Exhibit 10.1


 





 


STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET

AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION


 


1.                                       Basic
Provisions (“Basic Provisions”).


 


1.1
                              Parties: This Lease (“Lease”), dated for reference purposes
only September 26, 2003, is made by and between Thornmint I, a California Limited Partnership
I, a California Limited Partnership (“Lessor”) and Imageware Systems, Inc.  (“Lessee”), (collectively the
“Parties”, or individually a “Party”).


 


1.2(a)                   Premises:  That certain portion of the Project (as
defined below), including all improvements therein or to be provided by Lessor
under the terms of this Lease, commonly known by the street address of 10883 Thornmint Road, located in the
City of San Diego, County of San Diego, State of California, with zip code 92127, as outlined on
Exhibit A attached hereto (“Premises”) and generally described as
(describe briefly the nature of the Premises): 
A one and two-story
office building attached to a part of a one-story manufacturing/warehouse
building.


 


In addition to Lessee’s rights to use and
occupy the Premises as hereinafter specified, Lessee shall have non-exclusive
rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter
specified, but shall not have any rights to the roof, exterior walls or utility
raceways of the building containing the Premises (“Building”) or to any other buildings in the Project.  The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the “Project.” 
(See also Paragraph 2)


 


1.2(b)                  Parking: Forty-eight (48) unreserved vehicle
parking spaces (“Unreserved Parking Spaces”);
and Zero (0) reserved vehicle
parking spaces (“Reserved Parking Spaces”).  (See also Paragraph 2.6)


 


1.3                                 Term: Three (3) years and Zero (0) months (“Original Term”) commencing
October 1, 2003 (“Commencement
Date”) and ending September 30,
2006 (“Expiration Date”). 
(See also Paragraph 3)


 


1.4                                 Early
Possession: NA (“Early
Possession Date”). (See also Paragraphs 3.2 and 3.3)


 


1.5                                 Base
Rent: $16,340.40 per month (“Base Rent”), payable on the 1st day of each month commencing December 1, 2003.  (See also Paragraph 4)


 


ý  If this box is
checked, there are provisions in this Lease for the Base Rent to be adjusted.


 


1.6                                 Lessee’s
Share of Common Area Operating Expenses: See
Add. 1, Item 61 percent (---  %) (“Lessee’s
Share”).


 


1.7                                 Base
Rent and Other Monies Paid Upon Execution:


 


(a)                                  Base
Rent: $16,340.40 for the period December 1-31, 2003.


 


(b)                                 Common
Area Operating Expenses:  $2,563.20 (EST) for the period October 1-31, 2003.


 


(c)                                  Security
Deposit: $21,306.60 (“Security
Deposit”).  (See also Paragraph 5) (Credited from previous lease.)


 


(d)                                 Other: $NA for                              .


 


(e)                                  Total
Due Upon Execution of this Lease: $2,563.20 (1.7b).


 


1.8                                 Agreed
Use:  General
office, research and development, computer integration use consistent with
County of San Diego zoning and laws.  (See
also Paragraph 6)


 


1.9                                 Insuring
Party.  Lessor is the “Insuring Party”.  (See also Paragraph 8)


 


1.10
                        Real
Estate Brokers:  (See also Paragraph 15)


 


(a)                                  Representation:  The following real estate brokers (the “Brokers”) and brokerage relationships
exist in this transaction (check applicable boxes):


 


	
  ý  CB Richard Ellis, Inc. represents Lessor
  exclusively (“Lessor’s Broker”);

  
	
  ý  Irving Hughes, Inc. represents Lessee
  exclusively (“Lessee’s Broker”);
  or

  
	
  o                                     represents
  both Lessor and Lessee (“Dual Agency”).

  



 


(b)                                 Payment
to Brokers:  Upon execution and delivery of
this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee
agreed to in a separate written agreement (See Addendum 1, Paragraph 58) (or if there is no such agreement, the sum
of              or      %
of the total Base Rent for the brokerage services rendered by the Brokers).


 


1.11                           Guarantor.  The obligations of the Lessee under this
Lease are to be guaranteed by N/A
(“Guarantor”).  (See also
Paragraph 37)


 


1.12                           Addenda
and Exhibits.  Attached hereto is an Addendum
or Addenda consisting of Paragraphs 50 through 61 and Exhibits A through D, all of which constitute a part of this Lease.


 


2.                                       Premises.


 


                2.1                                 Letting. 
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
the Premises, for the term, at the rental, and upon all of the terms, covenants
and conditions set forth in this Lease. 
Unless otherwise provided herein, any statement of size set forth in
this Lease, or that may have been used in calculating Rent, is an approximation
which the Parties agree is reasonable and any payments based thereon are not
subject to revision whether or not the actual size is more or less.


 


2.2                                 Condition.  Lessor shall deliver that portion of the
Premises contained within the Building (‘Unit”)
to Lessee broom clean and free of debris on the Commencement Date or the Early
Possession Date, whichever first occurs (“Start
Date”), and, so long as the required service contracts described in
Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days
following the Start Date, warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems (“HVAC”), loading doors, if any, and all
other such elements in the Unit, other than those constructed by Lessee, shall
be in good operating condition on said date and that the structural elements of
the roof, bearing walls and foundation of the Unit shall be free of material
defects.  If a non-compliance with such
warranty exists as of the Start Date, or if one of such systems or elements
should malfunction or fail within the appropriate warranty period, Lessor
shall, as Lessor’s sole obligation with respect to such matter, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such
non-compliance, malfunction or failure, rectify same at Lessor’s expense.  The warranty periods shall be as follows:
(i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining
systems and other elements of the Unit. 
If Lessee does not give Lessor the required notice within the
appropriate warranty period, correction of any such non-compliance, malfunction
or failure shall be the obligation of Lessee at Lessee’s sole cost and expense
(except for


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  © 1999 - American Industrial Real Estate Association

  	
   

  	
  REVISED

  	
   

  	
  FORM MTN-2-2/99E

  



 


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the repairs to the fire sprinkler systems,
roof, foundations, and/or bearing walls - see Paragraph 7)


 


2.3
                              Compliance.  Lessor warrants that the improvements on the
Premises and the Common Areas comply with the building codes that were in
effect at the time that each such improvement, or portion thereof, was
constructed, and also with all applicable laws, covenants or restrictions of
record, regulations, and ordinances in effect on the Start Date (“Applicable Requirements”).  Said warranty does not apply to the use to
which Lessee will put the Premises or to any Alterations or Utility
Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee.  NOTE: Lessee is responsible for determining whether or not the Applicable
Requirements, and especially the zoning, are appropriate for Lessee’s intended
use, and acknowledges that past uses of the Premises may no longer be allowed.  If the Premises do not comply with said
warranty, Lessor shall, except as otherwise provided, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor’s expense.  If Lessee does not give Lessor written
notice of a non-compliance with this warranty within 6 months following the
Start Date, correction of that non-compliance shall be the obligation of Lessee
at Lessee’s sole cost and expense.  If
the Applicable Requirements are hereafter changed so as to require during the
term of this Lease the construction of an addition to or an alteration of the
Unit, Premises and/or Building, the remediation of any Hazardous Substance, or
the reinforcement or other physical modification of the Unit, Premises and/or
Building (“Capital Expenditure”),
Lessor and Lessee shall allocate the cost of such work as follows:  


 


(a)                                  Subject to
Paragraph 2.3(c) below, if such Capital Expenditures are required as a result
of the specific and unique use of the Premises by Lessee as compared with uses
by tenants in general, Lessee shall be fully responsible for the cost thereof,
provided, however that if such Capital Expenditure is required during the last
2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee
may instead terminate this Lease unless Lessor notifies Lessee, in writing,
within 10 days after receipt of Lessee’s termination notice that Lessor has
elected to pay the difference between the actual cost thereof and the amount
equal to 6 months’ Base Rent.  If Lessee
elects termination, Lessee shall immediately cease the use of the Premises
which requires such Capital Expenditure and deliver to Lessor written notice
specifying a termination date at least 90 days thereafter.  Such termination date shall, however, in no
event be earlier than the last day that Lessee could legally utilize the
Premises without commencing such Capital Expenditure.


 


(b)                                 If such Capital
Expenditure is not the result of the specific and unique use of the Premises by
Lessee (such as, governmentally mandated seismic modifications), then Lessor
and Lessee shall allocate the obligation to pay for the portion of such costs
reasonably attributable to the Premises pursuant to the formula set out in
Paragraph 7.1(d); provided, however, that if such Capital Expenditure is
required during the last 2 years of this Lease or if Lessor reasonably determines
that it is not economically feasible to pay its share thereof, Lessor shall
have the option to terminate this Lease upon 90 days prior written notice to
Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt
of Lessor’s termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and deduct
same, with Interest, from Rent until Lessor’s share of such costs have been
fully paid.  If Lessee is unable to
finance Lessor’s share, or if the balance of the Rent due and payable for the
remainder of this Lease is not sufficient to fully reimburse Lessee on an offset
basis, Lessee shall have the right to terminate this Lease upon 30 days written
notice to Lessor.


 


(c)                                  Notwithstanding the
above, the provisions concerning Capital Expenditures are intended to apply
only to non-voluntary, unexpected, and new Applicable Requirements.  If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use, change
in intensity of use, or modification to the Premises then, and in that event,
Lessee shall be fully responsible for the cost thereof, and Lessee shall not
have any right to terminate this Lease.


 


2.4                                 Acknowledgements.  Lessee acknowledges that:  (a) it has been advised by Lessor and/or
Brokers to satisfy itself with respect to the condition of the Premises
(including but not limited to the electrical, HVAC and fire sprinkler systems,
security, environmental aspects, and compliance with Applicable Requirements
and the Americans with Disabilities Act), and their suitability for Lessee’s
intended use, (b) Lessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s
agents, nor Brokers have made any oral or written representations or warranties
with respect to said matters other than as set forth in this Lease.  In addition, Lessor acknowledges that: (i)
Brokers have made no representations, promises or warranties concerning
Lessee’s ability to honor the Lease or suitability to occupy the Premises, and
(ii) it is Lessor’s sole responsibility to investigate the financial capability
and/or suitability of all proposed tenants.


 


2.6                                 Vehicle
Parking.  Lessee shall be entitled to
use the number of Unreserved Parking Spaces and Reserved Parking Spaces
specified in Paragraph 1.2(b) on those portions of the Common Areas designated
from time to time by Lessor for parking. 
Lessee shall not use more parking spaces than said number.  Said parking spaces shall be used for
parking by vehicles no larger than full-size passenger automobiles or pick-up
trucks, herein called “Permitted Size
Vehicles.”  Lessor may
regulate the loading and unloading of vehicles by adopting Rules and
Regulations as provided in Paragraph 2.9. 
No vehicles other than Permitted Size Vehicles may be parked in the Common
Area without the prior written permission of Lessor.


 


(a)                                  Lessee shall not
permit or allow any vehicles that belong to or are controlled by Lessee or
Lessee’s employees, suppliers, shippers, customers, contractors or invitees to
be loaded, unloaded, or parked in areas other than those designated by Lessor
for such activities.


 


(b)                                 Lessee shall not
service or store any vehicles in the Common Areas.


 


(c)                                  If Lessee permits
or allows any of the prohibited activities described in this Paragraph 2.6,
then Lessor shall have the right, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the
cost to Lessee, which cost shall be immediately payable upon demand by Lessor.


 


2.7                                 Common
Areas - Definition.  The term “Common Areas” is defined as all areas and
facilities outside the Premises and within the exterior boundary line of the
Project and interior utility raceways and installations within the Unit that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other tenants of the Project and their
respective employees, suppliers, shippers, customers, contractors and invitees,
including parking areas, loading and unloading areas, trash areas, roadways,
walkways, driveways and landscaped areas.


 


2.8                                 Common Areas - Lessee’s Rights.  Lessor grants to Lessee, for the benefit of
Lessee and its employees, suppliers, shippers, contractors, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Project. 
Under no circumstances shall the right herein granted to use the Common
Areas be deemed to include the right to store any property, temporarily or
permanently, in the Common Areas.  Any
such storage shall be permitted only by the prior written consent of Lessor or
Lessor’s designated agent, which consent may be revoked at any time.  In the event that any unauthorized storage
shall occur then Lessor shall have the right, without notice, in addition to
such other rights and remedies that it may have, to remove the property and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.


 


                                                2.9                                 Common
Areas - Rules and Regulations.  Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
establish, modify, amend and enforce reasonable rules and regulations (“Rules and Regulations”) for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of the Building and the Project and
their invitees.  Lessee agrees to abide
by and conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said Rules and Regulations by other tenants of the Project.


 


2.10                           Common
Areas - Changes.  Lessor shall have the right,
in Lessor’s sole discretion, from time to time:


 


(a)                                  To make changes to
the Common Areas, including, without limitation, changes in the location, size,
shape and number of driveways, entrances, parking spaces, parking areas,
loading and unloading areas, ingress, egress, direction of traffic, landscaped
areas, walkways and utility raceways;


 


(b)                                 To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available;


 


(c)                                  


 


(d)                                 To add improvements
to the Common Areas;


 


(e)                                  To use the Common
Areas while engaged in making additional improvements, repairs or alterations
to the Project, or any portion thereof; and


 


(f)                                    To do and perform
such other acts and make such other changes in, to or with respect to the
Common Areas and Project as Lessor may, in the exercise of sound business
judgment, deem to be appropriate.


 


3.                                       Term.


 


3.1                                 Term.  The Commencement Date, Expiration Date and
Original Term of this Lease are as specified in Paragraph 1.3.


 


3.2                                 Early
Possession.   If Lessee totally or
partially occupies the Premises prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early possession.  All other terms of this Lease (including but
not limited to the obligations to pay Lessee’s Share of Common Area Operating
Expenses, Real Property Taxes and insurance premiums and to maintain the
Premises) shall, however, be in effect during such period.  Any such early possession shall not affect
the Expiration Date.


 


3.3                                 Delay
In Possession.  Lessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises to Lessee
by the Commencement Date.  If, despite
said efforts, Lessor is unable to deliver possession as agreed, Lessor shall
not be subject to any liability therefor, nor shall such failure affect the
validity of this Lease. Lessee shall not, however, be obligated to pay Rent or
perform its other obligations until it receives possession of the
Premises.  If possession is not
delivered within 60 days after the Commencement Date, Lessee may, at its
option, by notice in writing within 10 days after the end of such 60 day
period, cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder.  If such
written notice is not received by Lessor within said 10 day period, Lessee’s
right to cancel shall terminate.  Except
as otherwise provided, if possession is not 


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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tendered to Lessee by the Start Date and
Lessee does not terminate this Lease, as aforesaid, any period of rent
abatement that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof, but minus any days of delay
caused by the acts or omissions of Lessee. 
If possession of the Premises is not delivered within 4 months after the
Commencement Date, this Lease shall terminate unless other agreements are
reached between Lessor and Lessee, in writing.


 


3.4                                 Lessee
Compliance.  Lessor shall not be required
to tender possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5).  Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor’s
election to withhold possession pending receipt of such evidence of
insurance.  Further, if Lessee is
required to perform any other conditions prior to or concurrent with the Start
Date, the Start Date shall occur but Lessor may elect to withhold possession
until such conditions are satisfied.


 


4.                                       Rent.


 


4.1                                 Rent
Defined.  All monetary obligations of
Lessee to Lessor under the terms of this Lease (except for the Security
Deposit) are deemed to be rent (“Rent”).


 


4.2                                 Common
Area Operating Expenses.  Lessee
shall pay to Lessor during the term hereof, in addition to the Base Rent,
Lessee’s Share (as specified in Paragraph 1.6) (See Addendum 1, Item 61)  of all
Common Area Operating Expenses, as hereinafter defined, during each calendar
year of the term of this Lease, in accordance with the following provisions:


 


(a)                                  “Common
Area Operating Expenses”  are
defined, for purposes of this Lease, as all costs incurred by Lessor relating
to the ownership and operation of the Project, including, but not limited to,
the following:


 


(i)                                     The operation,
repair and maintenance, in neat, clean, good order and condition of the
following: 


 


(aa)                            The Common Areas
and Common Area improvements, including parking areas, loading and unloading
areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas,
bumpers, irrigation systems, Common Area lighting facilities, fences and gates,
elevators, roofs, and roof drainage systems.


 


(bb)                          Exterior signs and
any tenant directories.


 


(cc)                            Any fire detection
and/or sprinkler systems.


 


(ii)                                  The cost of water,
gas, electricity and telephone to service the Common Areas and any utilities
not separately metered.


 


(iii)                               Trash disposal,
pest control services, property management, security services, and the costs of
any environmental inspections.


 


(iv)                              Reserves set aside
for maintenance and repair of Common Areas.


 


(v)                                 Real Property Taxes
(as defined in Paragraph 10).


 


(vi)                              The cost of the
premiums for the insurance maintained by Lessor pursuant to Paragraph 8.


 


(vii)                           Any deductible
portion of an insured loss concerning the Building or the Common Areas.


 


(viii)                        The cost of any
Capital Expenditure to the Building or the Project not covered under the
provisions of Paragraph 2.3


 


provided;
however, that Lessor shall allocate the cost of any such Capital Expenditure
over the useful life as
calculated in accordance with GAAP) and Lessee shall not be required to pay more than
Lessee’s Pro Rata Share of the amortization in accordance with GAAP of the cost of such
Capital Expenditure in any given month.


 


(ix)                                Any other services
to be provided by Lessor that are stated elsewhere in this Lease to be a Common
Area Operating Expense.


 


However, notwithstanding anything to the contrary contained in this
Lease, the following shall not be included within Comon Area Operating
Expenses:


 


(x)                                   Leasing commissions, attorneys’ fees, costs,
disbursement, and other expenses incurred in connection with negotiations or
disputes with tenants, or in connection with leasing, renovating, or improving
space for tenants or other occupants or prospective tenants or other occupants
of the Project.


 


(xi)                                The cost of any service sold to any tenant
(including Lessee) or other occupant for which Lessor is entitled to be
reimbursed as an additional charge or rental over an above the basic rent and
escalations payable under the lease with that tenant.


 


(xii)                             Any depreciation on the Project.


 


(xiii)                          Costs of capital improvements and alterations.


 


(xiv)                         Expenses in connection with services or other benefits
of a type that are not provided to Lessee but which are provided another tenant
or occupant of the Project.


 


(xv)                            Overhead profit increments paid to Lessor’’s
subsidiaries or affiliates for management or other services on or to the
building or for supplies or other materials to the extent that the cost of the
services, supplies, or materials exceeds the cost that would have been paid had
the services, supplies, or materials been provided by unaffiliated parties on a
competitive basis.


 


(xvi)                         All interest, loan fees and other carrying
costs related to any mortgage or deed of trust or related to any capital item,
and all rental and other payable due under any ground or underlying lease, or
any lease for any equipment ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to the Project.)


 


(xvii)                      Any compensation paid to clerks, attendants,
or other persions in commercial concessions operated by Lessor.


 


(xviii)                   Advertising and promotional expenditures.


 


(xix)         Costs of repairs and other work occasioned by fire,
windstorm, or other casualty of an insurable nature to the extent Landlord
recovers from their insurance company.


 


(xx)          Any costs, fines or penalties incurred due to violations by
Lessor of any governmental rule or authority, this Lease or any other lease in
the Project, or due to Lessor’s negligence or willful misconduct.


 


(xxi)         The cost of correcting any building code or other violations
that were violations prior to the commencement date of this Lease.


 


(xxii)        The cost of containing, removing, or otherwise remediating
any contamination of the Project (including the underlying land and ground
water) by any toxic or hazardous materials (including, without limitation,
asbestos and “PCB’s”) where such contamination was not caused by Lessee.


 


(xxiii)       Management costs to the extent they
exceed management costs charged for similar facilities in the area and in any
event, to the extent they exceed five percent (5%) of all other Common Area
Operating Expenses.


 


(xxiv)       Costs for sculpture, paintings, or other objects of art (and
insurance thereon or extraordinary security in connection therewith).


 


(xxv)        Wages, salaries, or other compensation paid to any executive
employees above the grade of building manager at a resonable rate for services
provided.


 


(xxvi)       Any other expense that under generally accepted accounting
principles and practice consistently applied would not be considered a normal
maintenance or operating expense.


 


(b)                                 Any Common Area
Operating Expenses and Real Property Taxes that are specifically attributable
to the Unit, the Building or to any other building in the Project or to the
operation, repair and maintenance thereof, shall be allocated entirely to such
Unit, Building, or other building. However, any Common Area Operating Expenses
and Real Property Taxes that are not specifically attributable to the Building
or to any other building or to the operation, repair and maintenance thereof,
shall be equitably allocated by Lessor to all buildings in the Project.


 


(c)                                  The inclusion of
the improvements, facilities and services set forth in Subparagraph 4.2(a)
shall not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Project
already has the same, Lessor already provides the services, or Lessor has
agreed elsewhere in this Lease to provide the same or some of them.


 


(d)                                 Lessee’s Share of
Common Area Operating Expenses shall be payable by Lessee within 10 days after
a reasonably detailed statement of actual expenses is presented to Lessee.  At Lessor’s option, however, an amount may
be estimated by Lessor from time to time of Lessee’s Share of annual Common
Area Operating Expenses and the same shall be payable monthly or quarterly, as
Lessor shall designate, during each 12 month period of the Lease term, on the
same day as the Base Rent is due hereunder. 
Lessor shall deliver to Lessee within 60 days after the expiration of
each calendar year a reasonably detailed statement showing Lessee’s Share of
the actual Common Area Operating Expenses incurred during the preceding year.
If Lessee’s payments under this Paragraph 4.2(d) during the preceding year
exceed Lessee’s Share as indicated on such statement, Lessor shall credit the
amount of such over-payment against Lessee’s Share of Common Area Operating
Expenses next becoming due.  If Lessee’s
payments under this Paragraph 4.2(d) during the preceding year were less than
Lessee’s Share as indicated on such statement, Lessee shall pay to Lessor the
amount of the deficiency within 10 days after delivery by Lessor to Lessee of
the statement.


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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(e)                                  Within ninety (90) days after receipt of
Lessor’s Statement, Lessee shall have the right to audit at Lessor’s local
offices, at Lessee’s expense, Lessor’s accounts and records relating to Common
Area Operating Expenses.  Such audit
shall be conducted by a certified public accountant approved by Lessee, which
approval shall not be unreasonably withheld. 
If such audit reveals that Lessor has overcharged Lessee, the amount
overcharged shall be paid to Lessee with thirty (30) days after the audit is
concluded, together with interest thereon at the rate of ten percent (10%) per
annum, from the date the Statement was delivered to Lessee until payment of the
overcharge is made to Lessee.  In
addition, if the Statement exceeds the actual Common Area Operating Expenses
which should have been charged to Lessee by more than five percent (5%), the
cost of the audit shall be paid by Lessor in an amount not to exceed five
hundred dollars ($500.00).


 


4.3                                 Payment.  Lessee shall cause payment of Rent to be
received by Lessor in lawful money of the United States, without offset or
deduction (except as specifically permitted in this Lease), on or before the
day on which it is due.  Rent for any
period during the term hereof which is for less than one full calendar month
shall be prorated based upon the actual number of days of said month.  Payment of Rent shall be made to Lessor at
its address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. 
Acceptance of a payment which is less than the amount then due shall not
be a waiver of Lessor’s rights to the balance of such Rent, regardless of
Lessor’s endorsement of any check so stating. 
In the event that any check, draft, or other instrument of payment given
by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to
Lessor the sum of $25 in addition to any late charges which may be due.


 


5.                                       Security
Deposit.  Lessee has deposited with Lessor the Security Deposit as security for Lessee’s faithful
performance of its obligations under this Lease.  If Lessee fails to pay Rent, or otherwise Defaults under this
Lease, Lessor may use, apply or retain all or any portion of said Security
Deposit for the payment of any amount due Lessor or to reimburse or compensate
Lessor for any liability, expense, loss or damage which Lessor may suffer or
incur by reason thereof.  If Lessor uses
or applies all or any portion of the Security Deposit, Lessee shall within 10
days after written request therefor deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease.  If the Base Rent increases during the term
of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor so that the total amount of the Security Deposit
shall at all times bear the same proportion to the increased Base Rent as the
initial Security Deposit bore to the initial Base Rent.  Should the Agreed Use be amended to
accommodate a material change in the business of Lessee or to accommodate a
sublessee or assignee, Lessor shall have the right to increase the Security Deposit
to the extent necessary, in Lessor’s reasonable judgment, to account for any
increased wear and tear that the Premises may suffer as a result thereof.  If a change in control of Lessee occurs
during this Lease and following such change the financial condition of Lessee
is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall
deposit such additional monies with Lessor as shall be sufficient to cause the
Security Deposit to be at a commercially reasonable level based on such change
in financial condition.  Lessor shall
not be required to keep the Security Deposit separate from its general
accounts.  Within 14 days after the
expiration or termination of this Lease, if Lessor elects to apply the Security
Deposit only to unpaid Rent, and otherwise within 30 days after the Premises
have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that
portion of the Security Deposit not used or applied by Lessor.  No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.


 


6.                                       Use.


 


6.1                                 Use.  Lessee shall use and occupy the Premises
only for the Agreed Use, or any other legal use which is reasonably comparable
thereto, and for no other purpose. 
Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of
or causes damage to neighboring premises or properties.  Lessor shall not unreasonably withhold or
delay its consent to any written request for a modification of the Agreed Use,
so long as the same will not impair the structural integrity of the
improvements on the Premises or the mechanical or electrical systems therein,
and/or is not significantly more burdensome to the Premises.  If Lessor elects to withhold consent, Lessor
shall within 7 days after such request give written notification of same, which
notice shall include an explanation of Lessor’s objections to the change in the
Agreed Use.


 


6.2
                              Hazardous
Substances.


 


(a)                                  Reportable
Uses Require Consent.  The term “Hazardous Substance” as used in this Lease
shall mean any product, substance, or waste whose presence, use, manufacture,
disposal, transportation, or release, either by itself or in combination with
other materials expected to be on the Premises, is either: (i) potentially
injurious to the public health, safety or welfare, the environment or the
Premises, (ii) regulated or monitored by any governmental authority, or (iii) a
basis for potential liability of Lessor to any governmental agency or third
party under any applicable statute or common law theory.  Hazardous Substances shall include, but not
be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any
products, by-products or fractions thereof. 
Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee’s expense) with all
Applicable Requirements.  “Reportable Use” shall mean (i) the
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements requires
that a notice be given to persons entering or occupying the Premises or
neighboring properties.  Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor.  In addition, Lessor may condition its
consent to any Reportable Use upon receiving such additional assurances as
Lessor reasonably deems necessary to protect itself, the public, the Premises
and/or the environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit.


 


(b)                                 Duty
to Inform Lessor.  If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be located
in, on, under or about the Premises, other than as previously consented to by
Lessor, Lessee shall immediately give written notice of such fact to Lessor,
and provide Lessor with a copy of any report, notice, claim or other
documentation which it has concerning the presence of such Hazardous Substance.


 


(c)                                  Lessee
Remediation.  Lessee shall not cause or
permit any Hazardous Substance to be spilled or released in, on, under, or
about the Premises (including through the plumbing or sanitary sewer system)
and shall promptly, at Lessee’s expense, take all investigatory and/or remedial
action reasonably recommended, whether or not formally ordered or required, for
the cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this Lease, by
or for Lessee, or any third party.


 


                                (d)                                 Lessee
Indemnification.  Lessee shall indemnify,  defend and hold Lessor, its agents,
employees, lenders and ground lessor, if any, harmless from and against any and
all loss of rents and/or damages, liabilities, judgments, claims, expenses,
penalties, and attorneys’ and consultants’ fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee, or any third
party (provided, however, that Lessee shall have no liability under this Lease
with respect to underground migration of any Hazardous Substance under the
Premises from areas outside of the Project). Lessee’s obligations shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease.  No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor
in writing at the time of such agreement.


 


(e)                                  Lessor Indemnification.  Lessor and its successors and assigns shall
indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees.  Lessor’s obligations, as and when required by the Applicable
Requirements, shall include, but not be limited to, the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease.


 


(f)                                    Investigations
and Remediations.  Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee’s use (including
“Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment.  Lessee shall cooperate fully in any such activities at the
request of Lessor, including allowing Lessor and Lessor’s agents to have
reasonable access to the Premises at reasonable times in order to carry out
Lessor’s investigative and remedial responsibilities.


 


(g)                                 Lessor
Termination Option.  If a Hazardous Substance
Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless
Lessee is legally responsible therefor (in which case Lessee shall make the
investigation and remediation thereof required by the Applicable Requirements
and this Lease shall continue in full force and effect, but subject to Lessor’s
rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s
option, either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor’s expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to remediate such condition exceeds 12 times the then monthly
Base Rent or $100,000, whichever is greater, give written notice to Lessee,
within 30 days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of
the date 60 days following the date of such notice.  In the event Lessor elects to give a termination notice, Lessee
may, within 10 days thereafter, give written notice to Lessor of Lessee’s
commitment to pay the amount by which


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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the cost of the remediation of such Hazardous
Substance Condition exceeds an amount equal to 12 times the then monthly Base
Rent or $100,000, whichever is greater. 
Lessee shall provide Lessor with said funds or satisfactory assurance
thereof within 30 days following such commitment.  In such event, this Lease shall continue in full force and
effect, and Lessor shall proceed to make such remediation as soon as reasonably
possible after the required funds are available.  If Lessee does not give such notice and provide the required
funds or assurance thereof within the time provided, this Lease shall terminate
as of the date specified in Lessor’s notice of termination.


 


6.3                                 Lessee’s
Compliance with Applicable Requirements. 
Except as otherwise provided in this Lease, Lessee shall, at Lessee’s
sole expense, fully, diligently and in a timely manner, materially comply with
all Applicable Requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, without regard to whether said requirements are
now in effect or become effective after the Start Date.  Lessee shall, within 10 days after receipt
of Lessor’s written request, provide Lessor with copies of all permits and
other documents, and other information evidencing Lessee’s compliance with any
Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving the failure of Lessee or the Premises to comply with
any Applicable Requirements.


 


6.4
                              Inspection;
Compliance.  Lessor and Lessor’s “Lender” (as defined in Paragraph 30) and
consultants shall have the right to enter into Premises at any time, in the
case of an emergency, and otherwise at reasonable times and
with prior notification, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease.  The cost of any such inspections shall be paid by Lessor, unless
a violation of Applicable Requirements, or a contamination is found to exist or
be imminent, or the inspection is requested or ordered by a governmental
authority.  In such case, Lessee shall
upon request reimburse Lessor for the cost of such inspection, so long as such
inspection is reasonably related to the violation or contamination.


 


7.                                       Maintenance;
Repairs, Utility Installations; Trade Fixtures and Alterations.


 


7.1                                 Lessee’s
Obligations.


 


(a)                                  In
General.  Subject to the provisions of
Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with
Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or
Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense,
keep the Premises, Utility Installations (intended for Lessee’s exclusive use,
no matter where located), and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee’s use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, HVAC equipment,
electrical, lighting facilities, boilers, pressure vessels, fixtures, interior
walls, interior surfaces of exterior walls, ceilings, floors, windows, doors,
plate glass, and skylights but excluding any items which are the responsibility
of Lessor pursuant to Paragraph 7.2. 
Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices, specifically including
the procurement and maintenance of the service contracts required by Paragraph
7.1(b) below. Lessee’s obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.


 


(b)                                 Service
Contracts.  Lessor shall, at Lessee’s sole expense, procure and maintain contracts, with
copies to Lessee in customary form and substance for, and with
contractors specializing and experienced in the maintenance of the following
equipment and improvements, if any, if and when installed on the Premises:  (i) HVAC equipment, (ii) boiler and pressure
vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required
by Lessor.  However, Lessor reserves the
right, upon notice to Lessee, to procure and maintain any or all of such
service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon
demand, for the cost thereof.


 


(c)                                  Failure
to Perform.  If Lessee fails to perform
Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the
Premises after 10 days’ prior written notice to Lessee (except in the case of
an emergency, in which case no notice shall be required), perform such
obligations on Lessee’s behalf, and put the Premises in good order, condition
and repair, and Lessee shall promptly reimburse Lessor for the cost thereof.


 


(d)                                 Replacement. Subject to
Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and
without relieving Lessee of liability resulting from Lessee’s failure to
exercise and perform good maintenance practices, if an item described in
Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of
50% of the cost of replacing such item, then such item shall be replaced by
Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term of
this Lease, on the date on which Base Rent is due, an amount equal to the
product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is 144 (ie. 1/144th of
the cost per month).  Lessee shall pay
interest on the unamortized balance at a rate that is commercially reasonable
in the judgment of Lessor’s accountants. 
Lessee may, however, prepay its obligation at any time.


 


7.2                                 Lessor’s
Obligations.  Subject to the provisions of
Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating
Expenses), 6 (Use), 7.1 (Lessee’s Obligations), 9 (Damage or Destruction) and
14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2,
shall keep in good order, condition and repair exterior roof, fire sprinkler
system, Common Area fire alarm and/or smoke detection systems, fire hydrants,
parking lots, walkways, parkways, driveways, landscaping, fences, signs and
utility systems serving the Common Areas and all parts thereof, as well as
providing the services for which there is a Common Area Operating Expense
pursuant to Paragraph 4.2.  Lessor shall
not be obligated to paint the exterior surfaces of exterior walls nor shall
Lessor be obligated to maintain, repair or replace windows, doors or plate glass
of the Premises.  Lessee expressly
waives the benefit of any statute now or hereafter in effect to the extent it
is inconsistent with the terms of this Lease.  Replacement and repair of structural items including foundations,
structural walls and underground utilities shall be at Lessor’s sole cost.


 


7.3                                 Utility
Installations; Trade Fixtures; Alterations.


 


(a)
                               Definitions.  The term “Utility
Installations” refers to all floor and window coverings, air lines,
power panels, electrical distribution, security and fire protection systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term “Trade Fixtures” shall
mean Lessee’s machinery and equipment and Lessee’s installed communication systems that can be removed
without doing material damage to the Premises. 
The term “Alterations”
shall mean any modification of the improvements, other than Utility
Installations or Trade Fixtures, whether by addition or deletion.  “Lessee
Owned Alterations and/or Utility Installations” are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a).


 


                                (b)                                 Consent. 
Lessee shall not make any Alterations or Utility Installations to the
Premises without Lessor’s prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without such consent but upon notice to Lessor, as long as they are
not visible from the outside, do not involve puncturing, relocating or removing
the roof or any existing walls, and the cumulative cost thereof during this
Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the
aggregate or a sum equal to one month’s Base Rent in any one year.  Notwithstanding the foregoing, Lessee shall
not make or permit any roof penetrations and/or install anything on the roof without the
prior written approval of Lessor. 
Lessor may, as a precondition to granting such approval, require Lessee
to utilize a contractor chosen and/or approved by Lessor.  Any Alterations or Utility Installations
that Lessee shall desire to make and which require the consent of the Lessor
shall be presented to Lessor in written form with detailed plans.  Consent shall be deemed conditioned upon
Lessee’s:  (i) acquiring all applicable
governmental permits, (ii) furnishing Lessor with copies of both the permits
and the plans and specifications prior to commencement of the work, and (iii)
compliance with all conditions of said permits and other Applicable
Requirements in a prompt and expeditious manner.  Any Alterations or Utility Installations shall be performed in a
workmanlike manner with good and sufficient materials.  Lessee shall promptly upon completion
furnish Lessor with as-built plans and specifications. For work which costs an
amount in excess of one month’s Base Rent, Lessor may condition its consent
upon Lessee providing a lien and completion bond in an amount equal to 150% of
the estimated cost of such Alteration or Utility Installation and/or upon
Lessee’s posting an additional Security Deposit with Lessor.


 


(c)                                  Indemnification.  Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic’s or materialman’s lien against the Premises or any interest
therein.  Lessee shall give Lessor not
less than 10 days notice prior to the commencement of any work in, on or about
the Premises, and Lessor shall have the right to post notices of
non-responsibility.  If Lessee shall
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend and protect itself, Lessor and the Premises against the
same and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof. 
If Lessor shall require, Lessee shall furnish a surety bond in an amount
equal to 150% of the amount of such contested lien, claim or demand,
indemnifying Lessor against liability for the same.  If Lessor elects to participate in any such action, Lessee shall
pay Lessor’s attorneys’ fees and costs.


 


7.4                                 Ownership;
Removal; Surrender; and Restoration.


 


(a)                                  Ownership.  Subject to Lessor’s right to require removal
or elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises.  Lessor may, at
any time, elect in writing to be the owner of all or any specified part of the
Lessee Owned Alterations and Utility Installations.  Unless otherwise instructed per paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.


 


(b)                                 Removal.  By delivery to Lessee of written notice from
Lessor not earlier than 90 and not later than 30 days prior to the end of the
term of this Lease, Lessor may require that any or all Lessee Owned Alterations
or Utility Installations be removed by the expiration or termination of this
Lease.  Lessor may require the removal
at any time of all or any part of any Lessee Owned Alterations or Utility
Installations made without the required consent.


 


(c)                                  Surrender;
Restoration.  Lessee shall surrender the
Premises by the Expiration Date or any earlier termination date, with all of
the improvements, parts and surfaces thereof broom clean and free of debris,
and in good operating order, condition and state of repair, ordinary wear and
tear excepted.  “Ordinary wear and tear”
shall not include any damage or deterioration that would have been prevented by
good maintenance practice.


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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Notwithstanding the foregoing, if this Lease
is for 12 months or less, then Lessee shall surrender the Premises in the same
condition as delivered to Lessee on the Start Date with NO allowance for
ordinary wear and tear.  Lessee shall
repair any damage occasioned by the installation, maintenance or removal of
Trade Fixtures, Lessee owned Alterations and/or Utility Installations,
furnishings, and equipment as well as the removal of any storage tank installed
by or for Lessee.  Lessee shall also
completely remove from the Premises any and all Hazardous Substances brought
onto the Premises by or for Lessee, or any third party (except Hazardous
Substances which were deposited via underground migration from areas outside of
the Project) even if such removal would require Lessee to perform or pay for
work that exceeds statutory requirements. 
Trade Fixtures shall remain the property of Lessee and shall be removed
by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7.4(c) without the express written consent of Lessor shall constitute
a holdover under the provisions of Paragraph 26 below.


 


8.                                       Insurance;
Indemnity.


 


8.1                                 Payment
of Premiums.  The cost of the premiums for
the insurance policies required to be carried by Lessor, pursuant to Paragraphs
8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense.  Premiums for policy periods commencing prior
to, or extending beyond, the term of this Lease shall be prorated to coincide
with the corresponding Start Date or Expiration Date.


 


8.2
                              Liability
Insurance.


 


(a)                                  Carried
by Lessee.  Lessee shall obtain and keep
in force a Commercial General Liability policy of insurance protecting Lessee
and Lessor as an additional insured against claims for bodily injury, personal
injury and property damage based upon or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant
thereto.  Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an annual aggregate of not less than $2,000,000,
an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain
the “Amendment of the Pollution Exclusion Endorsement” for damage caused by
heat, smoke or fumes from a hostile fire. 
The policy shall not contain any intra-insured exclusions as between
insured persons or organizations, but shall include coverage for liability
assumed under this Lease as an “insured
contract” for the performance of Lessee’s indemnity obligations
under this Lease.  The limits of said
insurance shall not, however, limit the liability of Lessee nor relieve Lessee
of any obligation hereunder.  All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.


 


(b)                                 Carried
by Lessor.  Lessor shall maintain
liability insurance as described in Paragraph 8.2(a), in addition to, and not
in lieu of, the insurance required to be maintained by Lessee.  Lessee shall not be named as an additional
insured therein.


 


8.3                                 Property
Insurance - Building, Improvements and Rental Value.


 


(a)                                  Building
and Improvements.  Lessor shall obtain and keep
in force a policy or policies of insurance in the name of Lessor, with loss
payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage
to the Premises.  The amount of such
insurance shall be equal to the full replacement cost of the Premises, as the
same shall exist from time to time, or the amount required by any Lender, but
in no event more than the commercially reasonable and available insurable value
thereof.  Lessee Owned Alterations and
Utility Installations, Trade Fixtures, and Lessee’s personal property shall be
insured by Lessee under Paragraph 8.4. 
If the coverage is available and commercially appropriate, such policy
or policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender),
including coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered loss.  Said policy or policies shall also contain
an agreed valuation provision in lieu of any coinsurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.  If such insurance coverage has a deductible clause, the
deductible amount shall not exceed $1,000 per occurrence.


 


(b)                                 Rental
Value.  Lessor shall also obtain and
keep in force a policy or policies in the name of Lessor with loss payable to
Lessor and any Lender, insuring the loss of the full Rent for one year with an
extended period of indemnity for an additional 180 days (“Rental Value
insurance”). Said insurance shall contain an agreed valuation provision in
lieu of any coinsurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected Rent otherwise payable by Lessee, for the
next 12 month period.


 


(c)                                  Adjacent
Premises.  Lessee shall pay for any
increase in the premiums for the property insurance of the Building and for the
Common Areas or other buildings in the Project if said increase is caused by
Lessee’s acts, omissions, use or occupancy of the Premises.


 


(d)                                 Lessee’s
Improvements.  Since Lessor is the Insuring
Party, Lessor shall not be required to insure Lessee Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.


 


8.4                                 Lessee’s
Property; Business Interruption Insurance.


 


(a)                                  Property
Damage.  Lessee shall obtain and
maintain insurance coverage on all of Lessee’s personal property, Trade
Fixtures, and Lessee Owned Alterations and Utility Installations.  Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $2,500 per occurrence.  The proceeds
from any such insurance shall be used by Lessee for the replacement of personal
property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations.  Lessee shall provide
Lessor with written evidence that such insurance is in force.


 


(b)                                 Business
Interruption.  Lessee shall obtain and
maintain loss of income and extra expense insurance in amounts as will
reimburse Lessee for direct or indirect loss of earnings attributable to all
perils commonly insured against by prudent lessees in the business of Lessee or
attributable to prevention of access to the Premises as a result of such
perils.


 


(c)                                  No
Representation of Adequate Coverage. 
Lessor makes no representation that the limits or forms of coverage of
insurance specified herein are adequate to cover Lessee’s property, business
operations or obligations under this Lease.


 


                                                8.5                                 Insurance Policies.  Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a “General
Policyholders Rating” of at least B+, V, as set forth in the most current issue
of “Best’s Insurance Guide”, or such other rating as may be required by a
Lender.  Lessee shall not do or permit
to be done anything which invalidates the required insurance policies.  Lessee shall, prior to the Start Date, deliver
to Lessor certified copies of policies of such insurance or certificates
evidencing the existence and amounts of the required insurance.  No such policy shall be cancelable or
subject to modification except after 30 days prior written notice to
Lessor.  Lessee shall, at least 30 days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or “insurance binders” evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. 
Such policies shall be for a term of at least one year, or the length of
the remaining term of this Lease, whichever is less.  If either Party shall fail to procure and maintain the insurance
required to be carried by it, the other Party may, but shall not be required
to, procure and maintain the same.


 


8.6                                 Waiver
of Subrogation.  Without affecting any other
rights or remedies, Lessee and Lessor each hereby release and relieve the
other, and waive their entire right to recover damages against the other, for
loss of or damage to its property arising out of or incident to the perils
required to be insured against herein. 
The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto.  The Parties agree to have their respective
property damage insurance carriers waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.


 


8.7
                              Indemnity.  Except for Lessor’s gross negligence or
willful misconduct or breach of warranties, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor’s master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys’ and consultants’ fees, expenses and/or liabilities
arising out of, involving, or in connection with, the use and/or occupancy of
the Premises by Lessee.  If any action
or proceeding is brought against Lessor by reason of any of the foregoing
matters, Lessee shall upon notice defend the same at Lessee’s expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense.  Lessor need not
have first paid any such claim in order to be defended or indemnified.


 


8.8                                 Exemption
of Lessor from Liability.  Lessor
shall not be liable for injury or damage to the person or goods, wares,
merchandise or other property of Lessee, Lessee’s employees, contractors,
invitees, customers, or any other person in or about the Premises, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures,
or from any other cause, whether the said injury or damage results from
conditions arising upon the Premises or upon other portions of the Building, or
from other sources or places.  Lessor
shall not be liable for any damages arising from any act or neglect of any
other tenant of Lessor nor from the failure of Lessor to enforce the provisions
of any other lease in the Project. Notwithstanding Lessor’s negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee’s business or for any loss of income or profit therefrom.


 


9.                                       Damage
or Destruction.


 


9.1
                              Definitions.


 


(a)                                  “Premises
Partial Damage” shall mean damage or destruction to the improvements on the Premises,
other than Lessee Owned Alterations and Utility Installations, which can
reasonably be repaired in 3 months or less from the date of the damage or
destruction, and the cost thereof does not exceed a sum equal to 6 month’s Base
Rent.  Lessor shall notify Lessee in
writing within 30 days from the date of the damage or destruction as to whether
or not the damage is Partial or Total.


 


(b)                                 “Premises
Total Destruction” shall mean damage or destruction to the improvements on the Premises,
other than Lessee Owned Alterations and Utility Installations and Trade
Fixtures, which cannot reasonably be repaired in 3 months or less from the date
of the damage or destruction and/or the cost thereof exceeds a sum equal to 6
month’s Base Rent.  Lessor shall notify
Lessee in writing within 30 days from the date of the damage or destruction as
to whether or not the damage is Partial or Total.


 


(c)                                  “Insured
Loss” shall mean damage or destruction to improvements on the Premises, other
than Lessee Owned Alterations and Utility Installations and Trade Fixtures,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.


 


(d)                                 “Replacement
Cost” shall mean the cost to repair or rebuild the improvements owned by
Lessor at the time of the occurrence to their condition existing immediately
prior thereto, including demolition, debris removal and upgrading required by
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and without deduction for depreciation.


 


(e)                                  “Hazardous
Substance Condition” shall mean the occurrence or discovery of a
condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.


 


9.2                                 Partial
Damage - Insured Loss.  If a
Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at
Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee
Owned Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect; provided, however, that
Lessee shall, at Lessor’s election, make the repair of any damage or
destruction the total cost to repair of which is $5,000 or less, and, in such
event, Lessor shall make any applicable insurance proceeds available to Lessee
on a reasonable basis for that purpose. 
Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs.  In
the event, however, such shortage was due to the fact that, by reason of the
unique nature of the improvements, full replacement cost insurance coverage was
not commercially reasonable and available, Lessor shall have no obligation to
pay for the shortage in insurance proceeds or to fully restore the unique
aspects of the Premises unless Lessee provides Lessor with the funds to cover
same, or adequate assurance thereof, within 10 days following receipt of
written notice of such shortage and request therefor.  If Lessor receives said funds or adequate assurance thereof
within said 10 day period, the party responsible for making the repairs shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect.  If such funds or
assurance are not received, Lessor may nevertheless elect by written notice to
Lessee within 10 days thereafter to: 
(i) make such restoration and repair as is commercially reasonable with
Lessor paying any shortage in proceeds, in which case this Lease shall remain
in full force and effect, or (ii) have this Lease terminate 30 days
thereafter.  Lessee shall not be
entitled to reimbursement of any funds contributed by Lessee to repair any such
damage or destruction.  Premises Partial
Damage due to flood or earthquake shall be subject to Paragraph 9.3,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.


 


9.3                                 Partial
Damage - Uninsured Loss.  If a
Premises Partial Damage that is not an Insured Loss occurs, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee’s expense), Lessor may either:  (i) repair such damage as soon as reasonably possible at Lessor’s
expense, in which event this Lease shall continue in full force and effect, or
(ii) terminate this Lease by giving written notice to Lessee within 30 days
after receipt by Lessor of knowledge of the occurrence of such damage.  Such termination shall be effective 60 days
following the date of such notice.  In
the event Lessor elects to terminate this Lease, Lessee shall have the right
within 10 days after receipt of the termination notice to give written notice
to Lessor of Lessee’s commitment to pay for the repair of such damage without
reimbursement from Lessor.  Lessee shall
provide Lessor with said funds or satisfactory assurance thereof within 30 days
after making such commitment.  In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible after the required
funds are available.  If Lessee does not
make the required commitment, this Lease shall terminate as of the date
specified in the termination notice.


 


9.4                                 Total
Destruction.  Notwithstanding any other
provision hereof, if a Premises Total Destruction occurs, this Lease shall
terminate 60 days following such Destruction. 
If the damage or destruction was caused by the gross negligence or
willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s
damages from Lessee, except as provided in Paragraph 8.6.


 


9.5                                 Damage
Near End of Term.  If at any time during the last
6 months of this Lease there is damage for which the cost to repair exceeds one
month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective 60 days following the date of occurrence of such damage by
giving a written termination notice to Lessee within 30 days after the date of
occurrence of such damage. 
Notwithstanding the foregoing, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, (a) exercising such option and (b) providing Lessor
with any shortage in insurance proceeds (or adequate assurance thereof) needed
to make the repairs on or before the earlier of (i) the date which is 10 days
after Lessee’s receipt of Lessor’s written notice purporting to terminate this
Lease, or (ii) the day prior to the date upon which such option expires.  If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor’s
commercially reasonable expense, repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect.  If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee’s option
shall be extinguished.


 


9.6                                 Abatement
of Rent; Lessee’s Remedies.


 


(a)                                  Abatement.  In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee’s use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance.  All other obligations of
Lessee hereunder shall be performed by Lessee, and Lessor shall have no
liability for any such damage, destruction, remediation, repair or restoration
except as provided herein.


 


(b)                                 Remedies.  If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful
way, such repair or restoration within 90 days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee’s election to terminate this Lease on a date not
less than 60 days following the giving of such notice.  If Lessee gives such notice and such repair
or restoration is not commenced within 30 days thereafter, this Lease shall
terminate as of the date specified in said notice.  If the repair or restoration is commenced within such 30 days,
this Lease shall continue in full force and effect.  “Commence” shall mean either the unconditional authorization of
the preparation of the required plans, or the beginning of the actual work on
the Premises, whichever first occurs.


 


9.7                                 Termination;
Advance Payments.  Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor.  Lessor shall, in addition,
return to Lessee so much of Lessee’s Security Deposit as has not been, or is
not then required to be, used by Lessor.


 


9.8                                 Waive
Statutes.  Lessor and Lessee agree that
the terms of this Lease shall govern the effect of any damage to or destruction
of the Premises with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent inconsistent
herewith. 


 


10.                                 Real
Property Taxes.


 


                10.1                           Definition.  As used herein, the term “Real Property Taxes” shall include any
form of assessment; real estate, general, special, ordinary or extraordinary,
or rental levy or tax (other than inheritance, personal income or estate
taxes); improvement bond; and/or license fee imposed upon or levied against any
legal or equitable interest of Lessor in the Project, Lessor’s right to other
income therefrom, and/or Lessor’s business of leasing, by any authority having
the direct or indirect power to tax and where the funds are generated with
reference to the Project address and where the proceeds so generated are to be
applied by the city, county or other local taxing authority of a jurisdiction
within which the Project is located. 
The term “Real Property Taxes” shall also include any tax, fee, levy,
assessment or charge,
or any increase therein, imposed by reason of events occurring during the term
of this Lease, including but not limited to, a change in the ownership of the
Project or any portion thereof or a change in the improvements thereon.  In calculating Real Property Taxes for any
calendar year, the Real Property Taxes for any real estate tax year shall be
included in the calculation of Real Property Taxes for such calendar year based
upon the number of days which such calendar year and tax year have in common.


 


10.2                           Payment
of Taxes.  Lessor shall pay the Real
Property Taxes applicable to the Project, and except as otherwise provided in
Paragraph 10.3, any such amounts shall be included in the calculation of Common
Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 


 


10.3                           Additional
Improvements.  Common Area Operating Expenses
shall not include Real Property Taxes specified in the tax assessor’s records
and work sheets as being caused by additional improvements placed upon the
Project by other lessees or by Lessor for the exclusive enjoyment of such other
lessees.  Notwithstanding Paragraph 10.2
hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating
Expenses are payable under Paragraph 4.2, the entirety of any increase in Real
Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or
Utility Installations placed upon the Premises by Lessee or at Lessee’s
request.


 


10.4                           Joint
Assessment.  If the Building is not
separately assessed, Real Property Taxes allocated to the Building shall be an
equitable proportion of the Real Property Taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor’s
work sheets or such other information as may be reasonably available.  Lessor’s reasonable determination thereof,
in good faith, shall be conclusive.


 


10.5                           Personal
Property Taxes.  Lessee shall pay prior to
delinquency all taxes assessed against and levied upon Lessee Owned Alterations
and Utility Installations, Trade Fixtures, furnishings, equipment and all
personal property of Lessee contained in the Premises.  When possible, Lessee shall cause its Lessee
Owned Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor.  If
any of Lessee’s said property shall be assessed with Lessor’s real property,
Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10
days after receipt of a written statement setting forth the taxes applicable to
Lessee’s property.


 


11.                                 Utilities.  Lessee shall pay for all water, gas, heat,
light, power, telephone, trash disposal and other utilities and services
supplied to the Premises, together with any taxes thereon.  Notwithstanding the provisions of Paragraph
4.2, if at any time in Lessor’s sole judgment, Lessor determines that Lessee is
using a disproportionate amount of water, electricity or other commonly metered
utilities, or that Lessee is generating such a large volume of trash as to
require an increase in the size of the dumpster and/or an increase in the
number of times per month that the dumpster is emptied, then Lessor may
increase Lessee’s Base Rent by an amount equal to such increased costs.


 


12.                                 Assignment
and Subletting.


 


12.1                           Lessor’s
Consent Required.


 


(a)                                  Lessee shall not
voluntarily or by operation of law assign, transfer, mortgage or encumber
(collectively but excluding any Permitted Transfer, “assign or assignment”) or sublet all or
any part of Lessee’s interest in this Lease or in the Premises without Lessor’s
prior written consent.  Lessee
may assign this Lease or sublet the Premises, or any portion thereof without
Lessor’s consent, to any entity which controls, is controlled by, or is under
common control with Lessee; to any entity which results from a merger of,
reorganization of, or


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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consolidation with Lessee; to any entity engaged in a joint venture
with Lessee; or to any entity which acquires substantially all of the stock or
assets of Lessee, as a going concern, with respect to the business that is
being conducted in the Premises (hereinafter each a “Permitted Transfer”).  In addition, a sale or transfer of the capital
stock of Lessee shall be deemed a Permitted Transfer if (1) such sale or
transfer occurs in connection with any bona
fide financing or capitalization for the benefit of Lessee, or (2)
Lessee is, or becomes as a consequence of such sale or transfer of stock, a
publicly traded corporation.  Within ten
(10) business days following a Permitted Transfer, Lessee will give notice of
the Permitted Transfer to the Lessor.


 


(d)                                 An assignment or
subletting without consent shall, at Lessor’s option, be a Default curable
after notice per Paragraph 13.1(c), or a noncurable Breach without the
necessity of any notice and grace period. 
If Lessor elects to treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30
days written notice, increase the monthly Base Rent to 110% of the Base Rent
then in effect.  Further, in the event
of such Breach and rental adjustment, (i) the purchase price of any option to
purchase the Premises held by Lessee shall be subject to similar adjustment to
110% of the price previously in effect, and (ii) all fixed and non-fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
to 110% of the scheduled adjusted rent.


 


(e)                                  Lessee’s remedy for
any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages
and/or injunctive relief.


 


12.2                           Terms
and Conditions Applicable to Assignment and Subletting.


 


(a)                                  Regardless of
Lessor’s consent, no assignment or subletting shall:  (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.


 


(b)                                 Lessor may accept
Rent or performance of Lessee’s obligations from any person other than Lessee
pending approval or disapproval of an assignment.  Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.


 


(c)                                  Lessor’s consent to
any assignment or subletting shall not constitute a consent to any subsequent
assignment or subletting.


 


(d)                                 In the event of any
Default or Breach by Lessee, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of Lessee’s
obligations under this Lease, including any assignee or sublessee, without
first exhausting Lessor’s remedies against any other person or entity
responsible therefore to Lessor, or any security held by Lessor.


 


(e)                                  Each request for
consent to an assignment or subletting shall be in writing, accompanied by
information relevant to Lessor’s determination as to the financial and
operational responsibility and appropriateness of the proposed assignee or
sublessee, including but not limited to the intended use and/or required
modification of the Premises, if any, together with a fee of $1,000 as
consideration for Lessor’s considering and processing said request.  Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested.


 


(f)                                    Any assignee of, or
sublessee under, this Lease shall, by reason of accepting such assignment or
entering into such sublease, be deemed to have assumed and agreed to conform
and comply with each and every term, covenant, condition and obligation herein
to be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented to in writing.


 


(g)                                 Lessor’s consent to
any assignment or subletting shall not transfer to the assignee or sublessee
any Option granted to the original Lessee by this Lease unless such transfer is
specifically consented to by Lessor in writing. (See Paragraph 39.2)


 


12.3
                        Additional
Terms and Conditions Applicable to Subletting.  The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:


 


(a)                                  Lessee hereby assigns
and transfers to Lessor all of Lessee’s interest in all Rent payable on any
sublease, and Lessor may collect such Rent and apply same toward Lessee’s
obligations under this Lease; provided, however, that until a Breach shall
occur in the performance of Lessee’s obligations, Lessee may collect said
Rent.  Lessor shall not, by reason of
the foregoing or any assignment of such sublease, nor by reason of the
collection of Rent, be deemed liable to the sublessee for any failure of Lessee
to perform and comply with any of Lessee’s obligations to such sublessee.
Lessee hereby irrevocably authorizes and directs any such sublessee, upon
receipt of a written notice from Lessor stating that a Breach exists in the
performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent
due and to become due under the sublease. 
Sublessee shall rely upon any such notice from Lessor and shall pay all
Rents to Lessor without any obligation or right to inquire as to whether such
Breach exists, notwithstanding any claim from Lessee to the contrary.


 


(b)                                 In the event of a
Breach by Lessee, Lessor may, at its option, require sublessee to attorn to
Lessor, in which event Lessor shall undertake the obligations of the sublessor
under such sublease from the time of the exercise of said option to the
expiration of such sublease; provided, however, Lessor shall not be liable for
any prepaid rents or security deposit paid by such sublessee to such sublessor
or for any prior Defaults or Breaches of such sublessor.


 


(c)                                  Any matter
requiring the consent of the sublessor under a sublease shall also require the
consent of Lessor.


 


(d)                                 No sublessee shall
further assign or sublet all or any part of the Premises without Lessor’s prior
written consent.


 


(e)                                  Lessor shall
deliver a copy of any notice of Default or Breach by Lessee to the sublessee,
who shall have the right to cure the Default of Lessee within the grace period,
if any, specified in such notice.  The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.


 


13.                                 Default;
Breach; Remedies.


 


                                                13.1                           Default; Breach.  A “Default” is
defined as a failure by the Lessee to comply with or perform any of the terms,
covenants, conditions or Rules and Regulations under this Lease.  A “Breach” is
defined as the occurrence of one or more of the following Defaults, and the
failure of Lessee to cure such Default within any applicable grace period:


 


(a)                                  The abandonment of
the Premises; or the vacating of the Premises without providing a commercially
reasonable level of security, or where the coverage of the property insurance
described in Paragraph 8.3 is jeopardized as a result thereof, or without
providing reasonable assurances to minimize potential vandalism.


 


(b)                                 The failure of
Lessee to make any payment of Rent or any Security Deposit required to be made
by Lessee hereunder, whether to Lessor or to a third party, when due, to
provide reasonable evidence of insurance or surety bond, or to fulfill any
obligation under this Lease which endangers or threatens life or property,
where such failure continues for a period of 3 business days following written
notice to Lessee.


 


(c)                                  The failure by
Lessee to provide (i) reasonable written evidence of compliance with Applicable
Requirements, (ii) the service contracts, (iii) the rescission of an
unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a
requested subordination, (vi) evidence concerning any guaranty and/or
Guarantor, (vii) any document requested under Paragraph 41 (easements), or
(viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of 10 days following written notice to Lessee.


 


(d)                                 A Default by Lessee
as to the terms, covenants, conditions or provisions of this Lease, or of the
rules adopted under Paragraph 2.9 hereof, other than those described in
subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a
period of 30 days after written notice; provided, however, that if the nature
of Lessee’s Default is such that more than 30 days are reasonably required for
its cure, then it shall not be deemed to be a Breach if Lessee commences such
cure within said 30 day period and thereafter diligently prosecutes such cure
to completion.


 


(e)                                  The occurrence of
any of the following events:  (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a “debtor” as
defined in 11 U.S.C. § 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within 60 days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee’s assets
located at the Premises or of Lessee’s interest in this Lease, where possession
is not restored to Lessee within 30 days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee’s assets located at the
Premises or of Lessee’s interest in this Lease, where such seizure is not
discharged within 30 days; provided, however, in the event that any provision
of this subparagraph (e) is contrary to any applicable law, such provision
shall be of no force or effect, and not affect the validity of the remaining
provisions.


 


(f)                                    The discovery that
any financial statement of Lessee or of any Guarantor given to Lessor was
materially false.


 


(g)
                              If the performance
of Lessee’s obligations under this Lease is guaranteed:  (i) the death of a Guarantor, (ii) the termination
of a Guarantor’s liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the
guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an
anticipatory basis, and Lessee’s failure, within 60 days following written
notice of any such event, to provide written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.


 


13.2
                        Remedies.  If Lessee fails to perform any of its
affirmative duties or obligations, within 10 days after written notice (or in
case of an


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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emergency, without notice), Lessor may, at
its option, perform such duty or obligation on Lessee’s behalf, including but
not limited to the obtaining of reasonably required bonds, insurance policies,
or governmental licenses, permits or approvals.  The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor.  If any check given to Lessor by Lessee shall
not be honored by the bank upon which it is drawn, Lessor, at its option, may
require all future payments to be made by Lessee to be by cashier’s check.  In the event of a Breach, Lessor may, with
or without further notice or demand, and without limiting Lessor in the
exercise of any right or remedy which Lessor may have by reason of such Breach:


 


(a)                                  Terminate Lessee’s
right to possession of the Premises by any lawful means, in which case this
Lease shall terminate and Lessee shall immediately surrender possession to
Lessor.  In such event Lessor shall be
entitled to recover from Lessee:  (i)
the unpaid Rent which had been earned at the time of termination; (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount
of such rental loss that the Lessee proves could have been reasonably avoided;
(iii) 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 the Lessee proves could be reasonably avoided; and (iv) any
other amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee’s failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom,
including but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys’ fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease.  The worth
at the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of the District within which the
Premises are located at the time of award plus one percent.  Efforts by Lessor to mitigate damages caused
by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover
damages under Paragraph 12.  If
termination of this Lease is obtained through the provisional remedy of
unlawful detainer, Lessor shall have the right to recover in such proceeding
any unpaid Rent and damages as are recoverable therein, or Lessor may reserve
the right to recover all or any part thereof in a separate suit.  If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall also
constitute the notice required by Paragraph 13.1.  In such case, the applicable grace period required by Paragraph
13.1 and the unlawful detainer statute shall run concurrently, and the failure
of Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.


 


(b)                                 Continue the Lease
and Lessee’s right to possession and recover the Rent as it becomes due, in
which event Lessee may sublet or assign, subject only to reasonable
limitations.  Acts of maintenance,
efforts to relet, and/or the appointment of a receiver to protect the Lessor’s
interests, shall not constitute a termination of the Lessee’s right to
possession.


 


(c)                                  Pursue any other
remedy now or hereafter available under the laws or judicial decisions of the
state wherein the Premises are located. 
The expiration or termination of this Lease and/or the termination of
Lessee’s right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee’s occupancy of the Premises.


 


13.3                           Inducement
Recapture.  Any agreement for free or
abated rent or other charges, or for the giving or paying by Lessor to or for
Lessee of any cash or other bonus, inducement or consideration for Lessee’s
entering into this Lease, all of which concessions are hereinafter referred to
as “Inducement Provisions”, shall
be deemed conditioned upon Lessee’s full and faithful performance of all of the
terms, covenants and conditions of this Lease. 
Upon Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. 
The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this paragraph shall not be deemed a waiver by
Lessor of the provisions of this paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.


 


13.4                           Late
Charges.  Lessee hereby acknowledges
that late payment by Lessee of Rent will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain.  Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender.  Accordingly, if any Rent shall not be
received by Lessor within 5 days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time
late charge equal to 10% of each such overdue amount or $100, whichever is
greater.  The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. 
Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee’s Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted
hereunder.  In the event that a late charge
is payable hereunder, whether or not collected, for 3 consecutive installments
of Base Rent, then notwithstanding any provision of this Lease to the contrary,
Base Rent shall, at Lessor’s option, become due and payable quarterly in
advance.


 


13.5                           Interest.  Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor, when due as to scheduled
payments (such as Base Rent) or within 30 days following the date on which it
was due for non-scheduled payment, shall bear interest from the date when due,
as to scheduled payments, or the 31st day after it was due as to non-scheduled
payments. The interest (“Interest”)
charged shall be equal to the prime rate reported in the Wall Street Journal as
published closest prior to the date when due plus 4%, but shall not exceed the
maximum rate allowed by law. Interest is payable in addition to the potential
late charge provided for in Paragraph 13.4.


 


13.6                           Breach
by Lessor.


 


(a)                                  Notice
of Breach.  Lessor shall not be deemed in
breach of this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. 
For purposes of this Paragraph, a reasonable time shall in no event be
less than 30 days after receipt by Lessor, and any Lender whose name and
address shall have been furnished Lessee in writing for such purpose, of
written notice specifying wherein such obligation of Lessor has not been
performed; provided, however, that if the nature of Lessor’s obligation is such
that more than 30 days are reasonably required for its performance, then Lessor
shall not be in breach if performance is commenced within such 30 day period
and thereafter diligently pursued to completion.


 


(b)                                 Performance
by Lessee on Behalf of Lessor.  In the
event that neither Lessor nor Lender cures said breach within 30 days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee’s
expense and offset from Rent an amount equal to the greater of one month’s Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee’s right to reimbursement from Lessor.  Lessee shall document the cost of said cure
and supply said documentation to Lessor.


 


14.                                   Condemnation.  If the Premises or any portion thereof are taken under the power
of eminent domain or sold under the threat of the exercise of said power
(collectively “Condemnation”),
this Lease shall terminate as to the part taken as of the date the condemning
authority takes title or possession, whichever first occurs.  If more than 10% of the floor area of the
Unit, or more than 25% of Lessee’s Reserved Parking Spaces, is taken by
Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within
10 days after Lessor shall have given Lessee written notice of such taking (or
in the absence of such notice, within 10 days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession.  If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in proportion to the
reduction in utility of the Premises caused by such Condemnation.  Condemnation awards and/or payments shall be
the property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold, the value of the part taken, or for
severance damages; provided, however, that Lessee shall be entitled to any
compensation for Lessee’s relocation expenses, loss of business goodwill and/or
Trade Fixtures, without regard to whether or not this Lease is terminated
pursuant to the provisions of this Paragraph. 
All Alterations and Utility Installations made to the Premises by
Lessee, for purposes of Condemnation only, shall be considered the property of
the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor.  In the event that this
Lease is not terminated by reason of the Condemnation, Lessor shall repair any
damage to the Premises caused by such Condemnation.


 


15.                                 Brokerage
Fees.


 


15.1
                        Additional
Commission.  In addition to the payments
owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers
otherwise agree in writing, Lessor agrees that:  (a) if Lessee exercises any Option, (b) if Lessee acquires from
Lessor any rights to the Premises or other premises owned by Lessor and located
within the Project, (c) if Lessee remains in possession of the Premises, with
the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent
is increased, whether by agreement or operation of an escalation clause herein,
then, Lessor shall pay Brokers a fee in accordance with the schedule of the
Brokers in effect at the time of the execution of this Lease.


 


15.2
                        Assumption
of Obligations.  Any buyer or transferee of
Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s
obligation hereunder.  Brokers shall be
third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and
31.  If Lessor fails to pay to Brokers
any amounts due as and for brokerage fees pertaining to this Lease when due,
then such amounts shall accrue Interest. 
In addition, if Lessor fails to pay any amounts to Lessee’s Broker when
due, Lessee’s Broker may send written notice to Lessor and Lessee of such
failure and if Lessor fails to pay such amounts within 10 days after said
notice, Lessee shall pay said monies to its Broker and offset such amounts
against Rent.  In addition, Lessee’s
Broker shall be deemed to be a third party beneficiary of any commission
agreement entered into by and/or between Lessor and Lessor’s Broker for the
limited purpose of collecting any brokerage fee owed.


 


15.3                           Representations
and Indemnities of Broker Relationships. 
Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the
Brokers, if any) in connection with this Lease, and that no one other than said
named Brokers is entitled to any commission or finder’s fee in connection
herewith.  Lessee and Lessor do each
hereby agree to indemnify, protect, defend and hold the other harmless from and
against liability for compensation or charges which may be claimed by any such
unnamed broker, finder or other similar party by reason of any dealings or
actions of the indemnifying Party, including any costs, expenses, attorneys’
fees reasonably incurred with respect thereto.


 


16.                                 Estoppel
Certificates.


 


(a)                                  Each Party (as “Responding Party”) shall within 10 days
after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the
Requesting Party a statement in writing in form similar to the then most
current “Estoppel Certificate”
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published by the American Industrial Real
Estate Association, plus such additional information, confirmation and/or
statements as may be reasonably requested by the Requesting Party.


 


(b)
                              If the Responding
Party shall fail to execute or deliver the Estoppel Certificate within such 10
day period, the Requesting Party may execute an Estoppel Certificate stating
that: (i) the Lease is in full force and effect without modification except as
may be represented by the Requesting Party, (ii) there are no uncured defaults
in the Requesting Party’s performance, and (iii) if Lessor is the Requesting
Party, not more than one month’s rent has been paid in advance. Prospective
purchasers and encumbrances may rely upon the Requesting Party’s Estoppel
Certificate, and the Responding Party shall be estopped from denying the truth
of the facts contained in said Certificate.


 


(c)
                               If Lessor desires to
finance, refinance, or sell the Premises, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements as may be reasonably required by such lender
or purchaser, including but not limited to Lessee’s financial statements for
the past 3 years.  All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.


 


17.                                   Definition of Lessor.  The term “Lessor”
as used herein shall mean the owner or owners at the time in question of the
fee title to the Premises, or, if this is a sublease, of the Lessee’s interest
in the prior lease.  In the event of a
transfer of Lessor’s title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor.  Except
as provided in Paragraph 15, upon such transfer or assignment and delivery of
the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all
liability with respect to the obligations and/or covenants under this Lease
thereafter to be performed by the Lessor. 
Subject to the foregoing, the obligations and/or covenants in this Lease
to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.  Notwithstanding
the above, and subject to the provisions of Paragraph 20 below, the original
Lessor under this Lease, and all subsequent holders of the Lessor’s interest in
this Lease shall remain liable and responsible with regard to the potential
duties and liabilities of Lessor pertaining to Hazardous Substances as outlined
in Paragraph 6.2 above.


 


18.                                 Severability.  The invalidity of any provision of this
Lease, as determined by a court of competent jurisdiction, shall in no way
affect the validity of any other provision hereof.


 


19.                                 Days.  Unless otherwise specifically indicated to
the contrary, the word “days” as
used in this Lease shall mean and refer to calendar days. 


 


20.                                 Limitation on
Liability.  Subject to the provisions of
Paragraph 17 above, the obligations of Lessor under this Lease shall not
constitute personal obligations of Lessor, the individual partners of Lessor or
its or their individual partners, directors, officers or shareholders, and
Lessee shall look to the Premises, and to no other assets of Lessor, for the
satisfaction of any liability of Lessor with respect to this Lease, and shall
not seek recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction.


 


21.                                 Time
of Essence.  Time is of the essence with
respect to the performance of all obligations to be performed or observed by the
Parties under this Lease.


 


22.                                 No
Prior or Other Agreements; Broker Disclaimer. 
This Lease contains all agreements between the Parties with respect to
any matter mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective. 
Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this
Lease and as to the use, nature, quality and character of the Premises.  Brokers have no responsibility with respect
thereto or with respect to any default or breach hereof by either Party.  The liability (including court costs and
attorneys’ fees), of any Broker with respect to negotiation, execution,
delivery or performance by either Lessor or Lessee under this Lease or any
amendment or modification hereto shall be limited to an amount up to the fee
received by such Broker pursuant to this Lease; provided, however, that the
foregoing limitation on each Broker’s liability shall not be applicable to any
gross negligence or willful misconduct of such Broker.


 


23.                                 Notices.


 


23.1 Notice Requirements.  All notices required or permitted by this
Lease or applicable law shall be in writing and may be delivered in person (by
hand or by courier) or may be sent by regular, certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23.  The
addresses noted adjacent to a Party’s signature on this Lease shall be that
Party’s address for delivery or mailing of notices.  Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee’s taking possession of
the Premises, the Premises shall constitute Lessee’s address for notice.  A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.  


 


23.2 Date of Notice.  Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon.  If sent by regular mail the notice shall be
deemed given 48 hours after the same is addressed as required herein and mailed
with postage prepaid.  Notices delivered
by United States Express Mail or overnight courier that guarantee next day
delivery shall be deemed given 24 hours after delivery of the same to the
Postal Service or courier.  Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt (confirmation report from fax
machine is sufficient), provided a copy is also delivered via delivery or
mail.  If notice is received on a
Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day.


 


24.                                 Waivers.  No waiver by Lessor of the Default or Breach
of any term, covenant or condition hereof by Lessee, shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent Default
or Breach by Lessee of the same or of any other term, covenant or condition
hereof. Lessor’s consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Lessor’s consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent.  The acceptance of Rent by
Lessor shall not be a waiver of any Default or Breach by Lessee.  Any payment by Lessee may be accepted by Lessor
on account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection therewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit of
such payment. 


 


25.                                 Disclosures
Regarding The Nature of a Real Estate Agency Relationship.


 


                (a)                                  When entering into a
discussion with a real estate agent regarding a real estate transaction, a
Lessor or Lessee should from the outset understand what type of agency
relationship or representation it has with the agent or agents in the
transaction.  Lessor and Lessee
acknowledge being advised by the Brokers in this transaction, as follows:


 


(i)                                     Lessor’s Agent.  A Lessor’s agent under a listing agreement
with the Lessor acts as the agent for the Lessor only.  A Lessor’s agent or subagent has the
following affirmative obligations:  To
the Lessor:  A fiduciary duty of
utmost care, integrity, honesty, and loyalty in dealings with the Lessor.  To the Lessee and the Lessor:  (a) Diligent exercise of reasonable skills
and care in performance of the agent’s duties. 
(b) A duty of honest and fair dealing and good faith.  (c) A duty to disclose all facts known to the
agent materially affecting the value or desirability of the property that are
not known to, or within the diligent attention and observation of, the
Parties.  An agent is not obligated to
reveal to either Party any confidential information obtained from the other
Party which does not involve the affirmative duties set forth above.


 


(ii)                                  Lessee’s Agent.  An agent can agree to act as agent for the
Lessee only.  In these situations, the
agent is not the Lessor’s agent, even if by agreement the agent may receive
compensation for services rendered, either in full or in part from the Lessor.  An agent acting only for a Lessee has the
following affirmative obligations.  To
the Lessee:  A fiduciary duty of
utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To
the Lessee and the Lessor:  (a)
Diligent exercise of reasonable skills and care in performance of the agent’s
duties.  (b) A duty of honest and fair
dealing and good faith.  (c) A duty to
disclose all facts known to the agent materially affecting the value or
desirability of the property that are not known to, or within the diligent
attention and observation of, the Parties. 
An agent is not obligated to reveal to either Party any confidential
information obtained from the other Party which does not involve the
affirmative duties set forth above.


 


(iii)                               Agent Representing
Both Lessor and Lessee.  A real
estate agent, either acting directly or through one or more associate licenses,
can legally be the agent of both the Lessor and the Lessee in a transaction,
but only with the knowledge and consent of both the Lessor and the Lessee. In a
dual agency situation, the agent has the following affirmative obligations to
both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
honesty and loyalty in the dealings with either Lessor or the Lessee.  (b) Other duties to the Lessor and the
Lessee as stated above in subparagraphs (i) or (ii). In representing both
Lessor and Lessee, the agent may not without the express permission of the
respective Party, disclose to the other Party that the Lessor will accept rent
in an amount less than that indicated in the listing or that the Lessee is
willing to pay a higher rent than that offered. The above duties of the agent
in a real estate transaction do not relieve a Lessor or Lessee from the
responsibility to protect their own interests. Lessor and Lessee should
carefully read all agreements to assure that they adequately express their
understanding of the transaction.  A
real estate agent is a person qualified to advise about real estate.  If legal or tax advice is desired, consult a
competent professional.


 


(b)                                 Brokers have no
responsibility with respect to any default or breach hereof by either
Party.  The liability (including court
costs and attorneys’ fees), of any Broker with respect to any breach of duty,
error or omission relating to this Lease shall not exceed the fee received by
such Broker pursuant to this Lease; provided, however, that the foregoing
limitation on each Broker’s liability shall not be applicable to any gross
negligence or willful misconduct of such Broker.


 


(c)                                  Buyer and Seller
agree to identify to Brokers as “Confidential” any communication or information
given Brokers that is considered by such Party to be confidential.


 


26.                                 No
Right To Holdover.  Lessee has no right to retain
possession of the Premises or any part thereof beyond the expiration or
termination of this Lease.  In the event
that Lessee holds over, then the Base Rent shall be increased to 150%  100% of
the Base Rent applicable immediately preceding the expiration or
termination.  Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.


 


27.                                 Cumulative
Remedies.  No remedy or election
hereunder shall be deemed exclusive but shall, wherever possible, be cumulative
with all other remedies at law or in equity.


 


28.                                 Covenants
and Conditions; Construction of Agreement.  All
provisions of this Lease to be observed or performed by Lessee are both
covenants and conditions.  In construing
this Lease, all headings and titles are for the convenience of the Parties only
and shall not be considered a part of this Lease.  Whenever required by the context, the singular shall include the
plural and vice versa.  This Lease shall
not be construed as if prepared by one of the Parties, but rather according to
its fair meaning as a whole, as if both Parties had prepared it.


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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29.                                 Binding
Effect; Choice of Law.  This
Lease shall be binding upon the parties, their personal representatives,
successors and assigns and be governed by the laws of the State in which the
Premises are located.  Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.


 


30.                                 Subordination;
Attornment; Non-Disturbance.


 


30.1                           Subordination.  This Lease and any Option granted hereby
shall be subject and subordinate to any ground lease, mortgage, deed of trust,
or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed
upon the Premises, to any and all advances made on the security thereof, and to
all renewals, modifications, and extensions thereof.  Lessee agrees that the holders of any such Security Devices (in this
Lease together referred to as “Lender”)
shall have no liability or obligation to perform any of the obligations of
Lessor under this Lease.  Any Lender may
elect to have this Lease and/or any Option granted hereby superior to the lien
of its Security Device by giving written notice thereof to Lessee, whereupon
this Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof.


 


30.2                           Attornment.  In the event that Lessor transfers title to
the Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of
the term hereof, or, at the election of such new owner, this Lease shall
automatically become a new Lease between Lessee and such new owner, upon all of
the terms and conditions hereof, for the remainder of the term hereof, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder and
such new owner shall assume all of Lessor’s obligations hereunder, except that
such new owner shall not:  (a) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (b) be subject to any offsets or defenses
which Lessee might have against any prior lessor,  (c) be bound by prepayment of more than one month’s rent, or (d)
be liable for the return of any security deposit paid to any prior lessor.


 


30.3                           Non-Disturbance.  With respect to Security Devices entered
into by Lessor after the execution of this Lease, Lessee’s subordination of
this Lease shall be subject to receiving a commercially reasonable
non-disturbance agreement (a “Non-Disturbance
Agreement”) from the Lender which Non-Disturbance Agreement provides
that Lessee’s possession of the Premises, and this Lease, including any options
to extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.  Further, within 60 days after the execution
of this Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security Device
which is secured by the Premises.  In
the event that Lessor is unable to provide the Non-Disturbance Agreement within
said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and
attempt to negotiate for the execution and delivery of a Non-Disturbance
Agreement.  


 


30.4                           Self-Executing.  The agreements contained in this Paragraph
30 shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of the Premises, Lessee and Lessor shall
execute such further writings as may be reasonably required to separately document
any subordination, attornment and/or Non-Disturbance Agreement provided for
herein.


 


31.                                 Attorneys’
Fees.  If any Party or Broker brings an action or
proceeding involving the Premises whether founded in tort, contract or equity,
or to declare rights hereunder, the Prevailing Party (as hereafter defined) in
any such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys’ fees.  Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment.  The term, “Prevailing
Party” shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense.  The
attorneys’ fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys’ fees
reasonably incurred.  In addition,
Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach ($200 is a reasonable minimum
per occurrence for such services and consultation).


 


32.                                 Lessor’s
Access; Showing Premises; Repairs. 
Lessor and Lessor’s agents shall have the right to enter the Premises at
any time, in the case of an emergency, and otherwise at reasonable times for
the purpose of showing the same to prospective purchasers, lenders, or tenants,
and making such alterations, repairs, improvements or additions to the Premises
as Lessor may deem necessary.  All such
activities shall be without abatement of rent or liability to Lessee.  Lessor may at any time place on the Premises
any ordinary “For Sale” signs and
Lessor may during the last 6 months of the term hereof place on the Premises
any ordinary “For Lease”
signs.  Lessee may at any time place on
the Premises any ordinary “For Sublease”
sign.


 


33.                                 Auctions.  Lessee shall not conduct, nor permit to be
conducted, any auction upon the Premises without Lessor’s prior written
consent.  Lessor shall not be obligated
to exercise any standard of reasonableness in determining whether to permit an
auction.


 


34.                                 Signs.  Except for ordinary “For Sublease” signs
which may be placed only on the Premises and for signage noted on
#56 in Addendum 1, Lessee shall not place any sign upon the Project without Lessor’s
prior written consent. All signs must comply with all Applicable Requirements.


 


35.                                 Termination;
Merger.  Unless specifically stated
otherwise in writing by Lessor, the voluntary or other surrender of this Lease
by Lessee, the mutual termination or cancellation hereof, or a termination
hereof by Lessor for Breach by Lessee, shall automatically terminate any
sublease or lesser estate in the Premises; provided, however, that Lessor may
elect to continue any one or all existing subtenancies.  Lessor’s failure within 10 days following
any such event to elect to the contrary by written notice to the holder of any
such lesser interest, shall constitute Lessor’s election to have such event
constitute the termination of such interest.


 


36.                                 Consents.  Except as otherwise provided herein,
wherever in this Lease the consent of a Party is required to an act by or for
the other Party, such consent shall not be unreasonably withheld or delayed.  Lessor’s actual reasonable costs and
expenses (including but not limited to architects’, attorneys’, engineers’ and
other consultants’ fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor.  Lessor’s consent to any act,
assignment or subletting shall not constitute an acknowledgment that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.  The failure to specify herein any particular
condition to Lessor’s consent shall not preclude the imposition by Lessor at
the time of consent of such further or other conditions as are then reasonable
with reference to the particular matter for which consent is being given.  In the event that either Party disagrees
with any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within 10 business days following such request.



 


38.                                 Quiet
Possession.  Subject to payment by Lessee
of the Rent and performance of all of the covenants, conditions and provisions
on Lessee’s part to be observed and performed under this Lease, Lessee shall
have quiet possession and quiet enjoyment of the Premises during the term
hereof.


 


39.                                 Options.  If Lessee is granted an option, as defined
below, then the following provisions shall apply.


 


39.1                           Definition.  “Option”
shall mean:  (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to
lease either the Premises or other property of Lessor; (c) the right to
purchase or the right of first refusal to purchase the Premises or other
property of Lessor.


 


39.2                           Options
Personal To Original Lessee.  Any
Option granted to Lessee in this Lease is personal to the original Lessee, and
cannot be assigned or exercised by anyone other than said original Lessee and
only while the original Lessee is in full possession of the Premises and, if
requested by Lessor, with Lessee certifying that Lessee has no intention of
thereafter assigning or subletting.


 


39.3                           Multiple
Options.  In the event that Lessee has
any multiple Options to extend or renew this Lease, a later Option cannot be
exercised unless the prior Options have been validly exercised.


 


39.4                           Effect
of Default on Options.


 


(a)                                  Lessee shall have
no right to exercise an Option:  (i)
during the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any Rent
is unpaid (without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessee has been given 3 or more notices of separate Default, whether or not the
Defaults are cured, during the 12 month period immediately preceding the
exercise of the Option.


 


(b)                                 The period of time
within which an Option may be exercised shall not be extended or enlarged by
reason of Lessee’s inability to exercise an Option because of the provisions of
Paragraph 39.4(a).


 


(c)                                  An Option shall
terminate and be of no further force or effect, notwithstanding Lessee’s due
and timely exercise of the Option, if, after such exercise and prior to the
commencement of the extended term, (i) Lessee fails to pay Rent for a period of
30 days after such Rent becomes due (without any necessity of Lessor to give
notice thereof), (ii) Lessor gives to Lessee 3 or more notices of separate
Default during any 12 month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.


 


40.                                 Security
Measures.  Lessee hereby acknowledges
that the Rent payable to Lessor hereunder does not include the cost of guard
service or other security measures, and that Lessor shall have no obligation
whatsoever to provide same.  Lessee
assumes all responsibility for the protection of the Premises, Lessee, its
agents and invitees and their property from the acts of third parties.


 


41.                                 Reservations.  Lessor reserves the right: (i) to grant,
without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, (ii) to cause the recordation of
parcel maps and restrictions, and (iii) to create and/or install new utility
raceways, so long as such easements, rights, dedications, maps, restrictions,
and utility raceways do not unreasonably interfere with the use of the Premises
by Lessee.  Lessee agrees


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Initials

  	
   

  	
   

  	
   

  	
  Initials

  



 


11

















 


to sign any documents reasonably requested by
Lessor to effectuate such rights.


 


42.                                 Performance
Under Protest.  If at any time a dispute shall
arise as to any amount or sum of money to be paid by one Party to the other
under the provisions hereof, the Party against whom the obligation to pay the
money is asserted shall have the right to make payment “under protest” and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum.  If it shall be adjudged that there
was no legal obligation on the part of said Party to pay such sum or any part
thereof, said Party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay.


 


43.                                 Authority.  If either Party hereto is a corporation,
trust, limited liability company, 
partnership, or similar entity, each individual executing this Lease on
behalf of such entity represents and warrants that he or she is duly authorized
to execute and deliver this Lease on its behalf. Each party shall, within 30
days after request, deliver to the other party satisfactory evidence of such
authority.


 


44.                                 Conflict.  Any conflict between the printed provisions
of this Lease and the typewritten or handwritten provisions shall be controlled
by the typewritten or handwritten provisions.


 


45.                                 Offer.  Preparation of this Lease by either party or
their agent and submission of same to the other Party shall not be deemed an
offer to lease to the other Party.  This
Lease is not intended to be binding until executed and delivered by all Parties
hereto.


 


46.                                 Amendments.  This Lease may be modified only in writing,
signed by the Parties in interest at the time of the modification.  As long as they do not materially change
Lessee’s obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by a
Lender in connection with the obtaining of normal financing or refinancing of
the Premises.


 


47.                                 Multiple
Parties.  If more than one person or
entity is named herein as either Lessor or Lessee, such multiple Parties shall
have joint and several responsibility to comply with the terms of this Lease. 


 


48.                                 Waiver
of Jury Trial.  The Parties hereby waive their
respective rights to trial by jury in any action or proceeding involving the
Property or arising out of this Agreement.


 


49.                                 Mediation
and Arbitration of Disputes.  An
Addendum requiring the Mediation and/or the Arbitration of all disputes between
the Parties and/or Brokers arising out of this Lease o is ý is not attached to
this Lease.


 


LESSOR AND LESSEE HAVE
CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED
HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY
CONSENT THERETO.  THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND
LESSEE WITH RESPECT TO THE PREMISES.


 


ATTENTION:  NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES.  THE
PARTIES ARE URGED TO:


 


1.                                      SEEK
ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.


 


2.                                      RETAIN
APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES.  SAID INVESTIGATION SHOULD
INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES,
THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF
AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND
THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.


 


WARNING:  IF THE PREMISES ARE LOCATED IN A STATE OTHER
THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO
COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.


 


The parties hereto have executed this Lease
at the place and on the dates specified above their respective signatures.


 


	
  Executed at: 

  	
  San Diego, CA

  	
   

  	
  Executed at:

  	
   

  
	
  on:

  	
  October 8, 2003

  	
   

  	
  on:

  	
  October 9, 2003

  
	
   

  	
   

  	
   

  
	
  By LESSOR:

  	
   

  	
   

  	
  By LESSEE:

  
	
  Thornmint I, a California Limited

  	
   

  	
  Image Ware Systems, Inc. a California
  Corporation

  
	
  Partnership

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ David Price

  	
   

  	
  By:

  	
  /s/ John Gott

  
	
  Name Printed:

  	
  David Price

  	
   

  	
  Name Printed:

  	
  John Gott

  
	
  Title:

  	
  General Partner

  	
   

  	
  Title:

  	
  Corporate Secretary, Treasurer

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name Printed:

  	
   

  	
   

  	
  Name Printed:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
  Address:

  	
   

  	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Telephone:

  	
  (760) 930-4048

  	
   

  	
  Telephone:
  

  	
  (        )

  
	
  Facsimile:

  	
  (760) 930-9222

  	
   

  	
  Facsimile:

  	
  (        )

  
	
  Federal ID No.

  	
   

  	
   

  	
  Federal ID No.

  	
   

  
																									



 


These forms are often
modified to meet changing requirements of law and needs of the industry. Always
write or call to make sure you are utilizing the most current form: American
Industrial Real Estate Association, 700 South Flower Street, Suite 600, Los
Angeles, CA 90017.


(213) 687-8777.


 


©Copyright 1999 By American Industrial Real Estate
Association.

All rights reserved.

No part of these works may be reproduced in any form without permission in
writing.


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
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  Initials

  



 


12

















 


ADDENDUM NO. 1


 


THIS
ADDENDUM NO. 1 TO THAT CERTAIN STANDARD INDUSTRIAL/COMMERCIAL MULT-TENANT
LEASE-NET SEPTEMBER 26, 2003 BY AND BETWEEN THORNMINT I,  A CALIFORNIA LIMITED PARTNERSHIP,
HEREINAFTER REFERRED TO AS (“LESSOR”), AND IMAGEWARE SOFTWARE, INC.,
HEREINAFTER REFERRED TO AS (“LESSEE”) FOR THE PROPERTY COMMONLY KNOWN AS 10883
THORNMINT ROAD, CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA.


 


September 26, 2003


 


	
  50.

  	
   

  	
  LEASE COMMENCEMENT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Lease shall commence October 1, 2003.

  
	
   

  	
   

  	
   

  
	
  51.

  	
   

  	
  BASE RENTAL RATE SCHEDULE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  October 1, 2003 – November 30, 2003

  	
  $0.00 per month

  	
   

  
	
   

  	
   

  	
  December 1, 2003 – September 30, 2004

  	
  $16,340.40 per month

  	
   

  
	
   

  	
   

  	
  October 1, 2004 – September 30, 2005

  	
  $16,821.00 per month

  	
   

  
	
   

  	
   

  	
  October 1, 2005 – September 30, 2006

  	
  $17,301.60 per month

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The above Rental Rate Schedule is net of Lessee’s separately
  sub-metered electricity and janitorial services to the Premises and all
  Project Operating Expenses per paragraph 4.2 of the Lease.

  
	
   

  	
   

  	
   

  
	
  52.

  	
   

  	
  UTILITIES:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lessee shall pay its pro rata share of electricity provided to the
  Premises as billed by Lessor. 
  Lessee’s pro rata share shall be determined by the Lessor periodically
  reading the electric sub-meter to be installed by Lessor.  Lessor shall calculate Lessee’s pro rata
  share by charging Lessee their mathematical proportion of the kilowatt-hours
  used (as read on the new sub-meter) in relation to the total number of
  kilowatt-hours on the main meter. 
  Lessor shall charge Lessee based on actual costs billed by the service
  provider.  Lessor shall not profit or
  charge a fee for this service.  Lessee
  shall have reasonable inspection of bills and sub-meters.  Bills shall be submitted accordingly by
  Lessor to Lessee upon request from Lessee.

  
	
   

  	
   

  	
   

  
	
  53.

  	
   

  	
  OPERATING EXPENSES:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Not withstanding anything contained in the Lease, Lessee shall pay
  its proportionate share of Operating Expenses associated with the Premises
  and the Project per paragraph 4.2 of the Lease.  The expenses shall not exceed Nineteen Cents ($0.19) per square
  foot, per month, during the initial year of the Lease Term.

  
	
   

  	
   

  	
   

  
	
  54.

  	
   

  	
  OPERATING HOURS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lessee may utilize the HVAC system during typical business hours, not
  to exceed sixty (60) hours per week. 
  Lessee shall pay their own separately sub-metered electricity for such
  usage.  The foregoing will not
  restrict Lessee’s opportunity to access the Premises twenty-four hours a day,
  seven (7) days a week.  Lessee
  reserves the right, in the future, if necessary, to install a supplemental
  air conditioning unit for after hours usage, with Lessor’s reasonable
  approval, at Lessee’s cost.  Said air
  conditioning unit shall be at a location mutually acceptable between Lessor
  and Lessee.

  
	
   

  	
   

  	
   

  
	
  55.

  	
   

  	
  TENANT IMPROVEMENTS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lessor, at Lessor’s expense, shall complete the following Tenant
  Improvements utilizing building standard materials:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  First Floor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  1)              Professionally
  clean the carpet and fabric covered walls; patch and/or add molding to frayed
  edges of fabric (e.g. in the alcove edges).

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  2)              Replace and/or
  service any defective faucets or valves within the restrooms; replace missing
  floor tiles in the shower room.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  3)              Paint all
  currently painted interior walls.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  4)              Replace vinyl
  flooring in kitchen.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  5)              Replace two (2)
  microwaves and dishwasher in kitchen.  Replace or repair range “pans” under burners and test and
  replace, if necessary, burner electro-stats. 
  Repair (or replace if repairs does not correct existing deficiencies)
  Sub-zero refrigerator with similar grade and size refrigerator.

  
						



 


© 2003 CB Richard Ellis, Inc.
The information above has been obtained from sources believed reliable.  While we do not doubt its accuracy, we have
not verified it and make no guarantee, warranty or representation about it.  It is your responsibility to independently
confirm its accuracy and completeness. 
Any projections, opinions, assumptions or estimates used are for example
only and do not represent the current or future performance of the property.  The value of this transaction to you depends
on tax and other factors which should be evaluated by your tax, financial and
legal advisors.  You and your advisors
should conduct a careful, independent investigation of the property to
determine to your satisfaction the suitability of the property for your needs.


 


1

















 


	
   

  	
   

  	
   

  	
  6)              Repair and/or
  re-zone air conditioner thermostats to all areas of Premises and provide air
  conditioning/heating, which is controlled by thermostats logically located
  within the Premises.  Repair all
  registers as needed so that all are functioning within the Premises.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  7)              Power wash the
  patio area.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  8)              Trim and/or
  replace entryway tree.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Second Floor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  1)              Replace carpet
  with equivalent or better grade carpet and paint walls.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  2)              Replace and/or
  service any defective faucets or valves within the restrooms.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  3)              Patch and seal off
  electrical floor plugs as directed by Lessee.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  4)              Inspect and
  repair, as needed, all air conditioning/heating registers.

  
	
   

  	
   

  	
   

  	
   

  
	
  56.

  	
   

  	
  SIGNAGE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lessee shall continue to have the existing signage adjacent to
  Lessee’s main suite entrance and monument signage.  The cost associated with the purchase, installation,
  maintenance and eventual removal of such signage shall be borne by Lessee.  Any changes to the existing signage shall
  conform to all zoning and CC&R’s and Lessor shall have reasonable review
  and approval rights of any modifications to the existing Lessee signage.

  
	
   

  	
   

  	
   

  
	
  57.

  	
   

  	
  PARKING:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lessee will have common usage of the forty-eight (48) parking spaces
  in front of the Building with any other lessee in the Project.  Such parking spaces shall be free for the
  Term of the Lease and Lessee, with Lessor’s approval, may designate four (4)
  spaces for common visitor parking with a mutually acceptable location between
  Lessor and Lessee.

  
	
   

  	
   

  	
   

  
	
  58.

  	
   

  	
  BROKERAGE COMMISSION:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In addition to what is outlined in Section 1.10(b) of the Lease,
  Lessor shall agree to pay Irving Hughes, Inc. three percent (3%) of the
  aggregate rental for years one (1) through three (3).  Such commission shall be paid by Lessor
  fifty percent (50%) upon mutual Lease Execution and fifty percent (50%) upon
  Commencement of Lease.

  
	
   

  	
   

  	
   

  
	
  59.

  	
   

  	
  LESSOR’S CONSENT REQUIRED –
  ARTICLE 12.1(A) OF LEASE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Such consent shall not be unreasonably withheld or delayed by Lessor.

  
	
   

  	
   

  	
   

  
	
  60.

  	
   

  	
  LOCKS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lessor shall permit Lessee the right to change locks within, and to
  their Premises, provided the costs are at Lessee’s sole cost and a complete
  set of new keys are provided to the Lessor for the exterior door, for the
  non-business hours security and fire protection services.

  
	
   

  	
   

  	
   

  
	
  61.

  	
   

  	
  LESSEE’S SHARE OF COMMON AREA OPERATING EXPENSES:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In reference to paragraph 4.2 (a), the following percentage of Common
  Area Expense catagories shall apply:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (I)

  	
  4S Ranch
  Park Fees 35.61%.

  
	
   

  	
   

  	
   

  	
  (II)

  	
  Utilities:

  
	
   

  	
   

  	
   

  	
   

  	
  Water 35.61%

  
	
   

  	
   

  	
   

  	
   

  	
  Gas percent
  over base 82.1%

  
	
   

  	
   

  	
   

  	
  (V)

  	
  Real
  Property Taxes 46.0%. 

  
	
   

  	
   

  	
   

  	
  (VI)

  	
  Insurance
  pursuant 35.61% to lease paragraph 8.

  



 


2

















 


BROKER
DISCLOSURE: 
The parties hereby expressly acknowledge that Broker has made no
independent determination or investigation regarding the following:  present or future use or zoning of the Property;
environmental matters affecting the Property; the condition of the Property
including, but not limited to, structural, mechanical and soils conditions as
well as issues surrounding hazardous wastes or substances; violations of the
Occupational Safety and Health Act or any other federal, state, county or
municipal laws, ordinances or statutes; measurements of land and/or
buildings.  Lessee agrees to make its
own investigation and determination regarding such items.


 


Owners or tenants of real property may be subject to the Americans with
Disabilities Act (ADA), a federal law codified at 42 USC Section 12101 et
seq.  Among other requirements of the
ADA that could apply to the Property, Title III of the ACT requires owners and
tenants of “public accommodations” to remove barriers to access by disabled
persons and provide auxiliary aids and services for hearing, vision, or speech
impaired persons.  The regulations under
Title III of the ADA are codified at 28 CFR Part 36.  Broker recommends that both Lessor and Lessee review the ADA and
the regulations to determine if this law would apply to them and the nature of
the requirements.  These are legal
issues.  The parties are responsible for
conducting their own independent investigation of these issues.


 


Compliance with Laws:  The parties hereto agree to comply with all
applicable federal, state and local laws, regulations, codes, ordinances and
administrative orders having jurisdiction over the parties, the Property, or
the subject matter of this document including, but not limited to, the 1964
Civil Rights Act and all amendments thereto, the Foreign Investment in Real
Property Tax Act, the Comprehensive Environmental Response Compensation and
Liability Act and The Americans With Disabilities Act.


 


	
  LESSOR:

  	
  LESSEE:

  
	
   

  	
   

  
	
  THORNMINT 1

  a California Limited Partnership

  	
  IMAGEWARE
  SOFTWARE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Dave Price

  	
   

  	
  By:

  	
  /s/ John Gott

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  October 7, 2003

  	
   

  	
  Date:

  	
  September 30, 2003

  	
   

  
								



 


3

















 


EXHIBIT “A”


 


[GRAPHIC]


 


[BUILDING DIAGRAM]


 


4

















 


LUNDVANDRUFF


[LOGO]


EXHIBIT “B”
(First Floor)


 


THORNMINT PLAZA


10885 THORNMINT RD


1ST FLOOR


SAN DIEGO, CA 92150


PROJECT: [ILLEGIBLE]


DATE: 06/04/98


 


[GRAPHIC]


 


AS–BUILT 1ST FLOOR PLAN–(AVAILABLE)


 


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LUNDVANDRUFF


[LOGO]


 


EXHIBIT “B”
(Second Floor)


 


THORNMINT PLAZA


10885 THORNMINT RD


2ND FLOOR


SAN DIEGO, CA 92150


PROJECT: [ILLEGIBLE]


DATE: 06/04/98


 


[GRAPHIC]


 


2ND FLOOR PLAN–(AVAILABLE)


 


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EXHIBIT “C”


 


[LUNDVANDRUFF


LOGO]


 


	
   

  	
   

  	
   

  	
  FAX COVER LETTER

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DATE:

  	
   

  	
   

  	
  6/9/98

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TO:

  	
   

  	
   

  	
  Jeb Blakke

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMPANY:

  	
   

  	
   

  	
  CB COMMERCIAL

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RE:

  	
   

  	
   

  	
  Thornmint

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FAX # :

  	
   

  	
   

  	
  [ILLEGIBLE]

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FROM:

  	
   

  	
   

  	
  Michele Arnold-Kuzh

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MESSAGE:

  	
   

  	
  Jeb,

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  The square footage calculations we
  determined from our field measurements are as follows:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Vacant space:

  	
  1st flr.

  	
  6,076.08 u.s.f.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  2nd flr

  	
  9545.54 u.s.f.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Total

  	
  15,621.62 u.s.f.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  1st flr occupied space:

  	
  3,403.85 u.s.f.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Core factor:

  	
  This only includes 1st floor lobby, stairs
  have been included in 2nd floor tenant space. 1.0255

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Total rentable vacant space is 16,020
  r.s.f.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Total rentable occupied is 3,496 r.s.f.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  c.c.                              David
  Price - Thornmint I Partnership

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3970 SORRENTO

  	
   

  	
   

  	
   

  	
   

  
	
  VALLEY BLVD.

  	
   

  	
   

  	
   

  	
  TOTAL PAGES, INCLUDING COVER LETTER:                         1

  
	
  SUITE N

  	
   

  	
   

  	
   

  	
   

  
	
  SAN DIEGO

  	
   

  	
   

  	
   

  	
   

  
	
  CALIFORNIA 92121

  	
   

  	
   

  	
   

  	
   

  
	
  TEL: 619-457-????

  	
   

  	
   

  	
   

  	
   

  
	
  FAX: 619-457-6???

  	
   

  	
   

  	
   

  	
   

  
									



 


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EXHIBIT “D”


RULES AND REGULATIONS


 


1.                                       No
sign, placard, pictures, advertisement, name or notice shall be inscribed,
displayed or printed or affixed on or to any part of the outside or inside of
the Building without the written consent of Lessor first had and obtained and
Lessor shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Lessee.


 


All approved
signs or lettering on doors shall be printed, painted, affixed or inscribed at
the expense of Lessee by a person approved by Lessor outside the Premises;
provided, however, that Lessor may furnish and install a Building standard
window covering at all exterior windows. 
Lessee shall not, without prior written consent of Lessor, cause or
otherwise sunscreen any window.


 


2.                                       The
sidewalks, halls, passages, exists, entrances, elevators and stairways shall
not be obstructed by any of the Lessees or used by them for any purpose other
than for ingress and egress from their respective Premises.


 


3.                                       Lessee
shall not alter any lock or install any new or additional locks or any bolts on
any doors or windows of the Premises. 
Lessee shall be permitted to change the locks on the Premises provided
they provide a copy of the new keys to Lessor. 
Such changes are at Lessee’s expense.


 


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


 


5.                                       Lessee
shall not overload the floor of the Premises or in any way deface the Premises
or any part thereof.


 


6.                                       No
furniture, freight or equipment of any kind shall be brought into the Building
without the prior notice to Lessor and all moving of the same into or out of
the Building shall be done at such time and in such manner as Lessor shall
designate.  Lessor shall have the right
to prescribe the weight, size and position of all safes and other heavy
equipment brought into the Building and also the times and manner of moving the
same in and out of the Building.  Safes
or other heavy objects shall, if considered necessary by Lessor, stand on
supports of such thickness as is necessary to properly distribute the weight.  Lessor will not be responsible for loss of
or damage to any such safe or property from any cause and all damage done to
the Building by moving or maintaining any such safe or other property shall be
repaired at the expense of Lessee.


 


7.                                       Lessee
shall not use, keep or permit to be used or kept any foul or noxious gas or
substances in the Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to the Lessor or other occupants of
the Building by reason of noise, odors and/or vibrations, or interfere in any
way with other Lessees or those having business therein, nor shall any animals
or birds be brought in or kept in or about the Premises or the Building.


 


8.                                       No
commercial cooking shall be done or permitted by any Lessee on the Premises,
nor shall the Premises be used for washing clothes, for lodging or for any
improper, objectionable or immoral purposes. 
Lessee shall be permitted use of a microwave, refrigerator, and coffee
machine on the Premises.


 


9.                                       Lessee
shall not use or keep in the Premises or the Building any kerosene, gasoline or
inflammable or combustible fluid or material, or use any method of heating or
air conditioning other than that supplied by Lessor.


 


10.                                 Lessor
will direct electricians as to where and how telephone and telegraph wires are
to be introduced.  No boring or cutting
for wires will be allowed without the consent of the Lessor.  The location of telephones, call boxes and
other office equipment affixed to the Premises shall be subject to the approval
of Lessor, Lessor’s approval shall not be unreasonably withheld or delayed.


 


11.                                 On
Saturdays, Sundays and legal holidays, and on other days between the hours of
6:00 p.m. and 8:00 a.m. the following day, access to the Building or to the
halls, corridors, elevators or stairways in the Building, or to the Premises
may be refused unless the person seeking access is known to the person or
employee of the Building in charge and has a pass or is properly
identified.  The Lessor shall in no case
be liable for damages for any error with regard to the admission to or exclusion
from the Building of any person.  In
case of invasion, mob, riot, public excitement, or other commotion, the Lessor
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise, for the safety of the Lessees
and protection of property in the Building and the Building.


 


12.                                 Lessor
reserves the right to exclude or expel from the Building any person who, in the
judgment of Lessor, is intoxicated or under the influence of liquor or drugs,
or who shall in any manner do any act in violation of any of the rules and
regulations of the Building.


 


13.


 


14.                                 Lessor
shall have the right, exercisable without notice and without liability to
Lessee, to change the name and street address of the Building of which the
Premises are a part.  This right shall
not be exercised by Lessor unless required by County or other municipality or
agencies that have jurisdiction.


 


15.                                 Lessee
shall not disturb, solicit, or canvass any occupant of the Building and shall
cooperate to prevent same.


 


16.                                 Without
the written consent of Lessor, Lessee shall not use the name of the Building in
connection with or in promoting or advertising the business of Lessee except as
Lessee’s address.


 


17.                                 Lessor
shall have the right to control and operate the public portions of the
Building, and the public facilities, and heating and air conditioning, as well
as facilities furnished for the common use of the Lessees, in such manner as it
deems best for the benefit of the Lessees generally.


 


18.                                 All
entrance doors in the Premises shall be left locked when the Premises are not
in use, and all doors opening to public corridors shall be kept closed except
for normal ingress and egress from the Premises.


 


 


	
   

  	
   

  	
  /s/             JG

  	
   

  
	
  Lessor’s Initials

  	
  Lessee’s Initials

  



 


8