to which Base Rent, additional rental and other charges
have been paid; that Tenant, as of the date of such certificate, has no charge,
lien or claim of setoff under this Lease or otherwise against Base Rent,
additional rental or other charges due or to become due under this Lease (or if
Tenant asserts a charge, lien or claim of setoff under this Lease, then Tenant
will specify the amount sought pursuant to which such charge, lien or claim of
setoff is being sought); that Landlord is not in default in performance of any
covenant, agreement or condition contained in this Lease; or any other matter
relating to this Lease or the Premises or, if so, specifying each such default.
If there is a Guaranty under this Lease, said Guarantor shall confirm the
validity of the Guaranty by joining in the execution of the Estoppel Certificate
or other documents so requested by Landlord or Mortgagee. In addition, in the
event that such certificate is being given to any Mortgagee, such statement may
contain any other provisions customarily required by such Mortgagee including,
without limitations an agreement on the part of Tenant to furnish to such
Mortgagee, written notice of any Landlord default and a reasonable opportunity
for such Mortgagee to cure such default prior to Tenant being able to terminate
this Lease. Any such statement delivered pursuant to this Section may be relied
upon by Landlord or any Mortgagee, or prospective purchaser to whom it is
addressed and such statement, if required by its addressee, may so specifically
state. If Tenant does not execute, acknowledge and deliver to Landlord the
statement as and when required herein, Landlord is hereby granted an irrevocable
power-of-attorney, coupled with an interest, to execute such statement on
Tenant’s behalf, which statement shall be binding on Tenant to the same extent
as if executed by Tenant.

 

  18.4   Entry by Landlord.

 

Landlord may enter the Premises at reasonable times and frequency to: inspect
the same; exhibit the same to prospective purchasers, Mortgagees or tenants;
determine whether Tenant is complying with all of its obligations under this
Lease; supply janitorial and other services to be provided by Landlord to Tenant
under this Lease; post notices of non-responsibility; and make repairs or
improvements in or to the Building or the Premises; provided, however, that all
such work shall be done as promptly as reasonably possible and so as to cause as
little interference to Tenant as reasonably possible. Tenant hereby waives any
claim for damages for any injury or inconvenience to, or interference with,
Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises or
any other loss occasioned by such entry, unless caused by the negligence or
willful misconduct of Landlord. Landlord at all times shall have and retain a
key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant’s vaults, safes and similar areas designated by Tenant in
writing in advance), and Landlord shall have the right to use any and all means
by which Landlord may deem proper to open such doors to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any such means,
or otherwise, shall not under any circumstances be or construed to be a forcible
or unlawful entry into or a detainer of the

 

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Premises or an eviction, actual or constructive, of Tenant from any part of the
Premises. Such entry by Landlord shall not act as a termination of Tenant’s
duties under this Lease. If Landlord shall be required to obtain entry by means
other than a key provided by Tenant, the cost of such entry shall be payable by
Tenant to Landlord as additional rent.

 

  18.5   Landlord’s Lease Undertakings.

 

Notwithstanding anything to the contrary contained in this Lease or in any
exhibits, Riders or addenda hereto attached (collectively the “Lease
Documents”), it is expressly understood and agreed by and between the parties
hereto that: (a) the recourse of Tenant or its successors or assigns against
Landlord with respect to the alleged breach by or on the part of Landlord of any
representation, warranty, covenant, undertaking or agreement contained in any of
the Lease Documents or otherwise arising out of Tenant’s use of the Premises or
the Building (collectively, “Landlord’s Lease Undertaking”) shall extend only to
Landlord’s interest in the real estate of which the Premises demised under the
Lease Documents are a part (“Landlord’s Real Estate”) and not to any other
assets of Landlord or its beneficiaries; and (b) no personal liability or
personal responsibility of any sort with respect to any of Landlord’s Lease
Undertakings or any alleged breach thereof is assumed by, or shall at any time
be asserted or enforceable against, Landlord, OTR, an Ohio general partnership,
Seagate Properties, Inc., or against any of their respective directors,
officers, employees, agents, constituent partners, beneficiaries, trustees or
representatives. Tenant acknowledges that this Lease is executed by certain
general partners of OTR, not individually but solely on behalf of, and as the
authorized nominee and agent for, the State Teachers Retirement Board of Ohio,
and Tenant and all persons dealing with Landlord waive any right to bring a
cause of action against the individuals executing this Lease on behalf of
Landlord and must look solely to the Landlord’s Real Estate for the enforcement
of any claim against Landlord.

 

  18.6   Transfer of Landlord’s Interest.

 

In the event of any transfer of Landlord’s interest in the Building, Landlord
shall be automatically freed and relieved from all applicable liability with
respect to performance of any covenant or obligation on the part of Landlord
under this Lease occurring after the date of such transfer, provided any
deposits or advance rents held by Landlord are turned over to the grantee and
said grantee expressly assumes, subject to the limitations of this Lease, all
the terms, covenants and conditions of this Lease to be performed on the part of
Landlord, it being intended hereby that the covenants and obligations contained
in this Lease on the part of Landlord shall, subject to all the provisions of
this Lease, be binding on Landlord, its successors and assigns, only during
their respective periods of ownership.

 

  18.7   Holdover.

 

If Tenant holds possession of the Premises after the expiration or termination
of the Lease Term, by lapse of time or otherwise, Tenant shall become a tenant
at sufferance upon all of the terms contained herein, except as to Lease Term
and Rent. During such holdover period, Tenant shall pay to Landlord a monthly
rental equivalent to one hundred fifty percent (150%) of the Rent payable by
Tenant to Landlord with respect to the last month of the Lease Term. The monthly
rent payable for such holdover period shall in no event be construed as a
penalty or as liquidated damages for such retention of possession. Without
limiting the foregoing, Tenant hereby agrees to indemnify, defend and hold
harmless Landlord, its beneficiary, and their respective agents, contractors and
employees, from and against any and all claims, liabilities, actions, losses,
damages (including without limitation, direct, indirect, incidental and
consequential) and expenses (including, without limitation, court costs and
reasonable attorneys’ fees) asserted against or sustained by any such party and
arising from or by reason of such retention of possession, which obligations
shall survive the expiration or termination of the Lease Term.

 

  18.8   Notices.

 

All notices which Landlord or Tenant may be required, or may desire, to serve on
the other may be served, as an alternative to personal service, by mailing the
same by registered or certified mail, postage prepaid return receipt requested,
or by Federal Express or other nationally recognized courier service, addressed
to Landlord at the address for Landlord get forth in Section 1.14 above and to
Tenant at the address for Tenant set forth in Section 1.15 above, or, from and
after the Commencement Date, to Tenant at the Premises whether or not Tenant has
departed from, abandoned or vacated the Premises, or addressed to such other
address or addresses as either Landlord or Tenant may from time to time
designate to the other in writing. Any notice shall be deemed to have been
served at the time it was received.

 

  18.9   Brokers.

 

The parties recognize as the broker(s) who procured this Lease the firm(s)
specified in Section 1.16 and agree that Landlord shall be solely responsible
for the payment of any brokerage commissions to said broker(s), and that Tenant
shall have no responsibility therefor unless written provision to the contrary
has been made a part of this Lease. If Tenant has dealt with any other person or
real estate broker in respect to leasing, subleasing or renting space in the
Building, Tenant shall be solely responsible for the payment

 

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of any fee due said person or firm and Tenant shall protect, indemnify, hold
harmless and defend Landlord from any liability in respect thereto.

 

  18.10   Communications and Computer Lines.

 

Tenant may, in a manner consistent with the provisions and requirements of this
Lease, install, maintain, replace, remove or use any communications or computer
wires, cables and related devices (collectively the “Lines”) at the Building in
or serving the Premises, provided: (a) Tenant shall obtain Landlord’s prior
written consent, which consent may be conditioned as required by Landlord, (b)
if Tenant at any time uses any equipment that may create an electromagnetic
field exceeding the normal insulation ratings of ordinary twisted pair riser
cable or cause radiation higher than normal background radiation, the Lines
therefor (including riser cables) shall be appropriately insulated to prevent
such excessive electromagnetic fields or radiation, and (c) Tenant shall pay all
costs in connection therewith. Landlord reserves the right to require that
Tenant remove any Lines which are installed in violation of these provisions.

 

  18.10.1   New Lines.

 

Landlord may (but shall not have the obligation to): (a) install new Lines at
the Property, and (b) create additional space for Lines at the Property, and
adopt reasonable and uniform rules and regulations with respect to the Lines.

 

  18.10.2   Line Problems.

 

Notwithstanding anything to the contrary contained in this Lease, Landlord
reserves the right to require that Tenant remove any or all Lines installed by
or for Tenant within or serving the Premises. Tenant shall not, without the
prior written consent of Landlord in each instance, grant to any third party a
security interest or lien in or on the Lines, and any such security interest or
lien granted without Landlord’s written consent shall be null and void. Except
to the extent arising from the intentional or negligent acts of Landlord or
Landlord’s agents or employees, Landlord shall have no liability for damages
arising from, and Landlord does not warrant that Tenant’s use of any Lines will
be free from the following, (collectively called “Line Problems”): (a) any
eavesdropping or wire-tapping by unauthorized parties, (b) any failure of any
Lines to satisfy Tenant’s requirements, or (c) any shortages, failures,
variations, interruptions, disconnections, loss or damage caused by the
installation, maintenance, replacement, use or removal of Lines by or for other
tenants or occupants at the Property. Under no circumstances shall any Line
Problems be deemed an actual or constructive eviction of Tenant, render Landlord
liable to Tenant for abatement of Rent, or relieve Tenant from performance of
Tenant’s obligations under this Lease. Landlord in no event shall be liable for
damages by reason of loss of profits, business interruption or other
consequential damage arising from any Line Problems.

 

  18.10.3   Removal of Electrical and Telecommunication Wires, Lines and
Equipment.

 

(i) Landlord May Elect to Either Remove or Keep Wires.

 

Within ten (10) days after the expiration or sooner termination of the Lease,
Landlord may elect (“Election Right”) by written notice to Tenant to:

 

(a) Retain any or all wiring, cables, riser, and similar installations
appurtenant thereto installed by Tenant in the risers of the Building
(“Wiring”);

 

(b) Remove any or all such Wiring and restore the Premises and risers to their
condition prior to the installation of the Wiring (“Wiring Restoration Work”).
Landlord shall perform such Wire Restoration Work at Tenant’s sole cost and
expense; or

(c) Require Tenant to perform the Wire Restoration Work at Tenant’s sole cost
and expense.

 

(ii) Survival.

 

The provisions of this Clause shall survive the expiration or sooner termination
of the Lease.

 

(iii) Condition of Wiring.

 

In the event Landlord elects to retain the Wiring (pursuant to Paragraph (i)(a)
hereof), Tenant covenants that:

 

(a) Tenant shall be the sole owner of such Wiring, that Tenant shall have the
right to surrender such Wiring, and that such Wiring shall be free of all liens
and encumbrances; and

 

(b) All Wiring shall be left in good condition.

 

(iv) Landlord Can Apply Security Deposit.

 

In the event Tenant fails or refuses to pay all costs of the Wiring Restoration
Work within fifteen (15) days of Tenant’s receipt of Landlord’s notice
requesting Tenant’s

 

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reimbursement for or payment of such costs, Landlord may apply all or any
portion of Tenant’s Security Deposit toward the payment of such unpaid costs
relative to the Wiring Restoration Work.

 

(v) No Limit on Right to Sue.

 

The retention or application of such Security Deposit by Landlord pursuant to
this Clause does not constitute a limitation on or waiver of Landlord’s right to
seek further remedy under law or equity.

 

  18.11   Entire Agreement.

 

This Lease contains all of the agreements and understandings relating to the
leasing of the Premises and the obligations of Landlord and Tenant in connection
with such leasing. Landlord has not made, and Tenant is not relying upon, any
warranties, or representations, promises or statements made by Landlord or any
agent of Landlord, except as expressly set forth herein. This Lease supersedes
any and all prior agreements and understandings between Landlord and Tenant and
alone expresses the agreement of the parties.

 

  18.12   Amendments.

 

This Lease shall not be amended, changed or modified in any way unless in
writing executed by Landlord and Tenant. Landlord shall not have waived or
released any of its rights hereunder unless in writing and executed by Landlord.

 

  18.13   Successors.

 

Subject to the limitations expressly provided herein, this Lease and the
obligations of Landlord and Tenant contained herein shall bind and benefit the
successors and assigns of the parties hereto.

 

  18.14   Force Majeure.

 

Landlord shall incur no liability to Tenant with respect to, and shall not be
responsible for any failure to perform, any of Landlord’s obligations hereunder
if such failure is caused by any reason beyond the control of Landlord
including, but not limited to, strike, labor trouble, governmental rule,
regulations, ordinance, statute or interpretation, or by fire, earthquake, civil
commotion, or failure or disruption of utility services. The amount of time for
Landlord to perform any of Landlord’s obligations shall be extended by the
amount of time Landlord is delayed in performing such obligation by reason of
any event of force majeure occurrence whether similar to or different from the
foregoing types of occurrences. Notwithstanding the above, if Landlord fails to
perform any of its obligations under the Lease pursuant to any event of force
majeure, and if such failure renders the Premises substantially unusable for
Tenant’s purposes, then Tenant may abate its obligations to pay rent until such
time as Landlord has cured such failure.

 

  18.15   Survival of Obligations.

 

Any obligations of Tenant accruing prior to the expiration of the Lease shall
survive the expiration or earlier termination of the Lease, and Tenant shall
promptly perform all such obligations whether or not this Lease has expired or
been terminated.

 

  18.16   Light and Air.

 

No diminution or shutting off of any light, air or view by any structure now or
hereafter erected shall in any manner affect this Lease or the obligations of
Tenant hereunder, or increase any of the obligations of Landlord hereunder.

 

  18.17   Governing Law.

 

This Lease shall be governed by, and construed in accordance with, the laws of
the State of California.

 

  18.18   Severability.

 

In the event any provision of this Lease is found to be unenforceable, the
remainder of this Lease shall not be affected, and any provision found to be
invalid shall be enforceable to the extent permitted by law. The parties agree
that in the event two different interpretations may be given to any provision
hereunder, one of which will render the provision unenforceable, and one of
which will render the provision enforceable, the interpretation rendering the
provision enforceable shall be adopted.

 

  18.19   Captions.

 

All captions, headings, titles, numerical references and computer highlighting
are for convenience only and shall have no effect on the interpretation of this
Lease. Accordingly, this Lease shall be

 

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construed neither for nor against Landlord or Tenant, but shall be given a fair
and reasonable interpretation in accordance with the plain meaning of its terms,
and the intent of the parties.

 

  18.20   Interpretation.

 

Tenant acknowledges that it has read and reviewed this Lease and that it has had
the opportunity to confer with counsel in the negotiation of this Lease.
Accordingly, this Lease shall be construed neither for nor against Landlord or
Tenant, but shall be given a fair and reasonable interpretation in accordance
with the plain meaning of its terms and the intent of the parties.

 

  18.21   Independent Covenants.

 

Each covenant, agreement, obligation or other provision of this Lease to be
performed by Tenant are separate and independent covenants of Tenant, and not
dependent on any other provision of the Lease.

 

  18.22   Number and Gender.

 

All terms and words used in this Lease, regardless of the number or gender in
which they are used, shall be deemed to include the appropriate number and
gender, as the context may require.

 

  18.23   Time is of the Essence.

 

Time is of the essence of this Lease and the performance of all obligations
hereunder.

 

  18.24   Joint and Several Liability.

 

If Tenant comprises more than one person or entity, or if this Lease is
guaranteed by any party, all such persons shall be jointly and severally liable
for payment of rents and the performance of Tenant’s obligations hereunder.

 

  18.25   Exhibits.

 

Exhibits A (Floor Plan), B (Work Letter Agreement), C (Rules and Regulations), D
(Intentionally Deleted), and E (Tenant Acceptance Letter), and are incorporated
into this Lease by reference and made a part hereof.

 

  18.26   Offer to Lease.

 

The submission of this Lease to Tenant or its broker or other agent, does not
constitute an offer to Tenant to lease the Premises. This Lease shall have no
force and effect until (a) it is executed and delivered by Tenant to Landlord,
and (b) it is fully reviewed, executed and delivered by Landlord to Tenant;
provided, however, that upon execution of this Lease by Tenant and delivery to
Landlord, such execution and delivery by Tenant shall, in consideration of the
time and expense incurred by Landlord in reviewing the Lease and Tenant’s
credit, constitute an offer by Tenant to Lease the Premises upon the terms and
conditions set forth herein (which offer to Lease shall be irrevocable for
fifteen (15) business days following the date of delivery).

 

  18.27   No Counterclaim; Choice of Laws.

 

Landlord and Tenant agree that the laws of the State of California shall govern
and that venue for any action between Landlord and Tenant shall be proper if
brought in the City and County of San Francisco. LANDLORD AND TENANT EACH HEREBY
WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER
PARTY AGAINST THE OTHER IN CONNECTION WITH THIS LEASE OR THE PREMISES. If
commences any unlawful detainer action or dispossessory proceedings, Tenant
agrees not to consolidate such action or proceeding with any other proceeding,
and waives any right to assert any counterclaim in such action or proceeding.

 

  18.28   Rights Reserved by Landlord.

 

Landlord reserves the following rights exercisable without notice (except as
otherwise expressly provided to the contrary in this Lease) and without being
deemed an eviction or disturbance of Tenant’s use or possession of the Premises
or giving rise to any claim for set-off or abatement of Rent: (a) to change the
name or street address of the Building; (b) to install, affix and maintain all
signs on the exterior and/or interior of the Building; (c) to designate and/or
approve prior to installation, all types of signs, window shades, blinds,
drapes, awnings or other similar items, and all internal lighting that may be
visible from the exterior of the Premises and, notwithstanding the provisions of
Article IX, the design, arrangement, style, color and general appearance of the
portion of the Premises visible from the exterior, and contents thereof,
including, without limitation, furniture, fixtures, equipment, art work, wall
coverings, carpet and decorations, and all changes, additions and removals
thereto, shall, at all times have the appearance of Premises having the same
type of exposure and used for substantially the same purposes that are generally
prevailing in comparable office buildings in the area; (d) to change the
location or any other tenant, the arrangement, size, character, use or location
of entrances or passageways, doors, doorways, corridors, elevators, escalators,
stairs, landscaping, toilets or any other part of the

 

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Building, or to change common area to tenant space and tenant space to common
area; (e) to grant any party the exclusive right to conduct any business or
render any service in the Building, provided such exclusive right shall not
operate to prohibit Tenant from using the Premises for the purposes permitted
under this Lease; (f) to prohibit the placement of vending or dispensing
machines of any kind in or about the Premises other than for use by Tenant’s
employees; (g) to prohibit the placement of video or other electronic games in
the Premises; (h) to have access for Landlord and other tenants of the Building
to any mail chutes and boxes located in or on the Premises according to the
rules of the United States Post Office and to discontinue any mail chute
business in the Building; (i) to close the Building after normal business hours,
except that Tenant and its employees and invitees shall be entitled to admission
at all times under such rules and regulations as Landlord prescribes for
security purposes; (j) to install, operate and maintain security systems which
monitor, by close circuit television or otherwise, all persons entering or
exiting the Building; (k) to install and maintain pipes, ducts, conduits, wires
and structural elements located in the Premises which serve other parts or other
tenants of the Building; and (l) to retain at all times master keys or pass keys
to the Premises. None of the foregoing shall result in any liability of Landlord
to Tenant.

 

  18.29   Asbestos.

 

Tenant acknowledges that it has been expressly disclosed to Tenant by Landlord’s
Managing Agent that the Building and the Premises contain asbestos containing
materials (“ACM”). The acknowledgment by Tenant of the ACM does not in any
manner impose any liability or responsibility on Tenant for removal, treatment,
or abatement of such ACM or any responsibility whatsoever regarding such ACM
provided, however, that Tenant shall comply with all applicable laws and
regulations in connection with any work in the Premises including, but not
limited to, work which requires entry into the ceiling.

 

  18.30   ADR Process.

 

If Landlord and Tenant are unable for any reason to timely agree on (i) the
Prevailing Rental Rate referenced in Section 3.2.1, if applicable, or (ii) the
correction of alleged errors in Landlord’s Statement as provided in Section 4.4.
or (iii) the amount of Base Rent to be abated if an interruption of services or
utilities occurs as described in Section 7.2 or an impairment to the Premises
occurs due to Landlord’s failure to maintain or repair as described in Section
8.2 (collectively, “Specified Disputes”), then Landlord and Tenant agree that
all Specified Disputes shall be resolved pursuant to the neutral binding
alternative dispute resolution process (“ADR Process”) described below. Landlord
and Tenant (acting together or individually) shall submit a notice of a
Specified Dispute (“Notice of Dispute”) to JAMS (defined below) which Notice
sets forth the details of the dispute and requests JAMS to implement the ADR
Process set forth below.

 

  18.30.1   ADR Process.

 

The Notice of Dispute shall be delivered to the San Francisco office of Judicial
Arbitration and Mediation Service (“JAMS”) for binding resolution pursuant to
the ADR Process. The ADR Process shall be conducted according to the following
procedure:

 

(i) The ADR Process shall be conducted in San Francisco, California.

 

(ii) JAMS shall promptly select a single retired California Superior Court Judge
to be the hearing officer (“Hearing Officer”). The Hearing Officer shall not
have any actual or perceived conflict of interest with Landlord or Tenant, any
affiliate or subsidiary or their respective counsel and absent any conflict,
neither Landlord or Tenant shall have the right to object to the Hearing
Officer. The Hearing Officer shall have extensive and recent civil trial
experience and shall not have been primarily a criminal courts judge during
his/her career. The first hearing day shall be scheduled not later than thirty
(30) calendar days following appointment of the Hearing Officer and the hearing
process shall be concluded within thirty (30) calendar days from commencement.

 

(iii) The Hearing Officer shall preside over the ADR Process, shall accept
relevant evidence, and may (in her/her discretion) hear live testimony of the
parties and their expert and other witnesses, examine and cross-examine the
parties and their witnesses, allow counsel to examine and cross-examine
witnesses, hear arguments of counsel, and otherwise conduct and control a
hearing as if he/she were sitting as a California Superior Court Judge without a
jury. At the conclusion of the hearing, the Hearing Officer shall orally
announce a tentative decision as to the disagreement(s) which form the basis of
the Specified Dispute(s). In announcing the tentative decision and in rendering
the Final Award (defined below), the Hearing Officer shall be required to follow
California law in the interpretation of any document or agreement (including
this Lease), in admitting evidence and in fashioning a remedy. The Hearing
Officer shall not have the power or authority to award any amount in the nature
or character of punitive or exemplary damages, but shall have the power to issue
an award for compensatory damages based on breach or default of the Lease, shall
have the power to issue injunctive or other equitable relief where appropriate,
shall have the power to issue a judgment for unlawful detainer of the Premises,
and shall have the power to issue an award for attorneys’ fees and costs as
allowed by this Lease.

 

 

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(iv) Within ten (10) calendar days following conclusion of the oral hearing, the
Hearing Officer shall prepare and deliver to each of the parties a written
decision, accompanied by a statement of facts, law, underlying reasons and
conclusions necessary to fully explain his/her decision (“Final Award”). If the
Final Award requires payment by one party of any amount of money to the other
party, the Hearing Officer shall require that payment be made within thirty (30)
calendar days following issuance of the Final Award, and, if payment is not
timely made, the Final Award shall provide the party to whom payment is due with
the right but not the obligation to seek immediate enforcement of the Final
Award by a court of competent jurisdiction.

 

(v) The Final Award shall be binding on each party to the dispute, shall be
admissible in any court of law for any purpose reasonably related thereto
(including, but not limited to, for the purpose of determining whether or not a
breach or default under the Lease has occurred), and either party may petition
the California Superior Court to enter the Final Award as the final judgement
and award of the court and/or to enforce enforcement of a Final Award.

 

(vi) Each party shall pay one-half of the fees and costs for JAMS and the
Hearing Officer. If advance payment or deposit is required prior to commencement
of the ADR Process, each party to the dispute hereby represents and warrants
that it will timely pay and deposit said amount. The failure to timely pay any
amounts requested by the Hearing Officer or JAMS shall constitute an immediate
and material event of default and if said amounts are not timely paid following
receipt of a five (5) business day notice and demand to pay, the Hearing Officer
shall be required (without the taking of any evidence or testimony) to issue a
Final Award in favor of the party to the dispute timely paying its fees, on the
terms and conditions requested by said party, which shall be final and binding.

 

  18.31   Miscellaneous: Signage.

 

Upon move-in, Tenant shall receive from Landlord at Landlord’s cost:

 

(1) One (1) suite sign insert which includes insert and one (1) line of verbiage

 

(2) One (1) elevator lobby strip

 

(3) One (1) main lobby strip for each seven hundred fifty (750) square feet
leased

 

(4) Ten (10) suite keys and ten (10) restroom guest keys

 

All signage shall be in accordance with Building Standard signage specification
and is subject to Landlord’s prior approval. Additional signage and keys may be
purchased through Seagate Properties, Inc.

 

IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date
first above written.

 

LANDLORD:

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

 

TENANT:

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

OTR, an OHIO GENERAL PARTNERSHIP, as Nominee

of The State Teachers Retirement Board of Ohio,

a statutory organization created by the laws of Ohio

 

DAILY JOURNAL CORPORATION,

a SOUTH CAROLINA CORPORATION

 

By:  

/s/    MATT BULANICH        

      By:  

/s/    GERALD L. SALZMAN        

Its:

 

Director of Real Estate

     

Its:

 

President

Date:

 

December 15, 2003

     

Date:

 

December 15, 2003

 

 

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