**EXHIBIT 10.20**

 

LEASE

 

**SORRENTOWATERIDGE PARTNERS, L.P.,**

a California limited partnership

 

**Landlord**

 

**AMERICANRESIDENTIAL INVESTMENT TRUST, INC.,**

a Maryland corporation

 

**Tenant**

 

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TABLE OF CONTENTS

 
| ARTICLE  I  TERM OF LEASE             |
|--------------------------------------------|
| 1.1                                        | Initial  Term |
| 1.2                                        | Infogate Contingency. |
| 1.3                                        | Early Occupancy. |
| 1.2                                        | Option to Extend |
|                                       |   |
| ARTICLE  II  PREMISES; CONDITION      |
| 2.1                                        | Condition  Upon Delivery |
| 2.2                                        | Condition of Premises |
| 2.3                                        | Square Foot Verification |
| 2.4                                        | Expansion Option |
|                                       |   |
| ARTICLE  III  RENT                    |
| 3.1                                        | Base  Rent |
| 3.2                                        | Base Rent During Option Term |
| 3.3                                        | Additional Rent |
| 3.4                                        | Delinquent Rental Payments |
|                                       |   |
| ARTICLE  IV  USE  OF DEMISED PREMISES |
| 4.1                                        | Permitted  Use |
| 4.2                                        | Preservation of Demised Premises |
| 4.3                                        | Hazardous Substances |
|                                       |   |
| ARTICLE  V  UTILITIES  AND SERVICES   |
| 5.1                                        | Standard Tenant Services |
| 5.2                                        | Overstandard Tenant Use |
| 5.3                                        | Interruption of Use |
| 5.4                                        | Additional Services |
| 5.5                                        | Utility Deregulation |
| 5.5.1                                      | Landlord Controls Selection |
| 5.5.2                                      | Tenant Shall Give Landlord Access |
| 5.6                                        | Interruption of Utilities |
|                                       |   |
| ARTICLE  VI  OPERATING  EXPENSES      |
| 6.1                                        | Payment of Operating Expenses |
| 6.2                                        | Definition of Operating Expenses |
| 6.3                                        | Definition of Real Property Taxes and  Assessments |
| 6.4                                        | Payment of Operating Expenses; Estimate  Statement |
| 6.5                                        | Actual Statement |
| 6.6                                        | No  Release |
| 6.7                                        | Tenant’s Percentage |
| 6.8                                        | Inspection of Operating Expenses |
|                                       |   |
| ARTICLE  VII  INSURANCE               |
| 7.1                                        | Tenant’s Insurance |

 

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| 7.2                                                                | Landlord’s Insurance                            |
|--------------------------------------------------------------------|------------------------------------------------------|
| 7.3                                                                | Form of Policies                                     |
| 7.4                                                                | Waiver of Subrogation                                |
| 7.5                                                                | Blanket Insurance Coverage                           |
| 7.6                                                                | Indemnification and Waiver                           |
|                                                               |                                                 |
| ARTICLE  VIII  ROOF RIGHTS                                    |
|                                                               |
| ARTICLE  IX  REPAIRS                                          |
| 9.1                                                                | Landlord’s Repair Obligations                   |
| 9.2                                                                | Tenant’s Repair Obligations                     |
| 9.3                                                                | Prohibition Against Waste                            |
|                                                               |                                                 |
| ARTICLE  X  COMPLIANCE  WITH APPLICABLE LAWS AND RESTRICTIONS |
| 10.1                                                               | Compliance with Applicable Laws and  Restrictions    |
| 10.2                                                               | Tenant’s Right to Contest Laws and  Ordinances  |
|                                                               |                                                 |
| ARTICLE  XI  MECHANIC’S LIENS AND  OTHER LIENS           |
| 11.1                                                               | Mechanic’s Liens                                |
| 11.2                                                               | Landlord’s Indemnification                      |
| 11.3                                                               | Removal of Liens                                     |
| 11.4                                                               | Equipment and Trade Fixtures                         |
|                                                               |                                                 |
| ARTICLE  XII  DEFAULTS OF  TENANT                             |
| 12.1                                                               | Events of Default                                    |
| 12.2                                                               | Landlord’s Remedies                             |
| 12.3                                                               | Right to Collect Rent as Due                         |
| 12.4                                                               | New Lease Following Termination                      |
| 12.5                                                               | Cumulative Rights; No Waiver                         |
| 12.6                                                               | Surrender of Demised Premises                        |
| 12.7                                                               | Interest on Unpaid Amounts                           |
|                                                               |                                                 |
| ARTICLE  XIII  DESTRUCTION AND RESTORATION                    |
| 13.1                                                               | Repair of Damage to Demised Premises by  Landlord    |
| 13.2                                                               | Landlord’s Option to Repair                     |
| 13.3                                                               | Landlord’s or Tenant’s Option to Terminate |
| 13.4                                                               | Waiver of Statutory Provisions                       |
| 13.5                                                               | Damage Near End of Term                              |
|                                                               |                                                 |
| ARTICLE  XIV  CONDEMNATION                                    |
| 14.1                                                               | Condemnation of Entire Demised Premises              |
| 14.2                                                               | Partial Condemnation/Termination of Lease            |
| 14.3                                                               | Partial Condemnation/Continuation of Lease           |
| 14.4                                                               | Continuance of Obligations                           |
| 14.5                                                               | Adjustment of Rent                                   |

 

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| ARTICLE  XV  ASSIGNMENT, SUBLETTING,  ETC.                                       |
|---------------------------------------------------------------------------------------|
| 15.1                                                                                  | Restriction on Transfer |
| 15.2                                                                                  | Transfer to Affiliates; Sale or Merger |
| 15.3                                                                                  | Restriction Against Further Assignment |
| 15.4                                                                                  | Transfer Premium |
|                                                                                  | 15.4.1 | Definition of Transfer Premium |
|                                                                                  | 15.4.2 | Payment of Transfer Premiums |
|                                                                                  | 15.4.3 | Calculations of Rent |
| 15.5                                                                                  | Landlord’s Recapture Option |
| 15.6                                                                                  | Tenant’s Failure to Comply |
|                                                                                  |   |
| ARTICLE  XVI  SUBORDINATION,  NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT |
| 16.1                                                                                  | Subordination by Tenant |
| 16.2                                                                                  | Landlord’s Default |
| 16.3                                                                                  | Attornment |
|                                                                                  |   |
| ARTICLE  XVII  SIGNS                                                             |
| 17.1                                                                                  | General |
| 17.2                                                                                  | Tenant’s Exterior Signage Rights |
| 17.3                                                                                  | Tenant’s Interior Signage Rights |
|                                                                                  |   |
| ARTICLE  XVIII  FINANCIAL STATEMENTS OF  TENANT                                  |
|                                                                                  |
| ARTICLE  XIX   CHANGES AND ALTERATIONS                                           |
|                                                                                  | (a) | Permits |
|                                                                                  | (b) | Compliance with Plans and Specifications |
|                                                                                  | (c) | Value Maintained |
|                                                                                  | (d) | Compliance with Laws |
|                                                                                  | (e) | Property of Landlord |
|                                                                                  | (f) | Removal of Improvements |
|                                                                                  | (g) | Reasonable Consent |
|                                                                                  | (h) | Notice to Landlord |
|                                                                                  |   |   |
| ARTICLE  XX  ATTORNEYS’ FEES                                                |
|                                                                                  |
| ARTICLE  XXI  BROKERS                                                            |
|                                                                                  |
| ARTICLE  XXII  SECURITY  DEPOSIT                                                 |
|                                                                                  |
| ARTICLE  XXIII  TENANT PARKING                                                   |
|                                                                                  |
| ARTICLE  XXIV  [INTENTIONALLY  DELETED]                                          |
|                                                                                  |
| ARTICLE  XXV  MISCELLANEOUS  PROVISIONS                                          |
| 25.1                                                                                  | Entry by Landlord |

 

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| 25.2  | Exhibition of Demised Premises         |
|-------|----------------------------------------|
| 25.3  | Workout Facility                       |
| 25.4  | Notices                                |
| 25.5  | Quiet Enjoyment                        |
| 25.6  | Landlord’s Continuing Obligations |
| 25.7  | Estoppel                               |
| 25.8  | Delivery of Corporate Documents        |
| 25.9  | Intentionally Omitted                  |
| 25.10 | Severability                           |
| 25.11 | Successors and Assigns                 |
| 25.12 | Captions                               |
| 25.13 | Relationship of Parties                |
| 25.14 | Entire Agreement                       |
| 25.15 | No  Merger                             |
| 25.16 | Possession and Use                     |
| 25.17 | Surrender of Demised Premises          |
| 25.18 | Holding  Over                          |
| 25.19 | Survival                               |
| 25.20 | Applicable  Law                        |
| 25.21 | Counterparts                           |

 
| **EXHIBITS**               |   |                             |
|----------------------------|--------|----------------------------------|
|                       |   |                             |
| **Exhibit  “A”** | **-**  | **Legal Description of Land**    |
| **Exhibit  “B”** | **-**  | **Site  Plan**                   |
| **Exhibit  “C”** | **-**  | **Proposed Space Plan**          |
| **Exhibit  “D”** | **-**  | **Intentionally Omitted**        |
| **Exhibit  “E”** | **-**  | **Tenant’s  Signage Plans** |

 

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LEASE

 

THIS LEASE (“Lease”) is made this          day of November,2001, by and between SORRENTO WATERIDGE PARTNERS, L.P., a California limitedpartnership (“**Landlord**”), and AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., aMaryland corporation (“**Tenant**”).

 

WITNESSETH:

 

“**Land**”means that certain real property located at the southeast corner of LuskBoulevard and Wateridge Vista Drive, in San Diego, California, consisting ofapproximately 9.455 acres, and more particularly described in Exhibit ”A”attached hereto and made a part hereof.

 

**“Project”**means that certain project known as Wateridge Technology Center, with Projectincludes the Land and the buildings, improvements and facilities located on theLand from time to time, including, without limitation, the Buildings describedbelow.

 

**“BusinessPark”** means Wateridge Business Park, of which theProject is a part.

 

“**Buildings**”mean, collectively, the “Northern Building” and the “Southern Building” asdefined below.

 

**“NorthernBuilding”** means that certain two-story office buildingcontaining approximately 64,148 “rentable square feet,” as generally depictedon the site plan attached hereto as Exhibit ”B” (**“Site Plan”**).

 

**“SouthernBuilding”** means that certain two-story office buildingcontaining approximately 64,148 rentable square feet, as more particularlydepicted on the Site Plan.  As moreparticularly provided below, the Demised Premises will be located in theSouthern Building.

 

**“usablearea”** or **“usable square footage”** means the usablearea as determined in accordance with the Standard Method for Measuring FloorArea in Office Buildings, ANSI/BOMA Z65.1-1996 (the **“BOMA”** Standard).

 

**“rentablearea”** or **“rentable**square**footage”** means the rentablearea measured in accordance with the BOMA Standard.  The rentable square footage of the Demised Premises shall becalculated pursuant to BOMA Standards.

 

**“ProjectCommon Areas”** mean those portions of the Project notleased or designated for lease to tenants that are provided for use in commonby Landlord, Tenant and other tenants of the Project (or by the sublessees,agents, employees, customers, invitees, or licensees of any such party),whether or not those areas are open to the general public.  Project Common Areas include, withoutlimitation, the Workout Facility described in Section 25.3 below, anyfixtures, systems, decor, facilities and landscaping contained, maintained orused in connection with those areas, and shall be deemed to include any citysidewalks adjacent to the Project, any pedestrian walkway system, or otherfacilities located on the Project and open to the general public.

 

1

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**“BuildingCommon Areas”** mean the common areas other than theProject Common Areas appurtenant to the Southern Building including, withoutlimitation, the (i) common entrances, lobbies, restrooms (whether onmulti-tenant or single-tenant floors), elevators, stairways and accessways,loading docks, ramps, drives and platforms and any passageways or servicewaysthereto to the extent not exclusively serving another tenant or containedwithin another tenant’s premises; and the common pipes, conduits, wires andappurtenant equipment serving the Demised Premises, and (ii) the parkingareas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,parkways, driveways and landscaped areas appurtenant to the Southern Building.

 

**“CommonAreas”** mean, collectively, the Building Common Areasand Project Common Areas.

 

**“BaseYear”** means the calendar year 2002.

 

“**DemisedPremises**” means approximately 23,985 rentable square feet, plusTenant’s non-exclusive rights to use the Common Areas, as more particularlyprovided below.  The Demised Premisesare located on the second floor of the Southern Building.

 

**“SpacePlan”** means that certain Space Plan and SpecificationsSheet for the Demised Premises prepared by Smith Consulting Architects anddated August 12, 1999, a copy of which is attached hereto as Exhibit ”C.”  Landlord and Tenant have heretofore mutuallyapproved the Space Plan.

 

**“Improvements”**mean the improvements which have been or will be constructed by Landlordpursuant to this Lease, including the Southern Building and the DemisedPremises, as such terms are defined below.

 

Landlord, for and in consideration of the rents, covenants andagreements hereinafter reserved, mentioned and contained on the part of Tenant,its successors and assigns, to be paid, kept, observed and performed under thisLease, hereby leases, rents, lets and demises to Tenant, and upon and subjectto the conditions and limitations expressed in this Lease, Tenant takes andhires from Landlord, the Demised Premises.

 

# **ARTICLE I**

 

# **TERM OFLEASE**

# ** **

## 1.1                                 InitialTerm.  This Lease shall beeffective and binding upon the parties hereto upon mutual execution hereof (the“**Effective Date**”).  The term of this Lease (the “**Initial Term**”) shall commence on the date(“**Commencement Date**”) upon whichLandlord delivers possession of the Demised Premises to Tenant, but which shallbe no sooner than December 1, 2001, and shall terminate onDecember 9, 2005, subject to extension pursuant to Section 1.2,below.  Notwithstanding any provision ofthis Lease to the contrary, if for any reason Landlord cannot deliverpossession of the Demised Premises to Tenant by December 15, 2001, Tenantmay terminate this Lease at Tenant’s election upon written notice toLandlord.  Landlord shall be deemed tohave delivered possession of the Demised Premises to Tenant when Tenant is ableto occupy the Premises, free of any occupancy or right of occupancy by theexisting tenant

##  

2

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## occupying the Demised Premises, Infogate,Inc. (“**Infogate**”**),** regardless of whether the Demising Wall(as defined below) or any improvements Tenant desires to construct in or to theDemised Premises have been completed, including, without limitation, theDemising Wall described in Section 2.1 of this Lease**.**

##  

## 1.2                                 Infogate Contingency.  The parties acknowledge and agree that theeffectiveness of this Lease is contingent upon the execution of an amendment (“**Amendment**”) to that certain lease betweenEntrypoint, Inc., predecessor in interest to Infogate, Inc. (“**Infogate**”), and Landlord datedSeptember 1999 (“**Infogate Lease**”)and the execution of an agreement between Tenant and Infogate (“InfogateAgreement”).  Notwithstanding anythingherein, if the Amendment and the Infogate Agreement are not fully executed byNovember 30, 2001, Tenant may terminate this Lease at Tenant’s electionupon written notice to Landlord.

##  

## 1.3                                 Early Occupancy.  Subject to the terms set forth herein, Tenant may arrange withInfogate, and Landlord shall allow, Tenant and Tenant’s agents, employees andcontractors access to the Building prior to the Commencement Date, so thatTenant may move and install its furniture, trade fixtures, data andtelecommunications wiring and equipment and other business equipment in to theDemised Premises (but not to commence business operations at the DemisedPremises).  Tenant acknowledges thatSection 20.3 below shall apply with respect to any and all claims whichmay arise as a result of the entry by Tenant, its agents, employees andcontractors on the Demised Premises in accordance with thisSection 1.3.  Tenant’sresponsibilities under Section 7.1 of this Lease shall commence upon suchearly occupancy as opposed to the Commencement Date.

##  

## 1.4                                 Option to Extend.  Tenant shall have one (1) option to extend (the “**Extension Options**”) the Initial Term for afive (5) year period (the foregoing option term shall be referred tohereinafter sometimes as the “**Option Term**”),by delivering a binding written notice of exercise to Landlord (“**Extension Notice**”), so that Landlordreceives the Extension Notice with respect to the Option Term at least onehundred eighty (180) days prior to the end of the Initial Term.  Tenant may exercise the Extension Optiononly if this Lease is in full force and effect and there is no Event of Defaultwhich remains uncured beyond the applicable cure period at the time of exerciseof the right of renewal or at the time of the commencement of the Option Term,but Landlord shall have the right at its sole discretion to waive thenon-default conditions herein.  TheInitial Term, together with any Option Term, are referred to in this Lease asthe “**Term**.”

##  

**ARTICLE II****DEMISED PREMISES; CONDITION**

# ** **

## 2.1                                 DemisingWall.  Landlord shall, asexpeditiously as reasonably possible, but in any event by December 31, 2001,construct, in a good and workmanlike manner, a demising wall for demising theDemised Premises from the Infogate Premises (the “**Demising Wall**”).  SuchDemising Wall shall be constructed in conformance with plans prepared byLandlord, subject to the mutual approval of Tenant, such approval not to beunreasonably withheld or delayed, and shall be in compliance with all thenapplicable building laws, ordinances, orders, rules, regulations andrequirements of all federal, state and municipal governments withjurisdictional authority over the development of the Land and the constructionof the Improvements, including,

##  

3

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## but not limited to, rules and regulations ofthe Board of Fire Underwriters and requirements under the Americans WithDisabilities Act and Title 24 (the “**ApplicableLand Use Laws and Restrictions**”). Notwithstanding Section 9.1 of this Lease or anything herein to thecontrary, if Landlord has failed to complete the Demising Wall by December 31,2001, Tenant shall have the right, but not the obligation, as its sole andexclusive remedy, to incur any expense reasonably necessary to construct and/orcomplete the Demising Wall and deduct such expense from the Rent or othercharges next becoming due.

##  

## 2.2                                 Condition of Demised Premises.  Landlord shall deliver the Demised Premisesin the condition in which they are as of the date of this Lease, subject to theconstruction of the Demising Wall described above, which may or may not becomplete as of the Commencement Date. Other than the Demising Wall described above, Tenant shall beresponsible for the construction of all tenant improvements.  Tenant’s Space Plan is attached hereto as Exhibit ”C.”  Landlord warrants that the Demised Premises(as of the Commencement Date) have been constructed in a good and workmanlikemanner.  Landlord further warrants thatthe structural, interior and exterior portions of the Demised Premises, theroof, the plumbing, electrical, gas, the HVAC and other utilities servicing theDemised Premises are in good working condition and order on the date of thisLease and are in compliance with all existing laws, codes, regulations andordinances of any governmental authorities. Tenant shall have a period of thirty (30) days from the CommencementDate to provide Landlord with a list of any aspects in which the DemisedPremises do not meet these standards of condition.  Landlord shall be obligated within a reasonable amount of time(not to exceed thirty (30) days, or the time reasonably needed to cure) to curesuch Punchlist Items.

##  

## 2.3                                 Square Foot Verification.  Landlord and Tenant hereby acknowledge andagree that this Lease has been executed based on the assumption that theDemised Premises consist of twenty-three thousand nine hundred eighty-five(23,985) rentable square feet.  All suchreferences to rentable square footage regarding the Demised Premises and theBuildings are based upon the Building Owners and Managers Association (“**BOMA**”) standard method of measurement.  Within ten (10) days after the constructionof the Demising Wall, Landlord shall, at Landlord’s sole cost and expense, havethe measurement of the Demised Premises verified by a licensed architect, usingBOMA standard method of measurement, and, in the event that the rentable squarefootage or usable square footage of the Buildings or Demised Premises aredifferent from those set forth in this Lease, all amounts, percentages andfigures appearing or referred to in this Lease based upon such incorrect amount(including, without limitation, Base Rent, Tenant’s Percentage and parkingrights) shall be modified in accordance with such determination.  Such measurement shall occur promptlyfollowing the completion of the construction of the Demising Wall, and promptlythereafter Landlord and Tenant shall execute an amendment to this Leaseconfirming the changed amounts of square footage, Base Rent, Security Deposit,Tenant’s Percentage and Tenant’s parking rights to the extent necessary.

##  

## 2.4                                 Expansion Option.  Tenant shall have the right to expand into and lease the InfogatePremises, upon at least one hundred thirty (130) days’ prior written notice toLandlord (“**Expansion Notice**”);provided, however, in no event shall Tenant have the right to commenceoccupying the Infogate Premises prior to September 1, 2002.  Landlord shall deliver the Infogate Premisesto Tenant in a vacant, broom-clean condition, and thereupon, the DemisedPremises, as so expanded, shall consist of approximately thirty-two thousandseventy-four (32,074) rentable

##  

4

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## square feet. Within thirty (30) days after receipt of the Expansion Notice, Landlordshall prepare an amendment to this Lease to include the Infogate Premises aspart of the Demised Premises, and the rentable square feet, Base Rent (basedupon the same Base Rent per square foot then payable under the Infogate Lease,subject to increases as set forth herein), Tenant’s Percentage and Tenant’sparking rights shall be increased appropriately to reflect the InfogatePremises.  Landlord shall be responsiblefor causing Infogate to vacate the Infogate Premises within the one hundredthirty (130) day period set forth herein.

##  

# **ARTICLE III**

# ** **

# **RENT**

# ** **

## 3.1                                 BaseRent.  In consideration of thelease of the Demised Premises evidenced by this Lease, Tenant covenants to payLandlord, without previous demand therefor and without any right of set-off ordeduction whatsoever except as expressly provided in this Lease, at the officeof Landlord at:

##  

Sorrento Wateridge Partners, L.P.c/o The Allen Group6005 Hidden Valley Road, Suite 150Carlsbad, California 92009Attention:  Accounts Payable

 

or at such other place as Landlord may from time to time designate inwriting, a rental for the Initial Term of this Lease as hereinafter set forth,payable monthly, in advance, in equal installments as hereinafter set forth,with the first payment due on the Commencement Date (the “**Rent Commencement Date**”), andcontinuing on the first day of each month thereafter for the succeeding monthsduring the balance of the Term base rent (“**Base Rent**”) as provided hereinbelow.

 

Initial Base Rent payable hereunder shall equal $1.55 per rentablesquare foot of the Demised Premises. Commencing with the 13th month of the Term and every 12months thereafter, the then applicable Base Rent shall be increased by a factorof three percent (3%).

 

In the event the Commencement Date or the commencement of Tenant’sobligation to pay Base Rent pursuant to clauses (ii) and/or (iii) above occurson other than the first (1st) day of a month, the amount of the first and lastmonthly payment of Base Rent shall be apportioned to account for the fact thatthe last month of the Initial Term shall be less than a full calendar month.

 

## 3.2                                 Base Rent During Option Term.  The initial Base Rent during the Option Term(“**Option Term Base Rent**”) shall bean amount equal to the greater of (i) the then fair market rental value ofthe Demised Premises (“**Fair Market RentalValue**”), as stated on a monthly basis and determined pursuant tothis Section 3.2, or (ii) 103% of the Base Rent during the last monthof the Initial Term.  The initial OptionTerm Base Rent payable during the Option Term shall thereafter be increased asof the first day of the 13th month of the Option Term and every 12months thereafter during the Option Term (i.e., as of the first day of thesecond, third, fourth and

##  

5

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## fifth years of the Option Term) by factor ofthree percent (3%).  Upon receipt byLandlord of Tenant’s Extension Notice under Section 1.2, above, Landlordand Tenant shall meet in an effort to negotiate, in good faith, the Option TermBase Rent which shall become effective as of the first day of the Option Term(“**Option Term Commencement Date**”).  If Landlord and Tenant have not agreed uponthe Option Term Base Rent within thirty (30) days after the delivery of Tenant’sExtension Notice, the Option Term Base Rent shall be determined as follows:

##  

#### (a)                                  Landlordand Tenant shall attempt to agree in good faith upon a single appraiser notlater than thirty-five (35) days after delivery of Tenant’s ExtensionNotice.  If Landlord and Tenant areunable to agree upon a single appraiser within such time period, then Landlordand Tenant shall each appoint one appraiser not later than five (5) days afterthe deadline for selecting a single appraiser. Landlord and Tenant shall each give written notice to the other as tothe name of the appraiser it has selected, as soon as the selection ismade.  Within ten (10) days thereafter,the two appointed appraisers shall appoint a third appraiser.  All appraisers shall be independent from,and disinterested in, both Landlord and Tenant.

####  

#### (b)                                 Theonly task which the appraiser(s) shall perform shall be forming and reportingto Landlord and Tenant an opinion of the Fair Market Rental Value of theDemised Premises for use in determining the Option Term Base Rent.

####  

#### (c)                                  Ifeither Landlord or Tenant fails to appoint its appraiser within the prescribedtime period, the single appraiser appointed shall determine the Fair MarketRental Value of the Demised Premises. If both parties fail to appoint appraisers within the prescribed timeperiods, then the first appraiser thereafter selected by a party shalldetermine the Fair Market Rental Value of the Demised Premises.

####  

#### (d)                                 Eachparty shall bear the cost of its own appraiser and the parties shall share equallythe cost of any single or third appraiser, if applicable.  All appraisers so designated herein shallhave at least five (5) years’ experience in the appraisal of commercialproperties similar to the Demised Premises in San Diego County, California andshall be members of professional organizations such as MAI or its equivalent.

####  

#### (e)                                  Forthe purpose of such appraisal and this subsection (d), the term “**Fair Market Rental Value**” shall mean theprice that a ready and willing single tenant would pay, as of the Option TermCommencement Date, as annual rent to a ready and willing landlord of aComparable Property on the terms of this Lease, if such Comparable Propertywere exposed for lease on the open market for a reasonable period of time.  As used in this Lease, a “**Comparable Property**” or “**Comparable Properties**” shall mean two-storyconcrete tilt-up office buildings located in the Sorrento Mesa area of the Cityof San Diego, California (the “**Market Area**”),of comparable quality to the Buildings, with improvements similar in age andcharacter to the Demised Premises, which has been improved with the tenantimprovements comparable to those constructed in the Demised Premises; provided,however, that the appraisal shall disregard the value of Tenant’s and any otherimprovements paid for by Tenant.  Theappraiser shall give appropriate consideration to all relevant factors,including, without limitation, (i) rental concessions and tenantimprovement allowances generally being offered by landlords of comparable properties,(ii) the age of the Improvements, (iii) rental market conditions thenin existence, (iv) whether Landlord will or will not be required to pay areal estate brokerage

####  

6

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#### commission in connection with Tenant’sexercise of the Extension Option, and (v) the fact that the Tenant will beaccepting the Demised Premises in an “As-Is” condition.

####  

#### (f)                                    Ifa single appraiser is chosen, then such appraiser shall determine the FairMarket Rental Value of the Demised Premises. Otherwise, the Fair Market Rental Value of the Demised Premises shall bethe arithmetic average of the two (2) appraisals which are closest in amount,and the third appraisal shall be disregarded.

####  

#### (g)                                 Landlordand Tenant shall instruct the appraiser(s), in writing, to complete theirwritten determination of the Fair Market Rental Value not later than thirty(30) days after their selection.  If theFair Market Rental Value has not been determined by such date, then the FairMarket Rental Value shall be determined thereafter, and if it has not beendetermined by the Option Term Commencement Date, then Tenant shall continue topay Landlord monthly installments of Annual Rent in the amount applicable tothe Demised Premises immediately prior to the Option Term Commencement Dateuntil the Fair Market Rental Value is determined.  When the Fair Market Rental Value of the Demised Premises isdetermined, Landlord shall deliver notice thereof to Tenant, and Tenant shallpay to Landlord, within ten (10) days after receipt of such notice, thedifference between the monthly installments of Base Rent actually paid byTenant to Landlord subsequent to the Option Term Commencement Date and the newmonthly installments of Base Rent which are determined to have been actuallyowing during such period in accordance with this Section 3.2.

####  

## 3.3                                 Additional Rent.  Any amounts referred to in this Lease as additional rent arereferred to collectively as “**Additional Rent**.”  “**Rent**,”as used herein, means all Base Rent and Additional Rent.

##  

## 3.4                                 Delinquent Rental Payments.  All payments of Base Rent and AdditionalRent shall be payable without previous demand therefor and without any right ofset-off or deduction whatsoever (except as expressly provided in this Lease),and in case of nonpayment of any item of Additional Rent by Tenant when thesame is due (subject to any applicable notice and cure period), Landlord shallhave, in addition to all its other rights and remedies, all of the rights andremedies available to Landlord under the provisions of this Lease or by law inthe case of nonpayment of Base Rent. The performance and observance by Tenant of all the terms, covenants,conditions and agreements to be performed or observed by Tenant hereunder shallbe performed and observed by Tenant at Tenant’s sole cost and expense.  Any installment of Base Rent or AdditionalRent or any other charges payable by Tenant under the provisions hereof whichshall not be paid within five (5) days after they are due shall, (i) besubject to a late charge of five percent (5%) of the amount due and not timelypaid, and (ii) bear interest from and after the sixth (6th) dayafter such payment was due at the lesser of (A) the default rate ofinterest under Landlord’s most senior debt obligation encumbering the DemisedPremises, or (B) an annual rate of twelve percent (12%) per annum, but inno event in excess of the maximum lawful rate permitted to be charged byLandlord against Tenant.  Said rate ofinterest is sometimes hereinafter referred to as the “**Maximum Rate of Interest**.”  Notwithstanding the foregoing provisions ofthis Section 3.4, if any mortgagee under any mortgage, beneficiary underany deed of trust, or ground lessor under any ground lease, which encumbers theLand (a **“Lender”**), imposes fees,charges, penalties or interest on Landlord for late payments under suchinstrument which fees, charges, penalties or interest are less in amount thanthose described in this

##  

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## Section 3.4, Landlord will not imposeany late payment charge or interest which is greater than the amounts chargedby such Lender.

##  

# **ARTICLE IV**

 

# **USE OFDEMISED PREMISES**

# ** **

## 4.1                                 PermittedUse.  Tenant shall use theDemised Premises for general office purposes, and incidental purposes thereto,and for no other purposes without first securing the prior written consent ofLandlord, which consent shall not be unreasonably withheld.  Tenant shall not use or occupy the same, orknowingly permit them to be used or occupied, contrary to any statute, rule,order, ordinance, requirement or regulation applicable thereto, or in anymanner which would violate any certificate of occupancy affecting the same, orwhich would make void or voidable any insurance then in force with respectthereto (provided Tenant has received a copy of the policy) or which would makeit impossible to obtain fire or other insurance thereon required to befurnished hereunder by Tenant, or which would cause structural injury to theimprovements, or which would constitute a public or private nuisance or waste,and Tenant agrees that it will promptly, upon discovery of any such use, takeall necessary steps to compel the discontinuance of such use.  During the Term of this Lease, Tenant shallhave the nonexclusive right to use in common with the other tenants of theProject, and subject to reasonable rules and regulations promulgated byLandlord from time to time, the Common Areas. Landlord reserves the right from time to time to use any of the CommonAreas and do any of the following, as long as such acts do not unreasonablyinterfere with Tenant’s use of or access to the Demised Premises or Tenant’sparking rights as set forth in Article XXIII:

##  

#### (a)                                  Makeany changes, additions, improvements, repairs or replacements in or to theProject, the Land, the Common Areas and/or the Buildings, and the fixtures andequipment thereof, including, without limitation (i) maintenance,replacement and relocation of pipes, ducts, conduits, wires and meters and(ii) changes in the location, size, shape and number of driveways,entrances, stairways, elevators, loading and unloading areas, ingress, egress,direction of traffic, landscaped areas and walkways and, subject toArticle XXIII below, parking spaces and parking areas;

####  

#### (b)                                 Closetemporarily any of the Common Areas while engaged in making repairs,improvements or alterations to the Project, Land and/or Buildings; and

####  

#### (c)                                  Performsuch other acts and make such other changes with respect to the Project, Land,Common Areas and/or Buildings, as Landlord may, in the exercise of good faithbusiness judgment, as deemed to be appropriate.

####  

## 4.2                                 Preservation of Demised Premises.  Tenant shall not use, or permit the DemisedPremises, or any portion thereof, to be used by Tenant, any third party or thepublic in such manner as might reasonably tend to impair Landlord’s title tothe Demised Premises, or any portion thereof, or in such manner as mightreasonably make possible a claim or claims of adverse usage or adversepossession by the public, as such, or third persons, or of implied dedicationof the Demised Premises, or any portion thereof.  Nothing contained in this Lease, and no action or inaction byLandlord, shall be deemed or construed to mean that Landlord has

##  

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## granted to Tenant any right, power orpermission to do any act or make any agreement that may create, or give rise toor be the foundation for any right, title, interest, lien, charge or otherencumbrance upon the estate of Landlord in the Demised Premises other than asexpressly set forth in this Lease.

##  

## 4.3                                 Hazardous Substances.

##  

#### (a)                                  Exceptfor any ordinary and general office supplies, such as copier toner, liquidpaper, glue, ink and common household cleaning materials (some or all of whichmay constitute “Hazardous Materials” as defined in this Lease), Tenant agreesnot to cause or permit any Hazardous Materials to be brought upon, stored,used, handled, generated, released or disposed of on, in, under or about theDemised Premises, the Land, the Buildings, the Common Areas or any otherportion of the Project by Tenant, its agents, employees, subtenants, assignees,licensees, contractors or invitees (collectively, **“Tenant’s Parties”**), without the prior written consent ofLandlord, which consent Landlord may withhold in its sole and absolutediscretion.  In the event of any releaseof Hazardous Materials caused or permitted by Tenant or any of Tenant’sParties, Landlord shall have the right, but not the obligation, to cause Tenantto immediately take all steps Landlord deems necessary or appropriate toremediate such release and prevent any similar future release to thesatisfaction of Landlord and Landlord’s mortgagee(s).  Subject to Section 4.3(e), Tenant shall at all times and inall respects comply with all federal, state and local laws, ordinances andregulations (“**Hazardous Materials Laws**”)relating to the industrial hygiene, environmental protection or the use,analysis, generation, manufacture, storage, presence, disposal or transportationof any oil, flammable explosives, asbestos, urea formaldehyde, polychlorinatedbiphenyls, radioactive materials or waste, or other hazardous, toxic,contaminated or polluting materials, substances or wastes, including withoutlimitation any “hazardous substances,” “hazardous wastes,” “hazardousmaterials” or toxic substances” under any such laws, ordinances or regulations(collectively, “**Hazardous Materials**”)at the Demised Premises.

####  

#### (b)                                 Subjectto Section 4.3(e), Tenant shall at its own expense procure (other than acertificate of occupancy), maintain in effect and comply with all conditions ofany and all permits, licenses and other governmental and regulatory approvalsrequired for Tenant’s use of the Demised Premises for any permitted uses otherthan general office purposes, including, without limitation, discharge of(appropriately treated) materials or waste into or through any sanitary sewersystem serving the Demised Premises. Tenant shall in all respects handle, treat, deal with and manage any andall Hazardous Materials in, on, under or about the Demised Premises in completeconformity with all applicable Hazardous Materials Laws and prudent industrypractices regarding the management of such Hazardous Materials.  Upon expiration or earlier termination ofthis Lease and subject to Section 4.3(e), Tenant shall cause all HazardousMaterials (as defined in 22 CCR 66261.3) caused or permitted by Tenant or anyof the Tenant Parties to be removed from the Demised Premises and transportedfor use, storage or disposal in accordance with and in complete compliance withall applicable Hazardous Materials Laws. Tenant shall not take any remedial action in response to the presence ofany Hazardous Materials in, on, about or under the Demised Premises or in anyImprovements situated on the Land other than in the normal course of Tenant’sbusiness operations as now contemplated in accordance with all HazardousMaterials Laws or as necessitated by emergency considerations in accordancewith all applicable Hazardous Materials Laws, nor enter into any settlementagreement, consent 

####  

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#### decree or other compromise in respect to anyclaims relating to any Hazardous Materials in any way connected with the DemisedPremises or the Improvements on the Land without first notifying Landlord ofTenant’s intention to do so and affording Landlord ample opportunity to appear,intervene or otherwise appropriately assert and protect Landlord’s interestwith respect thereto. In addition, at Landlord’s request, at the expiration ofthe term of this Lease, Tenant shall remove all tanks or fixtures which wereplaced on the Demised Premises by Tenant or any of the Tenant Parties duringthe term of this Lease and which contain, have contained or are contaminatedwith Hazardous Materials.

####  

#### (c)                                  Tenantshall immediately notify Landlord in writing of (i) any enforcement,cleanup, removal or other governmental or regulatory action instituted,completed or threatened pursuant to any Hazardous Materials Laws of whichTenant has actual knowledge; (ii) any claim of which Tenant has actualknowledge made or threatened by any person against Landlord or the DemisedPremises relating to damage, contribution, cost recovery, compensation, loss orinjury resulting from or claimed to result from any Hazardous Materials; and(iii) any non-routine reports made to any environmental agency arising outof or in connection with any Hazardous Materials in, on or about the DemisedPremises or with respect to any Hazardous Materials removed from the DemisedPremises, including any complaints, notices, warnings, reports or assertedviolations in connection therewith. Tenant shall also provide to Landlord, as promptly as possible, and inany event within five (5) business days after Tenant first receives or sendsthe same, copies of all claims, reports, complaints, notices, warnings orasserted violations from any governmental agency of any Hazardous MaterialsLaws relating in any way to the Demised Premises or Tenant’s use thereof.  Upon written request of Landlord (to enableLandlord to defend itself from any claim or charge related to any HazardousMaterials Laws), Tenant shall promptly deliver to Landlord notices of hazardouswaste manifests, if any, reflecting the legal and proper disposal of all suchHazardous Materials caused or permitted by Tenant or the Tenant Parties removedfrom the Demised Premises.  Subject toSection 4.3(e), all such manifests, if any, relating to HazardousMaterials caused or permitted by Tenant or any of the Tenant Parties shall listthe Tenant or its agent as a responsible party and in no way shall attributeresponsibility for any such Hazardous Materials caused or permitted by Tenantor the Tenant Parties to Landlord.

####  

#### (d)                                 Subjectto Section 4.3(e), Tenant shall indemnify, defend (with counsel reasonablyacceptable to Landlord), protect and hold Landlord and each of Landlord’sofficers, directors, partners, shareholders, affiliates, employees, agents,attorneys, successors and assigns free and harmless from and against any andall claims, liabilities, damages, costs, penalties, forfeitures, losses orexpenses (including attorneys’ fees) for death or injury to any person ordamage to any property whatsoever (including water tables and atmosphere) tothe extent arising or resulting from the presence or discharge of HazardousMaterials in, on, under, upon or from the Demised Premises or the Improvementslocated thereon or from the transportation or disposal of Hazardous Materialsto or from the Demised Premises to the extent such Hazardous Materials arepresent as the result of acts of Tenant, its officers, agents or employees,contractors or subcontractors (whether or not they are negligent, intentional,willful or unlawful).  Subject toSection 4.3(e), Tenant’s obligations hereunder shall include, withoutlimitation, and whether foreseeable or unforeseeable, all costs of any requiredor necessary repairs, clean-up or detoxification or decontamination of theDemised Premises or the Improvements, and the presence and implementation ofany closure, remedial action or other required plans in

####  

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#### connection therewith, and shall survive theexpiration of or early termination of the term of this Lease.

####  

#### (e)                                  Landlordrepresents and warrants that as of the date of this Lease there are, and as ofthe Commencement Date there will be, no Hazardous Materials present on theDemised Premises other than an as required for the normal operation of the DemisedPremises and in accordance with all Hazardous Materials Laws.  Landlord shall indemnify, defend (withcounsel reasonably acceptable to Tenant), protect and hold Tenant and each ofTenant’s officers, directors, partners, shareholders, affiliates, employees,agents, attorneys, successors and assigns free and harmless from and againstany and all claims, liabilities, damages, costs, penalties, forfeitures, lossesor expenses (including attorneys’ fees) for death or injury to any person ordamage to any property whatsoever (including water tables and atmosphere)arising or resulting in whole or in part, directly or indirectly, from thepresence of Hazardous Materials in, on, under, upon or from the DemisedPremises or the Project unless such Hazardous Materials are present as theresult of the acts of Tenant, its officers, employees or agents.

####  

For purposes of the indemnity provided herein, any act or omission ofLandlord or its agents, employees, contractors or subcontractors (whether ornot they are negligent, intentional, willful or unlawful) shall be strictlyattributable to Landlord.  Landlord’sobligations hereunder shall include, without limitation, and whetherforeseeable or unforeseeable, all costs of any required or necessary repairs,clean-up or detoxification or decontamination of the Demised Premises or theProject, and the presence and implementation of any closure, remedial action orother required plans in connection therewith, and shall survive the expirationof or early termination of the term of this Lease.

 

#### (f)                                    Theobligations of Landlord and Tenant under this Section 4.3 shall survivethe expiration or earlier termination of this Lease.

####  

# **ARTICLE V**

# ** **

# **UTILITIESAND SERVICES**

# ** **

## 5.1                                 Standard Tenant Services.  Except as provided below, Landlord shallprovide, to the Demised Premises (or portions thereof, as noted below), thefollowing services on all days (unless otherwise stated below) during the LeaseTerm:

##  

### 5.1.1                        Subject toall governmental rules, regulations and guidelines applicable thereto, Landlordshall provide heating, ventilation and air conditioning (“**HVAC**”) when necessary for normal comfortfor normal office use in the Demised Premises from Monday through Friday,during the period from 7:00 A.M. to 7:00 P.M. and on Saturday duringthe period from 9:00 A.M. to 1:00 P.M. (the “**Building Hours**”), except for the date ofobservation of New Year’s Day, Presidents Day, Independence Day, Labor Day,Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord’s discretion,other locally or nationally recognized holidays (collectively, the “**Holidays**”).

###  

### 5.1.2                        Notwithstandinganything to the contrary contained herein, Tenant shall be solely responsiblefor and shall promptly pay all charges for HVAC operations, gas, electricity or

###  

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### any other utility that is separately meteredto the Demised Premises at the rates charged by supplying utility companiesand/or Landlord.  Should Landlord electto supply any or all of such utilities, Tenant agrees to purchase and pay forthe same Additional Rent as is reasonably apportioned by Landlord.  The rate to be charged by Landlord to Tenantshall not exceed the rate charged to Landlord by any supplying utility.  Tenant shall, as Additional Rent, reimburseLandlord within fifteen (15) days of billing for any utility costs supplied byLandlord to the Demised Premises which are charged to Landlord by local utilitycompanies.  This charge will increase ordecrease with current charges being levied against Landlord, the DemisedPremises or the Buildings by the local utility company, and will be due asAdditional Rent.  Tenant shall pay thecost of maintenance and repair of separate meters to the Demised Premises.  Notwithstanding anything herein, if Tenantshares such separate meter with another tenant or other tenants of the SouthernBuilding, and such other tenant(s) fails to pay utility charges shared underthe separate meter with Tenant, Landlord shall be responsible for the paymentof such charges to avoid the interruption of such utilities.  Tenant shall bear the cost of replacement oflamps, starters and ballasts for lighting fixtures within the Demised Premises.

###  

### 5.1.3                        Landlordshall, as an Operating Expense, provide city water from the regular Buildingoutlets for normal office drinking, lavatory and toilet purposes.

###  

### 5.1.4                        Landlordshall, as an Operating Expense, provide janitorial service to the SouthernBuilding and Project Common Areas and the Demised Premises five (5) days perweek except the date of observation of the Holidays, and exterior windowwashing services in a manner consistent with other Comparable Properties.

###  

Tenant shall cooperate fully with Landlord at all times and abide byall regulations and requirements that Landlord may reasonably prescribe for theproper functioning and protection of the HVAC, electrical, mechanical andplumbing systems (collectively, “**Building Systems and Equipment**”).  As more particularly provided inSection 9.1 below, Landlord shall maintain the Building Systems and Equipment(including, but not limited to, the HVAC system) as an Operating Expense.

 

## 5.2                                 Overstandard Tenant Use.  Tenant shall not, without Landlord’s priorwritten consent, which shall not be unreasonably withheld or delayed, usemachines other than normal office machines, or equipment or lighting other thanBuilding standard lights in the Demised Premises.  If Tenant uses HVAC in the portion of the Demised Premiseslocated in the Southern Building during hours other than those for whichLandlord is obligated to supply such HVAC utilities pursuant to the terms ofSection 5.1.1 of this Lease, Tenant shall pay to Landlord Landlord’sactual hourly cost to provide the same, as reasonably determined by Landlord(which shall include overhead and accounting costs).  Amounts payable by Tenant to Landlord for such use of additionaluse of HVAC shall be deemed Additional Rent hereunder and shall be paid in themanner provided in this Section 5.2 above.

##  

## 5.3                                 Interruption of Use.  Except as set forth in Section 5.6below, Landlord shall not be liable under any circumstances for a loss of, orinjury to, property or for injury to, or interference with, Tenant’s business,including, without limitation, loss of profits, however occurring, through orin connection with or incidental to a failure to furnish any of the services orutilities as set forth in this Article V.

##  

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## 5.4                                 Additional Services.  Landlord shall provide to Tenant anyadditional services which may be reasonably requested by Tenant, including,without limitation, locksmithing, lamp replacement, additional janitorialservice, and additional repairs and maintenance, provided that Tenant shall payto Landlord within fifteen (15) days after receipt of written notice fromLandlord upon billing, the sum of all costs to Landlord of such additionalservices plus a reasonable administration fee. Charges for any service for which Tenant is required to pay from time totime hereunder shall be deemed Additional Rent hereunder and shall be billed ona monthly basis.

##  

## 5.5                                 Utility Deregulation.

##  

### 5.5.1                        Landlord Controls Selection  Landlord has advised Tenant that presentlySan Diego Gas & Electric (“**ElectricService Provider**”) is the utility company selected by Landlord toprovide electricity service for the Project. Notwithstanding the foregoing, if permitted by Law, Landlord shall havethe right at any time and from time to time during the Lease Term to eithercontract for service from a different company or companies providing electricityservice (each such company shall hereinafter be referred to as an “**Alternate Service Provider**”) or continue tocontract for service from the Electric Service Provider.  In no event shall Landlord’s selection of anAlternate Service Provider result in Tenant paying a higher cost for suchelectricity than if Landlord elected to continue to contract for such servicefrom the Electric Service Provider.

###  

### 5.5.2                        Tenant Shall Give Landlord Access.  Tenant shall cooperate with Landlord, theElectric Service Provider, and any Alternate Service Provider duringnon-business hours (except in the event of an emergency) and, as reasonablynecessary, shall allow Landlord, Electric Service Provider, and any AlternateService Provider reasonable access to the Building’s electric lines, feeders,risers, wiring and any other machinery within the Premises, provided, thatLandlord shall use Landlord’s commercially reasonable efforts to ensure thatthere shall be no interference with Tenant’s use and enjoyment of the DemisedPremises.

###  

## 5.6                                 Interruption of Utilities.  Except in the case of an emergency, Landlordshall not intentionally interrupt any utilities to the Premises without five(5) business days’ prior written notice from Landlord to Tenant.  In the event that there is any interruptionof the utilities due to the negligence or willful misconduct of Landlord or itsauthorized representatives and such interruption shall continue for more thantwo (2) consecutive days rendering any portion of the Premises unusable for Tenant’snormal business operations, then all Rent payable under this Lease shall beabated retroactively to the time of the interruption.  Further, if such interruption of utilities continues for morethan thirty (30) consecutive days, Tenant shall have the right to terminatethis Lease.

##  

# **ARTICLE VI**

# ** **

# **OPERATINGEXPENSES**

# ** **

## 6.1                                 Payment of Operating Expenses.  In addition to the Base Rent required to bepaid by Tenant pursuant to Section 3.1 above, commencing onJanuary 1, 2003, and during each month thereafter during the Term of thisLease, Tenant shall pay for each Expense Year (as

##  

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## defined below) to Landlord “Tenant’sPercentage” of “Operating Expenses” (as such terms are defined in thisArticle VI below), which are in excess of the amount of Operating Expensesapplicable to the Base Year, in the manner and at the times set forth in thefollowing provisions of this Article VI. Notwithstanding the foregoing, (i) in no event shall any decreasein any Operating Expenses for any Expense Year below Operating Expenses for theBase Year entitle Tenant to any decrease in any Base Rent or any credit againstsums due under this Lease, or (ii) no increase in CCR Assessments (asdefined in Section 6.2, below) exceeding three percent (3%) during anyExpense Year shall be included in the calculation of Tenant’s Percentage ofOperating Expenses for any Expense Year. As used herein, “**Expense Year**”shall mean each calendar year in which any portion of the Lease Term falls, throughand including the calendar year in which the Lease Term expires.

##  

## 6.2                                 Definition of Operating Expenses.  As used in this Lease, the term **“Operating Expenses”** shall consist of allcosts and expenses incurred or reasonably reserved (based on the reasonablepractices of landlord’s of Comparable Properties) by or on behalf of Landlordin connection with the ownership, operation, maintenance, repair andreplacement of the Southern Building and Common Areas as determined by standardaccounting practices including the following costs by way of illustration butnot limitation:  (a) Real PropertyTaxes and Assessments (as defined in Section 6.3 below) and any taxes orassessments imposed in lieu thereof; (b) any and all assessments imposedwith respect to the Southern Building, Land Common Areas and/or Projectpursuant to any covenants, conditions and restrictions (“CCR’s) affecting theProject, Common Areas or Southern Building including, but not limited to, theCCR’s for the Business Park (“CCR Assessments”); (c) water and sewercharges and the costs of electricity, HVAC and other utilities, excluding thosewhich are furnished to the Demised Premises and other leased premises withinthe Southern Building which are separately metered and paid separately by the tenants,including Tenant (provided that Tenant’s Percentage thereof shall be reduced toreflect any portion of the Demised Premises that is separately metered);(d) utilities surcharges and any other costs, levies or assessmentsresulting from statutes or regulations promulgated by any government authorityin connection with the use or occupancy of the Southern Building, Land or theDemised Premises or the parking facilities serving the Southern Building, Landor Demised Premises; (e) costs of insurance obtained by Landlord pursuantto Article VII of this Lease to the extent allocable to the SouthernBuilding; (f) waste disposal and janitorial services; (g) security;(h) costs incurred in the management of the Southern Building, Land andCommon Areas, including, without limitation: (1) wages and salaries (and payroll taxes and similar governmentalcharges related thereto) of employees used in the operation and maintenance ofthe Southern Building, Land and Common Areas, and (2) amanagement/administrative fee not to exceed 2.5 percent (2.5%) of the annualbase rent of the Southern Building; (i) supplies, materials, equipment andtools to the extent used with respect to the Project; (j) repair andmaintenance of the elevators and any other Building Systems and Equipmentinstalled or furnished by Landlord; (k) maintenance costs and upkeep ofall Common Areas (including, but not limited to, the Workout Facility); (l)amortization on a straight-line basis over the actual useful life together withinterest at ten percent (10%) per annum on the unamortized balance of all costsof a capital nature (including, without limitation, capital improvements,capital replacements, capital repairs, capital equipment and capitaltools):  (l) reasonably intended toproduce a reduction in Operating Expenses or energy consumption; or(2) required after the date of this Lease under any governmental law orregulation that was not applicable to the Southern Building at the time theywere originally constructed; or (3) for repair

##  

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## or replacement of any equipment orimprovements needed to operate and/or maintain the Southern Building, Land,and/or the Common Areas, provided, however, to the extent Landlord haspreviously reserved funds for any such capital item, Landlord shall first applysuch reserved funds against the cost of such capital item; (m) maintenanceof signs (other than signs of tenants of the Project); (n) personalproperty taxes levied on or attributable to personal property used inconnection with the Southern Building, Land, and/or the Common Areas; and(o) costs and expenses of repairs, resurfacing, repairing, maintenance,painting, lighting, cleaning, refuse removal and similar items; provided,however, in no event shall Landlord include within Operating Expenses the costfor resurfacing or replacing the parking areas more than once every five (5)years (further provided, however, that such limitations shall not be deemed toinclude the cost of reslurring, patching and/or restriping of such parkingareas as and when reasonably necessary).

##  

Notwithstanding the foregoing, for purposes of this Lease, OperatingExpenses shall not, however, include:

 

#### (a)                                  costs,including legal fees, space planners’ fees, and brokerage fees incurred inconnection with the original construction or development, or original or futureleasing or marketing of the Project, and costs, including permit, license andinspection costs, incurred with respect to the installation of tenantimprovements made for new tenants in the Project or incurred in renovating orotherwise improving, decorating, painting or redecorating vacant space fortenants or other occupants of the Project (excluding, however, such costsrelating to any Common Areas of the Project or parking facilities);

####  

#### (b)                                 amountpaid as ground rental for the Project by the Landlord;

####  

#### (c)                                  costsfor which the Landlord is reimbursed by any tenant or occupant of the Projector by insurance by its carrier or any tenant’s carrier or by anyone else, and electricpower costs for which any tenant directly contracts with the local publicservice company;

####  

#### (d)                                 anybad debt loss, rent loss, or reserves for bad debts or rent loss;

####  

#### (e)                                  thewages and benefits of any employee who does not devote substantially all of hisor her employed time to the Project unless such wages and benefits are proratedto reflect time spent on operating and managing the Project vis-à-vis timespent on matters unrelated to operating and managing the Project; provided,that in no event shall Operating Expenses for purposes of this Lease includewages and/or benefits attributable to personnel above the level of Projectmanager or Project engineer;

####  

#### (f)                                    anycompensation paid to clerks, attendants or other persons in commercialconcessions operated by the Landlord, provided that any compensation paid toany “day porter” with respect to the Southern Building shall be includable asan Operating Expense;

####  

#### (g)                                 rentalsand other related expenses incurred in leasing air conditioning systems, elevatorsor other equipment which if purchased the cost of which would be excluded fromOperating Expenses as a capital cost, except equipment not affixed to theProject which is used in providing janitorial or similar services and, furtherexcepting from this exclusion such equipment rented or leased to remedy orameliorate an emergency condition in the Project;

####  

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#### (h)                                 allitems and services for which Tenant or any other tenant in the Projectreimburses Landlord or which Landlord provides selectively to one or moretenants (other than Tenant) without reimbursement;

####  

#### (i)                                     anycosts expressly excluded from Operating Expenses elsewhere in this Lease;

####  

#### (j)                                     costsincurred to comply with laws relating to the removal of Hazardous Materialsexcept to the extent such costs are incurred by Landlord for the removal ofHazardous Materials which are present solely as the result of the acts ofTenant, its officers, employees or agents;

####  

#### (k)                                  costsarising from Landlord’s charitable or political contributions or marketingcosts;

####  

#### (l)                                     depreciation,interest and principal payments on mortgages or other debt costs, if any,penalties and interest and, except as provided in the first paragraph of thisSection 6.2 above, costs of capital repairs and alterations and costs ofcapital improvements and equipment;

####  

#### (m)                               exceptfor Landlord’s permitted management/administrative fee (as set forth in thefirst paragraph of this Section 6.2 above), Landlord’s general corporateoverhead or other management or administrative costs, expenses or fees;

####  

#### (n)                                 costsincurred by Landlord in performing Landlord’s warranty and guaranty enforcementobligations pursuant to Sections 2.8 and 2.9 above and any costs coveredby warranties or guarantees provided by any contractor, design professional ormaterial provider;

####  

#### (o)                                 amountspaid to any affiliate of Landlord in excess of commercially reasonable marketrates;

####  

#### (p)                                 costsreimbursed by the proceeds of any insurance maintained or required under thisLease to be maintained by Landlord;

####  

#### (q)                                 anycosts associated with the operation, repair, maintenance or replacement of theNorthern Building or the Common Areas exclusively serving the NorthernBuilding;

####  

#### (r)                                    costsfor any structural repair, maintenance, replacement or redesign of anystructural elements (i.e., foundation, roof, walls and exterior portions of theBuildings); and

####  

#### (s)                                  assessmentsimposed pursuant to the CCR’s for which Landlord is entitled to be reimbursedor which would duplicate any costs, fees or expenses billed to Tenant as anOperating Expense pursuant to this Section 6.2.

####  

If Landlord is not furnishing any particular work or service (the costof which, if performed by Landlord, would be included in Operating Expenses) toa tenant who has undertaken to perform such work or service in lieu of theperformance thereof by Landlord, then Operating Expenses

 

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shall be deemed to be increased by an amount equal to the additionalOperating Expenses which would reasonably have been incurred during such periodby Landlord if it had at its own expense furnished such work or service to suchtenant.  If the Project is not at leastninety-five percent (95%) occupied during all or a portion of the Base Year orany Expense Year, Landlord shall make an appropriate adjustment to thecomponents of Operating Expenses for such year to determine the amount ofOperating Expenses that would have been paid had the Project been ninety-fivepercent (95%) occupied; and the amount reasonably so determined shall be deemedto have been the amount of Operating Expenses for such year.  Operating Expenses for the Base Year shallnot include market-wide labor-rate increases due to extraordinary circumstances,including, but not limited to, boycotts and strikes, or utility rate increasesdue to extraordinary circumstances including, but not limited to, conservationsurcharges, boycotts, embargoes or other shortages (unless such labor rate orutility rate increases remain in effect after the Base Year, in which event theOperating Expenses for the Base Year shall be adjusted when the labor rateincreases or utility rate increases adjust following the cessation of theextraordinary circumstances causing such increases in the first place), oramortized costs relating to capital improvements.

 

If Landlordincurs Operating Expenses during any Expense Year for any expense category thatwas not incurred during the Base Year or expands the scope of any expensecategory beyond the scope during the Base Year, then the amount of OperatingExpenses for the Base Year shall be adjusted to an amount equal to theOperating Expenses that would have been incurred during the Base Year if suchnew expense category or such additional scope of any expense category had beenincluded in the Base Year.

 

## 6.3                                 Definition of Real Property Taxesand Assessments.  As used inthis Lease, the term **“Real Property Taxes andAssessments”** shall mean:  anyform of assessment, license fee, license tax, business license fee, commercialrental tax, levy, charge, improvement bond, tax or similar imposition imposedby any authority having the direct power to tax, including any city, county,state or federal government, or any school, agricultural, lighting, drainage orother improvement or special assessment district thereof, as against any legalor equitable interest of Landlord in the Demised Premises, Buildings, CommonAreas, Land or Project, including the following by way of illustration but notlimitation:

##  

#### (a)                                  anytax on Landlord’s “right” to rent or “right” to other income from the DemisesPremises or as against Landlord’s business of leasing the Demised Premises;

####  

#### (b)                                 anyassessment, tax, fee, levy or charge in substitution, partially or totally, ofany assessment, tax, fee, levy or charge previously included within thedefinition of real property tax, it being acknowledged by Tenant and Landlordthat Proposition 13 was adopted by the voters of the State of California in theJune 1978 election and that assessments, taxes, fees, levies and charges may beimposed by governmental agencies for such services as fire protection, street,sidewalk and road maintenance, refuse removal and for other governmentalservices formerly provided without charge to property owners or occupants.  It is the intention of Tenant and Landlordthat all such new and increased assessments, taxes, fees, levies and charges beincluded within the definition of “Real Property Taxes and Assessments” for thepurposes of this Lease;

####  

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#### (c)                                  anyassessment, tax, fee, levy or charge allocable to or measured by the area ofthe Demised Premises or other premises in the Buildings or the rent payable byTenant hereunder or other tenants of the Buildings, including, withoutlimitation, any gross receipts tax or excise tax levied by state, city orfederal government, or any political subdivision thereof, with respect to thereceipt of such rent, or upon or with respect to the possession, leasing,operation, management, maintenance, alteration, repair, use or occupancy byTenant of the Demised Premises, or any portion thereof but not on Landlord’sother operations;

####  

#### (d)                                 anyassessment, tax, fee, levy or charge upon this transaction or any document towhich Tenant is a party, creating or transferring an interest or an estate inthe Demised Premises; and/or

####  

#### (e)                                  anyassessment, tax, fee, levy or charge by any governmental agency related to anytransportation plan, fund or system (including assessment districts) institutedwithin the geographic area of which the Buildings are a part.  In addition, if Landlord sells, contributesor otherwise transfers the Southern Building, the Project or any portionthereof to Kilroy Realty, L.P. or any of its affiliates or successors orassigns (“Kilroy”), then the amount of Real Property Taxes and Assessments forthe Base Year shall be increased by an amount equal to the Real Property Taxesand Assessments that would have applied during the Base Year had such sale,contribution or other transfer to Kilroy occurred during the Base Year.

####  

Notwithstandingthe foregoing provisions of this Section 6.3 to the contrary, “RealProperty Taxes and Assessments” shall not include Landlord’s federal or stateincome, franchise, inheritance or estate taxes.

 

If in anyExpense Year subsequent to the Base Year (the “**Adjustment Year”**), the amountof Real Property Taxes and Assessments decreases below the amount of RealProperty Taxes and Assessments for the Base Year, then, the Operating Expensesfor the Base Year shall be decreased by an amount equal to such decrease inassessed value or direct assessments, as applicable in the AdjustmentYear.  Such decrease in the OperatingExpenses for the Base Year shall only apply for so long as, and only to theextent that, the decrease remains in effect and shall be increased for purposesof calculating the Excess for any Expense Year to the extent the decrease is nolonger in effect.

 

## 6.4                                 Payment of Operating Expenses;Estimate Statement.  If for anyExpense Year during the Lease Term, Tenant’s Percentage of Operating Expensesfor such Expense Year exceeds Tenant’s Percentage of Operating Expensesapplicable to the Base Year, then Tenant shall pay Landlord, in the manner setforth in this Section 6.4 below, as Additional Rent, an amount equal tothe excess (the “**Excess**”).  By the first day of April of each Lease Yearduring the Term of this Lease, Landlord shall endeavor to deliver to Tenant astatement (**“Estimate Statement”**)estimating the Operating Expenses for the current Lease Year and the estimatedExcess (the “**Estimated Excess**”),as calculated by comparing the Operating Expenses for such Expense Year, whichshall be based upon the estimate of the Estimate Statement, to the amount ofOperating Expenses for the Base Year. Landlord shall have the right no more than once during each Lease Yearto deliver a revised Estimate Statement showing the Operating Expenses andEstimated Excess for such Lease Year if Landlord determines that the OperatingExpenses are greater than those set forth in the original Estimate Statement(or previously delivered revised

##  

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## Estimate Statement) for such Lease Year.  The Estimated Excess shown on the EstimateStatement (or revised Estimate Statement, as applicable) shall be divided intotwelve (12) equal monthly installments, and Tenant shall pay to Landlord,within thirty (30) days following the receipt of the Estimate Statement (orrevised Estimate Statement, as applicable), an amount equal to one (1) monthlyinstallment of such Estimated Excess multiplied by the number of months fromJanuary in the Lease Year in which such statement is submitted to the month ofsuch payment, both months inclusive (less any amounts previously paid by Tenantwith respect to any previously delivered Estimate Statement or revised EstimateStatement for such Lease Year). Subsequent installments shall be paid concurrently with the regularmonthly Base Rent payments for the balance of the Lease Year and shall continueuntil the next Lease Year’s Estimate Statement (or current Lease Year’s revisedEstimate Statement) is received.  EachEstimate Statement and each Actual Statement (as defined below) will include adetailed breakdown of all Operating Expenses with a comparison on a line itembasis to the Operating Expenses for the Base Year.  In addition, each Estimate Statement and each Actual Statementwill include a reasonably detailed description of any significant increases inany line item of Operating Expenses.

##  

## 6.5                                 Actual Statement By the first day of April of each succeeding Lease Year during theTerm of this Lease, Landlord shall endeavor to deliver to Tenant a statement (**“Actual Statement”**) of the actual OperatingExpenses for the immediately preceding Lease Year and which shall indicate theamount of the Excess.  The failure ofLandlord to timely furnish the Statement for any Expense Year shall notprejudice Landlord or Tenant from enforcing its rights under this Article IV.  Even though the Lease Term has expired andTenant has vacated the Demised Premises, when the final determination is madeof Tenant’s Percentage of Operating Expenses for the Expense Year in which thisLease terminates, is an Excess if present, Tenant shall pay to Landlord suchamount within thirty (30) days, and if Tenant paid more as Estimated Excessthan the actual Excess, Landlord shall, within thirty (30) days, deliver acheck payable to Tenant in the amount of the overpayment. Upon receipt of theActual Statement for each Expense Year commencing or ending during the LeaseTerm, if an Excess is present, Tenant shall pay, within thirty (30) days afterTenant’s receipt of such Actual Statement, the full amount of the Excess forsuch Expense Year, less the amounts, if any, paid during such Expense Year asEstimated Excess, and if Tenant paid more as Estimated Excess than the actualExcess, Tenant shall receive a credit in the amount of Tenant’s overpaymentagainst Rent next due under this Lease. Such obligation will be a continuing one which will survive theexpiration or earlier termination of this Lease.

##  

## 6.6                                 NoRelease.  Any delay or failureby Landlord in delivering any Estimate or Actual Statement pursuant to thisArticle VI shall not constitute a waiver of Landlord’s rights under thisArticle VI, except that Tenant shall not be obligated to make any paymentsbased on such Estimate or Actual Statement until thirty (30) business daysafter receipt of such statement nor shall Landlord be permitted to requireTenant to pay any Operating Expenses for which Landlord has not included in anEstimate Statement or Actual Statement or otherwise billed Tenant on or beforeDecember 31 of the Lease Year next following the Lease Year in which suchOperating Expense was incurred.

##  

## 6.7                                 Tenant’s Percentage.  As used herein, **“Tenant’s Percentage”** (i) with respect to OperatingExpenses attributable to the Southern Building, including the Southern Building

##  

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## Common Areas, shall equal the percentagewhich the total rentable square footage of the Demised Premises bears to thetotal rentable square footage of the Southern Building and (ii) withrespect to the Operating Expenses attributable to the Project Common Areas,shall equal the percentage which the total rentable square footage of theDemised Premises bears to the total rentable square footage of theProject.  Tenant’s Percentage shall beadjusted based on the actual rentable square footage of the Southern Building,the Project and Demised Premises located therein as confirmed by Landlord’sArchitect promptly after Substantial Completion pursuant to Section 3.1above.

##  

## 6.8                                 Inspection of Operating Expenses.  Within one (1) year after receipt of anyActual Statement by Tenant (“Review Period”), Tenant may, after reasonablenotice to Landlord and during normal business hours, inspect at Landlord’soffices Landlord’s books and records that relate to Operating Expenses for theperiod represented by any such Actual Statement and Landlord’s books andrecords that relate to Operating Expenses for the Base Year, provided, thatTenant shall maintain all information contained in Landlord’s books and recordsin strict confidence.  If after suchinspection, Tenant disputes such Additional Rent as set forth in such ActualStatement, a certification as to the proper amount shall be made, at Tenant’sexpense (except as provided below), by an independent certified publicaccountant selected by Tenant and reasonably approved by Landlord.  Landlord shall cooperate with Tenant toprovide Tenant with the information upon which the certification is based;provided that if such certification proves that the Operating Expenses setforth in any such Actual Statement were overstated by more than five percent(5%), then the reasonable cost of such certification shall be paid for byLandlord.  Promptly following theparties’ receipt of such certification, the parties shall make such appropriatepayments or reimbursements, as the case may be, to each other, as aredetermined to be owing pursuant to such certification.  In the event Tenant has not challenged anyActual Statement within said one (1) year period, Tenant shall have no furtherright to inspect or challenge the accuracy of such Actual Statement.  Landlord shall be required to maintain recordsof all such Operating Expenses for a minimum of two (2) years followingLandlord’s delivery to Tenant of each Actual Statement and shall be required tomaintain records of all such Operating Expenses for the Base Year for a minimumof two (2) years following the expiration or earlier termination of the LeaseTerm.

##  

# **ARTICLE VII**

# ** **

# **INSURANCE**

# ** **

## 7.1                                 Tenant’s Insurance.  Tenant shall, at Tenant’s sole cost and expense, maintain thefollowing coverages in the following amounts:

##  

### 7.1.1                        CommercialGeneral Liability Insurance covering the insured against claims of bodilyinjury, personal injury and property damage arising out of Tenant’s operations,assumed liabilities or use of the Demised Premises, including a Broad Formendorsement (if applicable) covering the insuring provisions of this Lease andthe performance by Tenant of the indemnity agreements set forth inSection 7.6 of this Lease, for limits of liability not less than TwoMillion Dollars ($2,000,000) per occurrence and Five Million Dollars ($5,000,000)in the aggregate, naming Landlord as an additional insured.  Notwithstanding the foregoing, such

 

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### required coverage may be maintained by Tenantpursuant to an “umbrella” policy covering the Demised Premises.

###  

### 7.1.2                        PhysicalDamage Insurance covering (i) all office furniture, trade fixtures, officeequipment, merchandise and all other items of Tenant’s property on the DemisedPremises installed by, for, or at the expense of Tenant, and (ii) allother improvements, alterations and additions to the Demised Premises.  Such insurance shall be written on an “allrisks” of physical loss or damage basis, for the full replacement cost valuenew without deduction for depreciation of the covered items and in amounts thatmeet any co-insurance clauses of the policies of insurance and shall include avandalism and malicious mischief endorsement, sprinkler leakage coverage andearthquake sprinkler leakage coverage.

###  

### 7.1.3                        Worker’sCompensation and Employer’s Liability Insurance, with a waiver of subrogationendorsement, in statutory amounts and limits.

###  

### 7.1.4                        BusinessInterruption, loss of income and extra expense insurance in an amount not lessthan one (1) year of Base Rent to reimburse Tenant for direct or indirect lossof earnings attributable to all perils commonly insured against by prudenttenants or attributable to prevention of access to the Demised Premises or tothe Buildings as a result of such perils.

###  

## 7.2                                 Landlord’s Insurance.  At all times from and after the CommencementDate, Landlord shall, as an Operating Expense, maintain in effect a policy or policies of insurance providingprotection for the following liabilities and/or risks:  (a) public liability for bodily injuryand property damage arising from Landlord’s ownership and/or operation of theProject with coverage limits at least equal to those Tenant is required tomaintain in accordance with Section 7.1, (b) any peril, in Landlord’sreasonable discretion, insurable under an “all risks” policy covering theBuildings of which the Demised Premises are a part and the tenant improvements,exclusive of any items insured by Tenant pursuant to Section 7.1, in anamount equal to each Building’s and the Improvements’ full replacement cost(exclusive of the cost of excavations, foundation and footings) and(c) rent loss insurance in an amount equal to not more than twelve (12)months’ of the Building’s estimated gross receipts.  Landlord’s obligation to carry the “all risks” insurance providedfor in this Section 7.2 may be satisfied by inclusion of said buildingwithin the coverage of any blanket policy or policies of insurance carried andmaintained by Landlord, provided that the coverage afforded will not be reducedor diminished by reason of the use of such blanket policies of insurance.  Tenant shall neither use the Premises forother than general office purposes nor permit the Premises to be used or actsto be done therein to the extent such use or acts would (i) increase thepremium of any insurance carried by Landlord with respect to the Project;(ii) cause a cancellation of or be in conflict with any such insurancepolicies; or (iii) result in a refusal by insurance companies of goodstanding to insure the Project in amounts reasonably satisfactory to Landlord.  Tenant shall, at Tenant’s expense, comply asto the Premises with all insurance company requirements pertaining to the useof the Premises.  If Tenant’s conduct oruse of the Premises for other than general office purposes causes any increasein the premium for such insurance policies then Tenant shall reimburse Landlordfor any such increase. Tenant, at Tenant’s expense, shall comply with allrules, orders, regulations or requirements of the American InsuranceAssociation (formerly the National Board of Fire Underwriters) and with anysimilar body to the extent applicable to Tenant’s use of the Premises.  As provided in Section 6.3 above, ifLandlord obtains any insurance coverage or

##  

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## expanded scope of coverage that was notincluded in the insurance policies maintained during the Base Year, theOperating Expenses for the Base Year shall be adjusted to an amount equal tothe Operating Expenses that would have been incurred had such coverage beenmaintained during the Base Year.

##  

## 7.3                                 Form of Policies.  The minimum limits of policies of insurance required of Landlordand Tenant under this Lease shall in no event limit the liability of Landlordand Tenant under this Lease.  Allinsurance shall (i) be issued by an insurance company having a rating ofnot less than A- VIII in Best’s Insurance Guide or which is otherwiseacceptable to Landlord and licensed to do business in the State of California;and (ii) provide that said insurance shall not be canceled or coveragechanged unless thirty (30) days’ prior written notice shall have been given tothe other party and any mortgagee or ground or underlying lessor ofLandlord.  In addition, the insurancedescribed in Section 7.3.1 above shall (a) name Landlord, and anyother party specified by Landlord, as an additional insured;(b) specifically cover the liability assumed by Tenant under this Leaseincluding, but not limited to, Tenant’s obligations under Section 7.1 ofthis Lease; (c) be primary insurance as to all claims thereunder andprovide that any insurance required by Landlord is excess and isnon-contributing with any insurance requirement of Tenant; and (d) containa cross-liability endorsement or severability of interest clause acceptable toLandlord.  Tenant shall deliver saidpolicy or policies or certificates thereof to Landlord upon execution of thisLease and at least thirty (30) days before the expiration dates thereof.  In the event Tenant shall fail to procuresuch insurance, or to deliver such certificate, Landlord may, at its option,procure such policies for the account of Tenant, and the costs of it shall bepaid to Landlord as Additional Rent within fifteen (15) days after delivery toTenant of bills therefor.

##  

## 7.4                                 Waiver of Subrogation.  Landlord and Tenant hereby mutually waiveany and all rights of recovery against one another for real or personalproperty loss or damage occurring to the Demised Premises, or any part thereof,or any personal property therein from perils insured (or required to beinsured) against under the insurance maintained hereunder for the benefit ofthe respective parties, and to the extent the proceeds of such insurance areactually recovered, and each shall use commercially reasonable efforts toassure that such insurance permits waiver of liability and contains a waiver ofsubrogation.

##  

## 7.5                                 Blanket Insurance Coverage.  Nothing in this Article VI shallprevent Tenant from taking out insurance of the kind and in the amount providedfor under the preceding paragraphs of this Article VII under a blanketinsurance policy or policies (and certificates thereof reasonably satisfactoryto Landlord shall be delivered to Landlord) which may cover other propertiesowned, leased or operated by Tenant as well as the Demised Premises; provided,however, that any such policy of blanket insurance of the kind provided forshall not contain any clause which would result in the insured thereunder beingrequired to carry any insurance with respect to the property covered thereby inan amount not less than any specific percentage of the Full Replacement Cost ofsuch property in order to prevent the insured therein named from becoming aco-insurer of any loss with the insurer under such policy; and furtherprovided, however, that such policies of blanket insurance shall, as respectsthe Demised Premises, contain the various provisions required of such aninsurance policy by the foregoing provisions of this Article VII.

##  

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## 7.6                                 Indemnification and Waiver.  To the extent not prohibited by law, andexcept as otherwise provided in this Lease, Landlord, its partners, subpartnersand their respective officers, agents, servants, employees, and independentcontractors (collectively, “**Landlord Parties**”)shall not be liable for, any damage either to person or property or resultingfrom the loss of use thereof, which damage is sustained by Tenant or the TenantParties.  Tenant shall indemnify,defend, protect, and hold harmless Landlord Parties from any and all loss,cost, damage, expense and liability, (including without limitation court costsand reasonable attorneys’ fees) (collectively, “**Claims**”) incurred in connection with or arising from any causein, on or about the Demised Premises, either prior to, during, or after theexpiration of the Lease Term, provided that the terms of the foregoingindemnity shall not apply to the negligence or willful misconduct of Landlordor its agents, contractors, servants, employees or licensees in connection withLandlord’s activities in the Project (except for damage to the Tenant’spersonal property, fixtures, furniture and equipment in the Premises, to theextent Tenant is required to obtain the requisite insurance coverage pursuantto this Lease) and Landlord hereby agrees to indemnify, defend, protect andhold harmless Tenant and the Tenant Parties from any such Claims.  The provisions of this Section 7.6shall survive the expiration or sooner termination of this Lease with respectto any claims or liability occurring prior to such expiration or termination.

##  

# **ARTICLE VIII**

 

# **ROOF RIGHTS**

# ** **

Subject to all governmental laws, rules and regulations, and compliancewith the CCR’s, Tenant and Tenant’s contractors (which shall first be approvedby Landlord) shall have the nonexclusive right and access, without furtherpayment of Rent to Landlord, to install, repair, replace, remove, operate andmaintain satellite dishes and/or microwave dishes, and other radio transmittingand receiving antennae, together with all necessary cable, wiring, conduits andrelated equipment (collectively, “Communication Equipment”), for the purpose ofreceiving and sending telephone and other communication signals, at a locationon the roof of the Southern Building as reasonably requested by Tenant and reasonablyapproved by Landlord in writing. Tenant’s installation and operation of the Communication Equipment shallbe governed by the following terms and conditions:

 

#### (a)                                  Tenant’sright to install, replace, repair, remove, operate and maintain the CommunicationEquipment shall be subject to all governmental laws, rules and regulations andLandlord makes no representations that such laws, rules and regulations permitsuch installation and operation.

####  

#### (b)                                 Theexact size, quality, materials and aesthetics of, and any required screeningfor, the Communication Equipment shall be subject to Landlord’s prior writtenconsent which shall not be unreasonably withheld or delayed.

####  

#### (c)                                  Allcosts of installation, operation and maintenance of the Communication Equipmentand any necessary related equipment (including, without limitation, costs ofobtaining any necessary permits and of connections to the Southern Building’selectrical system) shall be borne by Tenant. All such Communication Equipment shall be screened to commerciallyreasonable standards and to prevent visual impairment.

####  

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#### (d)                                 Tenantshall use the Communication Equipment so as not to cause any unreasonableinterference (i) with any other communications from or to the Project or(ii) to other existing tenants or occupants in the Project who may use thecommunication facilities located at the Project and/or related facilities.

####  

#### (e)                                  Landlordshall not have any obligations with respect to the Communication Equipment.  Landlord makes no representation that theCommunication Equipment will be able to receive or transmit communicationsignals without interference or disturbance and Tenant agrees that Landlordshall not be liable to Tenant therefor.

####  

#### (f)                                    Tenantshall not be permitted to allow any third party (other than a Transfereepermitted under Section 15.2 or a Transferee approved by Landlord) to useany portion of the Roof for Communication Equipment or otherwise withoutLandlord’s consent, which shall not be unreasonably withheld.

####  

#### (g)                                 Tenantshall (i) be solely responsible for any damage caused as a result of theCommunication Equipment (including but not limited to the installation,maintenance, repair and/or removal thereof), (ii) promptly pay any tax,license or permit fees charged pursuant to any laws or regulations inconnection with the installation, maintenance or use of the CommunicationEquipment and comply with all precautions and safeguards recommended by allgovernmental authorities, and (iii) pay for all necessary repairs,replacements to or maintenance of the Communication Equipment.

####  

#### (h)                                 TheCommunication Equipment shall remain the sole property of Tenant.  Tenant shall remove the CommunicationEquipment and related equipment at Tenant’s sole expense upon the expiration orsooner termination of this Lease with respect to the Southern Building or uponthe imposition of any governmental law or regulation which may require removal,and shall repair the Southern Building upon such removal to the extent requiredby such work of removal.  If Tenantfails to remove the Communication Equipment and repair the Southern Buildingwithin thirty (30) days after the expiration or earlier termination of thisLease with respect to the Southern Building, Landlord may do so at Tenant’sexpense.

####  

Landlord reserves the right to use portions of the roof space on theSouthern Building or lease roof space on the Southern Building to otherparties; provided, however, any party to which Landlord leases such roof spaceshall be subject to similar restrictions as set forth in thisArticle XIII.

 

# **ARTICLE IX**

# ** **

# **REPAIRS**

# ** **

## 9.1                                 Landlord’s Repair Obligations.  Subject to Articles XIII and XIV ofthis Lease, Landlord shall repair, maintain and replace, as necessary(a) at Landlord’s sole cost and expense, the structural portions of theDemised Premises and the Southern Building (including the structural elementsof the roof, structural walls, underground utilities, concrete subflooring andfoundations), (b) as part of the Operating Expenses (except to the extentotherwise excluded pursuant to Sections 6.2 and 6.8 above or thisSection 9.1 below), (i) the Building Systems and

##  

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## Equipment (but not any above standardimprovements installed in the Premises such as, for example, but by way oflimitation, custom lighting, special or supplementary HVAC or plumbing systemsor distribution extensions, special or supplemental electrical panels ordistribution systems, or kitchen or restroom facilities and appliances to theextent such facilities and appliances are intended for the exclusive use ofTenant), (ii) the Building Common Areas with respect to the SouthernBuilding and (iii) the Project Common Areas; provided, however, to theextent such maintenance, repairs or replacements are required as a result ofany act, neglect, fault or omission of Tenant or any of the Tenant Parties,Tenant shall pay to Landlord, as Additional Rent, the cost of any suchmaintenance, repairs or replacements. Landlord shall not be liable to Tenant for failure to perform any suchmaintenance, repairs or replacements, unless Landlord shall fail to make suchmaintenance, repairs or replacements and such failure shall continue for areasonable time following written notice from Tenant to Landlord of the needtherefor.  Without limiting theforegoing, Tenant waives the right to make repairs at Landlord’s expense underany law, statute or ordinance now or hereafter in effect (including theprovisions of California Civil Code section 1942 and any successivesections or statutes of a similar nature). Notwithstanding the foregoing or anything in this Lease to the contrary,the costs incurred by Landlord in maintaining the structural portions of theSouthern Building (as described in Section 9.1(a) above) shall be atLandlord’s sole cost and expense and not be included in Operating Expenses.

##  

## 9.2                                 Tenant’s Repair Obligations.  Except for Landlord’s obligationsspecifically set forth in this Lease, Tenant shall at all times and at Tenant’ssole cost and expense, keep, maintain, clean, repair, preserve and replace, asnecessary, the Demised Premises and all parts thereof including, withoutlimitation, all Improvements, alterations, all special or supplemental HVACsystems, electrical systems, pipes and conduits located within the DemisedPremises, all fixtures, furniture and equipment, Tenant’s signs, locks, closingdevices, security devices, windows, window sashes, casements and frames, floorsand floor coverings, shelving, kitchen facilities and appliances located withinthe Demised Premises to the extent such facilities and appliances are intendedfor the exclusive use of Tenant, custom lighting, and any alterations,additions and other property located within the Demised Premises, infirst-class condition and repair, reasonable wear and tear excepted.  Tenant shall replace, at its expense, anyand all glass in and about the Demised Premises which is damaged or broken fromany cause whatsoever except due to the negligence or willful misconduct ofLandlord, its agents or employees.  Suchmaintenance and repairs shall be performed with due diligence, lien-free and ina first-class and workmanlike manner, by licensed contractor(s) which areselected by Tenant and approved by Landlord, which approval Landlord shall notunreasonably withhold or delay.  Exceptas otherwise expressly provided in this Lease, Landlord shall have noobligation to alter, remodel, improve, repair, renovate, redecorate or paintall or any part of the Demised Premises.

##  

## 9.3                                 Prohibition Against Waste.Tenant shall not do or suffer any waste, damage, disfigurement or injury to theDemised Premises, or any improvements hereafter erected thereon, or to thefixtures or equipment therein, or permit or suffer any overloading of thefloors or other use of the Improvements that would place an undue stress on thesame or any portion thereof beyond that for which the same was designed.

##  

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# **ARTICLE X**

# ** **

# **COMPLIANCE WITH APPLICABLE LAWS ANDRESTRICTIONS**

# ** **

## 10.1                           Compliance with Applicable Laws and Restrictions.  Subject to Landlord’s obligations underArticle II, Section 9.1 and Article IV of this Lease, or asexpressly provided under any other provision hereof, throughout the Term ofthis Lease, and at Tenant’s sole cost and expense (except as provided inSections 2.8 and 9.1 above), Tenant shall promptly comply or causecompliance with or remove or cure any violation caused by Tenant of any and allpresent and future laws, rules and regulations applicable to the DemisedPremises and the orders, rules and regulations of the Board of FireUnderwriters where the Demised Premises are situated (provided Tenant shall berequired to make any alterations to the Demised Premises in connection therewithonly if the non-compliance was the result of alterations made to the Premisesby Tenant or at Tenant’s election or direction, including the alterations madeto the Premises in preparation of Tenant’s occupancy hereunder, but excluding,however, any alterations required in connection with or as a result of theDemising Wall), or any other governmental body now or hereafter constitutedexercising lawful or valid authority over the Demised Premises, or any portionthereof, or exercising authority (“**ApplicableRequirements**”) solely to the extent such Applicable Requirementsrelate to Tenant’s specific use of, tenant improvements or alterations to, theDemised Premises.  Notwithstanding theforegoing or anything to the contrary contained in this Lease, Landlord herebywarrants to Tenant that each Building, as of the Commencement Date, shall be incompliance with the Americans With Disabilities Act (**“ADA”**) and all other laws in effect as of the CommencementDate and each Delivery Date.  Landlordwill be fully responsible for making all alterations and repairs to each suchBuilding, at Landlord’s cost (which shall not be included in OperatingExpenses) resulting from or necessitated by the failure of Landlord orLandlord’s contractors to comply with the foregoing warranty.  All exterior areas of the Demised Premises,parking areas, walkways, ramps, exterior of the Buildings and ingress to andegress from the Demised Premises shall be constructed and maintained byLandlord at all times during the Term of this Lease and any renewal(s) instrict compliance with the ADA requirements.

##  

## 10.2                           Tenant’s Right to Contest Laws andOrdinances.  After prior writtennotice to Landlord, Tenant, at its sole cost and expense and without cost orexpense to Landlord, shall have the right to contest the validity orapplication of any law in the name of Tenant or Landlord, or both, byappropriate legal proceedings diligently conducted but only if compliance withthe terms of any such law or ordinance pending the prosecution of any such proceeding,may legally be delayed without incurring of any lien, charge or liability ofany kind against the Demised Premises, or any portion thereof, and withoutsubjecting Landlord or Tenant to any liability, civil or criminal, for failureso to comply therewith until the final determination of such proceeding;provided, however, if any lien, charge or civil liability would be incurred byreason of any such delay, Tenant nevertheless, on the prior written consent ofLandlord, which consent shall not be unreasonably withheld, may contest asaforesaid and delay as aforesaid, provided that such delay would not subjectTenant or Landlord to criminal liability and Tenant (a) furnishes Landlordsecurity, reasonably satisfactory to Landlord, against any loss or injury byreason of any such contest or delay, (b) prosecutes the contest with duediligence and in good faith, and (c) agrees to indemnify, defend and holdharmless Landlord and the Demised Premises from any charge,

##  

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## liability or expense whatsoever.  The security furnished to Landlord by Tenantmay be in the form of a cash deposit or a Certificate of Deposit (“CD”) issuedby a national bank or federal savings and loan association payable toLandlord.  Landlord shall be entitled toapply such security against an uncured Event of Default hereunder and, ifduring the continuance of such proceedings, Landlord shall, from time to time,reasonably deem the amount deposited, as aforesaid, insufficient, Tenant shallupon demand of Landlord make additional deposits of such additional sums ofmoney or such additional CD’s as Landlord may reasonably request.  If Tenant is required to make suchadditional deposits hereunder and Tenant fails to make same, the amount theretoforedeposited may be applied by Landlord to the payment, removal or discharge ofsuch liability, and the interest, fines and penalties in connection therewith,and any costs, fees (including attorneys’ fees) and other liability (includingcosts incurred by Landlord) accruing in any such proceedings.  Upon resolution of any such contest,Landlord shall return all amounts or CD’s previously deposited with Landlordwith respect to the contest of such laws, less any amounts applied by Landlordas aforesaid.  During the time when anysuch CD is on deposit with Landlord, and prior to the time when the same isreturned to Tenant or applied against the payment, removal or discharge of suchliabilities, as above provided, Tenant shall be entitled to receive allinterest paid thereon.  Cash depositsshall not bear interest.

##  

If necessary or proper to permit Tenant so to contest the validity orapplication of any such law or ordinance, Landlord shall, at Tenant’s sole costand expense, including reasonable attorneys’ fees incurred by Landlord, executeand deliver any appropriate papers or other documents; provided, however, thatLandlord shall not be required to execute any document or consent to anyproceeding which would result in the imposition of any cost, charge, expense orpenalty on Landlord or the Demised Premises.

 

# **ARTICLE XI**

# ** **

# **MECHANIC’SLIENS AND OTHER LIENS**

# ** **

## 11.1                           Mechanic’sLiens.

##  

#### (a)                                  Tenantshall keep the Demised Premises free from any liens arising out of workperformed, materials furnished and obligations incurred by Tenant.  Tenant covenants and agrees that anymechanic’s lien filed against the Demised Premises for work claimed to havebeen done for, or materials claimed to have been furnished to, Tenant shall bedischarged by Tenant, by bond or otherwise, within thirty (30) days after thefiling thereof, at the sole cost and expense of Tenant.  This provision does not apply to any claimor lien arising out of the original construction of the Demised Premises byLandlord pursuant to this Lease.

####  

#### (b)                                 Tenantshall have the right to contest with due diligence the validity or amount ofany lien or claimed lien created by Tenant if Tenant shall give to Landlordsuch security as Landlord may reasonably require to insure payment thereof andprevent any sale, foreclosure or forfeiture of the Demised Premises or anyportion thereof by reason of such nonpayment. On final determination of the lien or claim for lien, Tenant shallimmediately pay any judgment rendered with all proper costs and charges andshall have the lien released or judgment satisfied at Tenant’s own expense, andif Tenant shall fail to do so, Landlord may at its option, pay any such finaljudgment and clear the Demised Premises therefrom. If Tenant shall

####  

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#### fail to contest with due diligence thevalidity or amount of any such lien or claimed lien created by Tenant, or togive Landlord security as hereinabove provided, Landlord may, but shall not berequired to, contest the validity or amount of any such lien or claimed lien orsettle or compromise the same without inquiring into the validity of the claimor the reasonableness of the amount thereof. Should any lien be filed against the Demised Premises or should anyaction of any character affecting the title thereto be commenced, Tenant shallgive to Landlord written notice thereof as soon as notice of such lien oraction comes to the knowledge of Tenant.

####  

#### (c)                                  ShouldTenant fail to discharge any such lien, Landlord may, at Landlord’s election,pay such claim or post a bond or otherwise provide security to eliminate thelien as a claim against title, and the cost thereof shall be immediately duefrom Tenant as Additional Rent.  Tenantshall not suffer or permit any mechanic’s lien or other lien to be filedagainst the Demised Premises, or any portion thereof, by reason of work, labor,skill, services, equipment or materials supplied or claimed to have beensupplied to the Demised Premises at the request of Tenant, or anyone holdingthe Demised Premises, or any portion thereof, through or under Tenant.

####  

#### (d)                                 Allmaterialmen, contractors, artisans, mechanics, laborers and any other personnow or hereafter furnishing any labor, services, materials, supplies orequipment to Tenant with respect to the Demised Premises, or any portionthereof, are hereby charged with notice that they must look exclusively toTenant to obtain payment for the same. Notice is hereby given that Landlord shall not be liable for any labor, services,materials, supplies, skill, machinery, fixtures or equipment furnished or to befurnished to Tenant upon credit, and that no mechanic’s lien or other lien forany such labor, services, materials, supplies, machinery, fixtures or equipmentshall attach to or affect the estate or interest of Landlord in and to theDemised Premises or any portion thereof.

####  

## 11.2                           Landlord’s Indemnification.  The provisions of Section 11.1 aboveshall not apply to any mechanic’s lien or other lien for labor, services,materials, supplies, machinery, fixtures or equipment furnished to the DemisedPremises in the performance of Landlord’s obligations to construct theImprovements required by the provisions of Article II hereof or in theperformance of Landlord’s other obligations under this Lease, and Landlord doeshereby agree to indemnify and defend Tenant against and save Tenant and theDemised Premises and any portion thereof harmless from all losses, costs,damages, expenses, liabilities and obligations, including, without limitation,reasonable attorneys’ fees resulting from the assertion, filing, foreclosure orother legal proceedings with respect to any such mechanic’s lien or other lien.

##  

## 11.3                           Removalof Liens.  Except as otherwiseprovided for in this Article XI, Tenant shall not create, permit orsuffer, and shall promptly discharge and satisfy of record, any other lien,encumbrance, charge, security interest or other right or interest which shallbe or become a lien, encumbrance, charge or security interest upon the DemisedPremises, or any portion thereof, or the income therefrom, or on the interestof Landlord or Tenant in the Demised Premises, or any portion thereof, if suchlien, encumbrance, charge, security interest or other right or interest shallresult from the actions of Tenant or others acting on the behalf of or forTenant (other than Landlord).

##  

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## 11.4                           Equipment and Trade Fixtures.  Landlord expressly waives and disclaims anylien which it may have by statute or otherwise on the equipment and tradefixtures which Tenant brings to the Demised Premises.  In addition, Landlord acknowledges that Tenant may, from time totime, offer all or portions of such equipment and trade fixtures as collateralfor obligations to lenders.  Landlordwill promptly execute such reasonable documentation as Tenant may request inorder to evidence to any such lender Landlord’s lack of any claim to suchequipment and trade fixtures.

##  

# **ARTICLE XII**

# ** **

# **DEFAULTS OFTENANT**

# ** **

## 12.1                           Eventsof Default.  Any one or more ofthe following events shall be an event of default by Tenant (“Event ofDefault”) under this Lease:

##  

#### (a)                                  Tenantfails to pay any Base Rent or Additional Rent or any other sum required by thisLease to be paid by Tenant, within five (5) days after notice from Landlordthat such Rent is due;

####  

#### (b)                                 Tenantfails to perform or comply with any other term hereof, and such failure shallcontinue for more than thirty (30) days after notice thereof from Landlord, andTenant shall not within such period commence with due diligence and thereafterdispatch the curing of such default, or, having so commenced, shall thereafterfail or neglect to prosecute or complete with due diligence and dispatch thecuring of such default;

####  

#### (c)                                  Tenantmakes a general assignment for the benefit of creditors or admits in writingits inability to pay its debts as they become due or files a petition inbankruptcy, or is adjudicated as bankrupt or insolvent, or files a petitionseeking any reorganization, arrangement, composition, readjustment, liquidation,dissolution or similar relief under any present or future statutes, law orregulation, or files an answer admitting or fails to reasonably contest thematerial allegations of a petition filed against it in any such proceeding, orseeks or consents to or acquiesces in the appointment of any trustee, receiveror liquidator of Tenant or any material part of its properties (provided,however, that this Section 12.1(c) shall apply only to the extent it isenforceable under applicable law); or

####  

#### (d)                                 Withinninety (90) days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement,composition, readjustment, liquidation, dissolution or similar relief under anypresent or future statute, law or regulation, such proceeding has not beendismissed, or if, within ninety (90) days after the appointment without theconsent or acquiescence of Tenant of any trustee, receiver or liquidator ofTenant or of any material part of its properties, such appointment has not beenvacated (provided, however, that this Section 12.1(d) shall apply only tothe extent it is enforceable under applicable law); or

####  

#### (e)                                  Tenantpermits the abandonment or nonoccupancy of the entire Demised Premises (exceptfor temporary vacancies or portions thereof, or to the extent caused by damage,destruction or condemnation).

####  

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## 12.2                           Landlord’sRemedies.  Upon the occurrenceof an Event of Default, Landlord, at its option, without further notice ordemand to Tenant, shall have, in addition to all other rights and remediesprovided in this Lease, at law or in equity, the option to pursue any one ormore of the following remedies, each and all of which shall be cumulative andnonexclusive, without any notice or demand whatsoever:

##  

#### (a)                                  Terminatethis Lease, in which event Tenant shall immediately surrender the DemisedPremises to Landlord, and if Tenant fails to do so, Landlord may, withoutprejudice to any other remedy which it may have for possession or arrearages inBase Rent or Additional Rent, enter upon and take possession of the DemisedPremises and expel or remove Tenant and any other person who may be occupyingthe Demised Premises or any part thereof, without being liable for prosecutionor any claim or damages therefor; and Landlord may recover from Tenant thefollowing:

####  

##### (i)                                     Theworth at the time of award of any unpaid Base Rent and Additional Rent whichhas been earned at the time of such termination; plus

#####  

##### (ii)                                  Theworth at the time of award of the amount by which the unpaid Base Rent andAdditional Rent which would have been earned after termination until the timeof award exceeds the amount of such rental loss that Tenant proves could havebeen reasonably avoided; plus

#####  

##### (iii)                               Theworth at the time of award of the amount by which the unpaid Base Rent andAdditional Rent for the balance of the Lease Term after the time of awardexceeds the amount of such rental loss that Tenant proves could have beenreasonably avoided; plus

#####  

##### (iv)                              Anyother amount necessary to compensate Landlord for all the detriment proximatelycaused by Tenant’s failure to perform its obligations under this Lease or whichin the ordinary course of things would be likely to result therefrom; and

#####  

##### (v)                                 Suchother amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

#####  

The term “**Rent**” as used in this Section 12.2shall be deemed to be and to mean all sums of every nature required to be paidby Tenant pursuant to the terms of this Lease, whether to Landlord or toothers.  As used in subsections (i)and (ii), above, the “**worth at the time of award**” shall becomputed at the Maximum Rate of Interest. As used in subsection (iii), above, the “**worth at the time of award**”shall be computed by discounting such amount at the discount rate of theFederal Reserve Bank of San Francisco at the time of award plus one percent(1%).  Nothing herein shall be deemed torelieve Landlord of its obligation to mitigate its damages following an Eventof Default.

 

## 12.3                           Right to Collect Rent as Due.  Landlord shall have the remedy described inCalifornia Civil Code Section 1951.4 (Landlord may continue lease ineffect after Tenant’s breach and abandonment and recover rent as it becomesdue, if Tenant has the right to sublet or assign, subject only to reasonablelimitations).  Accordingly, if Landlorddoes not elect to terminate this Lease on account of any default by Tenant,Landlord may, from time to time,

##  

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## without terminating this Lease, enforce allof its rights and remedies under this Lease, including the right to recover allBase Rent and Additional Rent as they become due.

##  

## 12.4                           New Lease Following Termination.  In the event Landlord elects to terminatethis Lease and relet the Premises, it may execute any new lease in its ownname.  Tenant hereunder shall have noright or authority whatsoever to collect any Base Rent, Additional Rent orother sums from such tenant.  Theproceeds of any such reletting shall be applied as follows:

##  

#### (a)                                  First,to the payment of any indebtedness other than Base Rent or Additional Rent duehereunder from Tenant to Landlord, including but not limited to storage chargesor brokerage commissions owing from Tenant to Landlord as the result of suchreletting;

####  

#### (b)                                 Second,to the payment of the costs and expenses of reletting the Premises, includingalterations and repairs which Landlord deems reasonably necessary andadvisable, and reasonable attorneys’ fees incurred by Landlord in connectionwith the retaking of the Demised Premises and such reletting;

####  

#### (c)                                  Third,to the payment of Base Rent, Additional Rent and other charges due and unpaidhereunder; and

####  

#### (d)                                 Fourth,to the payment of future Base Rent, Additional Charges and other damages payableby Tenant under this Lease.

####  

## 12.5                           Cumulative Rights; No Waiver.  All rights, options and remedies of Landlordcontained in this Lease shall be construed and held to be non-exclusive andcumulative.  Landlord shall have theright to pursue any or all of such remedies or any other remedy or relief whichmay be provided by law, whether or not stated in this Lease.  No waiver of any Event of Default of Tenanthereunder shall be implied from the acceptance by Lender of any payments duehereunder (except with respect to the amount so collected) or any omission by Landlord party to take any action onaccount of such Event of Default if such Event of Default persists or isrepeated, and no express waiver shall affect defaults other than as specifiedin said waiver.

##  

## 12.6                           Surrender of Demised Premises.  Upon any expiration or termination of thisLease, Tenant shall quit and peaceably surrender the Demised Premises and allportions thereof to Landlord, and Landlord may, upon or at any time after anysuch expiration or termination and without further notice, enter upon andreenter the Demised Premises and all portions thereof and possess and repossessitself thereof by force, summary proceeding, ejectment or otherwise, and maydispossess Tenant and remove Tenant and all other persons and property from theDemised Premises and all portions thereof and may have, hold and enjoy theDemised Premises and the right to receive all rental and other income of andfrom the same.

##  

## 12.7                           Interest on Unpaid Amounts.  If Tenant shall commit an Event ofDefault, Landlord may cure the same, but shall not be required to do so, asprovided in, and subject to, Section 11.1 above, and in exercising anysuch right, may employ counsel and pay necessary and incidental costs and expenses,including reasonable attorneys’ fees. All reasonable sums so paid by Landlord, and all reasonable andnecessary costs and expenses, including reasonable attorneys’ fees, inconnection with the performance of any such act by Landlord, together withinterest thereon at the Maximum Rate of Interest from the date of making suchexpenditure by

##  

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## Landlord, shall be deemed Additional Renthereunder and, except as is otherwise expressly provided herein, shall be payableto Landlord within ten (10) days after written demand, and Tenant covenants topay any such sum or sums, with interest as aforesaid, and Landlord shall have,in addition to any other right or remedy of Landlord, the same rights andremedies in the event of nonpayment thereof by Tenant as in the case of defaultby Tenant in the payment of monthly Base Rent. Landlord shall not be limited in the proof of any damages which Landlordmay claim against Tenant arising out of or by reason of Tenant’s failure toprovide and keep in force insurance as aforesaid, to the amount of theinsurance premium or premiums not paid or not incurred by Tenant, and whichwould have been payable upon such insurance, but Landlord shall also beentitled to recover as damages for such breach the uninsured amount of any loss(to the extent of any deficiency between the dollar limits of insurancerequired by the provisions of this Lease and the dollar limits of the insuranceactually carried by Tenant) and reasonable costs and expenses, includingreasonable attorneys’ fees, suffered or incurred by reason thereof occurringduring any period when Tenant shall have failed or neglected to provideinsurance as aforesaid.

##  

# **ARTICLE XIII**

# ** **

# **DESTRUCTIONAND RESTORATION**

# ** **

## 13.1                           Repair of Damage to Demised Premisesby Landlord.  Tenant shallpromptly notify Landlord of any damage to the Demised Premises or other portionof the Project resulting from fire or any other casualty.  If Demised Premises or any Common Areasserving or providing access to the Demised Premises shall be damaged by fire orother casualty, Landlord shall promptly and diligently, subject to reasonabledelays for insurance adjustment or other matters beyond Landlord’s reasonablecontrol, and subject to all other terms of this Article XIII, restore theShell and Core Improvements of the Southern Building, the Improvements and suchCommon Areas and such restoration shall be to substantially the same conditionof the Shell and Core Improvements, the Improvements and the Common Areas priorto the casualty and substantially in accordance with the Plans andSpecifications, except for modifications required by zoning and building codesand other laws or by the holder of a mortgage on such the Buildings or Project.Landlord shall not be liable for any inconvenience or annoyance to Tenant orits visitors, or injury to Tenant’s business resulting in any way from suchdamage or the repair thereof; provided however, that if such fire or othercasualty shall have damaged the Demised Premises or Common Areas necessary toTenant’s use, access or occupancy, Landlord shall allow Tenant a proportionateabatement of Base Rent to the extent Landlord is reimbursed from the proceedsof rental interruption insurance purchased (or required to be purchased) byLandlord as part of Operating Expenses, during the time and to the extent theDemised Premises cannot be reasonably used (and is not used) for the operationof Tenant’s business, and not occupied by Tenant as a result thereof for theconduct of Tenant’s business.

##  

## 13.2                           Landlord’s Option to Repair.  Notwithstanding the terms ofSection 13.1 of this Lease, Landlord may elect not to rebuild and/orrestore the Demised Premises, Southern Building and/or Project Common Areas;and instead terminate this Lease by notifying Tenant in writing of suchtermination within ninety (90) days after the date Landlord learns of thenecessity for repairs as the result of damage, such notice to include atermination date giving Tenant ninety (90) days to vacate the Demised Premises,but Landlord may so elect only if (i) the Southern

##  

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## Building or Project Common Areas shall bedamaged by fire or other casualty or cause, and the damage not fully covered,except for deductible amounts (which deductible amounts shall be an OperatingExpense), by Landlord’s insurance policies carried or required to be carried byLender under this Lease exceeds $50,000 (“Landlord’s Threshold”) and(ii) Tenant is not willing to fund Tenant’s Percentage of the amount ofthe shortfall in excess of Landlord’s Threshold. Notwithstanding the foregoing,if this Lease is terminated by Landlord pursuant to this Section 13.2, andLandlord shall thereafter elect, within six (6) months after the date of suchtermination, to rebuild the Southern Building, Tenant shall have the right toreinstate this Lease by written notice to Landlord within ten (10) days afterTenant’s receipt of notice from Landlord that Landlord has so elected torebuild.  Tenant’s failure to so notifyLandlord within such 10-day period shall be deemed to constitute Tenant’swaiver of the right to so reinstate this Lease.

##  

## 13.3                           Landlord’s or Tenant’s Option toTerminate.  Notwithstanding theterms of Section 13.1 of this Lease, either Landlord or Tenant may electto terminate this Lease by notifying the other in writing of such terminationwithin ninety (90) days after the date Landlord learns of the necessity ofrepairs as a result of such damage in the case of Landlord or within thirty(30) days of the date Tenant receives Landlord’s written estimate of the timeto complete such repairs in the case of Tenant, such notice to include atermination date giving Tenant ninety (90) days to vacate the Demised Premises,but Landlord or Tenant, whichever is the case, may so elect only if the DemisedPremises shall be damaged by fire or other casualty or cause and the repairscannot reasonably be substantially completed within one hundred eighty (180)days after the date Landlord learns of the necessity for repairs as a result ofthe damage (when such repairs are made without the payment of overtime or otherpremiums).  In addition, Tenant shallalso have the right to terminate this Lease in the event Landlord does not,subject to Force Majeure,  commence suchrepairs within ninety (90) days after the date that Landlord learns of thenecessity of repairs as a result of such damage or, subject to Force Majeure,Landlord does not substantially complete such repairs within one hundred eighty(180) days after the date Landlord learns of the necessity for repairs as aresult of such damage, such termination to be effective if notice thereof isdelivered in writing to Landlord at any time prior to the date Landlord hascommenced or substantially completed (as the case may be) such repairs prior toreceipt of Tenant’s termination notice.

##  

## 13.4                           Waiver of Statutory Provisions.  The provisions of this Lease, including thisArticle XIII, constitute an express agreement between Landlord and Tenantwith respect to any and all damage to, or destruction of, all or any part ofthe Demised Premises, the Buildings or the Project, and any statute orregulation of the State of California, including, without limitation,Sections 1932(2) and 1933(4) of the California Civil Code, with respect toany rights or obligations concerning damage or destruction in the absence of anexpress agreement between the parties, and any other statute or regulation, nowor hereafter in effect, shall have no application to this Lease or any damageor destruction to all or any part of the Demised Premises, the SouthernBuilding or the Project.

##  

## 13.5                           DamageNear End of Term.  In the eventthat the Demised Premises, the Southern Building, or the Project Common Areasare destroyed or damaged to any substantial extent during the last twelve (12)months of the Lease Term, then notwithstanding anything contained in thisArticle XIII, Landlord shall have the option to terminate this Lease and,to the extent such

##  

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## damage or destruction was not caused as aresult of the negligence or willful misconduct of Tenant or any of TenantParties, Tenant shall have the option to terminate this Lease by giving writtentermination notice to Landlord of the exercise of such option within thirty(30) days after Landlord learns of the necessity for repairs as the result ofsuch damage or destruction or thirty (30) days after Tenant received noticefrom Landlord of the expected time to complete such repairs.  If either Landlord or Tenant exercises suchoption to terminate this Lease as provided above, (i) this Lease shallcease and terminate as of the date of such notice, (ii) Tenant shall paythe Base Rent and Additional Rent due, properly apportioned up to such date oftermination, and (iii) both parties hereto shall thereafter be freed anddischarged of all further obligations hereunder, except as provided for inprovisions of this Lease which by their terms survive the expiration or earliertermination of the Lease Term.  Notwithstandingthe foregoing, if Tenant exercises an Extension Option, Landlord shall not haveany right to terminate this Lease under this Section 13.5.

##  

# **ARTICLE XIV**

# ** **

# **CONDEMNATION**

# ** **

## 14.1                           Condemnation of Entire DemisedPremises.  If, during theInitial Term of this Lease or any extension or renewal thereof, the entireDemised Premises shall be taken as the result of the exercise of the power ofeminent domain (hereinafter referred to as the “**Proceedings**”), this Lease and all right, title and interest ofTenant hereunder shall cease and come to an end on the date of vesting of titlepursuant to such Proceedings.

##  

In any taking of the Demised Premises, or any portion thereof,  whether or not this Lease is terminated asin this Article provided, Tenant shall not be entitled to any portion of theaward for the taking of the Demised Premises or damage to the Improvements,except as otherwise provided in Section 14.3 with respect to therestoration of the Improvements, and Tenant hereby waives any right it now hasor may have under present or future law to receive any separate award ofdamages for its interest in the Demised Premises or any portion thereof, exceptthat  Tenant shall have, nevertheless,the limited right to prove in the Proceedings and to receive any award whichmay be made for damages to or condemnation of Tenant’s movable trade fixturesand equipment, for goodwill and for Tenant’s relocation costs in connectiontherewith.

 

## 14.2                           Partial Condemnation/Terminationof Lease.  If, during the Termof this Lease an amount less than the entire Demised Premises shall be taken insuch Proceedings with the result that it will materially and adverselyinterfere with Tenant’s enjoyment and intended use (as described inSection 4.1, hereof), as reasonably determined by Tenant, Tenant may, atits option, terminate this Lease as to the remainder of the DemisedPremises.  Tenant shall not have theright to terminate this Lease pursuant to the preceding sentence unless(a) the business of Tenant conducted in the portion of the DemisedPremises taken cannot reasonably be carried on with substantially the sameutility and efficiency in the remainder of the Demised Premises, and(b) Landlord does not construct or secure in the Project, within ninety(90) days after the vesting of title or possession in such Proceedings,substantially similar space to the space so taken and as a substantiallyintegrated whole with the remaining portion of the Demised Premises.  Such termination as to the remainder of theDemised Premises shall be effected by notice in writing given not more thansixty (60) days after the date of vesting of title in such Proceedings, and

##  

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## shall specify a date no more than sixty (60)days after the giving of such notice as the date for such termination.  Upon the date specified in such notice, theTerm of this Lease, and all right, title and interest of Tenant hereunder,shall cease and come to an end.  If thisLease is terminated as provided in this Section 14.2, Landlord shall beentitled to and shall receive the total award made in such Proceedings, Tenanthereby assigning any interest in such award, damages, and compensation toLandlord, and Tenant hereby waiving any right Tenant now has or may have underpresent or future law to receive any separate award of damages for its interestin the Demised Premises or any portion thereof or its interest in this Lease,except as otherwise provided in Section 14.1.  The right of Tenant to terminate this Lease as provided in thisSection 14.2, shall not cure or otherwise release Tenant from any thenexisting breach of Tenant’s performance of any of the terms, covenants orconditions of this Lease on its part to be performed.  In the event that Tenant elects not to terminate this Lease as tothe remainder of the Demised Premises, the rights and obligations of Landlordand Tenant shall be governed by the provisions of Section 14.3 hereof.

##  

## 14.3                           Partial Condemnation/Continuationof Lease.  If this Lease is notterminated as provided in Section 14.2 hereof, then this Lease shall, uponvesting of title or possession in the Proceedings, terminate as to the parts sotaken, and Tenant shall have no claim or interest in the award, damages,consequential damages and compensation, or any part thereof except as otherwiseprovided in Section 14.1, Tenant hereby waiving any right Tenant now hasor may have under present or future law to receive any separate award ofdamages for its interest in the Demised Premises or any portion thereof or itsinterest in this Lease, except as otherwise provided in Section 14.1 andexcept that Tenant shall have the right to apply to Landlord for reimbursementas hereinafter provided from such funds as specified in this Section 14.3.  The net amount of the award (after deductionof all costs and expenses, including attorneys’ fees) shall be held by Landlord(or Landlord’s lender) and applied as hereinafter provided.  Landlord, in such case, covenants andagrees, at Landlord’s sole cost and expense promptly to restore that portion ofthe Improvements on the Demised Premises not so taken to a completearchitectural and mechanical unit for the use and occupancy of Tenant asprovided in this Lease.  In the eventthat the net amount of the award (after deduction of all costs and expenses,including attorneys’ fees) that may be received by Landlord in any suchProceedings for physical damage to the Improvements as a result of such taking,and held by Landlord (or Landlord’s lender) for restoration of the DemisedPremises, is insufficient to pay all costs of such restoration work, Landlordshall pay the difference. Tenant shall not be liable for any additional sum.

##  

## 14.4                           Continuance of Obligations.  In the event of any termination of thisLease or any part thereof as a result of any such Proceedings, Tenant shall payto Landlord all Base Rent, all Additional Rent and other charges payablehereunder with respect to that portion of the Demised Premises so taken in suchProceedings with respect to which this Lease shall have terminated justlyapportioned to the date of such termination. From and after the date of vesting of possession in such Proceedings,Tenant shall continue to pay the Base Rent, Additional Rent and other chargespayable hereunder as in this Lease provided to be paid by Tenant, subject to anabatement of a just and proportionate part of the Base Rent according to theextent and nature of such taking as provided for in Sections 14.3 and 14.5hereof in respect to the Demised Premises remaining after such taking.

##  

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## 14.5                           Adjustmentof Rent.  In the event of apartial taking of the Demised Premises and/or Common Areas underSections 14.2 or 14.3 hereof in which  case this Lease is not terminated, the Base Rent for the periodfrom and after the date of vesting of title or possession in such Proceedings,until the termination of this Lease with respect to such portion of the DemisedPremises, shall be reduced to a sum equal to the product of the Base Rentprovided for herein multiplied by a fraction, the numerator of which is thevalue of the Demised Premises after such taking (and once any restoration iscomplete, the value after the same shall have been restored to a completearchitectural unit), and the denominator of which is the value of the DemisedPremises prior to such taking.

##  

# **ARTICLE XV**

# ** **

# **ASSIGNMENT**, SUBLETTING, ETC.

# ** **

#### (a)                                  Restriction on Transfer.  Tenant shall not sublet the Demised Premisesor any portion thereof, nor assign, mortgage, pledge, transfer or otherwiseencumber or dispose of this Lease or any interest therein, or in any mannerassign, mortgage, pledge, transfer or otherwise encumber or dispose of itsinterest or estate in the Demised Premises or any portion thereof withoutobtaining Landlord’s prior written consent in each and every instance.  Landlord’s consent to an assignment orsubletting under this Section 15.1 shall not be unreasonably withheld ordelayed, provided at the time of any assignment or subletting and at the timeTenant requests Landlord’s written consent thereto, this Lease must be in fullforce and effect and Tenant shall not be in material default under this Leasebeyond any applicable cure periods.

####  

#### (b)                                 Anysuch assignee shall assume, by written, recordable instrument, in form andcontent satisfactory to Landlord, the due performance of all of Tenant’sobligations under this Lease from and after the time of the effective date ofthe assignment, and such assumption agreement shall state that the same is madeby the assignee for the express benefit of Landlord as a third partybeneficiary thereof.  A copy of theassignment and assumption agreement, both in form and content satisfactory toLandlord, fully executed and acknowledged by assignee, together with acertified copy of a properly executed corporate resolution (if the assignee bea corporation) authorizing the execution and delivery of such assumptionagreement, shall be sent to Landlord ten (10) days after the effective date ofsuch assignment.

####  

#### (c)                                  Inthe case of a subletting, a copy of any sublease fully executed andacknowledged by Tenant and the sublessee shall be mailed to Landlord ten (10)days after to the effective date of such subletting, which sublease shall be inform and content acceptable to Landlord.

####  

#### (d)                                 Eachsublease permitted under this Section 15.1 shall contain provisions to theeffect that (i) such sublease is only for actual use and occupancy by thesublessee; (ii) such sublease is subject and subordinate to all of theterms, covenants and conditions of this Lease and to all of the rights ofLandlord thereunder; and (iii) in the event this Lease shall terminatebefore the expiration of such sublease, the sublessee thereunder will, atLandlord’s option, attorn to Landlord and waive any rights the sublessee mayhave to terminate the sublease or to surrender possession thereunder as aresult of the termination of this Lease.

####  

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#### (e)                                  Tenantagrees to pay on behalf of Landlord any and all reasonable costs of Landlord,including reasonable attorneys’ fees paid or payable to outside counsel,occasioned by such assignment or subletting, but not to exceed One ThousandDollars ($1,000.00).

####  

## 15.2                           Transfer to Affiliates; Sale or Merger.  Notwithstanding the foregoing provisions ofSection 15.1, Tenant shall be permitted to assign or sublet the DemisedPremises or Tenant’s rights under this Lease, without Landlord’s prior consent,in connection with (i) an initial public offering of Tenant’s stock,(ii) the sale or transfer of substantially all of the assets of Tenant orthe merger or consolidation of Tenant into or with another entity, provided thebuyer, transferee or merged entity has an owner’s equity which, as of the dateof such sale or transfer, is at least as much as is Tenant’s as of the date ofthis Lease; or (iii) to an Affiliate (as defined below) of Tenant,provided, that in any such case Tenant shall be required to give Landlordwritten notice of that assignment or subletting within thirty (30) days thereafter,including written evidence of the identity of the assignee or sublessee (actualor deemed) and its affiliation with Tenant. In no event shall such transfer be permitted under this Article XVbe a subterfuge by Tenant to avoid its obligations under this Lease.  The term “Affiliate” means an entity thatcontrols, is controlled by, or is under common control with Tenant and the term“control” shall mean the ownership, directly or indirectly, of at least fiftypercent (50%) of the outstanding voting interests of an entity.

##  

## 15.3                           Restriction Against FurtherAssignment.  Notwithstandinganything contained in this Lease to the contrary and notwithstanding anyconsent by Landlord to any sublease of the Demised Premises or any portionthereof or to any assignment of this Lease or of Tenant’s interest or estate inthe Demised Premises, except as provided in Section 15.2 above, nosublessee shall assign its sublease nor further sublease the Demised Premisesor any portion thereof, and no assignee shall further assign its interest inthis Lease or its interest or estate in the Demised Premises or any portionthereof, nor sublease the Demised Premises or any portion thereof, withoutLandlord’s prior written consent in each and every instance, which consentshall not be unreasonably withheld or unduly delayed.  No such assignment or subleasing (including any such assignmentor subletting permitted under Section 15.2 above) shall relieve Tenantfrom any of Tenant’s obligations contained in this Lease.

##  

## 15.4                           TransferPremium.

##  

### 15.4.1                  Definition of Transfer Premium.  If Landlord consents (or is deemed to haveconsented) to an assignment, subletting, or other transfer by Tenant(collectively, “Transfer”), as a condition thereto which the parties herebyagree is reasonable, Tenant shall pay, except as otherwise provided in thisArticle XV, pay to Landlord fifty percent (50%) of any “Transfer Premium,”as that term is defined in this Section 15.4, received by Tenant from anysuch transferee (“Transferee”).  ThisSection 15.4 shall not be applicable with respect to any transferpermitted under Section 15.2 above. “**Transfer Premium**” shallmean all rent, additional rent or other consideration payable by suchTransferee in excess of the Base Rent and Additional Rent payable by Tenant underthis Lease on a per rentable square foot basis if less than all of the DemisedPremises is transferred, after deducting the reasonable expenses incurred byLandlord or Tenant for (i) any changes, alterations and improvements tothe Demised Premises in connection with the Transfer, and (ii) anybrokerage commissions, reasonable attorneys’ and architectural fees, reasonableadvertising costs and other reasonable costs incurred

###  

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### in connection with the Transfer(collectively, the “**Subleasing Costs**”).  “Transfer Premium” shall also include, butnot be limited to, key money and bonus money paid by Transferee to Tenant inconnection with such Transfer, and any payment in excess of fair market valuefor services rendered by Tenant to Transferee.

###  

### 15.4.2                  Payment of Transfer Premiums.  The determination of the amount of theTransfer Premium shall be made on an annual basis in accordance with the termsof this Section 15.4.2, but an estimate of the amount of the TransferPremium shall be made each month and one-twelfth of such estimated amount shallbe paid to Landlord promptly, but in no event later than the next date forpayment of Base Rent hereunder, subject to an annual reconciliation on eachanniversary date of the Transfer.  Ifthe payments to Landlord under this Section 15.4.2 during the twelve (12)months preceding each annual reconciliation exceed the amount of TransferPremium determined on an annual basis, then Landlord shall credit theoverpayment against Tenant’s future obligations under this Section 15.4.2or if the overpayment occurs during the last year of the Transfer in question,refund the excess to Tenant.  If Tenanthas underpaid the Transfer Premium, as determined by such annualreconciliation, Tenant shall pay the amount of such deficiency to Landlordpromptly, but in no event later than the next date for payment of Basic Renthereunder.  For purposes of calculatingthe Transfer Premium on an annual basis, Tenant’s Subleasing Costs shall be deemedto be offset against the first Base Rent, Additional Rent or otherconsideration payable by the Transferee, until such Subleasing Costs areexhausted.

###  

### 15.4.3                  Calculations of Rent.  In the calculation of the Rent, as itrelates to the Transfer Premium calculated under Section 15.4.1 above, theRent paid during each annual period for the Subject Space by Tenant, shall becomputed after adjusting such rent to the actual effective rent to be paid,taking into consideration any and all leasehold concessions granted inconnection therewith, including, but not limited to, any rent credit and tenantimprovement allowance.  For purposes ofcalculating any such effective rent, all such concessions shall be amortized ona straight-line basis over the relevant term.

###  

## 15.5                           Landlord’s Recapture Option.  Notwithstanding anything to the contrarycontained in this Article XV, in the event that, following any proposedTransfer, Tenant would not occupy at least fifty percent (50%) of the rentablesquare footage of the original Demised Premises, Landlord shall have theoption, by giving written notice to Tenant within twenty (20) days afterreceipt of any Transfer notice, to recapture the space Tenant proposes toTransfer (“**Subject Space**”).  Such recapture shall cancel and terminatethis Lease, with respect to the Subject Space as of the effective date of theproposed Transfer until the last day of the term of the Transfer as set forthin such Transfer notice.  ThisSection 15.5 shall not apply to any Transfer pursuant to Section 15.2.  In the event of a recapture by Landlord, ifthis Lease shall be canceled with respect to less than the entire DemisedPremises, the Rent reserved herein shall be prorated on the basis of the numberof rentable square feet retained by Tenant in proportion to the number ofrentable square feet contained in the Demised Premises, and this Lease as soamended shall continue thereafter in full force and effect, and upon request ofeither party, the parties shall execute written confirmation of the same.  If Landlord declines, or fails to timelyelect to recapture the Subject Space under this Section 15.4, then,provided Landlord has consented to the proposed Transfer, Tenant shall beentitled to transfer the Subject Space to the proposed Transferee, subject tothe provisions of this Article XV. Notwithstanding the 

##  

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## foregoing, in the event Landlord elects torecapture the Subject Space, Tenant shall have the right, by delivering writtennotice to Landlord within five (5) days after Tenant’s receipt of Landlord’stermination notice, to withdraw Tenant’s request for such Transfer in whichevent Tenant shall have no right to transfer the Subject Space to the proposedTransferee and Landlord’s termination rights under this Section 15.5 shallbe of no further force and effect with respect to such proposed Transfer.

##  

## 15.6                           Tenant’s Failure to Comply.  Tenant’s failure to comply  with all of the foregoing provisions andconditions of this Article XV shall, at Landlord’s option, render anypurported assignment or subletting null and void and of no force and effect.

##  

# **ARTICLE XVI**

# ** **

# **SUBORDINATION**, NONDISTURBANCE, NOTICE TOMORTGAGEE AND ATTORNMENT

# ** **

## 16.1                           Subordination by Tenant.  This Lease and all rights of Tenant thereinand all interest or estate of Tenant in the Demised Premises or any portionthereof shall be subject and subordinate to the lien of any mortgage, deed oftrust, security instrument or other document of like nature (collectively, “**Mortgage**”), which at any time after thedate of this Lease may be placed upon the Demised Premises or any portionthereof, and to each and every advance made under any such Mortgage.  Tenant agrees at any time hereafter, toexecute and deliver to Landlord any instruments, releases or other documentsthat may be reasonably required for the purpose of subjecting and subordinatingthis Lease to the lien of any such Mortgage. It is agreed, nevertheless, that so long as Tenant is not in materialdefault under this Lease beyond any applicable cure periods, that suchsubordination agreement or other instrument, release or document shall notinterfere with, hinder or molest Tenant’s right to quiet enjoyment under thisLease, shall not modify the terms of this Lease, nor the right of Tenant tocontinue to occupy the Demised Premises and all portions thereof, and toconduct its business thereon in accordance with the covenants, conditions,provisions, terms and agreements of this Lease.  The lien of any such Mortgage shall not cover Tenant’s tradefixtures or other personal property located in or on the Demised Premises.  Landlord shall deliver to Tenant acommercially reasonably nondisturbance agreement executed by all lenders havinga lien on the Demised Premises within thirty (30) days after the date of thisLease as a condition precedent in Tenant’s favor, and from each future lenderas a condition to Tenant’s subordination or attornment hereunder.

##  

## 16.2                           Landlord’sDefault.  In the event of anyact or omission of Landlord constituting a default by Landlord, other thanLandlord’s failure to have the Improvements substantially completed on a timelybasis as provided in Article II and to make the same fully available toTenant as therein provided, Tenant shall not exercise any remedy until Tenanthas given Landlord and any mortgagee whose name and address have beenpreviously provided to Tenant prior written notice of such act or omission anduntil a 30-day period of time to allow Landlord or the mortgagee to remedy suchact or omission shall have elapsed following the giving of such notice;provided, however,  if such act oromission cannot with due diligence and in good faith be remedied within such30-day period, Landlord and/or mortgagee shall be allowed such further periodof time as may be reasonably necessary provided that it shall have commencedremedying the same with due diligence and in good faith within said 30-dayperiod.  In the event any act or

##  

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## omission of Landlord which constitutes aLandlord’s default hereunder results in an immediate threat of bodily harm toTenant’s employees, agents or invitees or damage to Tenant’s property, orexposes Tenant to criminal liability, Tenant may proceed to cure the defaultwithout prior notice to Landlord or its mortgagee; provided, however, in thatevent Tenant shall give written notice to Landlord and its mortgagee as soon aspossible after commencement of such cure. Nothing herein contained shall be construed or interpreted as requiringany mortgagee to remedy such act or omission.

##  

## 16.3                           Attornment.  Subject to Section 16.1 above, if anymortgagee shall succeed to the rights of Landlord under this Lease or toownership of the Demised Premises, whether through possession or foreclosure orthe delivery of a deed to the Demised Premises, then, upon the written requestof such mortgagee so succeeding to Landlord’s rights hereunder, Tenant shallattorn to and recognize such mortgagee as Tenant’s landlord under this Lease,and shall promptly execute and deliver any instrument that such mortgagee mayreasonably request to evidence such attornment (whether before or after makingof the mortgage).  In the event of anyother transfer of Landlord’s interest hereunder, upon the written request ofthe transferee and Landlord, Tenant shall attorn to and recognize suchtransferee as Tenant’s landlord under this Lease and shall promptly execute anddeliver any instrument that such transferee and Landlord may reasonably requestto evidence such attornment.

##  

# **ARTICLE XVII**

# ** **

# **SIGNS**

# ** **

## 17.1                           General.  Tenant shall have no right to install ormaintain any Tenant identification signs (or any other signs, banners or othersuch displays) in any location on any Building or in the Project which may bevisible from the exterior of any Building, unless such signs (i) shallhave been expressly approved by Landlord (which approval shall not beunreasonably withheld or delayed) prior to the installation thereof, and (ii)are consistent and compatible with (a) all governmental regulations andrequirements and (b) the signage criteria for the Business Park andProject (“**Signage Criteria**”) inthe form attached to the Business Park CCR’s, and (c) the CCR’s for theBusiness Park.

##  

## 17.2                           Tenant’s Exterior Signage Rights.  Provided the conditions set forth inSection 17.1 above have been satisfied, Tenant shall, at Tenant’s solecost and expense, have the following rights during the Lease Term with respectto Tenant’s Signs:  (i) the rightto install identity signage on the top of the front facade of the exterior ofthe Southern Building in the one (1) location depicted on Exhibit ”E” attachedhereto and (ii) have the nonexclusive right to have its professionalname displayed on the Southern Building monument sign in the location depictedon Exhibit ”E” attached hereto. As used herein, “**Tenant’s Signs**”shall mean all signage rights granted to Tenant pursuant to thisArticle XVII.  The specifications,plans and elevations for Tenant’s Signs (including the graphics, materials,color, design, lettering, height, lighting, size and quality) shall be subjectto Landlord’s approval, which shall not be unreasonably withheld or delayed andshall be consistent with the Signage Criteria for the Business Park andProject.  Tenant shall, at Tenant’s solecost and expense, remove any existing exterior signage replaced by Tenant’sSigns placed on the exterior of the Southern Building.  Tenant’s Signs shall be installed under thesupervision of Landlord by a contractor approved by Landlord and shall be installedin

##  

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## a lien-free manner in accordance with theprovisions of the Lease.  Tenant’s Signsshall be maintained, at the sole cost and expense of Tenant, pursuant to amaintenance program approved and supervised by Landlord.  Tenant shall, at Tenant’s sole cost andexpense (subject to Landlord’s supervision), cause Tenant’s Signs to be removedand the Southern Building and the Project to be restored to the conditionexisting prior to the placement of such Tenant’s Signs at the expiration orearlier termination of Tenant’s Lease (or such earlier time as Tenant elects oris required to remove any such Tenant Signs). If Tenant fails to remove Tenant’s Signs and restore the SouthernBuilding and the Project as provided above within thirty (30) days followingLandlord’s demand therefor, then Landlord may perform such work and all costsand expenses incurred by Landlord in so performing such work shall bereimbursed by Tenant to Landlord within fifteen (15) days following Landlord’sdelivery to Tenant of an invoice therefor.

##  

## 17.3                           Tenant’s Interior Signage Rights.  Tenant shall have the nonexclusive right, atTenant’s sole cost and expense, to have its identity displayed on the lobbydirectory or marquee of the Southern Building. Tenant shall also have the right to install other signage identifyingTenant on the second floor of the Southern Building which interior signageshall be in compliance with the Signage Criteria.  Such second floor identifying signage shall be provided byLandlord, at Tenant’s cost, and such signage shall be comparable to that usedby Landlord for other similar floors in the Buildings and shall comply withLandlord’s Building standard signage program. Any signs, notices, logos, pictures, names or advertisements which areinstalled and that have not been separately approved by Landlord may be removedwithout notice by Landlord at the sole expense of Tenant.  Any signs, window coverings, or blinds (evenif the same are located behind the Landlord-approved window coverings for theDemised Premises), or other items visible from the exterior of the DemisedPremises or the Project, shall be subject to the prior approval of Landlord, inits reasonable discretion.

##  

# **ARTICLEXVIII**

# ** **

# **FINANCIALSTATEMENTS OF TENANT**

# ** **

Not more oftenthan once in any twelve (12) month period or at any time during the continuanceof an Event of Default, at Landlord’s request, Tenant shall provide Landlordwith Tenant’s most recent financial statements in form and content reasonablysatisfactory to Landlord and Landlord’s lenders (which, if Tenant is an entitywhich files periodic financial disclosures to securities regulatoryauthorities, shall be those which are periodically filed with thoseauthorities).  Landlord may providecopies of those financial statements to current and prospective lenders,investors and buyers, identified in writing to Tenant, for examination andreview.  Landlord shall keep all suchfinancial statements strictly confidential and may provide copies of suchfinancial statements to such other parties only upon receiving in return acovenant from each recipient that such recipient shall keep the financialstatements confidential except with the prior written consent of Tenant.

 

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# **ARTICLE XIX**

# ** **

# **CHA**NGES AND ALTERATIONS

# ** **

Tenant shall have the right at any time, and from time to time duringthe Term of this Lease, to make such changes and alterations to the interior ofthe Demised Premises as Tenant shall deem necessary or desirable in connectionwith the requirements of its business, which changes and alterations (otherthan changes or alterations of Tenant’s movable trade fixtures and equipment)shall be made in all cases subject to the following conditions, which Tenantcovenants to observe and perform:

 

#### (a)                                  Permits.  Nochange or alteration shall be undertaken until Tenant shall have procured andpaid for, so far as the same may be required from time to time, all municipal,state and federal permits and authorizations of the various governmental bodiesand departments having jurisdiction thereof, and Landlord agrees to join in theapplication for such permits or authorizations whenever such action isnecessary, all at Tenant’s sole cost and expense, provided such applications donot cause Landlord to become liable for any cost, fees or expenses.

####  

#### (b)                                 Compliance with Plans andSpecifications.  Beforecommencement of any change, alteration, restoration or construction(hereinafter sometimes referred to as “**Work**”)involving an estimated cost of more than Ten Thousand Dollars ($10,000.00), orwhich, (i) in Landlord’s reasonable judgment, would affect any BuildingSystems and Equipment, (ii) require structural changes to the DemisedPremises or any portion of the Southern Building, (iii) are visible fromthe exterior of the Demised Premises or (iv) would, in Landlord’sreasonable judgment, materially increase the maintenance and repair obligationsof Landlord hereunder, Tenant shall (i) furnish Landlord with detailedplans and specifications of the proposed change or alteration; (ii) obtainLandlord’s prior written approval of a licensed architect or licensedprofessional engineer selected and paid for by Tenant who shall approve anysuch work (hereinafter referred to as “**AlterationsArchitect or Engineer**”); and (iii) obtain Landlord’s priorwritten approval (which shall not be unreasonably withheld or delayed) ofdetailed plans and specifications prepared and approved in writing by saidAlterations Architect or Engineer and of each amendment and change thereto.

####  

#### (c)                                  Value Maintained.  Any change or alteration shall, when completed, be of suchcharacter so as not to reduce the value of the Demised Premises or theBuildings to which such change or alteration is made below its value or utilityto Landlord immediately before such change or alteration, nor shall such changeor alteration reduce the area or cubic content of the Demised Premises orBuildings to use without Landlord’s express written consent.

####  

#### (d)                                 Compliance with Laws.  All Work done in connection with any changeor alteration shall be done promptly and in a good and workmanlike manner andin compliance with all building and zoning laws of the place in which theDemised Premises are situated, and in compliance with all laws, ordinances,orders, rules, regulations and requirements of all federal, state and municipalgovernments and appropriate departments, commissions, boards and officersthereof, and in accordance with the orders, rules and regulations of the Boardof Fire Underwriters where the Demised Premises are located or any other bodyexercising similar functions.  The costof any such change or alteration shall be paid in cash so that the Demised

####  

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#### Premises and all portions thereof shall atall times be free of liens for labor and materials supplied to the DemisedPremises or any portion thereof.  TheWork or any change or alteration shall be prosecuted with reasonable dispatch,delays due to strikes, lockouts, acts of God, inability to obtain labor ormaterials, governmental restrictions or similar causes beyond the control ofTenant excepted.  Tenant or Tenant’scontractor or subcontractor shall obtain and maintain at its sole cost andexpense during the performance of the Work workers’ compensation insurancecovering all persons employed in connection with the Work and with respect towhich death or injury claims could be asserted against Landlord or Tenant oragainst the Demised Premises or any interest therein, together withcomprehensive general liability insurance for the mutual benefit of Landlordand Tenant with limits of not less than One Million Dollars ($1,000,000.00) in the event of injury to one person,One Million Dollars ($1,000,000.00) in respect to any one accident oroccurrence, and Five Hundred Thousand Dollars ($500,000.00) for propertydamage, and the fire insurance with “extended coverage” endorsement required bySection 6.1 hereof shall be supplemented with “builder’s risk” insurance ona completed value form or other comparable coverage on the Work if the cost ofsuch work will be in excess of Fifty Thousand Dollars ($50,000.00).  All such insurance shall be in a company orcompanies authorized to do business in the state in which the Demised Premisesare located and reasonably satisfactory to Landlord, and all such policies ofinsurance or certificates of insurance shall be delivered to Landlord endorsed“Premium Paid” by the company or agency issuing the same, or with other evidenceof payment of the premium satisfactory to Landlord.

####  

#### (e)                                  Property of Landlord.  All improvements and alterations (other thanTenant’s movable trade fixtures, furniture and equipment) made or installed byTenant shall, immediately upon completion or installation thereof, become theproperty of Landlord without payment therefor by Landlord, and shall besurrendered to Landlord on the expiration of the Term of this Lease unless andto the extent Tenant is required or permitted to remove the same upon terminationor expiration of the Term as provided in subsection (g), below, in whichevent they shall become the property of Tenant, provided that Tenant shall berequired to restore the Demised Premises in accordance with Section 19(g),below.

####  

#### (f)                                    Removal of Improvements.  As a condition to granting approval for anychanges or alterations, Landlord may require Tenant, by written notice toTenant given at or prior to the time of granting such approval, to remove anyimprovements, additions or installations installed by Tenant in the DemisedPremises at Tenant’s sole cost and expense at the end of the term of this Leaseand repair and restore any damage caused by the installation and removal ofsuch improvements, additions, or installations; provided, however, the onlyimprovements, additions or installations which Tenant shall remove shall bethose specified in such notice.  Allimprovements, additions or installations installed by Tenant which did notrequire Landlord’s prior approval shall be removed by Tenant as provided for inthis Section 19(f), unless such improvements, additions or installationsdo not adversely affect Landlord’s ability to re-lease the DemisedPremises.  Prior to making anyimprovements, additions or alterations that do not require Landlord’s approval,Tenant may request Landlord to specify whether Landlord considers suchimprovements, additions or installations to be of the type that would adverselyaffect Landlord’s ability to re-lease the Demised Premises if not removed byTenant.  Notwithstanding anything to thecontrary contained herein, Tenant shall have the right to remove anyimprovements, additions or alterations installed by Tenant and at its expenseupon expiration or earlier termination of the Term so long as Tenant repairsany damage

####  

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#### caused by such removal at its sole cost andexpense and returns the applicable portion of the Demised Premises to itsoriginal condition prior to the installation of such improvement, addition oralteration.

####  

#### (g)                                 Reasonable Consent.  All consents required of Landlord under this Article XIXshall not be unreasonably withheld or delayed by Landlord.

####  

#### (h)                                 Notice to Landlord.  Regardless of whether Landlord’s consent is required to anychange or alteration to the Demised Premises made or to be made by Tenant, suchchanges or alterations shall not be commenced until two (2) business daysnotice after Landlord has received notice from Tenant stating the date suchchanges or alterations are to commence so that Landlord can post and record anappropriate notice of nonresponsibility.

####  

# **ARTICLE XX**

 

# **ATTORNEYS’FEES**

# ** **

In the event of any litigation, arbitration, mediation or any otheraction taken by either party to this Lease to enforce any provision of thisLease, enforce any remedy available upon default under this Lease, or seek adeclaration of the rights of a party under this Lease, the prevailing partyshall be entitled to recover in such action such attorneys’ fees and costs asmay be reasonably incurred, including, without limitation, the costs ofreasonable investigation, preparation and professional or expert consultation,travel expenses, costs on appeal, court reporter fees and expenses, incurred byreason of such litigation, arbitration or other action.  All other attorneys’ fees and cost relatingto the negotiation and documentation of this Lease and the transactionsdescribed herein shall be borne by the party incurring the same.

 

# **ARTICLE XXI**

 

# **BROKERS**

# ** **

Tenant and Landlord represent that they have dealt only with ColliersInternational, as broker, in connection with this Lease.  Landlord shall be responsible for paying thecommissions owing to such broker under a separate written agreement betweenLandlord and such broker.  Tenant andLandlord will indemnify, defend and hold the other harmless from and againstany loss, cost or expense, including, but not limited to, reasonable attorneys’fees and court costs, resulting from any claim for a fee or commission by anyother broker or finder resulting from their own actions.

 

# **ARTICLE XXII**

# ** **

# **SECURITYDEPOSIT**

# ** **

Concurrent with Tenant’s execution of this Lease, Tenant shall depositwith Landlord a security deposit (the “**Security Deposit**”) in the amount of OneHundred Eleven Thousand Five Hundred Thirty and 25/100 Dollars($111,530.25).  Provided Tenant has notat any time during the Term of this Lease been delinquent in the payment ofRent for more than five (5) days after receipt of the written notice referencedin Section 12.1(a) hereof:  (a)Thirty-Seven Thousand

 

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One Hundred Seventy-Six and 75/100 Dollars ($37,176.75) of the SecurityDeposit shall be credited toward the payment of Rent for the thirteenth (13th)month of the Initial Term and (b) an additional Thirty-Seven Thousand OneHundred Seventy-Six and 75/100 Dollars (37,176.75) of the Security Depositshall be credited toward the payment of Base Rent for the twenty-fifth (25th)month of the Initial Term. The Security Deposit shall be held by Landlord assecurity for the faithful performance by Tenant of all the terms, covenants,and conditions of this Lease to be kept and performed by Tenant during theLease Term.  If Tenant defaults withrespect to any provisions of this Lease, including, but not limited to, theprovisions relating to the payment of Rent, Landlord may, but shall not berequired to, use, apply or retain all or any part of the Security Deposit forthe payment of any Rent or any other sum in default, or for the payment of anyamount that Landlord may spend or become obligated to spend by reason ofTenant’s default, or to compensate Landlord for any other loss or damage thatLandlord may suffer by reason of Tenant’s default.  If any portion of the Security Deposit is so used or applied,Tenant shall, within five (5) days after written demand therefor, deposit cashwith Landlord in an amount sufficient to restore the Security Deposit to itsoriginal amount (as may be increased hereunder), and Tenant’s failure to do soshall be a default under this Lease.  IfTenant shall fully and faithfully perform every provision of this Lease to beperformed by it, the Security Deposit, or any balance thereof, shall bereturned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’sinterest hereunder, within thirty (30) days following the expiration of theLease Term.  Tenant shall not beentitled to any interest on the Security Deposit. Notwithstanding theforegoing, in lieu of cash, Tenant shall have the right at any time to deliverthe Security Deposit in the form of either (a) an irrevocable letter ofcredit in favor of Landlord in the amount of the Security Deposit and issued bya financial institution and otherwise in a form and substance reasonablyacceptable to Landlord or (b) a CD payable to Landlord issued by anational bank or federal savings and loan association in the amount of SecurityDeposit, in which case Landlord shall, within five (5) days thereafter, returnto Tenant the amount of any cash Security Deposit previously delivered by Tenant.  In the event Tenant elects to deliver theSecurity Deposit in the form of a CD, any interest earned upon such CD shallbelong to Tenant, so long as there is no uncured Event of Default by Tenantunder this Lease.  Landlord may applythe CD as if it were cash in the manner described in this Article XIIabove.

 

# **ARTICLEXXIII**

# ** **

# **TENANTPARKING**

# ** **

Commencing onthe Commencement Date, Tenant shall have the right, at no cost to Tenant duringthe Lease Term, to four (4) parking privileges for each 1,000 usable squarefeet of the Demised Premises, which parking privileges shall pertain to theProject parking facilities.  Suchparking privileges shall permit Tenant and its employees to use, on anonexclusive, as-available basis, together with other tenants and theirrespective employees, any undesignated, unreserved spaces available in suchparking facility from time to time. Tenant’s continued right to use the parking privileges is conditionedupon Tenant abiding by all reasonable, nondiscriminatory rules and regulationswhich are prescribed from time to time for the orderly operation and use of theProject parking facility and upon Tenant’s cooperation in seeing that Tenant’semployees and visitors also comply with such rules and regulations.  Such rules and regulations shall providethat Tenant shall pay Landlord’s then current charge for any replacement of anyTenant parking pass card, if any, which is lost, stolen, damaged or destroyed

 

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Landlord may delegate its responsibilities hereunder to a parkingoperator in which case such parking operator shall have all the rights ofcontrol attributed hereby to the Landlord. Tenant’s parking privileges under this Article XXIII are providedto Tenant solely for use by Tenant’s own personnel and its guests, customersand invitees and, except as provided in Section 15.2, such privileges maynot be transferred, assigned, subleased or otherwise alienated by Tenantwithout Landlord’s prior approval.  Theparking privileges allocated to Tenant are not for long term (i.e., more than48 hours) storage of automobiles, or for short or long term storage of boats,trailers, recreational vehicles, motorcycles or other vehicles or equipment.

 

# **ARTICLE XXIV**

# ** **

# **[INTENTIONALLYDELETED]**

# ** **

# **ARTICLE XXV**

# ** **

# **MISCELLANEOUSPROVISIONS**

# ** **

## 25.1                           Entryby Landlord.  Tenant agrees topermit Landlord and  authorizedrepresentatives of Landlord to enter upon the Demised Premises at allreasonable times during ordinary business hours upon at least two (2) businessday’s advance notice to Tenant for the purpose of inspecting the same andmaking any repairs required to be made thereto by Landlord under the terms ofthis Lease, or as required to be made thereto by Tenant under the terms of thisLease provided that Landlord shall have first given written notice to Tenant tomake such repairs and Tenant shall have failed to make such repairs withinthirty (30) days after notice; provided, however, Tenant shall be allowed suchfurther period of time as may be provided in Section 12.1(b); and,provided further, that Landlord shall be allowed to enter upon the DemisedPremises during an emergency.  Nothingherein contained shall imply any duty upon the part of Landlord to do any suchwork which, under any provision of this Lease, Tenant may be required toperform, and the performance thereof by Landlord shall not constitute a waiverof Tenant’s default in failing to perform the same.  Landlord may, during the progress of any work, keep and storeupon the Demised Premises all necessary materials, tools and equipment in areasdesignated by Tenant.  Landlord shallnot in any event be liable for inconvenience, annoyance, disturbance, loss ofbusiness or other damage to Tenant by reason of making such repairs or theperformance of any such work in or about the Demised Premises or on account ofbringing material, supplies and equipment into, upon or through the DemisedPremises during the course thereof, and the obligations of Tenant under thisLease shall not be thereby affected in any manner whatsoever; except thatLandlord shall use its best efforts to not unreasonably interfere with Tenant’suse of the Demised Premises, or any portion thereof, by reason of Landlord’smaking such repairs or the performance of any such work in or about the DemisedPremises or on account of bringing materials, supplies and equipment into, uponor through the Demised Premises during the course thereof.  Tenant may accompany Landlord on anyinspection or entry by Landlord. Notwithstanding anything to the contrary contained herein, Tenant shallhave the right to have its representative accompany Landlord and any otherparty entering the Demised Premises at all times during any entry upon theDemised Premises permitted by this Section or any other provision of thisLease.  In addition, Landlord agreesthat it will comply with any reasonable precautions required by Tenant toprotect Tenant’s trade secrets, intellectual property

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## and other confidential or proprietarydocuments and information during any such entry upon the Demised Premises.

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## 25.2                           Exhibition of Demised Premises.  Landlord is hereby given the right duringusual business hours upon at least two (2) business days’ advance notice toTenant at any time during the Term of this Lease to enter upon the DemisedPremises and to exhibit the same for the purpose of mortgaging or selling thesame.  During the final year of theTerm, Landlord shall be entitled (i) to display on the Demised Premises insuch manner as to not unreasonably interfere with Tenant’s business, signsreasonably approved as to design and location by Tenant indicating that theDemised Premises are for rent and/or sale and suitably identifying Landlord orits agent, and (ii) upon at least two (2) business days’ advance notice toTenant, to exhibit the Demised Premises to prospective tenants.

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## 25.3                           WorkoutFacility.  The Shell and CoreImprovements shall include a workout facility (“Workout Facility”), whichWorkout Facility will be located in the Southern Building.  Fifty percent (50%) of the square footage ofthe Workout Facility shall be allocated to and be included in the rentablesquare footage of the Southern Building and, as a result thereof, the Base Rentpayable with respect to the Southern Building shall be increased to reflect theportion of the Demised Premises located in the Southern Building’s proratashare of such additional rentable square footage.  The cost of maintaining and repairing the Workout Facility(including, but not limited to, the maintenance, repair and replacement of allexercise machines and equipment) shall be an Operating Expense.  The Workout Facility shall be considered aProject Common Area available for use by Tenant and, at Landlord’s discretion,any other tenants of the Project.

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## 25.4                           Notices.  All notices, demands and requests which maybe or are required to be given, demanded or requested by either party to theother shall be in writing, and shall be sent by United States registered orcertified mail, postage prepaid, by an independent overnight courier servicemarked for next business day delivery, or by telephonic facsimile transmissionwith automatic written time and date confirmation of delivery transmittedbetween the hours of 9:00 A.M. and 5:00 P.M. (time zone of recipient,but only if confirmed within two (2) business days by receipt of a mailed orpersonally delivered copy), and addressed as follows:

##  

Sorrento Wateridge Partners, L.P.

c/o The Allen Group

6005 Hidden Valley Road, Suite 150

Carlsbad, California  92009

Attention:  Kevin A. Noell

Facsimile:  (760) 707-1909

 

To Tenant:

 

American Residential Investment Trust, Inc.

10421 Wateridge Circle

San Diego, CA  92121

Attention:  Ken Walker

Facsimile:  (858) 350-6484

 

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or at such other place as a party hereto may from time to timedesignate by written notice thereof to the other.  Notices, demands and requests which shall be served upon Landlordby Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall be deemedreceived three (3) days after delivery to United States mail, one (1) businessday after delivery to an overnight courier service, or at the time such notice,demand or request shall be transmitted by facsimile (if confirmed as writtenabove).

 

## 25.5                           QuietEnjoyment.  Landlord covenantsand agrees that Tenant, upon paying the Base Rent and Additional Rent and uponobserving and keeping the covenants, agreements and conditions of this Lease onits part to be kept, observed and performed, shall lawfully and quietly hold,occupy and enjoy the Demised Premises (subject to the provisions of this Lease)during the Term of this Lease without hindrance or molestation by Landlord orby any person or persons claiming under Landlord.

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## 25.6                           Landlord’s Continuing Obligations.  The term “**Landlord**,”as used in this Lease, so far as covenants or obligations on the part ofLandlord are concerned, shall be limited to mean and include only the owner orowners at the time in question of the fee of the Demised Premises, and in theevent of any transfer or transfers or conveyance, the then grantor shall beautomatically freed and relieved from and after the date of such transfer orconveyance of all liability as respects the performance of any covenants orobligations on the part of Landlord contained in  this Lease thereafter to be performed, provided that any funds inthe hands of such landlord or the then grantor at the time of such transfer, inwhich Tenant has an interest, shall be turned over to the grantee, and anyamount then due and payable to Tenant by Landlord or the then grantor under anyprovision of this Lease, shall be paid to Tenant, and further provided that thenew Landlord expressly assumes in writing for the benefit of Tenant all obligationsof Landlord under this Lease.  Thecovenants and obligations contained in this Lease on the part of Landlordshall, subject to the aforesaid, be binding on Landlord’s successors andassigns during and in respect of their respective successive periods ofownership.  Nothing herein containedshall be construed as relieving Landlord of its obligations underArticle II of this Lease or releasing Landlord from any obligation tocomplete the cure of any breach by Landlord during the period of its ownershipof the Demised Premises.  However,Tenant agrees to look solely to Landlord’s interest in the Land, the Buildingsand the Improvements for the recovery of any judgment from Landlord, it beingagreed that, if Landlord is a partnership, Landlord’s partners, whether generalor limited, or if Landlord is a corporation, its directors, officers andshareholders, shall never be personally liable for any such judgments ordamages.  Notwithstanding the foregoing,Landlord and its general partner shall be fully and personally liable forclaims by Tenant relating to Landlord’s obligations under Sections 2.1(the Improvements), 2.6 (Liquidated Damages for Delay in SubstantialCompletion), and 2.9 (Condition of Demised Premises; Limited Warranty),provided that such personal liability under Section 2.9 for defects in theImprovements for any Phase shall only apply with respect to defects of whichTenant gives Landlord notice within one (1) year after the Commencement Date orapplicable Delivery Date for such Phase.

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## 25.7                           Estoppel.  Either party shall, without charge at anytime and from time to time, within ten (10) business days after written requestby the other party, certify by written instrument, duly executed, acknowledgedand delivered to any mortgagee, assignee of a

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## mortgagee, proposed mortgagee, purchaser orproposed purchaser, or any other person dealing with such other party:

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#### (a)                                  Thatthis Lease (and all guaranties, if any) is unmodified and in full force andeffect (or, if there have been modifications, that the same is in full forceand effect, as modified and stating the modifications);

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#### (b)                                 Thedates to which the Base Rent or Additional Rent have been paid in advance.

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#### (c)                                  Whetheror not there are then existing any breaches or defaults by such party or theother party known by such party under any of the covenants, conditions,provisions, terms or agreements of this Lease, and specifying such breach ordefault, if any, or any set-offs or defenses against the enforcement of anycovenant, condition, provision, term or agreement of this Lease upon the partof Landlord or Tenant, as the case may be, to be performed or complied with(and, if so, specifying the same and the steps being taken to remedy the same);and

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#### (d)                                 Suchother statements or certificates as Landlord or any mortgagee may reasonablyrequest.

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It is the intention of the parties hereto that any statement deliveredpursuant to this Section 25.7 may be relied upon by any of such partiesdealing with Landlord or the Demised Premises. Failure by Tenant to timely respond to such request shall be deemedTenant’s certification of the accuracy of such matters.

 

## 25.8                           Delivery of Corporate Documents.  In the event that Tenant is a corporation orsimilar business entity (e.g., limited partnership, limited liability companyor limited liability partnership), Tenant shall, without charge to Landlord,not more than once in any twelve (12) month period or any time during thecontinuance of an Event of Default, within ten (10) business days after writtenrequest by Landlord, deliver to Landlord, in connection with any proposed saleor mortgage of the Demised Premises, the following instruments and documents:

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#### (a)                                  Certificateof Good Standing in the state of incorporation of Tenant and in the state inwhich the Demised Premises are located issued by the appropriate stateauthority and bearing a current date;

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#### (b)                                 Acopy of Tenant’s articles of incorporation and by-laws (or partnership oroperating agreement, as the case may be) and any amendments or modificationsthereof certified by the secretary or assistant secretary (or managing partneror member, as the case may be) of Tenant;

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#### (c)                                  Awritten and certified confirmation from the secretary or assistant secretary(or managing partner or member, as the case may be) that (i) this Leasehas been duly authorized by all necessary corporate action and is a valid andbinding agreement enforceable in accordance with its terms; and(ii) Tenant is a duly organized and validly existing corporation under thelaws of its state of incorporation, is duly authorized to carry on itsbusiness, and is in good standing under the laws of the state in which theDemised Premises are located, if different from the state of incorporation.

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## 25.9                           Intentionally Omitted.

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## 25.10                     Severability.  If any covenant, condition, provision, termor agreement of this Lease shall, to any extent, be held invalid orunenforceable, the remaining covenants, conditions, provisions, terms andagreements of this Lease shall not be affected thereby, but each covenant,condition, provisions, term or agreement of this Lease shall be valid and inforce to the fullest extent permitted by law.

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## 25.11                     Successorsand Assigns.  The covenants andagreements herein contained shall bind and inure to the benefit of Landlord,its successors and assigns, and Tenant and its permitted successors andassigns.

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## 25.12                     Captions.  The caption of each article of this Lease isfor convenience and reference only, and in no way defines, limits or describesthe scope or intent of such article or of this Lease.

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## 25.13                     Relationshipof Parties.  This Lease does notcreate the relationship of principal and agent, partnership, jointventure,  or any association orrelationship between Landlord and Tenant, the sole relationship betweenLandlord and Tenant being that of landlord and tenant.

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## 25.14                     EntireAgreement.  All preliminary andcontemporaneous negotiations are merged into and incorporated in thisLease.  This Lease, together with theexhibits attached hereto, contains the entire agreement between the parties andshall not be modified or amended in any manner except by any instrument inwriting executed by the parties hereto.

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## 25.15                     No Merger.  There shall be no merger of this Lease or ofthe leasehold estate created by this Lease with any other estate or interest inthe Demised Premises by reason of the fact that the same person, firm,corporation or other entity may acquire, hold or own, directly or indirectly,(a) this Lease or the leasehold interest created by this Lease or anyinterest therein, and (b) any such other estate or interest in the DemisedPremises, or any portion thereof.  Nosuch merger shall occur unless and until all persons, firms, corporations orother entities having an interest (including a security interest) in(1) this Lease or the leasehold estate created thereby, and (2) anysuch other estate or interest in the Demised Premises, or any portion thereof,shall join in a written instrument expressly affecting such merger and shallduly record the same.

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## 25.16                     Possessionand Use.  Tenant acknowledgesthat the Demised Premises are the property of Landlord and that Tenant has onlythe right to possession and use thereof upon the covenants, conditions,provisions, terms and agreements set forth in this Lease.

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## 25.17                     Surrenderof Demised Premises. Subject to the other provisions of this Lease, at the expiration of theTerm of this Lease, Tenant shall surrender the Demised Premises in the samecondition as they were in upon delivery of possession thereto at theCommencement Date or applicable Delivery Date, reasonable wear and tear,casualty and condemnation excepted, and shall surrender all keys to the DemisedPremises to Landlord at the place then fixed for the payment of Base Rent, andshall inform Landlord of all combinations on locks, safes and vaults, ifany.  Tenant shall at such time removeall of its property therefrom and all alterations and improvements placedthereon by Tenant if so requested by Landlord, or otherwise allowed, subject toSections 19(e) and (f).  Tenantshall repair any damage to the Demised Premises

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## caused by such removal, and any and all suchproperty not so removed shall, at Landlord’s option, become the exclusiveproperty of Landlord or be disposed of by Landlord, at Tenant’s cost andexpense, without further notice to or demand upon Tenant, subject to applicablelaw and Sections 19(e) and (f).

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All property of Tenant not removed on or before the last day of  the Term of this Lease shall be deemedabandoned in accordance with, and subject to, applicable law.

 

## 25.18                     HoldingOver.  In the event Tenantremains in possession of the Demised Premises after expiration of this Leaseand without the execution of a new lease, it shall be deemed to be occupyingthe Demised Premises as a tenant from month-to-month, subject to all theprovisions, conditions and obligations of this Lease insofar as the same can beapplicable to a month-to-month tenancy, except that the Base Rent shall beescalated to one hundred and twenty five percent (125%) of the then currentBase Rent for the Demised Premises for the first three (3) months of suchtenancy and one hundred and fifty percent (150%) of such amount thereafter, andfrom and after such three (3) month period, Tenant shall indemnify, defend andhold Landlord harmless against loss or liability resulting from the delay byTenant in so surrendering the Demised Premises, including without limitationany claim made by any succeeding occupant founded on such delay.  Tenant’s obligation to observe or performthis covenant shall survive the expiration or other termination of this Lease.

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## 25.19                     Survival.  All obligations of either party (togetherwith interest or money obligations at the Maximum Rate of Interest) accruingprior to expiration of the Term of this Lease shall survive the expiration orother termination of this Lease.

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## 25.20                     ApplicableLaw.  This Lease shall begoverned and interpreted in accordance with the laws of the State ofCalifornia.

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## 25.21                     Counterparts.  This Lease may be executed in one or morecounterparts, each of which shall be deemed an original and all of which, whentaken together, shall constitute a single instrument.

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IN WITNESS WHEREOF, each of the parties hereto have caused this Leaseto be duly executed as of the day and year first above-written.

 
| LANDLORD:                                  |
|--------------------------------------------|
|                                       |
| SORRENTO WATERIDGE PARTNERS, L.P.,         |
| a California limited partnership           |
|                                       |
| By:                                        | Allen Development of Southern |
|                                       | California, LLC, a Delaware limited |
|                                       | liability company, General Partner |
|                                       |
|                                       | By: |  /s/ Richard S. Allen |   |
|                                       | Richard S. Allen, |
|                                       | Chief Executive Officer |
|                                       |
|                                       | By: |  /s/ Kevin A. Noell |   |
|                                       |   | Kevin A. Noell, |
|                                       |   | President |
|                                       |
| TENANT:                                    |
|                                       |
| AMERICAN RESIDENTIAL INVESTMENT            |
| TRUST, INC., a Maryland   corporation |
|                                       |
| By:                                        |   /s/ Jay M. Fuller |   |
| Name:                                      |   Jay M. Fuller |   |
| Title:                                     |   President |   |
|                                       |   |
| By:                                        |   /s/ Clay Strattmatter |   |
| Name:                                      |  Clay Strattmatter |   |
| Title:                                     |    V.P. Finance |   |
|                                            |  |  |  |  |  |  |  |

 

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**EXHIBIT“A”**

 

**LEGAL DESCRIPTION OFLAND**

 

A-1

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**EXHIBIT “B****”**

 

**SITE PLAN**

 

**[TOBE ATTACHED]**

 

B-1

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**EXHIBIT “C”**

 

**PROPOSED SPACE PLAN**

 

C-1

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**EXHIBIT “D”**

 

**INTENTIONALLY****OMITTED**

 

D-1

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**EXHIBIT “E”**

 

**TENANT****’S SIGNAGEPLANS**

 

E-1

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**SECOND AMENDMENT TO LEASE**

 

This SECONDAMENDMENT TO LEASE (“Amendment”) is entered into as of December 4, 2002, by andbetween SORRENTO WATERIDGE PARTNERS, L.P., a California limited partnership(“Landlord”) and AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., a Marylandcorporation (“Tenant”), with reference to the following facts:

 

RECITALS :

 

A.                                   Landlordand Tenant entered into that certain Lease dated September 2001 (the “Lease”),as amended by a First Amendment thereto dated November 29, 2001 (the “FirstAmendment”), for certain premises located with the project commonly known as“Wateridge Technology Center” (the “Demised Premises”), as more particularlydescribed in the Lease. Capitalized terms used in this Amendment and nototherwise defined herein shall have meaning ascribed to them in the Lease.

 

B.                                     Inaccordance with Section 2.4 of the Lease (as set forth in the First Amendment),Tenant has delivered the Expansion Notice relating to Tenant’s right to expandinto and lease the Infogate Premises. Landlord and Tenant now desire to amend the Lease to confirm anddocument the revisions thereto resulting from the Expansion Notice.

 

NOW,THEREFORE, for valuable consideration, the receipt and sufficiency of which arehereby acknowledged, Landlord and Tenant hereby agree to amend the Lease asfollows:

 

1.                                       Expansionof Demised Premises.  Commencing onDecember 1, 2002 (the “Expanded Premises Commencement Date”), the DemisedPremises shall be the 23,985 rentable square feet originally demised under theLease, plus Suite 200 in the Southern Building, consisting of 8,089 rentablesquare feet (the “Expanded Premises”) (for a total of 32,074 rentable squarefeet), plus Tenant’s non-exclusive rights to use the Common Areas, as more particularlyprovided in the Lease.  Landlord shallbe responsible for causing Infogate to vacate the Expanded Premises, and shalldeliver the Expanded Premises to Tenant in a vacant, broom-clean condition onthe Expanded Premises Commencement Date.

 

2.                                       BaseRent.  The Base Rent for theExpanded Premises shall initially be $1,803 per rentable square foot.  On December 14, 2002, and every twelve (12)months thereafter during the Initial Term, the then-applicable Base Rent shallbe increased by a factor of three percent (3%).  Base Rent for the Expanded Premises during the Option Term shallbe as set forth in Section 3.2 of the Lease.

 

3.                                       OperatingExpenses; Tenant’s Parking.  As ofthe Expanded Premises Commencement Date, Tenant’s Percentage and Tenant’sparking privileges shall be recalculated to reflect the increased size of theDemised Premises.  The “Base Year” forthe Expanded Premises shall be the calendar year 2002.

 

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4.                                       CommencementDate.  Landlord and Tenant herebyacknowledge that the Commencement Date of the Lease occurred on December 14,2001.

 

5.                                       Counterparts.  This Amendment may be executed in multiplecounterparts, all of which together shall constitute one and the sameAmendment.

 

6.                                       Effectof Amendment.  This Amendment andall terms herein are effective as of the date hereof subject to the terms andconditions set forth herein.  Except asexpressly amended hereby, all terms and conditions of the Lease shall continuein full force and effect throughout the Lease Term.  The Lease, as amended hereby and by the First Amendment,constitutes the entire agreement of the parties and no further modification ofthe Lease shall be binding or effective unless evidenced by an amendment inwriting, signed by both Landlord and Tenant.

 

IN WITNESSWHEREOF, Landlord and Tenant have executed this Amendment as of the date firstwritten above.

 
| “Landlord” | SORRENTO  WATERIDGE PARTNERS, L.P.,  a California limited partnership |
|----------------------|-----------------------------------------------------------------------|
|                 |                                                                  |   |
|                 | By:                                                                   | Allen  Development of Southern California LLC, a Delaware limited liability company,  its General Partner |
|                 |                                                                  |   |
|                 |                                                                  | By: | /s/ Kevin A.  Noell |
|                 |                                                                  | Name:  Kevin A. Noell |
|                 |                                                                  | Title:  President |
|                 |                                                                  |   |
| “Tenant”   | AMERICAN  RESIDENTIAL INVESTMENT  TRUST, INC., a Maryland corporation |
|                 |                                                                  |
|                 | By:                                                                   | /s/ Judith  A. Berry |   |
|                 | Name:                                                                 | Judith A.  Berry |   |
|                 | Title:                                                                | Executive  Vice President |   |
|                 |                                                                  |   |
|                 |                                                                  |   |
|                 | By:                                                                   | /s/ Clay  Strittmatter |   |
|                 | Name:                                                                 | Clay  Strittmatter |   |
|                 | Title:                                                                | SENIOR VICE  PRESIDENT |   |
|                      |                                                                       |  |  |  |

 

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