exv10w17






Exhibit 10.17




1717 DOOLITTLE DRIVE

2250 WILLIAMS STREET

MODIFIED INDUSTRIAL GROSS LEASE




 









 








1717 DOOLITTLE DRIVE

2250 WILLIAMS STREET

MODIFIED INDUSTRIAL GROSS LEASE




	 	 	 
	 	 	Page
	1. DEFINED TERMS, EXHIBITS, PREMISES AND LANDLORD’S RESERVED RIGHTS
	 	1
	1.01. Defined Terms
	 	1
	1.02. Exhibits
	 	2
	1.03. Premises
	 	2
	1.04. Common Area
	 	2
	1.05. Landlord’s Reserved Rights
	 	2
	2. TENANT’S ACCEPTANCE OF PREMISES
	 	2
	3. TERM
	 	2
	3.01. Commencement Date
	 	2
	3.02. Term
	 	2
	3.03. Delay in Possession
	 	3
	3.04. Renewal Options
	 	3
	4. RENT
	 	4
	4.01. Base Rent
	 	4
	4.02. Escalation
	 	4
	4.03. Additional Rent and Estimated Payments
	 	4
	4.04. Rent Defined
	 	4
	4.05. Interest and Late Charge
	 	4
	4.06. Letter of Credit
	 	4
	5. REAL PROPERTY TAXES
	 	5
	5.01. Tenant’s Obligations
	 	5
	5.02. Limitation
	 	6
	5.03. Personal Property Taxes
	 	6
	5.04. Proposition 13
	 	6
	6. INSURANCE
	 	6
	6.01. Tenant’s Obligations
	 	6
	6.02. Landlord’s Property
	 	6
	6.03. Landlord’s Liability Insurance
	 	7
	6.04. Tenant’s Liability
	 	7
	6.05. Fire and All Risk Coverage Insurance
	 	7
	6.06. Rental Abatement Insurance
	 	7
	6.07. Insurance Certificates; Other Requirements
	 	7
	6.08. Tenant’s Failure
	 	7
	6.09. Waiver of Subrogation
	 	7
	6.10. Indemnification of Landlord
	 	7
	6.11. Intentionally Deleted
	 	7
	6.12. Workers’ Compensation Insurance
	 	7
	6.13. Business Interruption Insurance
	 	7
	6.14. Comprehensive Automobile Liability Insurance
	 	7
	6.15. Landlord’s Disclaimer
	 	8
	7. OPERATING EXPENSES, REPAIRS AND MAINTENANCE
	 	8
	7.01. Operating Expenses
	 	8
	7.02. Tenant Repairs and Maintenance
	 	8
	7.03. Landlord Repairs and Maintenance
	 	8
	7.04. Inspection of Premises
	 	8
	7.05. Liens
	 	9
	7.06. Audit Rights
	 	9
	8. ALTERATIONS
	 	9
	8.01. Fixtures and Personal Property
	 	9
	8.02. Alterations
	 	9
	9. UTILITIES AND EASEMENTS
	 	9
	9.01. Utilities
	 	9
	10. USE OF PREMISES
	 	9
	10.01. General
	 	9
	10.02. Hazardous Materials
	 	10
	10.03. Environmental Disclosure
	 	10
	10.04. Reclaimed Water
	 	10
	10.05. Signs
	 	10
	10.06. Parking
	 	10
	11. DAMAGE AND DESTRUCTION
	 	11
	11.01. Reconstruction
	 	11
	11.02. Rent Abatement
	 	11
	11.03. Option to Terminate
	 	11
	11.04. Uninsured Casualty
	 	11
	11.05. Waiver
	 	11
	12. EMINENT DOMAIN
	 	11
	12.01. Total Condemnation
	 	11
	12.02. Partial Condemnation
	 	11
	12.03. Landlord’s Award
	 	12
	12.04. Tenant’s Award
	 	12
	12.05. Temporary Condemnation
	 	12
	12.06. Delivery of Documents
	 	12
	13. DEFAULT
	 	12
	13.01. Events of Default
	 	12
	13.02. Landlord’s Remedies
	 	12
	13.03. Landlord’s Remedies Cumulative
	 	13
	14. ASSIGNMENT AND SUBLETTING
	 	13






i









 






	 	 	 
	 	 	Page
	14.01. Approval
	 	13
	14.02. Landlord Option
	 	14
	14.03. Bonus Rental
	 	14
	14.04. Scope
	 	14
	14.05. Release
	 	14
	14.06. Holding Over
	 	14
	14.07.  Waiver
	 	14
	14.08. Permitted Transfers
	 	14
	15. ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION
	 	15
	15.01. Estoppel Certificate
	 	15
	15.02. Attornment
	 	15
	15.03. Subordination
	 	15
	16. MISCELLANEOUS
	 	15
	16.01. Waiver
	 	15
	16.02. Financial Statements
	 	15
	16.03. Accord and Satisfaction
	 	15
	16.04. Limitation of Landlord’s Liability
	 	15
	16.05.  Entire Agreement
	 	15
	16.06. Time
	 	15
	16.07. Attorneys’ Fees
	 	15
	16.08. Captions and Article Letters
	 	15
	16.09. Severability
	 	15
	16.10. Applicable Regulations
	 	15
	16.11. Examination of Lease
	 	15
	16.12. Surrender
	 	15
	16.13. Authority
	 	16
	16.14. Broker
	 	16
	16.15. Landlord’s Right to Perform
	 	16
	16.16. Modification for Lender
	 	16
	16.17. Landlord’s Lien
	 	16
	16.18. Notices
	 	16
	16.19. Hazardous Materials Notification
	 	16
	16.20. Force Majeure
	 	16
	16.21. USA Patriot Act and Anti-Terrorism Laws
	 	16
	16.22. Right of First Negotiation
	 	17







ii











 






1717 DOOLITTLE DRIVE

2250 WILLIAMS STREET

MODIFIED INDUSTRIAL GROSS LEASE



THIS LEASE (“Lease”), dated as of November 25, 2008 (the
“Effective Date”), is made by and between
DOOLITTLE WILLIAMS, LLC, a California limited liability company (“Landlord”), and ENERGY RECOVERY,
INC., a Delaware corporation (“Tenant”).




1. DEFINED TERMS, EXHIBITS, PREMISES AND LANDLORD’S RESERVED RIGHTS




     1.01 Defined Terms.



	 	 	 
	1. Landlord:

	 	Doolittle Williams, LLC, a California limited liability company
	 
	 	 
	2. Landlord’s Address:

	 	c/o McGrath Properties
	 

	 	130 Webster Street, Suite 200
	 

	 	Oakland, CA 94607
	 
	 	 
	3. Tenant:

	 	Energy Recovery, Inc., a Delaware corporation
	 
	 	 
	4. Tenant’s Address prior to the Commencement
Date:

	 	1908 Doolittle Drive

San Leandro, CA 94577
	 
	 	 
	4.a. Tenant’s Address as of  the Commencement
Date:

	 	1717 Doolittle Drive

San Leandro, CA 94577
	 
	 	 
	5. Property:

	 	All of the real property and improvements identified in
Exhibit A attached hereto.
	 
	 	 
	6. Building:

	 	The building located upon the Property and commonly known as
1717 Doolittle
Drive, San Leandro, CA, containing approximately 106,250
rentable square feet.
	 
	 	 
	7. Warehouse:

	 	The warehouse building located upon the Property and commonly
known as 2250 Williams street, san Leandro, CA, containing
approximately 223,125 rentable square feet.
	 
	 	 
	8. Warehouse Premises:

	 	The portion of the Warehouse identified in Exhibit B attached
hereto containing approximately 17,500 rentable square feet.
	 
	 	 
	9. Premises:

	 	The Building (in its entirety) and the Warehouse Premises.
	 
	 	 
	10. Term:

	 	10 years
	 
	 	 
	11. Scheduled Commencement Date:

	 	August 1, 2009
	 
	 	 
	12. Base Rent:

	 	$0.75 per rentable square foot of the Building per month and
$0.50 per rentable square foot of the Warehouse Premises per
month.
	 
	 	 
	13. Prepaid Rent:

	 	 $88,437.50
	 
	 	 
	14. Rent Escalations:

	 	The Base Rent shall increase by 2.5% upon each anniversary of
the Commencement Date (as hereinafter defined).
	 
	 	 
	15. Base Year:

	 	Calendar year 2009
	 
	 	 
	16. Intentionally Deleted:
	 	 
	 
	 	 
	17. Tenant’s Share of Building Tax Expenses:

	 	 100%
	 
	 	 
	17.a. Tenant’s Share of Warehouse Tax Expenses:

	 	 7.84%
	 
	 	 
	18. Intentionally Deleted:
	 	 
	 
	 	 
	19. Tenant’s Share of Building Insurance Expenses:

	 	 100%
	 
	 	 
	19.a. Tenant’s Share of Warehouse Insurance
Expenses:

	 	 7.84%
	 
	 	 
	20. Commercial General Liability Policy Limit:

	 	Five Million Dollars ($5,000,000)
	 
	 	 
	21. Tenant’s Share of Building Operating Expenses:

	 	 100%
	 
	 	 
	22. Tenant’s Share of Warehouse Operating
Expenses:

	 	 7.84%
	 
	 	 
	23. Letter of Credit:

	 	See Section 4.06
	 
	 	 
	24. Permitted Uses:

	 	Design, manufacturing, assembly, research and development,
testing associated with Tenant’s business, and administrative
and office use associated with Tenant’s business.
	 
	 	 
	25. Landlord’s Broker:

	 	CBRE (Michael Barry and Mark Kol)
	 
	 	 
	26. Tenant’s Broker:

	 	Jones Development Companies (Don Jones)





The foregoing provisions constitute the defined terms (“Defined Terms”). Each reference in this
Lease to Section 1.01 or the Defined Terms shall be construed to incorporate the applicable Defined
Terms in this Section 1.01.







1









 








     1.02. Exhibits. The following Exhibits are attached to this Lease and incorporated herein by
reference thereto.



     Exhibit A — Legal Description of the Property



     Exhibit B — First Floor of the Building and the Warehouse Premises



     Exhibit B — 1 — Second Floor of the Building



     Exhibit C — Form of commencement Date Memorandum



     Exhibit D — Work Letter



     Exhibit E — Environmental Disclosure Statement



     Exhibit F — Hazardous Materials Notification



     1.03. Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the
Premises, subject to the provisions of this Lease, With respect to the portion of the premises
located in the Warehouse, the Premises shall extend from the top surface of the subfloor to the
bottom surface of the roof deck, but exclude the portion of the Common Area (as hereinafter
defined) located within due warehouse.



     1.04. Common Area. Tenant may, as appurtenant to the Premises and subject to the rules made by
Landlord of which Tenant is given notice, use the following areas (collectively “Common Area”) in
common with other tenants or occupants of the Property:




     a. Floor Common Area. With respect to the Warehouse, the lobbies, hallways, toilets, refuse
facilities, interior utility raceways, and other common facilities located therein, if any;
and




     b. Lot common Area. The parking area, together with adjoining landscaping, walkways,
sidewalks, driveways, and other surfaced areas, fences, drainage and utility lines, exterior
lighting and project signage, if any, serving the Premises (the “Lot”).



     Under no circumstances shall the right herein granted to use the Common Area be deemed to include
the right to store any property, temporarily or permanently, in the Common Area. Any such storage
shall be permitted only by the prior written consent of Landlord, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Landlord shall have the
right, without notice, in addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Tenant, which cost shall be immediately payable upon demand by
Landlord.



     1.05. Landlord’s Reserved Rights .Provided Landlord does not unreasonably interface with Tenant’s
use of the Premises and given Tenant prior notice thereof if the applicable change will affect
Tenant’s use of or require access to the premises, Landlord reserves the right to make the
following changes:




     a. Building / Warehouse Charges. To install, use, maintain, repair, relocate and replace pipes,
ducts, conduits, wires and appurtenant meters and equipment included in the Premises or outside the
Premises: and to make any alterations to the Premises that, in Landlord’s reasonable judgment, are
required or authorized by any existing or future governmental codes;




     b. Boundary Charges. To change the boundary lines of the Lot or the Property;




     c. Common Area Changes. To install, use, maintain, repair, alter or relocate and replace any
Common Area; provided, however, that substitutions, if any, shall be equivalent or better in quality; and




     d. Closure. To close temporarily any of the common Area for maintenance purposes so long as
reasonable access to the Premises remains available.


2.
TENANT’S ACCEPTANCE OF PREMISES. Except as set forth in Exhibit D, Tenant shall accept the
Premises “as is” on the Commencement Date (as hereinafter defined). By taking possession or using
the Premises, Tenant shall be deemed to accept the same in their condition existing as of the date
of such possession or use and subject to all applicable municipal, county, state and federal
statutes, laws, ordinances, including zoning ordinances, and regulations governing and relating to
the use, occupancy or possession of the Premises (collectively “Regulations”). Tenant shall, at
Tenant’s sole cost and expense, comply with all Regulations now in force or which may hereafter be
in force relating to the Premises and the use of the Premise. Except for any punchlist items
identified pursuant to Exhibit D, the taking of possession or use of the Premises by Tenant shall
conclusively establish that the Landlord’s Work (as defined in Exhibit D) has been constructed in
accordance with Exhibit D and that the Tenant Improvements (as defined in Exhibit D) have been
constructed in accordance with the Working Drawings (as defined in Exhibit D). Nothing in this
Section shall limit or expand Landlord’s maintenance and repair obligations set forth in Section
7.03. Tenant acknowledges that the only warranties and representations Landlord has made in
connection with the physical condition of the Premises or Tenant’s use of the same upon which it
has relied directly or indirectly are those expressly provided in this Lease, Notwithstanding
anything in this Section 2 to the contrary, Landlord warrants for thirty (30) days following the
Commencement Date that the mechanical and plumbing systems serving the Premises are in good
working order. Landlord shall repair any defective or malfunctioning component of such systems of
which Landlord has received written notice from Tenant describing the failure or malfunction;
provided such written notice is given within
thirty (30) days of the Commencement Date. In addition, and notwithstanding anything in this Section
2 to the contrary, Landlord warrants that to its actual knowledge the buildings constituting the
premises comply with applicable Regulations that were in effect at the time that each building, or
portion thereof, was constructed. Such warranty does not apply to (i) modifications which may be
required as a result of Tenant’s use of the Premises or (ii) Tenant’s alterations, additions, or
improvements to the premises. If the premises do not comply with such warranty, Landlord shall
rectify the same at Landlord’s expense. Tenant shall make a claim under such warranty (if at all )
within thirty (30) days of the Commencement Date and Tenant’s failure to deliver a written claim
within such time period shall be deemed a waiver of its rights under such warranty.




3.
TERM




     3.01 Commencement Date, The Term shall commence on the later to occur of the following dates (the
“Commencement Date”): (a) the earlier to occur of the following dates: (i) the date of Substantial
Completion (as defined in Exhibit D) or (ii) the date on which the Landlord’s Work and the Tenant
Improvements would have been Substantially Completed but for the occurrence of any Tenant Delay
Days ( as defined in Exhibit D) and (b) the Scheduled Commencement Date.



     3.02. Term. The Term of this Lease shall be for the period as stated in Section 1.01, commencing on
the Commencement Date of the Term as provided in Section 3.01. If the last day of the Term falls on
a date other than the last day of the month, then the term shall be




2











 




extended so that the last day of the Term shall be the last calendar day of the calendar month in
which the Term would otherwise end. Upon Landlord’s request,
Tenant shall execute a memorandum
confirming the Term in the form attached hereto as Exhibit C (the “Commencement Date
Memorandum”) which Commencement Date Memorandum shall thereupon be deemed a part of this Lease;
provided, however, the execution of such Commencement Date Memorandum shall not be a condition
precedent to the parties’ obligation hereunder.




     3.03.
Delay in Possession. If for any reason the Commencement Date does not occur on or
before the Scheduled Commencement Date, Landlord shall not be subject to any liability therefor,
and such failure shall not affect the validity of this Lease or the obligations of Tenant
hereunder, but in such case, Tenant shall not be obligated to pay Base Rent or Additional Rent (as
hereinafter defined) until the Commencement Date has occurred.



     3.04. Renewal Options.




     a. If Tenant has not committed an Event of Default (as hereinafter defined) at any time during the
Term, and Energy Recovery, Inc. (or a Permitted Transferee (as hereinafter defined) of Energy
Recovery, Inc.) is occupying the entire Premises at the time of such election, Tenant may renew
this Lease for two (2) additional periods of five (5) years each (each a “Renewal Term”), by
delivering written notice of the exercise thereof to Landlord not later than twelve (12) months
before the expiration of the initial Term or the first Renewal Term (as applicable). The Base Rent
payable for each month during a Renewal Term shall be ninety-five percent (95%) of the Fair Market
Rent (as hereinafter defined); provided, that the Base Rent payable in any Renewal Term shall in no
event be lower than the Base Rent payable during the month immediately preceding the commencement
of the first Renewal Term. On or before that date which is six (6) months before the expiration of
the initial Term or the first Renewal Term (as applicable), Landlord shall deliver to Tenant
written notice of Landlord’s Fair Market Rent proposal for the Renewal Term (“Landlord’s Fair Market Rent Proposal”) and shall advise Tenant of the required
adjustment to Base Rent, if any. Within fifteen (15) days after receipt of Landlord’s Fair Market
Rent Proposal, Tenant shall notify Landlord in writing whether Tenant accepts or rejects Landlord’s
Fair Market Rent Proposal. If Tenant rejects Landlord’s Fair Market Rent Proposal, then Tenant’s
written notice shall include Tenant’s determination of the Fair Market Rent. If Tenant does not
deliver Tenant’s written determination of Fair Market Rent to Landlord within fifteen (15) days
after receipt of Landlord’s Fair Market Rent Proposal, Tenant will be deemed to have accepted
Landlord’s Fair Market Rent Proposal. If Tenant and Landlord disagree on the Fair Market Rent, then
Landlord and Tenant shall attempt in good faith to agree upon the Fair Market Rent. If by that date
which is one hundred and twenty-five (125) days prior to the commencement of the Renewal Term (the
“Trigger Date”), Landlord and Tenant have not agreed in
writing as to the Fair Market Rent, the parties shall
determine the Fair Market Rent for such Renewal Term in accordance with the procedure set forth in
Section 3.04.c below.




     b.
For purposes of this Section 3.04, the term “Fair Market
Rent” shall mean the rental rate for
comparable space to be used for the Permitted Uses under primary lease (and not sublease) to new
tenants, taking into consideration such amenities as existing improvements (but specifically
excluding any Tenant Improvements that are not paid from the Construction Allowance (as defined in
Exhibit D)), and parking rights, situated in the city of San Leandro, in comparable
physical and economic condition, taking into consideration the then-prevailing ordinary rental
market practices with respect to tenant concessions. Fair Market Rent shall include the periodic
rental increases, if any, that would be included for space leased for the period the space will be
covered by the Lease. As used herein, “then-prevailing” shall mean the time period which is five
(5) months prior to the commencement of the Renewal Term and not the commencement date of the
Renewal Term.




     c. If Landlord and Tenant are unable to reach agreement on the Fair Market Rent by the Trigger
Date, then within seven (7) days of the Trigger Date, Landlord and Tenant shall each simultaneously
submit to the other in a sealed envelope its good faith estimate of the Fair Market Rent for the
Renewal Term. If either Landlord or Tenant fails to propose a Fair Market Rent, then the Fair
Market Rent for the Renewal Term proposed by the other party shall prevail. If the higher of such
estimates is not more than one hundred five percent (105%) of the lower, then the Fair Market Rent
shall be the average of the two. Otherwise, the dispute shall be resolved by arbitration in
accordance with the remainder of this Section 3.04.c. Within
seven (7) days after the exchange of
estimates, the parties shall select as an arbitrator either (i) a licensed real estate broker with
at least ten (10) years of experience leasing premises in industrial buildings in the San Leandro
area or (ii) an independent MAI appraiser with at least five (5) years of experience in appraising
industrial buildings in the San Leandro area (a “Qualified Arbitrator”). If the parties cannot
agree on a Qualified Arbitrator, then within a second period of seven (7) days, each shall select a
Qualified Arbitrator and within ten (10) days thereafter the two appointed Qualified Arbitrators
shall select a third Qualified Arbitrator and the third Qualified Arbitrator shall be the sole
arbitrator. If one party shall fail to select a Qualified Arbitrator
within the second seven (7)-day period, then the Qualified Arbitrator chosen by the other party shall be the sole arbitrator.
Within thirty (30) days after submission of the matter to the sole arbitrator, the sole arbitrator
shall determine the Fair Market Rent by choosing whichever of the estimates submitted by Landlord
and Tenant the arbitrator judges to be more accurate. The sole arbitrator shall notify Landlord and
Tenant of his or her decision, which shall be final and binding. If the arbitrator believes that
expert advice would materially assist him or her, the arbitrator may retain one or more qualified
persons to provide expert advice. The fees of the sole arbitrator and the expenses of the
arbitration proceeding, including the fees of any expert witnesses retained by the arbitrator,
shall be shared equally by Landlord and Tenant. Each party shall pay the fees of its respective counsel and the fees of any witness called
by that party.




     d. On or before the commencement date of the applicable Renewal Term, Landlord and Tenant shall
execute an
amendment to this Lease prepared by Landlord extending the Term on the same terms provided in this
Lease, except as follows:




     (i) Base Rent shall be adjusted to ninety-five percent (95%) of the Fair Market Rent (which shall
be the rental rate set forth in Landlord’s Fair Market Rent Proposal or the Fair Market Rent
determined by mutual agreement or arbitration, as the case may be); provided, that the Base Rent
payable in any Renewal Term shall in no event be lower than the Base Rent payable during the month
immediately preceding the commencement of the first Renewal Term; and




     (ii)
Landlord shall lease to Tenant the Premises in their then-current condition, and Landlord
shall not provide to Tenant any allowances (e.g., moving allowance, construction allowance, and the
like) or other tenant inducements.




     e. In the event that Fair Market Rent is not established prior to the commencement of a Renewal
Term, then Tenant shall
continue to pay the Base Rent at the rate in effect immediately prior to the expiration of the
initial Term or the First Renewal Term
(as applicable) and within thirty (30) days of the determination of Fair Market Rent, reimburse
Landlord for any difference.




     f. Tenant’s rights under this Section 3.04 shall terminate if: (i) Tenant assigns any of its
interest in this Lease or sublets
any portion of the Premises to any entity other than a Permitted Transferee; (ii) Tenant fails to
timely exercise either of its options
under this Section 3.04, time being of the essence with respect to Tenant’s exercise thereof; or
(iii) Tenant commits an Event of
Default under the Lease. Further if Tenant fails to exercise the option for the first Renewal Term,
then the option for the second
Renewal Term shall automatically be null and void.



3









 





4. RENT




     4.01. Base Rent. The Base Rent shall be the Base Rent set forth in Section 1.01, payable in
equal monthly installments as set forth in Section 1.01 and as confirmed in the Commencement Date
Memorandum. Tenant shall pay the monthly Base Rent to Landlord in advance upon the first day of
each calendar month of the Term, at Landlord’s address or at such other place designated by
Landlord in a notice to Tenant, without any prior demand therefor. If the Term shall commence or
end on a day other than the first day of a calendar month, then Tenant shall pay, upon the
Commencement Date, a pro rata portion of the monthly Base Rent, prorated on a per diem basis, with
respect to the portions of the fractional calendar month included in the Term. Upon executing this
Lease, Tenant shall pay the Prepaid Rent as set forth in Section 1.01. Base Rent shall be
calculated based on the rentable square footage of the Premises set forth in Section 1.01. Landlord
and Tenant stipulate that the square footage of the Building and the Warehouse Premises set forth
in Section 1.01 shall be conclusive as to the square footage of the Building and the Warehouse
Premises for purposes of determining Base Rent and shall be binding upon them.



     4.02. Escalation. The Base Rent shall be adjusted during the Term as provided in Section 1.01.



     4.03. Additional Rent and Estimated Payments. “Additional Rent” shall include all monies,
except for Base Rent, required to be paid by Tenant to Landlord under the Lease, including without
limitation, any late payments, interest, and payments required to be made by Tenant to Landlord on
account of costs incurred by Landlord for Building Tax Expenses (as defined in Section 5.01 below),
Warehouse Tax Expenses (as defined in Section 5.01 below), Building Insurance Expenses (as defined
in Section 6.01 below), Warehouse Insurance Expenses (as defined in Section 6.01 below), Building
Operating Expenses and/or Warehouse Operating Expenses. Additional Rent shall be payable by Tenant
within thirty (30) days after a reasonably detailed statement of actual expenses is presented to
Tenant by Landlord. At Landlord’s option, however, an amount may be estimated by Landlord from
time to time of Building Tax Expenses, Warehouse Tax Expenses, Building Insurance Expenses,
Warehouse Insurance Expenses, Building Operating Expenses and/or Warehouse Operating Expenses
payable by Tenant and the same shall be payable monthly during each accounting year of the Term, on
the same day as Base Rent is due hereunder. By May 1 of each calendar year, or as soon thereafter
as practicable, Landlord shall furnish to Tenant a statement of Building Tax Expenses, Warehouse
Tax Expenses, Building Insurance Expenses, Warehouse Insurance Expenses, Building Operating
Expenses, and Warehouse Operating Expenses for the previous year (the “Statement”). If Tenant’s
estimated payments of Building Tax Expenses, Warehouse Tax Expenses, Building Insurance Expenses,
Warehouse Insurance Expenses, Building Operating Expenses, and Warehouse Operating Expenses exceed
Tenant’s shares of such items as indicated in the Statement, then Landlord shall promptly credit or
reimburse Tenant for such excess; likewise, if Tenant’s estimated payments of Building Tax Expenses,
Warehouse Tax Expenses, Building Insurance Expenses, Warehouse Insurance Expenses, Building
Operating Expenses, and Warehouse Operating Expenses for such
year are less than Tenant’s shares of such items as indicated in the Statement, then Tenant shall
pay Landlord such deficiency within ten (10) days of demand therefor, notwithstanding that the Term
has expired and Tenant has vacated the Premises. Except as set forth to the contrary in this
Section 4.03, Tenant’s Shares of, respectively, Building Tax Expenses, Warehouse Tax Expenses,
Building Insurance Expenses, Warehouse Insurance Expenses, Building Operating Expenses, and
Warehouse Operating Expenses, shall be as set forth in
Section 1.01. Notwithstanding the foregoing,
(a) to the extent Warehouse Operating Expenses vary, as reasonably determined by Landlord,
according to the level of occupancy of the Warehouse or the Property, as applicable, Landlord may
compute and charge Tenant for such variable expenses an amount greater than Tenant’s Share of
Warehouse Operating Expenses equal to Landlord’s reasonable estimate of the extent to which such
variable Warehouse Operating Expenses are attributable to Tenant’s occupancy and (b) if the
Warehouse is not at least ninety-five percent (95%) occupied on average during any year of the
Term, Warehouse Operating Expenses for such year shall be computed as though the Warehouse had been
ninety-five percent (95%) occupied on average during such year. In the event that Tenant or any other tenant
of the Property has a use, performs acts (including, without limitation, construction at the
Property), or whose presence or occupancy results, in Landlord’s good faith determination, in an
inequitable allocation of Warehouse Operating Expenses, Warehouse Tax
Expenses, or Warehouse
Insurance Expenses among the tenants of the Property, then Landlord may, without any obligation to
do so and notwithstanding any provision to the contrary in this Lease, reallocate one or more of
Tenant’s Share of, respectively, Warehouse Operating Expenses, Warehouse Tax Expenses, and/or
Warehouse Insurance Expenses in such a manner so as to achieve an allocation of such expenses which
Landlord determines to be equitable in Landlord’s good faith determination.



     4.04.
Rent Defined. Base Rent and Additional Rent shall be deemed to constitute “Rent”. Rent shall
be paid in lawful money of the United States without any abatement, set off or deduction
whatsoever.



     4.05. Interest and Late Charge. If any installment of Rent is not paid when due, such amount shall
bear interest at the rate of ten percent (10%) per annum (the “Default Rate”) from the date on which
said payment shall be due until the date on which Landlord shall receive said payment regardless of
whether or not a notice of default or notice of termination has been given by Landlord. In
addition, Tenant shall pay Landlord a late charge of ten percent (10%) of the amount delinquent.
Landlord and Tenant recognize that the damage which Landlord shall suffer as a result of Tenant’s
failure to pay Rent is difficult to ascertain, said late charge being the best estimate of the
damage which Landlord shall suffer in the event of Tenant’s late payment. This provision shall not
relieve Tenant of Tenant’s obligation to pay Rent at the time and in the manner herein specified.



     4.06.
Letter of Credit.




     (a) Tenant acknowledges that Landlord is unwilling to execute this Lease unless Tenant provides
Landlord with additional security for Tenant’s obligations under the Lease.
Therefore, Tenant shall deliver to Landlord, within five
(5) business days of the Commencement Date,
an Irrevocable Standby Letter of Credit (“Letter of Credit”) which shall (1) be in a form
reasonably acceptable to Landlord and based on a draft issued by Tenant’s bank prior to issuance
thereof and approved by Landlord in its sole discretion, (2) be issued by a bank reasonably
acceptable to Landlord with minimum assets of $10,000,000,000, upon which presentment may be made
in San Francisco or Oakland, California, (3) be in an amount equal to $1,500,000, (4) allow for
partial and multiple draws thereunder, and (5) have an expiration date not earlier than thirty (30)
days after the third anniversary of the Commencement Date or in the alternative, have a term of not less
than one (1) year and be automatically renewable for an additional one (1) year period unless, on or
before the date thirty (30) days prior to the expiration of the term of such Letter of Credit, the
issuer of such Letter of Credit gives notice to Landlord of its election not to renew such Letter
of Credit for any additional period pursuant thereto. In addition , the Letter of Credit shall
provide that, in the event of Landlord’s assignment of its interest in this Lease, the Letter of
Credit shall be freely transferable by Landlord to the assignee without charge to Landlord. The
Letter of Credit shall provide for same day payment to Landlord upon the issuer’s receipt of a
sight draft from Landlord together with Landlord’s certificate (signed by its manager or an
officer) certifying that the requested sum is due and payable from Tenant and Tenant has failed to
pay, and with no other conditions. Tenant agrees that it shall form time to time, as necessary,
whether as a result of a draw on the Letter of Credit by Landlord pursuant to the terms hereof or
as a result of the expiration of the Letter of Credit then in effect, renew or replace the original
and any subsequent Letter of Credit so that a Letter of Credit, in the amount required hereunder,
and satisfying all the conditions thereof, is in effect until a date
which is at least thirty (30)
days after the third anniversary of the Commencement Date. If Tenant fails to furnish such renewal
or replacement at least thirty (30) days prior to the stated expiration date of the Letter of
Credit then held by Landlord, Landlord may draw upon such Letter of Credit (and/or Additional
Letter(s) of Credit (as hereinafter defined)) and hold the proceeds thereof without payment of
interest (and such proceeds need not be segregated) (“Security
Proceeds”).




4












 






     (b) If there is an Event of Default under this Lease, then Landlord shall have the
right, at any time after the occurrence of such Event of Default, without giving any
further notice to Tenant, to draw upon said Letter of Credit (or Additional Letter of
Credit, as defined below, as the case may be) (i) the amount necessary to cure such default
or (b) if such default cannot reasonably be cured by the expenditure of money, and Landlord
exercises any rights and remedies Landlord may have on account of such default, the amount
which, in Landlord’s opinion, is necessary to satisfy Tenant’s liability on account
thereof. In the event of any such draw by Landlord, Tenant shall, within fifteen (15)
business days of written demand therefor, deliver to Landlord an additional Letter of
Credit satisfying the foregoing conditions (“Additional Letter of Credit”), except that the
amount of such Additional Letter of Credit shall be the amount of such draw. In addition,
in the event of a termination based upon the default of Tenant under this Lease, or a
rejection of this Lease pursuant to the provisions of the Federal Bankruptcy Code, Landlord
shall have the right to draw upon the Letter of Credit (from time to time, if necessary) to
cover the full amount of damages and other amounts due from Tenant to Landlord under this
Lease. Any amounts so drawn shall, at Landlord’s election, be applied first to any unpaid
rent and other charges which were due prior to the filing of the petition for protection
under the Federal Bankruptcy Code. Any such draw on the Letter of Credit shall not
constitute a waiver of any other rights of Landlord with respect to Tenant’s default under
this Lease. Tenant hereby covenants and agrees not to oppose, contest or otherwise
interfere with any attempt by Landlord to draw upon said Letter of
Credit including, without limitation, by commencing an action seeking
to enjoin or restrain Landlord from drawing upon said Letter of Credit. Tenant also
hereby expressly waives any right or claim it may have to seek such equitable relief. In
addition to whatever other rights and remedies it may have against Tenant if Tenant
breaches its obligations under this paragraph, Tenant hereby acknowledges that it shall be
liable for any and all damages which Landlord may suffer as a result of any such breach.




     (c) Upon request of Landlord or any (prospective) purchaser or mortgagee of the
Property, Tenant shall, at its expense, cooperate with Landlord in obtaining an amendment
to or replacement of any Letter of Credit which Landlord is then holding so that the
amended or new Letter of Credit reflects the name of the new owner and/or mortgagee of the
Property.




     (d) To the extent that Landlord has not previously drawn upon any Letter of Credit,
Additional Letter of Credit, or Security Proceeds (collectively, “Collateral”) held by
Landlord, and to the extent that Tenant is not otherwise in default of its obligations
under this Lease, Landlord shall return such Collateral to Tenant within ninety (90) days
of the third anniversary of the Commencement Date.




     (e) In no event shall the proceeds of any Letter of Credit be deemed to be a
prepayment of rent nor shall it be considered as a measure of liquidated damages.




     (f) Landlord and Tenant (i) agree that the Letter of Credit shall in no event be
deemed or treated as a “security deposit” under any law applicable to security deposits in
the commercial context, (ii) further acknowledge and agree that the Letter of Credit is not
intended to serve as a security deposit and the laws applicable to security deposits shall
have no applicability or relevancy thereto, and (iii) waive any and all rights, duties and
obligations either party may now have or, in the future, will have relating to or arising
from the laws applicable to security deposits.




     (g) Provided that there has not been an Event of Default by Tenant under this Lease
during the immediately preceding twelve (12)-month period and that no Event of Default by
Tenant under this Lease has occurred and is still continuing as of the effective date of
reduction, then Tenant shall be permitted to decrease the Letter of Credit as follows: (i) as of
the first anniversary of the Commencement Date, the amount of the
Letter of Credit may be
reduced to $1,000,000 and (ii) as of the second anniversary of the Commencement Date, the
amount of the Letter of Credit may be reduced to $500,000. Upon Landlord’s receipt of any
replacement letter of credit which is in the amount of the remaining balance set forth
above, and which in all other respects is in conformance with the Letter of Credit
requirements described in this Section 4.06, Landlord shall promptly return to Tenant the
Letter of Credit being replaced. Notwithstanding the foregoing, in no event shall any such
reduction be construed as an admission by Landlord that Tenant has performed all of its
covenants and obligations hereunder. Moreover, if an Event of Default occurs then Tenant
shall be required to restore the Letter of Credit to the originally required amount of
$1,500,000.




     (h) In consideration of Tenant’s provision of the Letter of Credit, Landlord, upon
receipt of appropriate invoices or bills and such other documents and information as
Landlord may reasonably request, agrees to reimburse Tenant for Tenant’s actual cost to
provide the Letter of Credit pursuant to this Section 4.06 (the “LC Reimbursement”),
provided, however, that (i) the LC Reimbursement shall not exceed Fifteen Thousand Dollars
($15,000) with respect to the Letter of Credit provided during the
first twelve (12) months
of the Term, (ii) the LC Reimbursement shall not exceed Ten Thousand Dollars ($10,000) with
respect to the Letter of Credit provided during the second twelve (12) months of the Term,
and (iii) the LC Reimbursement shall not exceed Five Thousand Dollars ($5,000) during the
third twelve (12) months of the Term. Landlord shall have no obligation to reimburse Tenant
for any costs incurred by Tenant in connection with any letters of credit following the
expiration of the third year of the Term.




     (i) Rather than deliver a new letter of credit to satisfy Tenant’s initial obligation
to deliver the Letter of Credit, Tenant may instead, within five
(5) business days of the
Commencement Date, amend the TI Letter of Credit (as defined in Exhibit D) so that
it satisfies the requirements of the Letter of Credit (as set forth in this Section 4.06)
and continues to satisfy the requirements of the
TI Letter of Credit. Tenant’s delivery of such amended TI Letter of Credit shall
satisfy Tenant’s initial obligation to deliver the Letter of Credit.



5. REAL PROPERTY TAXES




     5.01.
Tenant’s Obligations. Tenant shall pay to Landlord, pursuant to the terms of Section
4.03, (a) Tenant’s Share of Building Tax Expenses multiplied by the amount, if any, by which
Building Tax Expenses exceed the Building Tax Expenses allocated to the Base Year and (b) Tenant’s
Share of Warehouse Tax Expenses multiplied by the amount, if any, by which Warehouse Tax Expenses
exceed the Warehouse Tax Expenses allocated to the Base Year. “Tax Expenses” shall mean and include
the sum of the following: all real estate taxes and other taxes relating to the Property,
governmental and quasi-governmental assessments and charges, commercial rental taxes, fees and
levies, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any
kind and nature for public improvements, services, benefits, or otherwise, and all other fees or
taxes which may be levied which: (i) are assessed, levied, conformed, imposed or become a lien upon
the Property; (ii) are imposed in lien of any of the above and become payable by Landlord during
the Term, or (iii) may be assessed after the expiration of the Term for a period during the Term;
provided, however, that:




     a. The amount owed by Tenant for Tax Expenses, as set forth in this Section 5.01,
shall be prorated between Landlord and Tenant so that Tenant shall pay for amounts
applicable to the period of time occurring prior to the expiration of the Term; and




     b. Any sum payable by Tenant, which would not otherwise be due until after the date of
the termination of this Lease, shall be paid by Tenant to Landlord
upon such termination.




5











 




“Building Tax Expenses” shall mean the portion of Tax Expenses that Landlord equitably allocates to
the Building (which allocation shall be consistent with Landlord’s allocation as of the Effective
Date). “Warehouse Tax Expenses” shall mean the portion of Tax Expenses that Landlord equitably
allocates to the Warehouse (which allocation shall be consistent with Landlord’s allocation as of
the Effective Date).



Notwithstanding anything to the contrary herein, the Building Tax Expenses and Warehouse Tax
Expenses allocated to the Base Year shall be established by reference to the Building and the
Warehouse, respectively, prior to the installation of the Tenant Improvements. Accordingly, if
Building Tax Expenses or Warehouse Tax Expenses increase due to the construction of the Tenant
Improvements, Tenant shall reimburse Landlord for all taxes and assessments levied upon the
Property due to the construction of the Tenant Improvements and the Building Tax Expenses and the
Warehouse Tax Expenses allocated to the Base Year shall not include taxes and assessments levied
upon the Property due to the construction of the Tenant Improvements. If any or all of the Tax
Expenses hereunder are permitted by applicable Regulations to be paid in installments,
notwithstanding how Landlord pays the same, then, for purposes of calculating Tax Expenses, such
Tax Expenses shall be deemed to have been divided and paid in the maximum number of installments
permitted by applicable Regulations, and there shall be included in Tax Expenses for each year only
such installments as are required by applicable Regulations to be paid within such year, together
with interest thereon and on future such installments at a commercially reasonable rate. In the
event that Warehouse Tax Expenses attributable to particular portions of the Warehouse that are
leased (or available for lease) by tenants are materially greater than Warehouse Tax Expenses
attributable to other portions of the Warehouse that are leased (or available for lease) by
tenants, such that payment of Warehouse Tax Expenses in accordance herewith would result in an
inequitable allocation of Warehouse Tax Expenses among the tenants of the Warehouse, then Landlord
shall reallocate Tenant’s Share of Warehouse Tax Expenses applicable to the Warehouse Premises in
such a manner so as to achieve an allocation of such Warehouse Tax Expenses which is equitable in
Landlord’s good faith determination.



The parties acknowledge that the Building and the Warehouse are part of a multi-tenant,
multi-building project and the some Tax Expenses incurred in connection with the Property and not
attributable solely to any particular building should be shared among the tenants of the Property.
Accordingly, certain Tax Expenses (e.g. certain costs attributable to the Common Areas) are
determined annually for the Property as a whole, and a portion of such Tax Expenses, which portion
shall be determined by Landlord on an equitable basis, shall be allocated (i) to the Building (as
opposed to the other buildings) and such portion shall be included in Building Tax Expenses and
(ii) to the Warehouse (as opposed to the other buildings) and such portion shall be included in
Warehouse Tax Expenses. Landlord shall have the right, from time to time, to equitably allocate
some or all Tax Expenses for the Property among different portions or occupants of the Property, in
Landlord’s reasonable discretion. Notwithstanding anything in the contrary herein, Tax Expenses
shall not include any taxes assessed with respect to improvements made to the Property after the
Commencement Date which do not benefit the Premises and/or the Common Areas.




     5.02. Limitation. Nothing contained in this Lease shall require Tenant to pay any franchise,
corporate, estate, inheritance, succession or documentary transfer tax or Landlord, or any income,
profits or revenue tax or charge, upon the net income of Landlord; provided, however, that if under
the laws of the United States Government or the state, city or county in which the Property is
located, or any political subdivision thereof or any improvement district therein, a tax or excise
on rent, or any other tax however described, is levied or assessed by any such body against
Landlord on account of rentals payable to Landlord from the Property, Tenant shall pay Tenant’s
Share of such tax or excise on rent as Tenant’s Share of Building Tax Expenses or Tenant’s Share of
Warehouse Tax Expenses (as applicable) as set forth in Section 1.01.



     5.03. Personal Property Taxes. Prior to delinquency, Tenant shall pay all taxes and
assessments levied upon Tenant’s trade fixtures, inventories and other personal property located on
or about the Premises.



     5.04. Proposition 13. Notwithstanding any other provision of this Lease to the contrary, if
during the initial Term there is a change of ownership (as defined in Cal. Rev. and Taxation Code
sections 60-62 or any amendments or successors to those sections) of all or any portion of the
Property (a “Disposition”) and, as a result, any or all of the Property is reassessed (a
“Reassessment”) for real estate tax purposes by the appropriate government authority, the terms of
this Section 5.04 shall apply. For the purposes of this Section 5.04, the term “Tax Increase” shall
mean that portion of Tax Expenses allocable to the Property that are attributable solely to a
Reassessment. Accordingly, a Tax Increase shall not include any portion of Tax Expenses that are or
would be (a) attributable to the initial assessment of the value of the Property or any portion
thereof, (b) attributable to assessments pending immediately
before a Reassessment that were conducted during, and included in, such Reassessment or that
were rendered unnecessary following such Reassessment, or (c) attributable to the annual
inflationary increase in real estate taxes actually permitted under Proposition 13 (as adopted by
the voters of the State of California in the June 1978 election). Tax Expenses attributable to a
Tax Increase shall be capped such that the increase in Tax Expenses attributable to a Tax Increase
shall not cause the total amount of Tax Expenses payable by Tenant under Section 5.01 to increase
by more than $0.02 per rentable square foot of the Premises. The benefit to Tenant of the
protections provided under this Section 5.04 shall not apply during any extension of the Term
beyond the initial Term.



6. INSURANCE




     6.01. Tenant’s Obligations. Tenant shall pay to Landlord, pursuant to the terms of Section
4.03, (a) Tenant’s Share of Building Insurance Expenses multiplied by the amount, if any, by which
the Building Insurance Expenses in each of Landlord’s accounting years of the Term exceed the
Building Insurance Expenses allocated to the Base Year and (b) Tenant’s Share of Warehouse
Insurance Expenses multiplied by the amount, if any, by which the Warehouse Insurance Expenses in
each of Landlord’s accounting years of the Term exceed Warehouse Insurance Expenses allocated to
the Base Year. “Insurance Expenses” shall include the cost of premiums for insurance maintained
under this Section 6 and any deductible portion of any insured loss concerning the Building, the
Warehouse, or the Common Area; provided, however that Insurance Expenses shall not include the cost
of premiums for earthquake or flood insurance. The amount owed by Tenant for Insurance Expenses, as
set forth in this Section 6.01, shall be prorated between Landlord and Tenant so that Tenant shall
pay that portion attributable to the Term. Notwithstanding anything to the contrary herein, if
Insurance Expenses increase due to the construction or existence of the Tenant Improvements, Tenant
shall, upon receipt of appropriate premium invoices, reimburse Landlord for such increased amount
and the Building Insurance Expenses and Warehouse Insurance Expenses allocated to the Base Year
shall not include insurance expenses attributable to the construction or existence of the Tenant
Improvements. “Building Insurance Expenses” shall mean the portion of Insurance Expenses that
Landlord equitably allocates to the Building (which allocation shall be consistent with Landlord’s
allocation as of the Effective Date). “Warehouse Insurance Expenses” shall mean the portion of
Insurance Expenses that Landlord equitably allocates to the Warehouse (which allocation shall be
consistent with Landlord’s as allocation of the Effective Date). The parties acknowledge that the
Building and the Warehouse are part of a multi-tenant, multi-building project and that some
Insurance Expenses incurred in connection with the Property and not attributable solely to any
particular building should be shared among the tenants of the Property. Accordingly, certain
Insurance Expenses (e.g. certain costs attributable to the Common Areas) are determined annually
for the Property as a whole, and a portion of such Insurance Expenses, which portion shall be
determined by Landlord on an equitable basis, shall be allocated (i) to the Building (as opposed to
the other buildings) and such portion shall be included in Building Insurance Expenses and (ii) to
the Warehouse (as opposed to the other buildings) and such portion shall be included in Warehouse
Insurance Expenses. Landlord shall have the right, from time to time, to equitably allocate some or
all Insurance Expenses for the Property among different portions or occupants of the Property, in
Landlord’s reasonable discretion.



     6.02. Landlord’s Property. During the Term, Landlord shall procure and maintain in full force
and effect with respect to the Property, a policy or policies of all risk insurance (including
sprinkler leakage coverage and any other endorsements or types of coverage required by the holder
of any fee or leasehold mortgage) in an amount equal to the full insurance replacement value
(replacement cost new, including debris removal, and demolition) thereof. If the annual premiums
charged Landlord for such casualty insurance exceed the standard



6









 




premium rates because the nature of Tenant’s operations results in increased exposure, then Tenant
shall, upon receipt of appropriate premium invoices, reimburse Landlord for such increased amount.




     6.03. Landlord’s Liability Insurance. During the Term of this Lease, Landlord shall procure
and maintain in force a commercial general liability insurance covering the Property in
commercially reasonable amounts as determined by Landlord, from time to time in Landlord’s
reasonable discretion.



     6.04. Tenant’s Liability. Tenant shall, at Tenant’s sole cost and expense, procure and
maintain in full force throughout the Term a policy or policies of commercial general liability
insurance, written by an insurance company approved by Landlord meeting the requirements set forth
in Section 6.07 below and in the form customary to the locality in which the Property is located,
insuring Tenant’s activities and those of Tenant’s employees, agents, licensees and invitees with
respect to the Property against loss, damage or liability for personal injury or death of any
person or loss or damage to property occurring on the Property or as a result of occupancy of the
Property in an aggregate amount not less than the Commercial General Liability Policy Limit set
forth in Section 1.01, with a combined single occurrence limit for personal injury and property
damage of Two Million Dollars ($2,000,000). If Tenant has in full force and effect a blanket policy
of liability insurance with the same coverage for the Property as described above, as well as
coverage of other premises and properties of Tenant, or in which Tenant has some interest, such
blanket insurance shall satisfy the requirement hereof. Such insurance shall include coverage for
liability assumed under this Lease as an “insured contract” for the performance of Tenant’s
indemnity obligations under this Lease. All such policies shall provide that such coverage shall be
primary and that any insurance maintained by Landlord shall be excess insurance only. Such coverage
shall also contain the following endorsements: (i) deleting any employee exclusion of personal
injury coverage; (ii) deleting any liquor liability exclusion, (iii) an “Additional
Insured-Managers or Lessors of Premises Endorsement”, and (iv) the “Amendment of the Pollution
Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire. All such
insurance shall provide for severability of interests; shall provide that an act or omission of one
of the named insureds shall not reduce or avoid coverage to the other named insureds; and shall
afford coverage for all claims based on acts, omissions, injury and damage, which claims occurred
or arose (or the onset of which occurred or arose) in whole or in part during the policy period.



     6.05. Fire and All Risk Coverage Insurance. Tenant, at Tenant’s expense, shall provide and
keep in force during the Term of this Lease a policy or polices of broad form or special form
property insurance, including sprinkler leakage if the Premises is equipped with an automatic
sprinkler system, in an amount not less than one hundred percent (100%) replacement value covering
Tenant’s merchandise, furniture, equipment, fixtures, and Tenant’s improvements that Tenant owns or
has installed at Tenant’s sole cost and expense to the Premises. Landlord and Tenant agree that
proceeds from such insurance policy or policies shall be used for the repair or replacement of
Tenant’s improvements and Property.



     6.06. Rental Abatement Insurance. Landlord shall maintain in full force and effect rental
abatement insurance against abatement or loss of Rent with respect to the Property in case of fire
or other casualty, in an amount and with coverage periods as reasonably determined by Landlord.



     6.07. Insurance Certificates; Other Requirements. Tenant shall furnish to Landlord on the
Commencement Date, and thereafter within thirty (30) days prior to the expiration of each such
policy, certificates of insurance issued by the insurance carrier of each policy of insurance
required to be carried by Tenant pursuant hereto. Each certificate shall expressly provide that
such policies shall not be cancellable or subject to reduction of coverage or otherwise be subject
to modification except after thirty (30) days prior written notice to the parties named as insureds
in this Section 6.07. Landlord, McGrath Properties, Inc., Landlord’s successors and assigns, and
any nominee of Landlord holding any interest in the Premises, including, without limitation any
ground lessor and holder of any fee or leasehold mortgage, shall be named as additional insureds
under each policy of insurance maintained by Tenant. All insurance policies required to be carried
by Tenant under this Lease shall: (i) be written by companies rated A-VI or better in “Best’s
Insurance Guide” and authorized to do business in California; and (ii) name any parties designated
by Landlord as additional insureds. Any deductible amounts under any insurance policies required to
be carried by Tenant hereunder shall be subject to Landlord’s prior written approval. If at any
time during the Term the amount or coverage of any insurance which Tenant is required to carry
under this Lease is, in Landlord’s good faith judgment, materially less than the amount or type of
insurance coverage typically carried by owners or lessees or properties located in the same general
market area as the Property, Landlord shall have the right to require Tenant to increase the amount
or change the types of insurance coverage required under this Section.



     6.08. Tenant’s Failure. If Tenant fails to maintain any insurance required in this Lease,
Tenant shall be liable for all losses and costs resulting from said failure. Tenant shall also be
responsible for reimbursing Landlord for any costs incurred by Landlord pursuant to Section 16.15.
Nothing herein shall be a waiver of any of Landlord’s rights and remedies under any other article
of this Lease or at law or equity.



     6.09. Waiver of Subrogation. All policies of property and liability coverage insurance which
Tenant obtains in connection with the Property shall include a clause or endorsement denying the
insurer any rights of subrogation against Landlord. Tenant waives any rights of recovery against
Landlord for injury or loss due to hazards covered by insurance to the extent of the proceeds
recovered therefrom.



     6.10. Indemnification of Landlord. Tenant shall indemnify, defend (by counsel reasonably
acceptable to Landlord), protect, and hold Landlord, Landlord’s partners, members, managers,
employees, authorized agents and contractors (collectively, “Landlord’s Authorized
Representatives”), and the Property harmless from and against all claims, liabilities, penalties,
losses, damages, costs and expenses, claims or judgments (including, without limitation, attorneys’
fees) which may be imposed upon Landlord or any Landlord’s Authorized Representatives by any third
party in connection with or arising out of any injury to persons or damage to property occurring
in, on or about the Premises, or any accident or other occurrence on or about the Property
occasioned by any act or omission of Tenant, Tenant’s officers, managers, employees, agents,
sub-tenants, contractors, visitors, or invitees, or arising from Tenant’s use, maintenance,
occupation or operation of the Premises, the Building, the Warehouse, the Common Area or the Lot or
arising as a result of an Event of Default by Tenant under this Lease; provided, however that
Tenant shall not be obligated to indemnify Landlord for any injury or damage to the extent arising
as the result of the gross negligence or willful misconduct of Landlord or Landlord’s Authorized
Representatives. Landlord need not have first paid any such claim in order to be defended or
indemnified.



     6.11. Intentionally Deleted.



     6.12. Workers’ Compensation Insurance. Both parties shall procure and maintain throughout the
Term at their sole cost and expense Workers’ Compensation Insurance in compliance with California
law.



     6.13. Business Interruption Insurance. Tenant shall procure and maintain throughout the Term
at Tenant’s sole cost and expense a policy of Business Interruption Insurance adequate to insure
over a one (1) year period of time.



     6.14. Comprehensive Automobile Liability Insurance. If Tenant operates owned, hired or
nonowned vehicles on the Property then Tenant shall procure and maintain throughout the Term a
Comprehensive Automobile Liability Insurance policy, at a limit of liability of not less than One
Million Dollars ($1,000,000) combined bodily injury and property damage.



7









 





     6.15. Landlord’s Disclaimer. Neither Landlord nor Landlord’s Authorized Representatives shall
be responsible or liable at any time for damage to Tenant’s equipment, fixtures or other personal
property or to Tenant’s business, and neither Landlord nor Landlord’s Authorized Representatives
shall be responsible or liable to Tenant or to those claiming by, through or under Tenant for any
damage to person or property that may be occasioned by the acts or omissions of third parties and
neither Landlord nor Landlord’s Authorized Representatives shall be responsible or liable for any
defect in any building or Common Area on the Property or any of the equipment, machinery,
utilities, appliances or apparatus therein, nor shall they be responsible or liable for any damage
to any person or to any property of Tenant or other person caused by bursting, breakage or leakage,
steam or the running, seepage or overflow of water or sewage in any part of the Premises or by the
use of reclaimed water or for any damage caused by or resulting from acts of God or the elements or
for any damage caused by or resulting from any defect or negligence in the occupancy, construction,
operation or use of any of the Property, machinery, apparatus or equipment by any other person or
by or from the acts or negligence of any occupant of the Property, except to the extent such
defect, damage or loss is caused by the gross negligence or willful misconduct of Landlord or
Landlord’s Authorized Representatives. Notwithstanding Landlord’s or Landlord’s Authorized
Representatives’ negligence or breach of this Lease, neither Landlord nor its Authorized
Representatives shall be liable for injury to Tenant’s business or for any loss of income or profit
therefrom.



7. OPERATING EXPENSES, REPAIRS AND MAINTENANCE




     7.01. Operating Expenses. Tenant shall pay to Landlord, pursuant to the terms of Section 4.03,
Tenant’s Share of Building Operating Expenses and Tenant’s Share of Warehouse Operating Expenses
incurred by Landlord (including, without limitation, all expenses incurred by Landlord pursuant to
Section 7.03). “Building Operating Expenses” shall include all reasonable and necessary expenses
incurred by Landlord for the administration, management, cleaning, maintenance and repair of the
Building. “Warehouse Operating Expenses” shall include all reasonable and necessary expenses
incurred by Landlord for the administration, management, cleaning, maintenance and repair of the
Warehouse. Expenses constituting Building Operating Expenses and Warehouse Operating Expenses shall
include, without limitation: the cost of utilities relating to the Property that are not separately
metered to the Premises; costs for the maintenance and repair of the Common Areas of the Property
including, without limitation, parking areas, landscaping, sprinkler systems, walkways, and fire
alarm systems; costs for maintenance and repair of the heating, ventilation and air conditioning
equipment and systems serving the Building and the elevators located in the Building; reserves set
aside for maintenance and repair of the Common Area; and costs for capital improvements and repairs
made to the Building, the Warehouse, the Common Areas and/or the Property, during Tenant’s tenancy
in the Premises, amortized using a commercially reasonable interest rate over the time period
reasonably estimated by Landlord to recover the costs thereof, as determined by Landlord using its
good faith, commercially reasonable judgment. Building Operating Expenses and Warehouse Operating
Expenses shall not include (a) the costs for capital improvements and repairs made to the Building
or the Warehouse which are triggered by the specific and unique use of the Premises by Tenant,
which shall be paid in full by Tenant at the time incurred, (b) Insurance Expenses, (c) Tax
Expenses, (d) the costs to maintain and repair the foundations, exterior walls, structural
condition of interior load-bearing walls, and the exterior roof structure (but excluding the roof
membrane), (e) the costs to maintain and repair any utility systems or heating, ventilation and air
conditioning equipment and systems that exclusively serve the premises of any tenant other than
Tenant, and (f) costs for capital improvements other than as set forth in the preceding sentence.
The parties acknowledge that the Building and Warehouse are part of a multi-tenant, multi-building
project and that some costs and expenses incurred in connection with the Property and not
attributable solely to any particular building should be shared among the tenants of the Property.
Accordingly, certain costs and expenses (e.g. certain costs attributable to the Common Areas) are
determined annually for the Property as a whole, and a portion of such costs and expenses, which
portion shall be determined by Landlord on an equitable basis, shall be allocated (i) to the
Building (as opposed to the other buildings) and such portion shall be included in Building
Operating Expenses and (ii) to the Warehouse (as opposed to the other buildings) and such portion
shall be included in Warehouse Operating Expenses. Landlord shall have the right, from time to
time, to equitably allocate some or all operating expenses for the Property among different
portions or occupants of the Property, in Landlord’s reasonable discretion. In addition to Tenant’s
Share of Building Operating Expenses and Tenant’s Share of Warehouse Operating Expenses, in
consideration of Landlord’s administration of the Premises and the Property, Tenant shall pay to
Landlord as Additional Rent a monthly administrative charge equal to three percent (3%) of the Base
Rent.



     7.02. Tenant Repairs and Maintenance. Subject to the casualty and condemnation provisions of
Sections 11 and 12 except for any repair and maintenance obligations of Landlord which are
specifically described in Section
7.03, Tenant, at Tenant’s sole cost and expense, shall maintain the Premises and every part
thereof in good order and in a clean and safe condition, and shall repair and replace (whether or
not such portion of the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Tenant, and whether or not the need for such repairs occurs as
a result of Tenant’s use, any prior use, the elements or the age of such portion of the Premises),
without limitation, the following: interior surfaces of walls and ceilings; floors; wall and floor
coverings; interior and exterior windows and plate glass; skylights (if any); window coverings;
doors, roll up doors, locks on closing devices; window casements and frames; storefronts; signs;
awnings (if any); canopies and display windows; plumbing; electrical wiring and systems within the
Premises (including replacement of light bulbs, tubes and ballasts); exterior entrances; staircases
and elevators; warehouse dock doors; and all switches, fixtures and equipment in the Premises.
Tenant shall, at Tenant’s sole cost and expenses, immediately replace all broken or damaged glass,
in the Premises with glass equal to the specification and quality of the original glass. Upon
receipt of reasonable notice from Tenant, Landlord shall perform, at the expense of Tenant, all
repairs and maintenance to plumbing, pipes and electrical wiring located within walls, above
ceiling surfaces and below floor surfaces resulting from the use of the Warehouse by Tenant.
Landlord shall be responsible for any plumbing, pipes, electrical wiring, switches, fixtures or
equipment located in the Warehouse but serving another tenant (subject to reimbursement pursuant to
Section 7.01). Notwithstanding anything to the contrary herein, Tenant shall at Tenant’s sole cost
and expense, repair any area, in the Premises or the Common Area, damaged by Tenant, Tenant’s
agents, employees, contractors, or visitors, provided that Tenant obtains Landlord’s prior approval
with respect to the method and quality of such repair. Any repair or replacement required of Tenant
shall be made with equipment and/or materials at least equal to the specification and quality of
the original and shall be made by contractors approved by Landlord. Tenant shall install rug
protectors in all carpeted areas in which desk chairs are located. Tenant shall keep all areas
immediately adjoining the Premises free from trash, litter and obstructions resulting from Tenant’s
business at the Premises. Tenant recognizes the use of some chemicals and/or maintenance techniques
are potentially harmful to the Premises or the Property, and consequently, Tenant’s use of such
chemicals and or maintenance techniques shall be subject to Landlord’s prior written approval.
Tenant hereby waives the provisions of California Civil Code Sections 1941 and 1942 and any similar
or successor laws, to the extent applicable, regarding Tenant’s right to terminate this lease or
make repairs and deduct the cost thereof from Rent.



     7.03. Landlord Repairs and Maintenance. Landlord shall, subject to the casualty and
condemnation provisions of Sections 11 and 12 and Tenant’s obligations under Sections 4.03 and
7.02, maintain in good order, condition, and repair the foundations, exterior walls, structural
condition of interior load-bearing walls, exterior roof, fire sprinkler system, Common Area fire
alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs; utility systems serving the Common Areas and all parts thereof; the
heating, ventilation and air conditioning equipment and systems serving the Building; and the
elevators located in the Building. Landlord shall not be obligated to paint the exterior or
interior surfaces of exterior walls nor shall Landlord be obligated to maintain, repair or replace
windows, doors or plate glass of the Premises. There shall be no abatement of Rent during the
performance of any work described in this Section 7.03. Landlord shall not be liable to Tenant for
injury or damage that may result from any defect in the construction or condition of the Premises,
nor for any damage that may result from interruption of Tenant’s use of the Premises during any
repairs by Landlord.



     7.04. Inspection of Premises. Landlord may enter the Premises at reasonable times upon advance
written or telephonic notice to Tenant in order to inspect the same, to inspect the performance by
Tenant of the terms and conditions hereof, to affix reasonable signs and



8









 




displays and to show the Premises to prospective purchasers, tenants and leaders. There shall be no
abatement of Rent for any such entry of the Premises.




     7.05. Liens. Tenant shall promptly pay and discharge all claims for labor performed, supplies
furnished and services rendered at the request of Tenant and shall keep the Property free of all
mechanic’s and materialmen’s liens in connection therewith. Tenant shall give Landlord not less
than ten (10) days notice prior to the commencement of any work, in on or about the Premises.
Landlord shall have the right to post in or on the Premises, or in the immediate vicinity thereof,
notices of non-responsibility as provided by law. If Tenant shall, in good faith, contest the
validity of any such lien, claim or demand, then Tenant shall, as its sole cost and expense, defend
and protect itself, Landlord and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof against Landlord or
the Premises. If Landlord shall require, Tenant shall furnish to Landlord a surety bond
satisfactory to Landlord in an amount equal to one and one-half times the amount of such contested
lien claim or demand, indemnifying Landlord against liability for the same, as required by law for
the holding of the Premises free from the effect of such lien or claim. In addition, Landlord may
require Tenant to pay Landlord’s attorneys’ fees and costs in participating in such action if
Landlord shall decide it is in its best interests to do so.



     7.06. Audit Rights. Tenant may audit Landlord’s Building Operating Expenses, Warehouse
Operating Expenses, Building Insurance Expenses, Warehouse Insurance Expenses, Building Tax
Expenses, and Warehouse Tax Expenses for the immediately preceding accounting year in order to
verify the accuracy thereof provided that: (i) Tenant specifically notifies Landlord that it
intends to conduct such audit within ninety (90) days after the receipt of the Statement for such
year; and (ii) such audit will be conducted only during regular business hours at the office where
Landlord maintains such expenses records and only after Tenant gives Landlord fourteen (14) days
prior written notice. Any such audit must be completed by Tenant within ninety (90) days after
notice of its intent to audit. Tenant shall deliver to Landlord a copy of the results of such audit
within fifteen (15) days of its receipt by Tenant. No such audit shall be conducted if any other
tenant has conducted an audit for the time period Tenant intends to audit and Landlord furnishes to
Tenant a copy of the result of such audit. No audit shall be conducted at any time there is an
Event of Default under the terms of this Lease. No subtenant shall have any right to conduct an
audit and no assignee shall conduct an audit for any period during which such assignee is not in
possession of the Premises. Notwithstanding the preceding, a subtenant that is subleasing all of
the Premises may exercise Tenant’s right to conduct an audit under this Section 7.06, provided,
however, that such subtenant shall be deemed Tenant’s agent for such purpose and Tenant shall be
liable for subtenant’s acts or omissions relating to such audit. In the event that Tenant elects to
audit in accordance with this Section, such audit must be conducted by an independent nationally
recognized accounting firm that is not being compensated by Tenant on a contingency fee basis. Each
Statement shall be final and binding upon Tenant unless Tenant, within ninety (90) days after the
receipt of such Statement, shall contest any item therein by giving written notice to Landlord,
specifying each item contested and the reason thereof, or notify Landlord of its intention to
conduct an audit of such Statement in accordance with this Section 7.06.



8. ALTERATIONS




     8.01. Fixtures and Personal Property. Tenant, at Tenant’s sole cost and expense, may install
necessary trade fixtures, equipment and furniture in the Premises, provided that such items are
installed and removable without structural damage to the Building or the Warehouse (as applicable).
Said trade fixtures, equipment and furniture shall remain Tenant’s property and shall be removed by
Tenant prior to expiration of the Term or earlier termination of this Lease. Tenant shall assume
the risk of damage to any of Tenant’s trade fixtures, equipment and furniture. Tenant shall repair,
at Tenant’s sole cost and expense, all damage caused by the installation or removal of trade
fixtures, equipment and furniture. If Tenant fails to remove the foregoing items on termination of
this Lease, Landlord may keep and use them or remove any of them and cause them to be stored or
sold in accordance with applicable law, at Tenant’s sole cost and expense.



     8.02. Alterations. Tenant shall not make or allow to be made any alterations, additions, or
improvements to the Premises, either at the inception of this Lease or subsequently during the
Term, without obtaining the prior written consent of Landlord. With respect to any alterations,
additions, or improvements approved by Landlord, Tenant shall, at Landlord’s election, remove such
alterations, additions or improvement at Tenant’s expense prior to expiration of the Term or
earlier termination of this Lease and repair any damage caused by said removal. All alterations,
additions and improvements shall remain the property of Tenant until termination of this Lease, at
which
time they shall be and become the property of Landlord if Landlord so elects; provided,
however, that Landlord may, at Landlord’s option, upon written notice to Tenant on or before thirty
(30) days prior to termination of this Lease, require that Tenant, at Tenant’s expense, immediately
remove any or all alterations, additions, and improvements made by Tenant and restore the Premises
to their condition existing prior to the construction of any such alterations, additions or
improvements, If Tenant fails to timely remove such alterations, additions or improvements or
Tenant’s trade fixtures, equipment or furniture, Landlord may keep and use them or remove any of
them and, in the case of trade fixtures, equipment or furniture, cause them to be stored or sold in
accordance with applicable law, all at Tenant’s sole cost and expense. The terms of the preceding
two sentences shall survive the termination of this Lease. Tenant shall deliver to Landlord full
and complete plans and specifications of all such alterations, additions or improvements, and no
such work shall be commenced by Tenant until Landlord has given its written approval thereof and
Tenant has acquired all applicable permits therefor required by governmental authorities. Landlord
does not expressly or implicitly covenant or warrant that any plans or specifications submitted by
Tenant and reviewed or approved by Landlord are safe or that the same comply with any Regulations.
Further, Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any loss, cost or expense, including attorneys’ fees and costs, incurred by
Landlord as a result of any defects in design, materials or workmanship resulting from Tenant’s
alterations, additions or improvements to the Premises. All repairs, alterations, additions, and
restoration by Tenant hereinafter required or permitted shall be done in a good and workmanlike
manner and in compliance with all Regulations and requirements of the insurers of the Property.
Tenant shall reimburse Landlord for Landlord’s reasonable charges and expenses for reviewing and
approving or disapproving plans and specifications and any other documents for any alterations
proposed by Tenant. Tenant shall require that any contractors used by Tenant be licensed and carry
a commercial general liability insurance policy in such amounts as Landlord may reasonably require.
Landlord may require proof of such insurance prior to commencement of any work on the Premises.



9. UTILITIES




     9.01. Utilities. Tenant shall promptly pay for all utilities and services supplied to the
Premises, including, but not limited to, heat, water, reclaimed water, gas, electricity, telephone,
internet, communication facilities, sewage, air conditioning, ventilating, refuse removal, cleaning
of the Premises, together with any taxes thereon. Landlord shall not be liable to Tenant for
interruption in or curtailment of any utility service, nor shall any such interruption or
curtailment constitute constructive eviction or grounds for rental abatement. If any such utilities
are not separately metered, Tenant shall pay a pro rata share, based on use, as reasonably
determined by Landlord; such expenses shall be an element of Building Operating Expenses and/or
Warehouse Operating Expenses pursuant to the terms of Section 7.01.



10. USE OF PREMISES




     10.01. General. Tenant shall use and occupy the Premises only for the Permitted Uses and for
no other purpose. Tenant shall not use or permit the use of the Premises in a manner that is
unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of, or
causes damage to, neighboring properties. Tenant agrees, by Tenant’s entry, that Tenant has
conducted an investigation of the Premises and the acceptability of the Premises for Tenant’s use,
to the extent that such investigation might affect or influence Tenant’s execution of this Lease.
Tenant acknowledges that Landlord has made no representations or warranties in connection with the
physical



9









 




condition of the Premises, Tenant’s use of the same, or any other matter upon which Tenant has
relied directly or indirectly for any purpose. Landlord, at its sole cost and expense, shall obtain
all governmental permits necessary to permit Tenant to use and occupy the Premises for the
Permitted Uses as of the Commencement Date in accordance with applicable Requirements. Tenant
agrees to reasonably cooperate with Landlord in connection with Landlord’s procurement of any such
permits.




     10.02. Hazardous Materials. Tenant shall strictly comply with all Regulations now or
hereinafter mandated or advised by any federal state, local or other governmental agency with
respect to the use, generation, storage, or disposal of hazardous, toxic, or radioactive materials
(collectively, “Hazardous Materials”). As herein used, Hazardous Materials shall include, but not
be limited to, those materials identified in Sections 66680 through 66685 of Title 22 of the
California Administrative Code, Division 4, Chapter 30, as amended from time to time, and those
substances defined as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or other similar designations in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., and California Health and Public Safety Code
Section 25117. Tenant shall not cause, or allow anyone else to cause, any Hazardous Materials to be
used, generated, stored, released or disposed of in, on or about the Property without the prior
written consent of Landlord, which consent may be withheld in the sole discretion of Landlord, and
which consent may be revoked at any time. Tenant’s indemnification of Landlord pursuant to Section
6.10, above, shall extend to all liability, including all foreseeable and unforeseeable
consequential damages, directly arising out of the use, generation, storage, release or disposal of
Hazardous Materials by Tenant or any person on the Premises during the Term, including, without
limitation, the cost of any required or necessary repair, cleanup, or detoxification and the
preparation of any closure or other required plans, whether such action is required or necessary
prior to or following the termination of this Lease. Neither the written consent by Landlord to the
use, generation, storage, or disposal of Hazardous Materials nor the strict compliance by Tenant
with all Regulations pertaining to Hazardous Materials shall excuse Tenant from Tenant’s
indemnification obligation pursuant to this Section, which obligation shall survive the termination
of this Lease. Landlord, its lenders and its consultants shall have the right to enter into the
Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with
this Lease. The cost of any such inspections shall be paid by Landlord, unless a violation of any
Regulation, or a contamination is found to exist or be imminent, or the inspection is requested or
ordered by a governmental authority. In such case, Tenant shall upon request reimburse Landlord for
the cost of such inspections, so long as such inspection is reasonably related to the violation or
contamination. Notwithstanding anything to the contrary herein, Tenant’s obligations under this
Section 10.02 shall not apply to (i) any Hazardous Materials that were located at the Property on
the Commencement Date, any Hazardous Materials placed on the Property by Landlord, its employees,
agents, or contractors, (except to the extent the release thereof or liability therefor is due to
the acts of Tenant or its employees, agents, or contractors), (ii) any Hazardous Materials that
migrate onto or under the Property from adjacent properties (except to the extent the release
thereof or liability therefor is due to the acts of Tenant or its employees, agents, or
contractors), or (iii) any Hazardous Materials placed on the Property by any other tenant of the
Property (except to the extent the release thereof or liability therefor is due to the acts of
Tenant or its employees, agents, or contractors).



     10.03. Environmental Disclosure. Should Tenant wish to use, generate or store Hazardous
Materials on or about the Property, Tenant shall complete, execute and deliver to Landlord an
Environmental Disclosure Statement (the “Environmental Disclosure”) in the form of Exhibit
E attached hereto, and Tenant shall certify to Landlord all information contained in the
Environmental Disclosure as true and correct to the best of Tenant’s knowledge and belief. The
completed Environmental Disclosure shall be deemed incorporated into this Lease for all purposes,
and Landlord shall be entitled to rely fully on the information contained therein. In the event
Tenant provides an Environmental Disclosure, on each anniversary of the Commencement Date (each
such date is hereinafter referred to as a “Disclosure Date”), until and including the first
Disclosure Date occurring after the expiration or sooner termination of this Lease, Tenant shall
disclose to Landlord, in writing, the names and amounts of all Hazardous Materials, or any
combination thereof, which were stored, generated, used or disposed of on, under or about the
Premises for the twelve-month period prior to and after each Disclosure Date, or which Tenant
intends to store, generate, or use on, under or about the Premises. At Landlord’s option, Tenant
shall execute and deliver to Landlord an Environmental Disclosure as the same may be modified by
Landlord from time to time whether or not Tenant wishes to use, generate or store Hazardous
Materials on or about the Property.



     10.04. Reclaimed Water. In the event the Property uses reclaimed water, Tenant acknowledges
that Tenant shall comply with all Regulations governing the use thereof. Landlord may periodically
conduct such tests as may be reasonably necessary for the use of reclaimed water, including a dual
shut down test to establish that there exists no cross over in water systems, and the reasonable
costs thereof shall be an operating expense.



     10.05. Signs. Tenant shall have the exclusive right to signage on the façade of the Building.
Any sign placed by Tenant on any portion of the Premises shall contain only Tenant’s name and no
advertising material, and shall otherwise comply with Landlord’s sign criteria (if any). No sign
(including, but not limited to, signs advertising an assignment or subletting) shall be placed on
the exterior of the Premises without Landlord’s written approval of the location, material, size,
design and content thereof nor without Tenant’s obtaining any necessary permit therefor. If
Landlord installs a sign for Tenant, Tenant shall reimburse Landlord for any costs incurred by
Landlord within five (5) days of demand by Landlord. Tenant shall remove any sign upon termination
of this Lease, using a contractor reasonably acceptable to Landlord, and shall return the Premises
to their condition prior to the placement of said sign (including completing all necessary
repainting and patching).



     10.06. Parking. Any monetary obligations imposed relative to parking rights with respect to
the Premises shall be considered as Tax Expenses and shall be paid by Tenant under Section 5.
Landlord grants Tenant the right to use all of the parking spaces located in the parking area
adjacent to the Building (approximately one hundred and ten (110) parking spaces), with the rules
regulating the use thereof to be established, from time to time, by Landlord. Tenant shall control
Tenant’s employees, agents, customers, visitors, invitees, licensees, contractors, assignees and
subtenants (“Tenant’s Parties”) to ensure compliance with such rules. Landlord may take such
actions or incur such cost which it deems reasonably necessary to enforce the proper parking on the
Property, including the reasonable allocation to Tenant of all costs and expenses to do so. Tenant
shall not use the areas outside of the Premises for the placement of dumpsters, refuse collection,
outdoor storage or parking of cars and/or pickup trucks which are not in working order. Tenant
shall have the right to request that Landlord provide Tenant with the right to use an additional
forty (40) parking spaces (the “Additional Parking Spaces”). The Additional Parking Spaces will be
located at the property commonly known as 1750 Doolittle Drive, San Leandro, CA, and/or the 3.75
acre parcel located across the street from the Property and directly north of 1750 Doolittle Drive,
San Leandro, CA (as determined by Landlord in its sole discretion). If Tenant requests the
Additional Parking Spaces, Landlord shall use commercially reasonable efforts to obtain all
permits, licenses, and other authorizations necessary to permit Landlord to lease or license the
Additional Parking Spaces to Tenant (the “Additional Parking Permits”) and if Landlord is able to
obtain the Additional Parking Permits, Landlord shall lease or license the Additional Parking
Spaces to Tenant pursuant to the terms of this Lease. Further, if the City of San Leandro should
determine that Tenant’s use of the Premises requires the availability of the Additional Parking
Spaces, Landlord shall use commercially reasonable efforts to obtain the Additional Parking Permits
and if Landlord is able to obtain the Additional Parking Permits, Landlord shall lease or license
the Additional Parking Spaces to Tenant pursuant to the terms of this Lease. Notwithstanding
anything to the contrary herein, Landlord’s failure to lease or license the Additional Parking
Spaces to Tenant due to Landlord’s failure to obtain the Additional Parking Permits shall not
constitute a default by Landlord under this Lease. In all events, Landlord shall have one hundred
eighty (180) days after its receipt of Tenant’s request for the Additional Parking Spaces or the
City of San Leandro’s determination, as applicable, to obtain the Additional Parking Permits and
deliver the Additional Parking Spaces to Tenant. Landlord shall pay for its costs incurred with
respect to the procurement of the Additional Parking Permits. Landlord and Tenant acknowledge that
Landlord has an option to purchase (the “Option”) the 3.75 acre parcel located across the




10












 




street from the Property and directly north of 1750 Doolittle Drive, San Leandro, CA (the “Option
Property”). As of the Effective Date, the Option will expire on November 15, 2010. If Tenant
desires to acquire the Option Property for the purpose of obtaining additional parking spaces, it
can notify Landlord in writing of the same. If Landlord does not intend to exercise the Option,
Landlord shall notify Tenant thereof (which notice Landlord shall provide within thirty (30) days
of its receipt of Tenant’s notice) and, for a period of ninety (90) days, shall reasonably
cooperate at no cost to Landlord with Tenant in connection with Tenant’s negotiation of a contract
to acquire the Option Property. It shall not be a default by Landlord under this Lease if Tenant is
unable to acquire the Option Property. If Landlord intends to exercise the Option, Landlord shall
have no obligation to assist Tenant in connection with its acquisition of the Option Property. If
the City of San Leandro should determine that Tenant’s use of the Premises requires the
availability of more than one hundred fifty (150) parking spaces (or if the Additional Parking
Spaces are not being leased or licensed to Tenant, one hundred ten (110) parking spaces), and
provided that there are parking spaces at the Property that are not then subject to lease or
license, Landlord shall grant Tenant the right to use up to fifty (50) additional parking spaces
(or if the Additional Parking Spaces are not being leased or licensed to Tenant, up to ninety (90)
additional parking spaces) at the Property (in locations to be reasonably agreed upon by Landlord
and Tenant). Further, if Tenant should reasonably determine that Tenant’s use of the Premises
requires the availability of more than one hundred fifty (150) parking spaces (or if the Additional
Parking Spaces are not being leased or licensed to Tenant, one hundred ten (110) parking spaces),
and provided that there are parking spaces at the Property that are not then subject to lease or
license, Landlord shall grant Tenant the right to use up to fifty (50) additional parking spaces
(or if the Additional Parking Spaces are not being leased or licensed to Tenant, up to ninety (90)
additional parking spaces) at the Property (in locations to be reasonably agreed upon by Landlord
and Tenant).




11. DAMAGE AND DESTRUCTION




     11.01. Reconstruction. If the Building or the Warehouse is damaged or destroyed, Landlord
shall, except as hereinafter provided, diligently repair or rebuild the Building or the Warehouse
(as applicable) to substantially the condition in which the Building or the Warehouse (as
applicable) existed immediately prior to such damage or destruction, provided that insurance is
available to pay one hundred percent (100%) or more of the cost of such restoration, excluding the
deductible amount. Landlord shall not be obligated to repair any improvements made or paid for by
Tenant.



     11.02. Rent Abatement. Base Rent shall be abated proportionately, but only to the extent of
any proceeds received by Landlord from rental abatement insurance described in Section 6.06, during
any period when, by reason of such damage or destruction, Landlord reasonably determines that there
is substantial interference with Tenant’s use of the Premises, having regard to the extent to which
Tenant may be required to discontinue Tenant’s use of the Premises. Such abatement shall commence
upon the date of such damage or destruction and end upon substantial completion by Landlord of the
repair or reconstruction which Landlord is obligated or undertakes to do. If Landlord reasonably
determines that continuation of business is not practical pending reconstruction, Base Rent shall
abate to the extent of proceeds from rental abatement insurance until reconstruction is
substantially completed or until business is totally or partially resumed, whichever occurs
earlier.



     11.03. Option to Terminate. (i) If the Building is damaged or destroyed to the extent that
Landlord determines in good faith that the Building cannot, with reasonable diligence, be fully
repaired or restored by Landlord within two hundred seventy (270) days after the date of the damage
or destruction, notwithstanding the fact that the Premises have not been totally damaged or
destroyed, the sole right of both Landlord and Tenant shall be the option to terminate this Lease.
(ii) If the Warehouse is damaged or destroyed to the extent that Landlord determines in good faith
that the Warehouse cannot, with reasonable diligence, be fully repaired or restored by Landlord
within two hundred seventy (270) days after the date of the damage or destruction, notwithstanding
the fact that the Premises have not been totally damaged or destroyed, the sole right of Landlord
shall be the option to terminate this Lease with respect to the Warehouse only. (iii) If the
Warehouse is damaged or destroyed to the extent that Landlord determines in good faith that the
Warehouse cannot, with reasonable diligence, be fully repaired or restored by Landlord within two
hundred seventy (270) days after the date of the damage or destruction, notwithstanding the fact
that the Premises have not been totally damaged or destroyed, the sole right of Tenant shall be the
option to terminate this Lease. Landlord’s determination with respect to the extent of damage or
destruction shall be conclusive on Tenant. Landlord shall notify Tenant of Landlord’s
determination, in writing, within sixty (60) days after the date of the damage or destruction. If
Landlord determines that under clause (i) above the Building can be fully repaired or restored
within the two hundred seventy (270)-day period, or if Landlord determines that such
repair or restoration cannot be made within said period but neither party elects to terminate
within thirty (30) days from the date of said determination, this Lease shall remain in full force
and effect and Landlord shall diligently repair and restore the damage as soon as reasonably
possible. If Landlord determines that under clause (ii) above the Warehouse can be fully repaired
or restored within the two hundred seventy (270)-day period, or if Landlord determines that such
repair or restoration cannot be made within said period but neither party elects to terminate
within thirty (30) days from the date of said determination, this Lease shall remain in full force
and effect and Landlord shall diligently repair and restore the damage as soon as reasonably
possible. If this Lease is terminated pursuant to this Section 11.03 with respect to the Warehouse
only, (a) after the date of such termination the Base Rent, Tenant’s Share of Warehouse Tax
Expenses, and Tenant’s Share of Warehouse Insurance Expenses shall be adjusted as reasonably
determined by Landlord and (b) upon Tenant’s written request and provided alternative warehouse
space at the Property is then vacant and available for lease, Landlord agrees to negotiate in good
faith with Tenant with respect to the lease of alternative warehouse space at the Property, either
on a temporary basis (pending restoration of the Warehouse Premises) or on a long-term basis, as
the parties shall mutually agree.



     11.04. Uninsured Casualty. In the event the Building is damaged or destroyed and is not fully
covered by the insurance proceeds received by Landlord under the insurance policies required under
Section 6.02, Landlord may terminate this Lease by written notice to Tenant given within thirty
(30) days after the date of Landlord’s receipt of written notice from Landlord’s insurance company
that said damage or destruction is not so covered. In the event the Warehouse is damaged
or destroyed and is not fully covered by the insurance proceeds received by Landlord under the
insurance policies required under Section 6.02, Landlord may terminate this Lease with respect to
the Warehouse only by written notice to Tenant given within thirty (30) days after the date of
Landlord’s receipt of written notice from Landlord’s insurance company that said damage or
destruction is not so covered. If Landlord does not elect to terminate this Lease, this Lease shall
remain in full force and effect, and the Building or Warehouse (as applicable) shall be repaired
and rebuilt in accordance with the provisions for repair set forth in Section 11.01. If this Lease
is terminated pursuant to this Section 11.04 with respect to the Warehouse only, after the date of
such termination the Base Rent shall be adjusted as reasonably determined by Landlord.



     11.05. Waiver. With respect to any damage or destruction which Landlord is obligated to repair
or may elect to repair under the terms of this Section 11, Tenant waives all rights to terminate
this Lease pursuant to rights otherwise presently or hereafter accorded by law to tenants,
including, without limitation, any rights arising pursuant to California Civil Code Sections 1932
and 1933.



12. EMINENT DOMAIN




     12.01. Total Condemnation. If all of the Premises is taken under the power of eminent domain
or sold in lieu of condemnation, for any public or quasi-public use or purpose (“Condemned”), this
Lease shall terminate as of the date of title vesting in such proceeding, and Rent shall be
adjusted to the date of termination.



     12.02. Partial Condemnation. If any portion of the Premises is Condemned, and such partial
condemnation renders the Premises unusable for Tenant’s business, or if a substantial portion of
the Building is Condemned, as reasonably determined by Landlord, this Lease shall terminate as of
the date of title vesting in such proceeding and rent shall be adjusted to the date of termination.
If such partial



11









 




condemnation does not render the Premises unusable for the business of Tenant or less than a
substantial portion of the Building is Condemned, Landlord shall promptly restore the Premises to
the extent of any condemnation proceeds recovered by Landlord, less the portion thereof lost in
such condemnation, and this Lease shall continue in full force and effect except that after the
date of such title vesting the Base Rent, Tenant’s Share of Warehouse Tax Expenses, Tenant’s Share
of Warehouse Insurance Expenses, and Tenant’s Share of Warehouse Operating Expenses shall be
adjusted as reasonably determined by Landlord. Tenant hereby waives the provisions of California
Code of Civil Procedure Section 1265.130 permitting a court of law to terminate this Lease.




     12.03. Landlord’s Award. If the Premises are wholly or partially Condemned, Landlord shall be
entitled to the entire award paid for such condemnation, subject to the provisions of Section
12.04, and Tenant waives any claim to any part of the award from Landlord or the condemning
authority.



     12.04. Tenant’s Award. Tenant shall have the right to recover from the condemning authority,
but not from Landlord, such compensation as may be separately awarded to Tenant in connection with
loss of good will and costs in removing Tenant’s merchandise, furniture, fixtures, leasehold
improvements and equipment to a new location, so long as such award does not diminish the award
granted to Landlord.



     12.05. Temporary Condemnation. In the event the Premises is temporarily Condemned, as
reasonably determined by Landlord, this Lease shall remain in effect and Tenant shall receive any
award made for such condemnation. If a temporary condemnation remains in effect at the expiration
or earlier termination of this Lease, Tenant shall pay Landlord the reasonable cost of performing
any obligations required of Tenant by this Lease with respect to the surrender of the Premises, and
upon such payment Tenant shall be excused from such obligations. If a temporary condemnation is for
a period which extends beyond the Term, this Lease shall terminate as of the date of occupancy by
the condemning authority, the award shall be distributed as provided in Sections 12.03 and 12.04
above, and Rent shall be adjusted to the date of such occupancy.



     12.06. Delivery of Documents. Tenant shall immediately execute and deliver to Landlord all
instruments required to effectuate the provisions of this Section 12.



13. DEFAULT




     13.01. Events of Default. The occurrence of any of the following events shall constitute an
“Event of Default” by Tenant with or without notice from Landlord:




     a. Vacating or Abandoning. Vacating or abandoning the Premises;




     b. Payment. Failure to pay Rent within seven (7) days of Tenant’s receipt of Landlord’s
written notice that the same is due; provided, however, Landlord shall not be obligated to
provide written notice of monetary default more than two (2) times in any calendar year, and
each subsequent monetary default shall be an Event of Default if not received when the same is
due; provided further, such notice shall be in lieu of, and not in addition to, any notice
required under Section 1161 et seq. of the California Code of Civil Procedure;




     c. Performance. Default in the performance of Tenant’s covenants, agreements and
obligations hereunder, except default in the payment of Rent, the default continuing for
thirty (30) days after notice thereof from Landlord; provided, however, if such default is of
the type which cannot reasonably be cured within thirty (30) days, then Tenant shall have such
longer time as is reasonably necessary provided Tenant commences to cure within ten (10) days
after receipt of written notice from Landlord and diligently prosecutes such cure to
completion within sixty (60) days of such notice;




     d. Assignment. A general assignment by Tenant for the benefit of creditors;




     e. Bankruptcy. The filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any of Tenant’s creditors seeking the rehabilitation, liquidation or
reorganization of Tenant under any law relating to bankruptcy;




     f. Receivership. The appointment of a receiver or other custodian to take possession of
substantially all of Tenant’s assets or this leasehold;




     g. Insolvency, Dissolution, Etc. Tenant’s insolvency or inability to pay Tenant’s debts,
or failure generally to pay Tenant’s debts when due; or any court entering a decree or order
directing the winding up or
liquidation of Tenant or of substantially all of Tenant’s assets; or Tenant taking any
action toward the dissolution or winding up of Tenant’s affairs or the cessation or suspension
of Tenant’s use of the Premises;




     h. Attachment. Attachment, execution or other judicial seizure of substantially all of
Tenant’s assets or this leasehold;




     i. Estoppel/Financial Statements. Tenant’s failure to deliver to Landlord an Estoppel
Certificate mandated by Section 15.01 or a Financial Statement mandated by Section 16.02
within thirty (30) days after Landlord’s written request; or




     j. False Financial Statements. The discovery that any Financial Statement of Tenant given
to Landlord was materially false.


Tenant hereby waives the redemption provisions of California Code of Civil Procedure Sections 1174
and 1179.




     13.02. Landlord’s Remedies. Upon any Event of Default, Landlord may, in addition to all other
rights and remedies afforded Landlord hereunder or by law or equity, take any one or more of the
following actions:




     a. Termination of Lease. Terminate this Lease by giving Tenant written notice thereof, in
which event Tenant shall immediately surrender the Premises to Landlord. In the event that
Landlord shall elect to so terminate this Lease, then Landlord may recover from Tenant:




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




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




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



12









 






     (iv) Any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant’s failure to perform its obligations under this Lease or
which in the ordinary course would be likely to result therefrom; plus




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




As used in subparagraphs (i) and (ii) above, the “worth at the time of award” is computed by
allowing interest at the Default Rate. As used in subparagraph (iii) above, the “worth at the
time of award” is computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%). Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an Event of Default shall
not be deemed or construed to constitute a waiver of such default. Tenant hereby waives for
Tenant and for all those claiming under Tenant all rights now or hereafter existing to redeem
by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy
of the Premises after any termination of this Lease.




     b. Termination of Possession. Terminate Tenant’s right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in which event Tenant shall
pay to Landlord: (1) all Rent and other amounts accrued hereunder to the date of termination
of possession and (2) all Rent and other net sums required hereunder to be paid by Tenant
during the remainder of the Term, diminished by any net sums thereafter received by Landlord
through reletting the Premises during such period, after deducting all costs incurred by
Landlord in relating the Premises. Any sums due under the foregoing Section 13.02(b)(2) shall
be calculated and due monthly. If Landlord elects to proceed under this Section 13.02(b),
Landlord may remove all of Tenant’s property from the Premises and store the same in a public
warehouse or elsewhere at the cost of, and for the account of, Tenant, without becoming liable
for any loss or damage which may be occasioned thereby. If and to the extent required by
applicable Regulations, Landlord shall use commercially reasonable efforts to relet the
Premises on such terms as Landlord in its sole discretion may determine (including a term
different from the Term, rental concessions, and alterations to, and improvement of, the
Premises); however, Landlord shall not be obligated to expend funds in connection with
reletting the Premises, nor to relet the Premises before leasing other portions of the
Property, and Landlord shall not be obligated to accept any prospective tenant proposed by
Tenant unless such proposed tenant meets all of Landlord’s leasing criteria then in effect.
Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished
because of, Landlord’s failure to relet the Premises or to collect rent due for such
reletting. Tenant shall not be entitled to the excess of any consideration obtained by
reletting over the Rent due hereunder. Reentry by Landlord in the Premises shall not affect
Tenant’s obligations hereunder for the unexpired Term; rather, Landlord may, from time to
time, bring an action against Tenant to collect amounts due by Tenant, without the necessity
of Landlord’s waiting until the expiration of the Term. Unless Landlord delivers written
notice to Tenant expressly stating that it has elected to terminate this Lease, all actions
taken by Landlord to dispossess or exclude Tenant from the Premises shall be deemed to be
taken under this Section 13.02(b). If landlord elects to proceed under this Section 13.02(b),
it may at any time elect to terminate this Lease under Section 13.02(a).




     c. Continue Lease in Effect. In addition to all other rights and remedies provided
Landlord in this Lease and by Regulations, Landlord shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant’s
breach and abandonment and recover Rent as it becomes due if Tenant has the right to sublet or
assign the Lease, subject to reasonable limitations).




     d. Additional Remedies. In addition to the foregoing remedies and so long as this Lease
is not terminated, Landlord shall have the right to remedy any default of Tenant, to maintain
or improve the Premises without terminating this Lease, to incur expenses on behalf of Tenant
in seeking a new subtenant, to cause a receiver to be appointed to administer the Premises and
new or existing subleases and to add to the Rent payable hereunder all of Landlord’s
reasonable costs in so doing, with interest at the Default Rate from the date of such
expenditure until the same is repaid.




     e. Alteration of Locks. Additionally, with or without notice, and to the extent permitted
by applicable Regulations, Landlord may alter locks or other access control devices at the
Premises to deprive Tenant of access thereto, and Landlord shall not be required to provide a
new key or right of access to Tenant.




     f. Other. If Tenant causes or threatens to cause a breach of any of the covenants, terms
or conditions contained in this Lease, Landlord shall be entitled to obtain all sums held by
Tenant, by any trustee or in any account provided for herein, to enjoin such breach or
threatened breach, and to invoke any remedy allowed at law, in equity, by statute or otherwise
as though re-entry, summary proceedings and other remedies were not provided for in this
Lease. If a notice and grace period required under Section 13.01 was not previously given, a
notice to pay rent or quit, or to perform or quit given to Tenant under the unlawful detainer
statute (California Code of Civil Procedure Sections 1161 et seq.) shall also constitute the
notice required by Section 13.01. In such case, the applicable grace period required by
Section 13.01 and the unlawful detainer statute shall run concurrently, and the failure of
Tenant to cure the Event of Default within the greater of the two such grace periods shall
constitute both an unlawful detainer and a breach of this Lease entitling Landlord to the
remedies provided for in this Lease and/or by said statute.



     13.03. Landlord’s Remedies Cumulative. Each right and remedy of Landlord provided for in this
Lease or now or hereafter existing at law, in equity, by statute or otherwise, shall be cumulative
and shall not preclude Landlord from exercising any other rights or remedies provided for in this
Lease or now or hereafter existing at law or equity, by statute or otherwise. Nothing in this
Section 13 shall affect the right of Landlord to indemnification by Tenant in accordance with
Section 6.10 for liability arising from personal injuries or property damage prior to the
termination of this Lease.



14. ASSIGNMENT AND SUBLETTING




     14.01. Approval. Tenant shall not assign, sublease, mortgage, pledge or otherwise transfer
this Lease, in whole or in part, nor sublet or permit occupancy by any party other than Tenant of
all or any part of the Premises without Landlord’s prior written consent which shall not be
unreasonably withheld, conditioned or delayed. If Tenant is a corporation, limited liability
company or a partnership, other than a corporation whose stock is publicly traded, the transfer of
fifty percent (50%) or more of the beneficial ownership interest of the corporate stock, membership
interests or partnership interests of Tenant, as the case may be, shall constitute an assignment
hereunder for which such consent is required. This Lease may not be assigned by operation of law.
Any purported assignment or subletting contrary to the provisions hereof shall be void.
Notwithstanding that Landlord shall have no legal obligation to do so, if Landlord should decide in
the future to permit an assignment or subletting, such consent by Landlord to any assignment or
subletting shall not constitute a consent to any subsequent assignment or subletting. Under no
circumstances shall this Lease be assigned, sublet, or assumed, in whole or in part, unless
Landlord receives adequate assurance of future performance of all the terms and conditions of this
Lease. Such adequate assurance shall include adequate assurance: (a) of the source of Rent due
under this Lease; (b) that the assignment, subletting, or assumption of this Lease shall not cause
any breach in any respect of any provision in any other lease, financing agreement, or master
agreement relating to the Building, the Warehouse, or Property; and (c) that the assignment,
subletting, or assumption shall not disrupt in any respect any tenant mix or balance in



13









 




the Building, the Warehouse, or on the Premises. Tenant shall pay promptly upon billing any and all
attorneys’ fees and other costs reasonably incurred by Landlord for the review or preparation of
any documents in connection with a proposed assignment or sublease.




     14.02. Landlord Option.




     a. Right to Cancel. In connection with any proposed assignment or sublease, Landlord
shall have the option to cancel and terminate this Lease if the request is to assign this
Lease or to sublet all of the Premises; or, if the request is to sublet a portion of the
Premises only, to cancel and terminate this Lease with respect to such portion. Landlord may
exercise said option by notifying Tenant in writing within thirty (30) days after Landlord’s
receipt from Tenant of such request, and in each case such cancellation or termination shall
occur as of the date set forth in Landlord’s notice of exercise of such option, which shall
not be less than sixty (60) days nor more than one hundred twenty (120) days following the
giving of such notice.




     b. Cancellation. If Landlord exercises Landlord’s option to cancel this Lease or any
portion thereof, Tenant shall surrender possession of the Premises, or the portion thereof
which is the subject of the option, as the case may be, on the date set forth in such notice
in accordance with the provisions of this Lease relating to surrender of the Premises at the
expiration of the Term. If this Lease is canceled as to a portion of the Premises only, Rent
after the date of cancellation shall be abated on a pro rata basis, as determined by Landlord.
After any such cancellation, Landlord may directly lease the Premises to any party, including,
without limitation, any party with whom Tenant previously discussed an assignment or
subletting.




     c. Noncancellation. If Landlord does not exercise Landlord’s option to cancel this Lease
pursuant to the foregoing provisions, Landlord may withhold Landlord’s consent to such
proposed assignment or subletting, provided such consent is not unreasonably withheld.



     14.03. Bonus Rental. If Tenant receives rent or other consideration for any assignment or
sublease in excess of the Rent or, in case of the sublease of a portion of the Premises, in excess
of such Rent that is fairly allocable to such portion, as determined by Landlord, after appropriate
adjustments to assure that all other payments required hereunder are appropriately taken into
account, Tenant shall pay Landlord fifty percent (50%) of the difference between each such payment
of rent or other consideration and the Rent required hereunder. Tenant may deduct from the excess,
on a straight-line basis, all reasonable and customary expenses directly incurred by Tenant
attributable to the assignment or sublease, including brokerage fees, legal fees, and construction
costs.



     14.04. Scope. If (a) this Lease is assigned, (b) the underlying beneficial interest of Tenant
is transferred or (c) the Premises or any part thereof is sublet or occupied by anyone other than
Tenant, Landlord may collect rent from the assignee, subtenant or occupant and apply the net amount
collected to the Rent herein reserved and apportion any excess rent so collected in accordance with
the terms of Section 14.03; provided that no such assignment, subletting, occupancy or collection
shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant
as tenant, or a release of Tenant from the further performance by Tenant or covenants on the part
of Tenant herein contained. No assignment or subletting shall affect the continuing liability of
Tenant (which, following assignment, shall be joint and several with the assignee), and Tenant
shall not be released from performing any of the terms, covenants and conditions of this Lease.



     14.05. Release. The term “Landlord” as used herein shall mean the owner or owners at the time
in question of the fee title to the Premises, or, if this is a sublease, of the Tenant’s interest
in the master lease. The obligations and/or covenants in this Lease to be performed by the Landlord
shall be binding only upon the Landlord as hereinabove defined.



     14.06. Holding Over. If Tenant fails to vacate the Premises at the end of the Term, then
Tenant shall be a tenant at sufferance and, in addition to all other damages and remedies to which
Landlord may be entitled for such holding over: (a) Tenant shall pay, in addition to the other
Rent, Base Rent equal to two hundred percent (200%) of the Base Rent payable during the last month
of the Term; and (b) Tenant shall otherwise continue to be subject to all of Tenant’s obligations
under this Lease. The provisions of this Section 14.06 shall not be deemed to limit or constitute a
waiver of any other rights or remedies of Landlord provided herein or pursuant to applicable
Regulations. If Tenant fails to surrender the Premises upon the termination or expiration of this
Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect,
defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’
fees) and liability resulting from such failure,
including any claims made by any succeeding tenant founded upon such failure to surrender, and
any lost profits to Landlord resulting therefrom. Notwithstanding the foregoing, if Tenant holds
over with Landlord’s express written consent, then Tenant shall be a month-to-month tenant and
Tenant shall pay, in addition to the other Rent, Base Rent equal to one hundred twenty-five percent
(125%) of the Base Rent payable during the last month of the Term.



     14.07. Waiver. Tenant waives notice of any default of any assignee or sublessee and agrees
that Landlord may, at Landlord’s option, proceed against Tenant without having taken action against
or joined such assignee or sublessee, except that Tenant shall have the benefit of any indulgences,
waivers and extensions of time granted to any such assignee or sublessee.



     14.08. Permitted Transfers. Notwithstanding Section 14.01, Tenant may transfer its interest in
this Lease or all or part of the Premises (a “Permitted Transfer”) to the following types of
entities (a “Permitted Transferee”) without the written consent of Landlord:




     (1) any person or entity which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with Tenant;




     (2) any corporation, limited partnership, limited liability partnership, limited
liability company or other business entity in which or with which Tenant, or its corporate
successors or assigns, is merged or consolidated, in accordance with applicable statutory
provisions governing merger and consolidation of business entities, so long as (A) Tenant’s
obligations hereunder are assumed by the entity surviving such merger or created by such
consolidation; and (B) the Tangible Net Worth of the surviving or created entity is not less
than the Tangible Net Worth of Tenant as of the date of execution of this Lease; or




     (3) any corporation, limited partnership, limited liability partnership, limited
liability company or other business entity acquiring all or substantially all of Tenant’s
assets if such entity’s Tangible Net Worth after such acquisition is not less than the
Tangible Net Worth of Tenant as of the date of execution of this Lease.



     Tenant shall promptly notify Landlord of any such Permitted Transfer. Tenant shall remain
liable for the performance of all of the obligations of Tenant hereunder, or if Tenant no longer
exists because of a merger, consolidation, or acquisition, the surviving or acquiring entity shall
expressly assume in writing the obligations of Tenant hereunder. Additionally, the Permitted
Transferee shall comply with all of the terms and conditions of this Lease, including the Permitted
Uses, and the use of the Premises by the Permitted Transferee may not violate any other agreements
affecting the Premises, the Building, the Warehouse, or the Property. No later than five (5)
business days after the effective date of any Permitted Transfer, Tenant agrees to furnish Landlord
with (A) copies of the instrument effecting any of the foregoing transfers, (B) documentation
establishing Tenant’s satisfaction of the requirements set forth above applicable to any such
transfer, and (C) evidence of insurance as required under this Lease with respect to the Permitted
Transferee. The occurrence of a Permitted Transfer shall not waive Landlord’s rights as to any
subsequent transfers. “Tangible Net Worth” means the excess of total assets over total liabilities,
in



14









 




each case as determined in accordance with generally accepted accounting principles consistently
applied (“GAAP”), excluding, however, from the determination of total assets all assets which would
be classified as intangible assets under GAAP including goodwill, licenses, patents, trademarks,
trade names, copyrights and franchises. Any subsequent transfer by a Permitted Transferee shall be
subject to the terms of this Section 14. Landlord’s right to cancel under Section 14.02 shall not
apply with respect to a Permitted Transfer.




15. ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION




     15.01. Estoppel Certificate. Within ten (10) days after request by Landlord, Tenant shall
deliver, in recordable form, an estoppel certificate in the form determined by Landlord or
Landlord’s mortgagee or purchaser, to any proposed mortgagee, purchaser or Landlord. Tenant’s
failure to deliver said statement in such time period shall be conclusive upon Tenant that (a) this
Lease is in full force and effect, without modification except as may be represented by Landlord;
(b) there are no uncured defaults in Landlord’s performance and Tenant has no right of offset,
counterclaim or deduction against Rent hereunder; and (c) no more than one month’s Rent has been
paid in advance.



     15.02. Attornment. Tenant shall, if requested, attorn to the purchaser upon a foreclosure,
sale or a grant of a deed in lieu of foreclosure of the Property, and recognize such purchaser as
Landlord under this Lease in the event of (a) a foreclosure proceeding (b) the exercise of the
power of sale under any mortgage or deed of trust made by Landlord, Landlord’s successors or
assigns which encumbers the Premises, any part thereof; or (c) the termination of a ground lease;
or (d) a sale of the Property.



     15.03. Subordination. The rights of Tenant hereunder are subject and subordinate to the lien
of any mortgage or lien resulting from any other method of financing or refinancing, now or
hereafter in force against the Premises, and to all advances made upon the security thereof;
provided, however, that notwithstanding such subordination, so long as Tenant is not in default
under this Lease, this Lease shall not be terminated or subject to termination by any trustee’s
sale, action to enforce the security or proceeding or action in foreclosure. If requested, Tenant
shall execute whatever documentation may be required to further effect the provisions of this
Section 15.03.



16. MISCELLANEOUS




     16.01. Waiver. No waiver by Landlord of any default or breach of any covenant by Tenant
hereunder shall be implied from any omission by Landlord to take action on account of such default
if such default persists or is repeated, and no express waiver shall affect any default other than
the default specified in the waiver and then said waiver shall be operative only for the time and
to the extent therein stated. Waivers of any covenant, term or condition contained herein by
Landlord shall not be construed as a waiver of any subsequent breach of the same covenant, term or
condition. The consent or. approval by Landlord to any act of Tenant requiring further consent or
approval by Landlord shall not be deemed to waive or render unnecessary landlord’s consent or
approval to any subsequent similar acts. No waiver by Landlord of any provision under this Lease
shall be effective unless in writing and signed by Landlord. Landlord’s acceptance of full or
partial payment of Rent during the continuance of any breach of this Lease shall not constitute a
waiver of any such breach of this Lease. Efforts by Landlord to mitigate the damages caused by
Tenant’s breach of this Lease shall not be construed as a waiver of Landlord’s right to recover
damages under Section 13.



     16.02. Financial Statements. Within ten (10) days after Landlord’s written request from time
to time during the Term, Tenant shall deliver to Landlord current audited financial statements of
Tenant. Tenant represents and warrants that all financial statements delivered to Landlord shall be
true and complete in all material respects.



     16.03. Accord and Satisfaction. No payment by Tenant of a lesser amount than the Rent nor any
endorsement on any check or letter accompanying any check or payment as Rent shall be deemed an
accord and satisfaction of full payment of Rent, and Landlord may accept such payment without
prejudice to Landlord’s right to recover the balance of such Rent or to pursue other remedies.



     16.04. Limitation of Landlord’s Liability. The obligations of Landlord under this Lease are
not personal obligations of the individual partners, directors, members, managers, officers and
shareholders of Landlord, and Tenant shall look solely to the Property for satisfaction of any
liability and shall not look to other assets of Landlord nor seek recourse against the assets of
the individual partners, directors, members, managers, officers and shareholders of Landlord.



     16.05. Entire Agreement. This Lease sets forth all the covenants, agreements, conditions and
understandings between Landlord and Tenant concerning the Property, and there are no covenants,
agreements, conditions or understandings, either oral or written, between Landlord and Tenant other
than as set forth herein. No alteration, amendment, change or addition to this Lease shall be
binding upon Landlord and Tenant unless in writing and signed by both Landlord and Tenant.



     16.06. Time. Time is of the essence of this Lease.



     16.07. Attorneys’ Fees. In any action which Landlord or Tenant brings to enforce its
respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing
party including reasonable attorneys’ fees, to be fixed by the court, and said costs and attorneys’
fees shall be a part of the judgment in said action.



     16.08. Captions and Article Letters. The captions, article letters and table of contents
appearing in this Lease are inserted as a matter of convenience and in no way define or limit the
provisions of this Lease.



     16.09. Severability. If any provision of this Lease or the application of any such provision
shall be held by a court of competent jurisdiction to be invalid, void or unenforceable to any
extent, the remaining provisions of this Lease and the application thereof shall remain in full
force and effect and shall not be affected, impaired or invalidated.



     16.10. Applicable Regulations. This Lease, and the rights and obligations of the parties
hereto, shall be construed and enforced in accordance with the laws of the State of California.



     16.11. Examination of Lease. Submission of this Lease to Tenant does not constitute an option
to Lease, and this Lease is not effective until execution and delivery by both Landlord and Tenant.



     16.12. Surrender. Upon the expiration or earlier termination of this Lease, Tenant shall
surrender the Premises to Landlord in the same condition as existed on the date Tenant originally
took possession thereof, reasonable wear and tear excepted, including, but not limited to, all
interior walls cleaned, all interior painted surfaces repainted in the original color, all holes in
walls repaired, all carpets shampooed and cleaned, and all floors cleaned, waxed, and free of any
Tenant-introduced marking or painting, all to the reasonable satisfaction of Landlord. Tenant shall
not commit or allow any waste or damage to be committed on any portion of the Premises or the
Property. All property that Tenant is required to surrender shall become Landlord’s property upon
the termination of this Lease. If Tenant fails to timely remove its personal property from the
Premises, Landlord may keep and use them or remove any of them and cause them to be stored or sold
in accordance with applicable law, all at Tenant’s sole cost and expense. All keys to the Premises
or any part thereof shall be surrendered to Landlord upon expiration or sooner termination of the
Term. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the
Premises and shall meet with Landlord for a joint inspection of the Premises at the time of
vacating, but nothing contained



15









 




herein shall be construed as an extension of the Term or as a consent by Landlord to any holding
over by Tenant. In the event of Tenant’s failure to give such notice or participate in such joint
inspection, Landlord’s inspection at or after Tenant’s vacating the Premises shall conclusively be
deemed correct for purposes of determining Tenant’s responsibility for repairs and restoration.
Notwithstanding anything to the contrary herein, as part of Tenant’s surrender obligations Tenant
shall return the service corridor in the same condition as existed on the date hereof. Such
obligation shall include, if applicable, restoration of the wall separating the Building from the
Warehouse and installation of a carbon dioxide ventilation system equivalent to the one located in
the Building as of the date hereof.




     16.13 Authority. If Tenant is a corporation, trust, limited liability company, partnership, or
similar entity, each individual executing this Lease on behalf of such entity represents and
warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Tenant
shall, within thirty (30) days after request, deliver to Landlord satisfactory evidence of such
authority.



     16.14. Broker. Tenant warrants that it has had no dealings with any real estate broker or
agent other than Landlord’s Broker and Tenant’s Broker set forth in Section 1.01 in connection with
the negotiation of this Lease, and that it knows of no other real estate broker or agent who is
entitled to any commission or finder’s fee in connection with this Lease. Tenant agrees to
indemnify Landlord and hold Landlord harmless from and against any and all claims, demands, losses,
liabilities lawsuits, judgments, costs and expenses (including without limitation, attorneys’ fees
and costs) with respect to any leasing commission or equivalent compensation alleged to be owing on
account of Tenant’s dealings with any real estate broker or agent other than Landlord’s Broker and
Tenant’s Broker. Landlord agrees to indemnify Tenant and hold Tenant harmless from and against any
and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including
without limitation, attorneys’ fees and costs) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of Landlord’s dealings with any real estate broker or
agent other than Landlord’s Broker and Tenant’s Broker. Landlord shall pay a commission to
Landlord’s Broker (to be shared with Tenant’s Broker) pursuant to a separate agreement.



     16.15. Landlord’s Right to Perform. Upon Tenant’s failure to perform any obligation of Tenant
hereunder, including without limitation, payment of Tenant’s insurance premiums, charges of
contractors who have supplied materials or labor to the Premises, etc., Landlord shall have the
right to perform such obligations of Tenant on behalf of Tenant and/or to make payment on behalf of
Tenant to such parties. Tenant shall reimburse Landlord the reasonable cost of Landlord’s
performing such obligations on Tenant’s behalf, including reimbursement of any amounts that may be
expended by Landlord, plus interest at the Default Rate as Additional Rent.



     16.16. Modification for Lender. If, in connection with obtaining construction, interim or
permanent financing for the Building, the Warehouse, or the Property, Landlord’s lender shall
request reasonable modifications in this Lease as a condition to such financing. Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not
materially increase the obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant’s rights hereunder.



     16.17. Landlord’s Lien. In addition to any statutory lien for Rent in Landlord’s favor,
Landlord shall have and Tenant hereby grants to Landlord a continuing security interest for all
Rent becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture,
inventory, accounts, contract rights, chattel paper and other personal property of Tenant situated
on the Premises, and such property shall not be removed therefrom without the consent of Landlord
until all arrearages in Rent shall first have been paid and discharged. In the event of a default
under this Lease, Landlord shall have, in addition to any other remedies provided herein or by law,
all rights and remedies under the Uniform Commercial Code, including without limitation the right
to sell the property described in this Section 16.17 at public or private sale upon ten (10) days
notice to Tenant. Tenant hereby agrees to execute a California Form UCC-1 and such other
instruments necessary or desirable in Landlord’s discretion, from time to time, to perfect the
security interest hereby created. Any statutory lien for rent is not hereby waived, the express
contractual lien herein granted being in addition and supplementary thereto.



     16.18. Notices. All notices to be given hereunder shall be in writing and mailed postage
prepaid by certified or registered mail, return receipt requested, or delivered by personal
delivery (including via a nationally recognized overnight courier service), to Landlord’s Address
and Tenant’s Address, or to such other
place as Landlord or Tenant may designate in a written notice given to the other party.
Notices shall be deemed served three (3) days after the date of mailing or upon personal delivery,
as the case may be.



     16.19. Hazardous Materials Notification Tenant acknowledges that Tenant has received the
notification letter attached to this Lease as Exhibit F hereto.



     16.20. Force Majeure. Other than Tenant’s obligations under this Lease that can be performed
by the payment of money (e.g., payment of Rent and maintenance of insurance) and Tenant’s
obligations pursuant to Exhibit D hereto, whenever a period of time is herein prescribed
for action to be taken by either party hereto, such party shall not be liable or responsible for,
and there shall be excluded from the computation of any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, acts of terrorism, governmental
laws, regulations, or restrictions, or any other causes of any kind whatsoever which are beyond the
control of such party.



     16.21. USA Patriot Act and Anti-Terrorism Laws.




     (a) Tenant represents and warrants to, and covenants with, Landlord that neither Tenant
nor any of its respective constituent owners or affiliates currently are, or shall be at any
time during the Term hereof, in violation of any laws relating to terrorism or money
laundering (collectively, the “Anti-Terrorism Laws”), including without limitation Executive
Order No. 13224 on Terrorist Financing, effective September 24, 2001 and relating to Blocking
Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism (the “Executive Order”) and/or the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)
(the “USA Patriot Act”).




     (b) Tenant covenants with Landlord that neither Tenant nor any of its respective
constituent owners or affiliates is or shall be during the Term hereof a “Prohibited Person,”
which is defined as follows: (i) a person or entity that is listed in the Annex to,
or is otherwise subject to, the provisions of the Executive Order; (ii) a person or
entity owned or controlled by, or acting for or on behalf of, any person or entity that is
listed in the Annex to, or is otherwise subject to the provisions of, the Executive Order;
(iii) a person or entity with whom Landlord is prohibited from dealing with or otherwise
engaging in any transaction by any Anti-Terrorism Law, including without limitation the
Executive Order and the USA Patriot Act; (iv) a person or entity who commits, threatens or
conspires to commit or support “terrorism” as defined in Section 3(d) of the Executive Order;
(v) a person or entity that is named as a “specially designated national and blocked person”
on the then-most current list published by the U.S. Treasury Department Office of Foreign
Assets Control at its official website,
http://www.treas.gov/offices/eotffc/ofac/sdn/tllsdn.pdf, or at any replacement website or
other replacement official publication of such list; and (vi) a person or entity who is
affiliated with a person or entity listed in items (i) through (v) above.




     (c) At any time and from time to time during the Term, Tenant shall deliver to Landlord,
within ten (10) days after receipt of a written request therefor, a written certification or
such other evidence reasonably acceptable to Landlord evidencing and confirming Tenant’s
compliance with this Section 16.21.



16









 





     16.22. Right of First Negotiation. Landlord grants to Tenant a right of first negotiation to
lease additional space in the Warehouse that becomes available upon the vacation thereof by the
then-current tenant. As such space becomes available to lease, Landlord shall notify Tenant thereof
and offer such space to Tenant for lease. Tenant shall have ten (10) days in which to notify
Landlord in writing of its desire to lease the offered space. Landlord and Tenant shall be free to
agree on the terms of the lease of the offered space and shall not be bound by the terms of this
Lease. If Tenant does not notify Landlord of its intention to lease the offered space within the
applicable ten (10) day period, or if Landlord and Tenant cannot agree in writing on the terms for
such a lease within ten (10) days of Tenant’s notice of its desire to lease the offered space, time
being of the essence with respect to each ten (10) day period, Landlord shall be free to lease such
space to another party on such terms as Landlord shall determine in its sole discretion and Tenant
shall have no further rights with respect to such space.



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



	 	 	 	 	 	 	 
	LANDLORD:	 	 
	 
	 	 	 	 	 	 
	DOOLITTLE WILLIAMS, LLC.,

A California limited liability company	 	 
	 
	 	 	 	 	 	 
	By:	 	/s/ TERRENCE McGRATH	 	 
	 	 	 	 	 
	 

	 	Name:
	 	Terrence M. McGrath	 	 
	 

	 	Title:
	 	Managing Member	 	 
	Date: November 26, 2008	 	 
	 
	 	 	 	 	 	 
	TENANT:	 	 
	 
	 	 	 	 	 	 
	ENERGY RECOVERY, INC.,

A Delaware corporation	 	 
	 
	 	 	 	 	 	 
	By:	 	/s/ CAROLYN F. BOSTICK	 	 
	 	 	 	 	 
	 

	 	Name:
	 	Carolyn F. Bostick	 	 
	 

	 	Title:
	 	General Counsel	 	 
	Date: November 26, 2008	 	 
	 
	 	 	 	 	 	 
	By:	 	/s/ TOM WILLARDSON	 	 
	 	 	 	 	 
	 

	 	Name:
	 	Thomas Willardson	 	 
	 

	 	Title:
	 	Chief Financial Officer	 	 
	Date: November 26, 2008	 	 







17











 





EXHIBIT A




(Legal Description)




[to be attached]




Exhibit A




 









 





					
	 
	 	 
	 	Order Number: NCS-260884-CC

Page Number: 7






LEGAL DESCRIPTION



Real property in the City of San Leandro, County of Alameda, State of California, described as
follows:



PARCEL 1:



BEGINNING AT THE INTERSECTION OF THE NORTHWESTERN LINE OF WEST AVENUE 129, ALSO KNOWN AS WILLIAMS
STREET, SAID NORTHWESTERN LINE BEING THE SOUTHEASTERN LINE OF THAT CERTAIN 129.20 ACRE TRACT OF
LAND DESCRIBED IN THE DEED FROM RENE DE TOCQUEVILLE AND HENRIETTA LEROY DE TOCQJEVILLE TO JOSE
BERNARDO MENDONCA, DATED NOVEMBER 01, 1901 AND RECORDED NOVEMBER 01, 1901 IN BOOK 799 OF DEEDS,
PAGE 273, ALAMEDA COUNTY RECORDS, WITH THE SOUTHWESTERN LINE OF DOOLITTLE DRIVE, ALSO KNOWN AS
COUNTY ROAD NO. 7960 (80.00 FEET WIDE) AS DESCRIBED IN GRANT OF RIGHT OF WAY FROM MARY C. SKILLEN
TO THE COUNTY OF ALAMEDA, DATED JANUARY 21, 1947 AND RECORDED FEBRUARY 28, 1947 IN BOOK 5091, PAGE
335, SERIES NO. AB/17434, ALAMEDA COUNTY RECORDS, RUNNING THE THENCE ALONG THE SAID LINE OF
DOOLITTLE DRIVE, NORTH 26° 31’ WEST 50.00 FEET; THENCE SOUTH 63° 29’ WEST 1200.00 FEET, THENCE
SOUTHWESTERLY AND WESTERLY, ALONG THE ARC OF A CURVE TO THE RIGHT WITH A RADIUS OF 372.204 FEET,
TANGENT TO THE SAID LAST MENTIONED COURSE, A DISTANCE OF 327.90 FEET; THENCE NORTH 66° 02’ 43”
WEST, TANGENT TO THE SAID LAST MENTIONED ARC, 8.64 FEET; THENCE NORTH 26° 31’ WEST 800.00 FEET FROM
THE INTERSECTION THEREOF WITH THE SAID NORTHWESTERN LINE OF WILLIAMS STREET; THENCE ALONG THE
DIRECT PRODUCTION OF THE LINE SO DRAWN SOUTH 63° 29’ WEST 122.66 FEET UNTIL INTERSECTED BY A LINE
DRAWN NORTH 26° 31’ WEST FROM A POINT ON THE SAID SOUTHEASTERN LINE OF THE 129.20 ACRE TRACT OF
LAND, DISTANT THEREON SOUTH 62° 30’ WEST 1615.51 FEET FROM THE POINT OF INTERSECTION THEREOF WITH
THE SAID SOUTHWESTERN LINE OF DOOLITTLE DRIVE; THENCE ALONG THE LINE SO DRAWN SOUTH 26° 31’ EAST
827.72 FEET TO A POINT ON THE SAID SOUTHEASTERN LINE OF THE 129.20 ACRE TRACT OF LAND; THENCE ALONG
THE SAID LAST MENTIONED LINE NORTH 62° 30’ EAST 1615.51 FEET TO THE POINT OF BEGINNING.



EXCEPTING THEREFROM THAT PORTION DESCRIBED IN THE DEED TO THE PACIFIC TELEPHONE AND TELEGRAPH
COMPANY RECORDED APRIL 01, 1958, BOOK 8634, PAGE 315, SERIES NO. AP-32149, ALAMEDA COUNTY RECORDS.



ALSO EXCEPTING THEREFROM THE INTEREST CONVEYED TO THE CITY OF SAN LEANDRO IN AND TO THAT PORTION
LYING WITHIN AURORA DRIVE AS DESCRIBED IN THE STREET DEDICATION RECORDED JUNE 24, 1954, BOOK 7353,
PAGE 471, SERIES NO. AJ-53172, ALAMEDA COUNTY RECORDS.



PARCEL 2:



A NON-EXCLUSIVE PERPETUAL EASEMENT AND RIGHT OF WAY, AS GRANTED TO WESTERN ELECTRIC COMPANY,
INCORPORATED IN THE DEED RECORDED DECEMBER 31, 1952, BOOK 6912, PAGE 376, SERIES NO. AG-108216,
ALAMEDA COUNTRY RECORDS, APPURTENANT TO AND FOR THE USE OF THE OWNER OR OWNERS OF PARCEL 1 HEREIN
DESCRIBED, AND ANY SUBSEQUENT SUBDIVISION OR SUBDIVISIONS THEREOF, FOR RAILROAD PURPOSES OVER THE




First American Title Insurance Company




Exhibit A




 









 





					
	 
	 	 
	 	Order Number: NCS-260884-CC

Page Number: 8





FOLLOWING DESCRIBED PARCEL OF LAND:



BEGINNING AT THE INTERSECTION OF THE NORTHWESTERN LINE OF WEST AVENUE 129, ALSO KNOWN AS WILLIAMS
STREET, SAID NORTHWESTERN LINE BEING THE SOUTHEASTERN LINE OF THAT CERTAIN 129.20 ACRE TRACT OF
LAND DESCRIBED IN THE DEED) FROM RENE DE TOCQUEVILLE AND HENRIETTA LEROY DE TOCQUEVILLE TO JOSE
BERNARDO MENDONCA, DATED NOVEMBER 01,1901 AND RECORDED NOVEMBER 01,1901 IN BOOK 799 OF DEEDS, PAGE
273, ALAMEDA COUNTY RECORDS, WITH THE SOUTHWESTERN LINE OF DOOLITTLE DRIVE, ALSO KNOWN AS COUNTY
ROAD NO. 7960 (80.00) FEET WIDE) AS DESCRIBED IN GRANT OF RIGHT OF WAY FROM MARY C SKILLEN TO THE
COUNTY OF ALAMEDA, DATED JANUARY 21, 1947 AND RECORDED FEBRUARY 28, 1947 IN BOOK 5091, PAGE 335,
SERIES NO. AB/17434, ALAMEDA COUNTY RECORDS; RUNNING THENCE ALONG THE SOUTHEASTERN LINE OF THE SAID
129.20 ACRE TRACT OF LAND SOUTH 62° 30’ WEST 1615.51 FEET, THENCE NORTH 26° 31’ WEST 827.72 FEET
TO THE ACTUAL POINT OF BEGINNING; THENCE SOUTH 63° 29’ WEST 245.95 FEET; THENCE NORTH 67° 35’ 16”
EAST 81.24 FEET; THENCE NORTHEASTERLY AND EASTERLY ALONG THE ARC OF A CURVE TO THE RIGHT WITH A
RADIUS OF 372.24 FEET, FROM A TANGENT WHICH BEARS NORTH 69° 51’ EAST A DISTANCE OF 177.17 FEET
UNTIL INTERSECTED BY A LINE DRAWN SOUTH 26° 31’ EAST FROM THE ACTUAL POINT OF BEGINNING; THENCE
ALONG THE LINE SO DRAWN NORTH 26° 31’ WEST 65.84 FEET TO THE ACTUAL POINT OF BEGINNING.



PARCEL 3:



A NON-EXCLUSIVE PERPETUAL EASEMENT AND RIGHT OF WAY, AS GRANTED TO WESTERN ELECTRIC COMPANY,
INCORPORATED IN THE DEED RECORDED DECEMBER 31,1952, BOOK 6912, PAGE 376, SERIES NO. AG-108216,
ALAMEDA COUNTY RECORDS, APPURTENANT TO AND FOR THE USE OF THE OWNER OR OWNERS OF PARCEL 1 HEREIN
DESCRIBED, AND ANY SUBSEQUENT SUBDIVISION OR SUBDIVISIONS THEREOF, FOR DRAINAGE PURPOSES, WITH THE
RIGHT AND PRIVILEGE TO CONSTRUCT, REPAIR, REPLACE, MAINTAIN AND USE A SEWER AND A DRAINAGE DITCH,
EACH OF SUCH SEE, TYPE AND CHARACTER AS GRANTEE FROM TIME TO TIME DEEMS NECESSARY, OVER, ACROSS AND
UNDER THE FOLLOWING DESCRIBED PARCEL OF LAND:



BEGINNING AT THE INTERSECTION OF THE NORTHWESTERN LINE OF WEST AVENUE 129, ALSO KNOWN AS WILLIAMS
STREET, SAID NORTHWESTERN LINE BEING THE SOUTHEASTERN LINE OF THAT CERTAIN 129.20 ACRE TRACT OF
LAND DESCRIBED IN THE DEED FROM RENE DE TOCQUEVILLE AND HENRIETT ALEROY DE TOCQUEVILLE TO JOSE
BERNARDO MENDONCA, DATED NOVEMBER 01,1901 AND RECORDED NOVEMBER 01,1901 IN BOOK 799 OF DEEDS, PAGE
273, ALAMEDA COUNTY RECORDS, WITH THE SOUTHWESTERN LINE OF DOOLITTLE DRIVE, ALSO KNOWN AS COUNTY
ROAD NO. 7960 (80.00 FEET WIDE) AS DESCRIBED IN GRANT OF RIGHT OF WAY FROM MARY C. SKILLEN TO THE
COUNTY OF ALAMEDA, DATED JANUARY 21,1947 AND RECORDED FEBRUARY 28,19-17 IN BOOK 5091, PAGE 335,
SERIES NO. AB/17434, ALAMEDA COUNTY RECORDS; RUNNING THENCE ALONG THE SOUTHEASTERN LINE OF THE SAID
129.20 ACRE TRACT OF LAND SOUTH 62° 30’ WEST 1615.51 FEET; THENCE NORTH 26° 31’ WEST 735.08 FEET TO
THE ACTUAL POINT OF BEGINNING; THENCE CONTINUING NORTH 26° 31’ WEST 26.80 FEET TO THE SOUTHEASTERN
CORNER OF PARCEL 2 AS DESCRIBED IN THE DEED TO ALAMEDA COUNTY EAST BAY TITLE INSURANCE COMPANY
RECORDED DECEMBER 31,1952, BOOK 6912, PAGE 369, ALAMEDA COUNTY RECORDS; THENCE ALONG THE SOUTHERN
BOUNDARY LINE OF SAID PARCEL 2, WESTERLY ALONG THE ARC OF A CURVE TO THE LEFT WITH A RADIUS OF
372.24 FEET, FROM A TANGENT WHICH BEARS NORTH 82° 52’ 48” WEST, A DISTANCE OF 125,91 FEET TO A
POINT ON A LINE DRAWN PARALLEL WITH THE NORTHWESTERN BOUNDARY LINE OF SAID PARCEL 2 AND DISTANT




First American Title Insurance Company





 











 





	 	 	 	 	 
	 

	 	 	 	Order Number: NCS-260884-CC
	 

	 	 
	 	Page Number: 9





15.00 FEET SOUTHEASTERLY THEREFROM, MEASURED AT RIGHT ANGLES THERETO; THENCE ALONG THE PARALLEL
LINE SO DRAWN AND ITS DIRECT PRODUCTION SOUTH 63° 29’ WEST 725.58 FEET; THENCE SOUTH 26° 31’ EAST
22.00 FEET; THENCE NORTH 63° 29’ EAST 722.76 FEET; THENCE EASTERLY ALONG THE ARC OF A CURVE TO THE
RIGHT WITH A RADIUS OF 350.24 FEET, FROM A TANGENT WHICH BEARS NORTH
77° 44’ 22’ EAST, A DISTANCE
OF 130.53 FEET TO THE ACTUAL POINT OF BEGINNING.




APN: 079A-0541-010




First American Title Insurance Company




 









 








EXHIBIT B




(First Floor of the Building and the Warehouse Premises)




[to be attached]




Exhibit B




 









 








EXHIBIT B-1




(Second Floor of the Building)




[to be attached]




Exhibit B-1




 









 





EXHIBIT C




COMMENCEMENT DATE MEMORANDUM




                    , 200_



 



 



 



 




	 	Re:	 	1717 Doolittle Drive / 2250 Williams Street Modified Industrial Gross Lease
(the “Lease”) dated as of November 21, 2008, between DOOLITTLE WILLIAMS, LLC, a
California limited liability company (“Landlord”), and
ENERGY RECOVERY, INC., a Delware corporation (“Tenant”). Capitalized terms used herein but
not defined shall be given the meanings assigned to them in the Lease.





Ladies and Gentlemen:




     1. Condition of Premises. Tenant has accepted possession of the Premises pursuant to the
Lease. Any improvements required by the terms of the Lease to be made by Landlord have been
completed to the full and complete satisfaction of Tenant in all respects except for the punchlist
items (if any) described on Schedule 1 hereto (the “Punchlist Items”), and except for such
Punchlist Items (if any), Landlord has fulfilled all of its duties under the Lease with respect to
such initial improvements. Furthermore, Tenant acknowledges that the Premises are suitable for the
Permitted Uses.



     2. Commencement Date. The Commencement Date of the Lease is _________, 200__.



     3. Expiration Date. The Term is scheduled to expire on _________, 20__.



     4. Premises. The Building contains 106,250 rentable square feet and the Warehouse
Premises contain 17,500 rentable square feet. Landlord and Tenant stipulate that the
square footage measurements set forth in the preceding sentence are conclusive as to
the square footage of the Building and the Warehouse Premises for purpose of
determining Base Rent and shall be binding upon them.



     5. Base Rent. Base Rent shall be the following amounts for the following
periods of time:



	 	 	 	 	 
	Lease Year	 	Monthly Base Rent
	1

	 	$	88,437.50	 
	2

	 	$	90,648.44	 
	3

	 	$	92,914.65	 
	4

	 	$	95,237.51	 
	5

	 	$	97,618.45	 
	6

	 	$	100,058.91	 
	7

	 	$	102,560.39	 
	8

	 	$	105,124.40	 
	9

	 	$	107,752.51	 
	10

	 	$	110,446.32	 






     6. Contact
Person. Tenant’s contact person in the Premises is:




                                        
                 

                                        
                 

                                        
                 

Attention:
                                       

Telephone:                                       

Facsimile:                                         




     7. Ratification. Tenant hereby ratifies and confirms its obligations under the Lease, and
represents and warrants to Landlord that it has no defenses thereto. Additionally, Tenant further
confirms and ratifies that, as of the date hereof, (a) the Lease is and remains in good standing
and in full force and effect, and (b) Tenant has no claims, counterclaims, set-offs or defenses
against Landlord arising out of the Lease or in any way relating thereto or arising out of any
other transaction between Landlord and Tenant.



     8. Binding Effect; Governing Law. Except as modified hereby, the Lease shall remain in full
effect and this Commencement Date Memorandum shall be binding upon Landlord and Tenant and their
respective successors and assigns. If any inconsistency exists or arises between the terms of this
Commencement Date Memorandum and the terms of the Lease, the terms of this Commencement Date
Memorandum shall prevail. This Commencement Date Memorandum shall be governed by the laws of the
State of California.



Exhibit C




 









 








     Please indicate your agreement to the above matters by signing this letter in the space indicated
below and returning an executed original to us.



	 	 	 	 	 
	 	Sincerely,



DOOLITTLE WILLIAMS, LLC,

a California limited liability company,

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



	 	 	 	 	 
	Agreed and accepted:



ENERGY RECOVERY, INC.,

a Delaware corporation

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 



Exhibit C




 









 








SCHEDULE 1




(Punchlist Items)



Exhibit C



 











 





EXHIBIT D




WORK LETTER




     1. Acceptance of Premises. Except as set forth in this Exhibit D, Tenant accepts the
Premises in their “AS-IS” condition on the date that this Lease is entered into.



     2. Landlord’s Work. Landlord at its expense shall perform the following work in the Premises
(the “Landlord’s Work”): (a) removal of any tiles in the Building’s stairwell that contain
asbestos and that are identified by Tenant prior to the Commencement Date and (b) leveling of
the floor slabs in the area identified on Schedule 1 attached hereto between column
lines N2-N5 and P2-P5.



     3. Space Plans. Landlord and Tenant hereby approve of the space plans prepared by Anthony
Tobacco and Associates (the “Architect”) depicting tenant improvements to be installed in the
Premises and attached hereto as Schedule 2 (the “Space Plans”).



     4. Working Drawings.




     (a) Preparation and Delivery. On or before January 15, 2009, (the “Working Drawings Delivery
Deadline”), Tenant shall provide to Landlord for its approval (in its sole and absolute discretion)
final working drawings, prepared by the Architect, of all tenant improvements that Tenant proposes
to have installed in the Premises; such working drawings shall include the partition layout,
ceiling plan, electrical outlets and switches, telephone outlets, drawings for any modifications to
the mechanical and plumbing systems of the Building and/or the Warehouse, and detailed plans and
specifications for the construction of the tenant improvements called for under this Exhibit in
accordance with all applicable Regulations. If Tenant fails to timely deliver such drawings, then
each day after the Working Drawings Delivery Deadline that such drawings are not delivered to
Landlord shall be a Tenant Delay Day.




     (b) Approval Process. Landlord shall notify Tenant whether it approves of the submitted
working drawings (in its sole and absolute discretion) within ten (10) business days after Tenant’s
submission thereof. If Landlord disapproves of such working drawings, then Landlord shall notify
Tenant thereof specifying in reasonable detail the reasons for such disapproval, in which case
Tenant shall, within five (5) business days after such notice, revise such working drawings in
accordance with Landlord’s objections and submit the revised working drawings to Landlord for its
review and approval. Landlord shall notify Tenant in writing whether it approves of the resubmitted
working drawings (in its sole and absolute discretion) within five (5) business days after its receipt thereof. This process
shall be repeated until the working drawings have been finally approved by Landlord (in its sole
and absolute discretion) and Tenant. If the working drawings are not fully approved by both
Landlord and Tenant by the twentieth (20th) business day after the delivery of the initial draft
thereof to Landlord, then each day after such time period that such working drawings are not fully
approved by both Landlord and Tenant shall constitute a Tenant Delay Day. Further, if the Working
Drawings and any related materials are not submitted by the Architect to the City of San Leandro
(with a copy to Landlord) by January 15, 2009, then each day thereafter until the occurrence of
such submittal shall constitute a Tenant Delay Day.




     (c) Landlord’s Approval; Performance of the Tenant Improvements. If any of Tenant’s proposed
construction work will affect the Building’s or Warehouse’s structure or any of the Building’s or
Warehouse’s systems, then the working drawings pertaining thereto must be approved by Landlord’s
engineer. As used herein, “Working Drawings” shall mean the final working drawings approved by
Landlord, as amended from time to time by any approved changes thereto, and the “Tenant
Improvements” shall mean all tenant improvements to be constructed in accordance with and as
indicated on the Working Drawings, together with any work required by governmental authorities to
be made to other areas of the Property as a result of the improvements indicated by the Working
Drawings. Landlord’s approval of the Working Drawings shall not be a representation or warranty of
Landlord that such drawings are adequate for any use or comply with any applicable Requirements,
but shall merely be the consent of Landlord thereto. Tenant shall, at Landlord’s request, sign the
Working Drawings to evidence its review and approval thereof. After the Working Drawings have been
approved, Landlord shall cause the Tenant Improvements to be performed in substantial accordance
with the Working Drawings.



     5. Construction Manager. Landlord and Tenant hereby agree that Landlord shall engage Engineered
Construction Services Corporation, or such other construction manager as may be designated by
Landlord and Tenant (the “Construction Manager”), to (a) obtain all applicable building permits for
construction of the Tenant Improvements and (b) manage the performance of the Tenant Improvements
in compliance with such building permits and all applicable Regulations. If Landlord and Tenant
elect to designate a construction manager other than Engineered Construction Services Corporation,
neither Landlord nor Tenant shall unreasonably withhold their approval of such new construction
manager.



     6. Bidding of the Tenant Improvements. Prior to commencement of the Tenant Improvements, Landlord
shall cause the Construction Manager to competitively bid the Tenant Improvements to at least three
(3) subcontractors for each of the major trades necessary to perform the Tenant Improvements.
Promptly after receipt of the bids for each major trade so bid, Landlord will cause Construction
Manager to deliver to Tenant a comparative summary of the bids. Upon request by Tenant, Landlord
shall also cause Construction Manager to deliver to Tenant copies of or make available for Tenant’s
review the bids. If requested by Tenant within three (3) business days after delivery of the
comparative summary of the bids to Tenant, Landlord shall inform Tenant of the bids Landlord
intends to accept, entertain Tenant’s questions, comments and suggestions concerning selection of
the successful bidder for each of the major trades, and take Tenant’s reasonable comments and
suggestions into account in determining which bids to accept.



     7. Change Orders. Tenant may initiate changes in the Tenant Improvements. Each such change must
receive the prior written approval of Landlord, such approval to be granted or withheld in its sole
and absolute discretion. Upon completion of the Tenant Improvements, Tenant shall cause the
Architect to furnish Landlord with an accurate architectural “as-built” plan of the Tenant
Improvements as constructed, which plan shall be incorporated into this Exhibit D by this
reference for all purposes. If Tenant requests any changes to the Tenant
Improvements described in the Space Plans or the Working Drawings, then such increased costs and
any additional design costs incurred in connection therewith as the result of any such change shall
be added to the Total Construction Costs.



     8. Definitions. As used herein, a “Tenant Delay Day” shall mean each day of delay in the
performance of the Landlord’s Work and/or the Tenant Improvements that occurs (a) because of
Tenant’s failure to timely deliver or approve any required documentation such as the Working
Drawings, (b) because Tenant fails to timely furnish any information required for preparation or
completion of documents such as the Working Drawings (whether preliminary, interim revisions or
final), pricing estimates, construction bids, and the like, (c) because of any change by Tenant to
the Space Plans or Working Drawings, (d) because Tenant fails to attend any meeting with Landlord,
the Architect, any other design professional, the Construction Manager, or any contractor, or their
respective employees or representatives, as may be required or scheduled hereunder or otherwise
necessary in connection with the preparation or completion of any construction documents, such as
the Working Drawings, or in connection with the performance of the Landlord’s Work and/or the
Tenant Improvements,



Exhibit D


















 




(e) because of any specification by Tenant of materials or installations requiring unusually long
lead times, or (f) because Tenant or its agents, employees, contractors, or visitors otherwise
delays completion of the Landlord’s Work and/or the Tenant Improvements. As used herein
“Substantial Completion,” “Substantially Completed,” and any derivations thereof mean (i) the
Landlord’s Work in the Premises has been substantially completed (other than any details of
construction, mechanical adjustment or other similar matter, the noncompletion of which does not
materially interfere with Tenant’s use or occupancy of the Premises) and (ii) the Tenant
Improvements have been performed in substantial accordance with the Working Drawings, as reasonably
determined by the Construction Manager and the Architect (other than any details of construction,
mechanical adjustment or other similar matters, the noncompletion of which do not materially
interfere with Tenant’s use or occupancy of the Premises).




     9. Walk-Through; Punchlist. When Landlord considers the Tenant Improvements and the Landlord’s Work
to be Substantially Completed, Landlord will notify Tenant and within three (3) business days
thereafter, Landlord’s representative and Tenant’s representative shall conduct a walk-through of
the Premises and identify any necessary touch-up work, repairs and minor completion items that are
necessary for final completion of the Tenant Improvements and the Landlord’s Work. Neither
Landlord’s representative nor Tenant’s representative shall unreasonably withhold his or her
agreement on punchlist items. Landlord shall use reasonable efforts to cause the Construction
Manager to complete all punchlist items within thirty (30) days after agreement thereon; however,
Landlord shall not be obligated to engage overtime labor in order to complete such items.



     10. Excess Costs. The entire cost of performing the Tenant Improvements (including costs of
construction labor and materials, electrical usage during construction, additional janitorial
services, general tenant signage, related taxes and insurance costs, and the Construction Manager’s
fees and charges are herein collectively called the “Total Construction Costs”) in excess of the
Construction Allowance (hereinafter defined) shall be paid by Tenant. Notwithstanding the preceding
to the contrary, Total Construction Costs shall not include the following costs which costs shall
be paid solely by Tenant: preparation of the Space Plans and the Working Drawings, the Architect’s
fees and charges, and any and all costs related to any Tenant Improvements that are not considered
capital improvements (as determined in accordance with GAAP) (collectively, “Tenant’s Construction
Costs”). Upon approval of the Working Drawings and selection of the subcontractors for each of the
major trades necessary to perform the Tenant Improvements, Tenant shall promptly execute a work
order agreement prepared by Landlord which identifies such drawings and itemizes the Total
Construction Costs and sets forth the Construction Allowance. Once the Construction Allowance has
been exhausted, as and when Landlord incurs additional Total Construction Costs Tenant shall pay to
Landlord within three (3) days of demand therefor, an amount equal to the Total Construction Costs,
less (a) the amounts already paid by Tenant to Landlord on account of the Total Construction Costs,
and (b) the amount of the Construction Allowance. In the event of default of payment of such excess
costs, Landlord (in addition to all other remedies) shall have the same rights as for an Event of
Default under the Lease. Tenant shall pay to Landlord within three (3) days of demand therefor any
Tenant’s Construction Costs paid by Landlord.
In the event of default of payment of Tenant’s Construction Costs, Landlord (in addition to all
other remedies) shall have the same rights as for an Event of Default under the Lease.



     11. Construction Allowance. Landlord shall provide to Tenant a construction allowance not to exceed
$1,000,000.00 (the “Construction Allowance”) to be applied toward the Total Construction Costs. The
Construction Allowance shall not be disbursed to Tenant in cash, but shall be applied by Landlord
to the payment of the Total Construction Costs, if, as, and when such costs are actually incurred
and paid by Landlord.



     12. Construction Representatives. Landlord’s and Tenant’s representatives for coordination of
construction and approval of change orders will be as follows, provided that either party may
change its representative upon written notice to the other:



	 	 	 
	Landlord’s Representative:

	 	Terry McGrath

McGrath Properties

130 Webster Street, Suite 200

Oakland, CA 94607

Telephone: (510) 273-2001
	 
	 	 
	Tenant’s Representative:

	 	Terry Sandlin

Energy Recovery, Inc.

1908 Doolittle Drive

San Leandro, CA 94577

Telephone:                                         






     13. Miscellaneous. To the extent not inconsistent with this Exhibit, Sections 8 and 16.12 of the
Lease shall govern the performance of the Tenant Improvements and Landlord’s and Tenant’s
respective rights and obligations regarding the improvements installed pursuant thereto.



     14. Security.




     (a) Tenant acknowledges that Landlord in unwilling to execute the Lease unless Tenant
provides Landlord with additional security for Tenant’s obligations under the Lease.
Therefore, Tenant shall either (i) deliver to Landlord, within five (5) business days of
the Effective Date, an Irrevocable Standby Letter of Credit (the “TI Letter of Credit”)
which shall (1) be in a form reasonably acceptable to Landlord and based on a draft issued
by Tenant’s bank prior to Lease execution and approved by Landlord in its sole discretion,
(2) be issued by a bank reasonably acceptable to Landlord with minimum assets of
$10,000,000,000, upon which presentment may be made in San Francisco or Oakland,
California, (3) be in an amount equal to $1,000,000, (4) allow for partial and multiple
draws thereunder, and (5) have an expiration date not earlier than thirty (30) days after
the later of (x) the Commencement Date and (y) Tenant’s commencement of payment of Base
Rent pursuant to Section 4.01 of the Lease or in the alternative, have a term of not less
than one (1) year and be automatically renewable for an additional one (1) year period
unless, on or before the date thirty
(30) days prior to the expiration of the term of such TI Letter of Credit, the issuer of
such TI Letter of Credit gives notice to Landlord of its election not to renew such TI
Letter of Credit for any additional period pursuant thereto or (ii) deposit $1,000,000 into
an escrow account (the “Escrow Account”) within five (5) business days of the Effective
Date, which escrow account shall (1) be pursuant to an escrow agreement reasonably
acceptable to Landlord, (2) be with an escrow agent reasonably acceptable to Landlord, (3)
allow for partial and multiple disbursements to Landlord, and (4) have a termination date
not earlier than thirty (30) days after the later of (x) the Commencement Date and (y)
Tenant’s commencement of payment of Base Rent pursuant to Section 4.01 of the Lease.




     (b) The TI Letter of Credit shall provide that, in the event of Landlord’s assignment of
its interest in this Lease, the TI Letter of Credit shall be freely transferable by
Landlord to the assignee, without charge to Landlord. The TI Letter of Credit shall
provide for same day payment to Landlord upon the issuer’s receipt of a sight draft from
Landlord together with Landlord’s certificate (signed by its manager or an officer)
certifying that the requested sum is due and payable from Tenant and Tenant has failed to
pay, and with no other conditions. Tenant agrees that it shall from time to time, as
necessary, whether as a result of the expiration of the TI Letter of Credit then in effect
or otherwise, renew or replace the original and any subsequent TI Letter of Credit



Exhibit D




 









 









so that a TI Letter of Credit, in the amount required hereunder, and satisfying all the conditions
hereof, is in effect until the later of thirty (30) days after the later of (x) the Commencement
Date and (y) Tenant’s commencement of payment of Base Rent pursuant to Section 4.01 of the Lease.
If Tenant fails to furnish such renewal or replacement at least thirty (30) days prior to the
stated expiration date of the TI Letter of Credit then held by Landlord, Landlord may draw upon
such TI Letter of Credit and hold the proceeds thereof without payment of interest (and such
proceeds need not be segregated) (“TI Security Proceeds”).




     (c) In the event that Tenant is in default of its obligations under the Lease, then Landlord shall
have the right, at any time after such event, without giving any further notice to Tenant, to draw
upon said TI Letter of Credit or obtain a disbursement from the Escrow Account up to (i) the amount
necessary to cure such default (or if such default cannot reasonably be cured by the expenditure of
money, and Landlord exercises any rights and remedies Landlord may have on account of such default,
the amount which, in Landlord’s opinion, is necessary to satisfy Tenant’s liability on account
thereof) plus (ii) the Total Construction Costs. In addition, in the event of a termination based
upon the default of Tenant under the Lease, or a rejection of the Lease pursuant to the provisions
of the Federal Bankruptcy Code, Landlord shall have the right to draw upon the TI Letter of Credit
(from time to time, if necessary) or receive disbursements from the Escrow Account to cover the
full amount of damages and other amounts due from Tenant to Landlord under the Lease and the full
amount of the Total Construction Costs. Any such draw on the TI Letter of Credit or disbursement
from the Escrow Account shall not constitute a waiver of any other rights of Landlord with respect
to Tenant’s default under the Lease. Tenant hereby covenants and agrees not to oppose, contest or
otherwise interfere with any attempt by Landlord to draw upon the TI Letter of Credit or receive a
disbursement from the Escrow Account. Including without limitation, by commencing an action seeking
to enjoin or restrain Landlord from drawing upon said TI Letter of Credit or receiving a
disbursement from the Escrow Account. Tenant also hereby expressly waives any right or claim it may
have to seek such equitable relief. In addition to whatever other rights and remedies it may have
against Tenant if Tenant breaches its obligations under this paragraph, Tenant hereby acknowledges
that it shall be liable for any and all damages which Landlord may suffer as a result of any such
breach.




     (d) Upon request of Landlord or any (prospective) purchaser or mortgagee of the Property, Tenant
shall, at its expense, cooperate with Landlord in obtaining an amendment to or replacement of any
TI Letter of Credit which Landlord is then holding so that the amended or new TI Letter of Credit
reflects the name of the new owner and/or mortgagee of the Property.




     (e) To the extent that (i) Landlord has not previously drawn upon, as applicable, (x) the TI Letter
of Credit or (y) the TI Security Proceeds held by Landlord or (ii) Landlord has not sought
disbursement of funds from the Escrow Account (as applicable, “Collateral”), and provided that
Tenant is not otherwise in default of its obligations under the Lease as of the later of the
Commencement Date and Tenant’s commencement of payment of Base Rent pursuant to Section 4.01 of the
Lease, Landlord shall return such Collateral to Tenant.




     (f) In no event shall the proceeds of any TI Letter of Credit or any disbursement from the Escrow
Account be deemed to be a prepayment of rent nor shall it be considered as a measure of liquidated
damages.




     (g) Landlord and Tenant (i) agree that neither the TI Letter of Credit nor the Escrow Account shall
be deemed or treated as a “security deposit” under any law applicable to security deposits in the
commercial context, (ii) further acknowledge and agree that neither the TI Letter of Credit nor the
Escrow Account is intended to serve as a security deposit and the laws applicable to security
deposits shall have no applicability or relevancy thereto, and (iii) waive any and all rights,
duties and obligations either party may now have or, in the future, will have relating to or
arising from the laws applicable to security deposits.



     15. Tenant Access.




     (a) Landlord hereby agrees to permit Tenant access, at Tenant’s sole risk and expense, to the
Premises 15 days prior to the Commencement Date (as reasonably estimated by Landlord) to commence
installation of Tenant’s furniture, fixtures, and equipment, provided that such access will not
hinder or delay completion of the Landlord’s Work or the Tenant Improvements. Notwithstanding the
foregoing, Tenant shall have no right to enter onto the Premises or the Property unless and until
Tenant shall deliver to Landlord evidence reasonably satisfactory to Landlord demonstrating that
any insurance reasonably required by Landlord in connection with such pre-commencement access
(including, but not limited to, any insurance that Landlord may require pursuant to the Lease) is
in full force and effect. Any entry by Tenant shall comply with all established safety practices of
the Construction Manager and Landlord. Upon such entry, all terms and conditions of the Lease shall
apply in full except with respect to payment of rent, which obligation shall commence on the
Commencement Date.




     (b) Tenant shall not interfere with the performance of Landlord’s Work or the Tenant Improvements,
or with any inspections or issuance of final approvals by applicable governmental authorities, and
upon any such interference, Landlord shall have the right to exclude Tenant from the Premises and
the Property until Substantial Completion of the Landlord’s Work and the Tenant Improvements.



Exhibit D




 









 








SCHEDULE
1




[to be attached]




Exhibit D




 









 





SCHEDULE
2




[to be attached]




Exhibit D




 









 





EXHIBIT
E




ENVIRONMENTAL DISCLOSURE STATEMENT



This Environmental Disclosure Statement is designed to solicit information concerning your proposed
use of Hazardous Materials (as defined in Section 10.02 of the Lease) on property (“the Premises”)
owned by DOOLITTLE WILLIAMS, LLC, a California limited liability company (“the Landlord”). Please
complete the questionnaire and return it to Landlord or its designee for evaluation. If additional
space is necessary, please continue your answer on separate paper. In the event your proposed use,
generation or storage of Hazardous Materials is considered to be significant, we may require
further information. Thank you for your cooperation with this matter.





	I.	 	BACKGROUND INFORMATION





 
Name (Corporation, Partnership, Public Agency or individual)




 
Street Address




 
City, State, Zip Code




	 	 	 
	Contact
Person and Title:

	 	 







Telephone
Number:
(          )
        -                           




Address of the Premises (property to be leased)




 
Street Address, City, State, Zip Code









IF NOT
APPLICABLE TO YOUR BUSINESS — INITIAL HERE                                                             








	II.	 	DESCRIPTION OF PROPOSED FACILITY
	 
	A.	 	Describe in detail your proposed facility and the type of operations to be conducted on the
Premises including principal products to be produced and/or services to be performed:
	 
	B.	 	What environmental laws (e.g. Resource Conservation and Recovery Act; Clean Air Act;
California Occupational Safety and Health Act; California Hazardous Waste Control Law; The
Porter-Cologne Water Quality Control Act; The Safe Drinking and Toxic Enforcement Act of 1986)
must be complied with in connection with your proposed facility and operations? Identify the governmental
agencies responsible
for monitoring and evaluating the compliance of the proposed facility with any
environmental law:
	 
	III.	 	STORAGE OF HAZARDOUS MATERIALS
	 
	A.	 	Do you intend to store any Hazardous Materials on the Premises?
	 
	 	 	If yes, describe (i) the Hazardous Materials to be stored, (ii) the estimated quantity (on
an annual basis) of Hazardous Materials to be stored, and (iii) the proposed method of
storage (e.g. above-ground storage tanks, underground storage tanks, drums, pipelines):





	 	 	 	 	 	 	 	 	 
	Hazardous Material	 	Method of Storage	 	 	Quantity	 
	 	 	(Describe capacity and composition of container)	 	 	(On an annual basis)	 
	 
	 	 	 	 	 	 	 	 






	B.	 	Identify any permits and/or licenses which must be obtained in connection with the
storage of any Hazardous Materials:
	 
	IV.	 	HAZARDOUS WASTE MANAGEMENT
	 
	 	 	Identify any Hazardous Materials (other than air emissions and wastewater described in V
and VI) which will be generated by the facility, the hazard class, and the quantity of
generation on a monthly basis:





	 	 	 	 	 	 	 	 	 
	Hazardous Material	 	Hazard Class	 	 	Quantity	 
	 	 	 	 	 	 	(On an monthly basis)	 
	 
	 	 	 	 	 	 	 	 






	 	 	Describe the method(s) of disposal for each Hazardous Material:





Exhibit E




 









 









	 	 	Do you intend to treat or process any Hazardous Materials on the Premises? If yes, describe
the proposed method(s) of treatment and/or processing:
	 
	 	 	Identify any permits and/or licenses which must be obtained in connection with (i) the
disposal of each Hazardous Material and (ii) any treatment or processing of Hazardous
Materials:
	 
	V.	 	AIR EMISSIONS
	 
	A.	 	Describe air emissions from each source of anticipated air pollutants including fuel burning
equipment (described type of fuel burned) on the Premises:
	 
	B.	 	Describe the air pollution control equipment to be used to reduce emissions from each source
of air emissions:
	 
	C.	 	Describe the method(s) to be used to monitor any air emissions:
	 
	D.	 	Identify any permits and/or licenses which must be obtained in connection with any air
emissions:
	 
	VI.	 	WATER DISCHARGES
	 
	A.	 	List all sources of wastewater discharges to surface waters, septic systems or holding ponds:
	 
	B.	 	List all sources of wastewater discharges to public sewer systems:
	 
	C.	 	List the average daily flow for each discharge:
	 
	D.	 	Identify any permits and/or licenses which must be obtained in connection with any wastewater
discharge:
	 
	VII.	 	PAST AND PRESENT OPERATIONS
	 
	A.	 	Are there any governmental agency enforcement actions, past, pending or, to the best of your
knowledge, threatened administrative or court orders or actions or consent decrees concerning
compliance by your company with environmental laws in connection with facilities similar to
the proposed facility? If yes, are there any continuing compliance obligations as a result of
such orders or decrees?
	 
	B.	 	Has your company received requests for information from governmental agencies responsible for
regulating compliance with environmental laws? If yes, please explain the basis of such
request(s):
	 
	C.	 	Has your company been the subject of any administrative inquiries in connection with
Hazardous Materials? If yes, please explain the basis of such inquiry:
	 
	D.	 	Are there any past, pending or, to the best of your knowledge, threatened private actions
against your company concerning compliance with environmental laws? If yes, what is the status
and/or result of each action:





          As an officer, a general partner or a duly authorized representative of the company, I am
familiar with all operations of the company and the operations to be conducted on the Premises. I
have made due inquiry in answering the foregoing questions and hereby certify to Landlord that to the
best of my knowledge, information and belief the information disclosed above is true and correct
and complete.




	 	 	 
	 

	 	 
	 

	 	 
	 

	 	(Signature)
	 
	 	 
	 
	 	 
	 

	 	 
	 

	 	(Title)
	 
	 	 
	 
	 	 
	 

	 	 
	 

	 	(Date)






Exhibit E





 











 





EXHIBIT F




HAZARDOUS
MATERIALS NOTIFICATION




     1. Nestle Plume. Tenant acknowledges that Landlord has disclosed the following and
Tenant agrees to accept the Premises and Property with knowledge of the disclosed
conditions:




The Property is down gradient of the Nestle Plume which is subject to a 2000 Regional Water Quality
Control Board (“RWQCB”) cleanup order to remediate groundwater VOC contamination. Landlord’s
understanding is that the responsible parties for the Nestle Plume have been complying with the RWQCB
Order and the remediation is actively proceeding on properties east
of the Property with positive
results. According to the RWQCB order, the RWQCB expects the remediation to be complete within three to
four years of the initiation of remedial efforts.




Landlord engaged Schutze & Associates (“Schutze”) to perform a survey of soil vapor, soil and
groundwater as well as indoor air sampling to determine the nature and extent of the impact of the
Nestle Plume on the Property and to identify any other issues of concern.




Although no soil contamination was identified in the study, Schutze concluded that there is some
impact in groundwater from the Nestle Plume on the Property. Schutze concluded that the
contamination does not present a health risk and should not impact commercial use of the Premises
or the Property. Moreover, the Nestle Plume is being remediated by responsible parties and
contamination levels are expected to decrease as that remediation continues.




Schutze also isolated some limited onsite sources of contamination (including PCE, VC and DCE) that
will require limited cleanup and monitoring but concluded that this contamination does not present
a human health risk.



     2. Proposition 65 Notice.



     
WARNING: The Property contains chemicals known to the State of California to cause cancer,
birth defects or other reproductive harm.



     The following chemicals known to cause cancer and birth defects or other reproductive harm are
often found in and around structures and related areas:




	 	•	 	Tobacco products and tobacco smoke;
	 
	 	•	 	Furnishings and buildings materials may contain many chemicals, including
formaldehyde and lead;
	 
	 	•	 	Construction and maintenance materials, such as roofing materials, may contain
vinyl chloride monomer, benzene and ceramic fibers;
	 
	 	•	 	Construction materials used in walls, floors and outside cladding may contain
chemicals such as formaldehyde resin, asbestos, arsenic, cadmium and creosote;
	 
	 	•	 	Cleaning materials may contains chlorinated solvents;
	 
	 	•	 	Certain paints and painted surfaces may contain chemicals such as lead and
crystalline silica;
	 
	 	•	 	The operation and maintenance of vehicles and engines involve the use and
exhaust of various chemicals, including benzene and carbon monoxide; and
	 
	 	•	 	Pest control and landscaping products used to control insects and weeds may
contain resmethrin, mycobutonil, triforine and arsenic trioxide.





     It is possible that some or all of the chemicals listed above and additional chemicals
may be present in or around the Property. In addition, other tenants of the Property
may also use chemicals that are known to the State of California to cause cancer or
reproductive harm. This list is not intended to be exhaustive but to alert Tenant
generally to the types of chemicals that Landlord understands may be present in
structures and related areas. This public disclosure notice is made pursuant to the
requirement of Section 25249.6 of the Safe Drinking Water and Toxic Enforcement Act of
1986 (Proposition 65). For a complete list of the chemicals required to be disclosed
under Proposition 65, contact the California Office of Environmental Health Hazard
Assessment, 1001 I Street, Sacramento, California 95814. For further information call
(916)324 7572 or visit their website at www.oehha.ca.gov/pubic_info.html.



Exhibit F